UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2002
-----------------------------
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 0-23057
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LOGILITY, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2281338
------------------------------------ ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
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(Address of principal executive offices) (Zip Code)
(404) 261-9777
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x]
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practicable date.
Class Outstanding at March 14, 2002
-------------------------- -----------------------------
Common Stock, no par value 13,229,357 Shares
LOGILITY, INC.
Form 10-Q
Quarter Ended January 31, 2002
Index
Page
Number
------------
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
January 31, 2002 and April 30, 2001 3
Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended January 31, 2002 and 2001 4
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2002 and 2001 5
Notes to Condensed Financial Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and 10-18
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18-19
Part II - Other Information 20
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGILITY, INC.
Condensed Balance Sheets (Unaudited)
(in thousands, except share data)
January 31, April 30,
2002 2001
----------------- ----------------
Current Assets:
Cash and cash equivalents $ 11,406 $ 5,376
Investments-current 10,411 10,420
Trade accounts receivable, less allowance for doubtful accounts of
$239 and $552 at January 31, 2002 and April 30, 2001, respectively:
Billed 3,955 4,353
Unbilled 1,536 1,636
Due from American Software, Inc. 2,225 2,916
Prepaid expenses and other current assets 415 500
----------------- ----------------
Total current assets 29,948 25,201
Investments-noncurrent - 4,910
Furniture and equipment, less accumulated depreciation 996 1,497
Intangible assets, less accumulated amortization 7,733 8,219
Other assets, net 950 1,014
----------------- ----------------
$ 39,627 $ 40,841
================= ================
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 584 $ 1,074
Accrued compensation and related costs 1,379 1,749
Other current liabilities 1,140 1,531
Deferred revenues 4,910 6,378
----------------- ----------------
Total current liabilities 8,013 10,732
Deferred income taxes 3,321 3,321
----------------- ----------------
Total liabilities 11,334 14,053
----------------- ----------------
Shareholders' equity:
Preferred stock: 2,000,000 shares authorized; no shares issued - -
Common stock, no par value; 20,000,000 shares authorized;
13,885,214 and 13,878,714 shares issued at January 31, 2002
and April 30, 2001, respectively - -
Additional paid-in capital 44,703 44,684
Accumulated deficit (11,914) (13,480)
Treasury stock, at cost - 648,107 and 621,011 shares at January
31, 2002 and April 30, 2001, respectively (4,496) (4,416)
----------------- ----------------
Total shareholders' equity 28,293 26,788
Commitments and contingencies
----------------- ----------------
$ 39,627 $ 40,841
================= ================
See accompanying notes to condensed financial statements.
3
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
January 31, January 31,
---------------------------------- ------------------------------------
2002 2001 2002 2001
---------------- --------------- ----------------- ----------------
Revenues:
License fees $ 1,692 $ 1,904 $ 5,945 $ 6,026
Services and other 2,776 1,897 7,873 6,172
Maintenance 2,768 2,684 8,437 7,820
---------------- --------------- ----------------- ----------------
Total Revenues 7,236 6,485 22,255 20,018
---------------- --------------- ----------------- ----------------
Cost of Revenues:
License fees 979 1,406 2,896 3,086
Services and other 1,567 1,434 5,168 4,283
Maintenance 550 388 1,506 1,207
---------------- --------------- ----------------- ----------------
Total Cost of Revenues 3,096 3,228 9,570 8,576
---------------- --------------- ----------------- ----------------
Gross Margin 4,140 3,257 12,685 11,442
---------------- --------------- ----------------- ----------------
Operating expenses:
Research and development 1,406 1,894 4,291 6,264
Less: capitalized development (584) (506) (2,219) (2,004)
Sales and marketing 2,082 3,372 7,277 10,525
General and administrative 794 968 2,485 2,768
Provision for doubtful accounts 30 393 60 453
Charge for restructuring - 240 - 476
---------------- --------------- ----------------- ----------------
Total operating expenses 3,728 6,361 11,894 18,482
---------------- --------------- ----------------- ----------------
Operating income (loss) 412 (3,104) 791 (7,040)
---------------- --------------- ----------------- ----------------
Other Income 201 398 775 880
---------------- --------------- ----------------- ----------------
Income (loss) before taxes 613 (2,706) 1,566 (6,160)
Income taxes - - - -
---------------- --------------- ----------------- ----------------
Net income (loss) $ 613 $ (2,706) $ 1,566 $ (6,160)
================ =============== ================= ================
Basic net income (loss) per common share $ 0.05 $ (0.20) $ 0.12 $ (0.46)
================ =============== ================= ================
Diluted net income (loss) per common share* $ 0.05 $ (0.20) $ 0.12 $ (0.46)
================ =============== ================= ================
Weighted average common shares outstanding:
13,242 13,284 13,250 13,299
================ ============== ================ ================
13,249 13,284 13,268 13,299
================ ============== ================ ================
* Diluted weighted average common shares outstanding are not included in the
three and nine months ended January 31, 2001 calculations due to the
anti-dilution of the net loss.
See accompanying notes to condensed financial statements.
