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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO____________
COMMISSION FILE NUMBER: 000-23999
MANHATTAN ASSOCIATES, INC.
(Exact Name of Registrant As Specified in Its Charter)
GEORGIA 58-2373424
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2300 WINDY RIDGE PARKWAY, 30339
SUITE 700 (Zip Code)
ATLANTA, GEORGIA
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (770) 955-7070
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 Registrant's 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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sales price of the Common Stock on March
31, 2002 as reported by the Nasdaq Stock Market, was approximately $604,993,748.
The shares of Common Stock held by each officer and director and by each person
known to the Registrant who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. As of March 31, 2002, the Registrant had outstanding
28,508,482 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held May 17, 2002 is incorporated by reference in Part III of
this Form 10-K to the extent stated herein.
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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 "Safe Harbor Compliance
Statement for Forward-Looking Statements" included as Exhibit 99.1 to this
Annual Report on Form 10-K. 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.
PART I
ITEM 1. BUSINESS
We are a leading global provider of technology-based solutions to improve
the effectiveness of and the efficiencies within the extended supply chain. Our
solutions, which consist of software, services and hardware, enhance
distribution efficiencies through the real-time integration of extended supply
chain constituents, including manufacturers, distributors, retailers, suppliers,
transportation providers and consumers. Our software provides solutions for the
three principal elements of extended supply chain execution, or "x-SCE":
collaboration, execution and optimization. Collaboration solutions provide
real-time synchronization of key processes and their associated information
flows across the extended supply chain, including customer process
synchronization, trading partner personalization, supplier process enablement,
carrier compliance and communication, global inventory visibility and supply
chain event management. Execution solutions include the performance of the many
processes that take place in the warehouse and distribution center, beginning
with the placement of an order by a customer and ending with the fulfillment and
delivery of the order to the end customer. Optimization solutions use analytic
tools and techniques to improve the efficiency of distribution center operations
through the use of either rules-based or algorithm-based models to solve
problems that are too complex or too time consuming for manual processing. We
also provide services, including design, configuration, implementation and
training services, plus customer support services and software enhancement
subscriptions.
Our software products allow organizations to manage the receiving, stock
locating, stock picking, order verification, assembly, order packing and
shipment of products in complex distribution centers and to provide better
visibility between our customers and their trading partners. Our software
products are designed to optimize the operation of a distribution center and to
facilitate supply chain collaboration by:
- reducing inventory levels and increasing inventory turnover;
- improving inventory and order accuracy;
- reducing response times;
- facilitating the requirements of multi-channel fulfillment, including
complying with industry shipping standards, unique pallet configuration
and customer-specific marketing, labeling and packaging;
- improving visibility of inventory, order status and delivery status;
- improving communication with other participants in the supply chain;
- enabling and facilitating distribution through multiple delivery
channels;
- increasing the productivity of labor, facilities and materials-handling
equipment; and
- lowering transportation costs.
2
We currently provide our solutions to manufacturers, distributors,
retailers and transportation providers primarily in the following markets:
retail, consumer goods, direct-to-consumer, food and grocery, third-party
logistics, industrial and wholesale, high technology and electronics, and
healthcare and pharmaceuticals. As of December 31, 2001, our software was
licensed for use by approximately 800 customers including Abbott Laboratories,
Calvin Klein, ClientLogic Corporation, Columbia Sportswear, Exel Logistics,
KBToys.com, Kmart Corporation, Mary Kay Incorporated, Newell Rubbermaid,
Nordstrom, Patagonia, Rain Bird Distribution Corp., Sara Lee Corporation, SEIKO
Corporation of America, Sainsbury's Supermarkets Ltd., Siemens Energy and
Automations, The Sports Authority and Tibbett & Britten Group Plc.
We are a Georgia corporation formed in March 1998 to acquire all of the
assets and liabilities of Manhattan Associates Software, LLC. 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.
INDUSTRY BACKGROUND
Effective x-SCE solutions allow organizations to enhance customer
satisfaction and reduce the cost of operating distribution centers. In the
current environment, supplier complexity, customer demands and volumes of
transactions continue to increase. Consequently, many companies are required to
operate larger, more complex distribution centers, which support multiple
distribution methods. In addition, the volume of shipments in most distribution
centers has increased tremendously with the change from large palette shipments
to smaller customer-specific shipments. These trends, the advent of the Internet
and the rapid growth of e-commerce have altered the relative value propositions
of effective and efficient distribution. As a result, many organizations are
required to redefine their supply chain and automate many processes in order to
improve the effectiveness of the supply chain and to improve customer
satisfaction and loyalty. In recent years, many businesses have employed
technologies to improve the flow of goods and information among supply chain
participants, which include manufacturers, suppliers, distributors, retailers
and transportation providers. These technologies have helped businesses to
reduce inventory levels, improve inventory turnover and, most importantly,
improve customer satisfaction. The efficient management of a distribution center
now requires collecting and processing increasing amounts of key information.
This information includes customer orders, inbound shipments of products,
products available on-site, product storage locations, weights and sizes,
customer- or store-specific shipping requirements, routing data, carrier
requirements and order status. Manufacturers, distributors, retailers, and
transportation providers must continuously exchange this information with other
participants in the supply chain in order to effectively integrate the operation
of their distribution centers with the extended supply chain. In this
increasingly competitive environment, effective x-SCE technology solutions have
become critical to success in order to handle the very sophisticated
distribution services required today, including:
- more frequent store-specific inventory replenishments;
- distribution through multiple delivery channels;
- more customized packing of goods within each delivery to reduce in-store
unpacking times;
- more sophisticated packaging and labeling of goods to meet merchandising
strategies;
- compliance with unique, customer-specific and industry-specific shipping
standards; and
- the exchange of trading information electronically.
The Internet and the rapid growth of e-commerce have increased the demands
on participants in the supply chain. For example, many retailers, suppliers and
manufacturers are selling their products through a broader range of distribution
channels, including directly to consumers, either through the Internet or
catalog sales operations. These new multi-channel distribution models present
significant challenges to traditional distribution centers that were primarily
designed to replenish "bricks and mortar" establishments, such as
3
retail stores and distributors, where orders are typically large and
undifferentiated. Selling products in direct-to-consumer environments requires
these participants to provide additional services, such as individual packaging,
labeling and shipping of orders directly to the consumer, as well as other
value-added services such as apparel monogramming and gift-wrapping.
As a result of these additional demands, distribution centers have
increased in size, complexity and cost. Distribution centers today can comprise
one million square feet or more with thousands of stock keeping units, or
"SKUs," multi-million dollar investments in automated materials-handling
equipment, and software solutions that can manage and provide access to huge
amounts of real-time data. The efficient management of a distribution center
operation now requires collecting information regarding:
- customer orders and the specific contents in each order;
- inbound shipments of products;
- products available on-site;
- product storage locations;
- weights and sizes;
- outbound shipping data including customer- or store-specific shipping
requirements, routing data and carrier requirements;
- electronic communication with other supply chain participants; and
- personalization for direct-to-consumer shipping.
Distribution center management systems must be able to analyze dynamically
the information to determine the most efficient use of the distribution center's
labor, materials handling equipment, packaging equipment and shipping, storage
and receiving areas. These systems must interface, in real-time, directly with
Enterprise Resource Planning ("ERP") and other host systems to exchange business
information. Their mission-critical function within a distribution center
requires that these systems operate with high reliability and efficiency, while
supporting very high transaction volumes and multiple users. Suppliers,
manufacturers, distributors and retailers must exchange information in real time
with other participants in the supply chain in order to effectively integrate
their operations with the extended supply chain. Additionally, front-office
Internet business software applications require real-time access to data
provided by these distribution center management systems to provide a dynamic
view of a company's extended supply chain.
Traditionally, distribution center management systems have been highly
customized, difficult to upgrade and have required costly and lengthy
implementations. Furthermore, these systems have not readily supported the
increased volumes and complexities associated with recent advances in supply
chain re-engineering initiatives. Specifically, they have failed to quickly
incorporate dynamic changes to industry- and customer-specific shipping
standards. Most legacy distribution center management systems are unable to
effectively manage operations in an increasingly multi-channel distribution
environment. In addition, legacy distribution center management systems are
unable to provide the real-time access to supply chain data to interact with
Internet-based supply chain optimization, procurement and commerce applications.
THE MANHATTAN ASSOCIATES SOLUTION
Our solutions feature modular software systems that employ leading database
technology to address a full range of requirements of modern, complex
distribution centers and the extended supply chain, including collaboration,
execution and optimization. Our collaboration solutions provide real-time
synchronization of key processes and their associated information flows across
the extended supply chain, including customer process synchronization, trading
partner personalization, supplier process enablement, carrier compliance and
communication, global inventory visibility and supply chain event management,
which includes real-time monitoring and alerting and real-time intelligent
execution. Our execution solutions include the performance of the many processes
that take place in the warehouse and distribution center, beginning with the
execution of an order by a customer and ending with the fulfillment and delivery
of the order to the end customer. Our
4
optimization solutions use analytic tools and techniques to improve the
efficiency of distribution center operations through the use of either
rules-based or algorithm-based models to solve problems that are too complex or
too time consuming for manual processing. Our software products, together with
our professional services capabilities, enable our customers to optimize their
supply chain effectiveness and efficiencies by:
- reducing inventory levels and increasing inventory turnover;
- improving inventory and order accuracy;
- reducing response times;
- facilitating the requirements of multi-channel fulfillment, including
complying with industry shipping standards, unique pallet configuration
and customer-specific marketing, labeling and packaging;
- improving visibility of inventory, order status and delivery status;
- improving communication with other participants in the supply chain;
- enabling and facilitating distribution through multiple delivery
channels;
- increasing the productivity of labor, facilities and materials-handling
equipment; and
- lowering transportation costs.
Our collaboration solutions consist of the MA Collaborate Suite, which
includes two versions of our infolink(TM) product, infolink-Order and
infolink-Source. MA Collaborate provides our customers with:
- Supplier Integration -- infolink is designed to improve an organization's
visibility to inbound shipments, which can facilitate (i) reduced
transportation costs, through the consolidation of inbound shipments,
(ii) improved planning, through real-time status and content management
of inbound shipments to allow more effective labor management and
improved order fulfillment, and (iii) improved fill rates, through
allocation of in-transit inventory.
- Customer Integration -- infolink provides improved sharing of information
between a supplier and its customers through the synchronization of
processes and information.
- Global Inventory Visibility -- infolink enables visibility across the
extended supply chain from the point of production to the point of
consumption.
- Supply Chain Event Management -- infolink allows an organization to
monitor its supply chain in real-time and provides immediate
notifications or alerts of failures or important events.
Our execution solutions consist of the MA Fulfill Suite and the MA Deliver
Suite. MA Fulfill features PkMS(R), our flagship product, and PkMS Pronto. MA
Deliver features Logistics PRO(R) TMS. Together, MA Fulfill and MA Deliver
provide our customers with:
- Comprehensive Warehouse Management System Functionality -- Our execution
products address a full range of requirements of modern, complex
distribution centers with a defined, prepackaged product rather than
custom-designed and developed applications. Our execution products
provide comprehensive functionality that manages the processes associated
with receiving, put-away, replenishment, picking, packing and shipping
for specific vertical markets, incorporating industry-wide initiatives.
- Ease of Implementation -- The modular design of our execution products,
along with our knowledge of specific vertical markets and expertise in
planning and installation, allows our solutions to be implemented more
rapidly than highly-customized distribution center management systems.
Typical implementations can be completed within four to six months. Our
PRISM methodology allows for a full implementation of the MA Fulfill
Suite within two months.
- Timely Response to Industry Initiatives -- Our execution products feature
a comprehensive program to provide our customers with timely software
upgrades offering increased functionality and technological advances that
address emerging supply chain initiatives that are often industry
specific.
5
- Flexibility and Configurability -- Our execution products are designed to
be easily configured to meet a distribution center's specific
requirements and reconfigured to meet changing customer and industry
requirements. Because of their modular design, our execution products can
be implemented in phases to meet specific customer demands.
- Scaleability -- Our execution products are designed to facilitate the
management of evolving distribution center systems to accommodate
increases in the number of system users, complexity and distribution
volume.
- Multi-Channel Distribution -- Our execution products, with their robust
design and superior functionality over competitive offerings, allow for
distribution through multiple channels, including traditional means, the
Internet and mail order. Moves to additional channels can be made with
speed and ease of implementation.
- Transportation Management -- Our MA Deliver suite of products is designed
to facilitate the shipping process and reduce costs through planning,
integrated shipping rate tables and built in audit processes.
Our optimization solutions consist of the MA Optimize Suite, which includes
three modular products: SlotInfo(TM), WorkInfo(TM) and SmartInfo(TM).
- SlotInfo -- enables the optimal configuration of distribution facilities
to maximize existing space, achieve greater throughput and reduce
replenishment costs.
- WorkInfo -- a comprehensive productivity tracking and labor-planning tool
to help maximize the utilization and productivity of human resources
within the distribution center.
- SmartInfo -- provides real-time monitoring of distribution center
activities and determines trends based on historical data.
STRATEGY
Our objective is to be the leading provider of technology-based x-SCE
solutions. We aim to achieve this objective by providing operational excellence
to our customers through collaboration, execution and optimization solutions to
targeted vertical markets. Our solutions are advanced, highly functional, highly
scaleable applications that allow our customers to improve relationships with
suppliers and customers, leverage their investments in distribution centers 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 x-SCE
marketplace, founded upon software products, as described herein, to address all
aspects of collaboration, execution and optimization. In order to provide
additional functionality and value to our solutions, we plan to continue to
provide enhancements to existing products and to introduce new products to
address evolving industry standards and market needs. We identify further
enhancements to our solutions and opportunities for new products 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.
Expand International Sales. We believe that our solutions offer
significant benefits for customers in international markets. We have
approximately 100 employees outside the United States, primarily in the United
Kingdom and the Netherlands, focused on international sales and servicing our
international clients. In addition to offices in the United Kingdom, Netherlands
and Japan, we have a direct presence in Germany, France and Australia and an
established reseller partnership in Latin America and the Pacific Rim. 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.
6
Develop Indirect Sales Channels. We currently sell our products primarily
through our direct sales personnel. In addition to expanding our direct sales
organization, we plan to invest in the expansion and development of our indirect
sales channels through reseller agreements, marketing agreements and agreements
with third-party logistics providers.
Expand Our Strategic Alliances. We have established strategic alliances
with industry-leading consultants and software systems implementers, including
most of the "Big Five" consulting firms, other systems consulting firms
specializing in our targeted industries and IBM Global Services among others, to
supplement our direct sales force and professional services organization. These
alliances help extend our market coverage and provide us with new business leads
and access to trained implementation personnel. We have strategic alliances with
complementary software vendors including Microsoft, JDA Software, Manugistics
and Intentia.
Acquire or Invest in Complementary Businesses. We intend to pursue
strategic acquisitions of technologies, products and businesses that enable us
to enhance and expand our x-SCE software products and service offerings. More
specifically, we intend to pursue acquisitions that will provide us with
complementary products 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 exploit and/or further
solidify our leadership position within the three primary components of x-SCE:
collaboration, execution and optimization.
PRODUCTS AND SERVICES
Products. Our software products are designed to enable our customers to
manage the operations of their distribution centers and improve collaboration
between supply chain partners to achieve greater effectiveness and efficiency.
Our software products operate across the iSeries (AS/400), Unix and Windows NT
computing platforms. Our products 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 interface toolkits for most ERP systems
to enhance communication and reduce implementation costs between our core
products and our clients' host systems. We currently offer interface toolkits to
systems developed by Oracle, SAP, J.D. Edwards, Lawson, Essentus/Richter and
Intentia.
