Quarterly Report (10-q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

R		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2012

OR

£		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Transition Period from                    to

Commission File Number: 0-27876

JDA SOFTWARE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		86-0787377
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

14400 North 87th Street

Scottsdale, Arizona 85260

[phone]

(Address and telephone number of principal executive offices)

Indicate by check mark whether 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) had been subject to such filing requirements for the past 90 days. Yes R No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Acts. (Check one):

Large accelerated filer R	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No   R

The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, was 43,087,476 as of October 25, 2012

 

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FORM 10-Q

TABLE OF CONTENTS

	Page No.
PART I: INTERIM FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	4
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and September 30, 2011	5
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2012 and September 30, 2011	6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and September 30, 2011	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	41
PART II: OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3. Defaults Upon Senior Securities	44
Item 4. Mine Safety Disclosures	44
Item 5. Other Information	44
Item 6. Exhibits	44
Signature	45

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Restatement

As described in JDA Software Group, Inc. (“we,” “JDA,” or the “Company)'s Annual Report on Form 10-K for the year ended December 31, 2011 (the "Form 10-K"), we have restated our financial statements and other information. For further discussion of the effects of the restatement, see Part 1, Item 1, “Financial Statements,” Note 14, “Restatement of Previously Issued Financial Statements,” to our Condensed Consolidated Financial Statements, Item 2, “Management's Discussion and Analysis of Results of Operations and Financial Condition,” and Item 4, “Controls and Procedures.”

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JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

	September 30, 2012				December 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents	$	408,284			$	285,512
Restricted cash — current portion	3,004				8,733
Accounts receivable, net	96,814				114,778
Deferred tax assets — current portion	36,660				32,063
Prepaid expenses and other current assets	26,723				24,584
Total current assets	571,485				465,670
Non-Current Assets:
Restricted cash — long-term portion	410				652
Property and equipment, net	52,655				52,541
Goodwill	231,377				231,377
Other intangibles, net	108,185				141,882
Deferred tax assets — long-term portion	244,072				258,271
Other non-current assets	18,911				20,565
Total non-current assets	655,610				705,288
Total Assets	$	1,227,095			$	1,170,958
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	8,342			$	7,740
Accrued expenses and other liabilities	80,760				73,111
Deferred revenue — current portion	116,372				108,217
Total current liabilities	205,474				189,068
Non-Current Liabilities:
Long-term debt	273,626				273,210
Accrued exit and disposal obligations	2,773				3,926
Liability for uncertain tax positions	3,194				4,098
Deferred revenue — long-term portion	5,252				8,115
Other non-current liabilities	5,247				1,368
Total non-current liabilities	290,092				290,717
Total Liabilities	495,566				479,785
Stockholders’ Equity:
Common stock	453				449
Additional paid-in capital	582,704				571,593
Retained earnings	180,906				154,551
Accumulated other comprehensive gain (loss)	3,702				(2,454		)
Treasury stock	(36,236		)		(32,966		)
Total stockholders’ equity	731,529				691,173
Total Liabilities and Stockholders’ Equity	$	1,227,095			$	1,170,958

  See notes to Condensed Consolidated Financial Statements. 

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JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except earnings per share data, unaudited)

 

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2012				2011				2012				2011
					As Restated (1)								As Restated (1)
REVENUES:
Software licenses	$	27,544			$	34,726			$	84,977			$	100,591
Subscriptions and other recurring revenues	3,909				3,738				11,695				12,582
Maintenance services	68,784				67,632				202,312				198,545
Product revenues	100,237				106,096				298,984				311,718
Consulting services	59,090				60,970				179,852				177,156
Reimbursed expenses	5,193				6,033				16,627				17,265
Service revenues	64,283				67,003				196,479				194,421
Total revenues	164,520				173,099				495,463				506,139
COST OF REVENUES:
Cost of software licenses	1,034				1,009				3,469				3,139
Amortization of acquired software technology	1,702				1,726				5,107				5,393
Cost of maintenance services	14,101				13,654				42,435				42,376
Cost of product revenues	16,837				16,389				51,011				50,908
Cost of consulting services	45,733				44,505				137,638				138,015
Reimbursed expenses	5,193				6,033				16,627				17,265
Cost of service revenues	50,926				50,538				154,265				155,280
Total cost of revenues	67,763				66,927				205,276				206,188
GROSS PROFIT	96,757				106,172				290,187				299,951
OPERATING EXPENSES:
Product development	18,297				18,747				56,101				58,601
Sales and marketing	24,265				25,756				73,632				77,360
General and administrative	21,009				15,815				70,354				54,488
Amortization of intangibles	9,530				9,562				28,590				28,872
Restructuring charges	(163		)		768				2,280				1,279
Litigation settlement	—				—				—				(37,500		)
Total operating expenses	72,938				70,648				230,957				183,100
OPERATING INCOME	23,819				35,524				59,230				116,851
Interest expense and amortization of loan fees	6,608				6,435				19,562				19,085
Interest income and other, net	(1,253		)		(641		)		(3,192		)		(2,641		)
INCOME BEFORE INCOME TAXES	18,464				29,730				42,860				100,407
Income tax provision	7,413				11,443				16,505				21,294
NET INCOME	$	11,051			$	18,287			$	26,355			$	79,113
Basic net income per common share	$	0.26			$	0.43			$	0.62			$	1.87
Diluted net income per common share	$	0.26			$	0.43			$	0.61			$	1.85
Shares used in computing basic net income per common share	42,969				42,511				42,852				42,334
Shares used in computing diluted net income per common share	43,191				42,795				42,992				42,715

(1) As restated - See Note 14 “Restatement of Previously Issued Financial Statements” of Notes to Condensed Consolidated Financial Statements.

See notes to Condensed Consolidated Financial Statements.

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JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, unaudited)

 

	Three Months Ended September 30,								Nine Months Ended September 30,
	2012				2011				2012				2011
					As Restated (1)								As Restated (1)
Net income	$	11,051			$	18,287			$	26,355			$	79,113
Other comprehensive income:
Foreign currency translation adjustment, net of tax	4,104				(8,070		)		1,900				(4,943		)
Unrealized gains (losses) on cash flow hedges, net of tax	973				(2,801		)		556				(2,906		)
Reclassification adjustment for (gains) losses in net income	985				(54		)		3,700				(120		)
Other comprehensive income (loss)	6,062				(10,925		)		6,156				(7,969		)
Comprehensive income	$	17,113			$	7,362			$	32,511			$	71,144

 

(1) As restated - See Note 14 “Restatement of Previously Issued Financial Statements” of Notes to Condensed Consolidated Financial Statements.

See notes to Condensed Consolidated Financial Statements.

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JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Nine Months Ended September 30,
	2012				2011
					As Restated (1)
Operating Activities:
Net income	$	26,355			$	79,113
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44,932				44,261
Provision for doubtful accounts	204				—
Amortization of loan fees	1,853				1,739
Net gain on disposal of property and equipment	74				24
Stock-based compensation	8,716				12,161
Deferred income taxes	9,603				18,566
Changes in operating assets and liabilities:
Accounts receivable	18,927				(16,796		)
Prepaid expenses and other assets	(1,967		)		(2,974		)
Accounts payable	488				(14,957		)
Accrued expenses and other liabilities	3,329				659
Deferred revenue	5,640				8,245
Net cash provided by operating activities	118,154				130,041
Investing Activities:
Change in restricted cash	5,971				(2,293		)
Purchase of property and equipment	(8,875		)		(7,625		)
Proceeds from disposal of property and equipment	397				51
Net cash used in investing activities	(2,507		)		(9,867		)
Financing Activities:
Issuance of common stock	2,399				5,261
Purchase of treasury stock	(3,270		)		(5,166		)
Proceeds from bank advances	7,090				—
Debt issuance costs	—				(1,727		)
Conversion of warrants	—				671
Net cash provided by (used in) financing activities	6,219				(961		)
Effect of exchange rates on cash and cash equivalents	906				(1,173		)
Net increase in cash and cash equivalents	122,772				118,040
Cash and Cash Equivalents, Beginning of Period	285,512				171,618
Cash and Cash Equivalents, End of Period	$	408,284			$	289,658
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	$	6,887			$	9,709
Cash paid for interest	$	11,356			$	11,029
Cash received for income tax refunds	$	1,878			$	1,320
Capital expenditures incurred but not yet paid	$	2,798			$	68

 

(1) As restated - See Note 14 “Restatement of Previously Issued Financial Statements” of Notes to Condensed Consolidated Financial Statements.

See notes to Condensed Consolidated Financial Statements.

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JDA SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except percentages, shares, per share amounts, or as otherwise stated)

(unaudited)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with the Financial Accounting Standards Board (FASB) Standard Accounting Codification ("Codification"), which is the authoritative source of generally accepted accounting principles ("GAAP") for nongovernmental entities in the United States. The interim financial statements do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 . These Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

The preparation of financial statements in conformity with the Codification requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

There have been no significant changes to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 that have had a significant impact on our Condensed Consolidated Financial Statements or notes thereto.

2. Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04") . This ASU amends current fair value measurement and disclosure guidance to include increased transparency around valuation input and investment categorization, particularly for level 3 fair value measurements. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption not permitted. The Company's fair value of its 8% Senior Notes due 2014 (the "Senior Notes") is derived using quoted prices for similar liabilities in active markets (Level 2 inputs) and it does not currently have Level 3 measurements; therefore, the adoption of ASU 2011-04 did not have an impact on our Condensed Consolidated Financial Statements.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”), which simplifies how an entity tests goodwill for impairment. The standard permits an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Accordingly, an entity will no longer be required to calculate the fair value of a reporting unit in the step one test unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. ASU 2011-08 is effective for our annual goodwill impairment assessment for the fiscal year ended December 31, 2012 and is not expected have an impact on our Condensed Consolidated Financial Statements.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11"), to require entities to disclose information about offsetting and related arrangements of financial and derivative instruments. ASU 2011-11 is effective for the fiscal year ended December 31, 2013 and is not expected to have an impact on our Condensed Consolidated Financial Statements as the Company does not currently have a master netting or similar arrangement with respect to our derivative instruments.

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3. Derivative Instruments and Hedging Activities

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign currency denominated assets and liabilities that exist as part of its ongoing business operations that are denominated in a currency other than the functional currency of the subsidiary. The exposures relate primarily to the gain or loss recognized in earnings from the settlement of current foreign denominated assets and liabilities.

The Company does not enter into derivative financial instruments for trading or speculative purposes. The forward exchange contracts generally have maturities of 90 days  or less and are not designated as hedging instruments. Forward exchange contracts are marked-to-market at the end of each reporting period, using quoted prices for similar assets or liabilities in active markets (Level 2 inputs), with gains and losses recognized in other income offset by the gains or losses resulting from the settlement of the underlying foreign currency denominated assets and liabilities.

Cash Flow Hedges

The Company hedges a portion of anticipated operating expenses denominated in the Indian rupee with forward exchange contracts that have maturities of twelve months or less and are designated as hedging instruments. The forward exchange contracts are marked-to-market at the end of each reporting period, using quoted prices for similar assets or liabilities in active markets (Level 2 inputs). The effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.

The forward contract receivables (payables) are included in the Condensed Consolidated Balance Sheets under the captions "Prepaid expenses and other current assets" and "Accrued expenses and other liabilities" as applicable. The notional values represent the amount of foreign currencies to be purchased or sold at maturity and does not represent our exposure on these contracts. Net foreign currency exchange gains (losses) are included in the Condensed Consolidated Statements of Income under the caption "Interest income and other, net."