4
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Cash Flows (Unaudited)
(in thousands)
Nine Months Ended
January 31,
-------------------------------------
2002 2001
----------------- ----------------
Cash flows from operating activities:
Net income (loss) $ 1,566 $ (6,160)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,332 2,603
Provision for doubtful accounts receivable 60 453
Write-off of minority investment in business - 300
Charge for restructuring - non-cash portion - 182
(Increase) decrease in assets:
Accounts receivable 438 2,214
Due from Parent 691 (117)
Prepaid expenses and other assets 149 50
Increase (decrease) in liabilities:
Accounts payable, accrued costs and other (1,251) (1,058)
Deferred revenues (1,468) (159)
----------------- ----------------
Net cash provided by (used in) operating activities 3,517 (1,692)
----------------- ----------------
Cash flows from investing activities:
Additions to capitalized computer software development costs (2,219) (2,004)
Additions to purchased computer software costs (43) (170)
Proceeds from maturities of investments 26,376 76,629
Purchases of investments (21,457) (71,129)
Minority investment in business - (63)
Purchases of furniture and equipment (83) (241)
----------------- ----------------
Net cash provided by investing activities 2,574 3,022
----------------- ----------------
Cash flows from financing activities:
Repurchases of common stock (80) (105)
Proceeds from exercise of stock options 19 -
----------------- ----------------
Net cash used in financing activities (61) (105)
----------------- ----------------
Net change in cash and cash equivalents 6,030 1,225
Cash and cash equivalents at beginning of period 5,376 3,524
----------------- ----------------
Cash and cash equivalents at end of period $ 11,406 $ 4,749
================= ================
Supplemental disclosure of noncash investing activity:
Transfer of software from Parent $ - $ 1,173
================= ================
See accompanying notes to condensed financial statements.
5
Item 1. Financial Statements (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
A. Basis of Presentation
The accompanying condensed financial statements of Logility, Inc. (the
"Company"), are unaudited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The financial information presented in the condensed
financial statements reflects all normal recurring adjustments, which are,
in the opinion of management, necessary for a fair presentation of the
periods indicated. These financial statements should be read in conjunction
with the Company's Form 10-K for the fiscal year ended April 30, 2001, as
filed with the SEC on July 24, 2001, and the Company's Form 10-K/A for the
fiscal year ended April 30, 2001, as filed with the SEC on November 20,
2001. The interim results reflected in the condensed financial statements
are not necessarily indicative of the results to be expected for the full
year.
The Company is an approximately 85% owned subsidiary of American Software,
Inc. (the "Parent"), a publicly held provider of enterprise resource
planning solutions and managed services (NASDAQ - AMSWA).
B. Industry Segments
The Company has adopted Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information.
The Company operates and manages its business in one segment, providing
business-to-business collaborative commerce solutions to optimize supply
chain operations for manufacturers, distributors and retailers.
C. Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income and its
components in a full set of financial statements. No statements of
comprehensive income (loss) have been included in the accompanying
condensed financial statements since comprehensive income (loss) and net
income (loss) presented in the accompanying condensed statements of
operations would be the same.
D. Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Software Revenue
Recognition With Respect to Certain Transactions.
License. License revenues in connection with license agreements for
standard proprietary and tailored software are recognized upon delivery of
the software, provided collection is considered probable, the fee is fixed
or determinable, there is evidence of an arrangement, and vendor-specific
evidence exists to defer any revenue related to undelivered elements of the
arrangement.
Services. Revenues derived from services primarily include consulting,
implementation, and training. The Company bills fees under both time and
materials and fixed fee arrangements and recognizes revenues as it performs
the services.
6
Item 1. Financial Statements (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Maintenance. Revenues derived from maintenance contracts primarily include
telephone consulting, product updates and releases of new versions of products
previously purchased by the customer, as well as error reporting and correction
services. Maintenance contracts are typically sold for a separate fee with
initial contractual periods ranging from one to three years with renewal for
additional periods thereafter. Maintenance fees are generally billed annually in
advance. Maintenance revenues are recognized ratably over the term of the
maintenance agreement. In situations where the maintenance fee is bundled with
the license fee, the Company determines Vendor Specific Objective Evidence
("VSOE") for maintenance based on stated renewal rates in the contract, which
generally average 18% of the net license fee.
Deferred Revenues. Deferred revenues represent advance payments or billings for
software licenses, services, and maintenance billed in advance of the time the
Company recognizes revenues.
Indirect Channel Revenues. The Company recognizes revenues from sales it makes
through indirect channels only when the distributor makes a sale to an end-user.
Revenues from indirect channels are recognized upon delivery of the software to
the end-user assuming all other conditions of SOP 97-2 and SOP 98-9 are met.
E. Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common shareholders is based
on the weighted-average number of common shares outstanding. Diluted earnings
(loss) per common share available to common shareholders is based on the
weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options.
