##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

|                               |  |                                                                                         
|------------------------------ |  | ----------------------------------------------------------------------------------------
|(Mark One)                     |  |                                                                                         
|[X]                            |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934    
|                               |  |                                                                                         
|                               |  | For the fiscal year ended February 28, 2003 OR                                          
|                               |  |                                                                                         
|[  ]                           |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|                               |  |                                                                                         
|                               |  | For the transition period from ______ to ______                                         
|                               |  |                                                                                         
|Commission File Number 0-22154

MANUGISTICS GROUP, INC.(Exact name of Registrant as specified in its charter)

|                                                                        |  |                                                   
|----------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 52-1469385
(I.R.S. Employer
Identification Number)

9715 Key West Avenue, Rockville, Maryland 20850
(Address of principal executive offices) (Zip code)
(301) 255-5000
(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.002 par value per share
(Title of Class)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

|         |  |         
|-------- |  | --------
|Yes  [X] |  | No  [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).

|         |  |         
|-------- |  | --------
|Yes  [X] |  | No  [  ]

As of August 31, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $235.0 million. As of April
29, 2003, the number of shares outstanding of the Registrants common stock was
approximately 70.1 million, based on information provided by the Registrants
transfer agent.

1



---



##### 



DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive Proxy Statement relating to the 2003 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Form 10-K.
We anticipate that our Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after the end of our fiscal year ended
February 28, 2003.

PART I

Item 1 BUSINESS.

The disclosures set forth in this annual report are qualified by the sections
captioned Forward-Looking Statements and Factors That May Affect Future
Results in Item 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations of this annual report, and other
cautionary statements set forth elsewhere in this annual report.

Overview:

We are a leading global provider of supply chain management and pricing
and revenue optimization software. We also provide software for supplier
relationship management and service & parts management. We have a
solutions-based approach to client delivery  selling configured sets of our
software products that address the specific supply and demand chain business
processes that our clients want to improve. Our software helps companies lower
operating costs, improve customer service, increase revenue, enhance
profitability and accelerate revenue and earnings growth. They do this by
creating efficiencies in how goods and services are brought to market, how they
are priced and sold and how they are serviced and maintained. Our Enterprise Profit
Optimization solutions (EPO), which combine the proven cost-reducing
power of our supply chain management software solutions with the
revenue-enhancing capability of pricing and revenue optimization software,
provide additional benefits by providing businesses with the ability to
simultaneously optimize cost and revenue to enhance profitability on an
enterprise-wide basis. These solutions integrate pricing, forecasting, and
operational planning and execution to help companies enhance margins across
their enterprises and extended trading networks.

Our supply chain management software helps companies plan, optimize and
execute their supply chain processes. These processes include manufacturing,
distribution and service operations and collaboration with a companys extended
trading network of suppliers and customers. Our pricing and revenue
optimization software helps optimize a companys demand chain, including
pricing and promotions to all customers through all channels, with the aim of
balancing the trade-offs between profitability and other strategic objectives
such as market share. Our supplier relationship management software helps
improve the activities required to design, source, and procure goods and to
collaborate more effectively with key suppliers of direct materials. Our
service & parts management solutions help companies optimize and manage their
service and parts operations by effectively planning and scheduling maintenance
programs, parts, materials, tools, manpower and repair facilities to profitably
provide the highest levels of customer service. We also provide strategic
consulting, implementation and customer support services to our clients as part
of our overall solution.

Increasing global competition, shortening product life cycles and more
demanding customers are forcing businesses to provide improved levels of
customer service while shortening the time it takes to bring their products and
services to market. We focus the development of our software on addressing the
changing needs of companies in the markets we serve, including the need to do
business in extended trading networks. We offer solutions to companies in many
industries including automotive; chemical & energy; communications &
high technology; consumer packaged goods; food & beverage;
government, aerospace & defense; industrials; life sciences;
retail; third-party logistics; and travel, transportation & hospitality. Our
customer base of approximately 1,200 clients includes large, multinational
enterprises such as 3Com Corporation; AT&T; Boeing Co.; BP;
Brown & Williamson Tobacco Corp.; Caterpillar Mexico S.A. de C.V.;
Cisco Systems Inc.; Coca-Cola Bottling Co. Consolidated; Continental
Airlines; Delta Air Lines; DHL Aviation NV/SA; DuPont;
Fairchild Semiconductor; Ford Motor Company; Harley-Davidson,
Inc.; Hormel Foods Corp.; Kraft Foods, Inc.; Levi Strauss & Co.;
Nestlé; RadioShack Corporation; Texas Instruments
Incorporated; and Unilever Home & Personal Care, USA; as well as mid-sized
enterprises.

The Company was incorporated in Delaware in 1986. Our fiscal year end is
February 28th or 29th. We completed our initial public offering of common stock
in 1993, a secondary public offering of common stock in 1997 and a private
placement of convertible subordinated notes in 2000. We subsequently registered
the convertible subordinated notes early in fiscal 2002. We have invested
significant resources to develop new software, to enhance existing software and
to acquire additional software products and solutions through acquisitions.

2



---



##### 



A summary of our acquisitions over the past five fiscal years follows:

|                                           |  |               |  |                                                                             
|------------------------------------------ |  | ------------- |  | ----------------------------------------------------------------------------
|Company                                    |  | Date          |  | Description                                                                 
|                                           |  |               |  |                                                                             
|Digital Freight Exchange, Inc.             |  | May 2002      |  | Collaborative transportation logistics services                             
|Western Data Systems of Nevada, Inc.       |  | April 2002    |  | Maintenance, repair and overhaul and make-to-order software                 
|SpaceWorks Inc. (acquired
technology only) |  | July 2001     |  | Order management software                                                   
|PartMiner CSD, Inc.                        |  | May 2001      |  | Product design and sourcing software                                        
|One Release, LLC                           |  | May 2001      |  | Software development services                                               
|STG Holdings, Inc.                         |  | January 2001  |  | Advanced factory planning, scheduling and simulation software               
|Talus Solutions, Inc.                      |  | December 2000 |  | Pricing and revenue optimization software                                   
|TYECIN Systems, Inc.                       |  | June 1998     |  | Supply chain planning and simulation software for the
semiconductor industry

Fiscal 2003 Acquisitions:

Digital Freight Exchange, Inc.On May 23, 2002, the Company acquired
substantially all of the assets of Digital Freight Exchange, Inc. (DFE) for
$4.5 million in cash. DFE was a provider of collaborative transportation
logistics services that facilitate online, real-time bids for global
transportation contracts. Approximately $0.3 million of the purchase price was
paid in cash at closing. The remaining purchase price of $4.2 million was paid
in cash in September 2002. Approximately $675,000 of the purchase price is
being held in escrow for the satisfaction of indemnification claims under the
terms of the acquisition agreement.

Western Data Systems of Nevada, Inc.On April 26, 2002, we acquired
certain assets and assumed certain liabilities of Western Data Systems of
Nevada, Inc. (WDS) for $26.2 million in cash. At the time of the acquisition,
WDS was a leading provider of application software and services to 135
customers in commercial aerospace, defense and maritime industries and the
military. The WDS acquisition added to our offering of service & parts
management solutions that address the complex business operations inherent to
asset intensive industries. WDS software includes capabilities ranging from
predictive system failure forecasting and parts optimization, to finite
capacity and labor resource scheduling, to maintenance, repair and overhaul
(MRO) shop planning and execution, and direct materials purchase management.
During the year ended and as of January 31, 2002, WDS had revenue of
approximately $28.0 million and 160 employees. Approximately $2.6 million of
the purchase price was paid in cash at closing. The remaining purchase price of
$23.6 million was paid in cash in November 2002. Approximately $3.9 million of
the purchase price is being held in escrow for the satisfaction of
indemnification claims under the terms of the acquisition agreement.

Industry Background:

An effective supply chain management and pricing and revenue optimization
strategy can make companies more competitive and profitable. In addition, we
believe that companies must pursue the further integration of the supply-side
and demand-side of their business in order to respond to increased global
competition, to differentiate themselves from their competitors and to increase
their share of their markets. We combine our traditional supply chain
management and our pricing and revenue optimization strengths with our supplier
relationship management and service & parts management solutions to enable
companies to improve their cost position and enhance their revenue, ultimately
improving profitability. Once implemented, our solutions can provide our
clients with greater access to information, clearer visibility of what is
taking place in their sales, service and supply channels and a consolidated
view of client requirements, further optimizing their extended supply and
demand networks.

Clients are using our solutions to share information within their
companies and among their trading partners in their supply chains. The sharing
of information enables our clients to coordinate more effectively with their
trading partners, which helps our clients meet or exceed the rapidly changing
requirements of their customers. Our solutions address the supply chain needs
of enterprises and trading networks and the business processes that enable
responsive and intelligent decision-making. These processes include design,
source, buy, make, store, move, price, market, sell and service. Our solutions
are focused on managing decisions, events and plans and have the flexibility to
be configured to the unique requirements of different industries. In addition,
our solutions allow companies to use the internet as a medium for business
collaboration and to monitor, measure and improve their business processes over
time.

Strategy:

Our objectives are to (i) enhance our position as a leading global
provider of supply chain management (SCM) and pricing and revenue
optimization (PRO) solutions and (ii) leverage our leadership position in SCM
and PRO to our supplier relationship management, service & parts management and
EPO solutions. Our strategy to achieve our objective includes the following
elements:

3



---



##### 



EXPAND AND DIFFERENTIATE OUR SOLUTIONS  We have significant experience
and expertise in supply chain management and pricing and revenue optimization,
enhanced by our relationships with clients, industry experts and third-party
alliances, which we believe will work to our advantage as we develop and expand
our solutions. We believe that there is a significant opportunity to apply
pricing and revenue optimization solutions to manufacturing and other
non-reservation based industries, as evidenced by clients such as AT&T,
Fairchild Semiconductor, Ford Motor Company and UPS. In the past, revenue
optimization was used primarily in service and reservation-based
industries such as passenger airlines, hotels, media and entertainment and car
rental. We intend to extend the capabilities and scope of our supply chain
management, pricing and revenue optimization, supplier relationship management,
service & parts management and EPO solutions to help solve a broader range of
business challenges and to improve processes within and among companies. We
believe the emerging market for EPO solutions will be a large and important
market, and that our industry domain expertise and extensive capabilities will
differentiate us from our competitors.

PROVIDE ADVANCED TECHNOLOGICAL INNOVATION  Using our extensive experience
and domain expertise, plus our commitment of substantial resources for research
and development, we develop advanced technological software solutions and offer
them to our clients and prospects. In addition, we will consider tactical and
strategic acquisitions of other companies and technologies in order to shorten
the time it takes us to bring solutions to market, further differentiate
ourselves from our competitors and to enhance or expand our existing offerings.
See Product Development.

DEVELOP STRATEGIC ALLIANCES AND NEW BUSINESS RELATIONSHIPS  We focus our
resources on the development and enhancement of our core competencies and
combine them with the competencies of third parties, such as leading consulting
firms and technology providers that provide advanced capabilities to complement
our core focus areas. This strategy permits us to offer our clients
industry-leading solutions that can better meet their needs. We continue to
expand and enhance our current solutions and our ability to implement them
through these alliances.

EXPAND CURRENT VERTICAL MARKETS AND EXPLORE NEW ONES  We continue to
expand our presence in and focus on markets in a broad range of
sectors such as automotive; chemical & energy; communications & high technology;
consumer packaged goods; food & beverage; government,
aerospace & defense; industrials; life sciences; retail; third-party logistics;
and travel, transportation & hospitality. This strategy provides us with a
diverse customer base and increases the number of potential new customers in
future periods. We believe our vertical market diversification will be a key
factor in helping us achieve our growth objectives in the future and helps
mitigate against the effects of adverse changes in individual vertical markets.
We also evaluate opportunities outside of our current vertical markets as we
seek to expand the penetration of our supply chain management, pricing and
revenue optimization, supplier relationship management, service & parts
management and EPO solutions.

Products:

Our
products can be grouped in four categories: Manugistics NetWORKS
planning applications, Manugistics NetWORKS collaborative applications, NetWORKS
execution applications and Manugistics WebConnect integration
applications.

The Manugistics NetWORKS family of products is designed to coordinate,
optimize, measure and analyze across each of the key business
processes  design, source, buy, make, store, move, price, market, sell and service.

Manugistics
NetWORKS Planning Applications..

Manugistics
NetWORKS planning applications include the core optimization
technologies and algorithms of our demand and pricing management, logistics
management, manufacturing management, fulfillment management, and supply
management solutions, which incorporate many years of research and development
in advanced mathematical modeling. Our NetWORKS planning applications are
designed to facilitate strategic, tactical and operational decision-making.
Strategic decisions typically consider a time-frame of quarters to years.
Tactical decisions typically consider a time-frame of weeks to months.
Operational decisions typically consider a time-frame of minutes to days.
Descriptions of the NetWORKS planning applications follow:

NetWORKS ATTRIBUTE BASED PLANNING  NetWORKS Attribute Based Planning
optimizes production plans across multi-site manufacturing environments,
simultaneously considering the complex business constraints and business goals
of the unique client environment helping enable companies to reduce
manufacturing costs while maximizing customer service. It also provides an
intuitive decision-support system using advanced reporting capabilities to help
summarize key business metrics.

4



---



##### 



NetWORKS DEMAND  NetWORKS Demand forecasts future customer demand with
a high degree of accuracy, alerting a company to potential supply problems and
finding patterns of demand that traditional forecasting solutions do not
detect.

NetWORKS FULFILLMENT  NetWORKS Fulfillment matches time-phased storage
and flow of supply to demand, enabling companies to minimize inventory and
reduce logistics costs while maximizing customer service.

NetWORKS MAINTENANCE, REPAIR AND OVERHAUL  NetWORKS Maintenance, Repair
and Overhaul (MRO) is a complete repair and overhaul operations management
and accounting system foundation designed for MRO facilities throughout the
supply chain in complex manufacturing environments such as aerospace and
defense. NetWORKS MRO improves customer repair and overhaul turn-around-time by
leveraging and focusing on current organizational agility and operations,
building on current business processes or by introducing new streamlined
processes and improved policies to achieve higher standards of customer
service. It provides manufacturers within the supply chain with the
information, planning tools and management controls they need to maximize
on-time customer delivery performance to ensure customer satisfaction.

NetWORKS MASTER PLANNING  NetWORKS Master Planning orchestrates global,
multi-site supply plans by allocating constrained resources such as resource
capacity, availability of raw materials, inflow and outflow (throughput) of
facilities, transportation and availability of components and labor to improve
customer service and increase profit margins.

NetWORKS PRECISION PRICING  NetWORKS Precision Pricing predicts the
responses of customer segments to a companys products and prices. Based on the
predicted customer response, the software determines the optimal list price for
each product in each customer segment to enhance profit, increase market share,
or achieve other strategic goals.

NetWORKS PRODUCTION PLANNING  NetWORKS Production Planning, through its
advanced modeling techniques, reduces manufacturing cycle time by enabling
clients to coordinate purchasing and production with demand by comprehensively
synchronizing and optimizing the flow of materials through the enterprise.
NetWORKS Production Planning quickly identifies the operations constraints and
provides planners with the tools to make optimal planning decisions.

NetWORKS PRODUCTION SCHEDULING  NetWORKS Production Scheduling uses
reality-based modeling and logical constraint-based algorithms to significantly
reduce manufacturing cycle time and improve customer service by identifying and
optimizing constrained resources and focusing on due-date delivery performance
and Just-In-Time (JIT) synchronization of material flow.

NetWORKS PROMOTIONS  NetWORKS Promotions predicts the impact of
proposed sales promotions using historical data and statistically-derived
market response models and recommends the appropriate promotion to meet
business objectives and enhance profit while considering product costs,
cross-product cannibalization, buy-forward dilution and cross-channel dilution.

5



---



##### 



NetWORKS REVENUE OPTIMIZATION APPLICATIONS  Manugistics revenue
optimization applications include NetWORKS Airline Revenue Optimizer, NetWORKS
Cargo Revenue Optimizer and NetWORKS Hospitality Revenue
Optimizer. These
applications are specifically designed for the travel, transport and
hospitality industries. Our products are designed to optimize revenues and
enhance profits while considering product perishability and capacity
utilization.

NetWORKS SEQUENCING  NetWORKS Sequencing optimizes single and multi-site
production environments by generating production schedules that respect the
complex rules of manufacturing operations. User-defined scheduling objectives
allow NetWORKS Sequencing to be configured to reflect the manufacturing
strategies at each location of use. It also considers manufacturing cycle time
reduction to minimize work-in-progress inventories and increase output.

NetWORKS STRATEGY  NetWORKS Strategy enables enterprises and extended
trading networks to design supply chain networks. By modeling end-to-end
trading partner relationships, this product helps users determine the most
profitable supply chain strategy, including the optimal choice of trading
partners, optimal inventory levels, optimal lane volumes and appropriate
seasonal pre-builds and product mix. It also helps determine optimal
production, storage and distribution locations.

NetWORKS SUPPLY  NetWORKS Supply helps facilitate the effective
management of the flow of material among trading partners on complex bills of
material, while simultaneously providing intelligent substitution and
configuration of materials that are in short supply or unavailable.

NetWORKS TARGET PRICING  NetWORKS Target Pricing systematically
integrates market information, cost information, customer information and
strategic goals to forecast the most profitable price quotation. In arriving at
a pricing recommendation, the solution uses advanced statistical methods to
balance the probability of winning a deal with its total contribution to
profit.

NetWORKS TRANSPORT  NetWORKS Transport is designed to simultaneously
optimize transportation plans and execute all inbound, outbound and
intercompany transportation moves, including freight payment, tracking and
reporting. With a competitive advantage in multi-point to multi-point
transportation planning, NetWORKS Transport helps enable the sharing of
optimized transportation plans with carriers and manufacturers via the
internet.

STATGRAPHICS  STATGRAPHICS contains a comprehensive set of statistical
tools to control, manage and improve the quality of production processes in
manufacturing companies. STATGRAPHICS uses statistical quality control and
design of experiments to implement quality management in individual locations
throughout an enterprise or manufacturing plant.

Manugistics NetWORKS Collaborative Applications.

Our collaborative applications provide collaboration and communication
that extend our intelligent engines into business processes that are created in
concert with trading partners. These products enable businesses to expand their
supply chains into true extended trading networks. Descriptions of our
collaborative applications follow:

NetWORKS ANALYTICS  NetWORKS Analytics is based on industry-standard
online analytical processing (OLAP) technology that enables business reporting
and analysis and trading network performance measurement. Its multi-dimensional
analyses increase the speed, accuracy and efficiency of knowledge discovery and
facilitate proactive decision-making by providing analyses that are specific to
business processes.