Derivative Instruments in the Condensed Consolidated Balance Sheets

The gross notional and fair value of derivative financial instruments in the Condensed Consolidated Balance Sheets were recorded as follows:

	September 30, 2012												December 31, 2011
	Gross Notional				Prepaid Expenses and Other Current Assets				Accrued Expenses and Other Liabilities				Gross Notional				Prepaid Expenses and Other Current Assets				Accrued Expenses and Other Liabilities
Foreign currency forward contract not designated as hedging instruments	$	57,598			$	684			$	—			$	64,451			$	—			$	364
Foreign currency forward contract designated as hedging instruments	$	17,967			$	1,126			$	—			$	42,373			$	—			$	4,046

Effects of Derivative Instruments on Income and Other Comprehensive Income

The before-tax effect of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011 were as follows:

 

	Gain (Loss) Recognized in Income on Derivative
			Three Months Ended September 30,								Nine Months Ended September 30,
	Location		2012				2011				2012				2011
Foreign exchange contracts not designated as hedges	Interest income and other, net		$	927			$	(2,586	)		$	1,430			$	(637	)

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The before-tax effect of derivative instruments in cash flow hedging for the three and nine months ended September 30, 2012 and 2011 were as follows:

	Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivative (Effective Portion)								Gain (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion)										Gain (Loss) Recognized in Income Derivative (Ineffective portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended September 30,										Three Months Ended September 30,										Three Months Ended September 30,
	2012				2011				Location		2012				2011				Location		2012				2011
Foreign exchange contracts designated as hedges	$	973			$	(2,801	)		General and administration		$	(985	)		$	54			Interest income and other, net		$	546			$	383

	Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivative (Effective Portion)								Gain (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion)										Gain (Loss) Recognized in Income Derivative (Ineffective portion and Amount Excluded from Effectiveness Testing)
	Nine Months Ended September 30,										Nine Months Ended September 30,										Nine Months Ended September 30,
	2012				2011				Location		2012				2011				Location		2012				2011
Foreign exchange contracts designated as hedges	$	556			$	(2,906	)		General and administration		$	(3,700	)		$	120			Interest income and other, net		$	1,703			$	1,496

4. Goodwill and Other Intangibles, net

Goodwill consists of the following:

	September 30, 2012				December 31, 2011
Gross goodwill	$	241,090			$	241,090
Accumulated impairment losses	(9,713		)		(9,713		)
Goodwill, net	$	231,377			$	231,377

Other identifiable intangibles consist of the following:

	September 30, 2012												December 31, 2011
	Gross Carrying Amount				Accumulated Amortization				Net Amount				Gross Carrying Amount				Accumulated Amortization				Net Amount
Customer-based	$	257,983			$	(181,762	)		$	76,221			$	257,983			$	(155,318	)		$	102,665
Technology-based	90,147				(64,856		)		25,291				90,147				(59,749		)		30,398
Marketing-based	19,491				(12,818		)		6,673				19,491				(10,672		)		8,819
Other amortized intangible assets, net	$	367,621			$	(259,436	)		$	108,185			$	367,621			$	(225,739	)		$	141,882

Goodwill. We had no impairment of our goodwill balances during the nine months ended September 30, 2012 the next annual impairment test will be performed in fourth quarter 2012 . As of September 30, 2012 , the goodwill balance has been allocated to our reporting units as follows: $227.7 million to Supply Chain and $3.7 million to Pricing and Revenue Management.

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To date our Pricing and Revenue Management segment has not achieved its current year revenue projections and may not achieve our original projections for 2012, which could result in a revenue decline from 2011. We have considered this impairment indicator and evaluated impairment for the segment's assets for the quarter ended September 30, 2012 and have determined that there is no impairment. We will continue to monitor the revenues and projections for Pricing and Revenue Management and it is possible that this assessment could lead to an impairment against this business segment, which includes $3.7 million in a goodwill intangible asset, if there is a further decline in the segment's operating results.

Customer-based intangible assets include customer lists, maintenance relationships and future technological enhancements, service relationships and covenants not-to-compete; technology-based intangible assets include acquired software technology; and marketing-based intangible assets include trademarks and trade names. Customer-based and marketing-based intangible assets are being amortized on a straight-line basis. Technology-based intangible assets are being amortized on a product-by-product basis with the amortization recorded for each product being the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future revenue for that product, or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on.

Amortization expense is reported in the Condensed Consolidated Statements of Income within cost of revenues under the caption "Amortization of acquired software technology" and in operating expenses under the caption "Amortization of intangibles." As of September 30, 2012 we expect amortization expense for the remainder of 2012 and thereafter to be as follows:

		Amortization
For the Year Ending December 31,		Expense
2012, remainder thereof		$	11,233
2013		44,240
2014		27,352
2015		13,006
2016		11,489
Thereafter		865
Total		$	108,185

5. Restructuring Reserves

2012 Restructuring Plan

We expect to record restructuring charges of approximately $2.5 million during fiscal 2012 to re-align certain areas of our services group and some other administrative positions to a more central strategy. During the nine months ending September 30, 2012 we have incurred $2.5 million of restructuring charges related to employee termination benefits and severance. As of September 30, 2012 , approximately $2.3 million of costs associated with these restructuring charges have been paid and $0.2 million is included under the caption "Accrued expenses and other liabilities" and we expect to pay these costs by December 31, 2012.

A summary of the restructuring charges is as follows:

		Initial				Additions				Cash				Non-Cash				Impact of Changes in Exchange				Balance
Description of charge		Reserve				to Reserves				Charges				Settlements				Rates				September 30, 2012
Employee severance and termination benefits		$	2,449			$	1			$	(2,256	)		$	—			$	(34	)		$	160

2010 Restructuring Plan

We recorded restructuring charges of $19.5 million in 2010 and $1.6 million in 2011 primarily for termination benefits, office closures and contract terminations associated with the acquisition of i2 Technologies, Inc. ("i2") and the continued transition of additional on-shore activities to our Center of Excellence facilities. The charges include $14.9 million for termination benefits related to a workforce reduction of approximately 200 employees primarily in general and administrative, sales and marketing

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and product development positions primarily in the Americas. In addition, the charges include $6.0 million for estimated costs to close and integrate redundant office facilities and for the integration of information technology and termination of certain i2 contracts that have no future economic benefit to the Company and are incremental to the other costs that will be incurred by the combined Company. As of September 30, 2012 , approximately $17.9 million of the costs associated with these restructuring charges have been paid, $1.2 million is included under the caption "Accrued expenses and other liabilities" and $0.3 million is included under the caption "Accrued exit and disposal obligations".

A summary of the restructuring charges is as follows:

		Initial				Additions				Cash				Non-Cash				Impact of Changes in Exchange				Balance				Adjustments				Cash				Non-Cash				Impact of Changes in Exchange				Balance
Description of charge		Reserve				to Reserves				Charges				Settlements				Rates				December 31, 2011				to Reserves				Charges				Settlements				Rates				September 30, 2012
Termination benefits		$	14,098			$	826			$	(14,990	)		$	—			$	73			$	7			$	1			$	(8	)		$	—			$	—			$	—
Office closures and other restructuring		5,380				789				(2,652		)		(996		)		70				2,591				(163		)		(255		)		(416		)		(11		)		1,746
Total		$	19,478			$	1,615			$	(17,642	)		$	(996	)		$	143			$	2,598			$	(162	)		$	(263	)		$	(416	)		$	(11	)		$	1,746

The balance in the reserve for office closures is primarily related to redundant office facility leases in Dallas, Texas and the United Kingdom and will be reduced as payments are made over the related lease terms that extend through 2014.

6. Acquisition Reserves

We recorded initial acquisition reserves of $47.4 million for restructuring charges and other direct costs associated with the acquisition of Manugistics in 2006. The restructuring charges were primarily related to facility closures, employee severance and termination benefits and other direct costs associated with the acquisition, including investment banker fees, change-in-control payments, and legal and accounting costs. The unused portion of the acquisition reserves at September 30, 2012 includes $0.8 million of current liabilities under the caption "Accrued expenses and other liabilities" and $2.7 million of non-current liabilities under the caption "Accrued exit and disposal obligations."

A summary of the charges and adjustments recorded against the reserves is as follows:

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		Initial				Adjustments				Cash				Impact of Changes in Exchange				Balance				Adjustment				Cash				Impact of Changes in Exchange				Balance
Description of charge		Reserve				to Reserves				Charges				Rates				December 31, 2011				to Reserves				Charges				Rates				September 30, 2012
Acquisition reserves:
Office closures, lease termination and sublease costs		$	29,212			$	651			$	(22,837	)		$	(862	)		$	6,164			$	(438	)		$	(2,412	)		$	138			$	3,452
Employee severance and termination benefits		3,607				(840		)		(2,842		)		75				—				—				—				—				—
IT projects, contract termination penalties, capital lease buyouts and other costs to exits activities of Manugistics		1,450				222				(1,672		)		—				—				—				—				—				—
		34,269				33				(27,351		)		(787		)		6,164				(438		)		(2,412		)		138				3,452
Direct costs:		13,125				6				(13,131		)		—				—				—				—				—				—
Total		$	47,394			$	39			$	(40,482	)		$	(787	)		$	6,164			$	(438	)		$	(2,412	)		$	138			$	3,452

The balance in the reserve for office closures, lease termination and sublease costs is primarily related to office facility leases in Rockville, Maryland and the United Kingdom and will be reduced as payments are made over the related lease terms that extend through 2018.

In 2010 in connection with our acquisition of i2, we assumed an unfavorable lease of $1.2 million for the Dallas, Texas office which was recorded in the purchase price allocation at December 31, 2011 . As of September 30, 2012 , $0.3 million remains in current liabilities under the caption of "Accrued expenses and other liabilities" and $0.1 million remains in non-current liabilities under the caption "Accrued exit and disposal obligations."

7. Long-term Debt

Senior Notes

On December 10, 2009, we issued $275 million of 8.0%  Senior Notes at an initial offering price of 98.988% of the principal amount. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ( $2.8 million ) and other debt issuance costs ( $7.2 million ) were placed in escrow and subsequently used, together with cash on hand at JDA and i2, to fund the cash portion of the merger consideration in the acquisition of i2.

The Senior Notes have a five-year term and mature on December 15, 2014. Interest is computed on the basis of a 360-day year composed of twelve 30-day months, and is payable semi-annually on June 15 and December 15 of each year, beginning on June 15, 2010. In connection with the failure to timely file the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, we elected to pay an additional 50 basis points per annum of interest on the Senior Notes to gain forbearance under the terms of our Indenture, dated as of December 10, 2009, by and among the Company, the guarantors thereto, and U.S. Bank National Association, as trustee (the "Indenture"), governing the Senior Notes. The period during which we were required to pay additional interest on the Senior Notes began on June 1, 2012 and ended August 6, 2012. We have incurred approximately $0.3 million in additional interest on the Senior Notes during 2012. The obligations under the Senior Notes are fully and unconditionally guaranteed on a senior basis by substantially all of our existing and future domestic subsidiaries (including, following the merger, i2 and its domestic subsidiaries).

At any time prior to December 15, 2012, we may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 108% of the principal amount, plus accrued and unpaid interest, with the cash proceeds of an equity offering of our common stock. At any time prior to December 15, 2012, we may also redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest and a “make whole” premium calculated as the greater of (i)  1% of the principal amount of the Senior Notes redeemed or (ii) the excess of the present value of the redemption price of the Senior Notes redeemed at December 15, 2012 over the principal amount the Senior Notes redeemed. In addition, we may redeem the Senior Notes on or after December 15, 2012 at a redemption price of 104% of the principal amount, and on or

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after December 15, 2013 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest. The Senior Notes rank equally in right of payment with all existing and future senior debt and are senior in right of payment to all subordinated debt.

The Senior Notes contain certain restrictive covenants including (i) a requirement to repurchase the Senior Notes at price equal to 101% of the principal amount, plus accrued and unpaid interest, in the event of a change in control and (ii) restrictions that limit our ability to pay dividends, make investments, incur additional indebtedness, create liens, issue preferred stock or consolidate, merge, sell or otherwise dispose of all or substantially all of our or their assets. The Senior Notes also provide for customary events of default and in the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable immediately without further action or notice. If any other event of default occurs or is continuing, the trustee or holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.