The numerator in calculating both basic and diluted earnings (loss) per common
share for each period is the same as net earnings (loss). The denominator is
based on the following number of common shares:
Three Months ended Nine Months ended
January 31, January 31,
2002 2001 2002 2001
-------------------------- -------------------------
(in thousands) (in thousands)
Common Shares:
Weighted average common shares outstanding 13,242 13,284 13,250 13,299
Dilutive effect of outstanding stock options* 7 - 18 -
-------------------------- -------------------------
Total 13,249 13,284 13,268 13,299
========================== =========================
Net earnings (loss): $ 613 $ (2,706) $ 1,566 $ (6,160)
Net earnings (loss) per common share:
Basic $ 0.05 $ (0.20) $ 0.12 $ (0.46)
========================== =========================
Diluted $ 0.05 $ (0.20) $ 0.12 $ (0.46)
========================== =========================
7
*For the three and nine months ended January 31, 2002, options to
purchase 735,222 shares and 511,483 shares, respectively, of common
stock were excluded entirely from the calculation of dilutive earnings
per share because the options' exercise price was greater than the
average market price of the common stock for the period. As of January
31, 2002, total options to purchase 767,722 shares were outstanding.
Because of the antidilutive effect of the net loss, all outstanding
stock options were excluded from the calculation of diluted earnings
per share for the three and nine months ended January 31, 2001.
Options to purchase 779,131 and 395,126 shares of common stock for the
three and nine months ended January 31, 2001 would have been taken
into account in calculating dilutive earnings per share were it not
for the antidilutive effect of the net loss. As of January 31, 2001,
total options to purchase 791,896 shares were outstanding.
F. Agreements with American Software, Inc. ("ASI")
Effective August 1, 1997 (except for the Tax Sharing Agreement, which was
effective January 23, 1997), the Company entered into certain contractual
arrangements with ASI related to the following:
Tax Sharing Agreement--The Company computes a separate, stand-alone income
tax provision and settles balances due to or from ASI on this basis. All
benefits derived from deferred tax assets as defined in the Tax Sharing
Agreement (which include net operating loss and tax credit carryforwards) that
arose prior to the Company's October 1997 initial public offering (of
$5,768,000) were allocated to ASI. Accordingly, the Company will not receive any
benefit from the $5,768,000 of contributed gross deferred tax assets. In
addition, certain deferred tax liabilities that arose prior to the initial
public offering were allocated to the Company (which gives rise to the Company's
net deferred tax liability of $3,321,000 at January 31, 2002 recorded in the
accompanying condensed balance sheets). To the extent the tax computation
produces a tax benefit for the Company, ASI is required to pay such amounts to
the Company only if and when realized by ASI by a reduction in income taxes
payable with respect to the current tax period. At April 30, 2001, ASI had net
operating loss carryforwards of approximately $43.0 million which ASI must
utilize before the Company would receive payment for any currently generated tax
benefits. Such net operating losses expire in varying amounts through 2021.
Services Agreement--Commencing August 1, 1997, the Company began purchasing
or selling various services from or to ASI based upon various cost methodologies
as described below:
Expense for the Expense for the
Nine months ended Nine months ended
Service Cost methodology January 31, 2002 January 31, 2001
------- ---------------- ---------------- ----------------
.. General corporate Apportioned based on $ 989,000 $ 924,000
services, including formula to all ASI
accounting and insurance subsidiaries
expense
.. Professional services to Cost plus billing with 345,000 230,000
customers on behalf of the the percentage of costs
Company (services are and expenses to be
available unless ASI negotiated
determines it is not
economic or otherwise
feasible)
.. Employee benefits services Apportioned based on 38,000 30,000
formula to all ASI
subsidiaries
8
Expense for the Expense for the
Nine months ended Nine months ended
January 31, 2002 January 31, 2001
---------------- ----------------
Facilities Agreement--The Company leases various properties from ASI $ 463,000 $ 620,000
for specified square foot rates. The stated term of the agreement is
for two years with automatic one year extensions; however, it may be
terminated by either party after a 90-day notice. ASI allocates
utility expenses based on the Company's percentage of occupancy. Also
included in these costs is utilities, telephone, and security expense.
Stock Option Agreement--The Company has granted ASI an option to Not applicable Not applicable
purchase Company common stock to enable ASI to maintain the
necessary ownership percentage required to consolidate the Company
in ASI's consolidated Federal income tax return. The purchase price
of the option is the average of the closing price on each of the five
business days immediately preceding the date of payment.
Technology License Agreement--The Company granted ASI a Not applicable Not applicable
nonexclusive, nontransferable, worldwide perpetual right and license
to use, execute, reproduce, display, etc. its Supply Chain Planning and
Execution Solutions (which ASI had transferred to the Company) so
that ASI may maintain and support end-users of the software products.
The license is fully paid and royalty-free.
Marketing License Agreement--The Company utilizes ASI as a 109,000 357,000
nonexclusive marketing representative for licensing of its products and
pays ASI 30% (50% for certain international licenses) of net license
fees for its services. The stated term of the agreement is for five
years, may be terminated at either party's discretion upon 12 months'
notice.
G. Lease Commitments
The Company occupies its principal office facilities under a facilities
agreement with ASI dated August 1, 1997, that is cancelable upon 90-day notice
by either party (see note "F"). Amounts allocated to the Company for rent
expense for these facilities were $254,000 for the nine months ended January 31,
2002, and $191,000 for the nine months ended January 31, 2001. In addition, the
Company has various other operating leases. Rent expense under these facility
leases was $497,000 for the nine months ended January 31, 2002, and $443,000 for
the nine months ended January 31, 2001.