NetWORKS COLLABORATE  NetWORKS Collaborate is a comprehensive tool that
enables clients to collaboratively plan, monitor and measure their trading
relationships. NetWORKS Collaborate is a business-to-business, eCommerce
application that ensures the creation and maintenance of joint business plans
with trading partners, monitors the execution of those plans and measures their
success.

NetWORKS MARKET MANAGER  NetWORKS Market Manager provides a global view
of all market activities for a product, location, or product family,
simplifying the process of coordinating market activity information related to
market promotions. Promotions, deals, discounts and coupons are used by
NetWORKS Market Manager to provide a global view into market activities
throughout the various stages of the market activity process.

NetWORKS MONITOR  NetWORKS Monitor allows clients to monitor and manage
their pre-defined critical planning and execution information and it provides
robust technology for alerting all appropriate trading partners when problems
occur. NetWORKS Monitor provides a web-based portal for all information about
problems (called exceptions) across the entire trading

6



---



##### 



network, enables role-based security for interaction with that data and
provides recommendations and automatic steps for resolving those exceptions.

NetWORKS REPORTING  NetWORKS Reporting, from one central web-based
portal, provides views of critical information on the supply pipeline and the
status of orders. Using role-based security, trading partners can view orders
and actions relevant to their responsibilities within the trading network.

Manugistics
NetWORKS Execution Applications.

Our
execution applications support key business transactions
between trading partners. Descriptions of our execution
applications follow:

NetWORKS COMMIT  NetWORKS Commit helps enable reliable, real-time
commitments for delivery of products by simultaneously performing checks on the
availability of resources, including inventory, production, materials,
manufacturing scheduling, distribution and transportation and then immediately
allocating appropriate resources needed to meet customer requests.

NetWORKS COMPONENT MANAGEMENT  NetWORKS Component Management helps
enable clients to create a comprehensive view of their component base by
consolidating component data that typically resides in various databases across
multiple divisions. This comprehensive view of the component base helps reduce
costs and increase productivity by quickly identifying part redundancies and
rationalizing the supply base.

NetWORKS DELIVERY MANAGEMENT  NetWORKS Delivery Management assists the
buying organization in the management of inbound freight orders by providing
complete visibility to purchase orders and their associated deliveries from
order origination to destination and enables suppliers to confirm delivery
information such as dates and quantities in a web-based collaborative
environment.

NetWORKS DISTRIBUTED PROCUREMENT  NetWORKS Distributed Procurement
operates on a stand-alone basis, connects to any existing ERP system, and
connects to any public or private e-Marketplace environment. Companies can
leverage their existing IT investments and unify corporate-level strategic
sourcing capabilities while maintaining site-level control and flexibility.
NetWORKS Distributed Procurement reduces the administrative costs associated
with the procurement process by fully or partially automating tasks. Based on
configurable business rules, this automation enables buyers to focus more of
their time on value-added activities such as supplier sourcing, development,
and management.

NetWORKS MAKE-TO-ORDER  NetWORKS Make-to-Order is a plant operations and
accounting system foundation designed for complex manufacturing environments
such as aerospace and defense. NetWORKS Make-to-Order improves customer
manufacturing operations throughput by leveraging and focusing on their current
organizational agility and operations, building on their current business
processes or by introducing new streamlined processes. It provides
manufacturers within the supply chain with the information, planning tools and
management controls they need to maximize on-time customer delivery performance
to ensure customer satisfaction.

NetWORKS
ORDER MANAGEMENT  NetWORKS Order Management is designed to help
manage the total life cycle of each customer order through a single order
management interface that brings together from the various systems the critical
information that is required for an effective online and offline order
management process. It allows the client to establish a direct selling site
that services customers through multiple online and traditional channels, and
it enables connectivity to backend distribution systems and partners.

NetWORKS
PROCUREMENT  NetWORKS Procurement is an advanced internet-based
direct procurement solution designed for complex manufacturing environments
such as aerospace and defense, mid-sized suppliers and MRO facilities in
industry and government. It enables single-site or multi-site organizations to
leverage the supplier community as a strategic asset through aggregated
sourcing and buying, increased buyer efficiencies and through efficient
collaboration and integration with suppliers. This results in reduced lead-time
and cost and improved responsiveness.

Manugistics WebConnect Integration Applications.

Our Manugistics WebConnect integration applications help integrate
disparate systems across an enterprise and with external trading partners. A
description follows:

WebConnect INTEGRATION SUITE  Our WebConnect integration suite uses
leading-edge enterprise application integration (EAI), extract-transform-load
(ETL) and business-to-business (B2B) integration technology and provides
pre-built, configurable connectors to common enterprise systems provided by
companies such as SAP AG. WebConnect provides automated data transformation and
mapping between Manugistics and other systems along with graphical integration
tools that allow users to easily update and maintain these integrations.
WebConnect also coordinates business processes and messaging among disparate
systems and provides coordination and messaging for integration with external
trading partners and heterogeneous trading network environments.

Solutions
Based Approach.

We sell configured
sets of our software products that address the specific supply and demand chain
business process issues that our clients want to improve. This approach helps
deliver greater value to our clients. These solutions typically consist of
NetWORKS products spanning planning, collaboration, execution and integration capabilities. We are presently focused on
commercializing or enhancing the following set of solutions:

|                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DEMAND AND PRICING MANAGEMENT SOLUTIONS
Collaborative Demand Planning
Demand Classification
Demand Planning
Market Activity Management
Price List Optimization
Profitable Promotions Management |  | ORDER & FULFILLMENT MANAGEMENT SOLUTIONS
Collaborative Supplier Managed Inventory
Dynamic Deployment
Fulfillment & Inventory Optimization
Fulfillment Network Design & Optimization
Order and Inventory Visibility
Order Management/Available to Promise/Capable to Promise
Profitable Order Commitment/Contract Pricing
Sales & Operations Planning

7



---



##### 



|                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|LOGISTICS MANAGEMENT SOLUTIONS
Domestic Planning & Execution (Load Tender & Status
Management)
Freight Payment Management
International Planning & Optimization with Activity Management
Logistics Optimization Tuning
Logistics Sourcing/Bid Optimization
Private Fleet Management
Real-Time Visibility & Performance Analysis with Trading
Partner Connectivity
Tour Design |  | SERVICE & PARTS MANAGEMENT SOLUTIONS
Field Service Execution
Parts Optimization
Repair Shop Execution
Repair Shop Planning
Strategic Service & Parts Planning                                                                                            
|MANUFACTURING MANAGEMENT SOLUTIONS
Attribute-Based Planning and Scheduling
Collaborative Manufacturing Management
Manufacturing Optimization Tuning/Recalibration
Manufacturing Scheduling
Single & Multi-Site Manufacturing Planning
Supply Chain Planning
Supply Network Design & Total Cost Evaluation                                                                     |  | SUPPLY MANAGEMENT SOLUTIONS
Collaborative Supply Management (Multi-Tier)
Component Management
Material Planning & Optimization
PO Delivery Management
Procurement Execution
Spend Analysis & Strategic Sourcing/Contract Management
Supply Classification

Implementation Services:

A key element of our business strategy is to provide clients with
comprehensive solutions for their internal and external supply and demand
chains by offering implementation services for our products. When implementing
our software, clients typically make changes to their business processes and
overall operations, including their planning and pricing functions. To assist
clients in making these changes, we offer a wide range of implementation
services. These services include supply chain, supplier relationship, pricing
and revenue and service & parts management consulting services to help our
clients achieve their objectives. Our implementation services also include
business operations consulting, change management consulting and end-user and
system administrator education and training. These services help clients
redesign their operations to take full advantage of our software.

These implementation services are priced and sold separately from our
software products and are provided primarily on a time and materials basis. Our
consulting services group consisted of 339 employees as of February 28, 2003.

Client Support and Application Hosting Service:

Our comprehensive solutions include global support to clients. Most of our
clients enter into annual solution support agreements for post-contract
customer support and the right to unspecified software upgrades and
enhancements. Support includes in-depth support services, product maintenance
and a web-based knowledge management tool for tips and techniques and online
support. Upgrades include new features and functionality as well as core
technology enhancements. Our client support personnel also collect information
that we use to assist us in developing new products, enhancing existing
products and in identifying market demand. Our application hosting service
helps our clients increase the speed at which they realize the benefits of our
products by reducing internal resource requirements such as costs of hardware,
infrastructure, security, training and technology and operating in proven
technical environments. As of February 28, 2003, our client support and
application hosting service group consisted of 67 employees.

Product Development:

We direct our efforts in product development to:



| |  |  | the development of new products;                                                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | enhancements of existing products;                                                                                        
|
| |  |  | enhancement of our products for use in different languages;                                                               
|
| |  |  | increasing the breadth and depth of our product functionality
to address increasingly complex customer challenges quickly;
|
| |  |  | increasing the performance of our software and its ability to address increasingly large-scaled problems; and             
|
| |  |  | development of products tailored to the specific requirements of particular industries.                                   

To date, our products, including product documentation, have been
developed by our internal staff and third-party contractors and have been
supplemented by acquisitions and complementary business relationships.

In developing new products or enhancements, we work closely with current
and prospective clients, as well as with other industry leaders, to make sure
that our products address the needs of the markets we serve. We believe that
this collaboration will lead to

8



---



##### 



improved software and will result in superior products that are likely to
be in greater demand in the market. We maintain committees of users, developers
and marketers of our products, who, among other things, define and rank issues
associated with products and discuss priorities and directions for their
enhancement.

For new applications and major enhancements, we also conduct a launch
program, which allows clients to review design specifications and prototypes
and to participate in product testing. We have established channels for client
feedback, which include periodic surveys and focus groups. In addition, our
product development staff works closely with our marketing, sales, support and
services groups to develop products that meet the needs of our current and
prospective clients. As of February 28, 2003, our product development resources
included 362 employees and 113 third-party contractors, 83 of which were
working out of our product development facilities in India. Gross product
development costs were $73.6 million, $81.0 million and $49.8 million in fiscal
2003, 2002 and 2001, respectively. Gross product development costs in total
over the last five fiscal years were $298.3 million.

We have made substantial investments in product development and we will
continue to make the expenditures for product development that we believe are
necessary for rapidly delivering new products, features and functions. We
believe that getting products to market quickly, without compromising quality,
is critical to the success of our business.

Sales and Marketing:

Our sales operation for North and South America is headquartered at our
office in Rockville, MD and includes field offices in Atlanta, GA; Wayne, PA;
Itasca, IL; Irving, TX; Detroit, MI; Calabasas, CA; San Carlos, CA; and Sao
Paulo, Brazil. Our direct sales organization focuses on licensing supply chain
management, pricing and revenue optimization, supplier relationship management,
service & parts management and EPO solutions to large, multi-national
enterprises, as well as to mid-sized enterprises with a variety of supply
chain, pricing and extended trading network issues.

We license our solutions in regions outside of the Americas primarily
through foreign subsidiaries. Our British, German, French, Belgian, Dutch and
Swedish subsidiaries, located in Bracknell, England; Munich, Germany; Paris,
France; Brussels, Belgium; Utrecht, The Netherlands; and Stockholm, Sweden,
respectively, provide direct sales, services and support primarily to clients
located in continental Europe and the United Kingdom. We have established
subsidiaries in Tokyo and Osaka, Japan; Singapore; Shanghai, The Peoples
Republic of China; Hong Kong; Kuala Lumpur, Malaysia; and Sydney, Australia. We also maintain
offices in Taipei, Taiwan. We adapt our solutions for use in international
markets by addressing different languages, different standards of weights and
measures and other operational considerations. In fiscal 2003, approximately
25.0% of our total revenue came from sales made to clients outside the United
States. Details of our geographic revenue are in Note 15  Segment
Information in the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report.

We also use indirect sales channels to market our software, consisting of
complementary software vendors, third-party alliances and distributorships. See
 Alliances. Using these channels, we seek to increase the market
penetration of our software through joint marketing and sales activities. These
relationships enhance our sales resources in target markets and expand our
expertise in bringing our solutions to prospects and clients. We also license
our STATGRAPHICS product in the U.S. and in other countries through independent
distributors, national resellers and local dealers.

We support our sales activities by conducting a variety of marketing
programs, including our annual conference called enVISION, which provides a
forum for executives and managers to exchange ideas and best practices
regarding technological innovations in supply chain management, pricing and
revenue optimization, supplier relationship management and service & parts
management. We also maintain client steering committees to involve our clients
in the ongoing development of our solutions. We also participate in industry
conferences such as those organized by the American Production and Inventory
Control Specialists (APICS) organization, Supply Chain World, Retail Systems
and Auto-Tech and in numerous pricing and revenue optimization conferences,
such as HITEC and PPS. In addition, we participate in solution demonstration
seminars and client conferences hosted by complementary software vendors. We
also conduct Manugistics brand awareness and lead-generation programs including
advertising, direct mail, public relations, seminars, telemarketing and ongoing
client communication programs.

As of February 28, 2003, we had 242 employees engaged in sales and
marketing activities.

Alliances:

Our alliance program is based on delivering maximum value to our global
base of clients. We ally ourselves with leading companies that provide
consulting and implementation services, software and technology and hardware
that complement our solutions.

9



---



##### 



We have strategic alliances pursuant to written agreements with
industry-leading software and technology providers. These include Agile
Software; Avolent; Blue Martini Software; Business Objects; Celarix; Centric
Software; Cognos; e7th; Frictionless Commerce; Imany; Inovis; Neuron Data;
Proclarity; Savvion; Shipnow; Tele Atlas North America; TIBCO Software;
Vendavo; Viacore; Vignette; webMethods; and Workplace plc, with whom we have
software license, distribution and strategic relationship agreements; Azerity:
Chrome: KCI Computing; MatrixOne; Mestec; MXI; Softface; TIP Technologies; and
Vastera, with whom we have joint marketing and sales referral agreements; and
IBM; Hewlett Packard; Microsoft; and Sun Microsystems, with whom we have
various development support and hardware lease agreements. We have entered into
an Independent Software Vendor (ISV) agreement with BEA Systems and an
original equipment manufacturer (OEM) software agreement with IBM. In
addition, Manugistics has entered into agreements with Nomis Solutions and The
Rainmaker Group which grant them the right to resell specific Manugistics
products. Manugistics maintains agreements with a number of technology
providers whose products are embedded and shipped with one or more Manugistics
products. These include ActiveState; Actuate; DataDirect Technologies; eXcelon;
ILOG; IONA Technologies; MapInfo; Numerical Algorithms Group (NAG); Quest
Software; Recursion Software; Rogue Wave Software; and Verity.

We work with leading systems integrators, business strategy and management
consultancies that provide a wide range of consulting expertise such as
implementation of software solutions, process and change management and
strategic business services. We maintain close relationships with major
consulting firms worldwide to extend our delivery and solution capability for
our clients. We have also developed strategic alliances pursuant to written
agreements with consulting and systems integration partners such as Accenture,
AT Kearney, Bearing Point (formerly KPMG Consulting), Cap Gemini Ernst & Young,
IBM Business Consulting Services and other leading consultancies to provide
implementation and business process assistance to our clients. We have
augmented this with several geographic and regional alliances and cooperate
with other professional services firms on a client-by-client basis.

Clients:

Various combinations of our supply chain management,
pricing and revenue optimization, supplier relationship
management, service & parts management and
EPO software have been licensed by organizations worldwide in industries such
as automotive; chemical & energy; communications & high technology;
consumer packaged goods; food & beverage;
government, aerospace & defense; industrials; life sciences; retail;
third-party logistics; and travel, transportation & hospitality. Here is a
sample of some of our clients that have either licensed software products from
us or our distributors, or purchased support, consulting, or other services or
both or actively used our software during fiscal 2003. See Sales and
Marketing.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Automotive
Caterpillar
Mexico S.A. de C.V.
Deere & Co.
Ford Motor Company
Harley-Davidson, Inc.
Mistubishi Motor Sales of America
Nissan
Subaru of America, Inc. Chemical
& Energy
Airgas, Inc.
BP
DuPont
Fuji Photo Film, USA
Rohm & Haas
Vulcan Materials Co. Communications
& High Technology
3Com Corporation
AT&T
Cisco Systems, Inc.
Fairchild Semiconductor
Hewlett Packard Company
Lexmark
Motorola PCS
Texas Instruments Incorporated
Vodafone Ltd. |  | Consumer Packaged Goods
Brown & Williamson Tobacco Corp.
Levi Strauss & Co.
Oxford Industries, Inc.
Unilever Home & Personal Care, USA Food
& Beverage
Coca-Cola Bottling Co. Consolidated
Great Atlantic & Pacific Tea Company
Hormel Foods Corp.
Kraft Foods, Inc.
Labatts Brewing Company
Nestlé
Remy Cointreau
Winn-Dixie Stores, Inc. Government,
Aerospace & Defense
Boeing Co.
EDS (NAVTrans)
Kaman AerospaceIndustrials
Hon Industries, Inc.
Pechiney Plastic Packaging |  | Life Sciences
AstraZeneca
Smith & Nephew Retail
Canadian
Tire Corp., Ltd.
Eroski S. Coop
Gebr. Heinemann KG
HEB Grocery Company LP
Radioshack, Corporation
Spalding Sports Worldwide, Inc.
Target Corporation
The Limited, Inc.
The TJX Companies
Toys R Us, Inc. Third-Party
Logistics
Agora Europe S.A.
DHL Aviation NV/SA
PSA Logistics PTE Ltd.
Tronicus Travel,
Transportation & Hospitality
Continental Airlines
Delta Air Lines
Great North Eastern Railway
Harrahs Entertainment, Inc.
Omni Hotels
Princess Cruises
Thompson Travel Group

10



---



##### 



Competition:

The markets for our solutions are very competitive. Other application
software vendors offer products that compete directly with some of our
products. These include, but are not limited to, such vendors as Adexa; Aspen
Technology; The Descartes Systems Group; Global Logistics Technologies; i2
Technologies; JDA Software; Khimetrics; Logility; Logistics.com (recently
acquired by Manhattan Associates); Mercia; Metreo; PROS Revenue Management;
Retek; SAP; Viewlocity (formerly SynQuest); and YieldStar
Technology. Certain
Enterprise Resource Planning vendors (ERP), in addition to SAP, all of which
are substantially larger than Manugistics, have acquired or developed supply
chain management and supplier relationship management software companies,
products, or functionality or have announced intentions to develop and sell
supply chain management and supplier relationship management solutions. Such vendors
include Invensys, J.D. Edwards & Company; Oracle and PeopleSoft.

The principal competitive factors in the markets in which we compete
include product functionality and quality, domain expertise, integration
technologies, product suite integration and related services such as customer
support and implementation services. Other factors important to clients and
prospects include:



| |  |  | customer service and satisfaction;                        
| | - |  | ----------------------------------------------------------
|
| |  |  | the ability to provide client references;                 
|
| |  |  | compliance with industry standards and requirements;      
|
| |  |  | the ability of the solution to generate business benefits;
|
| |  |  | rapid paybacks and large returns on investment;           
|
| |  |  | availability in foreign languages;                        
|
| |  |  | vendor financial stability and reputation; and            
|
| |  |  | to some extent, price.                                    