In connection with the issuance of the Senior Notes, we entered into an exchange and registration rights agreement. Under the terms of the exchange and registration rights agreement, we were required to file, and did initially file on June 9, 2010, an exchange offer registration statement, as amended (the “Exchange Offer Registration Statement”), enabling holders to exchange the Senior Notes for registered notes with terms substantially identical to the terms of the Senior Notes. We were also required to use commercially reasonable efforts to have the Exchange Offer Registration Statement declared effective by the Securities and Exchange Commission (the “SEC”) on or prior to 270 days after the closing of the note offering, or September 8, 2010, (the “Registration Deadline”) and, unless the exchange offer would not be permitted by applicable law or SEC policy, to complete the exchange offer within 30 business days after the Registration Deadline. On November 5, 2010, the Exchange Offer Registration Statement was declared effective by the SEC. Under the terms of the exchange and registration rights agreement, we incurred special interest on the Senior Notes at a per annum rate of 0.25% of the principal amount of the Senior Notes from the Registration Deadline through the completion of the exchange offer. We completed the exchange offer in December 2010.

The fair value using quoted prices for similar liabilities in active markets (Level 2 inputs) of the Senior Notes was $287.4 million and $296.3 million , respectively, at September 30, 2012 and December 31, 2011 .

Line of Credit

On March 18, 2011, we entered into a credit agreement with Wells Fargo Capital Finance, LLC and certain other lenders party thereto (the "Credit Agreement"). The Credit Agreement provides for cash borrowings and letters of credit under a $100 million senior secured revolving credit facility, the proceeds of which the Company may use for working capital and other general corporate purposes. Loans under the Credit Agreement will mature on September 15, 2014, subject to extension to March 18, 2016 under certain circumstances. In connection with the execution of the line of credit, the Company incurred approximately $1.7 million in debt issuance costs which will be amortized to interest expense over the length of the agreement. To date, the Company has not borrowed any amount under the Credit Agreement.

Interest on the outstanding balance will accrue on outstanding loans under the Credit Agreement at a floating rate based on, at the Company's election, (i) LIBOR (subject to reserve requirements) or (ii) the greatest of (a) the Federal Funds Rate plus 1/2%, (b) three-month LIBOR plus 1% and (c) Wells Fargo Bank, National Association's prime rate (such greatest rate, the "Base Rate"), in each case, plus an applicable margin. The applicable margins with respect to LIBOR-based loans and Base Rate loans are 2.0% and 1.0% , respectively, and may increase or decrease based on the Company's total leverage ratio.

The Company's obligations under the Credit Agreement are secured by a first priority lien on substantially all of the assets of the Company and the guarantors, which include the Company's material domestic subsidiaries. The Credit Agreement includes customary limitations on the Company's ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividend payments, dispose of assets or undergo a change of control. The Credit Agreement also requires the Company to maintain a minimum fixed charge ratio, a maximum total leverage ratio and, under certain circumstances, a minimum liquidity requirement.

The failure to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2012 caused us to be in nonpayment default under our Credit Agreement. We obtained waivers under our Credit Agreement with respect to these defaults, which were cured by the filing of those reports on August 6, 2012.

8. Legal Proceedings

i2 Technologies, Inc. v. Oracle Corporation

On April 29, 2009, i2 filed a lawsuit for patent infringement against Oracle Corporation (NASDAQ: ORCL). The lawsuit, filed in the United States District Court for the Eastern District of Texas, Tyler Division (No. 6:09-cv-194-LED) alleged infringement of 11 patents related to supply chain management, available to promise software and other enterprise software

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applications. On April 22, 2010, Oracle filed counterclaims against i2 and JDA Software Group, Inc. (of which i2 is now a wholly-owned subsidiary) alleging the infringement by i2 of four Oracle patents. On February 25, 2011, the Company, i2 and Oracle Corporation entered into a settlement agreement. Under the settlement agreement, the parties entered into a cross-license arrangement and dismissed with prejudice their respective litigation claims related to the patent infringement dispute. In addition, the Company received a one-time cash payment of $35.0 million from Oracle Corporation, as well as a $2.5 million license and technical support credit from Oracle Corporation that must be used by the Company within two years. The Company recorded the settlement in the first quarter of 2011.

Sky Technologies LLC v. JDA Software Group, et al.

On May 11, 2011, Sky Technologies LLC (“Sky”) filed a  lawsuit for patent infringement against the Company and a number of other entities, including Microsoft, Siemens and Dassault Systemes, in the United States District Court for the District of Massachusetts (No. 6:11-cv-10833-WGY), alleging infringement of a number of patents. Sky amended its complaint on October 17, 2011 to add additional claims. In response to the amended complaint, on October 17, 2011, the Company filed counterclaims against Sky, alleging that Sky breached the terms of a Settlement and License Agreement entered into between Sky and i2 Technologies, Inc. in 2005.  The Company recorded an accrual of $4.0 million in fiscal 2011 as it believed this to be its best estimate of the probable loss.

On April 5, 2012, the Company and Sky entered into a settlement agreement. The terms of the settlement agreement included the following: (i) the Company would pay $4.0 million to Sky by April 12, 2012; (ii) dismissal with prejudice of all legal proceedings related to the litigation, (iii) mutual releases and covenants not to sue; and (iv) Sky granting a license to the Company of Sky's patents. The company recorded the settlement in the fourth quarter 2011.

Beaver County Retirement Fund v JDA Software Group Inc, C.A. No. 7446-ML

On April 20, 2012, Beaver County Retirement Fund, a stockholder of the Company, commenced an action in the Delaware Court of Chancery (C.A. No. 7446-ML) seeking access to certain books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law. On May 15, 2012, the Company filed a motion to dismiss the complaint for failure to state a claim upon which relief could be granted. To date, no briefing schedule on the Company's motion to dismiss has been set by the Court of Chancery. At this time, the outcome of this case is uncertain, therefore, no estimation can be made of an amount of probable loss.

SEC Inquiries; Audit Committee Investigation

In January 2012, we disclosed that we received a subpoena from the Division of Enforcement and a comment letter from the Division of Corporation Finance of the SEC requesting information and documents related to revenue recognition and other accounting and financial reporting matters for certain past fiscal years. In response to the SEC's inquiries, our Audit Committee promptly commenced an investigation into our revenue recognition policies and the application of these policies during the periods in question, engaged an outside accounting firm separate from our independent auditors and engaged special counsel to undertake a fact-finding investigation. Our outside legal counsel also assisted in this investigation.

In conjunction with this investigation, we:

•	responded to comment letters from the SEC's Division of Corporation Finance regarding its revenue recognition policies and the restatement and believe we have addressed the SEC's comments although the SEC's review is not complete and they may have further comments; and

•	provided the SEC's Division of Enforcement with information and documents it requested.

The Audit Committee, with its outside advisors, has completed the internal investigation. The investigation uncovered no evidence of fraud or intentional wrongdoing.  The Company continues to cooperate with the SEC in connection with its investigation.

We are involved in other legal proceedings and claims arising in the ordinary course of business. Although there can be no assurance, management does not currently believe the disposition of these matters will have a material adverse effect on our business, financial position, results of operations or cash flows. In determining whether litigation could have a material and adverse effect on our financial statements, we first review loss probability and whether a loss can be reasonably estimated according to Accounting Standard Codification (ASC) 450-20, and then review whether resulting contingencies are material to us. The matters described above are either immaterial or potential losses corresponding to such matters cannot be reasonably estimated.

9. Share-Based Compensation

The Company has a stock-based compensation program that provides the Board of Directors broad discretion in creating

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equity incentives for employees, officers, directors and consultants. This program includes stock purchase rights, stock bonuses, restricted stock, restricted stock units, performance awards, performance units and deferred compensation awards.

Annual stock-based incentive programs ("Performance Programs") have been approved for executive officers and certain other members of our management team for years 2007 through 2011 that provide for contingently issuable performance share awards or restricted stock units upon achievement of defined performance threshold goals.

In August 2012, the Board approved a stock-based incentive program for 2012 ("2012 Performance Program"). The 2012 Performance Program provides for the issuance of contingently issuable performance share awards under the 2005 Incentive Plan to executive officers and certain other members of our management team if we are able to achieve a defined adjusted EBITDA performance threshold goal in 2012. A partial pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA performance threshold. The 2012 Performance Program provides for the issuance of up to approximately $18.8 million of targeted value of contingently issuable performance share awards. The performance share awards will vest 50% on the date in 2013 that the Company issues its 2012 audited financial statements with one-half of the remaining 50% vesting on each of the next two anniversaries of the initial vest date. Our performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2012 and share-based compensation will be recognized over the requisite service periods that run from the date of board approval through February 2015. The amount of stock based compensation expense related to the 2012 Performance Program was $2.4 million for the quarter ended September 30, 2012.

The Company has recognized stock-based compensation as follows (in thousands):

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2012				2011				2012				2011
Cost of maintenance services	$	210			$	117			$	492			$	458
Cost of consulting services	538				407				1,213				1,590
Product development	556				284				1,087				1,520
Sales and marketing	906				223				2,004				3,083
General and administrative	1,942				1,075				3,920				5,510
Total stock-based compensation expense	$	4,152			$	2,106			$	8,716			$	12,161

10. Income Taxes

For the nine months ended September 30, 2012 , income taxes were calculated using the liability method. The provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events, which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on our estimated tax expense for the year.

We recorded an income tax provision of $7.4 million and $11.4 million for the three months ended September 30, 2012 and 2011 , respectively, representing effective income tax rates of 40.2% and 38.5% , respectively. We recorded an income tax provision of $16.5 million and $21.3 million for the nine months ended September 30, 2012 and 2011 , respectively, representing effective income tax rates of 38.5% and 21.2% , respectively. Our effective income tax rate during the three and nine months ended September 30, 2012 differs from our statutory rate of 35% primarily due to the mix of net income by jurisdiction, state income taxes (net of federal benefit), settlement of foreign audits and other nondeductible items. Our effective income tax rate during the three and nine months ended September 30, 2011 differs from our statutory rate of 35% primarily due to the mix of net income by jurisdiction, state income taxes (net of federal benefit) and the tax benefits related to a specified tax deduction that offsets a substantial portion of our litigation settlements received in the first quarter 2011 as well as settlement of foreign tax liabilities in the second quarter 2011.

As of September 30, 2012 approximately $7.3 million of unrecognized tax benefits would impact our effective tax rate if recognized. It is reasonably possible that approximately $0.2 million of unrecognized tax benefits will be recognized within the next twelve months. We have recorded a valuation allowance against the Arizona research and development credit, certain state net operating losses and certain foreign tax attribute carryforwards as we do not expect to be able to utilize them prior to their expiration.

We treat interest and penalties related to uncertain tax positions as a component of income tax expense. We have accrued interest and penalties/(benefits) related to uncertain tax positions of $0.1 million and $0.3 million in the nine months ended September 30, 2012 and 2011 , respectively. As of September 30, 2012 and December 31, 2011 there are approximately $3.2 million and $3.1 million , respectively, of interest and penalty accruals related to uncertain tax positions which are reflected in the Condensed Co nsolidated Balance Sheet under the caption “Liability for uncertain tax positions.” To the extent interest and penalties are not

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assessed with respect to the uncertain tax positions, the accrued amounts for interest and penalties will be reduced and reflected as a reduction of the overall tax provision.

We conduct business globally and, as a result, JDA Software Group, Inc. or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subjected to examination by taxing authorities throughout the world, including the United States, India and the United Kingdom. We are currently under audit in the U.S. for the 2010 and 2011 tax years. Audits are in process in India covering multiple years. The finalization of these audits has not yet occurred. However, we do not anticipate any material adjustments.

We have participated in the Compliance Audit Assurance Program ("CAP") since 2007. The Internal Revenue Service has completed their review of our tax returns for 2010 and prior years. No material adjustments have been made as a result of these examinations.