9
LOGILITY, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements, which are subject
to substantial risks and uncertainties. There are a number of factors that could
cause actual results to differ materially from those anticipated by statements
made herein. The timing of releases of our software products can be affected by
customer needs, marketplace demands and technological advances. Development
plans frequently change, and it is difficult to predict with accuracy the
release dates for products in development. In addition, other factors, including
but not limited to changes in general economic conditions, technology and the
market for our products and services, including economic conditions within the
e-commerce markets, the timely availability and market acceptance of these
products and services, the effect of competitive products and pricing, the
continued viability and effectiveness of strategic alliances, and the irregular
pattern of our revenues could affect our future performance.
OVERVIEW
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
e-Business solutions for business-to-business (B2B) collaborative commerce that
optimize supply chain management of manufacturers, suppliers, distributors,
retailers and other organizations. The supply chain refers to the complex
network of relationships that organizations maintain with trading partners to
source, manufacture and deliver products to the customer. Logility Voyager
SolutionsTM consists of an Internet-based, integrated software suite that
provides advanced supply chain management including collaborative planning,
strategic network design, sales forecasting, optimized supply sourcing,
warehouse management, and collaborative logistics capabilities that are designed
to increase revenues, reduce inventory costs, improve forecast accuracy,
decrease order cycle times, optimize production scheduling, streamline logistics
operations, reduce transportation costs and improve customer service across our
customers' supply chains, via corporate Internet portals and public e-Business
trading exchanges.
Leveraging our supply chain management expertise, we have been an innovator in
developing and deploying B2B e-Business with our first Internet-based
collaborative planning solution implemented in 1996. We continue to invest and
expand our e-Business offerings and innovative solutions, which support the
Voluntary Interindustry Commerce Standards Association ("VICS"), Collaborative
Planning, Forecasting and Replenishment (CPFR(R)) standards, as well as other
emerging collaborative supply chain management standards for transportation and
distribution center management. Our Logility Voyager Solutions suite and related
services are designed to power the emerging Internet trading exchanges and
private marketplaces for collaborative planning and procurement of direct
materials and collaborative transportation management. We market our solution
worldwide, primarily to large enterprises that require comprehensive supply
chain planning, warehouse management and logistics solutions. Sales are made
through a dedicated sales force and through relationships with third-party
vendors (including American Software) and service providers.
We previously conducted our business and operations as three separate business
units of American Software: a supply chain planning software group, a warehouse
management software group, and a transportation management software group.
Effective January 1997, American Software transferred substantially all of the
business, operations (including research and development), assets and associated
liabilities of its Supply Chain Planning division to us. Effective August 1997,
American Software transferred to us the WarehousePRO software and substantially
all associated operations, assets and liabilities. Also effective August 1997,
American Software's wholly-owned subsidiary, Distribution Sciences, Inc., was
merged into Logility, transferring its business, operations, assets and
liabilities, including the Transportation Planning and Transportation
10
Management software, to us.
We derive revenues primarily from three sources: software licenses, services,
and maintenance. Software licenses generally are based upon the number of
modules, servers, users and/or sites licensed. License fee revenues are
recognized upon delivery of the software, provided collection is considered
probable, the fee is fixed or determinable, there is evidence of an arrangement,
and vendor-specific evidence exists to allocate the total fee to all elements of
the arrangement. Services revenues consist primarily of fees from software
implementation, training, consulting and customization services. We recognize
revenues as we render the services. Maintenance agreements typically are for a
one- to three-year term and usually are entered into at the time of the initial
product license. Maintenance revenues are recognized ratably over the term of
the maintenance agreement.
COMPARISON OF RESULTS
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the three months ended January 31, 2002 and 2001:
Percentage of Pct. Change
Total Revenues in Dollars
------------------------------------ ------------------
2002 2001 2002 vs 2001
---------------- ---------------- ------------------
Revenues:
License fees 24% 29% (11)%
Services and other 38 30 46
Maintenance 38 41 3
---------------- ---------------- ------------------
Total revenues 100 100 12
---------------- ---------------- ------------------
Cost of revenues:
License fees 14 22 (30)
Services and other 21 22 9
Maintenance 8 6 42
---------------- ---------------- ------------------
Total cost of revenues 43 50 (4)
---------------- ---------------- ------------------
Gross margin 57 50 27
Operating expenses:
Research and development (net) 11 21 (41)
Sales and marketing 29 52 (38)
General and administrative 11 15 (18)
Provision for doubtful accounts - 6 nm
Charge for restructuring - 4 nm
---------------- ---------------- ------------------
Total operating expenses 51 98 (41)
---------------- ---------------- ------------------
Operating income (loss) 6 (48) nm
---------------- ---------------- ------------------
Other income, net 2 6 (49)
---------------- ---------------- ------------------