We believe that our principal competitive advantages are our
comprehensive, integrated solutions, our list of referenceable clients, the
ability of our solutions to generate business benefits for clients, our
substantial investment in product development, our domain expertise
in our markets, our quick implementations, rapid
paybacks and large returns on investment, our client support services and our
extensive knowledge of supply chain management, pricing and revenue
optimization solutions, supplier relationship management and service & parts
management.

Software license, support and implementation service agreements and pricing:

Software license fees consist principally of fees generated from licenses
of our software products. In consideration of the payment of license fees, we
generally grant nonexclusive, nontransferable, perpetual licenses, which are
primarily business unit, user-specific and geographically restricted. Software
license fee arrangements vary depending upon the type of software product being
licensed and the customers computer environment. Software license fees are
based primarily on which products are licensed, the complexity of the problem
being addressed, the size of the clients business and the number of users and
locations. The amount of software license fees may reach many millions of
dollars for initiatives that are very large in scope and complexity.

Clients may obtain solution support for an annual fee. We have three
levels of support that our customers choose from to best accommodate their
needs: Standard, Premium and Signature. Support fees are calculated on an
escalated scale, based on the level of service chosen and the size of the
related software license fees. Support fees are generally billed annually and
are subject to changes in support list prices. We also provide implementation
services, systems administration, training and hosting of our software
applications and other related services, generally on a time and materials
basis. This allows our clients to determine the level of support or services
appropriate for their needs.

11



---



##### 



Proprietary rights and licenses:

We regard our software as proprietary and rely on a combination of trade
secret, patent, copyright and trademark laws, license agreements,
confidentiality and non-compete agreements with our employees and nondisclosure
and other contractual requirements imposed on our clients, consulting partners
and others to help protect proprietary rights in our products. We distribute
our supply chain management, pricing and revenue optimization, supplier
relationship management, service & parts management and EPO software under
software license agreements, which typically grant clients nonexclusive,
nontransferable licenses to our products and have perpetual terms unless the
term is limited or the license is terminated for breach. Under such typical
license agreements, we retain all rights to market our products.

Use of our software is usually restricted to the internal operations of
our clients and to designated users. In sales to virtual service providers, the
licensed software is restricted to the internal operations of our client and to
designated users and the processing of their clients individually specified
client data. Use is subject to terms and conditions that prohibit unauthorized
reproduction or transfer of the software. We also seek to protect the source
code of our software as a trade secret and as an unpublished, copyrighted work.

Employees:

As of February 28, 2003, we had 1,133 full-time regular employees and 193
full-time and part-time third-party contractors. None of our employees are
represented by a labor union. We have experienced no work stoppages and believe
that our employee relations are generally good. All of our employees sign
non-compete agreements as a condition of employment.

Available Information:

We make available, free of charge at www.manugistics.com, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and, if applicable, amendments to those reports filed or furnished
pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended,
as soon as reasonably practicable after such material is electronically filed
with or furnished to the SEC.

Item 2. PROPERTIES.

Our principal sales, marketing, product development, support and
administrative facilities are located in Rockville, MD, where we lease
approximately 280,000 square feet of office space under a lease agreement which
expires on June 30, 2012. We are currently in negotiations to sublease
approximately 30% of our corporate headquarters space. We expect to sublease
the space by August 31, 2003.

In addition, we lease office space for our 28 sales, service and product
development offices located in North America, South America, Europe and
Asia/Pacific, pursuant to leases that expire between calendar 2003 and calendar
2019. We believe that our current existing facilities are adequate for our
current needs and suitable additional or substitute space will be available as
needed to accommodate expansion of our operations. Please refer to Note 7 in
Notes to Consolidated Financial Statements included elsewhere in this Annual
Report for information regarding our lease obligations.

Item 3. LEGAL PROCEEDINGS.

We are involved from time to time in disputes and other litigation in the
ordinary course of business. We do not believe that the outcome of any pending
disputes or litigation will have a material adverse effect on our business,
operating results, financial condition and cash flows. However, the ultimate
outcome of these matters, as with dispute resolution and litigation generally,
is inherently uncertain, and it is possible that some of these matters may be
resolved adversely to us. The adverse resolution of any one or more of these
matters could have a material adverse effect on our business, operating
results, financial condition and cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

The name, age and position held by each of the executive officers of
Manugistics Group, Inc. and Manugistics, Inc., its principal operating
subsidiary, are as follows:

12



---



##### 



|                      |  |     |    |          |  |                                                                                    
|--------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Gregory J. Owens      |  |     | 43 |          |  | Chairman, President and Chief Executive Officer                                    
|                      |  |     |    |          |  |                                                                                    
|Jeffrey L. Holmes     |  |     | 53 |          |  | Executive Vice President, President of Government,
Aerospace and Defense Operations
|                      |  |     |    |          |  |                                                                                    
|Jeffrey L. McKinney   |  |     | 39 |          |  | Executive Vice President, President of Americas Operations                         
|                      |  |     |    |          |  |                                                                                    
|Raghavan Rajaji       |  |     | 56 |          |  | Executive Vice President and Chief Financial Officer                               
|                      |  |     |    |          |  |                                                                                    
|Michael Christensen   |  |     | 40 |          |  | Senior Vice President, President of Asia-Pacific Operations                        
|                      |  |     |    |          |  |                                                                                    
|Andrew J. Hogenson    |  |     | 39 |          |  | Senior Vice President, Pricing and Revenue Optimization                            
|                      |  |     |    |          |  |                                                                                    
|James J. Jeter        |  |     | 44 |          |  | Senior Vice President, Global Marketing                                            
|                      |  |     |    |          |  |                                                                                    
|Lori Mitchell-Keller  |  |     | 36 |          |  | Senior Vice President, Market Strategy                                             
|                      |  |     |    |          |  |                                                                                    
|Everett G. Plante     |  |     | 42 |          |  | Senior Vice President, Engineering and Technology Solutions                        
|                      |  |     |    |          |  |                                                                                    
|Timothy T. Smith      |  |     | 39 |          |  | Senior Vice President, General Counsel and Secretary                               
|                      |  |     |    |          |  |                                                                                    
|Jean-Claude Walravens |  |     | 50 |          |  | Senior Vice President, President of European Operations                            
|                      |  |     |    |          |  |                                                                                    
|Jeffrey T. Hudkins    |  |     | 37 |          |  | Vice President, Controller and Chief Accounting Officer                            

Mr. Owens has served as Chief Executive Officer and a member of our Board
of Directors since joining Manugistics in April 1999. He has served as Chairman
of the Board of Directors since February 2001. Mr. Owens has also served as
President of the Company from April 1999 through November 2000 and since June 2002. From 1997 to
April 1999, Mr. Owens served as the Global Managing Partner for the Accenture
Supply Chain Practice. Mr. Owens has also served as a member of the Board of
Directors of Serena Software, Inc. since April 2002 and S1 Corporation since
January 2003.

Mr. Holmes has served as Executive Vice President and President of
Government, Aerospace & Defense Operations since March 2003. From April 2002
through March 2003, Mr. Holmes served as Senior Vice President, Service & Parts
Management and Government, Aerospace & Defense. From September 1999 through
April 2002, Mr. Holmes was Senior Vice President, Government and Public Sector.
From April 1999 to September 1999, he served as Senior Vice President, North
American Sales Operations. From October 1998 to April 1999, he served as Vice
President, Industry Solutions. From January 1997 to October 1998, he served as
Vice President, Consumer Products Industry Marketing.

Mr. McKinney has served as Executive Vice President and President of
Americas Operations since September 2002. From May 2002 to September 2002, Mr.
McKinney served as Senior Vice President, Supply Chain Management and Supplier
Relationship Management. From September 2001 through April 2002, he served as
Senior Vice President, Supply Chain Management. From March 1998 to September
2001, he served as Senior Vice President, Global Business Consulting.

Mr. Rajaji has served as Executive Vice President and Chief Financial
Officer since December 1999. From September 1995 to December 1999, he served as
Senior Vice President, Chief Financial Officer and Treasurer at BancTec, Inc.

Mr. Christensen has served as Senior Vice President and President of Asia
Pacific Operations since September 2001. From December 1999 to August 2001 he
served as Vice President for Manugistics Northern Europe. From May 1997 to
December 1999 he served as Vice President for Supply Chain  Americas at Maersk
Logistics, a leading global logistics services provider.

Mr. Hogenson has served as Senior Vice President, Pricing and Revenue
Optimization since April 2002. From October 2000 to April 2002, Mr. Hogenson
was Senior Vice President, Product Development. From October 1999 through
October 2000, he served as Vice President, Transportation, Products and
Solutions. From March 1997 to October 1999, he served as Senior Manager of the
Accenture Strategy Practice Group.

Mr. Jeter has served as Senior Vice President, Global Marketing since
August 1999. From July 1998 to August 1999, he served as Vice President and
Managing Director of European Operations for Iomega Corporation, a provider of
personal storage solutions for digital information. From December 1997 to July
1998, Mr. Jeter served as Vice President, Managing Director of Iomegas Asia
Pacific operation.

13



---



##### 



Ms. Mitchell-Keller has served as Senior Vice President, Market Strategy
since July 2001. From March 2001 to July 2001, she served as Senior Vice
President of Product and Solutions Marketing. From January 1999 to March 2001,
Ms. Mitchell-Keller served as Vice President of Product Marketing. From March
1998 to January 1999, Ms. Mitchell-Keller served as Director of Product
Management. From October 1997 to March 1998, she served as Business Manager of
Demand and Supply Planning.

Mr. Plante has served as Senior Vice President, Engineering and Technology
Solutions since January 2002. From June 1999 to September 2001, he served as
Vice President and Chief Information Officer of Enron Broadband, Inc. From May
1994 to June 1999, Mr. Plante served as Senior Director, Supply Chain Systems
at COMPAQ Computer Corporation.

Mr. Smith has served as Senior Vice President, General Counsel and
Secretary from January 2000 through February 2002 and since July 2002. He
served as Vice President and General Counsel for Land Rover North America, Inc.
an automobile importer and distributor, from June 1998 to December 1999. He was
Associate Corporate Counsel for Dart Group Corporation, a retail holding
company, from May 1995 to May 1998.

Mr. Walravens has served as Senior Vice President and President of
European Operations since January 2003. From December 1999 to December 2002,
Mr. Walravens was Group Vice President, Southern Europe. From August 1997 to
November 1999, he served as Vice President, Europe, at Numetrix (acquired by JD
Edwards & Company).

Mr. Hudkins has served as Vice President and Controller since December
2000. He has served as Chief Accounting Officer since April 2001. From January
2000 to December 2000, Mr. Hudkins was Vice President, Controller and Chief
Accounting Officer for Talus Solutions, Inc., a privately held pricing and
revenue optimization software company acquired by Manugistics in December 2000.
From May 1995 to December 1999, Mr. Hudkins served in various accounting and
finance positions with Magellan Health Services, Inc., a publicly held
behavioral healthcare company, including serving as Vice President, Controller
and Chief Accounting Officer from May 1998 to December 1999.

There are no family relationships among any of the executive officers or
directors of Manugistics Group, Inc. Executive officers of Manugistics Group,
Inc. are elected by the Board of Directors (the Board) on an annual basis and
serve at the discretion of the Board.

PART II

Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock, $.002 par value per share, trades on The Nasdaq Stock
Market under the symbol MANU. The following table sets forth the high and low
sales prices in dollars per share for the respective quarterly periods over the
last two fiscal years, as reported in published financial sources. These prices
reflect inter-dealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions.

|                          |  |      |       |     |  |   |      | 
|------------------------- |  | ---- | ----- | --- |  | - | ---- | 
|Fiscal 2003               |  | High |       | Low
|                          |  |      |       |    
|First Quarter             |  | $    | 22.75 |     |  | $ | 7.50 | 
|(ended May 31, 2002)      |  |      |       |     |  |   |      | 
|Second Quarter            |  |      | 8.07  |     |  |   | 2.50 | 
|(ended August 31, 2002)   |  |      |       |     |  |   |      | 
|Third Quarter             |  |      | 4.50  |     |  |   | 1.54 | 
|(ended November 30, 2002) |  |      |       |     |  |   |      | 
|Fourth Quarter            |  |      | 4.30  |     |  |   | 2.06 | 
|(ended February 28, 2003) |  |      |       |     |  |   |      | 

|                          |  |      |       |     |  |   |       | 
|------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2002               |  | High |       | Low
|                          |  |      |       |    
|First Quarter             |  | $    | 41.90 |     |  | $ | 15.38 | 
|(ended May 31, 2001)      |  |      |       |     |  |   |       | 
|Second Quarter            |  |      | 42.38 |     |  |   | 11.65 | 
|(ended August 31, 2001)   |  |      |       |     |  |   |       | 
|Third Quarter             |  |      | 13.70 |     |  |   | 4.94  | 
|(ended November 30, 2001) |  |      |       |     |  |   |       | 
|Fourth Quarter            |  |      | 22.70 |     |  |   | 11.07 | 
|(ended February 28, 2002) |  |      |       |     |  |   |       | 

As of April 29, 2003, there were approximately 419 stockholders of record
of our common stock, according to information provided by our transfer agent.

14



---



##### 



We have never declared or paid any cash dividends on our common stock and
do not intend to do so in the foreseeable future. It is our present intention
to retain any future earnings to provide funds for the operation and expansion
of our business. In addition, we have a one-year unsecured revolving credit
facility with Silicon Valley Bank (SVB) that is scheduled to expire on
January 31, 2004. We will seek to renew this credit facility before expiration.
During the term of the credit facility, we are subject to a covenant not to
declare or pay cash dividends to holders of our common stock under certain
conditions. Future payment of cash dividends, if any, will be at the discretion
of the Board and will be dependent upon our financial condition, results of
operations, capital requirements and such other factors as the Board may deem
relevant and will be subject to the covenants contained in any outstanding
credit facility. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources and Note
6 to the Notes to Consolidated Financial Statements included elsewhere in this
Annual Report.

Item 6. SELECTED FINANCIAL DATA.

Our selected consolidated financial data for each of the five fiscal years
in the period ended February 28, 2003 and each of our last eight fiscal
quarters are set forth below. This data should be read in conjunction with our
Consolidated Financial Statements and related notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this annual report. The selected financial data for each
of the years in the three-year period ended February 28, 2003, and as of
February 28, 2003 and 2002, are derived from our consolidated financial
statements that have been included in this Annual Report. The selected
financial data as of February 28 or 29, 2001, 2000 and 1999, the years ended
February 28 or 29, 2000 and 1999, and in each of our last eight fiscal quarters
are derived from consolidated financial statements that have not been included
in this annual report.

|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |         |         |         |        | 
|----------------------------- | ----------------------------------------- | ------------------------------------------------------------------- | ------------------------ | ----------------------------------- | ------- | ------------------------------------- | ------ | -------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------ | 
|                              |                                           |                                                                     |                          |                                     |         | Fiscal Year Ended February 28 or 29, 
|                              |                                           |                                                                     |                          |                                     |         |                                      
|                              |                                           |                                                                     |                          |                                     |         | 2003                                  |        | 2002     |         | 2001    |        | 2000    |         | 1999   
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |        
|                              |                                           |                                                                     |                          |                                     |         | (in thousands, except per share data)
|STATEMENT OF OPERATIONS DATA: |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              | Revenue:                                  |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |         |        
|                              |                                           | Software                                                            |                          | $                                   | 74,899  |                                       |        | $        | 129,772 |         |        | $       | 139,316 |         |        | $       | 60,421 |         |        | $       | 73,802  |        
|                              |                                           | Services                                                            |                          |                                     | 102,144 |                                       |        |          | 106,522 |         |        |         | 73,333  |         |        |         | 46,516 |         |        |         | 65,212  |        
|                              |                                           | Support                                                             |                          |                                     | 84,075  |                                       |        |          | 73,852  |         |        |         | 55,315  |         |        |         | 45,496 |         |        |         | 38,550  |        
|                              |                                           | Reimbursed expenses                                                 |                          |                                     | 11,268  |                                       |        |          | 9,741   |         |        |         | 8,199   |         |        |         | 7,499  |         |        |         | 9,793   |        
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              |                                           |                                                                     | Total revenue            |                                     |         | 272,386                               |        |          |         | 319,887 |        |         |         | 276,163 |        |         |        | 159,932 |        |         |         | 187,357 |       
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              | Operating expenses:                       |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |         |        
|                              |                                           | Cost of revenue:                                                    |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |         |         |        
|                              |                                           |                                                                     |                          | Cost of software                    |         |                                       | 19,127 |          |         |         | 21,144 |         |         |         | 19,146 |         |        |         | 11,811 |         |         |         | 11,661 | 
|                              |                                           |                                                                     |                          | Amortization of acquired technology |         |                                       | 13,623 |          |         |         | 9,168  |         |         |         | 1,122  |         |        |         | 147    |         |         |         | 145    | 
|                              |                                           |                                                                     |                          | Cost of services and support        |         |                                       | 98,055 |          |         |         | 92,083 |         |         |         | 59,149 |         |        |         | 43,783 |         |         |         | 50,076 | 
|                              |                                           |                                                                     |                          | Cost of reimbursed expenses         |         |                                       | 11,268 |          |         |         | 9,741  |         |         |         | 8,199  |         |        |         | 7,499  |         |         |         | 9,793  | 
|                              |                                           | Sales and marketing                                                 |                          |                                     | 95,627  |                                       |        |          | 120,437 |         |        |         | 115,610 |         |        |         | 61,439 |         |        |         | 103,006 |        
|                              |                                           | Product development                                                 |                          |                                     | 63,055  |                                       |        |          | 70,477  |         |        |         | 40,830  |         |        |         | 29,150 |         |        |         | 49,389  |        
|                              |                                           | General and administrative                                          |                          |                                     | 27,885  |                                       |        |          | 28,522  |         |        |         | 22,925  |         |        |         | 15,837 |         |        |         | 19,828  |        
|                              |                                           | Amortization of intangibles                                         |                          |                                     | 3,866   |                                       |        |          | 86,279  |         |        |         | 15,082  |         |        |         | 2,290  |         |        |         | 2,118   |        
|                              |                                           | Goodwill impairment charge                                          |                          |                                     | 96,349  |                                       |        |          |        |         |        |         |        |         |        |         |       |         |        |         | 1,354   |        
|                              |                                           | Purchased research and development and
acquisition-related expenses |                          |                                     | 3,800   |                                       |        |          |        |         |        |         | 9,724   |         |        |         |       |         |        |         | 3,095   |        
|                              |                                           | Restructuring and other impairment charges (benefit)                |                          |                                     | 19,184  |                                       |        |          | 6,612   |         |        |         |        |         |        |         | (1,506 | )       |        |         | 32,421  |        
|                              |                                           | Non-cash stock compensation expense (benefit)                       |                          |                                     | 3,426   |                                       |        |          | (3,111  | )       |        |         | 12,801  |         |        |         |       |         |        |         |        |        
|                              |                                           | IRI settlement                                                      |                          |                                     |        |                                       |        |          | 3,115   |         |        |         |        |         |        |         |       |         |        |         |        |        
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              |                                           |                                                                     | Total operating expenses |                                     |         | 455,265                               |        |          |         | 444,467 |        |         |         | 304,588 |        |         |        | 170,450 |        |         |         | 282,886 |       
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              | Loss from operations                      |                                                                     |                          | (182,879                            | )       |                                       |        | (124,580 | )       |         |        | (28,425 | )       |         |        | (10,518 | )      |         |        | (95,529 | )      
|                              | Other (expense) income, net               |                                                                     |                          | (7,942                              | )       |                                       |        | (14,638  | )       |         |        | 2,899   |         |         |        | 1,389   |        |         |        | 2,362   |        
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              | Loss before income taxes                  |                                                                     |                          | (190,821                            | )       |                                       |        | (139,218 | )       |         |        | (25,526 | )       |         |        | (9,129  | )      |         |        | (93,167 | )      
|                              | Provision for (benefit from) income taxes |                                                                     |                          | 21,418                              |         |                                       |        | (24,060  | )       |         |        | 2,552   |         |         |        | (184    | )      |         |        | 2,945   |        
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              | Net loss                                  |                                                                     | $                        | (212,239                            | )       |                                       | $      | (115,158 | )       |         | $      | (28,078 | )       |         | $      | (8,945  | )      |         | $      | (96,112 | )      
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        
|                              | Basic and diluted loss per share          |                                                                     | $                        | (3.04                               | )       |                                       | $      | (1.69    | )       |         | $      | (0.48   | )       |         | $      | (0.16   | )      |         | $      | (1.82   | )      
|                              |                                           |                                                                     |                          |                                     |         |                                       |        |          |         |         |        |         |         |         |        |         |        |         |        |        