We categorize our software products according to their focus and value
proposition within x-SCE. Our solution set is comprised of five suites of
applications: MA Fulfill; MA Deliver; MA Optimize; MA Collaborate and MA
Connect. MA Fulfill consists of PkMS, our flagship product, and PkMS Pronto. MA
Deliver consists of Logistics PRO TMS. MA Optimize consists of SlotInfo,
WorkInfo and SmartInfo. MA Collaborate consists of infolink-Order and
infolink-Source. MA Connect consists of ComLink and SystemLink. The following
table lists and provides descriptions of our products categorized by offering
suite:
MA FULFILL SUITE
PKMS
MODULE DESCRIPTION
------ -----------
INVENTORY MANAGEMENT SYSTEM
("IMS")..................... Manages the receipt, put-away and movement of all inventory
throughout the distribution center
Receiving..................... - Verifies the accuracy of incoming shipments against the
advanced shipping notice
- Designates incoming inventory for quality audit and
immediate out-going shipment (cross-docking)
- Manages receiving yard by scheduling time, dock location
and priority of shipments
7
MODULE DESCRIPTION
------ -----------
Stock Locator................. - Enhances inventory movement efficiency by directing
put-away, minimizing travel distances and optimizing storage
capacity
- Tracks movement of inventory by allowing real-time
inquiries by location, SKU and other criteria
Cycle Count................... - Enables more efficient inventory counts by permitting
specific zones of a distribution center to be "frozen"
without interrupting ongoing operations
- Automatically generates cycle count tasks for specific
SKUs, locations or other user-designated criteria
Work Order Management......... - Directs the assembly of finished goods within a
distribution center to match customer demands
Radio Frequency Functions for
the IMS..................... - Allows the real-time collection of inventory product
information and location with remote, hand-held mobile
devices for integration with the IMS
- Communicates real-time task assignments to workers in
remote locations of the distribution center
Task Management System for the
IMS......................... - Coordinates the sequence of distribution center tasks to
optimize labor efficiency
OUTBOUND DISTRIBUTION SYSTEM
("ODS")..................... Manages the picking, packing and shipping of orders in
efficient release waves
Wave Management............... - Selects, prioritizes and groups outgoing orders in
manageable increments based upon user-defined criteria
- Routes picktickets based upon retailer requirements and
pre-determines carton contents to minimize the number of
outgoing cartons
- Facilitates stock replenishment for active picking and
packing locations
Verification.................. - Provides automatic verification of orders and identifies
order shortages and overages to maximize shipping accuracy
at several different points within the order fulfillment
process
Radio Frequency Functions for
the ODS..................... - Allows the real-time collection of shipment information,
including actual carton contents, and location with remote,
hand-held mobile devices
- Communicates real-time task assignments to workers in
remote locations of the distribution center
Freight Management System..... - Sorts orders by specific freight carriers, calculates
shipping charges and controls load sequencing based upon
truck routes
- Generates all documentation required for shipping such as
bills of lading and retailer compliant required manifests
Parcel Shipping System........ - Calculates all shipping charges for parcel shipments,
generates tracking numbers and provides appropriate
documentation for parcel carriers
8
MODULE DESCRIPTION
------ -----------
PKALLOCATE.................... - Prioritizes and allocates orders based on current
aggregate inventory levels for customers whose host system
is unable to perform this function
PKCOST........................ - Tracks effort and cost for activities in the distribution
center
- Provides critical billing information for third party
logistics companies
PKVIEW........................ - Provides online graphs and e-mail notification for PkMS on
the iSeries (AS/400) and Unix platforms
PKMS PRONTO
MODULE DESCRIPTION
------ -----------
Inbound Execution............. - Enables the receipt, location and put-away of inbound
shipments
Work.......................... - Allows the real-time collection of inventory product
information and location with remote, hand-held mobile
devices
- Communicates real-time task assignments to workers in
remote locations of the distribution center
Inventory Control............. - Enables more efficient inventory counts by permitting
specific zones of a distribution center to be "frozen"
without interrupting ongoing operations
- Automatically generates cycle count tasks for specific
SKUs, locations or other user-designated criteria
Outbound Execution............ - Comprehensive, multi-step order entry functionality
- Selects, prioritizes and groups outgoing orders in
manageable increments based upon user-defined criteria
- Determines the most efficient carrier
- Facilitates load planning and optimization
- Generates the most effective shipping plan
Asset Management.............. - Real-time data accumulation of key warehouse functions
- Productivity tracking
Warehouse Control Center...... - Graphical representations of key operational data
Pronto Exchange............... - Web-based information on inbound status, order entry,
order status and delivery confirmation, inventory status,
inbound statistics, outbound statistics and item
statistics
Management Reporting.......... - Standardized reports to improve management visibility
9
MA DELIVER SUITE
LOGISTICS PRO TMS
MODULE DESCRIPTION
------ -----------
Outbound Planning............. - Determines the most efficient carrier
- Generates the most effective shipping plan
- Facilitates load planning and optimization
International Compliance...... - Translates document headings into local languages to meet
requirements of destination countries
Audits........................ - Verifies each freight bill for accuracy to prevent
duplicate payments and incorrect charges
MA OPTIMIZE SUITE
PRODUCT DESCRIPTION
------- -----------
SmartInfo..................... - Enables the optimization and analysis of a distribution
center via the real-time monitoring of warehouse activities
and determines trends based on historical data contained
within PkMS
WorkInfo...................... - Provides employee performance tracking information to
distribution center managers, while supplying the
distribution center employee estimated task durations
prior to starting the task and their individual employee
performance throughout the day
SlotInfo...................... - Optimizes inventory physical location within a
distribution center based on volume, seasonal demands,
location of products and size
- May be used with PkMS or as a stand-alone product
MA COLLABORATE SUITE
PRODUCT DESCRIPTION
------- -----------
infolink-Order................ - An Internet-based application that enables real-time
communication and collaboration between retailers and
their suppliers
- Provides real-time visibility into production status and
shipment information
- Provides real-time status of product availability
- Generates bar-coded shipping labels at the user's
facilities to facilitate and streamline receiving at user's
distribution centers
- May be integrated with PkMS, other warehouse management
systems and ERP Systems
infolink-Source............... - An Internet-based application that facilitates
collaboration between a warehouse and its factories or a
company and its suppliers
- Provides real-time visibility into production status
- Provides real-time shipment information, including
advanced ship notice and UCC 128 labels for streamlined
receiving
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MA CONNECT SUITE *
PRODUCT DESCRIPTION
------- -----------
ComLink*...................... - A standardized communication tool for communication among
all Manhattan solutions as well as between Manhattan
solutions and external systems
- Provides an adaptable interface as new technologies emerge
SystemLink*................... - A toolkit standardized for interfaces between PkMS and
major ERP systems
- Interfaces to ERP systems include Oracle Applications,
Essentus Sourcing and Demand, Lawson Insight and Intentia
Movex
---------------
* The products comprising the MA Connect Suite are designed to work exclusively
with other products and solutions of Manhattan Associates. These products are
neither sold stand-alone nor can they be used stand-alone, but are always sold
as part of a total solution.
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
customer's 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 customer's 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 products. Professional services are typically
rendered under time and materials based contracts, with services billed on an
hourly basis. Professional services are sometimes rendered under fixed-fee based
contracts, but only in instances when we believe the scope of the project is
reasonably quantifiable. We believe that increased sales of our software
products will drive higher demand for our consulting services. Accordingly, we
plan to continue to increase the number of consultants to support anticipated
growth in product implementations and software upgrades. We anticipate that our
internal growth will be balanced with our success in achieving our strategy of
alliances expansion.
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,
customer-specific configuring of modules, and on-site implementation or
conversion from existing systems. Our consulting personnel undergo extensive
training on distribution center operations and our products. We believe that
this training, together with the ease of implementation of our products, 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 products' architecture with the knowledge and
expertise gained from completing more than 1,100 installations worldwide. The
modular design of our products significantly reduces the complexities associated
with integrating to existing systems, including ERP, SCM, 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. As of December 31,
2001, over 80% of our customers since our formation have subscribed to our
comprehensive support and enhancements agreements. We have the ability to
remotely access the customer's system in order to perform
11
diagnostics, on-line assistance and assist in software upgrades. We offer 24x7
customer support plus software upgrades for fees of 16% and 20% of the software
license fee, depending 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 thirteen courses available to provide training
on product 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, 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.
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 and other
international locations and to pursue strategic marketing partnerships. We
conduct comprehensive marketing programs that include advertising, 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 customer's
requirements, a formal response to the request for proposal, presentations and
product demonstrations, site visits to an existing customer using our supply
chain execution system and contract negotiation. The sales cycle can vary
substantially from customer to customer, but typically requires three to six
months.
In addition to sales to new customers, we intend to continue to leverage
our existing customer base to provide for system upgrades, sales of additional
licenses of purchased products and sales of new or add-on products. 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 Big Five consulting
firms and other systems consulting firms specializing in our targeted
industries. We believe that our leadership position in providing x-SCE solutions
perpetuates the willingness of systems integrators to recommend our solutions
where appropriate.
During 2000, we formalized a 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 partner's
12
products interface seamlessly. Among others, partnerships arising from our
Manhattan Associates Partner Program (MAP2) include:
- Manugistics Group, Inc., a leading global provider of enterprise profit
optimization solutions;
- JDA Software Group, Inc., a leading global provider of integrated
software and professional services to retailers and their suppliers;
- Vastera, Inc., a leading international trade logistics company;
- Intentia International AB, a leading global supplier of ERP solutions;
- ProClarity Corporation (formerly Knosys, Inc.), a provider of analytic
front-end technology designed specifically for Microsoft SQL Server 2000
Analysis Services;
- Siemens Dematic, a world leader, providing system solutions from concept
through implementation in manufacturing, automotive, distribution, parcel
and freight, postal, air cargo, baggage handling and software
applications; and
- FKI Logistex, a global automated material-handling firm specializing in
distribution, freight and parcel, baggage handling and manufacturing
automated material flow solutions.
13
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 our customers and the industries as of
December 31, 2001, that have purchased products and services from us.
Consumer Goods Healthcare
ARAMARK Uniform and Career Apparel, Inc. Abbott Laboratories, Inc.
Calvin Klein, Inc. AmerisourceBergen
Elizabeth Arden Banta Healthcare
Jockey International F. Dohmen Company
Newell Rubbermaid Ocular Sciences, Ltd.
SEIKO Corp. of America Pfizer Canada, Inc.
The Stride Rite Corporation Stiefel Laboratories, Inc.
Waterford Wedgewood, USA, Inc. Stryker Endoscopy
Direct-to-Consumer Retail
Cabela's American Eagle Outfitters
Coldwater Creek Debenhams Retail Plc
Columbia Sportswear Kmart Corporation
Cornerstone Brands, Inc. Mary Kay, Inc.
J. Jill Group Nordstrom
KBToys.com The Children's Place
Nordstrom.com The Limited
Patagonia The Sports Authority
Food and Grocery Industrial & Wholesale
Alliant Atlantic Foodservice AGFA/Bayer
American Italian Pasta Company Liberty Hardware Manufacturing
Ben E. Keith Company Loctite Corporation
Burns Philip Food/Tone Brothers Motors & Armatures, Inc.
Hiram Walker & Sons Limited O'Reilly Automotive
Orefield Cold Storage PPG Architectural Finishes, Inc.
Sainsbury's Supermarkets Ltd. Rain Bird Distribution Corp.
Sara Lee Corporation Strauss Discount Tire
Third Party Logistics High Tech & Electronics
APL Belkin Components
ClientLogic Corporation Canon (UK) Limited
Exel Logistics EGS Electrical Group
Langham Logistics Festo Corporation
SalesLink Metatec Corporation
Tibbett and Britten Ltd. Microwarehouse, Inc.
Olympus America
Siemens Energy and Automation, Inc.
Our top five customers in aggregate accounted for 21%, 22% and 10% of total
revenue for each of the years ended December 31, 2001, 2000 and 1999,
respectively. Revenue from one customer ("the significant customer") during 2001
accounted for approximately 10% of revenue for the year ended December 31, 2001.
No single customer accounted for more than 10% of revenue in 2000 or 1999. On
January 22, 2002, the significant customer, an international discount retailer,
filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. As a result
of the bankruptcy filing, the uncertainties around the bankruptcy proceedings
and the ultimate timing of payment, if any, we reduced 2001 revenues by $4.3
million. The $4.3 million Allowance for Bankrupt Customer, recorded as a
separate line item within the revenues section of our Statement of Income for
the year ended December 31, 2001, principally defers revenues arising from the
significant customer in the fourth quarter of 2001.
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PRODUCT DEVELOPMENT
Our development efforts are focused on adding new functionality to existing
products, enhancing the operability of our products across distributed and
alternative hardware platforms, operating systems and database systems and
developing new products. We believe that our future success depends in part upon
our ability to continue to enhance existing products, to respond to dynamically
changing customer requirements and to develop new or enhanced products that
incorporate new technological developments and emerging extended supply chain
and industry standards. To that end, our development efforts frequently focus on
base system enhancements and the incorporation into our products 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 product 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 products 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. In 2001, we used a third-party
research and development company to localize our products into Japanese, German,
French and Spanish. We have also announced plans to establish an off-shore
development center (ODC) in Bangalore, India. The ODC will employ several Indian
citizens currently working for and holding extensive development experience with
us.
We will continue to spend a portion of our research and development efforts
on the development and enhancement of our infolink product. Infolink is an
Internet-based application that enables real-time collaboration between users
and both their customers and suppliers regarding customer order entry and
order/inventory status. Real-time communication will be facilitated via infolink
through Internet-based XML technology. Microsoft Corporation is collaborating
with us to provide expertise in the XML document definition, which will be based
on the BizTalk(TM) Framework. We released the first version of infolink, called
infolink-Order, in September 2000. Infolink-Order provides information allowing
for real-time business decisions between customers and their suppliers. A second
version of infolink was released in September 2001, called infolink-Source,
which provides for similar types of communication between suppliers and their
factories.
We continue to devote a significant portion of our research and development
efforts to the enhancement of the N-Tier version of PkMS. Our N-Tier version of
PkMS incorporates a distributed client/server architecture to allow different
software applications and systems and hardware platforms to operate together
more efficiently. N-Tier currently operates with desktops running Windows
95/98/2000/NT, standard radio frequency device clients and servers running
either the Windows NT or the UNIX operating environments. Much of our
development efforts in the second half of 2000 included the re-architecture of
the N-Tier version of PkMS to improve the product's responsiveness and overall
efficiency. The re-architected version of N-Tier was released in the first
quarter of 2001.
We are also spending a portion of our research and development efforts on
the development of PkMS Pronto. PkMS Pronto, formerly known as Logistics PRO NT,
was acquired through the acquisition of Intrepa, L.L.C. in October, 2000. It is
marketed to Tier 3 companies (i.e., companies with less than $250 million in
revenues). Development efforts related to PkMS Pronto are directed toward
building and enhancing functionality requirements of Tier 3 companies. We
continue to develop new and enhanced functionality for PkMS. Additionally, we
plan to dedicate significant resources to further develop and enhance our MA
Optimize Suite, consisting of SlotInfo, WorkInfo and SmartInfo. Sales of MA
Optimize products accounted for approximately 19% of our software fees in 2001.
The integration of the significant functionality of Logistics PRO TMS, a
transportation management system acquired through the acquisition of Intrepa,
into PkMS was completed in the second half of 2001. We expect Logistics PRO TMS
will continue to be sold as a separate product.
15
Our research and development expenses for the years ended December 31,
2001, 2000 and 1999 were $19.4 million, $16.1 million, and $10.2 million,
respectively. We intend to continue to invest heavily in product development.
COMPETITION
Our products are targeted at the x-SCE market, which is highly fragmented,
intensely competitive and characterized by rapid technological change. The
principal competitive factors affecting the market for our products include:
- vendor and product reputation;
- compliance with industry standards;
- product architecture, functionality and features;
- ease and speed of implementation;
- return on investment;
- product quality, price and performance; and
- 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 extended supply chain, as well as the enterprise as a whole. Our
existing competitors include:
- supply chain execution vendors, including Catalyst International, Inc.,
EXE Technologies, Inc., HighJump Software, Logistics & Internet Systems
Limited, McHugh Software International, Inc., Optum, Inc. and Provia
Software, Inc. among others;
- ERP or Supply Chain Management ("SCM") application vendors with products
or modules of their product suite offering varying degrees of x-SCE
functionality, such as Retek, Inc., J.D. Edwards & Company or SAP AG;
- the corporate information technology departments of current or potential
customers capable of internally developing solutions; and
- smaller independent companies that have developed or are attempting to
develop distribution center management software that competes with our
x-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 announced plans to enter 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
16
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.
INTERNATIONAL OPERATIONS
Our international revenue was approximately $26.1 million, $14.9 million
and $5.5 million for the years ended December 31, 2001, 2000 and 1999,
respectively, which represents approximately 17%, 11% and 7% of our total
revenue for the years ended December 31, 2001, 2000 and 1999, respectively.