Income (loss) before income taxes 8 (42) nm
Income taxes - - -
---------------- ---------------- ------------------
Net income (loss) 8% (42)% nm
================ ================ ==================
nm - not meaningful
11
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the nine months ended January 31, 2002 and 2001:
Percentage of Pct. Change
Total Revenues in Dollars
------------------------------------ ------------------
2002 2001 2002 vs 2001
---------------- ---------------- ------------------
Revenues:
License fees 27% 30% (1)%
Services and other 35 31 28
Maintenance 38 39 8
---------------- ---------------- ------------------
Total revenues 100 100 11
---------------- ---------------- ------------------
Cost of revenues:
License fees 13 15 (6)
Services and other 23 21 21
Maintenance 7 7 25
---------------- ---------------- ------------------
Total cost of revenues 43 43 12
---------------- ---------------- ------------------
Gross margin 57 57 11
Operating expenses:
Research and development (net) 9 21 (51)
Sales and marketing 33 53 (31)
General and administrative 11 14 (10)
Provision for doubtful accounts - 2 nm
Charge for restructuring - 2 nm
---------------- ---------------- ------------------
Total operating expenses 53 92 (36)
---------------- ---------------- ------------------
Operating income (loss) 4 (35) nm
---------------- ---------------- ------------------
Other income, net 3 4 (12)
---------------- ---------------- ------------------
Income (loss) before income taxes 7 (31) nm
Income taxes - - -
---------------- ---------------- ------------------
Net income (loss) 7% (31) nm
================ ================ ==================
nm - not meaningful
THREE MONTHS ENDED JANUARY 31, 2002 AND 2001:
---------------------------------------------
REVENUES:
Our total revenues increased 12% to approximately $7.2 million from $6.5 million
for the comparable quarter a year ago. This increase was due primarily to
increases in services and maintenance revenues, partially offset by a decrease
in license fees. International revenues represented approximately 12% of total
revenues in the quarter ended January 31, 2002 compared to approximately 27% a
year ago. This decrease was due primarily to one significant international
transaction booked in the period a year ago. No single customer accounted for
more than 10% of our total revenues in the quarter ended January 31, 2002.
LICENSES. License fee revenues decreased 11% to approximately $1.7 million from
$1.9 million for the same quarter a year ago primarily as a result of slow
general economic conditions. The direct sales channel provided approximately 74%
of license fee revenues for the quarter ended January 31, 2002, compared to
approximately
12
29% in the comparable quarter a year ago. This increase is due
primarily to increased direct channel sales effectiveness, as well as one
transaction of significant size obtained through an indirect channel in the
comparable quarter a year ago. For the quarter ended January 31, 2002, our
margins after commissions on direct sales were approximately 92% and our margins
after commissions on indirect sales were approximately 74%.
SERVICES AND OTHER. Services and other revenues increased 46% to approximately
$2.8 million from $1.9 million for the same quarter a year ago, primarily as a
result of the completion of one large contract which contained custom
modifications that were completed and accepted by the customer in this quarter,
as well as higher average software implementation service revenues realized per
license fee transaction.
MAINTENANCE. Maintenance revenues increased 3% to approximately $2.8 million
from $2.7 million for the same quarter a year ago, due to continued growth in
the installed base of our software. Maintenance revenues have a direct
relationship to current and historic license fee revenues, since new licenses
are the potential source of new maintenance customers.
GROSS MARGIN:
Total gross margin in the quarter ended January 31, 2002 was 57% of total
revenues, compared to 50% a year ago. This increase was largely due to increased
gross margins on both license fee and services revenues. License fee gross
margin rose to 42% from 26% a year ago, primarily due to a lower than normal
gross margin in the period a year ago, which in turn was due to a material third
party commission recorded in conjunction with a large international license
transaction. The gross margin on services revenues increased to 44% from 24% a
year ago, due to higher levels of software implementation services, as well as
improved utilization of services staff. Maintenance gross margins declined to
80% compared to 86% for the prior year quarter, primarily due to increased
customer service resources, as well as third party royalty support costs.
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all
non-capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Three Months Ended (000's omitted)
-------------------------------------------------------
January 31, Percent January 31,
2002 Change 2001
----------------- ------------ -----------------
Gross product development costs $ 1,406 (26)% $ 1,894
Percentage of total revenues 19% 29 %
Less: Capitalized development (584) 15 % (506)
Percentage of gross prod. dev. costs 42% 27 %
----------------- ------------ -----------------
Product development expenses $ 822 (41)% $ 1,388
Percentage of total revenues 11% 21 %
Gross product development costs decreased 26% in the quarter ended January 31,
2002 compared to a year ago, due to cost reduction efforts, the reallocation of
some R&D resources to services and support activities, and the shift of certain
projects from the research phase to the development phase. Capitalized
development increased 15% from a year ago, and the rate of capitalized
development as a percentage of gross product development costs increased to 42%
versus 27% a year ago, primarily as a result of lower gross development costs,
as well as the completion of several capitalized projects during the last
quarter. Product development expenses, as a percentage of total revenues,
decreased to 11% from 21% a year ago, due primarily to lower gross product
development costs, as well as increased total revenues.