15



---



##### 



|                                                 |  |   |         |  |  |                                       |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |  |  | 
|------------------------------------------------ |  | - | ------- |  |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  |  |  | 
|                                                 |  |   |         |  |  | Fiscal Year Ended February 28 or 29, 
|                                                 |  |   |         |  |  |                                      
|                                                 |  |   |         |  |  | 2003                                  |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                 |  |   |         |  |  |                                       |         |      |  |      |         |      |  |     
|                                                 |  |   |         |  |  | (in thousands, except per share data)
|BALANCE SHEET DATA:                              |  |   |         |  |  |                                       |         |      |  |      |         |      |  |      |         |  |  |   |         |  | 
|Cash, cash equivalents and marketable securities |  | $ | 137,735 |  |  | $                                     | 233,060 |      |  | $    | 300,308 |      |  | $    | 51,547  |  |  | $ | 43,362  | 
|Working capital                                  |  |   | 119,791 |  |  |                                       | 236,951 |      |  |      | 300,668 |      |  |      | 36,831  |  |  |   | 31,138  | 
|Restricted cash                                  |  |   | 12,980  |  |  |                                       |        |      |  |      |        |      |  |      |        |  |  |   |        | 
|Goodwill and other intangible assets             |  |   | 251,742 |  |  |                                       | 336,102 |      |  |      | 394,178 |      |  |      | 7,317   |  |  |   | 9,382   | 
|Total assets                                     |  |   | 529,373 |  |  |                                       | 722,640 |      |  |      | 847,261 |      |  |      | 151,907 |  |  |   | 172,336 | 
|Long-term debt and capital leases                |  |   | 254,795 |  |  |                                       | 251,023 |      |  |      | 250,133 |      |  |      | 283     |  |  |   | 454     | 
|Total stockholders equity                       |  |   | 172,082 |  |  |                                       | 372,807 |      |  |      | 470,321 |      |  |      | 86,718  |  |  |   | 85,722  | 

|                                 |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |          |        | 
|-------------------------------- | ------------------- |  | ------------------------------------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ------- | ------ |  |  | -------- | ------ | 
|                                 |                     |  | 1st Quarter                           |        | 2nd Quarter |  | 3rd Quarter |        | 4th Quarter
|                                 |                     |  |                                       |        |             |  |             |        |            
|                                 |                     |  | (in thousands, except per share data)
|Fiscal 2003                      |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |          |       
|Revenue                          |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |          |       
|                                 | Software            |  | $                                     | 24,516 |             |  | $           | 18,112 |             |  | $       | 14,084 |  |  | $        | 18,187 | 
|                                 | Services            |  |                                       | 26,865 |             |  |             | 27,617 |             |  |         | 25,132 |  |  |          | 22,530 | 
|                                 | Support             |  |                                       | 20,209 |             |  |             | 21,246 |             |  |         | 20,412 |  |  |          | 22,208 | 
|                                 | Reimbursed expenses |  |                                       | 3,010  |             |  |             | 2,954  |             |  |         | 2,736  |  |  |          | 2,568  | 
|                                 |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |          |       
|Total Revenue                    |                     |  | 74,600                                |        |             |  | 69,929      |        |             |  | 62,364  |        |  |  | 65,493   |       
|                                 |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |          |       
|Cost of software                 |                     |  | 6,238                                 |        |             |  | 4,892       |        |             |  | 4,365   |        |  |  | 3,632    |       
|Cost of services and support     |                     |  | 25,821                                |        |             |  | 25,281      |        |             |  | 23,707  |        |  |  | 23,246   |       
|Reimbursed expenses              |                     |  | 3,010                                 |        |             |  | 2,954       |        |             |  | 2,736   |        |  |  | 2,568    |       
|Sales and marketing              |                     |  | 30,978                                |        |             |  | 24,277      |        |             |  | 20,593  |        |  |  | 19,779   |       
|Product development              |                     |  | 17,532                                |        |             |  | 16,681      |        |             |  | 14,095  |        |  |  | 14,747   |       
|General and administrative       |                     |  | 7,190                                 |        |             |  | 7,092       |        |             |  | 7,056   |        |  |  | 6,547    |       
|Other operating expenses (1)     |                     |  | 8,640                                 |        |             |  | 14,263      |        |             |  | 13,494  |        |  |  | 103,851  |       
|Operating loss                   |                     |  | (24,809                               | )      |             |  | (25,511     | )      |             |  | (23,682 | )      |  |  | (108,877 | )     
|Net loss                         |                     |  | (27,081                               | )      |             |  | (47,717     | )      |             |  | (26,003 | )      |  |  | (111,438 | )     
|Basic and diluted loss per share |                     |  | ($0.39                                | )      |             |  | ($0.68      | )      |             |  | ($0.37  | )      |  |  | ($1.59   | )     

|                                 |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |         |        | 
|-------------------------------- | ------------------- |  | ------------------------------------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ------- | ------ |  |  | ------- | ------ | 
|                                 |                     |  | 1st Quarter                           |        | 2nd Quarter |  | 3rd Quarter |        | 4th Quarter
|                                 |                     |  |                                       |        |             |  |             |        |            
|                                 |                     |  | (in thousands, except per share data)
|Fiscal 2002                      |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |         |       
|Revenue                          |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |         |       
|                                 | Software            |  | $                                     | 45,056 |             |  | $           | 24,809 |             |  | $       | 22,150 |  |  | $       | 37,757 | 
|                                 | Services            |  |                                       | 27,533 |             |  |             | 27,521 |             |  |         | 27,575 |  |  |         | 23,893 | 
|                                 | Support             |  |                                       | 17,221 |             |  |             | 18,634 |             |  |         | 19,020 |  |  |         | 18,977 | 
|                                 | Reimbursed expenses |  |                                       | 2,632  |             |  |             | 2,810  |             |  |         | 2,267  |  |  |         | 2,032  | 
|                                 |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |         |       
|Total Revenue                    |                     |  | 92,442                                |        |             |  | 73,774      |        |             |  | 71,012  |        |  |  | 82,659  |       
|                                 |                     |  |                                       |        |             |  |             |        |             |  |         |        |  |  |         |       
|Cost of software                 |                     |  | 5,135                                 |        |             |  | 4,963       |        |             |  | 4,750   |        |  |  | 6,296   |       
|Cost of services and support     |                     |  | 23,340                                |        |             |  | 24,274      |        |             |  | 23,598  |        |  |  | 20,871  |       
|Reimbursed expenses              |                     |  | 2,632                                 |        |             |  | 2,810       |        |             |  | 2,267   |        |  |  | 2,032   |       
|Sales and marketing              |                     |  | 33,999                                |        |             |  | 30,114      |        |             |  | 26,889  |        |  |  | 29,435  |       
|Product development              |                     |  | 16,435                                |        |             |  | 20,326      |        |             |  | 17,232  |        |  |  | 16,484  |       
|General and administrative       |                     |  | 7,798                                 |        |             |  | 6,997       |        |             |  | 6,375   |        |  |  | 7,352   |       
|Other operating expenses (1)     |                     |  | 27,415                                |        |             |  | 14,370      |        |             |  | 33,065  |        |  |  | 27,213  |       
|Operating loss                   |                     |  | (24,312                               | )      |             |  | (30,080     | )      |             |  | (43,164 | )      |  |  | (27,024 | )     
|Net loss                         |                     |  | (23,426                               | )      |             |  | (21,664     | )      |             |  | (44,980 | )      |  |  | (25,088 | )     
|Basic and diluted loss per share |                     |  | ($0.35                                | )      |             |  | ($0.32      | )      |             |  | ($0.66  | )      |  |  | ($0.36  | )     



---

|(1) |  | Other operating expenses include amortization of intangibles and acquired technology, non-cash stock compensation expense (benefit), goodwill
impairment charges, restructuring and other impairment charges (benefits), purchased research and development and acquisition related expenses and the IRI
settlement.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward Looking Statements:

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and the related notes and other financial information
included elsewhere in this annual report. The

16



---



##### 



discussion and analysis contains forward-looking statements and are made in
reliance upon safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Our actual results may differ materially from those
anticipated in these forward-looking statements and other forward-looking
statements made elsewhere in this annual report as a result of specified
factors, including those set forth under the caption Factors that May Impact
Future Results.

Business Overview:

We are a leading global provider of supply chain management and pricing
and revenue optimization software. We also provide software for supplier
relationship management and service & parts management. We have a
solutions-based approach to client delivery  selling configured sets of our
software products that address the specific supply and demand chain business
processes that our clients want to improve. Our software helps companies lower
operating costs, improve customer service, increase revenue, enhance
profitability and accelerate revenue and earnings growth. They do this by
creating efficiencies in how goods and services are brought to market, how they
are priced and sold and how they are serviced and maintained. Our Enterprise Profit
Optimization solutions, which combine the proven cost-reducing power of
our supply chain management software solutions with the revenue-enhancing
capability of pricing and revenue optimization software, provide additional
benefits by providing businesses with the ability to simultaneously optimize
cost and revenue to enhance profitability on an enterprise-wide basis. These
solutions integrate pricing, forecasting, and operational planning and
execution to help companies enhance margins across their enterprises and
extended trading networks.

Our supply chain management software helps companies plan, optimize and
execute their supply chain processes. These processes include manufacturing,
distribution and service operations and collaboration with a companys extended
trading network of suppliers and customers. Our pricing and revenue
optimization software helps optimize a companys demand chain, including
pricing and promotions to all customers through all channels, with the aim of
balancing the trade-offs between profitability and other strategic objectives
such as market share. Our supplier relationship management software helps
improve the activities required to design, source, and procure goods and to
collaborate more effectively with key suppliers of direct materials. Our
service & parts management solutions help companies optimize and manage their
service and parts operations by effectively planning and scheduling maintenance
programs, parts, materials, tools, manpower and repair facilities to profitably
provide the highest levels of customer service. We also provide strategic
consulting, implementation and customer support services to our clients as part
of our overall solution.

Increasing global competition, shortening product life cycles and more
demanding customers are forcing businesses to provide improved levels of
customer service while shortening the time it takes to bring their products and
services to market. We focus the development of our software on addressing the
changing needs of companies in the markets we serve, including the need to do
business in extended trading networks. We offer solutions to companies in many
industries including automotive; chemical & energy; communications &
high technology; consumer packaged goods; food & beverage;
government, aerospace & defense; industrials; life sciences;
retail; third-party logistics; and travel, transportation & hospitality. Our
customer base of approximately 1,200 clients includes large, multinational
enterprises such as 3Com Corporation; AT&T; Boeing Co.; BP;
Brown & Williamson Tobacco Corp.; Caterpillar Mexico S.A. de C.V.;
Cisco Systems Inc.; Coca-Cola Bottling Co. Consolidated; Continental
Airlines; Delta Air Lines; DHL Aviation NV/SA; DuPont;
Fairchild Semiconductor; Ford Motor Company; Harley-Davidson,
Inc.; Hormel Foods Corp.; Kraft Foods, Inc.; Levi Strauss & Co.; Nestlé;
 RadioShack Corporation; Texas Instruments
Incorporated; and Unilever Home & Personal Care, USA; as well as mid-sized
enterprises.

As a result of deterioration in the markets for our products and
services due to the progressive weakening of global economic conditions
beginning in fiscal 2002 and continuing in fiscal 2003, we have new
challenges in our ability to stabilize revenue and operating performance and
to expand market share. The weak macroeconomic environment over the past two
years has included a recession in the United States economy that was fueled
by substantial reductions in capital spending by corporations world-wide,
especially spending on information technology. During our second and third
quarters of fiscal 2002, we first experienced delays in consummating software
license transactions. While the global economy declined during much of fiscal
2002, there were indications late in the year that an end to the economic
slow-down appeared to be forthcoming. Late in our fourth quarter of fiscal
2002, we experienced improvements in closure rates on software license
transactions, as evidenced by an increase in software revenue as compared to
our second and third quarters of fiscal 2002. As we entered into fiscal 2003,
global economic conditions and information technology spending appeared to be
stabilizing. However, capital spending by corporations, especially spending
on enterprise application software, continued to be weak. We also believe
market conditions overseas, especially in Europe, tend to lag market
conditions in the United States.

We believe that the primary reasons for the decrease in information
technology spending in fiscal 2002 and 2003 related to concerns of our
clients and prospects about committing to large capital projects in the face
of uncertain global economic conditions

17



---



##### 



and the impact of these conditions on their respective businesses. As a
result, organizations intensified their efforts to identify and realize
potential cost savings, in part, by restricting their software procurement to
well-defined current needs. In addition, in the years preceding the global
economic slowdown, many corporations made capital expenditures in
anticipation of future growth that did not materialize, thereby reducing
their capital expenditure needs in our fiscal 2002 and fiscal 2003 years.
Geopolitical concerns and uncertainties, such as the war on terrorism, the
events leading up to, and the subsequent war with Iraq and other hostilities
in various parts of the world appear to have exacerbated corporations
caution regarding their capital spending.

Our financial performance was adversely affected in fiscal 2003 as a
result of these economic conditions and uncertainties and the resulting
decrease in enterprise application software spending by United States and
European corporations. The lengthening of sales cycles and reductions in
capital spending in recent quarters caused our software revenue and total
revenue to decrease in fiscal 2003, adversely affecting our operating
performance. Demand for our pricing and revenue optimization and our supplier
relationship management products has been more severely impacted than our
supply chain management and service & parts management products for which
there are more mature markets. Although our markets in most industries and
geographies have deteriorated, industries most severely impacted include,
among others, manufacturing, chemical & energy, high technology and travel,
transportation & hospitality. Industries less affected include government,
aerospace & defense and automotive, consumer packaged goods, food & beverage,
life sciences and retail, as consumer spending, especially in the United
States, has remained relatively stable. Our clients and prospects in these
markets have continued to invest in application software, including our
offerings, although at reduced levels. Customers are generally licensing
fewer software modules than in past years. We have not lost any major
customers or contracts in recent quarters that have negatively impacted
revenue. As a result of these factors, we experienced a 29.8% decline in the
average selling price (ASP) per significant software license transaction
and a 50% decline in the number of software license transactions of $1.0
million and greater in fiscal 2003 as compared to fiscal 2002. Currently, it
is unclear when or if our average selling price per license transaction will
decrease, stabilize or increase. We expect market conditions will continue to
be challenging for us in the near-term as longer sales cycles and delays in
decision making on software purchases may persist.

In response to the weakness in spending on enterprise application
software, we enacted a number of cost containment and cost reduction measures
during fiscal 2003, in addition to those implemented during fiscal 2002, to
reduce our cost structure. During fiscal 2003, we reduced our employee
workforce from 1,529 employees at May 31, 2002 to 1,133 employees at February
28, 2003 or 26% across the organization. In addition, we reduced the number
of contractors, implemented a mandatory unpaid leave program for all U.S.
employees during the first week in July and September and a voluntary week of
unpaid leave during our second and third quarters of fiscal 2003 for our
European employees and reduced our office space. These cost containment and
cost reduction measures resulted in restructuring and impairment charges of
approximately $19.2 million during fiscal 2003 for severance and related
benefits associated with involuntary terminations, lease termination costs,
contract termination costs, relocation costs and impairment charges on our
sales force automation software, property, equipment and leasehold
improvements.

In addition, we expect to incur incremental restructuring charges of
approximately $10.0 million in our first quarter of fiscal 2004 as a result
of further cost containment and cost reduction initiatives including
subleasing approximately 30% of our corporate headquarters space for an amount less than our current rent obligation. We expect
to sublease the space by August 31, 2003 with expected annual cost savings of
approximately $2.5 million.

Our implementation of cost containment and cost reduction initiatives
during our second, third and fourth quarters of fiscal 2003 better aligned
our operating cost structure with the anticipated revenue levels due to the
downturn in the global economy. Our cost containment and cost reduction
initiatives reduced our
aggregate cost of software, cost of services and support, sales and
marketing, product development and general and administrative expenses,
excluding amortization of acquired technology and non-cash compensation
expense. For our fourth quarter of fiscal 2003, these expenses decreased
22.3%, or $20.2 million, from the total for our first quarter of fiscal 2003,
compared to a decrease in total revenues of 12.2%, or $9.1 million, over the
same period.

Since the end of our fourth quarter, we have further reduced our total
workforce and expect our employee workforce to total between 1,000 and 1,050
employees for our first and second quarters in fiscal 2004. In the aggregate,
we expect that all cost containment and cost reduction measures implemented
in fiscal 2003 will reduce our cost structure by approximately $100 million
on an annualized basis. In addition, during fiscal 2003 we continued to shift
a significant number of contractors to our product development facilities in
India. At February 28, 2003, 83, or 73.5%, of our total product development
contractors were based in India as compared to 55, or 39.0%, at February 28,
2002.