International revenue includes all revenue derived from sales to customers
outside the United States. We now have approximately 100 employees outside the
United States, most of whom are located in the United Kingdom and the
Netherlands. We recently installed our product in Asia and also began marketing
our solutions in Australia, Latin America and the Pacific Rim.
We conduct our direct European operations principally out of an office in
the United Kingdom, consisting of approximately 95 employees. We recently signed
a multi-year agreement to occupy a facility in Utrecht, The Netherlands to
accommodate our planned growth in continental Europe. Total revenue for European
operations was approximately $22.1 million, $10.3 million and $3.8 million for
the years ended December 31, 2001, 2000 and 1999, respectively, which represents
approximately 15%, 8% and 5% of our total revenue for the years ended December
31, 2001, 2000 and 1999, respectively.
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 a
registered trademarks for SLOT-IT, Have/Needs Analysis, PTRS, PKMS PickTicket
Management System, LogisticsPRO and the Manhattan Associates logo as a design
mark. We have pending federal trademark applications for infolink Source,
PKAllocate, PKCost, X-SCE, WorkInfo, infolink Order, PkMS Pronto, SlotInfo,
SmartInfo, E-Fulfillnow, SystemLink, Driving the New E-Supply Chain, infolink
and BizLink. 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 PkMS to our customers in source code format and restrict
the customer's use for internal purposes without the right to sublicense the
PkMS, SlotInfo, SmartInfo, WorkInfo, infolink or Logistics PRO products.
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 products
is difficult, and while we are unable to determine the extent to which piracy of
our software products exist, software piracy could become a problem.
As the number of supply chain management applications in the industry
increases and the functionality of these products 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 management's 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.
17
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, 2001, we had 791 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, 2001, certain of our
employees were employed pursuant to the H-1(B), non-immigrant work-permitted
visa classification.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and certain information about them are
as follows:
NAME AGE POSITION
---- --- --------
Alan J. Dabbiere.......................... 40 Chairman of the Board of Directors(1)
Richard M. Haddrill....................... 48 President, Chief Executive Officer and
Director
Neil Thall................................ 55 Executive Vice President -- Professional
Services
Deepak Raghavan........................... 35 Senior Vice President, Product Strategy
and Director(1)
Jeffry W. Baum............................ 39 Senior Vice President -- International
Operations
Thomas W. Williams, Jr.................... 45 Senior Vice President, Chief Financial
Officer and Treasurer
Jeffrey S. Mitchell....................... 34 Senior Vice President -- North American
Sales
Brian J. Cassidy.......................... 56 Director
John J. Huntz, Jr......................... 51 Director(2)(3)
Thomas E. Noonan.......................... 41 Director(2)(3)
John R. Hardesty.......................... 62 Director(2)(3)
---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is currently comprised of two
Class I directors (Messrs. Dabbiere and Cassidy), two Class II directors
(Messrs. Raghavan and Haddrill) and three Class III directors (Messrs. Huntz,
Noonan and Hardesty). At each annual meeting of shareholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I directors,
Class II directors and Class III directors will expire upon the election and
qualification of successor directors at the 2002, 2003 and 2004 annual meetings
of shareholders, respectively.
Alan J. Dabbiere, a founder of Manhattan, has served as Chairman of the
Board since February 1998 and served as Chief Executive Officer and President of
Manhattan from October 1990 until October 1999. From
18
1986 until 1990, Mr. Dabbiere was employed by Kurt Salmon Associates, a
management consulting firm specializing in consumer products manufacturing and
retailing, where he specialized in consulting for the retail and consumer
products manufacturing industries. At Kurt Salmon Associates, Mr. Dabbiere
participated in Quick Response pilot projects focused on the value of an
integrated supply-chain initiative. Mr. Dabbiere serves on the American Apparel
Manufacturer Association's Management Systems Committee.
Richard M. Haddrill has served as President and Chief Executive Officer of
Manhattan since October 1999 and has served on the Board of Directors since
October 1999. Prior to joining Manhattan, Mr. Haddrill served as President, CEO
and a board member for Powerhouse Technologies, a successful technology,
services and gaming company. He served Powerhouse as its Executive Vice
President from December 1994 through September 1996 and served as President and
Chief Executive Officer from September 1996 through June 1999. From 1992 until
1994, Mr. Haddrill was President of computer software company KnowledgeWare's
international subsidiaries. During his employment at Ernst & Young, from 1975
until 1991, Mr. Haddrill held various positions within the company, including
Managing Partner and Partner. Mr. Haddrill also serves on the Board of Directors
of Danka, a publically-traded office products company.
Neil Thall has served as Executive Vice President -- Professional Services
of Manhattan since January 2000. From August 1998 to January 2000, Mr. Thall
served as Senior Vice President -- Supply Chain Strategy; and from January 1998
to August 1998, he served as Vice President -- Supply Chain Strategy of
Manhattan. From February 1997 through January 1998, Mr. Thall served as the
Principal of Neil Thall Consulting. From January 1992 to July 1997, Mr. Thall
served as President of Neil Thall Associates, a software development and
management consulting subsidiary of HNC Software that specialized in inventory
management, Quick Response and vendor managed inventory initiatives. Prior to
1992, Mr. Thall was employed by Kurt Salmon Associates as National Service
Director -- Retail Consulting, where he specialized in the development and
implementation of information systems for major department stores and specialty
and mass merchant chains.
Deepak Raghavan, a founder of Manhattan, has served as Senior Vice
President of Manhattan since August 1998 and as a Director since February 1998.
Mr. Raghavan has served as Senior Vice President -- Product Strategy since
January 2001, and he served as our Chief Technology Officer from 1990 until
2001. From 1987 until 1990, Mr. Raghavan was a Senior Software Engineer for
Infosys Technologies Limited, a software development company, where he
specialized in the design and implementation of information systems for the
apparel manufacturing industry.
Jeffry W. Baum has served as Senior Vice President -- International
Operations of Manhattan since January 2000. From March 1998 to January 2000, Mr.
Baum served as Vice President, International Business Development. From January
1997 until February 1998, Mr. Baum served as Vice President, Sales and Marketing
of Haushahn Systems & Engineers, a warehouse management systems and material
handling automation provider. From March 1992 until December 1996, Mr. Baum
served as Senior Account Manager at Haushahn. Prior to that, Mr. Baum served in
a variety of business development, account management and marketing positions
with Logisticon and Hewlett-Packard.
Thomas W. Williams, Jr. has served as Senior Vice President of Manhattan
since January 2001 and Chief Financial Officer and Treasurer of Manhattan since
February 2000. Mr. Williams served as a Vice President of Manhattan from
February 2000 through January 2001. From February 1996 to February 2000, Mr.
Williams served as Group Vice President, Finance and Administration for Sterling
Commerce, a worldwide leader in providing e-business solutions for the Global
5000 companies. From December 1994 to February 1996, Mr. Williams served as
Division Vice President, Finance and Administration for Sterling Software, one
of the 20 largest independent software companies in the world. From June 1989 to
December 1994, Mr. Williams held various senior management finance and
accounting positions with KnowledgeWare, which was acquired by Sterling Software
in 1994. Mr. Williams joined KnowledgeWare from Ernst & Young.
Jeffrey S. Mitchell has served as Senior Vice President, North American
Sales of Manhattan since February 2001. Prior to that, Mr. Mitchell served in
various sales management roles at Manhattan since April 1997, including Vice
President, North American Sales from May 1999 through February 2001. From April
1995 until April 1997, Mr. Mitchell was a sales representative for Intrepa
(formerly The Summit Group), a
19
provider of warehouse and transportation management packages that was acquired
by Manhattan in October 2000. From May 1991 until April 1995, Mr. Mitchell
served in various aspects of account management in the employer services
division of ADP providing outsource payroll and human resources solutions.
Brian J. Cassidy has served as a Director of Manhattan since May 1998. Mr.
Cassidy has served as the Vice-Chairman and Co-Founder of Webforia, formally
known as LiveContent, a developer and supplier of computer software
applications, since April 1996. Prior to joining Webforia, Mr. Cassidy served as
Vice President of Business Development of Saros Corporation, a developer of
document management software, from January 1993 to March 1996. Prior to joining
Saros Corporation, Mr. Cassidy was employed by Oracle Corporation, as Joint
Management Director of European Operations and a member of the Executive
Management Board from 1983 to 1988 and as Worldwide Vice President of Business
Development from 1988 to 1990.
John J. Huntz, Jr. has served as a Director of Manhattan since January
1999. Mr. Huntz has served as Managing Director of Fuqua Ventures, LLC, a
private equity investment firm, since March 1998. Mr. Huntz served as Executive
Vice President and Chief Operating Officer of Fuqua Enterprises, a company that
manufactures health-care products, from August 1995 to March 1998 and as its
Senior Vice President from March 1994 until August 1995. From September 1989 to
January 1994, Mr. Huntz served as the Managing Partner of Noble Ventures
International, a private international investment company. From 1984 to 1989,
Mr. Huntz held the position of Director of Capital Resources for Arthur Young &
Company, and from 1979 to 1984, Mr. Huntz was with Harrison Capital, Inc., a
venture capital investment subsidiary of Texaco, Inc. Mr. Huntz founded and
serves as President of the Atlanta Venture Forum, a risk capital network, and is
a member of the National Association of Small Business Investment Companies. Mr.
Huntz serves as a director and chairman of the compensation committee of GMP
Companies, a developer of medical technologies.
Thomas E. Noonan has served as a Director of Manhattan since January 1999.
Mr. Noonan has served as the President and as a Director of Internet Security
Systems, Inc., a provider of network security monitoring, detection and response
software, since June 1995, and as its Chief Executive Officer and Chairman of
the Board of Directors since November 1996. Prior to joining Internet Security
Systems, Mr. Noonan served as Vice President, Sales and Marketing with TSI
International, Inc., an electronic commerce company, from September 1994 until
August 1995. From November 1989 until October 1994, Mr. Noonan held high-level
sales and marketing position at Dun & Bradstreet Software, a developer of
enterprise business software.
John R. Hardesty has served as a Director of Manhattan since July 2000. Mr.
Hardesty has been self-employed as an investor since March 1995. Since 1995, Mr.
Hardesty has served as owner and Chairman of the Board of Directors of Thermo
Dynamics, Inc., a quartz manufacturing company. From 1988 until 1995, Mr.
Hardesty was the owner and chairman of Dixson, a manufacturer of electronic
instruments for the heavy-duty truck market and process control market.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, support and research and
development facility is located in approximately 135,398 square feet of modern
office space in Atlanta, Georgia. Substantially all of this space is leased to
us through March 31, 2008. At this time, our office space is adequate to meet
our immediate needs; however, we may expand into additional facilities in the
future. We also occupy a facility under a multi-year agreement in Bracknell,
United Kingdom, and have signed a multi-year agreement in the first quarter of
2002 to occupy a facility in Utrecht, The Netherlands. We also occupy offices
under short-term agreements in other geographical regions.
20
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 not currently a party to any material legal
proceeding that would require disclosure under this Item.
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, 2001.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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
------------- ---------- ---------
2000
First Quarter............................................. $34.25 $ 7.38
Second Quarter............................................ 31.75 18.69
Third Quarter............................................. 61.25 24.50
Fourth Quarter............................................ 71.31 32.63
2001
First Quarter............................................. $42.88 $15.56
Second Quarter............................................ 40.01 10.94
Third Quarter............................................. 39.43 12.90
Fourth Quarter............................................ 35.78 17.22
The closing sale price of our common stock as reported by the Nasdaq
National Market on March 31, 2002 was $38.10. The number of shareholders of
record of our common stock as of March 31, 2002 was approximately 62.
Prior to our initial public offering in April 1998, our predecessors
historically made distributions to shareholders related to their limited
liability company status and the resulting tax payment obligations imposed on
its shareholders. 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our Financial Statements and related Notes thereto and with
"Management's 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, 1999, 2000 and 2001, and the balance sheet data
as of December 31, 2000 and 2001, 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, 1997 and
1998, and the balance sheet data as of December 31, 1997, 1998 and 1999, are
derived from the audited financial
22
statements not included herein. Historical and pro forma results are not
necessarily indicative of results to be expected in the future.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue:
Software fees...................................... $ 7,160 $13,816 $14,578 $26,190 $35,436
Services........................................... 14,411 32,358 52,889 81,085 97,510
Hardware........................................... 10,886 15,891 13,825 25,821 22,651
Allowance for bankrupt customer(3)................. -- -- -- -- (4,328)
------- ------- ------- ------- -------
Total revenue................................. 32,457 62,065 81,292 133,096 151,269
Costs and expenses:
Cost of software fees.............................. 461 702 1,190 1,239 1,455
Cost of services................................... 6,147 15,286 30,643 34,299 42,372
Cost of hardware................................... 8,001 11,791 10,526 20,822 17,983
Research and development........................... 3,025 7,429 10,201 16,106 19,413
Sales and marketing................................ 3,570 9,045 14,344 18,051 22,334
General and administrative......................... 2,842 6,577 12,849 15,123 18,822
In-process research and development and
acquisition-related charges...................... -- 1,602 -- 3,001 --
Amortization of acquisition-related intangibles.... 133 372 1,102 1,165 5,240
------- ------- ------- ------- -------
Total costs and expenses...................... 24,179 52,804 80,855 109,806 127,619
------- ------- ------- ------- -------
Income from operations............................... 8,278 9,261 437 23,290 23,650
Other income, net.................................... 56 1,070 1,218 2,718 2,059
------- ------- ------- ------- -------
Income before income taxes........................... 8,334 10,331 1,655 26,008 25,709
Income tax expense (benefit):
Tax provision as a "C" corporation................. -- 3,329 554 9,740 9,522
Deferred tax adjustment............................ -- (316) -- -- --
------- ------- ------- ------- -------
Net income........................................... $ 8,334 $ 7,318 $ 1,101 $16,268 $16,187
======= ======= ======= ======= =======
Diluted net income per share......................... $ 0.40 $ 0.29 $ 0.04 $ 0.53 $ 0.53
======= ======= ======= ======= =======
Shares used in computing diluted net income per
share.............................................. 20,761 25,651 26,553 30,453 30,742
======= ======= ======= ======= =======
Income before pro forma income taxes................... $ 8,334 $10,331
Pro forma income taxes(1).............................. 3,023 4,244
------- -------
Pro forma net income(1)................................ $ 5,311 $ 6,087
======= =======
Pro forma diluted net income per share(2).............. $ 0.24
=======
Shares used in computing pro forma diluted net income
per share(2)......................................... 25,686
=======
DECEMBER 31,
-------------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments...................................... $ 3,194 $32,763 $39,915 $ 67,667 $104,189
Working capital.................................... 6,268 44,561 46,948 70,192 101,224
Total assets....................................... 15,006 67,775 80,923 152,375 180,703
Total shareholders' equity......................... 8,454 55,635 58,606 110,001 141,187
---------------
(1) In connection with the conversion from limited liability company status on
April 23, 1998, we became subject to federal and state corporate income
taxes. Pro forma net income is presented as if we had been subject to
corporate income taxes for all periods presented.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) 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. See Note 1 of Notes to Consolidated Financial
Statements for further details.
23
ITEM 7. MANAGEMENT'S 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, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
OVERVIEW
We are a leading global provider of technology-based solutions to improve
the effectiveness of and the efficiencies within the extended supply chain. Our
solutions, which consist of software, services and hardware, enhance
distribution efficiencies through the real-time integration of extended supply
chain constituents, including manufacturers, distributors, retailers, suppliers,
transportation providers and consumers. Our software provides solutions for the
three principal elements of extended supply chain execution, or x-SCE:
collaboration, execution and optimization. Collaboration solutions provide
real-time synchronization of key processes and their associated information
flows across the extended supply chain, including customer process
synchronization, trading partner personalization, supplier process enablement,
carrier compliance and communication, global inventory visibility and supply
chain event management. Execution solutions include the performance of the many
processes that take place in the warehouse and distribution center, beginning
with the placement of an order by a customer and ending with the fulfillment and
delivery of the order to the end customer. Optimization solutions use analytic
tools and techniques to improve the efficiency of distribution center operations
through the use of either rules-based or algorithm-based models to solve
problems that are too complex or too time consuming for manual processing. We
also provide services, including design, configuration, implementation and
training services, plus customer support services and software enhancement
subscriptions. We currently provide our solutions to manufacturers,
distributors, retailers, suppliers and transportation providers primarily in the
following markets: retail, consumer goods, direct-to-consumer, food and grocery,
third-party logistics, industrial and wholesale, high technology and
electronics, and healthcare and pharmaceuticals.