11. Earnings per Share

The dilutive effect of all outstanding stock options and unvested restricted stock units and performance share awards is included in the diluted earnings per share calculations using the treasury stock method. In addition, contingently issuable restricted stock units or performance share awards for which all necessary conditions had not been met have been excluded from the calculation. Diluted earnings per share applicable to common shareholders excludes vested options for the purchase of common stock that have grant prices in excess of the average market price, or which are otherwise anti-dilutive. For the three and nine months ended September 30, 2012 and 2011 , respectively, less than 0.1 million shares were excluded from the calculation of diluted earnings per share applicable to common shareholder calculations, as these shares relate to anti-dilutive stock options and restricted stock-based awards as calculated using the treasury stock method and could be dilutive in the future.

Earnings per share for three and nine months ended September 30, 2012 and 2011 are calculated as follows:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2012				2011				2012				2011
Numerator:
Net income	$	11,051			$	18,287			$	26,355			$	79,113
Denominator:
Shares used in computing basic earnings per share	42,969				42,511				42,852				42,334
Dilutive common stock equivalents	222				284				140				381
Shares used in computing diluted earnings per share	43,191				42,795				42,992				42,715
Basic earnings per share	$	0.26			$	0.43			$	0.62			$	1.87
Diluted earnings per share	$	0.26			$	0.43			$	0.61			$	1.85

12. Segment Information

JDA is a leading global provider of sophisticated enterprise software solutions designed specifically to address the supply chain, merchandising and pricing requirements of manufacturers, wholesale/distributors and retailers, as well as government and aerospace defense contractors and travel, transportation, hospitality and media organizations. The Company has licensed its software to more than 6,000 customers worldwide. The Company reports operations within the following segments, which is how our chief operating decision maker views, evaluates and makes decisions about resource allocations within our business:

•

Supply Chain. This reportable business segment includes all revenues related to applications and services sold to customers in the supply chain management market. The majority of our products are specifically designed to provide customers with one synchronized view of product demand while managing the flow and allocation of materials, information, finances and other resources across global supply chains, from manufacturers to distribution centers and transportation networks to the retail store and consumer (collectively, the " Supply Chain") .

•	Pricing and Revenue Management . This reportable business segment includes all revenues related to applications and services sold to customers in service industries such as travel, transportation, hospitality, media and telecommunications. The Pricing and Revenue Management segment is centrally managed by a team that has global responsibilities for this market.

A summary of the revenues, income before income taxes and depreciation attributable to each of these reportable business segments for the three and nine months ended September 30, 2012 and 2011 is as follows:

 

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	Three Months Ended September 30,								Nine Months Ended September 30,
	2012				2011				2012				2011
Revenues:
Supply Chain	$	160,147			$	166,850			$	481,579			$	489,964
Pricing and Revenue Management	4,373				6,249				13,884				16,175
	$	164,520			$	173,099			$	495,463			$	506,139
Income (Loss) Before Income Taxes:
Supply Chain	$	54,694			$	60,399			$	162,318			$	163,036
Pricing and Revenue Management	(499		)		1,270				(1,864		)		954
Other (see below)	(35,731		)		(31,939		)		(117,594		)		(63,583		)
	$	18,464			$	29,730			$	42,860			$	100,407
Depreciation:
Supply Chain	$	3,693			$	3,132			$	10,974			$	9,692
Pricing and Revenue Management	81				95				261				305
	$	3,774			$	3,227			$	11,235			$	9,997
Other:
General and administrative	$	21,009			$	15,815			$	70,354			$	54,488
Amortization of intangible assets	9,530				9,562				28,590				28,872
Restructuring charge and adjustments to acquisition-related reserves	(163		)		768				2,280				1,279
Litigation settlement	—				—				—				(37,500		)
Interest expense and amortization of loan fees	6,608				6,435				19,562				19,085
Interest income and other, net	(1,253		)		(641		)		(3,192		)		(2,641		)
	$	35,731			$	31,939			$	117,594			$	63,583

Income before income taxes in the Supply Chain and Pricing and Revenue Management reportable business segments includes direct expenses for software licenses, maintenance services, service revenues, and product development expenses, as well as allocations for sales and marketing expenses, occupancy costs, depreciation expense and amortization of acquired software technology. The "Other" caption includes general and administrative expenses and other charges that are not directly identified with a particular reportable business segment and which management does not consider in evaluating the operating income (loss) of the reportable business segment.

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13. Condensed Consolidating Financial Information

Pursuant to the Indenture governing the Senior Notes detailed in Note 10 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 , the Company's obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by substantially all of its existing and future domestic subsidiaries. Pursuant to Regulation S-X, Section 210.3-10(f), the Company is required to present condensed consolidating financial information for subsidiaries that have guaranteed the debt of a registrant issued in a public offering, where the guarantee is full and unconditional, joint and several, and where the voting interest of the subsidiary is 100% owned by the registrant.

The following tables present the Condensed Consolidating Balance Sheets as of September 30, 2012 and December 31, 2011 , the Condensed Consolidating Statements of Income for the three and nine months ended September 30, 2012 and 2011 , the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011 and the Condensed Consolidating Statements of Cash Flow for the nine months ended September 30, 2012 and 2011 for (i) JDA Software Group, Inc. - the parent company and issuer of the Senior Notes, (ii) the guarantor subsidiaries on a combined basis, (iii) the non-guarantor subsidiaries on a combined basis, (iv) elimination adjustments, and (v) total consolidating amounts. In connection with the restatement of our historical results as described in Note 14, “Restatement of Previously Issued Financial Statements,” the Company also made the following adjustments to its historical presentation of its consolidating financial information: (i) movement of cash and restricted cash from the Guarantor Subsidiaries column to the JDA Software Group, Inc. column to reflect the underlying ownership of the cash, (ii) movement of portion of the intercompany accounts cash flows amongst the columns to reflect the underlying ownership of the intercompany accounts, (iii) movement of the payments of direct costs from acquisitions from investing activities on the cash flow statement to operating activities to align with the restated Consolidated Statements of Cash Flows and (iv) movement of the effect of exchange rates on cash and cash equivalents from the Guarantor Subsidiaries column to the Non-Guarantor Subsidiaries column on the cash flow statement to reflect the effect of translation amounts. The condensed consolidating financial information should be read in conjunction with the Condensed Consolidated Financial Statements herein as well as in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on form 10-K for the year ended December 31, 2011 .

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Unaudited Condensed Consolidating Balance Sheets

September 30, 2012

(in thousands)

 

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	150,354			$	184,934			$	72,996			$	—			$	408,284
Restricted cash — current portion	—				2,794				210				—				3,004
Account receivable, net	—				75,458				21,356				—				96,814
Deferred tax assets — current portion	—				32,250				4,410				—				36,660
Prepaid expenses and other current assets	9,069				8,330				9,324				—				26,723
Total current assets	159,423				303,766				108,296				—				571,485
Non-Current Assets:
Restricted cash — long-term portion	—				—				410				—				410
Property and equipment, net	—				44,931				7,724				—				52,655
Goodwill	—				231,377				—				—				231,377
Other intangibles, net	—				108,185				—				—				108,185
Deferred tax assets — long-term portion	—				238,259				5,813				—				244,072
Other non-current assets	4,099				1,057				13,755				—				18,911
Investment in subsidiaries	277,123				10,070				—				(287,193		)		—
Inter-company accounts	571,183				(560,795		)		(10,388		)		—				—
Total non-current assets	852,405				73,084				17,314				(287,193		)		655,610
Total Assets	$	1,011,828			$	376,850			$	125,610			$	(287,193	)		$	1,227,095
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	—			$	6,984			$	1,358			$	—			$	8,342
Accrued expenses and other liabilities	6,673				35,773				38,314				—				80,760
Deferred revenue — current portion	—				106,560				9,812				—				116,372
Total current liabilities	6,673				149,317				49,484				—				205,474
Non-Current Liabilities:
Long-term debt	273,626				—				—				—				273,626
Accrued exit and disposal obligations	—				466				2,307				—				2,773
Liability for uncertain tax positions	—				1,768				1,426				—				3,194
Deferred revenue — long-term portion	—				5,229				23				—				5,252
Other non-current liabilities	—				4,230				1,017				—				5,247
Total non-current liabilities	273,626				11,693				4,773				—				290,092
Total Liabilities	280,299				161,010				54,257				—				495,566
Stockholders’ Equity	731,529				215,840				71,353				(287,193		)		731,529
Total Liabilities and Stockholders’ Equity	$	1,011,828			$	376,850			$	125,610			$	(287,193	)		$	1,227,095

 

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Condensed Consolidating Balance Sheets

December 31, 2011

(in thousands)

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	150,171			$	93,285			$	42,056			$	—			$	285,512
Restricted cash — current portion	—				8,515				218				—				8,733
Account receivable, net	—				89,656				25,122				—				114,778
Deferred tax assets — current portion	—				27,543				4,520				—				32,063
Prepaid expenses and other current assets	9,362				45				15,177				—				24,584
Total current assets	159,533				219,044				87,093				—				465,670
Non-Current Assets:
Restricted cash — long-term portion	—				—				652				—				652
Property and equipment, net	—				45,920				6,621				—				52,541
Goodwill	—				231,377				—				—				231,377
Other intangibles, net	—				141,882				—				—				141,882
Deferred tax assets — long-term portion	—				252,469				5,802				—				258,271
Other non-current assets	5,536				1,047				13,982				—				20,565
Investment in subsidiaries	235,908				41,030				—				(276,938		)		—
Inter-company accounts	568,429				(580,202		)		11,773				—				—
Total non-current assets	809,873				133,523				38,830				(276,938		)		705,288
Total Assets	$	969,406			$	352,567			$	125,923			$	(276,938	)		$	1,170,958
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	—			$	5,954			$	1,786			$	—			$	7,740
Accrued expenses and other liabilities	5,023				36,986				31,102				—				73,111
Deferred revenue — current portion	—				84,237				23,980				—				108,217
Total current liabilities	5,023				127,177				56,868				—				189,068
Non-Current Liabilities:
Long-term debt	273,210				—				—				—				273,210
Accrued exit and disposal obligations	—				1,142				2,784				—				3,926
Liability for uncertain tax positions	—				1,645				2,453				—				4,098
Deferred revenue — long-term portion	—				7,804				311				—				8,115
Other non-current liabilities	—				588				780				—				1,368
Total non-current liabilities	273,210				11,179				6,328				—				290,717
Total Liabilities	278,233				138,356				63,196				—				479,785
Stockholders’ Equity	691,173				214,211				62,727				(276,938		)		691,173
Total Liabilities and Stockholders’ Equity	$	969,406			$	352,567			$	125,923			$	(276,938	)		$	1,170,958

 

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Unaudited Condensed Consolidating Statements of Income

Three Months Ended September 30, 2012

(in thousands)

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUES:
Software licenses	$	—			$	27,297			$	247			$	—			$	27,544
Subscriptions and other recurring revenues	—				3,909				—				—				3,909
Maintenance services	—				61,615				7,169				—				68,784
Product revenues	—				92,821				7,416				—				100,237
Consulting services	—				38,924				20,166				—				59,090
Reimbursed expenses	—				3,266				1,927				—				5,193
Service revenues	—				42,190				22,093				—				64,283
Total revenues	—				135,011				29,509				—				164,520
COST OF REVENUES:
Cost of software licenses	—				1,034				—				—				1,034
Amortization of acquired software technology	—				1,702				—				—				1,702
Cost of maintenance services	—				9,111				4,990				—				14,101
Cost of product revenues	—				11,847				4,990				—				16,837
Cost of consulting services	—				28,871				16,862				—				45,733
Reimbursed expenses	—				3,266				1,927				—				5,193
Cost of service revenues	—				32,137				18,789				—				50,926
Total cost of revenues	—				43,984				23,779				—				67,763
GROSS PROFIT	—				91,027				5,730				—				96,757
OPERATING EXPENSES:
Product development	—				11,277				7,020				—				18,297
Sales and marketing	—				15,579				8,686				—				24,265
General and administrative	985				16,264				3,760				—				21,009
Amortization of intangibles	—				9,530				—				—				9,530
Restructuring charges	—				2				(165		)		—				(163		)
Total operating expenses	985				52,652				19,301				—				72,938
OPERATING INCOME (LOSS)	(985		)		38,375				(13,571		)		—				23,819
Interest expense and amortization of loan fees	6,383				185				40				—				6,608
Interest income and other, net	(777		)		17,714				(18,190		)		—				(1,253		)
Income tax provision	(2,505		)		8,211				1,707				—				7,413
Equity in earnings of subsidiaries, net	15,137				2,365				—				(17,502		)		—
NET INCOME (LOSS)	$	11,051			$	14,630			$	2,872			$	(17,502	)		$	11,051