Results of Operations:

The following table includes the consolidated statements of operations
data for each of the years in the three-year period ended February 28, 2003
expressed as a percentage of revenue:

18



---



##### 



|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |       |  
|---------------------------------------------- | ------------------------------------------------------------------- | ------------------------ | ----- | ------------------------------ | ----- | ---- | ----- | ---- | ----- | - | ----- | ---- | ----- | -
|                                               |                                                                     |                          |       | Fiscal Year Ended February 28,
|                                               |                                                                     |                          |       |                               
|                                               |                                                                     |                          |       | 2003                           |       | 2002 |       | 2001
|                                               |                                                                     |                          |       |                                |       |      |       |     
|Revenue:                                       |                                                                     |                          |       |                                |       |      |       |      |       |   |       |     
|                                               | Software                                                            |                          |       | 27.5                           | %     |      |       | 40.6 | %     |   |       | 50.4 | %    
|                                               | Services                                                            |                          |       | 37.5                           | %     |      |       | 33.3 | %     |   |       | 26.6 | %    
|                                               | Support                                                             |                          |       | 30.9                           | %     |      |       | 23.1 | %     |   |       | 20.0 | %    
|                                               | Reimbursed expenses                                                 |                          |       | 4.1                            | %     |      |       | 3.0  | %     |   |       | 3.0  | %    
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      
|                                               |                                                                     | Total revenue            |       |                                | 100.0 | %    |       |      | 100.0 | % |       |      | 100.0 | %
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      
|Operating expenses:                            |                                                                     |                          |       |                                |       |      |       |      |       |   |       |     
|                                               | Cost of software                                                    |                          |       | 7.0                            | %     |      |       | 6.6  | %     |   |       | 6.9  | %    
|                                               | Amortization of acquired technology                                 |                          |       | 5.0                            | %     |      |       | 2.9  | %     |   |       | 0.4  | %    
|                                               | Cost of services and support                                        |                          |       | 36.0                           | %     |      |       | 28.8 | %     |   |       | 21.4 | %    
|                                               | Cost of reimbursed expenses                                         |                          |       | 4.1                            | %     |      |       | 3.0  | %     |   |       | 3.0  | %    
|                                               | Sales and marketing                                                 |                          |       | 35.1                           | %     |      |       | 37.6 | %     |   |       | 41.9 | %    
|                                               | Product development                                                 |                          |       | 23.1                           | %     |      |       | 22.0 | %     |   |       | 14.8 | %    
|                                               | General and administrative                                          |                          |       | 10.2                           | %     |      |       | 8.9  | %     |   |       | 8.3  | %    
|                                               | Amortization of intangibles                                         |                          |       | 1.4                            | %     |      |       | 27.0 | %     |   |       | 5.5  | %    
|                                               | Goodwill impairment charge                                          |                          |       | 35.4                           | %     |      |       |     |       |   |       |     |      
|                                               | Purchased research and development
and acquisition-related expenses |                          |       | 1.4                            | %     |      |       |     |       |   |       | 3.5  | %    
|                                               | Restructuring and other impairment
charges                          |                          |       | 7.0                            | %     |      |       | 2.1  | %     |   |       |     |      
|                                               | Non-cash stock compensation expense
(benefit)                       |                          |       | 1.3                            | %     |      |       | (1.0 | )%    |   |       | 4.6  | %    
|                                               | IRI settlement                                                      |                          |       |                               |       |      |       | 1.0  | %     |   |       |     |      
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      
|                                               |                                                                     | Total operating expenses |       |                                | 167.1 | %    |       |      | 138.9 | % |       |      | 110.3 | %
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      
|Loss from operations                           |                                                                     |                          | (67.1 | )%                             |       |      | (38.9 | )%   |       |   | (10.3 | )%  
|Other (expense) income  net                   |                                                                     |                          | (2.9  | )%                             |       |      | (4.6  | )%   |       |   | 1.0   | %   
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      
|Loss before income taxes                       |                                                                     |                          | (70.1 | )%                             |       |      | (43.5 | )%   |       |   | (9.2  | )%  
|Provision for (benefit from) from income taxes |                                                                     |                          | 7.9   | %                              |       |      | (7.5  | )%   |       |   | 0.9   | %   
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      
|Net loss                                       |                                                                     |                          | (77.9 | )%                             |       |      | (36.0 | )%   |       |   | (10.2 | )%  
|                                               |                                                                     |                          |       |                                |       |      |       |      |       |   |       |      |      

The percentages shown above for cost of services and support, sales and
marketing, product development and general and administrative expenses have
been calculated excluding non-cash stock compensation expense (benefit) as
follows (in thousands):

|                             |  |                   |       |      |  |      |        |   |  |   |        | 
|---------------------------- |  | ----------------- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | 
|                             |  | Fiscal Year Ended
|                             |  | February 28,     
|                             |  |                  
|                             |  | 2003              |       | 2002 |  | 2001
|                             |  |                   |       |      |  |     
|Cost of services and support |  | $                 | 1,673 |      |  | $    | 52     |   |  | $ | 4,579  | 
|Sales and marketing          |  |                   | 931   |      |  |      | (1,794 | ) |  |   | 3,262  | 
|Product development          |  |                   | 298   |      |  |      | (1,310 | ) |  |   | 3,694  | 
|General and administrative   |  |                   | 524   |      |  |      | (59    | ) |  |   | 1,266  | 
|                             |  |                   |       |      |  |      |        |   |  |   |        | 
|                             |  | $                 | 3,426 |      |  | $    | (3,111 | ) |  | $ | 12,801 | 
|                             |  |                   |       |      |  |      |        |   |  |   |        | 

See Operating Expenses: Non-Cash Stock Compensation Expense (Benefit) for
further detail.

Use of Estimates and Critical Accounting Policies

The accompanying discussion and analysis of our financial condition and
results of operations are based upon our audited consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that we believe 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. Actual results could differ from the
estimates made by management with respect to these and other items that require
managements estimates.

We have identified the accounting policies that are critical to
understanding our historical and future performance, as these policies affect
the reported amounts of revenue and the more significant areas involving
managements judgments and estimates. These critical accounting policies relate
to revenue recognition, allowance for doubtful accounts, capitalized software,
valuation of

19



---



##### 



long-lived assets, including intangible assets and impairment review of
goodwill, deferred income taxes and restructuring-related expenses. These
policies, and our procedures related to these policies, are described in detail
below. In addition, please refer to Note 1 in the Notes to Consolidated
Financial Statements included elsewhere in this Annual Report for further
discussion of our accounting policies.

Revenue Recognition and Deferred
Revenue

Our revenue consists of software license revenue, services revenue,
support revenue and reimbursed expenses. Software license revenue is
recognized in accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition, as modified by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions (SOP 98-9), and
Securities and Exchange Commission (SEC) Staff Accounting Bulletin 101 (SAB
101), Revenue Recognition. Software license revenue, services revenue and
support revenue are generally recognized when the four basic criteria of SOP
97-2 and SAB 101 are met as follows:



| |  | Persuasive evidence of an arrangement exists: We consider a
non-cancelable agreement signed by us and the customer to be evidence
of an arrangement.                                                                                                                                                                                                                                                                                                                      
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Delivery has occurred or services have been rendered: Delivery is
considered to occur when media containing the licensed program is
provided to a common carrier FOB shipping point or, in the case of
electronic delivery, the customer is given access to the licensed
programs.                                                                                                                                                                                        
| 
| |  | Fixed or determinable fee: We consider the license fee to be fixed or
determinable if the fee is not subject to refund or adjustment and is
payable within 12 months from the agreement date. If the arrangement
fee is not fixed or determinable, we recognize the revenue as amounts
become due and payable. We consider services fees to be fixed or
determinable if the services fee or rates for time and material
contracts are not subject to refund or adjustment.
| 
| |  | Collection is probable: We perform a credit review for all significant
transactions at the time the arrangement is executed to determine the
credit-worthiness of the customer. Collection is deemed probable if we
expect that the customer will be able to pay amounts under the
arrangement as they become due. If we determine that collection is not
probable, we defer the revenue and recognize the revenue upon
collection.                                       

If a software license contains customer acceptance criteria or a
cancellation right, the software revenue is deferred and recognized upon the
earlier of customer acceptance or the expiration of the acceptance period or
cancellation right. Fees are allocated to the various elements of software
license agreements using the residual method, based on vendor specific
objective evidence (VSOE) of fair value of any undelivered elements of the
arrangement. VSOE of fair value for support services is provided by the renewal
rate. VSOE of fair value for implementation services is based upon separate
sales of services at stated hourly rates by level of consultant. Under the
residual method, we defer revenue for the fair value of its undelivered
elements based on VSOE of fair value, and the remaining portion of the
arrangement fee is allocated to the delivered elements and recognized as
revenue when the basic criteria in SOP 97-2 and SAB 101 have been met.

Typically, payments for software licenses are due within twelve months
from the agreement date. Where software license agreements call for payment
terms of twelve months or more from the agreement date, software revenue is
recognized as payments become due and all other conditions for revenue
recognition have been satisfied. When we provide services that are considered
essential to the functionality of software products licensed or if the licensed
software requires significant production, modification or customization, we
recognize revenue on a percentage-of-completion basis in accordance with SOP
81-1, Accounting for Performance of Construction Type and Certain Production
Type Contracts. In these cases, software revenue is deferred and recognized
based on labor hours incurred to date compared to total estimated labor hours
for the contract.

Implementation services are separately priced and sold, are generally
available from a number of suppliers and typically are not essential to the
functionality of our software products. Implementation services, which include
project management, systems planning, design and implementation, customer
configurations and training are typically billed on an hourly basis (time and
materials) and sometimes under fixed price contracts. Implementation services
are recognized as the work is
performed. On fixed price contracts, services revenue is recognized using the
percentage-of-completion method of accounting by relating labor hours incurred
to date to total estimated labor hours. In the event services are billed in
advance of work being performed, the billed amount is initially recorded as
deferred services revenue and recognized as services revenue when the work is
performed.

20



---



##### 



To date, the number of fixed price services engagements and services
engagements considered essential to the functionality of our software products
(both situations requiring use of the percentage-of-completion method) have
been insignificant. However, if we enter into more of these types of
arrangements in the future, our reported revenue and operating performance will
be subject to increased levels of estimates and uncertainties.

The estimation process inherent in the application of the
percentage-of-completion method of accounting for revenue is subject to
judgments and uncertainties and may affect the amounts of software and services
revenue and related expenses reported in our Consolidated Financial Statements.
A number of internal and external factors can affect our estimates to complete
client engagements including skill level and experience of project managers and
staff assigned to engagements and continuity and attrition level of
implementation consulting staff. Changes in the estimated stage of completion
of a particular project could create variability in our revenue and results of
operations if we are required to increase or decrease previously recognized
revenue related to a particular project or we expect to incur a loss on the
project.

Support revenue includes post-contract customer support and the rights to
unspecified software upgrades and enhancements. Customer support is generally
billed annually, initially recorded as deferred revenue and recognized as
support revenue ratably over the support period.

Allowance for Doubtful Accounts

For each of the three years in the period ended February 28, 2003, our
provision for doubtful accounts has ranged between approximately 1.9% and 2.7%
of total revenue. We initially record the provision for doubtful accounts based
on our historical experience of write-offs and adjust our allowance for
doubtful accounts at the end of each reporting period based on a detailed
assessment of our accounts receivable and related credit risks. In estimating
the allowance for doubtful accounts, management considers the age of the
accounts receivable, our historical write-off experience, the credit worthiness
of the customer, the economic conditions of the customers industry and general
economic conditions, among other factors. Should any of these factors change,
the estimates made by management will also change, which could affect the level
of the Companys future provision for doubtful accounts. If the assumptions we
used to calculate these estimates do not properly reflect future collections,
there could be an impact on future reported results of operations. Based on our
total revenue reported for the fiscal 2003, our provision for doubtful accounts
would change by approximately $2.7 million annually for a 1% change in
proportion of total revenue. The provision for doubtful accounts is included in
sales and marketing expense (for software license receivables) and cost of
services and support (for services and support fees receivable), in the
condensed consolidated statement of operations.

Capitalized Software Development
Costs

We capitalize the development cost of software, other than internal use
software, in accordance with Statement of Financial Accounting Standards No. 86
(SFAS 86), Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed. Software development costs are expensed as incurred
until technological feasibility has been established, at which time such costs
are capitalized until the product is available for general release to clients.
Software development costs are amortized using the straight-line method over
the estimated economic life of the product, commencing with the date the
product is first available for general release. Generally, an economic life of
two years is used to amortize capitalized software development costs.

In future periods, if we determine that technological feasibility occurs
at a later date, such as coincident with general product release to clients, we
may not capitalize any software development costs. This would increase our
reported operating expenses in the short-term by the amounts we do not
capitalize, which have ranged between $8.9 million and $10.5 million annually
during fiscal 2001 through fiscal 2003. The estimated economic life of our
capitalized software development costs is subject to change in future periods
based on our experience with the length of time our products or enhancements
are being or are expected to be used. A change in the expected economic life of
our capitalized software development costs of six months would change our
annual operating expenses by approximately $(1.8) million to $3.0 million.

Valuation of Long-Lived Assets,
Including Intangible Assets and Impairment Review of Goodwill

We assess the impairment of long-lived assets, including intangible assets
and software developed for internal use, whenever events or changes in
circumstances indicate that the carrying value may not be fully recoverable.
When we determine that the carrying value of such assets may not be
recoverable, we generally measure any impairment based on a projected
discounted cash flow method using a discount rate determined by management to
be commensurate with the risk inherent in our current business model. In
addition, at each reporting date, we compare the net realizable value of
capitalized software development costs to the unamortized capitalized costs. To
the extent the unamortized capitalized costs exceed the net realizable value,
the excess amount is written off. Other intangible assets, including acquired
technology, are amortized over periods ranging from two to seven years.

21



---



##### 



Evaluating long-lived assets for impairment involves judgments as to when
an asset may potentially be impaired. We consider there to be a risk of
impairment if there is a significant decrease in the market value of an asset,
if there is a significant change in the extent or intended use of an asset, or
if actual or projected operating losses indicate continuing losses from an
asset used to produce revenue.

As of February 28, 2003 our net book value of long-lived assets, consisted
of the following (in thousands):

|                                    |  |   |         | 
|----------------------------------- |  | - | ------- | 
|Property and equipment              |  | $ | 31,230  | 
|Software development costs          |  |   | 13,428  | 
|Software developed for internal use |  |   | 2,415   | 
|Goodwill                            |  |   | 187,438 | 
|Acquired technology                 |  |   | 41,232  | 
|Customer relationships              |  |   | 20,657  | 
|                                    |  |   |         | 
|Total                               |  | $ | 296,400 | 
|                                    |  |   |         | 

The estimated economic useful lives of our long-lived and intangible
assets are subject to change in future periods based upon the intended use of
the asset or period of time revenues are expected to be generated. On March 1,
2002, we adopted Statement of Financial Accounting Standards
No. 142, (SFAS 142) Goodwill and Other
Intangible Assets and as a result, we no longer amortize goodwill. We
performed the initial impairment review of our goodwill required by SFAS 142
during the first quarter of fiscal 2003 and no impairment losses were
recognized. During the quarters ended August 31, and November 30, 2002, we
experienced adverse changes in our stock price resulting from a decline in our
financial performance and adverse business conditions that have affected the
technology industry, especially application software companies. Based on these
factors, we performed a test for goodwill impairment at August 31, 2002 and
November 30, 2002 and determined that based upon the implied fair value (which
includes factors such as, but not limited to, the Companys market
capitalization, control premium and recent stock price volatility) of the
Company as of August 31, 2002 and November 30, 2002, there was no impairment of
goodwill.

We performed another test for goodwill impairment as of February 28, 2003,
our annual date for goodwill impairment review, and determined that our implied
fair value was less than stockholders equity, including goodwill, an
indication that goodwill may be impaired. Therefore, we performed the second
step of the impairment test. As a result, we recorded a goodwill impairment
charge of $96.3 million to reduce goodwill associated with our acquisitions to
their estimated fair value as of that date. The goodwill impairment loss was
determined by calculating the difference between: a) our implied fair value as
of February 28, 2003 less the fair value of our net assets and b) the carrying
value of goodwill. The fair value of the identifiable intangible assets of the Company were determined by an independent valuation.  Our implied fair value was estimated based on the closing
quoted market price of our common stock on February 28, 2003 multiplied by the
number of outstanding common shares (market capitalization) plus an implied
control premium, determined by an independent valuation firm, as if we were
100% owned by a single stockholder. The implied control premium used for purposes of measuring the implied fair value of the Company
was determined by review of the premiums paid by other companies in past public technology and software acquisitions.

We will continue to test goodwill for impairment on an annual basis,
coinciding with our fiscal year end, or on an interim basis if circumstances
change that would more likely than not reduce our implied fair value below our
carrying value. Please refer to Note 1 in the Notes to Consolidated Financial
Statements included elsewhere in this Annual Report for further discussion of
SFAS 142, Note 5 in the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report for further discussion of our goodwill
impairment and see Factors That May Affect Future Results  Risks Related to
Our Business.

Determining the implied fair value of goodwill involves judgments as to
when an impairment may exist, as well as estimates used to compute the implied
fair value. If the estimates used to calculate the implied fair value of
goodwill were to change such that the fair value dropped below stockholders
equity, this could result in an impairment charge for some or all of our
goodwill balance.

Deferred Income Taxes

We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. We assess the
likelihood that our deferred tax assets will be recovered from our future
taxable income, and to the extent we believe that recovery is not likely, we
establish a valuation allowance. We consider historical taxable income,
estimates of future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the amount of the valuation allowance.
Adjustments could be required in the future if we determine that the amount to
be realized is greater or less than the valuation allowance we have recorded.
Based on various factors, including our cumulative losses for fiscal 2001, 2002
and 2003 when adjusted for non-recurring items, the size of our loss for fiscal
2003 and estimates of future profitability, management has concluded that
future taxable income will, more likely than not, be insufficient to recover
our net deferred tax assets. Based on the weight of positive and negative
evidence regarding recoverability of our deferred tax assets, we recorded a
valuation allowance for the full amount of our net deferred tax assets, which
resulted in a $20.4 million charge to income tax expense in the fiscal year
ended February 28, 2003.

22



---



##### 



Management will continue to monitor its estimates of future profitability and
realizability of our net deferred tax assets based on evolving business
conditions.

Restructuring-Related Expenses

Our restructuring charges are comprised primarily of: (i) severance and
associated employee benefits related to the involuntary reduction of our
workforce; (ii) lease termination costs, costs associated with
permanently vacating facilities (abandonment) or both; and (iii) impairment costs
related to certain long-lived assets and leasehold improvements abandoned.