Critical Accounting Policies and Estimates
The consolidated financial statements include accounts of the company and
all majority-owned subsidiaries. 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 its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. We do not
believe there is a great likelihood that materially different amounts would be
reported related to the accounting policies described below. However,
application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.
Revenues and Revenue Recognition
Our revenues consist of fees from the licensing of software; fees from
consulting, implementation and training services (collectively, "professional
services"), plus customer support services and software enhancement
subscriptions; and sales of complementary radio frequency and computer
equipment.
We recognize software fees in accordance with Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position No. 98-9, "Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). Under SOP 97-2, we recognize software license
revenue when the following criteria are met: (1) a signed contract is obtained;
(2) shipment of the product has occurred; (3) the license fee is fixed or
determinable; (4) collectibility is probable; and (5) remaining obligations
under the license agreement are insignificant. SOP 98-9 requires recognition of
revenue using the
24
"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. SOP 98-9
was effective for transactions entered into after March 15, 1999, and we adopted
the residual method for such arrangements at that time. For those contracts that
contain significant future obligations, license revenue is recognized under the
percentage of completion method.
Fees from professional services performed by us are generally billed on an
hourly basis, and revenue is recognized as the services are performed. From time
to time, we will enter into professional services agreements in which billings
are limited to contractual maximums for portions of or all of the engagement.
Fees from customer support services and software enhancement subscriptions are
generally paid in advance and recognized as revenue ratably over the term of the
agreement, typically 12 months.
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 our software solutions. These products include computer
equipment, radio frequency terminal networks, 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 a provision for estimated credit losses based upon our historical
experience and any specific customer collection issues that we have identified.
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 21%, 22% and 10% of total revenue for each of the years
ended December 31, 2001, 2000, and 1999, respectively. Sales to one customer
("the significant customer") accounted for approximately 10% of total revenue
for the year ended December 31, 2001. Most of the revenue from the significant
customer in 2001 arose from purchases of hardware. No single customer accounted
for more than 10% of revenue in 2000 or 1999. Accounts receivable from the
significant customer on December 31, 2001 was approximately $4.3 million.
On January 22, 2002, the 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 includes approximately $2.3 million of software fees, $1.6 million of
fees for professional services and $0.4 million of hardware. Additionally, we
billed the significant customer approximately $0.9 million for professional
services during January 2002 prior to the Chapter 11 filing. These accounts
receivable will be evaluated for collectibility in the first quarter of 2002.
Valuation of long-lived and intangible assets and goodwill
We assess the impairment of identifiable intangibles, long-lived assets and
related goodwill and enterprise level goodwill whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important which could trigger an impairment review include the
following:
- significant underperformance relative to expected historical or projected
future operating results;
- significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
- significant negative industry or economic trends;
25
- significant decline in our stock price for a sustained period; and
- our market capitalization relative to net book value.
When we determine that the carrying value of intangibles, long-lived assets
and related goodwill may not be recoverable based upon the existence of one or
more of the above indicators of impairment, we measure any impairment based on a
projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business
model. Net intangible assets, long-lived assets, and goodwill amounted to $27.5
million as of December 31, 2001.
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we will
cease to amortize approximately $21.3 million of goodwill. We had recorded
approximately $3.0 million of amortization on these amounts during 2001 and
would have recorded approximately $3.0 million of amortization during 2002. In
lieu of amortization, we are required to perform an initial impairment review of
our goodwill in 2002 and an annual impairment review thereafter.
We currently do not expect to record an impairment charge upon completion
of the initial impairment review. However, there can be no assurance that at the
time the review is completed a material impairment charge will not be recorded.
Acquisition
On October 24, 2000, we acquired substantially all of the assets of
Intrepa, L.L.C. ("Intrepa") for a purchase price of approximately $31.0 million.
The purchase price consisted of a cash payment of $13.0 million, the issuance of
approximately $10.0 million of our $.01 par value per share common stock
(totaling 236,957 shares), and the issuance by us of a promissory note for $7.0
million. We also incurred approximately $0.9 million of transaction costs
related to the acquisition. The purchase price included the assumption of
substantially all of the liabilities of Intrepa, including immediate payment by
us of the remaining $2.0 million of principal and up to $15,000 of interest on a
promissory note previously issued by Intrepa. The acquisition has been accounted
for under the purchase method of accounting. Based on an independent appraisal,
the purchase price has been allocated to net liabilities assumed of $2.6
million, acquired research and development of $2.4 million, acquired developed
technology of $7.5 million, and other intangible assets of $23.3 million.
Acquired developed technology is being amortized over an estimated five-year
useful life and other intangible assets are being amortized over a seven-year
useful life. In connection with this acquisition, we realigned our resources,
which resulted in severance-related expenses of $576,000 during the quarter
ended December 31, 2000.
26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of total revenues represented by certain items reflected in our consolidated
statements of income:
YEAR ENDED DECEMBER 31,
-----------------------
1999 2000 2001
----- ----- -----
STATEMENT OF INCOME DATA:
Revenue:
Software fees.......................................... 17.9% 19.7% 23.4%
Services............................................... 65.1 60.9 64.5
Hardware............................................... 17.0 19.4 15.0
Allowance for bankrupt customer........................ -- -- (2.9)
----- ----- -----
Total revenue..................................... 100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Cost of software fees.................................. 1.5 0.9 1.0
Cost of services....................................... 37.7 25.8 28.0
Cost of hardware....................................... 12.9 15.6 11.9
Research and development............................... 12.6 12.1 12.8
Sales and marketing.................................... 17.6 13.6 14.8
General and administrative............................. 15.8 11.4 12.4
In-process research and development and
acquisition-related charges........................... -- 2.2 --
Amortization of acquisition-related intangibles........ 1.3 0.9 3.5
----- ----- -----
Total operating expenses.......................... 99.4 82.5 84.4
----- ----- -----
Income from operations...................................... 0.6 17.5 15.6
Other income, net........................................... 1.5 2.0 1.4
----- ----- -----
Income before income taxes.................................. 2.1 19.5 17.0
Income tax provision........................................ 0.7 7.3 6.3
----- ----- -----
Net income.................................................. 1.4% 12.2% 10.7%
===== ===== =====
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
REVENUE
Our revenue consists of fees generated from the licensing of software; fees
from professional services, customer support services and software enhancement
subscriptions; and sales of complementary radio frequency and computer
equipment, which are considered non-strategic. Total revenue increased 63.7%
from $81.3 million in 1999 to $133.1 million in 2000, reflecting an overall
growth in demand for our x-SCE solutions. Total revenue increased 13.7% from
$133.1 million in 2000 to $151.3 million in 2001, reflecting continued growth in
fees from licensing software and professional services partially offset by a
12.3% decline in non-strategic hardware sales. We believe our revenue growth in
2001 is attributable to several factors, including, among others, 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. In spite of the increase in software fees and services revenue
over the prior year, we have experienced some effects from the deterioration of
the United States' and European economies in the form of delayed and cancelled
buying decisions by customers for our software, services and hardware, deferrals
by customers of services 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 macro-economic
conditions and business climates 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 operations. Our
business plans consider a modest improvement in the United States' economy in
the second half of 2002.
27
Software Fees. Software fees increased from $14.6 million in 1999 to $26.2
million in 2000, an increase of $11.6 million or 79.7%. Software fees increased
from $26.2 million in 2000 to $35.4 million in 2001, an increase of $9.2 million
or 35.3%. The increases in software fees were principally due to increases in:
(i) sales of software licenses outside of the United States, which accounted for
approximately 9%, 13% and 22% of software fees in 1999, 2000 and 2001,
respectively; and (ii) sales of new, internally-developed products, including
WorkInfo, SmartInfo and infolink, and acquired products from Intrepa, including
PkMS Pronto and Logistics PRO TMS, all of which collectively accounted for
approximately 3.2%, 10.3% and 19.6% of software fees in 1999, 2000 and 2001,
respectively. Additionally, we have experienced an increase in sales of PkMS,
our flagship product, due to growing market acceptance and increased product
functionality. See the discussion below regarding Allowance for Bankrupt
Customer.
Services. Services revenue increased from $52.9 million in 1999 to $81.1
million in 2000, an increase of $28.2 million or 53.3%. Services revenue
increased from $81.1 million in 2000 to $97.5 million in 2001, an increase of
$16.4 million or 20.2%. The increases in services revenue were principally due
to: (i) an increase in the number of engagements required in order to implement
the software sold; (ii) an increase in the number of engagements to upgrade
existing customers to more current versions of our offerings; and (iii)
increased revenue from customer support and software enhancement subscriptions
on a growing installed base. The decline in the rate of services growth in 2001
is attributable to planned implementation efficiencies, a planned increase in
the provision of work by systems integrators and greater sales of our
optimization and collaboration products with less implementation requirements.
See the discussion below regarding Allowance for Bankrupt Customer.
Hardware. Hardware revenue increased from $13.8 million in 1999 to $25.8
million in 2000, an increase of $12.0 million or 86.8%. Hardware revenue
decreased from $25.8 million in 2000 to $22.7 million in 2001, a decrease of
$3.1 million or 12.3%. Sales of hardware are non-strategic and largely dependent
upon customer-specific desires. The increase in 2000 was attributable to PkMS
implementations of larger scope, prompting customers seeking a unified solution
to purchase more hardware from us. The decline in hardware sales in 2001 is
principally attributable to customers' desires in the current macro-economic
environment to buy hardware from other suppliers offering greater discounts.
Allowance for 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. The allowance includes approximately $2.3 million of
software fees, $1.6 million of fees for professional services and $0.4 million
of hardware. Going forward, any additional charges and payments by the
significant customer relative to the $4.3 million will be recorded against the
allowance. The significant customer has requested us to proceed with the
implementation of the software it purchased from us. Through March 31, 2002, our
billings for implementation services rendered post-bankruptcy have been paid in
ordinary course.
COSTS AND EXPENSES
Cost of Software Fees. Cost of software fees consists of the costs
associated with software reproduction and delivery; media, packaging,
documentation and other related costs; royalties on third-party software sold
with or as part of our products; and the amortization of research and
development costs capitalized prior to the third quarter of 1999. Cost of
software fees was 8.2%, 4.7% and 4.1% of software fees for 1999, 2000 and 2001,
respectively. Fiscal 1999 included approximately $472,000 of expenses from
amounts previously capitalized on products discontinued, which were not present
in 2000 and 2001. Lower royalties owed to third parties from sales of software
licenses accounts for the decline in cost of software fees from 2000 to 2001.
Cost of Services. Cost of services revenue consists primarily of salaries
and other personnel-related expenses of employees dedicated to professional
services and customer support services. Cost of services revenue increased from
$30.6 million in 1999, or 57.9% of services revenue, to $34.3 million in 2000,
or 42.3% of services revenue, to $42.4 million in 2001, or 43.5% of services
revenue. The increases in cost of services
28
revenue were directly related to increases in the number of employees and
contracted personnel dedicated to the delivery of professional services. The
decrease in cost of services revenue as a percentage of services revenue from
1999 to 2000 was due to: (i) increased efficiencies in the delivery of
professional services; (ii) planned efficiency initiatives associated with
implementations of our software; and (iii) increased revenue from customer
support and software enhancement subscriptions, which generate a higher gross
margin. The 1.2% increase in cost of services as a percent of services revenue
in 2001 over 2000 is attributable to additional costs associated with our
growing international business, including the temporary use of U.S. and
contracted personnel on international engagements and the costs to hire and
train our growing international services organization, coupled with market
pricing pressures in a slower economy.
Cost of Hardware. Cost of hardware revenue increased from $10.5 million in
1999, or 76.1% of hardware revenue, to $20.8 million in 2000, or 80.6% of
hardware revenue, and decreased to $18.0 million in 2001, or 79.4% of hardware
revenue. Fluctuations in cost of hardware are directly related to the amount of
hardware sold. Cost of hardware as a percentage of hardware sales fluctuates
depending upon the type of equipment sold and the discount we are willing to
provide.
Research and Development. Research and development expenses primarily
consist of salaries and other personnel-related costs of personnel involved in
our product development efforts. Our research and development expenses increased
from $10.2 million in 1999, or 12.6% of total revenue, to $16.1 million in 2000,
or 12.1% of total revenue, to $19.4 million in 2001, or 12.8% of total revenue.
The increases in research and development expenses are principally due to an
increase in the number of research and development personnel. As of December 31,
2001, we employed 184 research and development personnel, up from 89 at December
31, 1999. The increase in research and development expenses in 2000 over 1999
reflects the costs and expenses of a greater number of employees and contracted
personnel dedicated to the development and enhancement of all versions of PkMS,
as well as our Optimize Suite and infolink. Additionally, the fourth quarter
2000 acquisition of Intrepa provided research and development personnel,
approximately 35 of whom we employed at December 31, 2001, dedicated to the
development and enhancement of PkMS Pronto and Logistics PRO TMS. We capitalized
$909,000 of internal research and development costs in 1999, of which
approximately $150,000 of such capitalized costs remained as of December 31,
2001. During 2001, research and development activities included, among other
things, the ongoing development and enhancement of the N-Tier version of PkMS,
PkMS Pronto, our Optimize Suite and infolink. Additionally, during 2001, we made
payments of approximately $717,000 to an outside research and development
organization to internationalize PkMS into Japanese, German, French and Spanish.
These payments have been classified as Other Assets and will be amortized over a
three-year period beginning in January 2002.
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 programs and related activities. Sales
and marketing expenses increased from $14.3 million in 1999, or 17.6% of total
revenue, to $18.1 million in 2000, or 13.6% of total revenue, to $22.3 million
in 2001, or 14.8% of total revenue. The increases in sales and marketing
expenses are principally attributable to: (i) growth in the number of
international and domestic sales and marketing personnel; (ii) greater incentive
compensation paid on greater level of sales; and (iii) continued expansion of
our sales and marketing programs around our x-SCE offerings. The increase in
sales and marketing expenses as a percent of total revenue in 2001 over 2000 was
principally attributable to increases in expenditures to staff, brand and launch
newly developed and acquired products.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial,
human resources and administrative personnel, as well as facilities,
depreciation and amortization of tangible assets, legal, insurance, accounting
and other administrative expenses. General and administrative expenses increased
from $12.8 million in 1999, or 15.8% of total revenue, to $15.1 million in 2000,
or 11.4% of total revenue, to $18.8 million in 2001, or 12.4% of total revenue.
The increases in general and administrative expenses were principally
attributable to increased depreciation and amortization expense and additional
executive compensation, administrative costs and personnel needed to grow our
business and improve our infrastructure. We were able to leverage our
infrastructure substantially in 2000 with the growth in our business. Growth
within our international operations, representing 17% of revenues in 2001 as
compared to 11% of revenues in 2000, required additional investments in
infrastructure in
29
2001. Depreciation expense included in general and administrative expenses was
$3.2 million, $4.3 million and $5.7 million during 1999, 2000 and 2001,
respectively.
In-Process Research and Development and Acquisition-Related Charges. On
October 24, 2000, we acquired substantially all of the assets of Intrepa, L.L.C.
("Intrepa") for a purchase price of approximately $31.0 million. The purchase
price consisted of a cash payment of $13.0 million, the issuance of
approximately $10.0 million of our $.01 par value per share common stock
(totaling 236,957 shares), and the issuance by us of a promissory note for $7.0
million. We also incurred approximately $0.9 million of transaction costs
related to the acquisition. The purchase price included the assumption of
substantially all of the liabilities of Intrepa, including immediate payment by
us of the remaining $2.0 million of principal and up to $15,000 of interest on a
promissory note previously issued by Intrepa. The acquisition has been accounted
for under the purchase method of accounting. Based on an independent appraisal,
the purchase price has been allocated to net liabilities assumed of $2.6
million, acquired research and development of $2.4 million, acquired developed
technology of $7.5 million, and other intangible assets of $23.3 million.
Acquired developed technology is being amortized over an estimated five-year
useful life and other intangible assets are being amortized over a seven-year
useful life. In connection with this acquisition, we realigned our resources,
which resulted in severance-related expenses of $576,000 during the quarter
ended December 31, 2000.
Amortization of Acquisition-Related Intangibles. We have recorded goodwill
and other intangible assets as part of the purchase accounting associated with
three acquisitions: (i) the acquisition of Performance Analysis Corporation in
February 1998; (ii) the acquisition of certain assets of Kurt Salmon Associates
in October 1998; and (iii) the acquisition of Intrepa in October 2000.