13
SALES AND MARKETING. Sales and marketing expenses decreased 38% from the same
period a year ago, due primarily to cost reduction efforts across all categories
of marketing expenditures, including in particular reduced sales and marketing
staff headcount. At January 31, 2002, there were 40 employees in the sales and
marketing function, compared to 62 at January 31, 2001. As a percentage of total
revenues, sales and marketing expenses were 29% for the quarter ended January
31, 2002, compared to 52% for the quarter ended January 31, 2001. This decrease
was due primarily to the decreased level of expenditures, as well as an increase
in revenues. We anticipate that sales and marketing expenses will increase as we
pursue increased market share in the Business to Business Collaborative Commerce
(BBCC) area.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 18% to
approximately $794,000 from a year ago, mainly as a result of a decrease in the
number of employees. For the three months ended January 31, 2002, the average
number of employees was approximately 154, compared to approximately 193 for the
three months ended January 31, 2001. Provision for doubtful accounts decreased
92% to $30,000, mainly as a result of an unusually high $393,000 addition to bad
debt reserve in the quarter ended January 31, 2001, which was taken due to
collection concerns related to the economic slowdown a year ago.
OTHER INCOME:
Other income is comprised of earnings from the investment of our cash reserves.
Our investments are short term in nature, and all investments mature within one
year. Investments consist of money market funds, U.S. Government Securities,
A1/P1 rated commercial paper, and minimum A- rated corporate bonds. For the
three months ended January 31, 2002, these investments generated an annualized
yield of approximately 2.6%.
INCOME TAXES:
We are included in the consolidated federal income tax return filed by ASI.
However, we provide for income taxes as if we were filing a separate income tax
return. For the quarter ended January 31, 2002, we did not record any income
taxes as a result of cumulative net operating losses in prior years.
NINE MONTHS ENDED JANUARY 31, 2002 AND 2001:
--------------------------------------------
REVENUES:
Our total revenues increased 11% to approximately $22.3 million from $20.0
million for the comparable period a year ago. This increase was due primarily to
an increase in services revenues, and to a lesser extent an increase in
maintenance revenues, slightly offset by a reduction in license fee revenues.
International revenues represented approximately 14% of total revenues in the
nine months ended January 31, 2002, compared to 18% for the same period a year
ago. No single customer accounted for more than 10% of our total revenues in the
nine months ended January 31, 2002.
LICENSES. License fee revenues decreased 1% to approximately $5.9 million from
$6.0 million for the same period a year ago. The direct sales channel provided
approximately 89% of license fee revenues for the nine months ended January 31,
2002, compared to approximately 58% in the comparable period a year ago. This
increase is due primarily to increased direct channel sales effectiveness, as
well as one transaction of significant size obtained through an indirect channel
in the comparable period a year ago. For the nine months ended January 31, 2002,
our margins after commissions on direct sales were approximately 89% and our
margins after commissions on indirect sales were approximately 77%.
SERVICES AND OTHER. Services and other revenues increased 28% to approximately
$7.9 million from $6.2
14
million for the same period a year ago as a result of higher average software
implementation service revenues realized per license fee transaction.
MAINTENANCE. Maintenance revenues increased 8% to approximately $8.4 million
from $7.8 million for the same period a year ago, due to continued growth in the
installed base of our software. Maintenance revenues have a direct relationship
to current and historic license fee revenues, since new licenses are the
potential source of new maintenance customers.
GROSS MARGIN:
Total gross margin in the nine months ended January 31, 2002 was 57% of total
revenues, unchanged from a year ago. The gross margin on license fee revenues
rose to 51% from 49% a year ago, primarily due to timing issues between the
research and development phases of certain projects. Services gross margin
increased to 34% from 31% a year ago, primarily due to higher levels of software
implementation services, as well as improved utilization of services staff.
Maintenance gross
margins decreased slightly to 82% from 85% in the prior year period.
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all
non-capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Nine Months Ended (000's omitted)
-------------------------------------------------------
January 31, Percent January 31,
2002 Change 2001
----------------- ------------ -----------------
Gross product development costs $ 4,291 (31)% $ 6,264
Percentage of total revenues 19% 31%
Less: Capitalized development (2,219) 11% (2,004)
Percentage of gross prod. dev. costs 52% 32%
----------------- ------------ -----------------
Product development expenses $ 2,072 (51)% $ 4,260
Percentage of total revenues 9% 21%
Gross product development costs decreased 31% in the nine months ended January
31, 2002 compared to a year ago, due to cost reduction efforts, the reallocation
of some R&D resources to services and support activities, and the shift of
certain projects from the research phase to the development phase. Capitalized
development increased 11% from a year ago, and the rate of capitalized
development as a percentage of gross product development costs increased to 52%
versus 32% a year ago, primarily as a result of lower gross development costs,
as well as the completion of several capitalized projects during the last three
quarters. Product development expenses, as a percentage of total revenues,
decreased to 9% from 21% a year ago, due primarily to lower gross product
development costs, as well as increased total revenues.
SALES AND MARKETING. Sales and marketing expenses decreased 31% from the same
period a year ago, due primarily to cost reduction efforts across all categories
of marketing expenditures, including in particular reduced sales and marketing
staff headcount. As a percentage of total revenues, sales and marketing expenses
were 33% for the nine months ended January 31, 2002, compared to 53% for the
prior year period. This decrease was due primarily to the decreased
expenditures, as well as the increase in overall revenues. We anticipate that
sales and marketing expenses will increase as we pursue increased market share
in the BBCC area.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 10% to
approximately $2.5 million from a year ago, mainly as a result of a decrease in
the number of employees. For the nine months ended January 31, 2002, the average
number of employees was approximately 159, compared to approximately
15
203 for the same period in the prior year. Provision for doubtful accounts
decreased 87% to $60,000, mainly as a result of an unusually high addition to
bad debt reserve in the nine months ended January 31, 2001, which was taken due
to collection concerns related to the economic slowdown at that time.