Prior to December 31, 2002, we accounted for the costs associated with the
reduction of our workforce in accordance with Emerging Issues Task Force No.
94-3 (EITF 94-3). Accordingly, we recorded the liability related to
involuntary termination costs when the following conditions were met: (i)
management with the appropriate level of authority approved a termination plan
that committed us to such plan and established the benefits the employees would
receive upon termination; (ii) the benefit arrangement was communicated to the
employees in sufficient detail to enable the employees to determine the
termination benefits; (iii) the plan specifically identified the number of
employees to be terminated, their locations, and their job classifications; and
(iv) the period of time to implement the plan did not indicate changes to the
plan are likely. The termination costs we record are not associated with, nor
do they benefit, continuing activities. Prior to December 31, 2002, we
accounted for lease termination costs in accordance with EITF 94-3.
Accordingly, we recorded the costs associated with lease termination,
abandonment or both when the following conditions were met: (i) management with the
appropriate level of authority approved a termination plan that committed us to
such plan; (ii) the plan specifically identified all activities that would not
to be continued, including the method of disposition and location of those
activities, and the expected date of completion; (iii) the period of time to
implement the plan does not indicate changes to the plan were likely; and (iv)
the leased property had no substantive future use or benefit to us. We recorded
the liability associated with lease termination, abandonment or both as the sum
of the total remaining lease costs and related exit costs, less probable
sublease income or the expected lease termination fees or penalties. We
accounted for costs related to long-lived assets abandoned in accordance with
Statement of Financial Accounting Standards No. 144 (SFAS
144) Accounting for the Impairment or Disposal of
Long-Lived Assets and, accordingly, charged to expense the net carrying value of the
long-lived assets when we ceased to use the assets.

We adopted Statement of Financial Accounting Standards No. 146 (SFAS
146) on January 1, 2003. SFAS 146 nullifies EITF 94-3 and requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF 94-3, a liability for an exit cost
was recognized at the date of a companys commitment to an exit plan. SFAS 146
eliminates the definition and requirements for recognition of exit costs in
EITF 94-3 and also establishes that fair value is the objective for initial
measurement of the liability. Accordingly, for exit or disposal activities
undertaken after December 31, 2002, we recorded the liability related to
involuntary termination costs, lease costs, abandonment costs or both and
relocation costs as they were incurred.

Inherent in the estimation of the costs related to our restructuring
efforts are assessments related to the most likely expected outcome of the
significant actions to accomplish lease abandonments. Changing business and
real estate market conditions may affect the assumptions related to the timing
and extent of our ability to sublease vacated space. We review the status of
restructuring liabilities on a quarterly basis and, if appropriate, we record
changes to our restructuring liabilities based on managements most current
estimates.

Revenue:

Software Revenue. Software revenue decreased 42.3%, or $54.9 million, in
fiscal 2003 and decreased 6.9%, or $9.5 million, in fiscal 2002. The decrease
in software revenue and software revenue as a percentage of total revenue in
fiscal 2003 and fiscal 2002 was due to the weakness of the global economy and
geopolitical uncertainties in our fiscal 2003 and fiscal 2002 and the related
decline in spending for enterprise application software. This resulted in a
decrease in the ASP for our software during both fiscal 2003 and fiscal 2002
and a decrease in the number of significant software license transactions
consummated during fiscal 2003 and fiscal 2002.

The following table summarizes significant software transactions
consummated during fiscal 2003, 2002 and 2001:

|                                                |  |                                |     |      |  |      |       |  |  |   |       | 
|----------------------------------------------- |  | ------------------------------ | --- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                |  | Fiscal Year Ended February 28,
|                                                |  |                               
|                                                |  | 2003                           |     | 2002 |  | 2001
|                                                |  |                                |     |      |  |     
|Significant Software Transactions (1)           |  |                                |     |      |  |      |       |  |  |   |       | 
|Number of transactions $100,000 to $999,999     |  |                                | 70  |      |  |      | 73    |  |  |   | 67    | 
|Number of transactions $1.0 million and greater |  |                                | 19  |      |  |      | 38    |  |  |   | 47    | 
|                                                |  |                                |     |      |  |      |       |  |  |   |       | 
|Total number of transactions                    |  |                                | 89  |      |  |      | 111   |  |  |   | 114   | 
|                                                |  |                                |     |      |  |      |       |  |  |   |       | 
|Average selling price (in thousands)            |  | $                              | 785 |      |  | $    | 1,118 |  |  | $ | 1,187 | 



---

|(1) |  | Significant software transactions are those with a value of $100,000
or greater recognized within the fiscal year.
|--- |  | ------------------------------------------------------------------------------------------------------------------

23



---



##### 



We believe the reduction in software transactions of $1.0 million or
greater in fiscal 2003 and fiscal 2002 is the result of companies becoming more
cautious and deliberate regarding commitments to large capital expenditures,
especially spending for enterprise application software, due to the uncertain
global economic conditions and geopolitical uncertainties.

Services Revenue. Services revenue decreased 4.1%, or $4.4 million, in
fiscal 2003 and increased 45.3%, or $33.2 million, in fiscal 2002. The decrease
in services revenue in fiscal 2003 was the result of the decrease in the number
of completed software license transactions in fiscal 2002 and fiscal 2003 and
resulting lower demand for implementation services, offset by the services
revenue from WDS which was acquired in April 2002. The increase in services
revenue in fiscal 2002 was due to an increased demand for implementation
services and training, resulting from increases in completed software license
transactions in fiscal 2001 and the acquisition of Talus Solutions, Inc.
(Talus) in the fourth quarter of fiscal 2001. As a result of the decline in
the number of completed software license transactions in fiscal 2003, we
believe that services revenue in fiscal 2004 will be lower than fiscal 2003.
Services revenue tends to track software license revenue in prior periods. See
Forward Looking Statements and Factors That May Affect Future Results.

Support Revenue. Support revenue increased 13.8%, or $10.2 million, in
fiscal 2003 and increased 33.5%, or $18.5 million, in fiscal 2002. The increase
in support revenue in fiscal 2003 and fiscal 2002 was due to the increase in
the base of clients that have licensed our software products and entered into
annual support arrangements coupled with renewals of annual support agreements
by our existing client base and the Talus and WDS acquisitions. In the past, we
have experienced high rates of renewed annual support contracts. There can no
assurance that our historical renewal rate will continue. See Forward Looking
Statements and Factors That May Affect Future Results.

International Revenue. We market and sell our software and services
internationally, primarily in Europe, Asia, Canada and Central and South
America. Revenue outside of the United States decreased 23.9%, or $21.4
million, to $68.0 million in fiscal 2003 and increased 5.6%, or $4.8 million,
to $89.4 million in fiscal 2002. Revenue outside of the United States as a
percentage of total revenue was 25.0%, 28.0% and 30.6%, in fiscal 2003, 2002
and 2001, respectively. The decrease in our international revenue in fiscal
2003 resulted from the progressive weakening of global economic conditions,
especially in the European economies, and geopolitical uncertainties, which
resulted in delayed and smaller buying decisions by prospects and customers for
our products. The increase in our international revenue in fiscal 2002 resulted
from our efforts to expand our presence and selling efforts outside of the
United States.

Operating Expenses:

Cost of Software. Cost of software consists primarily of amortization of
capitalized software development costs and royalty fees associated with
third-party software either embedded in our software or resold by us. The
following table sets forth amortization of capitalized software development
costs and other costs of software for the three fiscal years ended February 28,
2003, 2002 and 2001 (in thousands):

|                                     |                                |   |                                |      |      |   |        |      |   |   |        |      |  
|------------------------------------ | ------------------------------ | - | ------------------------------ | ---- | ---- | - | ------ | ---- | - | - | ------ | ---- | -
|                                     |                                |   | Fiscal Year Ended February 28,
|                                     |                                |   |                               
|                                     |                                |   | 2003                           |      | 2002 |   | 2001  
|                                     |                                |   |                                |      |      |   |       
|Amortization of capitalized software |                                | $ | 11,587                         |      |      | $ | 11,382 |      |   | $ | 9,486  |     
|                                     | Percentage of software revenue |   |                                | 15.5 | %    |   |        | 8.8  | % |   |        | 6.8  | %
|Other costs of software              |                                |   | 7,540                          |      |      |   | 9,762  |      |   |   | 9,660  |     
|                                     | Percentage of software revenue |   |                                | 10.1 | %    |   |        | 7.5  | % |   |        | 6.9  | %
|                                     |                                |   |                                |      |      |   |        |      |   |   |        |     
|Total cost of software               |                                | $ | 19,127                         |      |      | $ | 21,144 |      |   | $ | 19,146 |     
|                                     | Percentage of software revenue |   |                                | 25.5 | %    |   |        | 16.3 | % |   |        | 13.7 | %

The decrease in cost of software in fiscal 2003 was the result of
decreased royalty fees due to lower software revenue. The increase in cost of
software in fiscal 2002 was due to increased amortization of capitalized
software resulting from an increase in the number of product development
initiatives.

Amortization of Acquired Technology. In connection with our acquisitions
of WDS and DFE in fiscal 2003, the acquisition of the collaborative sourcing
and design assets of Partminer CSD, Inc. ( CSD) and SpaceWorks intellectual
property during fiscal 2002 and certain previous acquisitions, we acquired
developed technology that we offer as part of our integrated solutions.
Acquired technology is amortized over periods ranging from four to six years.
We expect annual amortization of acquired technology to be approximately $14.2
million in fiscal 2004.

Cost of Services and Support. Cost of services and support primarily
includes personnel and third-party contractor costs. Cost of services and
support as a percentage of related revenue was 52.7% in fiscal 2003, 51.1% in
fiscal 2002 and 46.0% in fiscal 2001. Cost of services and support increased
6.5%, or $6.0 million, in fiscal 2003 and increased 55.7%, or $32.9 million, in
fiscal 2002. The increase in cost of services and support during fiscal 2003
was attributable to an increase in support royalties paid to third parties and

24



---



##### 



the WDS acquisition in April 2002, offset by the implementation of our cost
containment and cost reduction initiatives during fiscal 2003. The increase in
cost of services and support during fiscal 2002 was attributable to adding the
personnel necessary to support the growth in services and support revenue and
installed customer base.

Sales and Marketing. Sales and marketing expense consists primarily of
personnel costs, sales commissions, promotional events such as user
conferences, trade shows and
technical conferences, advertising and public relations programs. Sales and
marketing expense as a percentage of total revenue was 35.1% in fiscal 2003,
37.6% in fiscal 2002 and 41.9% in fiscal 2001. Sales and marketing expense
decreased 20.6%, or $24.8 million in fiscal 2003 and increased 4.2%, or $4.8
million, in fiscal 2002. The decrease in fiscal 2003 was due to:



| |  |  | an overall decrease in the average number of sales, marketing and
business development employees to 328 for fiscal 2003 compared to 414
for fiscal 2002, which was the result of cost containment and cost
reduction measures implemented in the second half of fiscal 2002 and
fiscal 2003;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a decrease in sales commissions due to lower software revenue; and                                                                                                                                                                                                                          
|
| |  |  | a decrease in promotional spending, travel, advertising and public
relations spending resulting from cost containment and cost reduction
measures implemented in the second half of fiscal 2002 and fiscal 2003.                                                                            

The increase in fiscal 2002 was due to increased personnel costs resulting
from an increase in the average number of sales, marketing and business
development employees to 414 in fiscal 2002 compared to 323 in fiscal 2001,
offset by lower sales commissions resulting from decreased software sales. The
decrease in sales and marketing expense as a percentage of total revenue in
fiscal 2003 was due to the combination of lower sales commissions due to
decreased software revenue and cost containment and cost reduction measures
implemented in the second half of fiscal 2002 and fiscal 2003. The decrease in
sales and marketing expense as a percentage of total revenue in fiscal 2002 was
due to the combination of lower sales commissions due to decreased software
revenue, flat promotional spending and higher revenues in fiscal 2002 as
compared to fiscal 2001.

Product Development. Product development costs include expenses associated
with the development of new software products, enhancements of existing
products and quality assurance activities and are reported net of capitalized
software development costs. Such costs are primarily from employees and third
party contractors. The following table sets forth product development costs for
the three fiscal years ended February 28, 2003, 2002 and 2001 (in thousands):

|                                             |                             |   |                                |      |      |   |        |      |   |   |        |      |  
|-------------------------------------------- | --------------------------- | - | ------------------------------ | ---- | ---- | - | ------ | ---- | - | - | ------ | ---- | -
|                                             |                             |   | Fiscal Year Ended February 28,
|                                             |                             |   |                               
|                                             |                             |   | 2003                           |      | 2002 |   | 2001  
|                                             |                             |   |                                |      |      |   |       
|Gross product development costs              |                             | $ | 73,570                         |      |      | $ | 80,956 |      |   | $ | 49,750 |     
|                                             | Percentage of total revenue |   |                                | 27.0 | %    |   |        | 25.3 | % |   |        | 18.0 | %
|Less: Capitalized software development costs |                             |   | 10,515                         |      |      |   | 10,479 |      |   |   | 8,920  |     
|                                             | Percentage of total revenue |   |                                | 3.9  | %    |   |        | 3.3  | % |   |        | 3.2  | %
|                                             |                             |   |                                |      |      |   |        |      |   |   |        |     
|Product development costs, as reported       |                             | $ | 63,055                         |      |      | $ | 70,477 |      |   | $ | 40,830 |     
|                                             | Percentage of total revenue |   |                                | 23.1 | %    |   |        | 22.0 | % |   |        | 14.8 | %

Gross product development costs decreased 9.1%, or $7.4 million, in fiscal
2003 and increased 62.7%, or $31.2 million, in fiscal 2002. The decrease in
fiscal 2003 was due to:



| |  |  | an increase in the proportion of our development work being performed
by contractors in India in order to take advantage of cost efficiencies
associated with Indias lower wage scale; and       
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a decrease in the average number of contractors in the United States
resulting from cost containment and cost reduction measures implemented
in the second half of fiscal 2002 and in fiscal 2003.

This decrease was offset by an increase in gross product development costs
resulting from the WDS acquisition in April 2002.

The increase in gross product development costs in fiscal 2002 was the
result of an increase in the average number of product development employees,
acquisitions during the first six months of fiscal 2002 and the fourth quarter
of fiscal 2001 and an increased number of product development initiatives.

General and Administrative. General and administrative expenses include
personnel and other costs of our legal, finance, accounting, human resources,
facilities and information systems functions. General and administrative
expenses decreased 2.2%, or $0.6 million, in fiscal 2003 and increased 24.4%,
or $5.6 million, in fiscal 2002. The decrease in fiscal 2003 was due to a
decrease in

25



---



##### 



the average number of general and administrative employees resulting from cost
containment and cost reduction measures implemented in the second half of
fiscal 2002 and fiscal 2003, offset by an increase in costs resulting from the
WDS acquisition in April 2002. The increases in fiscal 2002 were due to an
increase in personnel to support our growth.

Amortization of Intangibles and Goodwill Impairment. Our acquisitions of
WDS in April 2002, CSD and One Release during fiscal 2002 and certain previous
acquisitions were accounted for under the purchase method of accounting. As a
result, we recorded goodwill and other intangible assets that represent the
excess of the purchase price paid over the fair value of the net tangible
assets acquired. Other intangible assets are amortized over periods ranging
from four to seven years. Amortization of intangibles decreased by 95.5%, or
$82.4 million, in fiscal 2003. The decrease resulted from our adoption of SFAS
142 on March 1, 2002, which requires that we no longer amortize goodwill and
assembled workforce. SFAS 142 also requires that goodwill be tested for
impairment on an annual basis and when there is reason to suspect that values
may have been impaired. We performed a test for goodwill impairment as of
February 28, 2003, our annual date for goodwill impairment review and
determined a write-down was necessary. Accordingly, we recorded a goodwill
impairment charge of $96.3 million in fiscal 2003 to reduce goodwill associated
with our acquisitions down to their estimated fair value. Details of our
amortization of intangibles and goodwill impairment are included in Note 5 in
the Notes to our Consolidated Financial Statements included elsewhere in this
Annual Report and details of our acquisitions are included in Note 12 in the
Notes to our Consolidated Financial Statements included elsewhere in this
Annual Report.

Purchased Research and Development and Acquisition-Related Expenses. Our
acquisitions of WDS in fiscal 2003 and Talus and STG Holdings, Inc. (STG) in
fiscal 2001 included the purchase of technology that had not yet been
determined to be technologically feasible and had no alternative future use at
its then-current stage of development. Accordingly, in fiscal 2003 and fiscal
2001, the portion of the purchase price for WDS, Talus and STG allocated to
purchased research and development of $3.8 million and $9.7 million,
respectively, in aggregate, was expensed immediately in accordance with
generally accepted accounting principles. Details of our acquisitions are
included in Note 12 in the Notes to our Consolidated Financial Statements
included elsewhere in this Annual Report.

Restructuring and other impairment charges. We adopted restructuring plans
in the second, third and fourth quarters of fiscal 2003 and in the second and
third quarters of fiscal 2002. In connection with our decision to implement
these plans, we incurred related restructuring and other impairment charges of
$19.2 million in fiscal 2003 and $6.6 million in fiscal 2002, including $1.6
million in additional restructuring charges related to the expected loss of a
sublease income on office space at a location previously included as a
component of the 1999 restructuring plan.

The following table sets forth a summary of restructuring and other
impairment charges, net of adjustments, for fiscal 2003 and 2002 (in
thousands):

|                                                 |  |                                |        |      |  |   |       | 
|------------------------------------------------ |  | ------------------------------ | ------ | ---- |  | - | ----- | 
|                                                 |  | Fiscal Year Ended February 28,
|                                                 |  |                               
|                                                 |  | 2003                           |        | 2002
|                                                 |  |                                |        |     
|Lease obligations and terminations               |  | $                              | 7,973  |      |  | $ | 3,653 | 
|Severance and related benefits                   |  |                                | 7,942  |      |  |   | 2,318 | 
|Impairment charges                               |  |                                | 2,528  |      |  |   | 144   | 
|Other                                            |  |                                | 741    |      |  |   | 497   | 
|                                                 |  |                                |        |      |  |   |       | 
|Total restructuring and other impairment charges |  | $                              | 19,184 |      |  | $ | 6,612 | 
|                                                 |  |                                |        |      |  |   |       | 

The impact to reported basic and
diluted loss per share as a result of the
restructuring and other impairment charges was $(0.27) and $(0.06) for fiscal 2003
and fiscal 2002, respectively.

As a result of the adoption of our restructuring plans in fiscal 2002, we
reduced our operating expenses by $18 million annually. Our restructuring plans
and cost containment initiatives in fiscal 2003 further reduced certain of our
operating expenses by approximately $100 million annually from the cost
structure for our quarter ended May 31, 2002. The cost savings associated with
our restructuring and cost containment efforts began to be realized in the
following quarter. We do not expect our cost savings to be offset by increases
in other expense areas. Details of our restructuring and other impairment charges are
included in Note 14 in the Notes to our Consolidated Financial Statements
included elsewhere in this Annual Report.