Amortization of acquisition-related intangibles increased from $1.1 million in
1999, or 1.3% of total revenue, to $1.2 million in 2000, or 0.9% of total
revenue, to $5.2 million in 2001, or 3.5% of total revenue, as a direct result
of these acquisitions. The increases in 2000 and 2001 were attributable to
amortization expense of $790,000 in 2000 and $4.9 million in 2001 associated
with the acquisition of Intrepa. Effective January 1, 2002, the Company has
adopted Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 requires that goodwill and certain
intangible assets, including those recorded in past business combinations and
existing as of June 30, 2001, no longer be amortized to earnings, but instead be
tested for impairment at least annually.
Operating Income. Operating income increased from $437,000 in 1999, or
0.6% of total revenue, to $23.3 million in 2000, or 17.5% of total revenue, to
$23.7 million in 2001, or 15.6% of total revenue. Operating income in 1999
reflects the costs and expenses of excessive personnel and charges to operations
to recruit new members to our executive management team, to realign our
resources and to write-off intangible assets associated with impaired and
discontinued products. The substantial increases in operating income in 2000 and
2001 represent a combination of significant growth in higher margin software and
services fees and improved efficiencies across all areas of our business.
Operating income for 2000 reflects a non-recurring charge totaling $3.0 million
associated with the acquisition of Intrepa and non-cash, acquisition-related
intangible asset amortization totaling $1.2 million. Operating income for 2001
reflects an allowance for a bankrupt customer totaling $4.3 million and
non-cash, acquisition-related intangible asset amortization totaling $5.2
million, all as discussed above. Excluding these items, operating income would
be $27.5 million, or 20.6% of total revenues, in 2000 and $33.2 million, or
21.3% of total revenues, in 2001.
OTHER INCOME, NET
Other income, net, includes interest earnings on short-term investments,
interest expense incurred for obligations under capital lease, interest expense
on the note payable issued in connection with the acquisition of Intrepa and
foreign exchange gains and losses. Other income, net, increased from $1.2
million in 1999, or 1.5% of total revenue, to $2.7 million in 2000, or 2.0% of
total revenue, and decreased to $2.1 million in 2001, or 1.4% of total revenue.
The increase in other income, net, in 2000 was primarily due to the increase in
cash available for investment during the year, partially offset by approximately
$100,000 of interest expense on the Intrepa note payable. The decrease in other
income, net, in 2001 was due to an overall decline in market interest along with
an increase in interest expense to $525,000 in 2001 on the note payable to
Intrepa.
30
INCOME TAXES
Provision for Income Taxes. The provision for income taxes was $554,000 in
1999, compared to $9.7 million in 2000, and $9.5 million in 2001. The increase
in the provision for income taxes for 2000 is attributable to the substantial
increase in income before income taxes in 2000. The decrease in the provision
for income taxes for 2001 is attributable to an increase in income generated in
countries with lower tax rates. Our effective income tax rates were 33.5%, 37.5%
and 37.0% in 1999, 2000 and 2001, 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 provisions for
income taxes for 1999, 2000 and 2001 do not include the $730,000, $13.5 million
and $9.0 million of tax benefits realized from stock options exercised during
the years, respectively. These tax benefits reduce our income tax liabilities
and are included as an addition to additional paid-in capital.
EARNINGS PER SHARE
Net Income per Share. Net income was $1.1 million, or 1.4% of total
revenue and $0.04 per diluted share for the year ended December 31, 1999. Net
income was $16.3 million, or 12.2% of total revenue and $0.53 per diluted share
for the year ended December 31, 2000. The increase in net income in 2000 over
1999 is principally attributable to 63.7% growth in revenue combined with
improved efficiencies across all areas of our business. Net income was $16.2
million, or 10.7% of total revenue and $0.53 per diluted share for the year
ended December 31, 2001. Net income for 2001 was negatively impacted by the $4.3
million allowance for the bankrupt customer, or approximately $.09 per diluted
share, as discussed above. Excluding the effect of the non-recurring in-process
research and development and acquisition-related charges of $3.0 million and
amortization of acquisition-related intangibles of $1.2 million, net income for
the year ended December 31, 2000 was $18.9 million, or 14.2% of total revenue
and $0.62 per diluted share. Excluding the effect of the allowance for the
bankrupt customer of $4.3 million and amortization of acquisition-related
intangibles of $5.2 million, net income for the year ended December 31, 2001 was
$22.2 million, or 14.3% of total revenue and $0.72 per diluted share.
31
PRO FORMA RESULTS OF OPERATIONS
The following summary of unaudited pro forma consolidated selected
statement of income data presents our results of operations for the three years
ended December 31, 2001, excluding: amortization of acquisition-related
intangibles, the write-off of in-process research and development and other
acquisition related charges associated with the acquisition of Intrepa and the
allowance for a significant bankrupt customer. We believe the exclusion of these
items provides a relevant summary of the results of our operations as they
relate to our ongoing core business and we use these measures internally to
evaluate our operating performance. This information is not to be construed as a
measurement of profitability under generally accepted accounting principles and
is not to be accepted or used as an alternative to net income. Additionally, the
pro forma results of operations, as presented, may not be consistent with
measures used by other companies.
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 2000 2001
--------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA STATEMENT OF INCOME DATA:
Revenues.................................................. $81,292 $133,096 $155,597
Costs and expenses........................................ 79,753 105,640 122,379
------- -------- --------
Income from operations...................................... 1,539 27,456 33,218
Other income, net........................................... 1,218 2,718 2,059
------- -------- --------
Income before income taxes.................................. 2,757 30,174 35,277
Income tax expense:
Tax provisions............................................ 923 11,302 13,062
------- -------- --------
Net income.................................................. $ 1,834 $ 18,872 $ 22,215
======= ======== ========
Diluted net income per share................................ $ 0.07 $ 0.62 $ 0.72
======= ======== ========
Shares used in computing diluted net income per share....... 26,553 30,453 30,742
======= ======== ========
THE ABOVE PRO FORMA AMOUNTS HAVE BEEN ADJUSTED TO EXCLUDE THE FOLLOWING ITEMS:
Allowance for bankrupt customer............................. $ -- $ -- $ 4,328
Amortization of acquisition-related intangibles............. 1,102 1,165 5,240
In-process research and development and other acquisition
related charges........................................... -- 3,001 --
Income tax effect of excluded items......................... (369) (1,562) (3,540)
------- -------- --------
Net effect of pro forma adjustments......................... $ 733 $ 2,604 $ 6,028
======= ======== ========
32
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
income data for each of our last eight quarters for the period ended December
31, 2001, as well as the percentage of our total revenue represented by each
item. The information has been derived from our audited Financial Statements.
The unaudited quarterly Financial Statements have been prepared on substantially
the same basis as the audited Financial Statements contained herein. In the
opinion of our management, the unaudited quarterly Financial Statements include
all adjustments, consisting only of normal recurring adjustments, that we
consider to be necessary to present fairly this information when read in
conjunction with our Financial Statements and notes thereto appearing elsewhere
herein. The results of operations for any quarter are not necessarily indicative
of the results to be expected for any future period.
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue:
Software fees.................. $ 5,036 $ 5,686 $ 6,529 $ 8,939 $ 7,841 $ 9,362 $ 9,206 $ 9,027
Services....................... 17,544 19,228 21,207 23,106 23,497 23,890 24,694 25,429
Hardware....................... 5,763 9,714 5,968 4,376 4,737 2,872 4,521 10,521
Allowance for bankrupt
customer..................... -- -- -- -- -- -- -- (4,328)
------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 28,343 34,628 33,704 36,421 36,075 36,124 38,421 40,649
Costs and expenses:
Cost of software fees.......... 277 539 192 231 485 385 401 184
Cost of services............... 8,162 8,029 8,753 9,355 9,898 10,041 10,994 11,439
Cost of hardware............... 4,701 7,988 4,759 3,374 3,608 2,363 3,729 8,283
Research and development....... 3,046 3,042 4,213 5,805 5,038 4,706 4,739 4,930
Sales and marketing............ 3,977 4,631 4,298 5,145 5,313 5,513 5,779 5,729
General and administrative..... 3,773 3,589 3,743 4,018 4,192 4,657 4,824 5,149
In-process research and
development and acquisition-
related charges.............. -- -- -- 3,001 -- -- -- --
Amortization of
acquisition-related
intangibles.................. 94 94 93 884 1,310 1,310 1,310 1,310
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses.............. 24,030 27,912 26,051 31,813 29,844 28,975 31,776 37,024
------- ------- ------- ------- ------- ------- ------- -------
Income from operations........... 4,313 6,716 7,653 4,608 6,231 7,149 6,645 3,625
Other income, net................ 403 587 851 877 550 478 649 382
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes....... 4,716 7,303 8,504 5,485 6,781 7,627 7,294 4,007
Income taxes..................... 1,792 2,775 3,231 1,942 2,509 2,833 2,698 1,482
------- ------- ------- ------- ------- ------- ------- -------
Net income....................... $ 2,924 $ 4,528 $ 5,273 $ 3,543 $ 4,272 $ 4,794 $ 4,596 $ 2,525
======= ======= ======= ======= ======= ======= ======= =======
Diluted net income per share..... $ 0.10 $ 0.15 $ 0.17 $ 0.11 $ 0.14 $ 0.16 $ 0.15 $ 0.08
======= ======= ======= ======= ======= ======= ======= =======
Shares used in diluted net income
per share...................... 28,946 29,832 30,900 31,189 30,674 30,748 30,605 30,908
======= ======= ======= ======= ======= ======= ======= =======
33
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- --------- -------- -------- -------- --------- --------
Revenue:
Software fees................... 17.8% 16.4% 19.4% 24.5% 21.8% 25.9% 24.0% 22.2%
Services........................ 61.9 55.5 62.9 63.4 65.1 66.1 64.3 62.5
Hardware........................ 20.3 28.1 17.7 12.1 13.1 8.0 11.7 25.9
Allowance for bankrupt
customer...................... -- -- -- -- -- -- -- (10.6)
----- ----- ----- ----- ----- ----- ----- -----
Total revenue............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of software fees........... 1.0 1.6 0.6 0.6 1.3 1.1 1.1 0.5
Cost of services................ 28.8 23.2 26.0 25.7 27.5 27.8 28.6 28.1
Cost of hardware................ 16.6 23.1 14.1 9.3 10.0 6.5 9.7 20.4
Research and development........ 10.7 8.8 12.5 15.9 14.0 13.0 12.3 12.1
Sales and marketing............. 14.0 13.4 12.7 14.1 14.7 15.3 15.0 14.1
General and administrative...... 13.4 10.3 11.1 11.1 11.6 12.9 12.6 12.7
In-process research and
Development and Acquisition-
related charges............... -- -- -- 8.2 -- -- -- --
Amortization of
acquisition-related
intangibles................... 0.3 0.3 0.3 2.4 3.6 3.6 3.4 3.2
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 84.8 80.6 77.3 87.3 82.7 80.2 82.7 91.1
----- ----- ----- ----- ----- ----- ----- -----
Income from operations............ 15.2 19.4 22.7 12.7 17.3 19.8 17.3 8.9
Other income, net................. 1.4 1.7 2.5 2.4 1.5 1.3 1.7 1.0
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes........ 16.6% 21.1% 25.2% 15.1% 18.8% 21.1% 19.0% 9.9%
===== ===== ===== ===== ===== ===== ===== =====
Any factor adversely affecting the markets for x-SCE solutions could have
an adverse impact on our business, financial condition, and results of
operations at any time. Further, our quarterly revenue and operating results are
difficult to predict and may fluctuate significantly from quarter to quarter.
Factors that could cause variations in our quarterly revenue and operating
results are:
- poor macro-environmental or other economic outlooks in the major
geographic regions in which we operate;
- delayed and/or cancelled decisions by customers regarding purchases of
our software and services;
- postponements of scheduled implementations and upgrades;
- demand for our products;
- introductions of new products by our competitors;
- the level of price competition by our competitors;
- customers' budgeting and purchasing cycles;
- delays in our implementations at customer sites;
- timing of hiring new services employees and the rate at which such
employees become productive;
- development and performance of our direct and indirect sales channels;
- timing of any acquisitions and related costs; and
- identification of software quality problems.
Most of our expenses, such as employee compensation and rent, are
relatively fixed. Moreover, 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.
A significant portion of license fee contracts are signed
34
and products delivered in the third month of each fiscal quarter. This trend
makes our process of forecasting revenues difficult, particularly when combined
with the weak economic environment we have experienced since the end of 2000. As
a result of these factors, we believe that period-to-period comparisons of our
revenue levels and operating results are not necessarily meaningful. You should
not rely on our quarterly revenue and operating results to predict our future
performance.
Our ability to undertake new projects and increase revenue is substantially
dependent on the availability of our professional services and technical
personnel to assist in the implementation of our software solutions. We believe
that supporting high growth in revenue requires us to rapidly hire additional,
skilled professional services personnel, and there can be no assurance that
qualified personnel could be located, trained or retained in a timely and
cost-effective manner.
As a result of the foregoing and other factors, we believe that
quarter-to-quarter comparisons of results are not necessarily meaningful, and
such comparisons should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price of
the shares of our common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since our initial public offering in April 1998, we have funded our
operations primarily through cash generated from operations and the IPO
proceeds. As of December 31, 2000, we had $67.7 million in cash, cash
equivalents and short-term investments compared to $104.2 million at December
31, 2001.
Our operating activities provided cash of $12.3 million in 1999, $36.4
million in 2000 and $39.4 million in 2001. During 2000, cash from operating
activities arose principally from a substantial increase in operating income,
improved payments on account by customers and substantial income tax benefits
arising from exercises of stock options by employees. Cash from operating
activities for 2001 arose principally from an increase in operating income,
improved payments on accounts by customers, an accelerated refund of income
taxes and substantial income tax benefits arising from exercises of stock
options by employees. Days sales outstanding declined from 94 days at December
31, 1999 to 71 days at December 31, 2000 to 60 days at December 31, 2001.
Our investing activities used approximately $20.9 million, $14.3 million
and $10.3 million for the years ended December 31, 1999, 2000 and 2001,
respectively. During 2000, our principal uses of cash were $12.8 million as a
portion of the acquisition price of Intrepa and $5.1 million for purchases of
capital equipment partially offset by net sales of $3.6 million in short-term
investments. During 2001, our principal uses of cash were $6.1 million for
purchases of capital equipment to support our business and infrastructure and
net purchases of $3.5 million in short-term investments.
Our financing activities provided approximately $0.6 million in 1999, $9.1
million in 2000, and $3.9 million in 2001. The principal sources of cash
provided by financing activities for 2000 and 2001 were the proceeds from the
issuance of our common stock pursuant to the exercise of stock options,
partially reduced by payments for notes payable either assumed or issued in
conjunction with the acquisition of Intrepa. Also during 2001, we purchased
65,000 shares of our common stock for approximately $885,000 through open market
transactions as part of a publicly-announced buy-back program.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, collectively referred to as
derivatives, and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
35
financial position and measure those instruments at fair value. We adopted the
new statement on January 1, 2001. The adoption of this Statement did not have a
significant impact on our financial statements.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125." This
Statement revises the standards for accounting for securitizations and other
transfers of financial assets and collateral. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The adoption of this Statement did not have a
significant impact on our financial statements.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations." This Statement requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
and eliminates the pooling-of-interests method. The adoption of this Statement
did not have a significant impact on our financial statements.
Also in July 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets." This Statement requires that
goodwill and certain intangible assets, including those recorded in past
business combinations, no longer be amortized to earnings, but instead be tested
for impairment at least annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 142 on January
1, 2002 and as a result, we will cease to amortize approximately $21.3 million
of goodwill during 2002. We had recorded approximately $3.0 million of
amortization on these amounts during 2001 and would have recorded approximately
$3.0 million of amortization during 2002. In lieu of amortization, we are
required to perform an initial impairment review of our goodwill in 2002 and an
impairment review at least annually thereafter.