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Unaudited Condensed Consolidating Statements of Income

Nine Months Ended September 30, 2012

(in thousands)

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUES:
Software licenses	$	—			$	84,263			$	714			$	—			$	84,977
Subscriptions and other recurring revenues	—				11,695				—				—				11,695
Maintenance services	—				173,032				29,280				—				202,312
Product revenues	—				268,990				29,994				—				298,984
Consulting services	—				122,195				57,657				—				179,852
Reimbursed expenses	—				10,860				5,767				—				16,627
Service revenues	—				133,055				63,424				—				196,479
Total revenues	—				402,045				93,418				—				495,463
COST OF REVENUES:
Cost of software licenses	—				3,469				—				—				3,469
Amortization of acquired software technology	—				5,107				—				—				5,107
Cost of maintenance services	—				26,569				15,866				—				42,435
Cost of product revenues	—				35,145				15,866				—				51,011
Cost of consulting services	—				88,796				48,842				—				137,638
Reimbursed expenses	—				10,860				5,767				—				16,627
Cost of service revenues	—				99,656				54,609				—				154,265
Total cost of revenues	—				134,801				70,475				—				205,276
GROSS PROFIT	—				267,244				22,943				—				290,187
OPERATING EXPENSES:
Product development	—				34,539				21,562				—				56,101
Sales and marketing	—				46,838				26,794				—				73,632
General and administrative	3,700				54,627				12,027				—				70,354
Amortization of intangibles	—				28,590				—				—				28,590
Restructuring charges	—				439				1,841				—				2,280
Total operating expenses	3,700				165,033				62,224				—				230,957
OPERATING INCOME (LOSS)	(3,700		)		102,211				(39,281		)		—				59,230
Interest expense and amortization of loan fees	18,904				534				124				—				19,562
Interest income and other, net	(1,700		)		51,311				(52,803		)		—				(3,192		)
Income tax provision	(7,944		)		20,141				4,308				—				16,505
Equity in earnings of subsidiaries, net	39,315				5,901				—				(45,216		)		—
NET INCOME (LOSS)	$	26,355			$	36,126			$	9,090			$	(45,216	)		$	26,355

 

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Unaudited Condensed Consolidating Statements of Income

Three Months Ended September 30, 2011

(As Restated)

(in thousands)

 

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUES:
Software licenses	$	—			$	34,660			$	66			$	—			$	34,726
Subscriptions and other recurring revenues	—				3,738				—				—				3,738
Maintenance services	—				47,448				20,184				—				67,632
Product revenues	—				85,846				20,250				—				106,096
Consulting services	—				37,338				23,632				—				60,970
Reimbursed expenses	—				3,762				2,271				—				6,033
Service revenues	—				41,100				25,903				—				67,003
Total revenues	—				126,946				46,153				—				173,099
COST OF REVENUES:
Cost of software licenses	—				1,009				—				—				1,009
Amortization of acquired software technology	—				1,726				—				—				1,726
Cost of maintenance services	—				8,531				5,123				—				13,654
Cost of product revenues	—				11,266				5,123				—				16,389
Cost of consulting services	—				26,699				17,806				—				44,505
Reimbursed expenses	—				3,762				2,271				—				6,033
Cost of service revenues	—				30,461				20,077				—				50,538
Total cost of revenues	—				41,727				25,200				—				66,927
GROSS PROFIT	—				85,219				20,953				—				106,172
OPERATING EXPENSES:
Product development	—				11,219				7,528				—				18,747
Sales and marketing	—				15,636				10,120				—				25,756
General and administrative	(54		)		11,936				3,933				—				15,815
Amortization of intangibles	—				9,562				—				—				9,562
Restructuring charges	—				370				398				—				768
Total operating expenses	(54		)		48,723				21,979				—				70,648
OPERATING INCOME (LOSS)	54				36,496				(1,026		)		—				35,524
Interest expense and amortization of loan fees	6,249				137				49				—				6,435
Interest income and other, net	108				4,735				(5,484		)		—				(641		)
Income tax provision	(2,425		)		12,418				1,450				—				11,443
Equity in earnings of subsidiaries, net	22,165				1,634				—				(23,799		)		—
NET INCOME (LOSS)	$	18,287			$	20,840			$	2,959			$	(23,799	)		$	18,287

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Unaudited Condensed Consolidating Statements of Income

Nine Months Ended September 30, 2011

(As Restated)

(in thousands)

 

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUES:
Software licenses	$	—			$	100,525			$	66			$	—			$	100,591
Subscriptions and other recurring revenues	—				12,582				—				—				12,582
Maintenance services	—				139,208				59,337				—				198,545
Product revenues	—				252,315				59,403				—				311,718
Consulting services	—				117,588				59,568				—				177,156
Reimbursed expenses	—				11,012				6,253				—				17,265
Service revenues	—				128,600				65,821				—				194,421
Total revenues	—				380,915				125,224				—				506,139
COST OF REVENUES:
Cost of software licenses	—				3,139				—				—				3,139
Amortization of acquired software technology	—				5,393				—				—				5,393
Cost of maintenance services	—				26,958				15,418				—				42,376
Cost of product revenues	—				35,490				15,418				—				50,908
Cost of consulting services	—				86,857				51,158				—				138,015
Reimbursed expenses	—				11,012				6,253				—				17,265
Cost of service revenues	—				97,869				57,411				—				155,280
Total cost of revenues	—				133,359				72,829				—				206,188
GROSS PROFIT	—				247,556				52,395				—				299,951
OPERATING EXPENSES:
Product development	—				36,139				22,462				—				58,601
Sales and marketing	—				47,154				30,206				—				77,360
General and administrative	(120		)		43,440				11,168				—				54,488
Amortization of intangibles	—				28,872				—				—				28,872
Restructuring charges	—				616				663				—				1,279
Litigation settlement	—				(37,500		)		—				—				(37,500		)
Total operating expenses	(120		)		118,721				64,499				—				183,100
OPERATING INCOME (LOSS)	120				128,835				(12,104		)		—				116,851
Interest expense and amortization of loan fees	18,499				398				188				—				19,085
Interest income and other, net	(1,100		)		24,158				(25,699		)		—				(2,641		)
Income tax provision	(6,566		)		24,880				2,980				—				21,294
Equity in earnings of subsidiaries, net	89,826				(9,918		)		—				(79,908		)		—
NET INCOME (LOSS)	$	79,113			$	69,481			$	10,427			$	(79,908	)		$	79,113

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Unaudited Condensed Consolidating Statements of Comprehensive Income

Three Months Ended September 30, 2012

(in thousands)

		JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
		(In thousands)
Net income		$	11,051			$	14,630			$	2,872			$	(17,502	)		$	11,051
Other comprehensive income:
Foreign currency translation adjustment, net of tax		4,104				(61		)		(589		)		650				4,104
Unrealized (losses) gains on cash flow hedges, net of tax		973				—				—				—				973
Reclassification adjustment for gains in net income		985				—				—				—				985
Other comprehensive (loss) income		6,062				(61		)		(589		)		650				6,062
Comprehensive income		$	17,113			$	14,569			$	2,283			$	(16,852	)		$	17,113

Unaudited Condensed Consolidating Statements of Comprehensive Income

Nine Months Ended September 30, 2012

(in thousands)

		JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
		(In thousands)
Net income		$	26,355			$	36,126			$	9,090			$	(45,216	)		$	26,355
Other comprehensive income:
Foreign currency translation adjustment, net of tax		1,900				936				970				(1,906		)		1,900
Unrealized (losses) gains on cash flow hedges, net of tax		556				—				—				—				556
Reclassification adjustment for gains in net income		3,700				—				—				—				3,700
Other comprehensive income		6,156				936				970				(1,906		)		6,156
Comprehensive income		$	32,511			$	37,062			$	10,060			$	(47,122	)		$	32,511

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Unaudited Condensed Consolidating Statements of Comprehensive Income

Three Months Ended September 30, 2011

(As Restated)

(in thousands)

		JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
		(In thousands)
Net income		$	18,287			$	20,840			$	2,959			$	(23,799	)		$	18,287
Other comprehensive income:
Foreign currency translation adjustment, net of tax		(8,070		)		(550		)		1,579				(1,029		)		(8,070		)
Unrealized (losses) gains on cash flow hedges, net of tax		(2,801		)		—				—				—				(2,801		)
Reclassification adjustment for gains in net income		(54		)		—				—				—				(54		)
Other comprehensive income		(10,925		)		(550		)		1,579				(1,029		)		(10,925		)
Comprehensive income		$	7,362			$	20,290			$	4,538			$	(24,828	)		$	7,362

Unaudited Condensed Consolidating Statements of Comprehensive Income

Nine Months Ended September 30, 2011

(As Restated)

(in thousands)

		JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
		(In thousands)
Net income		$	79,113			$	69,481			$	10,427			$	(79,908	)		$	79,113
Other comprehensive income:
Foreign currency translation adjustment, net of tax		(4,943		)		(794		)		2,178				(1,384		)		(4,943		)
Unrealized (losses) gains on cash flow hedges, net of tax		(2,906		)		—				—				—				(2,906		)
Reclassification adjustment for gains in net income		(120		)		—				—				—				(120		)
Other comprehensive income		(7,969		)		(794		)		2,178				(1,384		)		(7,969		)
Comprehensive income		$	71,144			$	68,687			$	12,605			$	(81,292	)		$	71,144

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Unaudited Condensed Consolidating Statements of Cash Flows

Nine Months Ended September 30, 2012

(in thousands)

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net Cash Provided by (Used in) Operating Activities	$	1,054			$	90,707			$	26,393			$	—			$	118,154
Investing Activities:
Change in restricted cash	—				5,721				250				—				5,971
Purchase of property and equipment	—				(5,044		)		(3,831		)		—				(8,875		)
Proceeds from disposal of property and equipment	—				64				333				—				397
Net cash provided by (used in) investing activities	—				741				(3,248		)		—				(2,507		)
Financing Activities:
Issuance of common stock—equity plans	2,399				—				—				—				2,399
Purchase of treasury stock and other, net	(3,270		)		—				—				—				(3,270		)
Proceeds from bank advances	—				—				7,090				—				7,090
Change in inter-company receivable/payable	—				201				(201		)		—				—
Net cash (used in) provided by financing activities	(871		)		201				6,889				—				6,219
Effect of exchange rates on cash and cash equivalents	—				—				906				—				906
Net increase in cash and cash equivalents	183				91,649				30,940				—				122,772
Cash and Cash Equivalents, Beginning of Period	150,171				93,285				42,056				—				285,512
Cash and Cash Equivalents, End of Period	$	150,354			$	184,934			$	72,996			$	—			$	408,284

 

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Unaudited Condensed Consolidating Statements of Cash Flows

Nine Months Ended September 30, 2011

(As Restated)

(in thousands)

 

	JDA Software Group, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net Cash Provided by (Used in) Operating Activities	$	105,089			$	20,272			$	4,680			$	—			$	130,041
Investing Activities:
Change in restricted cash	(26		)		(2,201		)		(66		)		—				(2,293		)
Purchase of property and equipment	—				(5,787		)		(1,838		)		—				(7,625		)
Proceeds from disposal of property and equipment	—				51				—				—				51
Net cash (used in) provided by investing activities	(26		)		(7,937		)		(1,904		)		—				(9,867		)
Financing Activities:
Issuance of common stock—equity plans	5,261				—				—				—				5,261
Purchase of treasury stock and other, net	(5,166		)		—				—				—				(5,166		)
Debt issuance costs	(1,727		)		—				—				—				(1,727		)
Conversion of warrants	671				—				—				—				671
Change in inter-company receivable/payable	—				(398		)		398				—				—
Net cash provided by (used in) financing activities	(961		)		(398		)		398				—				(961		)
Effect of exchange rates on cash and cash equivalents	—				—				(1,173		)		—				(1,173		)
Net increase in cash and cash equivalents	104,102				11,937				2,001				—				118,040
Cash and Cash Equivalents, Beginning of Period	46,012				87,619				37,987				—				171,618
Cash and Cash Equivalents, End of Period	$	150,114			$	99,556			$	39,988			$	—			$	289,658

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14. Restatement of Previously Issued Financial Statements

As disclosed in our Form 10-K for the year ended December 31, 2011, on April 10, 2012, we concluded that previously issued financial statements should not be relied upon due to certain revenue recognition adjustments. The decision to restate our financial statements was based on the results of an internal review of our historical revenue recognition policies and the application of these policies. All information presented in the accompanying Condensed Consolidated Financial Statements and the related notes include all such restatement adjustments.