26



---



##### 



A summary of approximate annual cost savings associated with our
restructuring plans is as follows (in thousands):

|                             |  |                                |         |                     |  |   |        | 
|---------------------------- |  | ------------------------------ | ------- | ------------------- |  | - | ------ | 
|                             |  | Fiscal Year Ended February 28,
|                             |  |                               
|                             |  | Fiscal 2003                    |         | Fiscal 2002        
|                             |  | Restructuring Plans            |         | Restructuring Plans
|                             |  |                                |         |                    
|Functional Expense           |  |                                |         |                     |  |   |        | 
|Cost of services and support |  | $                              | 15,000  |                     |  | $ | 6,000  | 
|Sales & marketing            |  |                                | 50,000  |                     |  |   | 2,000  | 
|Product development          |  |                                | 30,000  |                     |  |   | 10,000 | 
|General and administrative   |  |                                | 5,000   |                     |  |   |       | 
|                             |  |                                |         |                     |  |   |        | 
|Total                        |  | $                              | 100,000 |                     |  | $ | 18,000 | 
|                             |  |                                |         |                     |  |   |        | 
|Expense Type                 |  |                                |         |                     |  |   |        | 
|Salaries & benefits          |  | $                              | 55,000  |                     |  |   | 7,000  | 
|Contractors                  |  |                                | 15,000  |                     |  |   | 2,000  | 
|Promotion                    |  |                                | 5,000   |                     |  |   | 1,000  | 
|Travel                       |  |                                | 15,000  |                     |  |   | 5,000  | 
|Depreciation                 |  |                                | 2,000   |                     |  |   | 500    | 
|Office expenses              |  |                                | 8,000   |                     |  |   | 2,500  | 
|                             |  |                                |         |                     |  |   |        | 
|Total                        |  | $                              | 100,000 |                     |  | $ | 18,000 | 
|                             |  |                                |         |                     |  |   |        | 

Our aggregate cost of software, cost of services and support, sales and
marketing, product development and general and administrative expenses,
excluding amortization of acquired technology and non-cash stock compensation
expense, was $90.8 million for the quarter ended May 31, 2002. We expect the
comparable quarterly costs to be approximately $65.0 million for the quarter
ended May 31, 2003, representing a reduction in quarterly costs of
approximately $25.8 million, or approximately $100 million annually.

Non-Cash Stock Compensation Expense (Benefit). We recognized non-cash
stock compensation expense (benefit) of $3.4 million in fiscal 2003 related to
unvested stock options assumed in the acquisition of Talus and $(3.1) million
and $12.8 million in fiscal 2002 and fiscal 2001, respectively, related to
stock options that were repriced in January 1999 and unvested stock options
assumed in the Talus acquisition. These amounts are included as a separate
component of stockholders equity and are amortized by charges to operations in
accordance with FASB Interpretation No. 44 (FIN 44) Accounting for Certain
Transactions Involving Stock Compensation.

Repriced Options:

In January 1999, the Company repriced certain employee stock options,
other than those held by executive officers or directors. This resulted in
approximately 3.0 million options being repriced and the four-year vesting
period starting over. Under FIN 44, repriced options are subject to variable
plan accounting, which requires compensation cost or benefit to be recorded
each period based on changes in our stock price until the repriced options are
exercised, forfeited or expire. This resulted in a benefit of $8.0 million in
fiscal 2002 and an expense of $11.1 million in fiscal 2001. The initial fair
value used to measure the ongoing stock compensation charge or benefit was
$22.19 based on the closing price of our common stock on June 30, 2000. Since
our stock price at the beginning and end our fiscal 2003 quarters was below
$22.19, no charge or benefit was recorded during fiscal 2003. As of February
28, 2003, approximately 0.8 million repriced options were still outstanding,
all of which are fully vested. In future periods, we will record additional
charges or benefits related to the repriced stock options still outstanding
based on the change in our common stock price compared to the last reporting
period. If our stock price at the beginning and end of any reporting period is
less than $22.19, no charge or benefit will be recorded.

Unvested Stock Options -Talus Acquisition:

As part of the Talus acquisition, we assumed all outstanding stock
options, which were converted into our stock options. Options to purchase
approximately 631,000 shares of our common stock were unvested at the
acquisition date. FIN 44 requires the acquiring company to measure the
intrinsic value of unvested stock options assumed at the acquisition date in a
purchase business combination and record a compensation charge over the
remaining vesting period of those options to the extent those options remain
outstanding. This resulted in a charge of $3.4 million in fiscal 2003, $4.8
million in fiscal 2002 and $1.2 million during fiscal 2001.

IRI Settlement. The IRI settlement charge of $3.1 million in fiscal 2002
represents the amount in excess of a liability accrued in prior years for the
resolution of a dispute between the Company and Information Resources, Inc.
(IRI). Details of the IRI Settlement are included in Note 7 in the Notes to
our Consolidated Financial Statements included elsewhere in this Annual Report.

27



---



##### 



Other (Expense) Income, Net

Other (expense) income, net, includes interest income from cash
equivalents, marketable securities and restricted cash, interest expense from
borrowings, foreign currency exchange gains or losses and other gains or
losses. Other expense, net was $7.9 million in fiscal 2003, compared to other
expense, net of $14.6 million in fiscal 2002 and other income, net of $2.9
million in fiscal 2001. The decrease in fiscal 2003 relates to an impairment
loss we recorded of approximately $10.2 million relating to an
other-than-temporary decline in the fair value of our equity investment in
Converge, Inc. in fiscal 2002 offset by lower interest income as a result of
lower average invested cash and marketable securities and lower average
interest rates in fiscal 2003. The change in fiscal 2002 relates to the
Converge Inc. impairment loss and higher interest expense as a result of the
issuance of $250.0 million in convertible debt during the quarter ended
November 30, 2000, offset by higher interest income in fiscal 2002 as a result
of higher levels of invested cash and marketable securities.

Provision for (Benefit from) Income Taxes

We recorded an income tax provision of $21.4 million in fiscal 2003, a
benefit from income tax of $(24.1) million in fiscal 2002 and an income tax
provision of $2.6 million in fiscal 2001.

During fiscal 2003, management concluded that, based on various factors,
including our cumulative losses for fiscal 2001, 2002 and 2003 when adjusted
for non-recurring items, the size of our loss for fiscal 2003 and estimates of
future profitability, future taxable income will, more likely than not, be
insufficient to cover our net deferred tax assets. Based on the weight of
positive and negative evidence regarding recoverability of our deferred tax
assets (net operating loss carryforwards), we recorded a valuation allowance
for the full amount of our net deferred tax assets, which resulted in a $20.4
million charge to income tax expense in fiscal 2003. Management will continue
to monitor its estimates of future profitability and realizability of our net
deferred tax assets based on evolving business conditions. We do not expect to
record a deferred income tax benefit in future periods when we incur a loss.

Net Loss

We reported a net loss of $212.2 million, $115.2 million and $28.1 million
for fiscal years ending February 28, 2003, 2002 and 2001, respectively. The
increased net loss in fiscal 2003 compared to fiscal 2002 was due to an
increased operating loss resulting from a decrease in total revenue, the
goodwill impairment charge in fiscal 2003, increased restructuring and other
impairment charges, purchased research and development associated with the WDS
acquisition and income tax charges in fiscal 2003 compared to income tax
benefits in fiscal 2002, offset by the favorable effect of the non-amortization
provisions of SFAS 142 beginning March 1, 2002 and a decrease in the aggregate
cost of software, cost of services and support, sales and marketing, product
development and general and administrative expenses. The increased net loss in
fiscal 2002 compared to fiscal 2001 was due to an increased operating loss
resulting from an increase in amortization expense, restructuring and other
impairment charges, the IRI settlement and the Converge, Inc. investment
impairment, offset by income tax benefits in fiscal 2002 compared to income tax
charges in fiscal 2001 and a decrease in purchased research and development
charges.

Loss Per Common Share

Loss per common share is computed in accordance with SFAS No. 128,
Earnings Per Share, which requires dual presentation of basic and diluted
earnings per common share for entities with complex capital structures. Basic
earnings (loss) per common share is based on net income divided by the
weighted-average number of common shares outstanding during the period. Diluted
earnings or loss per common share include, when dilutive, (i) the effect of
stock options and warrants granted using the treasury stock method, (ii) the
effect of contingently issuable shares earned during the period, and (iii)
shares issuable under the conversion feature of our convertible notes using the
if-converted method. Future weighted-average shares outstanding calculations
will be impacted by the following factors:



| |  |  | the ongoing issuance of common stock associated with stock option and warrant exercises;                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the issuance of common shares associated with our employee stock purchase plan;                                                                                                                            
|
| |  |  | any fluctuations in our stock price, which could cause changes
in the number of common stock equivalents included in the diluted
earnings per common share calculations (to the extent we have net
income);
|
| |  |  | the issuance of common stock to raise capital or effect business combinations should we enter into such transactions;                                                                                      
|
| |  |  | assumed or actual conversions of our convertible debt into common stock.                                                                                                                                   

28



---



##### 



Liquidity and Capital Resources

Historically, we have financed our operations and met our capital
expenditure requirements through cash flows provided from operations, long-term
borrowings (including the sale of convertible notes) and sales of equity
securities. Our cash, cash equivalents and marketable securities in aggregate
decreased $95.3 million during fiscal 2003 to $137.7 million as of February 28,
2003. Working capital decreased $117.2 million to $119.8 million at February
28, 2003. The decrease in cash, cash equivalents, marketable securities and
working capital resulted from cash payments for the WDS and DFE acquisitions,
two semi-annual interest payments on our convertible debt, capital expenditures
associated with the move to our new corporate headquarters, a cash restriction
requirement related to outstanding letters of credit with Bank of America
(BOA) (see Note 6 in the Notes to our Consolidated Financial Statements
included elsewhere in this Annual Report), as well as losses from operations.
Working capital was also negatively impacted by the valuation allowance
recorded for the full amount of our net deferred tax assets, including $9.1
million of current deferred tax assets.

Cash flows (used in) provided by operating activities was $(30.7) million,
$(15.9) million and $15.5 million in fiscal 2003, 2002 and 2001, respectively.
The change in operating cash flows of $14.8 million in fiscal 2003 resulted
from an increase in our operating loss before non-cash items in fiscal 2003 and
an increase in cash outlays for restructuring obligations. The change in
operating cash flows of $31.4 million in fiscal 2002 resulted from (i) our
operating loss before non-cash items in fiscal 2002 and (ii) increased cash
paid for interest on our convertible debt offset by increased interest income.
Days sales outstanding (DSO) in accounts receivable, which is calculated
based on our fourth quarter revenue, increased to 88 days as of February 28,
2003 versus 83 days as of February 28, 2002.

Cash (used in) provided by investing activities was $(70.0) million, $36.6
million and $(117.3) million in fiscal 2003, 2002 and 2001, respectively.
Investing activities consist of the sales and purchases of marketable
securities, cash used as collateral for outstanding letters of credit which are
classified as restricted cash on the consolidated balance sheet as of February
28, 2003, purchases of property and equipment, purchases and capitalization of
software and acquisitions and investments in businesses. Acquisitions of
businesses, net of cash acquired, of $32.3 million during fiscal 2003 relate to
the WDS and DFE acquisitions. Total purchases of property and equipment were
$14.8 million in fiscal 2003, an increase of $4.6 million compared to fiscal
2002 due to the completion of the buildout of our new corporate headquarters
space during fiscal 2003. Sales of marketable securities, net of purchases,
were $101.0 million in fiscal 2002. Acquisitions and investments in businesses,
net of cash acquired, of $41.1 million, in aggregate, during fiscal 2002,
relate to the acquisitions of CSD and certain assets of SpaceWorks, Inc. and
an investment in Converge, Inc.

Cash provided by financing activities was $5.1 million, $12.4 million and
$256.2 million in fiscal 2003, 2002 and 2001, respectively. Cash provided by
financing activities in fiscal 2003 and fiscal 2002 consisted of proceeds from
the exercise of stock options and employee stock plan purchases. Cash provided
by financing activities in fiscal 2001 consisted of proceeds from our
convertible debt offering in November 2000 and proceeds from the exercise of
stock options and employee stock plan purchases, offset by payments made
against our line of credit.

As of February 28, 2003, we had $250.0 million in 5% convertible
subordinated notes outstanding (the Notes). The Notes bear interest at 5.0%
per annum, which is payable semi-annually. The fair market value of the Notes
in the hands of the holders was $131.6 million and $176.9 million as of
February 28, 2003 and February 28, 2002, respectively, based on market quotes.
The Notes mature in November 2007 and are convertible by the holder into
approximately 5.7 million shares of our common stock at a conversion price of
$44.06 per share, subject to adjustment under certain conditions. The
conversion price of the Notes will be adjusted in the event that we issue our
common stock as a dividend or distribution with respect to our common stock, we
subdivide, combine or reclassify our common stock, we issue rights to our
common stockholders to purchase our common stock at less than market price, we
make certain distributions of securities, cash or other property to our common
stockholders (other than ordinary cash dividends), or we make certain
repurchases of our common stock. Upon a change of control of the Company, the
holders of the Notes would have the right to require us or our successor to
repurchase the Notes at a purchase price equal to 100% of the principal amount,
plus accrued and unpaid interest to the date of repurchase in cash. The Notes
do not have any financial covenants. On or after November 7, 2003, we may
redeem, from time to time, the Notes in whole or in part, at our option.
Redemption can be made on at least 30 days notice if the trading price of our
common stock for 20 trading days in a period of 30 consecutive trading days
ending on the day prior to the mailing of notice of redemption exceeds 120% of
the conversion price of the Notes. The redemption price, expressed as a
percentage of the principal amount, is:

|                                          |  |                  |     |  
|----------------------------------------- |  | ---------------- | --- | -
|Redemption Period                         |  | Redemption Price
|                                          |  |                 
|November 7, 2003 through October 31, 2004 |  |                  | 103 | %
|November 1, 2004 through October 31, 2005 |  |                  | 102 | %
|November 1, 2005 through October 31, 2006 |  |                  | 101 | %
|November 1, 2006 through maturity         |  |                  | 100 | %

29



---



##### 



On January 14, 2003, we entered into a one year unsecured revolving credit
facility with SVB for $20.0 million. Under the terms of this credit facility,
we may request cash advances, letters of credit, or both. The credit facility
requires us to comply with the following financial covenants: (i) minimum
tangible net worth (defined as stockholders equity plus convertible debt less
goodwill, capitalized software costs and other intangible assets) must be
greater than $150.0 million as of February 28, 2003, with future quarters
covenants to be determined during the first quarter of fiscal 2004; and (ii) a
ratio of (a) cash and cash equivalents deposited with SVB and its affiliates
plus accounts receivable to (b) current liabilities plus, long term
indebtedness to SVB and outstanding letters of credit minus deferred revenue of
at least 2.0 to 1.0.

In addition, the SVB credit facility requires us to maintain $70.0 million
in funds with SVB and its affiliates. The credit facility also restricts the
amount of additional debt we can incur and restricts the amount of cash that we
can use for acquisitions and for the repurchase of convertible debt. Under the
terms of the SVB credit facility, we maintain the right to terminate the
facility at any time upon repayment of any advances and the posting of cash
collateral for any outstanding letters of credit. Under the credit facility,
SVB has the right to obtain a lien on all of our assets, other than
intellectual property, upon an occurrence of default, unless we terminate the
facility as provided above. The credit facility also provides that, upon an
event of default, we are prohibited from paying a cash dividend to our
shareholders. As of February 28, 2003, we had $1.1 million in letters of credit
outstanding under this line to secure our lease obligations for office space.
We were in compliance with all financial covenants as of February 28, 2003.

Prior to entering into our credit facility agreement with SVB, we had a
credit facility agreement with BOA that expired on February 26, 2003. As of
February 28, 2003, we had $13.0 million in letters of credit outstanding with
BOA which were fully collateralized. The cash collateral is presented as
restricted cash in our consolidated balance sheet as of February 28, 2003. The
cash restriction with BOA will be eliminated once all outstanding letters of
credit have been transferred to SVB. Approximately $9.3 million of the BOA
letters of credit were transferred to SVB in March 2003 and those related cash
restrictions have been eliminated. We are in the process of transferring the
remaining outstanding letters of credit to SVB. See Note 6 in the Notes to our
Consolidated Financial Statements included elsewhere in this Annual Report.

In April 2002, the Company entered into a credit agreement with SVB, as
amended, under which the Company could borrow up to $5.0 million for the
purchase of equipment. Amounts borrowed under the facility accrue interest at a
rate equal to the greater of the three year treasury note rate plus 5% or
8.25%, and are repaid monthly over a 36 month period. During fiscal 2003, the
Company borrowed $2.9 million under this credit facility. The facility allowed
for borrowings through March 31, 2003. We were in compliance with all financial
covenants as of February 28, 2003.

As of February 28, 2003, the Companys future fixed commitments and the
effect these commitments are expected to have on our liquidity and cash flows
in future periods are as follows (in thousands):

|                                                 |                         |   |                                      |        |      |   |        |        |      |   |        |        |            |   |        |        |  |   |         |         |  |   |        |        |  |   |         |         | 
|------------------------------------------------ | ----------------------- | - | ------------------------------------ | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ | ---------- | - | ------ | ------ |  | - | ------- | ------- |  | - | ------ | ------ |  | - | ------- | ------- | 
|                                                 |                         |   | Fiscal Year Ended February 28 or 29,
|                                                 |                         |   |                                     
|                                                 |                         |   | 2004                                 |        | 2005 |   | 2006   |        | 2007 |   | 2008   |        | Thereafter |   | Total 
|                                                 |                         |   |                                      |        |      |   |        |        |      |   |        |        |            |   |       
|Capital lease obligations (1)                    |                         | $ | 2,179                                |        |      | $ | 1,364  |        |      | $ | 1,321  |        |            | $ | 546    |        |  | $ |        |         |  | $ |       |        |  | $ | 5,410   |        
|Operating lease obligations not in restructuring |                         |   | 15,124                               |        |      |   | 12,972 |        |      |   | 12,119 |        |            |   | 11,682 |        |  |   | 10,564  |         |  |   | 45,891 |        |  |   | 108,352 |        
|Operating leases obligations in restructuring    |                         |   | 3,972                                |        |      |   | 3,550  |        |      |   | 3,287  |        |            |   | 2,901  |        |  |   | 2,395   |         |  |   | 7,648  |        |  |   | 23,753  |        
|Equipment line of credit (1)                     |                         |   | 1,098                                |        |      |   | 1,098  |        |      |   | 773    |        |            |   |       |        |  |   |        |         |  |   |       |        |  |   | 2,969   |        
|Convertible subordinated notes (1)               |                         |   | 12,500                               |        |      |   | 12,500 |        |      |   | 12,500 |        |            |   | 12,500 |        |  |   | 262,500 |         |  |   |       |        |  |   | 312,500 |        
|                                                 |                         |   |                                      |        |      |   |        |        |      |   |        |        |            |   |        |        |  |   |         |         |  |   |        |        |  |   |         |        
|                                                 | Total fixed commitments |   | $                                    | 34,873 |      |   | $      | 31,484 |      |   | $      | 30,000 |            |   | $      | 27,629 |  |   | $       | 275,459 |  |   | $      | 53,539 |  |   | $       | 452,984 | 
|                                                 |                         |   |                                      |        |      |   |        |        |      |   |        |        |            |   |        |        |  |   |         |         |  |   |        |        |  |   |         |        



---

|(1) |  | Includes principal and interest payments
|--- |  | ----------------------------------------

The lease commitments in the above table designated as Operating lease
obligations in restructuring only include the non-cancelable portion of lease
commitments included in past restructuring initiatives and, accordingly, have
not been reduced by estimated sublease income. However, as required by EITF
Issue No. 88-10 Costs Associated with Lease Modification or Termination.
(EITF 88-10), we have reduced these lease commitments by estimated sublease
income in determining the total restructuring lease obligations of $11.6
million recorded in the accompanying balance sheet as of February 28, 2003.
Please refer to Notes 7 and 14 in our consolidated financial statements
included elsewhere in this Annual Report.