OTHER INCOME:
Other income is comprised of earnings from the investment of our cash reserves.
Our investments are short term in nature, and all investments mature within one
year. Investments consist of money market funds, U.S. Government Securities,
A1/P1 rated commercial paper, and minimum A- rated corporate bonds. For the nine
months ended January 31, 2002, these investments generated an annualized yield
of approximately 4.0%.
INCOME TAXES:
We are included in the consolidated federal income tax return filed by ASI.
However, we provide for income taxes as if we were filing a separate income tax
return. For the nine months ended January 31, 2002, we did not record any income
taxes as a result of cumulative net operating losses in prior years.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The following table shows information about our cash flows during the nine
months ended January 31, 2002 and January 31, 2001. This table and the
discussion that follows should be read in conjunction with our condensed
statements of cash flows contained in "Item 1. Financial Statements" in Part I
of this report and in the amendment to our Annual Report on Form 10-K/A for the
fiscal year ended April 30, 2001, filed November 20, 2001.
Nine Months Ended
January 31 (000's omitted)
----------------------------
2002 2001
----------------------------
Net cash provided by (used in) operating activities before
changes in operating assets and liabilities 4,958 (2,622)
(Increase) decrease in operating assets and liabilities (1,441) 930
----------------------------
Net cash provided by (used in) operating activities 3,517 (1,692)
Net cash provided by investing activities 2,574 3,022
Net cash used in financing activities (61) (105)
----------------------------
Net increase in cash and cash equivalents 6,030 1,225
============================
We normally fund our operations and capital expenditures primarily with cash
generated from operating activities. The changes in net cash used for operating
activities generally reflect the changes in net income and non-cash operating
items plus the effect of changes in operating assets and liabilities, such as
trade accounts receivable, trade accounts payable, accrued expenses and deferred
revenue.
Our operating activities provided cash of approximately $3.5 million in the nine
months ended January 31, 2002, and used cash of approximately $1.7 million in
the same period last year. Operating cash flows increased for the period
primarily because of the net income of $1.6 million for the period, compared to
the net loss of $6.2 million for the prior year period.
Cash provided by investing activities was approximately $2.6 million for the
nine months ended January 31, 2002. This was composed primarily of the net sale
of investments of $4.9 million, which was partially offset by $2.2 million in
additions to capitalized software development costs. For the same period last
year, cash provided by investing activities was approximately $3.0 million,
composed primarily of $5.5 million in net sale of investments,
16
partially offset by $2.0 million in additions to capitalized software
development costs.
Cash used in financing activities was $61,000 for the nine months ended January
31, 2002, composed of $80,000 in repurchases of our common stock, partially
offset by $19,000 in cash proceeds from the exercise of stock options. For the
same period last year, $105,000 was used for repurchases of our common stock.
Days Sales Outstanding (DSO) in accounts receivable were 71 days as of January
31, 2002, compared to 91 days as of January 31, 2001. This decrease was due
primarily to higher levels of revenues for the current quarter, as well as
improved collection efforts.
Our current ratio on January 31, 2002 was 3.7 to 1 and we have no debt. Our
principal sources of liquidity are our cash and investments, which totaled
approximately $21.8 million at January 31, 2002. We believe that our sources of
liquidity and capital resources will be sufficient to satisfy our presently
anticipated requirements during at least the next twelve months for working
capital, capital expenditures and other corporate needs. Management is not aware
of any condition that would materially alter this trend.
On December 15, 1997, our Board of Directors approved a resolution authorizing
the repurchase of up to 350,000 shares of our common stock through open market
purchases at prevailing market prices. We completed this repurchase plan in
November 1998. In November 1998 we adopted an additional repurchase plan for up
to 800,000 shares. The timing of any repurchases would depend on market
conditions, the market price of Logility's common stock and management's
assessment of our liquidity and cash flow needs. For both plans, through March
13, 2002, we had purchased a cumulative total of 648,107 shares at a total cost
of approximately $4.5 million.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement was amended in June 2000 by Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." Statement No. 138 was
effective for us beginning May 1, 2001. The new Statement requires that all
derivatives be recorded on the balance sheet at fair value and establishes
accounting treatment for three types of hedges: (1) hedges of changes in the
fair value of assets, liabilities, or firm commitments; (2) hedges of the
variable cash flows of forecasted transactions; and (3) hedges of foreign
currency exposures of net investments in foreign operations. We have not
invested in derivative instruments or participated in hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") and amended it in March and June 2000. In October 2000, the SEC issued
further guidance with respect to adoption of specific issues addressed by SAB
101. We adopted SAB 101, as amended, during our fourth quarter of fiscal year
2001. The adoption had no material impact on our licensing practices, financial
position or results of operations.
In July 2001, the FASB issued Statement No. 141, "Business Combinations," which
addressed financial accounting and reporting for business combinations.
Statement No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. We were required to
adopt the provisions of Statement No. 141 immediately.