Impact of Corrections on Previously Issued Consolidated Financial Statements

Revenue Related Adjustments:

Certain revenue recognition adjustments were noted during the internal reviews performed by management. Adjustments were primarily related to the following areas within revenue recognition:

•

In the course of our review, we identified software license and associated services agreements that were deemed to be linked but previously accounted for as separate transactions. To correct these items, we have recognized software license revenue for such transactions when the services agreement was executed, which was often the quarter immediately following the time when the license agreement is executed.

•

The restatement reflects our determination that vendor specific objective evidence (“VSOE”) of fair value did not exist for our cloud services (“Cloud Services”) and certain types of consulting arrangements. To correct these items, revenue associated with certain software license agreements and related services was deferred and recognized over the longest period for any undelivered services, often three years, or when VSOE of fair value was obtained, commencing once services began.

Other Adjustments:

In connection with the restatement, the Company also recorded certain aggregated adjustments during the restatement periods that were previously considered immaterial. As part of the restatement, these adjustments have now been reflected in the periods in which the item arose.

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The following tables summarize the effects of the restatement on the condensed consolidated financial statements of income for the three and nine months ended September 30, 2011 :

	Three Months Ended September 30, 2011												Nine Months Ended September 30, 2011
	As Reported				Adjustments				As Restated				As Reported				Adjustments				As Restated
Software licenses	$	33,139			$	1,587			$	34,726			$	91,534			$	9,057			$	100,591
Maintenance services	68,261				(629		)		67,632				199,129				(584		)		198,545
Product revenues	105,138				958				106,096				303,245				8,473				311,718
Consulting services	60,392				578				60,970				177,069				87				177,156
Service revenues	66,425				578				67,003				194,334				87				194,421
Total revenues	171,563				1,536				173,099				497,579				8,560				506,139
Cost of maintenance services	13,704				(50		)		13,654				42,362				14				42,376
Cost of product revenues	16,439				(50		)		16,389				50,894				14				50,908
Cost of consulting services	44,821				(316		)		44,505				138,998				(983		)		138,015
Cost of service revenues	50,854				(316		)		50,538				156,263				(983		)		155,280
Total cost of revenues	67,293				(366		)		66,927				207,157				(969		)		206,188
Gross Profit	104,270				1,902				106,172				290,422				9,529				299,951
Product development	18,946				(199		)		18,747				58,889				(288		)		58,601
Sales and marketing	26,144				(388		)		25,756				77,748				(388		)		77,360
General and administrative	16,018				(203		)		15,815				54,420				68				54,488
Restructuring charges	768				—				768				1,749				(470		)		1,279
Total operating expenses	71,438				(790		)		70,648				184,178				(1,078		)		183,100
Operating income	32,832				2,692				35,524				106,244				10,607				116,851
Interest income and other, net	(521		)		(120		)		(641		)		(2,672		)		31				(2,641		)
Income before income taxes	26,918				2,812				29,730				89,831				10,576				100,407
Income tax provision	10,115				1,328				11,443				17,381				3,913				21,294
Net income	16,803				1,484				18,287				72,450				6,663				79,113
Basic net income per common share	$	0.40			$	0.03			$	0.43			$	1.71			$	0.16			$	1.87
Diluted net income per common share	$	0.39			$	0.04			$	0.43			$	1.70			$	0.15			$	1.85

The adjustments reflected in the table above include the following:

•	Adjustments to revenue related to the lack of vendor specific objective evidence of fair value for Cloud Services and certain Consulting Services currencies and offerings, identification of linked contracts that should have been accounted for as a single arrangement, and the consideration of platform transfer rights on revenue recognition.

•	Adjustments to cost of revenue and operating expenses related to certain employee expenses, costs associated with the acquisition of i2, and the result of certain changes in assumptions related to equity compensation.

•	Provision for income taxes includes adjustments to deferred tax assets and income tax effects of other restatement adjustments.

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The following tables present the effect of the restatement adjustments on the condensed consolidated statements of comprehensive income:

	Three Months Ended September 30, 2011												Nine Months Ended September 30, 2011
	As Reported				Adjustments				As Restated				As Reported				Adjustments				As Restated
Net income	$	16,803			$	1,484			$	18,287			$	72,450			$	6,663			$	79,113
Foreign currency translation adjustment, net of tax	(8,075		)		5				(8,070		)		(4,958		)		15				(4,943		)
Unrealized gains (losses) on cash flow hedges, net of tax	(2,856		)		55				(2,801		)		(3,026		)		120				(2,906		)
Reclassification adjustment for (gains) losses in net income	—				(54		)		(54		)		—				(120		)		(120		)
Other comprehensive income	(10,931		)		6				(10,925		)		(7,984		)		15				(7,969		)
Comprehensive income	5,872				1,490				7,362				64,466				6,678				71,144

The following table presents the effect of the restatement adjustments on the condensed consolidated statements of cash flows as well as the reclassification of payments of direct costs related to acquisitions in net cash provided by (used in) investing activities to net cash provided by operating activities as these amounts reflect certain acquired lease payments:

	Nine Months Ended September 30, 2011
	As Reported				Adjustments				As Restated
Net income	$	72,450			$	6,663			$	79,113
Stock-based compensation	13,073				(912		)		12,161
Deferred income taxes	14,652				3,914				18,566
Accounts receivable	(17,674		)		878				(16,796		)
Prepaid expenses and other assets	(12,772		)		9,798				(2,974		)
Accounts payable	(13,817		)		(1,140		)		(14,957		)
Accrued expenses and other liabilities	9,749				(9,090		)		659
Deferred revenue	20,935				(12,690		)		8,245
Net cash provided by operating activities	132,620				(2,579		)		130,041
Payment of direct costs related to acquisitions	(2,579		)		2,579				—
Net cash used in investing activities	(12,446		)		2,579				(9,867		)

See also Note 13, “Condensed Consolidating Financial Information,” for a description of the Company's adjustments to its historical presentation of its condensed consolidating financial information.

15. Subsequent Events

Merger Agreement

On November 1, 2012, the Company announced that it has entered into an Agreement and Plan of Merger with RP Crown Parent, LLC and RP Crown Acquisition Sub, LLC ("Purchaser"), affiliates of RedPrairie which will result in the Company becoming a private company.

Under the terms of the merger agreement, which has been unanimously approved by the Company's Board of Directors, Purchaser will acquire all of the outstanding shares of the Company's common stock for $45.00 per share in cash and will commence a tender offer for all of the outstanding shares of the Company no later than November 15, 2012.

The transaction is conditioned upon, among other things, satisfaction of the minimum tender condition described in the merger agreement, the receipt of the Federal Trade Commission's approval under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, and other customary closing conditions.

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Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements concerning, among other things, our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs and capital expenditures; research and development programs; sales and marketing initiatives; and competition. Forward-looking statements are generally accompanied by words such as "will" or "expect" and other words with forward-looking connotations. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2011 . You should carefully consider the risks and uncertainties described under this section.

Restatement

See Note 14 to our Condensed Consolidated Financial Statements for a description of the restatement of our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2011 and a summary of the impact of such restatement on the applicable unaudited quarterly financial information for the three and nine months ended September 30, 2011 presented in this Quarterly Report.

Results of Operations

Revenues

The following table summarizes revenues and the components of total revenue as a percentage of total revenue (in thousands, except percentages):

	Three Months Ended September 30,														Dollar change from				Nine Months Ended September 30,														Dollar change from
	2012							2011 (As Restated)							2011				2012							2011 (As Restated)							2011
Software licenses	$	27,544			17	%		$	34,726			20	%		$	(7,182	)		$	84,977			17	%		$	100,591			20	%		$	(15,614	)
Subscriptions and other recurring revenues	3,909				2	%		3,738				2	%		171				11,695				2	%		12,582				2	%		(887		)
Maintenance services	68,784				42	%		67,632				39	%		1,152				202,312				41	%		198,545				39	%		3,767
Product revenues	100,237				61	%		106,096				61	%		(5,859		)		298,984				60	%		311,718				62	%		(12,734		)
Service revenues	64,283				39	%		67,003				39	%		(2,720		)		196,479				40	%		194,421				38	%		2,058
Total revenues	$	164,520			100	%		$	173,099			100	%		$	(8,579	)		$	495,463			100	%		$	506,139			100	%		$	(10,676	)

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Software and Subscription Revenues

The following table summarizes software and subscription revenues by region (in thousands):

	Three Months Ended September 30,								Dollar change from				Nine Months Ended September 30,								Dollar change from
	2012		2011 As Restated (1)				2011				2012				2011 As Restated (1)				2011
Americas	$	23,293			$	29,387			$	(6,094	)		$	67,080			$	75,972			$	(8,892	)
Europe	4,922				7,358				(2,436		)		19,061				27,904				(8,843		)
Asia/Pacific	3,238				1,719				1,519				10,531				9,297				1,234
Total software & subscription revenues	$	31,453			$	38,464			$	(7,011	)		$	96,672			$	113,173			$	(16,501	)

(1) The restatement added $1.9 million and $0.2 million of revenue to the Americas, and Asia Pacific, respectively and reduced revenue by $0.5 million from Europe's for software and subscription for the three months ended September 30, 2011. The restatement added $6.6 million, and $2.4 million of revenue to the Americas, and Asia Pacific, respectively and reduced Europe's software and subscriptions revenue by less than $0.1 million for the nine months ended September 30, 2011.

The decrease in software and subscription revenues for the three months ended September 30, 2012 is primarily due to fewer large dollar transaction sales in the America's manufacturing clients and declining sales in Europe, partially offset by sales increases in the Asia Pacific region, and continued improvement in sales to North American retail industry customers, compared to the same quarter last year. There were 6 large transactions (greater than $1.0 million), in the three months ended September 30, 2012 as compared to 10 large transaction in same period of 2011 . The decrease in software and subscription revenues for the nine months ended September 30, 2012 is primarily due to a decrease in first and third quarter sales primarily across the America's manufacturing clients and Europe, compared to the same period last year. There were 24 large transactions (greater than $1.0 million), in the nine months ended September 30, 2012 as compared to 29 large transaction in the same period of 2011 . Our trailing twelve month average selling price decreased to $0.7 million at September 30, 2012 compared to $0.8 million at September 30, 2011 .

Maintenance Services

Maintenance services revenues increased for the three months and nine months ended September 30, 2012 compared to the three months and nine months ended September 30, 2011 primarily due to the continued strong retention rate and the high level of attachment of maintenance contracts to new license deals. The year to date retention rate at September 30, 2012 remained high at 95.3% percent compared to 95.7%  percent at September 30, 2011 . Foreign exchange rate variances resulted in a $0.4 million decrease on maintenance services revenues for the three months ended September 30, 2012 when compared to the same periods in 2011 .