In November 2001, the FASB issued a Staff Announcement Topic D-103 (Topic
D-103), "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred." Topic D-103 establishes that reimbursements
received for out-of-pocket expenses should be reported as revenue in the
statement of operations. During 2001, we classified reimbursed out-of-pocket
expenses as a reduction of operating expenses. We adopted this guidance
effective January 1, 2002. Our adoption of Topic D-103 will result in increased
services revenue and increased costs of services revenue. Our results of
operations for prior periods will be reclassified to conform to the new
presentation. The total amount of expense reimbursement recorded to expense was
$4.0 million, $5.5 million and $5.1 million for 1999, 2000 and 2001,
respectively. Our adoption of Topic D-103 will not affect our net income or loss
in any past or future periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE
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. Accordingly, our future
results could be materially adversely impacted by changes in these or other
factors.
Total international revenue was approximately $5.5 million, $14.9 million
and $26.1 million for the years ended December 31, 1999, 2000 and 2001,
respectively, which represents approximately 7%, 11% and 17% of our total
revenue for the years ended December 31, 1999, 2000 and 2001, respectively.
International revenue includes all revenue associated with sales of software,
services and hardware outside the United States.
We conduct our direct European operations principally out of an office in
the United Kingdom, consisting of approximately 95 employees. Total revenue for
European operations was approximately $3.8 million, $10.3 million and $22.1
million for the years ended December 31, 1999, 2000 and 2001, respectively,
which represents approximately 5%, 8% and 15% of our total revenue for the years
ended December 31, 1999, 2000 and 2001, respectively.
36
We recognized a foreign exchange rate loss of approximately $130,000 during
2000 and a foreign exchange rate gain of approximately $7,000 in 2001,
classified in "Other income, net" on our Condensed Consolidated Statements of
Income.
INTEREST RATES
We invest our cash in a variety of financial instruments, including taxable
and tax-advantaged variable 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.
Interest income on our investments is carried in "Other income, net" on our
Consolidated Financial Statements. 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 115"). All of the
cash equivalents and short-term investments are treated as available-for-sale
under SFAS 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, 2001 was approximately 1.7%, as compared
to 6.5% at December 31, 2000. The fair value of cash equivalents and short-term
investments held at December 31, 2001 was $81.3 million.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
INDEX PAGE
----- ----
Report of Independent Public Accountants.................... 39
Consolidated Balance Sheets as of December 31, 2000 and
2001...................................................... 40
Consolidated Statements of Income for the Years Ended
December 31, 1999, 2000 and 2001.......................... 41
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999, 2000 and 2001.............. 42
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 2000 and 2001.............. 43
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001.......................... 44
Notes to Consolidated Financial Statements.................. 45
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Manhattan Associates, Inc.:
We have audited the accompanying consolidated balance sheets of MANHATTAN
ASSOCIATES, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31,
2000 and 2001 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, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Manhattan Associates, Inc.
and subsidiaries as of December 31, 2000 and 2001 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 31, 2002
39
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
-------------------
2000 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 51,032 $ 84,029
Short-term investments.................................... 16,635 20,160
Accounts receivable, net of a $4,798 and $8,533 allowance
for doubtful accounts in 2000 and 2001, respectively.... 28,177 26,660
Deferred income taxes..................................... 2,488 1,870
Refundable income taxes................................... 5,795 1,624
Other current assets...................................... 2,573 4,215
-------- --------
Total current assets............................... 106,700 138,558
-------- --------
Property and equipment:
Property and equipment.................................... 20,020 26,018
Less accumulated depreciation........................... (9,187) (14,833)
-------- --------
Property and equipment, net............................... 10,833 11,185
-------- --------
Intangible assets, net of accumulated amortization of $4,381
and $10,029 in 2000 and 2001, respectively................ 32,454 27,450
Deferred income taxes....................................... 2,245 3,322
Other assets................................................ 143 188
-------- --------
Total assets....................................... $152,375 $180,703
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,355 $ 8,285
Accrued compensation and benefits......................... 5,174 5,701
Accrued liabilities....................................... 6,348 5,011
Current portion of note payable........................... 1,750 3,500
Current portion of capital lease obligations.............. 176 163
Income taxes payable...................................... 374 389
Deferred revenue.......................................... 13,331 14,285
-------- --------
Total current liabilities.......................... 36,508 37,334
-------- --------
Long-term portion of note payable........................... 5,250 1,750
Long-term portion of capital lease obligations.............. 616 432
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares
authorized, no shares issued or outstanding in 2000 or
2001.................................................... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized, 26,443,996 shares issued and outstanding in
2000 and 27,719,753 shares issued and outstanding in
2001.................................................... 264 277
Additional paid-in-capital................................ 89,583 104,445
Retained earnings......................................... 20,425 36,612
Accumulated other comprehensive loss...................... (78) (42)
Deferred compensation..................................... (193) (105)
-------- --------
Total shareholders' equity......................... 110,001 141,187
-------- --------
Total liabilities and shareholders' equity......... $152,375 $180,703
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
40
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
Revenue:
Software fees.......................................... $14,578 $26,190 $35,436
Services............................................... 52,889 81,085 97,510
Hardware............................................... 13,825 25,821 22,651
Allowance for bankrupt customer........................ -- -- (4,328)
------- ------- -------
Total revenue..................................... 81,292 133,096 151,269
------- ------- -------
Costs and expenses:
Cost of software fees.................................. 1,190 1,239 1,455
Cost of services....................................... 30,643 34,299 42,372
Cost of hardware....................................... 10,526 20,822 17,983
Research and development............................... 10,201 16,106 19,413
Sales and marketing.................................... 14,344 18,051 22,334
General and administrative............................. 12,849 15,123 18,822
In-process research and development and other
acquisition-related charges........................... -- 3,001 --
Amortization of acquisition-related intangibles........ 1,102 1,165 5,240
------- ------- -------
Total operating expenses.......................... 80,855 109,806 127,619
------- ------- -------
Income from operations...................................... 437 23,290 23,650
Other income, net........................................... 1,218 2,718 2,059
------- ------- -------
Income before income taxes.................................. 1,655 26,008 25,709
Income tax provision........................................ 554 9,740 9,522
------- ------- -------
Net income.................................................. $ 1,101 $16,268 $16,187
======= ======= =======
Basic net income per share.................................. $ 0.05 $ 0.65 $ 0.60
======= ======= =======
Diluted net income per share................................ $ 0.04 $ 0.53 $ 0.53
======= ======= =======
Weighted average shares:
Basic..................................................... 24,084 25,174 27,077
======= ======= =======
Diluted................................................... 26,553 30,453 30,742
======= ======= =======
The accompanying notes are an integral part of these consolidated statements of
income.
41
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE TOTAL
------------------- PAID-IN RETAINED INCOME DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) COMPENSATION EQUITY
---------- ------ ---------- -------- ------------- ------------ -------------
Balance, December 31, 1998....... 23,937,874 $239 $ 53,305 $ 3,056 $ (7) $(958) $ 55,635
Issuance of stock to minority
holder....................... 85,000 1 299 -- -- -- 300
Cancellation of common stock
options...................... -- -- (505) -- -- 505 --
Exercise of common stock
options...................... 198,713 2 734 -- -- -- 736
Tax benefit from stock options
exercised.................... -- -- 730 -- -- -- 730
Amortization of deferred
compensation................. -- -- -- -- -- 148 148
Foreign currency translation
adjustment................... -- -- -- -- (23) -- (23)
Unrealized loss on
investments.................. -- -- -- -- (21) -- (21)
Net income..................... -- -- -- 1,101 -- -- 1,101
---------- ---- -------- ------- ---- ----- --------
Balance, December 31, 1999....... 24,221,587 242 54,563 4,157 (51) (305) 58,606
Issuance of stock in connection
with the acquisition of
Intrepa, L.L.C............... 173,900 2 10,235 -- -- -- 10,237
Cancellation of common stock
options...................... -- -- (27) -- -- 27 --
Exercise of common stock
options...................... 2,048,509 20 11,290 -- -- -- 11,310
Tax benefit from stock options
exercised.................... -- -- 13,522 -- -- -- 13,522
Amortization of deferred
compensation................. -- -- -- -- -- 85 85
Foreign currency translation
adjustment................... -- -- -- -- (52) -- (52)
Unrealized gain on
investments.................. -- -- -- -- 25 -- 25
Net income..................... -- -- -- 16,268 -- -- 16,268
---------- ---- -------- ------- ---- ----- --------
Balance, December 31, 2000....... 26,443,996 264 89,583 20,425 (78) (193) 110,001
Issuance of stock in connection
with the acquisition of
Intrepa, L.L.C. ............. 63,057 1 (1) -- -- -- --
Cancellation of common stock
options...................... -- -- (6) -- -- 6 --
Exercise of common stock
options...................... 1,277,700 13 6,704 -- -- -- 6,717
Buyback of Manhattan common
stock........................ (65,000) (1) (884) -- -- -- (885)
Tax benefit from stock options
exercised.................... -- -- 9,049 -- -- -- 9,049
Amortization of deferred
compensation................. -- -- -- -- -- 82 82
Foreign currency translation
adjustment................... -- -- -- -- (33) -- (33)
Unrealized gain on
investments.................. -- -- -- -- 69 -- 69
Net income..................... -- -- -- 16,187 -- -- 16,187
---------- ---- -------- ------- ---- ----- --------
Balance, December 31, 2001....... 27,719,753 $277 $104,445 $36,612 $(42) $(105) $141,187
========== ==== ======== ======= ==== ===== ========
The accompanying notes are an integral part of these consolidated statements of
shareholders' equity.
42
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------
1999 2000 2001
------ ------- -------
Net income.................................................. $1,101 $16,268 $16,187
Other comprehensive net loss, net of tax:
Foreign currency translation adjustment, net of taxes of
$9, $20, and $12 in 1999, 2000 and 2001,
respectively........................................... (14) (32) (21)
Unrealized gain (loss) on investments, net of taxes of $8,
$9, and $26 in 1999, 2000 and 2001, respectively....... (13) 16 43
------ ------- -------
Other comprehensive income (loss)........................... (27) (16) 22
------ ------- -------
Comprehensive net income.................................... $1,074 $16,252 $16,209
====== ======= =======
The accompanying notes are an integral part of these consolidated statements of
comprehensive income.
43
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
Cash flows from operating activities:
Net income or pro forma net income........................ $ 1,101 $ 16,268 $ 16,187
Adjustments to reconcile net income or pro forma net
income to net cash provided by operating activities:
Pro forma income taxes.................................. -- -- --
Depreciation and amortization........................... 4,035 4,935 6,128
Amortization of acquisition-related intangibles......... 1,102 1,165 5,240
Stock compensation...................................... 448 85 82
Loss (gain) on disposal of equipment.................... (22) -- 11
Acquired in-process research and development............ -- 2,425 --
Tax benefit of options exercised........................ 730 13,522 9,049
Deferred income taxes................................... (1,829) (2,127) (459)
Accrued interest on note payable........................ -- 103 105
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net.............................. (3,470) (2,181) 1,385
Other assets.......................................... 189 (988) (1,627)
Accounts payable...................................... (409) 4,484 (1,050)
Accrued liabilities................................... 2,253 4,051 (886)
Income taxes.......................................... 2,052 (7,467) 4,196
Deferred revenue...................................... 6,072 2,081 994
-------- -------- --------
Net cash provided by operating activities................... 12,252 36,356 39,355
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (4,754) (5,089) (6,101)
Proceeds from the sale of equipment....................... 22 -- --
Capitalized internally-developed software................. (909) -- --
Purchased software development costs...................... -- -- (717)
Net sales (purchases) of short-term investments........... (15,229) 3,610 (3,456)
Payments in connection with the acquisition of certain
assets of Intrepa, L.L.C., net of cash acquired......... -- (12,780) --
-------- -------- --------
Net cash used in investing activities....................... (20,870) (14,259) (10,274)
-------- -------- --------
Cash flows from financing activities:
Repayment of note payable................................. -- (2,000) (1,750)
Payment of capital lease obligations...................... (155) (170) (197)
Purchase of Manhattan common stock........................ -- -- (885)
Proceeds from issuance of common stock.................... 736 11,310 6,717
-------- -------- --------
Net cash provided by financing activities................... 581 9,140 3,885
-------- -------- --------
Foreign currency impact on cash............................. (19) 100 31
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (8,056) 31,337 32,997
Cash and cash equivalents, beginning of year................ 27,751 19,695 51,032
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 19,695 $ 51,032 $ 84,029
======== ======== ========
Supplemental cash flow disclosures:
Issuance of common stock in connection with the
acquisition of Intrepa, L.L.C. ......................... $ -- $ 10,237 $ --
======== ======== ========
Issuance of note payable in connection with the
acquisition of Intrepa, L.L.C. ......................... $ -- $ 7,000 $ --
======== ======== ========
Issuance of common stock to Company executive............. $ 300 $ -- $ --
======== ======== ========
Assets acquired under capital lease....................... $ 151 $ -- $ --
======== ======== ========
Cash paid for interest.................................... $ 92 $ 79 $ 583
======== ======== ========
Cash (paid) received for income taxes..................... $ 734 $ (5,717) $ 4,197
======== ======== ========
The accompanying notes are an integral part of these consolidated statements of
cash flows.
44
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 2000 AND 2001
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Manhattan Associates, Inc. ("Manhattan" or the "Company") is a provider of
technology-based solutions to improve supply chain effectiveness and
efficiencies within the extended supply chain. The Company's solutions are
designed to optimize the receipt, storage, assembly and distribution of
inventory and the management of equipment and personnel within a distribution
center, and to enhance collaboration between the distribution center and its
trading partners. The Company's solutions consist of software, including, a
comprehensive suite of robust and modular software products; services, including
design, configuration, implementation and training services, plus customer
support services and software enhancements subscriptions; and hardware.
The Company's operations are principally in North America and Europe. Its
European operations are conducted through its wholly-owned subsidiaries,
Manhattan Associates, Ltd and Manhattan Associates Europe, B.V. in the United
Kingdom and the Netherlands, respectively. The Company occasionally sells its
products in other regions, such as Australia, Latin America and the Far East
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 from international customers were denominated in
the respective local currencies and translated using the average monthly
exchange rates for the year. The effect on the statements of operations related
to transaction gains and losses is insignificant for all years presented. 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 is insignificant.
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.
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-term investments and accounts receivable. The Company maintains cash and
cash equivalents and short-term investments with two financial institutions. The
Company's sales are primarily to companies located in the United States and
Europe. 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. companies under stated contract terms. The Company
provides for estimated credit losses at the time of sale.
Our top five customers in aggregate accounted for 21%, 22% and 10% of total
revenue for each of the years ended December 31, 2001, 2000, and 1999,
respectively. Sales to one customer ("the significant customer") accounted for
approximately 10% of total revenue for the year ended December 31, 2001. Most of
45
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the revenue from the significant customer in 2001 arose from purchases of
hardware. No single customer accounted for more than 10% of revenue in 2000 or
1999. Accounts receivable from the significant customer on December 31, 2001 was
approximately $4.3 million. On January 22, 2002, the 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 includes approximately $2.3 million of software fees, $1.6 million
of fees for professional services and $0.4 million of hardware. Additionally, we
billed the significant customer approximately $0.9 million for professional
services during January 2002 prior to the Chapter 11 filing. These accounts
receivable will be evaluated for collectibility in the first quarter of 2002.
Marketable Securities
The Company's investment in marketable securities consists of debt
instruments of the U.S. Treasury, U.S. 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." 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. At
December 31, 2000 and 2001, the cumulative unrealized gain on short-term
investments was $4,000 and $73,000, respectively. The following is a summary of
the available-for-sale securities (in thousands):
DECEMBER 31,
-------------------------------------
2000 2001
----------------- -----------------
MARKET MARKET
COST VALUE COST VALUE
------- ------- ------- -------
Investments:
U.S. government and state obligations................ $ 5,705 $ 5,708 $10,644 $10,636
U.S. corporate commercial paper...................... 23,043 23,044 30,343 30,421
Canadian government obligations...................... -- -- 2,654 2,657
------- ------- ------- -------
Total.................................................. $28,748 $28,752 $43,641 $43,714
======= ======= ======= =======
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 and disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
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.
Risks Associated with Single Business Line, Technological Advances, and
Hardware Revenue
The Company currently derives a substantial portion its revenues from sales
of its software and related services and hardware. Any factor adversely
affecting the markets for distribution management center
46
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
solutions could have an adverse effect on the Company's business, financial
condition, and results of operations.
The markets for supply chain collaboration and distribution center
management 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 Company's position in these markets could be eroded rapidly by unforeseen
changes in customer requirements for application features, functions, and
technologies. The Company's 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.