In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible
Assets," which addressed financial accounting and reporting for acquired
goodwill and other intangible assets. Upon adoption of Statement No. 142, we
will be required to discontinue the amortization of our goodwill and intangible
assets with indefinite useful lives. Additionally, we will be required to test
our goodwill and intangible assets with indefinite useful
17
lives for impairment during the first year of adoption and then at least
annually, or when it is deemed appropriate, thereafter. If our goodwill and
intangible assets with indefinite useful lives are found to be impaired during
the transitional period, the resulting write-down will be reported as a change
in accounting principle. Any impairment loss recorded after the transitional
period will be recorded in earnings (loss) from operations. Because goodwill and
certain intangible assets will not be amortized over a specific period but
rather will be reviewed for impairment annually, there could be more volatility
in reported earnings (loss) than under previous accounting standards due to
impairment losses occurring irregularly and in varying amounts. Although we do
not currently expect that the adoption of Statement No. 142 will have a material
adverse impact on our financial condition or results of operations, we are
assessing the possible effects of this Statement. We are required to adopt
Statement No. 142 effective May 1, 2002. Amortization of intangible assets
totaled $2,667,000 for the nine months ended January 31, 2002, and $2,007,000
for the nine months ended January 31, 2001. These amounts consisted entirely of
amortization of capitalized software.
In August 2001, the FASB issued Statement No. 143 (SFAS No. 143), "Accounting
for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
applies to all entities. SFAS No. 143 applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and (or) the normal operation of a long-lived asset,
except for certain obligation of leases. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management
does not anticipate the adoption of SFAS No. 143 to have a material effect on
its financial condition or results of operations.
In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (Statement 144), which supersedes both FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (Statement 121) and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). Statement No. 144 retains the fundamental provisions in
Statement No. 121 for recognizing and measuring impairment losses on long-lived
assets held for use and long-lived assets to be disposed of by sale, while also
resolving significant implementation issues associated with Statement No. 121.
For example, Statement No. 144 provides guidance on how a long-lived asset that
is used as part of a group should be evaluated for impairment, establishes
criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by sale.
Statement No. 144 retains the basic provisions of Opinion 30 on how to present
discontinued operations in the income statement but broadens that presentation
to include a component of an entity (rather than a segment of a business).
Unlike Statement No. 121, an impairment assessment under Statement No. 144 will
never result in a write-down of goodwill. Rather, goodwill is evaluated for
impairment under Statement No. 142, Goodwill and Other Intangible Assets.
We are required to adopt Statement 144 no later than the year beginning after
December 15, 2001, and plans to adopt its provisions for the quarter ending
April 30, 2002. We do not expect the adoption of Statement No. 144 for
long-lived assets held for use to have a material impact on our financial
statements because the impairment assessment under Statement No. 144, as it
affects us, is largely unchanged from Statement No. 121. We are required to
apply the provisions of the Statement to disposal activities that we initiate
after the adoption date for assets held for sale or other disposal. Therefore,
we cannot determine the potential effects that adoption of Statement No. 144
will have on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency. For the nine months ended January 31, 2002, we generated 14%
of our revenues outside the
18
United States. International sales usually are made by our foreign operations or
value added resellers, and are denominated typically in U.S. Dollars, British
Pounds Sterling, or Euros. However, the expense incurred by foreign subsidiaries
is denominated in the local currencies. We have not engaged in any hedging
activities.
Interest rates. We manage our interest rate risk by maintaining an investment
portfolio of held-to-maturity instruments with high credit quality and
relatively short average maturities. These instruments include, but are not
limited to, money-market instruments, bank time deposits, and taxable and
tax-advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies, in
accordance with our investment policy. These instruments are denominated in U.S.
Dollars. The fair value of securities held at January 31, 2002 was approximately
$19.9 million.
We also hold cash balances in accounts with commercial banks in the United
States and foreign countries. These cash balances represent operating balances
only and are invested in short-term time deposits of the local bank. Such
operating cash balances held at banks outside the United States are minor and
denominated in the local currency.
Many of our investments carry a degree of interest rate risk. When interest
rates fall, our income from investments in variable-rate securities declines.
When interest rates rise, the fair market value of our investments in fixed-rate
securities declines. We attempt to mitigate risk by holding fixed-rate
securities to maturity, but should our liquidity needs force us to sell
fixed-rate securities prior to maturity, we may experience a loss of principal.
We believe that a 10% swing in interest rates would not have a material effect
on our accompanying statements of operations.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
The registrant is not currently involved in legal proceedings
requiring disclosure under this item.
Item 2. Changes in Securities and Use of Proceeds
------- -----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
Not applicable.
Item 5. Other Information
------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits:
None
(b) No report on Form 8-K was filed during the quarter ended
January 31, 2002.
20
SIGNATURES
----------
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.
LOGILITY, INC.
DATE March 15, 2002 /s/ J. Michael Edenfield
-------------------------------------------
J. Michael Edenfield
President, Chief Executive Officer
DATE March 15, 2002 /s/ Vincent C. Klinges
-------------------------------------------
Vincent C. Klinges
Chief Financial Officer
DATE March 15, 2002 /s/ Deirdre J. Lavender
-------------------------------------------
Deirdre J. Lavender
Controller and Principal Accounting Officer
21