Service Revenues

Service revenues, which include consulting services, Cloud Services, education services revenues, and reimbursed expenses, decreased for the three months ended September 30, 2012 , when compared to the same period in 2011 due to the reduction in services work from a large customer in the ASPAC region and a decrease in billable hours partially offset by an increase in average realized rate. Service revenues increased for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 primarily due to consulting services and improved realized billing rates, partially offset by a decrease in billable hours and the reduction in services work from the previously noted large customer.

Gross Profits (in thousands, except percentage amounts):

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2012				2011 As Restated				2012				2011 As Restated
Total gross profit on product revenues	$	83,400			$	89,707			$	247,973			$	260,810
Total gross profit on service revenues	13,357				16,465				42,214				39,141
Product gross profit as a percentage of products sales	83		%		85		%		83		%		84		%
Service gross profit as a percentage of services	21		%		25		%		21		%		20		%

Gross Profit on Product Revenues. The decrease in product gross profits for the three months ended September 30, 2012 as compared to the same period of 2011 is primarily due to lower software revenues. For similar reasons product gross profits for

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the nine months ended September 30, 2012 declined slightly as compared to the same period of 2011 .

Gross Profit on Service Revenues. G ross profit and gross profit as a percentage of services for the three months ended September 30, 2012 decreased due to the decline in billable hours performed as compared to the same periods of 2011 , partially offset by an increase in realized billing rates during this time period. For the nine months ended September 30, 2012, services gross profit increased compared to the prior year period primarily due to increases in realized billable rates.

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Operating Expenses

Product Development

The following table summarizes product development expenses in dollars and as a percentage of total revenues (in thousands, except percentage amounts):

	Three Months Ended September 30,														Dollar change from				Nine Months Ended September 30,														Dollar change from
	2012							2011 As Restated							2011				2012							2011 As Restated							2011
Product development	$	18,297			11	%		$	18,747			11	%		$	(450	)		$	56,101			11	%		$	58,601			12	%		$	(2,500	)

Product development expense for the three months ended September 30, 2012 and 2011 were comparable.  Product development expenses for the nine months ended September 30, 2012 decreased by $2.5 million from the same period in 2011 primarily due to favorable currency rate movements, specifically in the India Rupee.

Sales and Marketing

The following table summarizes sales and marketing expenses in dollars and as a percentage of total revenues (in thousands, except percentage amounts):

	Three Months Ended September 30,														Dollar change from				Nine Months Ended September 30,														Dollar change from
	2012							2011 As Restated							2011				2012							2011 As Restated							2011
Sales and Marketing	$	24,265			15	%		$	25,756			15	%		$	(1,491	)		$	73,632			15	%		$	77,360			15	%		$	(3,728	)

Sales and marketing expenses in the three and nine months ended September 30, 2012 were comparable to each prior year period, on a percent of revenue basis. On a real dollar basis, sales and marketing expenses decreased compared to the same period in 2011 primarily due to a reduction in commission expense due to license sales being less in each of the current year periods.

General and Administrative

The following table summarizes general and administrative expenses in dollars and as a percentage of total revenues (in thousands, except percentage amounts):

	Three Months Ended September 30,														Dollar change from				Nine Months Ended September 30,														Dollar change from
	2012							2011 As Restated							2011				2012							2011 As Restated							2011
General and administrative	$	21,009			13	%		$	15,815			9	%		$	5,194			$	70,354			14	%		$	54,488			11	%		$	15,866

General and administrative expenses were higher in the three months ended September 30, 2012 compared to the same period in 2011 primarily due to an approximate $0.8 million increase in headcount, $0.9 million of higher non-cash stock based compensation, approximately $1 million of expense associated with the effective portion of the cash flow hedge and $1.7 million of professional service fees associated with our investigation of our revenue accounting practices and the restatement of our previously issued financial statements.  Additionally, the third quarter 2011 costs included a $0.8 million recovery of a receivable previously written off.  General and administrative expenses increased in the nine months ended September 30, 2012 compared to the same period in 2011 due to   $12.5 million of professional service fees associated with our investigation of our revenue accounting practices and the restatement of our previously issued financial statements, approximately $3.8 million of expense associated with the effective portion of the cash flow hedge, approximately $1.7 million associated with increased compensation and headcount, partially offset by an approximate $3.5 million reduction in legal costs and $1.6 million of lower non-cash stock based compensation. Additionally, the year to date 2011 costs included a $2.4 million recovery of a receivable previously written off. 

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We expect to incur approximately $15.0 million of professional service fees associated with our investigation of our revenue accounting practices and the restatement of our previously issued financial statements in 2012.

Amortization of Intangibles (in thousands):

	Three Months Ended September 30,								Dollar change from				Nine Months Ended September 30,								Dollar change from
	2012				2011				2011				2012				2011				2011
Amortization of intangibles	$	9,530			$	9,562			$	(32	)		$	28,590			$	28,872			$	(282	)

Amortization of intangibles for three and nine months ended September 30, 2012 remained comparable to the same periods in 2011 .

Restructuring Charges (in thousands):

	Three Months Ended September 30,								Dollar change from				Nine Months Ended September 30,								Dollar change from
	2012				2011				2011				2012				2011 As Restated				2011
Restructuring charges	$	(163	)		$	768			$	(931	)		$	2,280			$	1,279			$	1,001

The decrease in restructuring charges for the three month period ended September 30, 2012 compared to the same period in 2011 was primarily due to the 2012 restructuring plan being materially complete in the first half of 2012. The increase in restructuring charges for the nine month period ended September 30, 2012 compared to the same period in 2011 was primarily due to charges of $2.3 million related to the 2012 restructuring plan. The restructuring charges for the three and nine months ended September 30, 2012 included severance costs for former employees who were terminated in this period. As of September 30, 2012 , approximately $2.3 million of costs associated with these restructuring charges have been paid and $0.2 million is included under the caption "Accrued expenses and other liabilities".

Other Operating Expenses (in thousands):

	Three Months Ended September 30,								Dollar change from				Nine Months Ended September 30,								Dollar change from
	2012				2011				2011				2012				2011				2011
Litigation settlement	$	—			$	—			$	—			$	—			$	(37,500	)		$	37,500

Litigation Settlement. We received $35.0 million in cash and a $2.5 million license and technical support credit related to a favorable litigation settlement of a patent infringement claim against Oracle Corporation in the first quarter of 2011.

Interest Expense and Other Income (in thousands):

	Three Months Ended September 30,								Dollar change from				Nine Months Ended September 30,								Dollar change from
	2012				2011 As Restated				2011				2012				2011 As Restated				2011
Interest expense and amortization of loan fees	$	6,608			$	6,435			$	173			$	19,562			$	19,085			$	477
Interest Income and other, net	$	(1,253	)		$	(641	)		$	(612	)		$	(3,192	)		$	(2,641	)		$	(551	)

Interest Expense and Other Income. The interest expense and amortization of loan fees remained relatively comparable for the periods presented above. The increase in interest income and other, net for the three and nine months ended September 30, 2012 increased as compared to the same periods in 2011 as a result of increased cash balances and net foreign currency gains.

Income Tax Provision

We recorded an income tax provision of $7.4 million and $11.4 million for the three months ended September 30, 2012 and 2011 , respectively, representing effective income tax rates of 40.2% and 38.5% , respectively. We recorded an income tax provision of $16.5 million and $21.3 million for the nine months ended September 30, 2012 and 2011 , respectively, representing effective income tax rates of 38.5% and 21.2% , respectively. Our effective income tax rate during the three and nine months ended

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September 30, 2012 differs from the 35% U.S. statutory rate primarily due to the mix of net income by jurisdiction, state income taxes (net of federal benefit), settlement of foreign audits and other nondeductible items. Our effective income tax rate during the three and nine months ended September 30, 2011 differs from our statutory rate of 35% primarily due to the mix of revenue by jurisdiction, state income taxes (net of federal benefit) and the tax benefits related to a specified tax deduction that offsets a substantial portion of our litigation settlements received in the first quarter of 2011 as well as settlement of foreign tax liabilities in the second quarter of 2011.

Segment Information

JDA is a leading global provider of sophisticated enterprise software solutions designed specifically to address the supply chain, merchandising and pricing requirements of manufacturers, wholesale/distributors and retailers, as well as government and aerospace defense contractors and travel, transportation, hospitality and media organizations. The Company has licensed its software to more than 6,000 customers worldwide. The Company reports operations within the following segments, which is how our chief operating decision maker views, evaluates and makes decisions about resource allocations within our business:

•

Supply Chain. This reportable business segment includes all revenues related to applications and services sold to customers in the supply chain management market. The majority of our products are specifically designed to provide customers with one synchronized view of product demand while managing the flow and allocation of materials, information, finances and other resources across global supply chains, from manufacturers to distribution centers and transportation networks to the retail store and consumer.

•	Pricing and Revenue Management . This reportable business segment includes all revenues related to applications and services sold to customers in service industries such as travel, transportation, hospitality, media and telecommunications. The Pricing and Revenue Management segment is centrally managed by a team that has global responsibilities for this market.

A summary of the revenues, income before income taxes and depreciation attributable to each of these reportable business segments for the three and nine months ended September 30, 2012 and 2011 is as follows:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2012				2011 As Restated				2012				2011 As Restated
Revenues:
Supply Chain	$	160,147			$	166,850			$	481,579			$	489,964
Pricing and Revenue Management	4,373				6,249				13,884				16,175
	$	164,520			$	173,099			$	495,463			$	506,139
Income (Loss) Before Income Taxes:
Supply Chain	$	54,694			$	60,399			$	162,318			$	163,036
Pricing and Revenue Management	(499		)		1,270				(1,864		)		954
Other (see below)	(35,731		)		(31,939		)		(117,594		)		(63,583		)
	$	18,464			$	29,730			$	42,860			$	100,407
Depreciation:
Supply Chain	$	3,693			$	3,132			$	10,974			$	9,692
Pricing and Revenue Management	81				95				261				305
	$	3,774			$	3,227			$	11,235			$	9,997
Other:
General and administrative	$	21,009			$	15,815			$	70,354			$	54,488
Amortization of intangible assets	9,530				9,562				28,590				28,872
Restructuring charge and adjustments to acquisition-related reserves	(163		)		768				2,280				1,279
Litigation settlement	—				—				—				(37,500		)
Interest expense and amortization of loan fees	6,608				6,435				19,562				19,085
Interest income and other, net	(1,253		)		(641		)		(3,192		)		(2,641	)
	$	35,731			$	31,939			$	117,594			$	63,583

Income before income taxes in the Supply Chain and Pricing and Revenue Management reportable business segments includes

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direct expenses for software licenses, maintenance services, service revenues, and product development expenses, as well as allocations for sales and marketing expenses, occupancy costs, depreciation expense and amortization of acquired software technology. The Other caption includes general and administrative expenses and other charges that are not directly identified with a particular reportable business segment and which management does not consider in evaluating the operating income (loss) of the reportable business segment.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management has discussed the development, selection and disclosure of significant estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. During the three months ended September 30, 2012 , there were no significant changes in our critical accounting policies and estimates compared to those set forth in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011.

Liquidity and Capital Resources

Liquidity

Historically, we have financed our operations, including acquisitions, primarily through product and services sales and debt securities. Our cash outflows have generally been as follows: cash used in operating activities such as product development programs, sales and marketing activities, compensation and benefits of our employees, capital expenditures for core IT infrastructure and for equipment used to support our Cloud Services offering and other working capital needs; cash paid for acquisitions; cash paid for litigation costs and settlements; cash used for interest payments on our debt obligations; and cash paid for taxes.

The delay in the filing of our March 31, 2012 Quarterly Report on Form 10-Q filing and our Annual Report on Form 10-K for the year ended December 31, 2011 did result in nonpayment defaults under (i) our Credit Agreement, and (ii) the Indenture governing our Senior Notes. In connection with the default under the Indenture, we have also incurred additional interest costs arising out of our election to pay an additional 50 basis points per annum in order to obtain forbearance of a default. We obtained a waiver under our Credit Agreement. See Note 7 to our Condensed Consolidated Financial Statements in Part I, Item 1, for further information.