The Company resells a variety of hardware products developed and
manufactured by third parties. Revenue from such hardware sales can amount to a
significant portion of the Company's total revenue in any period. As the market
for distribution of hardware products becomes more competitive, the Company's
customers may find it attractive to purchase such hardware directly from the
manufacturer of such products, with a resultant decrease in the Company's
revenues from hardware.
Revenue Recognition
The Company's revenue consists of revenues from the licensing of software;
fees from consulting, implementation and training services (collectively,
"professional services"), plus customer support services and software upgrades;
and sales of complementary radio frequency and computer equipment.
Effective January 1, 1998, the Company adopted Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position No. 98-9, "Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). Under SOP 97-2, the Company recognizes software
license revenue 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; (4) collectibility is probable; and (5) remaining obligations
under the license agreement are insignificant. SOP 98-9 requires recognition of
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. SOP 98-9 was effective for transactions entered into after March 15,
1999, and the Company adopted the residual method for such arrangements at that
time. For those contracts that contain significant future obligations, license
revenue is recognized under the percentage of completion method.
The Company's services revenue consists of fees generated from professional
services, customer support services and software enhancement subscriptions
related to the Company's software products. Professional services are typically
contracted for under separate service agreements. 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 fixed-fee based contracts, but only in instances when
the scope of the project is reasonably quantifiable. Revenue related to
fixed-fee based contracts is recognized on a percent complete basis based on the
hours incurred. 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.
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 Company's software solutions. As part of a complete
x-SCE solution the Company's customers frequently purchase hardware from
47
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company in conjunction with the licensing of software. These products
include computer hardware, radio frequency terminals networks, bar code printers
and scanners, and other peripherals. Hardware revenue is recognized upon
shipment to the customer. 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.
Deferred Revenue
Deferred revenue represents amounts collected prior to complete performance
of professional services, customer support services and software enhancement
subscriptions and significant 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, 2000 or 2001.
Property and Equipment
Property and equipment 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, purchased software and web site development 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 its useful
life or the term of the lease. Included in computer equipment and software is a
capital lease of approximately $670,000 and $447,000, net of depreciation, as of
December 31, 2000 and 2001, respectively. Depreciation and amortization expense
for property and equipment for the years ended December 31, 1999, 2000 and 2001
was approximately $3,213,000, $4,315,000 and $5,719,000, 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,
------------------
2000 2001
------- --------
Computer equipment and software............................. $13,640 $ 18,598
Furniture and office equipment.............................. 4,672 4,837
Leasehold improvements...................................... 1,708 2,583
------- --------
20,020 26,018
Less accumulated depreciation and amortization.............. (9,187) (14,833)
------- --------
$10,833 $ 11,185
======= ========
Intangible Assets
Intangible assets include acquired software, goodwill and capitalized
development costs. The assets are being amortized on a straight-line basis over
a period of 3 to 10 years. Total amortization expense related to goodwill and
acquired software was approximately $1,102,000, $1,165,000 and $5,240,000 for
the years ended December 31, 1999, 2000 and 2001, respectively, and is included
separately in the accompanying consolidated statements of income. Total
amortization expense related to capitalized software development costs was
approximately $822,000, $620,000 and $406,000 for the years ended December 31,
1999, 2000 and 2001, respectively, and is included in cost of software fees in
the accompanying consolidated statements of income.
48
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1999, the Company expensed approximately $300,000 of capitalized software
development costs and approximately $495,000 of acquired software and goodwill
due to impairment of certain assets, respectively.
Intangible Assets consist of the following (in thousands):
DECEMBER 31,
------------------
2000 2001
------- --------
Goodwill.................................................... $26,404 $ 26,331
Acquired software........................................... 8,908 8,908
Capitalized software development costs...................... 1,523 2,240
------- --------
36,835 37,479
Less accumulated amortization............................... (4,381) (10,029)
------- --------
$32,454 $ 27,450
======= ========
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, 1999, 2000 and 2001, the Company
capitalized approximately $909,000, $0 and $0 of internal research and
development costs. Amounts capitalized include salaries, other payroll-related
costs, contract labor and other direct expenses. During 2001, payments of
approximately $717,000 were made to an outside research and development
organization to internationalize PkMS into Japanese, German, French and Spanish.
The payments have been classified as Other Assets and will be amortized over a
three-year period beginning in January 2002.
Impairment of Long-Lived and Intangible Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and 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. Management believes the long-lived and intangible assets
in the accompanying consolidated balance sheets are fairly valued.
Segment Information
The Company operates in a single segment as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." See Note
9 for discussion of foreign operations.
Basic and Diluted Net Income Per Share
Basic net income per share is computed using historical or pro forma net
income divided by the weighted average number of shares of common stock
outstanding ("Weighted Shares") for the period presented.
49
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1999, 2000 and 2001:
1999 2000 2001
----------------------- ----------------------- -----------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ---------- ---------- ----------
Weighted shares...... 24,083,571 24,083,571 25,174,102 25,174,102 27,077,137 27,077,137
Effect of CESs....... -- 2,469,008 -- 5,279,342 -- 3,664,894
---------- ---------- ---------- ---------- ---------- ----------
24,083,571 26,552,579 25,174,102 30,453,444 27,077,137 30,742,031
========== ========== ========== ========== ========== ==========
Stock-Based Compensation Plan
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."
Comprehensive Income
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes the rules for the reporting of comprehensive
income and its components. The Company's comprehensive income includes net
income, foreign currency translation adjustments and unrealized gains and losses
on short-term investments.
Reclassifications
Certain reclassifications were made to the prior years' financial
statements to conform to the 2001 presentation.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company adopted the new statement on January 1, 2001. The adoption of this
Statement did not have a significant impact on the Company's financial
statements.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125." This
Statement revises the standards for accounting for securitizations and other
transfers of financial assets and collateral. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The adoption of this Statement did not have a
significant impact on the Company's financial statements.
50
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations." This Statement requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
and eliminates the pooling-of-interests method. The adoption of this Statement
did not have a significant impact on the Company's financial statements.
Also in July 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets." This Statement requires that
goodwill and certain intangible assets, including those recorded in past
business combinations, no longer be amortized to earnings, but instead be tested
for impairment at least annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 142 on January
1, 2002 and as a result, we will cease to amortize approximately $21.3 million
of goodwill during 2002. We had recorded approximately $3.0 million of
amortization on these amounts during 2001 and would have recorded approximately
$3.0 million of amortization during 2002. In lieu of amortization, we are
required to perform an initial impairment review of our goodwill in 2002 and an
impairment review at least annually thereafter.
In November 2001, the FASB issued a Staff Announcement Topic D-103 (Topic
D-103), "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred." Topic D-103 establishes that reimbursements
received for out-of-pocket expenses should be reported as revenue in the
statement of operations. During 2001, we classified reimbursed out-of-pocket
expenses as a reduction of operating expenses. We adopted this guidance
effective January 1, 2002. Our adoption of Topic D-103 will result in increased
services revenue and increased costs of services revenue. Our results of
operations for prior periods will be reclassified to conform to the new
presentation. The total amount of expense reimbursement recorded to expense was
$4.0 million, $5.5 million and $5.1 million for 1999, 2000 and 2001,
respectively. Our adoption of Topic D-103 will not affect our net income or loss
in any past or future periods.
2. INCOME TAXES
The Company is subject to future federal and state income taxes and has
recorded net deferred tax assets. 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 Company's
deferred tax assets and liabilities as of December 31, 2000 and 2001 are as
follows:
DECEMBER 31,
-----------------------
2000 2001
---------- ----------
Deferred tax assets:
Accounts receivable....................................... $1,581,000 $1,421,000
Accrued liabilities....................................... 911,000 506,000
Stock compensation expense................................ 271,000 57,000
Intangible assets......................................... 1,179,000 1,938,000
Depreciation.............................................. -- 534,000
Research and development credits.......................... 779,000 779,000
Other..................................................... 39,000 --
---------- ----------
4,760,000 5,235,000
Deferred tax liabilities:
Depreciation.............................................. 27,000 --
Other..................................................... -- 43,000
---------- ----------
Net deferred tax assets................................... $4,733,000 $5,192,000
========== ==========
51
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the historical income tax provision for the years ended
December 31, 1999, 2000 and 2001 are as follows:
1999 2000 2001
----------- ----------- ----------
Current:
Federal........................................ $ 2,264,000 $ 8,936,000 $7,546,000
State.......................................... 401,000 1,698,000 1,432,000
Foreign........................................ -- 450,000 929,000
----------- ----------- ----------
2,665,000 11,084,000 9,907,000
----------- ----------- ----------
Deferred:
Federal........................................ (1,777,000) (1,132,000) (324,000)
State.......................................... (334,000) (212,000) (61,000)
----------- ----------- ----------
(2,111,000) (1,344,000) (385,000)
----------- ----------- ----------
Total.................................. $ 554,000 $ 9,740,000 $9,522,000
=========== =========== ==========
The income tax benefits related to the exercise of stock options were
allocated to additional paid-in capital. Such amounts were approximately
$730,000, $13,522,000 and $9,049,000 for 1999, 2000 and 2001, respectively. As a
result of these income tax benefits, the Company has refundable income taxes of
$1,624,000 at December 31, 2001. The refundable income taxes represent refunds
to be received for taxes paid in 1998 and 1999.
As a result of the tax benefit related to the exercise of stock options,
the Company has federal net operating loss carry-forwards ("NOLs") of
approximately $23,504,000 available to offset future income in those respective
taxing jurisdictions. The federal NOLs expire in 2021. The NOLs may be subject
to certain limitations in the event of a change in ownership. In addition, the
Company has $1,396,000 of research and development tax credit carryforwards that
expire in 2018 to 2021.
The following is a summary of the items that resulted in recorded income
taxes to differ from taxes computed using the statutory federal income tax rate
for the years ended December 31, 1999, 2000 and 2001:
1999 2000 2001
----- ---- ----
Statutory federal income tax rate........................... 34.0% 35.0% 35.0%
Effect of:
State income tax, net of federal benefit.................. 4.0 4.0 3.5
Research and development credits.......................... (16.6) (1.0) (0.8)
Foreign operations........................................ (0.7) (0.7) (0.6)
Tax exempt income......................................... (5.2) (0.3) (0.3)
Meals and entertainment................................... 6.0 0.4 0.6
Intangibles............................................... 12.0 0.2 0.1
Other..................................................... -- (0.1) (0.5)
----- ---- ----
Income taxes................................................ 33.5% 37.5% 37.0%
===== ==== ====
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 aggregate number of shares reserved for
issuance under the LLC Option Plan was 5,000,000 shares. 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
52
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Company's 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 three to six years.
As of December 31, 2001, the Stock Incentive Plan provides for issuance of
up to 10,659,453 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 Manhattan
Associates, LLC Option Plan; (ii) the aggregate number of shares subject to then
outstanding stock incentives granted under the Plan and the Manhattan
Associates, 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 PRICE EXERCISE PRICE
---------- -------------- ----------------
December 31, 1998.......................... 5,968,970 $ 0.24 - 23.50 $ 7.71
---------- -------------- ------
Granted.................................. 4,661,114 3.53 - 17.50 7.07
Canceled................................. (2,756,221) 2.50 - 23.50 10.60
Exercised................................ (198,713) 2.50 - 10.00 3.70
---------- -------------- ------
December 31, 1999.......................... 7,675,150 $ 0.24 - 23.50 $ 6.38
---------- -------------- ------
Granted.................................. 1,460,275 7.38 - 68.38 37.90
Canceled................................. (563,001) 2.50 - 61.25 9.61
Exercised................................ (2,048,509) 0.24 - 23.50 5.52
---------- -------------- ------
December 31, 2000.......................... 6,523,915 $ 0.24 - 68.38 $13.24
---------- -------------- ------
Granted.................................. 1,658,700 12.90 - 42.63 26.23
Canceled................................. (372,148) 2.50 - 66.13 31.78
Exercised................................ (1,277,700) 0.24 - 29.88 5.26
---------- -------------- ------
December 31, 2001.......................... 6,532,767 $ 0.24 - 68.38 $17.04
========== ============== ======
53
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of options outstanding at December 31, 2001 are as follows:
OUTSTANDING EXERCISABLE
----------------------------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED
EXERCISE OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- --------------- ----------- --------------
$ 0.24 - 3.50 829,551 3.8 $ 1.65 829,551 $ 1.65
3.51 - 7.50 1,288,765 7.3 4.86 557,857 5.51
7.51 - 15.00 1,606,961 7.2 9.31 903,937 8.95
15.01 - 25.00 584,715 7.9 18.57 162,969 17.96
25.01 - 40.00 1,802,175 9.5 30.40 129,372 37.64
40.01 - 68.38 420,600 8.8 54.95 144,362 50.71
--------- --- ------ --------- ------
6,532,767 7.6 $17.04 2,728,048 $10.14
At December 31, 2001, 1,032,348 shares are available for future grant.
The Company recorded deferred compensation of $580,000 on options granted
during 1998, as the exercise price was less than the deemed fair value of the
underlying common stock. The Company amortizes deferred compensation over a
period not to exceed six years. The Company recognized compensation expense of
$148,000, $85,000 and $82,000 for the year ended December 31, 1999, 2000 and
2001, respectively, and had deferred compensation expense of $193,000 and
$105,000 at December 31, 2000 and 2001, respectively.
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 assumptions:
1999 2000 2001
------- ------- -------
Dividend yield............................................ -- -- --
Expected volatility....................................... 119% 131% 122%
Risk-free interest rate at the date of grant.............. 5.0% 5.0% 5.0%
Expected life............................................. 5 years 5 years 5 years
Using these assumptions, the fair values of the stock options granted
during the years ended December 31, 1999, 2000 and 2001 are $24,410,000,
$37,221,000 and $30,421,000, respectively, which would be amortized over the
vesting period of the options.
The weighted average fair market values of options at the date of grant for
the years ended December 31, 1999, 2000 and 2001 was $5.90, $33.07 and $22.37,
respectively.
54
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma information adjusts the net income and net income
per share of common stock for the impact of SFAS No. 123:
1999 2000 2001
-------- ------- -------
Net income:
As reported.......................................... $ 1,101 $16,268 $16,187
Pro forma in accordance with SFAS No. 123............ $(11,481) $(2,911) (10,341)
Basic net income or pro forma net income per share:
As reported.......................................... $ 0.05 $ 0.65 $ 0.60
Pro forma in accordance with SFAS No. 123............ $ (0.48) $ (0.12) $ (0.38)
Diluted net income or pro forma net income per share:
As reported.......................................... $ 0.04 $ 0.53 $ 0.53
Pro forma in accordance with SFAS No. 123............ $ (0.48) $ (0.12) $ (0.34)
The following table summarizes the range of exercise price and the weighted
average exercise price for the options granted during the three years ending
December 31, 2001:
WEIGHTED
NUMBER OF RANGE OF AVERAGE
YEAR OF GRANT SHARES EXERCISE PRICE EXERCISE PRICE
------------- --------- -------------- --------------
1999
Options granted at fair market value.......... 4,661,114 3.531-17.50 7.069
Options granted at less than fair market
value...................................... -- -- --
2000
Options granted at fair market value.......... 1,460,275 7.38-68.38 37.90
Options granted at less than fair market
value...................................... -- -- --
2001
Options granted at fair market value.......... 1,658,700 12.90-42.63 26.23
Options granted at less than fair market
value...................................... -- -- --
4. SHAREHOLDERS' EQUITY
ISSUANCE OF STOCK
During 1999, the Company issued 85,000 shares of common stock to one of the
Company's executives as part of his employment agreement. Compensation expense
of approximately $300,000 was recorded in connection with the issuance.
During 2000, the Company issued 173,900 shares of the Company's common
stock in connection with the acquisition of Intrepa, L.L.C. The number of shares
issued by the Company was subject to adjustment on January 1, 2001 and April 1,
2001 based on the average closing price of the Company's common stock for the 20
days prior to January 1, 2001 and April 1, 2001. In January and April 2001, the
Company issued 1,238 and 61,819 additional shares, respectively, in connection
with the acquisition.
PURCHASE OF STOCK
During 2001, the Company purchased 65,000 shares of the Company's common
stock for approximately $885,000 through open market transactions as part of a
publicly-announced buy-back program.
55
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
LEASES
Rents charged to expense were approximately $2,878,000, $2,423,000 and
$3,269,000 for the years ended December 31, 1999, 2000 and 2001, respectively.
The principal leases expire on March 31, 2008. Aggregate future minimum lease
payments under the capital lease and noncancellable operating leases as of
December 31, 2001 are as follows (in thousands):
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------- ------- ---------
2002........................................................ $249 $ 4,308
2003........................................................ 237 2,918
2004........................................................ 118 2,768
2005........................................................ 108 2,457
2006 and thereafter......................................... -- 5,020
---- -------
Total............................................. 712 $17,471
Less amount representing interest......................... (117)
----
Net present value of future minimum lease payments........ 595
Less current portion of capital lease obligation.......... (163)
----
Long-term portion of capital lease obligation............. $432
====
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 $1.9 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 12 months.
LEGAL MATTERS
Many of the Company's 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 Company's 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.
6. LONG-TERM DEBT
A portion of the purchase price of the Intrepa acquisition has been funded
with the issuance of a promissory note (the "Note"). Unless prepaid at the
option of the Company, the Note is payable in four equal installments of
$1,750,000, to be paid every six months beginning on October 1, 2001 and
concluding on April 1, 2003. The Note is subject to interest at a rate of 8% per
year, which is due on the last day of each
56
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fiscal quarter of the Company for so long as principal remains outstanding under
the Note. Long-term debt consists of the following (in thousands):
DECEMBER 31,
-----------------
2000 2001
------- -------
Promissory note outstanding bearing interest at 8% per year,
repayable every six months through April 1, 2003.......... $ 7,000 $ 5,250
Less current portion........................................ (1,750) (3,500)
------- -------
Long-term portion........................................... $ 5,250 $ 1,750
======= =======
Future principal payments under the note as of December 31, 2001 are as
follows (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------
2002................................................. 3,500
2003................................................. 1,750
-----
Total............................................. 5,250
=====
7. ACQUISITION
Fiscal 2000 Acquisition
On October 24, 2000, the Company acquired substantially all of the assets
of Intrepa, L.L.C. ("Intrepa") for a purchase price of approximately $31.0
million. The purchase price consists of a cash payment of $13.0 million, the
issuance of approximately $10.0 million of the Company's $.01 par value per
share common stock (totaling 236,957 shares), and the issuance by the Company of
a promissory note for $7.0 million. The Company also incurred approximately $0.9
million of transaction costs related to the acquisition. The purchase price
includes the assumption of substantially all of the liabilities of Intrepa,
including immediate payment by the Company of the remaining $2.0 million of
principal and up to $15,000 interest on a promissory note previously issued by
Intrepa. The acquisition has been accounted for under the purchase method of
accounting. Based on an independent appraisal, the purchase price has been
allocated to net liabilities assumed of $2.6 million, acquired in-process
research and development of $2.4 million (see Note 8), acquired developed
technology of $7.5 million, and other intangible assets of $23.3 million.
Acquired developed technology is being amortized over an estimated five-year
useful life and other intangible assets are being amortized over a seven-year
useful life.
Unaudited pro forma operating results for the year ended December 31, 2000,
assuming that the acquisition had occurred at the beginning of 2000 is as
follows (in thousands):
2000
--------
Revenues.................................................... $140,728
Pro forma net income........................................ 11,528
Pro forma diluted net income per share...................... $ 0.38
8. IN-PROCESS RESEARCH AND DEVELOPMENT AND ACQUISITION-RELATED RESTRUCTURING
CHARGES
In-process research and development represents the value assigned in a
purchase business combination to research and development projects of the
acquired business that had commenced but had not reached technological
feasibility and has no alternative future use. In accordance with SFAS No. 2,
"Accounting for Research and Development Costs," as clarified by FASB
Interpretation No. 4, amounts assigned to in-process research and development
meeting the above stated criteria must be charged to expense as part of the
allocation of the purchase price of the business combination. Accordingly, a
charge totaling $2,425,000 was recorded during 2000 as part of the allocations
of the purchase price related to the acquisition of Intrepa.
57
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 2000, the Company recorded a restructuring charge as a result of the
acquisition of Intrepa. The charge consists entirely of severance related costs.
These costs were utilized in the fourth quarter of 2000 and the first quarter of
2001. The following is a summary of the amounts incurred:
2000 CHARGE UTILIZED 2000 UTILIZED 2001
----------- ------------- -------------
Employee severance............................... $576,000 $121,000 $455,000
9. FOREIGN OPERATIONS
Total international revenue was approximately $5.5 million, $14.9 million
and $26.1 million for the years ended December 31, 1999, 2000 and 2001,
respectively, which represents approximately 7%, 11% and 17% of our total
revenue for the years ended December 31, 1999, 2000 and 2001, respectively.
International revenue includes all revenue associated with sales of software,
services and hardware outside the United States.
During 1998, the Company commenced operations in Europe. Total revenue for
Europe was approximately $3.8 million, $10.3 million and $22.1 million for the
years ended December 31, 1999, 2000 and 2001, respectively. Total net income for
Europe was approximately $28,000, $1.2 million and $2.2 million for the years
ended December 31, 1999, 2000 and 2001, respectively. Total assets for Europe
were approximately $2.3 million, $4.6 million and $7.7 million as of December
31, 1999, 2000 and 2001, respectively.
10. 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) Plan's deferred
compensation arrangement, eligible employees who elect to participate in the
401(k) Plan may contribute up to 18% up to $10,500 of eligible compensation, as
defined, to the 401(k) Plan. The Company provides for a 50% matching
contribution up to 6% of eligible compensation being contributed after the
participant's first year of employment. During the years ended December 31,
1999, 2000 and 2001, the Company made matching contributions to the 401(k) Plan
of $413,000, $706,000 and $1,059,000, respectively.
58
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2000 and 2001. The unaudited quarterly
results have been prepared on substantially the same basis as the audited
Financial Statements.
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue:
Software fees................... $ 5,036 $ 5,686 $ 6,529 $ 8,939 $ 7,841 $ 9,362 $ 9,206 $ 9,027
Services........................ 17,544 19,228 21,207 23,106 23,497 23,890 24,694 25,429
Hardware........................ 5,763 9,714 5,968 4,376 4,737 2,872 4,521 10,521
Allowance for bankrupt
customer...................... -- -- -- -- -- -- -- (4,328)
------- ------- ------- ------- ------- ------- ------- -------
Total revenue............ 28,343 34,628 33,704 36,421 36,075 36,124 38,421 40,649
Costs and expenses:
Cost of software fees........... 277 539 192 231 485 385 401 184
Cost of services................ 8,162 8,029 8,753 9,355 9,898 10,041 10,994 11,439
Cost of hardware................ 4,701 7,988 4,759 3,374 3,608 2,363 3,729 8,283
Research and development........ 3,046 3,042 4,213 5,805 5,038 4,706 4,739 4,930
Sales and marketing............. 3,977 4,631 4,298 5,145 5,313 5,513 5,779 5,729
General and administrative...... 3,773 3,589 3,743 4,018 4,192 4,657 4,824 5,149
In-process research and
development and acquisition-
related charges............... -- -- -- 3,001 -- -- -- --
Amortization of
acquisition-related
intangibles................... 94 94 93 884 1,310 1,310 1,310 1,310
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............... 24,030 27,912 26,051 31,813 29,844 28,975 31,776 37,024
------- ------- ------- ------- ------- ------- ------- -------
Income from operations............ 4,313 6,716 7,653 4,608 6,231 7,149 6,645 3,625
Other income, net................. 403 587 851 877 550 478 649 382
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes........ 4,716 7,303 8,504 5,485 6,781 7,627 7,294 4,007
Income taxes...................... 1,792 2,775 3,231 1,942 2,509 2,833 2,698 1,482
------- ------- ------- ------- ------- ------- ------- -------
Net income........................ $ 2,924 $ 4,528 $ 5,273 $ 3,543 $ 4,272 $ 4,794 $ 4,596 $ 2,525
======= ======= ======= ======= ======= ======= ======= =======
Diluted net income per share...... $ 0.10 $ 0.15 $ 0.17 $ 0.11 $ 0.14 $ 0.16 $ 0.15 $ 0.08
======= ======= ======= ======= ======= ======= ======= =======
Shares used in diluted net income
per share....................... 28,946 29,832 30,900 31,189 30,674 30,748 30,605 30,908
======= ======= ======= ======= ======= ======= ======= =======
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required by this item is incorporated by reference from
the information contained in the Company's Proxy Statement for the Annual
Meeting of Shareholders expected to be filed with the Commission on or prior to
April 30, 2002 under the captions "Election of Directors," "Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance." Certain
information regarding executive officers of the Company is included in Part I of
this report on Form 10-K under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information contained in the Company's Proxy Statement for the Annual Meeting of
Shareholders expected to be filed with the Commission on or prior to April 30,
2002 under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information contained in the Company's Proxy Statement for the Annual Meeting of
Shareholders expected to be filed with the Commission on or prior to April 30,
2002 under the caption "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained in the Company's Proxy Statement for the Annual Meeting of
Shareholders expected to be filed with the Commission on or prior to April 30,
2002 under the caption "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(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:
60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Manhattan Associates, Inc.
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements of Manhattan Associates, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
January 31, 2002. Our audits were made for the purpose of forming an opinion on
those statements taken as a whole. The forgoing schedule is the responsibility
of the company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 31, 2002
61
SCHEDULE II
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO AT END OF
CLASSIFICATION: PERIOD OPERATIONS DEDUCTIONS PERIOD
--------------- ------------ ---------- ---------- ----------
Allowance for doubtful accounts for the year
ended:
December 31, 1999............................. $1,600,000 $9,015,000 $5,142,000 $5,473,000
December 31, 2000............................. 5,473,000 3,510,000 4,185,000 4,798,000
December 31, 2001............................. 4,798,000 6,977,000 3,242,000 8,533,000
All other schedules are omitted because they are not required or the
required information is shown in the consolidated financial statements or notes
thereto.
62
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
(c) Exhibits. The following exhibits are filed as part of, or are
incorporated by reference into, this report on Form 10-K:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Articles of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.1 to the Company's 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 Company's Registration Statement on Form
S-1 (File No. 333-47095) filed on February 27, 1998).
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 Company's 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 Company's 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 Company's 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 Company's 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 Company's 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 Company's
Annual Report for the period ended December 31, 2000, filed
on April 2, 2001).
10.5 -- Lease Agreement by and between Wildwood Associates, a
Georgia general partnership, and the Company dated June 25,
2001 (Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report for the period ended June 30,
2001, filed August 14, 2001).
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 Company's Annual Report for the period ended
December 31, 1999, filed on March 30, 2000).
10.7 -- 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 Company's Annual Report for the period ended
December 31,1998, filed on March 31, 1999).
10.8 -- 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 Company's Annual Report for the
period ended December 31, 1998, filed on March 31, 1999).
10.9 -- 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 Company's
Annual Report for the period ended December 31, 2000, filed
on April 2, 2001).
10.10 -- Standard Sublease Agreement between Chevron USA Inc. and the
Registrant, dated November 20, 2000 (Incorporated by
reference to Exhibit 10.18 to the Company's Annual Report
for the period ended December 31, 2000, filed on April 2,
2001).
63
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.11 -- Form of Indemnification Agreement with certain directors and
officers of the Registrant (Incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form
S-1 (File No. 333-47095) filed on February 27, 1998).
10.12 -- Form of Tax Indemnification Agreement for direct and
indirect shareholders of Manhattan Associates Software, LLC
(Incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (File No. 333-47095)
filed on February 27, 1998).
10.13 -- Contribution Agreement between the Registrant and Daniel
Basmajian, Sr. (Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1 (File No.
the Company's Registration Statement on Form S-1 (File No.
333-47095) filed on February 27, 1998).
10.14 -- Share Purchase Agreement between Deepak Raghavan and the
Registrant effective as of February 16, 1998 (Incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-47095) filed on February
27, 1998).
10.15 -- Summary Plan Description of the Registrant's Money Purchase
Plan & Trust, effective January 1, 1997 (Incorporated by
reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 333-47095) filed on February
27, 1998).
10.16 -- Summary Plan Description of the Registrant's 401(k) Plan and
Trust, effective January 1, 1995 (Incorporated by reference
to Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (File No. 333-47095) filed on February 27, 1998).
10.17 -- Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File No. 333-47095)
filed on February 27, 1998).
10.18 -- First Amendment to the Manhattan Associates, Inc. 1998 Stock
Incentive Plan (Incorporated by reference to Exhibit 10.22
to the Company's Annual Report for the period ended December
31, 1998, filed on March 31, 1999).
10.19 -- Second Amendment to the Manhattan Associates, Inc. 1998
Stock Incentive Plan (Incorporated by reference to Exhibit
10.23 to the Company's Annual Report for the period ended
December 31, 1998, filed on March 31, 1999).
10.20 -- Third Amendment to the Manhattan Associates, Inc. 1998 Stock
Incentive Plan (Incorporated by reference to Exhibit 10.24
to the Company's Annual Report for the period ended December
31, 1998, filed on March 31, 1999).
10.21 -- Fourth Amendment to the Manhattan Associates, Inc. 1998
Stock Incentive Plan (Incorporated by reference to Exhibit
10.25 to the Company's Annual Report for the period ended
December 31, 1999, filed on March 30, 2000).
10.22 -- Fifth Amendment to the Manhattan Associates, Inc. 1998 Stock
Incentive Plan (Incorporated by reference to Exhibit 4.8 to
the Company's Form S-8, filed on September 5, 2001).
10.23 -- Manhattan Associates, LLC Option Plan (Incorporated by
reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (File No. 333-47095) filed on February
27, 1998).
10.24 -- Executive Employment Agreement executed by Neil Thall
(Incorporated by reference to Exhibit 10.14 to the Company's
Pre-Effective Amendment No. 1 to its Registration Statement
on Form S-1 (File No. 333-47095) filed on April 2, 1998).
10.25 -- Executive Employment Agreement executed by Richard M.
Haddrill, dated October 11, 1999 (Incorporated by reference
to Exhibit 10.26 to the Company's Annual Report for the
period ended December 31, 1999, filed on March 30, 2000).
10.26 -- Executive Employment Agreement Modification by and among the
Company and Richard M. Haddrill, effective July 19, 2001
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report for the period ended September 30, 2001,
filed on November 14, 2001).
64
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.27 -- Form of License Agreement, Software Maintenance Agreement
and Consulting Agreement (Incorporated by reference to
Exhibit 10.18 to the Company's Pre-Effective Amendment No. 1
to its Registration Statement on Form S-1 (File No.
333-47095) filed on April 2, 1998).
10.28 -- Form of Software License, Services and Maintenance Agreement
(Incorporated by reference to Exhibit 10.21 to the Company's
Annual Report for the period ended December 31, 1998, filed
on March 31, 1999).
21.1 -- List of Subsidiaries (Incorporated by reference to Exhibit
21.1 to the Company's Registration Statement on Form S-1
(File No. 333-47095) filed on February 27, 1998).
23.1 -- Consent of Arthur Andersen LLP.
99.1 -- Safe Harbor Compliance Statement for Forward-Looking
Statements.
99.2 -- Letter to SEC re: Arthur Andersen.
65
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.
MANHATTAN ASSOCIATES, INC.
By: /s/ RICHARD M. HADDRILL
------------------------------------
Richard M. Haddrill
Chief Executive Officer, President
and Director
Date: April 1, 2002
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ALAN J. DABBIERE Chairman of the Board April 1, 2002
---------------------------------------------------
Alan J. Dabbiere
/s/ RICHARD M. HADDRILL Chief Executive Officer, President April 1, 2002
--------------------------------------------------- and Director (Principal Executive
Richard M. Haddrill Officer)
/s/ THOMAS W. WILLIAMS, JR. Senior Vice President, Chief April 1, 2002
--------------------------------------------------- Financial Officer and Treasurer
Thomas W. Williams, Jr. (Principal Financial and
Accounting Officer)
/s/ DEEPAK RAGHAVAN Director April 1, 2002
---------------------------------------------------
Deepak Raghavan
/s/ BRIAN J. CASSIDY Director April 1, 2002
---------------------------------------------------
Brian J. Cassidy
/s/ JOHN R. HARDESTY Director April 1, 2002
---------------------------------------------------
John R. Hardesty
/s/ JOHN J. HUNTZ, JR. Director April 1, 2002
---------------------------------------------------
John J. Huntz, Jr.
/s/ THOMAS E. NOONAN Director April 1, 2002
---------------------------------------------------
Thomas E. Noonan
66