We anticipate that our existing capital resources, along with the cash to be generated from operations and our existing line of credit will enable us to maintain currently planned operations, debt repayments and capital expenditures for the foreseeable future. For the nine months ended September 30, 2012 we have spent $8.9 million on capital expenditures and we expect to spend approximately $20 million for the full year 2012.

The amount of cash and cash equivalents reported in the Company's Condensed Consolidated Balance Sheet as of September 30, 2012 , was $408.3 million , $71.9 million of which was held in foreign subsidiaries. The amount of cash and cash equivalents reported in the Company's Condensed Consolidated Balance Sheet as of December 31, 2011 was $285.5 million, $41.0 million of which was held in foreign subsidiaries.  After considering the working capital needs of the foreign subsidiaries, any tax effect of the repatriation would be nominal.

At any time prior to December 15, 2012, we may redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest and a “make whole” premium calculated as the greater of (i) 1% of the principal amount of the Senior Notes redeemed or (ii) the excess of the present value of the redemption price of the Senior Notes redeemed at December 15, 2012 over the principal amount the Senior Notes redeemed. In addition, we may redeem the Senior Notes on or after December 15, 2012 at a redemption price of 104% of the principal amount, and on or after December 15, 2013 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest. Management and the board of directors are discussing alternatives relating to the Senior Notes. The discussion involves consideration of current interest costs, the current low cost of debt capital, our potential access to credit, our credit ratings, our available cash and liquidity, the potential alternative uses of our cash and liquidity, including alternatives to the allocation of capital between strategic investments and shareholders. As a result we may leave the notes in place, repurchasing the notes with available cash or refinance the notes.

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Cash Flows

Operating activities provided cash of $118.2 million and $130.0 million during the nine months ended September 30, 2012 and 2011 , respectively. The decrease in cash flow is a result of the inclusion of a $37.5 million favorable litigation settlement in 2011 net income. Changes in working capital provided approximately $26.4 million of cash in the nine months ended September 30, 2012 and used approximately $25.8 million of cash in the nine months ended September 30, 2011 . This year over year improvement is due primarily to the favorable impact from the decrease in comparative accounts receivable and accrued liabilities movements . Net accounts receivable were $96.8 million , or 53 days sales outstanding ("DSO"), at September 30, 2012 compared to $114.8 million , or 56 days DSO, at December 31, 2011 . DSO results can fluctuate significantly on a quarterly basis due to a number of factors including the timing of annual maintenance renewals, seasonality, the percentage of total revenues that comes from software license sales which may have installment payment terms, shifts in customer buying patterns, the timing of customer payments, lengthened contractual payment terms in response to competitive pressures, the underlying mix of products and services, and the geographic concentration of revenues.

Investing activities used $2.5 million and $9.9 million of cash during the nine months ended September 30, 2012 and 2011 , respectively. Investing activities in 2012 and 2011 primarily related to the change in restricted cash and the purchase of property and equipment.

Financing activities provided $6.2 million of cash during the nine months ended September 30, 2012 and used $1.0 million of cash during the same period in 2011 . Financing activities include proceeds from the issuance of common stock under our stock plans and the repurchase of shares tendered by employees for payment of applicable statutory withholding taxes on the issuance of restricted stock. At the end of the third quarter, approximately $7 million related to a currency settlement had been received, but the outgoing funds had not yet cleared our account. Accordingly, our statement of cash flows shows a financing activity change of this amount. We expect this amount to reverse in the fourth quarter of this year. Additionally, in the nine months ended September 30, 2011 , we used $1.7 million in cash associated with our debt issuance costs on our $100.0 million line of credit.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

There have been no significant changes in our off-balance sheet arrangements and aggregate contractual obligations as compared to those described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011.

Recent Accounting Pronouncements

Information pertaining to recent accounting pronouncements can be found in Note 2 to our Condensed Consolidated Financial Statements elsewhere in this Quarterly Report on Form 10-Q, and is incorporated by reference herein.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

There have been no significant changes in our market risk as compared to that disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4: Controls and Procedures

Disclosure Controls and Procedures.   During and subsequent to the reporting period, and under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of our disclosure controls and procedures that were in effect at the end of the period covered by this report. Disclosure controls and procedures are defined under Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the "Exchange Act") as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures that were in effect on September 30, 2012 were not effective because of the material weakness related to revenue recognition described below. The Public Company Accounting Oversight Board's (PCAOB) Auditing

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Standard No. 5 defines a material weakness as a deficiency, or combination of deficiencies, that result in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Changes in Internal Control Over Financial Reporting.   As described in Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2011, we identified control deficiencies that constitute a material weakness in our internal control over financial reporting. Specifically, the material weakness exists in our internal controls over the application of revenue recognition criteria required by the Accounting Standards Codification section 985-605 “Software Revenue Recognition” in the context of multiple-element software arrangements.

The material weakness relates to both the insufficient design and ineffective operation of certain internal controls over the identification of license agreements linked to consulting agreements and Cloud Services, as well as testing and documentation of VSOE for Cloud Services and consulting services products. The material weakness is comprised of the following components:    

•	Controls were not adequately designed to facilitate a review of whether or not software license contracts were linked to in-process or subsequent consulting or Cloud Services statements of work. To the extent this review was performed, sufficient documentation was not retained as evidence of review.

•

Controls were not adequately designed to perform VSOE testing to determine the fair value of certain services included in multiple element arrangements. In the instance of Cloud Services, the objective testing populations of stand-alone transactions were not substantial enough to establish VSOE. In the instance of consulting services, certain geographies in the Europe, Middle East and Africa and Asia-Pacific regions did not have a sufficient volume of transactions to establish VSOE in some foreign currencies in which those transactions were sold.

As a result, our management did not identify that revenue from several license agreements was recognized in the incorrect period. The correction of the revenue associated with these license agreements resulted in the restatement of fiscal years 2007 through 2010 and the first three quarterly periods of fiscal 2011.

 

To remediate the material weakness and other control deficiencies, the Company has implemented and/or plan to implement a number of measures including those listed below.  To date, the Company has implemented several controls to address the material weakness related to revenue recognition.  Specifically, an additional control has been implemented that assesses the existence of linkage between software contracts and related consulting services.  Additionally, the Company has strengthened existing controls related to  VSOE calculations for Cloud and Consulting Services.  The Company has tested these controls' operating effectiveness, and pending successful testing again at year-end, expects to remediate the material weakness by December 31, 2012.

•

Staffing: We have made several organizational changes to enhance the skills and capabilities of the organization, including a new Chief Accounting Officer, Chief Legal Officer, and Vice President of Internal Assurance. The Chief Accounting Officer has significant experience in revenue recognition with an emphasis in the software industry and the Chief Legal Officer has significant technology and software experience.

•	Revenue Recognition Processes: The revenue recognition team has been increased, with the hiring of multiple senior directors with extensive software revenue recognition experience. We have also reorganized our revenue recognition department to increase visibility into both license and services contracts and to review transactions in a more comprehensive manner.

•

Policies and Procedures: We are expanding our revenue recognition policy, with more detailed explanations of processes and procedures specific to JDA, and a clear expectation of transaction review documentation requirements. Our VSOE testing is now performed more frequently and at a more detailed level. Additionally, we are modifying our contracting processes so that consulting agreements are essentially concluded at the time of license sale, reducing the exposure around linked contracts. We are also in the process of implementing a periodic review of the effectiveness of revenue recognition processes.

•	Training: In 2012, we are expanding our revenue recognition training program with mandatory role-based training including both the sales and services organizations as well as corporate support teams. This training will include revenue recognition principles, the application of those principles in JDA's business, and emerging topics and issues in the industry.

In addition to the remediation activities above, we are making a significant investment in certain business application systems. The Company is in the process of developing and implementing an "order to cash initiative" which will automate and streamline the sales and contracting process, and will also have a significant positive impact on revenue recognition review processes.  Part of this initiative includes implementation of a sales contract management system, and pricing approval workflows that consider VSOE.  We are also upgrading the general ledger system, which will bring additional automation and control to the revenue

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accounting process. These system initiatives represent a significant work effort to be conducted in phases over the next several years.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information pertaining to legal proceedings can be found in Note 8 to our Condensed Consolidated Financial Statements elsewhere in this Quarterly Report on Form 10-Q, and is incorporated by reference herein.

Item 1A. Risk Factors

Item 1A. Risk Factors” of our Annual Report on Form 10-K includes a discussion of our risk factors. The information below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as presented below, there have been no material changes from the risk factors described in our Form 10-K.

We may incur an impairment of goodwill if we fail to meet revenue projections for our Pricing and Revenue Management segment.

Our   Pricing and Revenue Management segment has not achieved its current year revenue projections as of the date this report and may not achieve our original projections for fiscal year 2012, which could result in a decline in revenue from 2011.  Although we have determined an impairment for this segment's assets is not required for the quarter ended September 30, 2012, we may record an impairment against this segment, which includes $3.7 million in a goodwill intangible asset, if there is a further decline in this segment's operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Not applicable

Item 3. Defaults Upon Senior Securities

Information pertaining to our nonpayment defaults under the Indenture governing our Senior Notes and undrawn Credit Facility that was cured by the filing of our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the period ended March 31, 2012 can be found in Note 7 to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q, and is incorporated by reference herein.

Item 4. Mine Safety Disclosures - Not applicable

Item 5. Other Information - Not applicable

Item 6. Exhibits - See Exhibits Index

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JDA SOFTWARE GROUP, INC.

SIGNATURE

Pursuant to the requirements 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.

		JDA SOFTWARE GROUP, INC .
Dated:	November 1, 2012	By:	/s/ Hamish N. Brewer
			Hamish N. Brewer
			President and Chief Executive Officer (Principal Executive Officer)
		By:	/s/ Peter S. Hathaway
			Peter S. Hathaway
			Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

 

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Item 5. Exhibits

Exhibit #		Description of Document
3.1	—	Third Restated Certificate of Incorporation of the Company, as amended through July 14, 2010. (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, as filed on August 9, 2010).
3.2	—	Amended and Restated Bylaws of JDA Software Group, Inc. (as amended through April 22, 2010) (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated April 22, 2010, as filed on April 28, 2010).
3.3	—	Certificate of Designation of rights, preferences, privileges and restrictions of Series B Convertible Preferred Stock of JDA Software Group, Inc filed with the Secretary of State of the State of Delaware on July 5, 2006. (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated July 5, 2006, as filed on July 6, 2006).
3.4	—	Certificate of Correction filed to correct a certain error in the Certificate of Designation of rights, preferences, privileges and restrictions of Series B Convertible Preferred Stock of JDA Software Group, Inc. filed with the Secretary of State of the State of Delaware on July 5, 2006. (Incorporated by reference to Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as filed on November 9, 2006).
4.1	—	Specimen Common Stock Certificate of JDA Software Group, Inc. (Incorporated by reference the Company's Registration Statement on Form S-1 (File No. 333-748), declared effective on March 14, 1996).
4.2	—	8.0% Senior Notes Due 2014 Indenture dated as of December 10, 2009 among JDA Software Group, Inc., the Guarantors, and U.S. Bank National Association, as trustee. (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 10, 2009, as filed on December 11, 2009).
4.3	—	Supplemental Indenture dated as of January 28, 2010 among JDA Software Group, Inc., i2 Technologies, Inc., i2 Technologies US, Inc., the Guarantors and U.S. Bank National Association, as trustee (Incorporation by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (File No. 333-167429), as filed on September 9, 2010).
31.1	—	Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith).
31.2	—	Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith).
32.1	—	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
101.INS*		XBRL Instance Document
101.SCH*		XBRL Schema Document
101.CAL*		XBRL Calculation Linkbase Document
101.DEF*		XBRL Definition Linkbase Document
101.LAB*		XBRL Labels Linkbase Document
101.PRE*		XBRL Presentation Linkbase Document

_______________________

*		Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibits 101 hereto are deemed (A) not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and (B) not filed for purposed of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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