In the future, we may pursue acquisitions of complementary businesses and
technologies. In addition, we may make strategic investments in businesses and
enter into joint ventures that complement our existing business. Any future
acquisition or investment may result in a decrease to our liquidity and working
capital to the extent we pay with cash.

We believe that our existing liquidity and expected cash flows from
operations will satisfy our capital requirements for the foreseeable future. We
believe that the combination of cash and cash equivalents, marketable
securities, and anticipated cash flows from operations will be sufficient to
fund expected capital expenditures, capital lease obligations and working
capital needs for the

30



---



##### 



next twelve months. However, weakening economic conditions or continued weak
demand for enterprise application software in future periods could have a
material adverse impact on our future operating results and liquidity. Although
we have no current plans to do so, we may choose to purchase a portion of the
Notes in the open market from time to time if we are able to do so on terms
favorable to us. Purchases of the Notes would reduce our debt outstanding, but
may have a material adverse effect on our liquidity. Although we have no
current plans to do so, we may elect to obtain additional debt or equity
financing if we are able to raise it on terms favorable to us. See Forward
Looking Statements and Factors That May Affect Future Results.

Recently Issued Accounting Pronouncements:

On March 1, 2002, we adopted the provisions of Statement of Financial
Accounting Standards No. 141 (SFAS 141) Business Combinations, and
Statement of Financial Accounting Standards No. 142 (SFAS 142) Goodwill and
Other Intangible Assets, with the exception of the immediate requirement to
use the purchase method of accounting for all business combinations initiated
after June 30, 2001. SFAS 141 establishes new standards for accounting and
reporting for business combinations and requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 142 requires goodwill and certain intangible assets to remain on the
balance sheet and not be amortized. Therefore, we stopped amortizing goodwill,
including goodwill recorded in past business combinations, on March 1, 2002. In
addition, SFAS 142 requires assembled workforce and certain other identifiable
intangible assets to be reclassified as goodwill. On an annual basis, and when
there is reason to suspect that values may have been impaired, goodwill must be
tested for impairment and write-downs may be necessary. SFAS 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. SFAS 142 also requires recognized intangible assets with finite lives
to be amortized over their respective estimated useful lives and reviewed for
impairment in accordance with Statement of Financial Accounting Standards No.
144 (SFAS 144) Accounting for the Impairment of Long-Lived Assets.

SFAS 142 required us to perform an assessment of whether there was an
indication that goodwill was impaired at the date of adoption. To accomplish
this, we were required to identify our reporting units and determined the
carrying value of each reporting unit by assigning the assets and liabilities,
including existing goodwill and intangible assets, to those reporting units as
of the date of adoption. The first test for potential impairment required us to
determine the fair value of each reporting unit and compare it to the reporting
units carrying amount. To the extent the reporting units carrying amount
exceeds its fair value, an indication exists that the reporting units goodwill
may be impaired and we must perform the second step of the impairment test. In
the second step, we must compare the implied fair value (which includes factors
such as, but not limited to, our market capitalization, control premium and recent stock price
volatility) of the reporting units goodwill, determined by allocating the
reporting units fair value to all of its assets and liabilities in a manner
similar to a purchase price allocation in accordance with SFAS 141, to its
carrying amount, both of which would be measured as of the date of adoption.

We performed the initial goodwill impairment test required by SFAS 142
during the first quarter of fiscal 2003. We consider ourselves to have a single
reporting unit. Accordingly, all of our goodwill is associated with the entire
Company. As of March 1, 2002, based on our implied fair value, there was no
impairment of goodwill.

During the quarters ended August 31, 2002 and November 30, 2002, we
experienced adverse changes in our stock price resulting from a decline in our
financial performance and adverse business conditions that have affected the
technology industry, especially application software companies. Based on these
factors, we performed a test for goodwill impairment at August 31, 2002 and
November 30, 2002 and determined that based upon the implied fair value (which
includes factors such as, but not limited to, the Companys market
capitalization, control premium and recent stock price volatility) of the Company as of August 31, 2002
and November 30, 2002, there was no impairment of goodwill.

We performed another test for goodwill impairment as of February 28, 2003,
our annual date for goodwill impairment review and determined the implied fair
value of the Company was less than stockholders equity, including goodwill, an
indication that goodwill may be impaired. Therefore, we performed the second
step of the impairment test. As a result, we recorded a goodwill impairment
charge of $96.3 million to reduce goodwill associated with our acquisitions to
their estimated fair value as of that date. The goodwill impairment loss was
determined by calculating the difference between: a) our implied fair value as
of February 28, 2003 less the fair value of our net assets and b) the carrying
value of goodwill. Our implied fair value was estimated based on the closing
quoted market price of the our common stock on February 28, 2003 multiplied by
the number of outstanding common shares (market capitalization) plus an implied
control premium as if we were
100% owned by a single stockholder.

We will continue to test for impairment on an annual basis, coinciding
with our fiscal year end, or on an interim basis if circumstances change that
would more likely than not reduce our implied fair value below our carrying
value. If our stock price decreases to levels such that our implied fair value
is significantly less than stockholders equity for a sustained period of time,
among

31



---



##### 



other factors, we may be required to record additional impairment losses
related to goodwill below its carrying amount. We will perform a test for
goodwill impairment at February 28, 2004, which is our annual date for goodwill
impairment review, or earlier if conditions are present which may indicate an
impairment. Please refer to Note 1 in the Notes to Consolidated Financial
Statements included elsewhere in this Annual Report for further discussion of
SFAS 142, Note 5 in the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report for further discussion of our goodwill
impairment and see Factors That May Affect Future Results  Risks Related to
Our Business.

Effective March 1, 2002, as required by SFAS 142, we have ceased
amortization of goodwill associated with acquisitions completed prior to July
1, 2001. Goodwill and intangible assets acquired in business combinations
initiated before July 1, 2001 were amortized until February 28, 2002. SFAS 142
does not require the restatement of prior period earnings, but does require
transitional disclosure for earnings per share and adjusted net income under
the revised rules (see Note 5).

On March 1, 2002, we adopted the provisions of SFAS 144. SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121 (SFAS 121) Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, but retains the
fundamental provisions of SFAS 121 for (i) recognition/measurement of
impairment of long-lived assets to be held and used and (ii) measurement of
long-lived assets to be disposed of by sale. SFAS 144 also supersedes the
accounting and reporting provisions of Accounting Principles Boards Opinion
No. 30 (APB 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, for segments of a business to
be disposed of but retains APB 30s reporting requirement to report
discontinued operations separately from continuing operations and extends that
reporting requirement to a component of an entity that either has been disposed
of or is classified as held for sale. Adoption of this standard did not have a
material impact on our financial statements.

On March 1, 2002, we adopted the provisions of Staff Announcement Topic
No. D-103 Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred, which was subsequently incorporated in
Emerging Issues Task Force No. 01-14 (EITF 01-14). EITF 01-14 establishes
that reimbursements received for out-of-pocket expenses such as airfare,
hotel stays and similar costs should be characterized as revenue in the income
statement. Adoption of the guidance had the resulting effect of increased
revenue and increased operating expenses. Prior to our adoption of this
standard, we recorded out-of-pocket expense reimbursements as a reduction of
cost of services. Accordingly, we reclassified these amounts to revenue in our
comparative financial statements beginning in our first quarter of fiscal 2003.
Application of EITF 01-14 did not result in any net impact to operating income
or net income in any past periods and will not result in any net impact in
future periods.

In July 2002, the FASB issued SFAS No. 146 Accounting for Exit or
Disposal Activities (SFAS 146). SFAS 146 addresses the recognition,
measurement and reporting of costs associated with exit and disposal activities
(i.e., restructuring activities), including costs related to terminating a
contract that is not a capital lease and termination benefits due to employees
who are involuntarily terminated under the terms of a one-time benefit
arrangement. SFAS 146 supersedes EITF 94-3 and EITF 88-10 and therefore
prohibits recognition of a liability based solely on an entitys commitment to
a plan to exit an activity. SFAS 146 requires that: (i) liabilities associated
with exit and disposal activities be measured at fair value and changes in the
fair value of the liability at each reporting period be measured using an
interest allocation approach; (ii) one-time termination benefits be expensed at
the date the entity notifies the employee, unless the employee must provide
future service, in which case the benefits are expensed ratably over the future
service period; (iii) liabilities to terminate a contract be recorded at fair
value when the contract is terminated; (iv) liabilities related to an existing
operating lease, unless terminated, be recorded at fair value, less estimated
sublease income, and measured when the contract does not have any future
economic benefit to the entity (i.e., the entity ceases to utilize the rights
conveyed by the contract); and (v) all other costs related to an exit or
disposal activity be expensed as incurred.

SFAS 146 is effective for exit or disposal activities initiated after
December 31, 2002. Retroactive application of SFAS 146 is prohibited and,
accordingly, liabilities recognized prior to the initial application of SFAS
146 must continue to be accounted for in accordance with EITF 94-3, EITF 88-10
or other applicable preexisting guidance. Accordingly, we will
continue to account for its restructuring obligations recorded during 2002 in
accordance with EITF 94-3, EITF 88-10 or other applicable preexisting guidance.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (Interpretation 45). Interpretation 45
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit, and provides new
disclosure requirements regarding indemnification provisions, including
indemnification provisions typically included in a software license
arrangement. It also clarifies that at the time a guarantee is issued, we
must recognize an initial liability for the fair value of the
obligations we assume under the guarantee and must disclose that information
in our financial statements. The provisions

32



---



##### 



related to recognizing a liability at inception of the guarantee do not apply
to product warranties, indemnification provisions in our software license
arrangements, or to guarantees accounted for as derivatives. The initial
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002, and the disclosure
requirements apply to guarantees outstanding as of December 31, 2002. Adoption
of Interpretation 45 will not have a material effect on our operating
performance or financial condition.

In December 2002, Statement of Financial Accounting Standards No. 148
(SFAS 148), Accounting for Stock-Based Compensation  Transition and
Disclosure, was issued. SFAS 148 amends Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method
used on the reported results. The disclosure provisions of SFAS 148 are
effective for financial statements for fiscal years ending after December 15,
2002 and interim periods beginning after December 15, 2002. The adoption of
this statement did not impact our financial position, results of operations or
cash flows.

Factors that May Affect Future Results:

In addition to the other information in this Form 10-K, the following
factors should be considered in evaluating us and our business. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties that we do not presently know or that we currently deem
immaterial, may also materially impair our operating performance and financial
condition.

RISKS RELATED TO OUR INDEBTEDNESS AND FINANCIAL CONDITION

OUR INDEBTEDNESS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION.

In November 2000, we completed a convertible debt offering of $250.0
million in 5% subordinated convertible notes (the Notes) that are due
November 2007. Our indebtedness could have important consequences for
investors. For example, it could:



| |  |  | increase our vulnerability to general adverse economic and industry
conditions;                                                                                                                                                                                                                                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | limit our ability to obtain additional financing;                                                                                                                                                                                                                                                                  
|
| |  |  | require the dedication of a substantial portion of our cash flows
from operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of capital to fund our
operations, working capital, capital expenditures, acquisitions and
other general corporate purposes;
|
| |  |  | limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and                                                                                                                                                                                                               
|
| |  |  | place us at a competitive disadvantage relative to our competitors.                                                                                                                                                                                                                                                

Although we have no present plans to do so, we may incur substantial
additional debt in the future. While the terms of our credit facility imposes
certain limits on our ability to incur additional debt, we are permitted to
incur additional debt subject to compliance with the terms and conditions set
forth in the loan agreement. Moreover, the terms of the Notes set forth no
limits on our ability to incur additional debt. If a significant amount of new
debt is added to our current levels, the related risks described above could
intensify.

WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS.

We will be required to generate cash sufficient to pay all amounts due on
the Notes and to conduct our business operations. The Notes require interest
payments of $12.5 million annually with $250.0 million of principal due
November 2007. As of February 28, 2003, the remaining principal and interest
payments due under the Notes were $312.5 million. Our cash, cash equivalents and
marketable securities, excluding restricted cash of $13.0 million, was $137.7
million as of February 28, 2003. Assuming our cash, cash equivalents and
marketable securities remain constant from our February 28, 2003 levels, we
will have to generate $174.8 million of net cash flow through any combination
of normal operations of the Company, raising of debt and equity capital or
asset sales by November 2007 to meet our remaining principal and interest
payments under the Notes. We have incurred net losses in the past, and we may
not be able to cover our anticipated debt service obligations. This may
materially hinder our ability to make principal and

33



---



##### 



interest payments on the Notes. Our ability to meet our future debt service
obligations will be dependent upon our future performance, which will be
subject to financial, business and other factors affecting our operations, many
of which are beyond our control.

WE MAY CHOOSE TO PURCHASE A PORTION OF OUR CONVERTIBLE SUBORDINATED NOTES IN
THE OPEN MARKET WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
CONDITION.

Although we have no present plans to do so, we may choose to purchase a
portion of our convertible subordinated notes outstanding from time to time in
the open market in future periods. This action would be contingent on approval
of our Board of Directors and on compliance with the conditions of applicable
securities laws. While the terms of our credit facility imposes certain limits
on our ability to repurchase our debt securities, we are permitted to do so
subject to compliance with the terms and conditions set forth in the loan
agreement. Purchases of convertible subordinated notes in the open market would
be funded from available cash and cash equivalents and could have a material
adverse effect on our liquidity and financial condition.

WE MAY VIOLATE FINANCIAL COVENANTS UNDER OUR CREDIT FACILITY WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR LIQUIDITY AND FINANCIAL CONDITION.

During fiscal 2003, our financial performance made it difficult for us to
achieve the financial covenants under our credit facility with BOA. During
November 2002, we were required to cash collateralize $14.1 million of
outstanding letters of credit under the BOA credit facility as a result of
violating a financial covenant. Also, we violated the consolidated EBITDA
covenant under the BOA credit facility for the quarter ended November 30, 2002.
As of February 28, 2003, $13.0 million of outstanding letters of credit was
still held as collateral.

In January 2003, we entered into a new unsecured credit facility with SVB
to replace the BOA credit facility, which should eliminate most, if not all, of
the cash restriction described above by the end of our first quarter fiscal
2004. Approximately $9.3 million of the BOA letters of credit were transferred
to SVB in March 2003 and these cash restrictions have been eliminated. We are
in the process of transferring the remaining outstanding letters of credit to
SVB. However, if our future financial performance results in a violation of
financial covenants under the new credit facility with SVB in future periods,
we could be required to provide cash collateral for outstanding borrowings or
letters of credit, which would have a material adverse affect on our liquidity
and financial condition.

Risks Related to Our Business

ADVERSE ECONOMIC AND POLITICAL CONDITIONS HAVE CAUSED A DETERIORATION OF THE
MARKETS FOR OUR PRODUCTS AND SERVICES AND HAVE ADVERSELY AFFECTED AND COULD
FURTHER ADVERSELY AFFECT OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

Our revenue and operating results depend on the overall demand for our
software and related services. Regional and global adverse changes in the
economy and political upheaval and unrest have caused a deterioration of the
markets for our products and services. This has resulted in reductions, delays
and postponements of customer purchases, which materially adversely affected
our financial performance during fiscal 2002 and 2003. Demand for our pricing
and revenue optimization and our supplier relationship management products has
been more severely impacted than our supply chain management and service &
parts management products for which there are more mature markets. Although our
markets in most industries and geographies have deteriorated, industries most
severely impacted include, among others, chemicals and energy, high technology,
manufacturing and travel, transportation & hospitality. Industries less
affected include automotive, consumer packaged goods, food & beverage, life
sciences and retail. If these adverse conditions continue or worsen, we would
likely experience further reductions, delays, and postponements of customer
purchases further adversely affecting our operating performance and financial
condition.

34



---



##### 



National and global responses to future hostilities and terrorist attacks
may materially adversely affect demand for our software and services because of
the economic and political effects on our markets and by interrupting the
ability of our customers to do business in the ordinary course, as a result of
a variety of factors, including, among others, changes or disruptions in
movement and sourcing of materials, goods and components or the possible
interruption in the flow of information or monies.

WE HAVE EXPERIENCED SIGNIFICANT LOSSES IN RECENT YEARS DUE TO OPERATIONAL
DIFFICULTIES IN FISCAL 1999 AND THE FIRST HALF OF FISCAL 2000 AND TO A
DETERIORATION OF OUR MARKETS RESULTING FROM WEAKENING ECONOMIC CONDITIONS AND
INCREASED POLITICAL INSTABILITY COMMENCING IN FISCAL 2002.

We have recently incurred significant losses. We experienced operational
difficulties in fiscal 1999 and the first half of fiscal 2000. Problems with
our direct sales operation and intense competition, among other factors,
contributed to net losses in fiscal 1999 and fiscal 2000 and a decline in
revenue in fiscal 2000. Thereafter, our financial performance began to improve
under our new management team. However, beginning in fiscal 2002, weakening
economic conditions and increased political instability resulted in a
deterioration in our markets. We experienced sequential declines in software
and total revenue during our second and third quarters of fiscal 2002. Further
weakening of economic conditions, which severely impacted the timing of capital
spending decisions for computer software, particularly enterprise application
software, further negatively impacted the markets for our products and
services. This again resulted in sequential quarterly declines in software and
total revenue in our first three-quarters of fiscal 2003. The losses incurred
during these periods were $96.1 million in fiscal 1999, $8.9 million in fiscal
2000, $28.1 million in fiscal 2001, $115.2 million in fiscal 2002, and $212.2
million in fiscal 2003. Our ability to improve our financial performance will
depend on a stabilization or improvement of economic conditions resulting in
increased demand for our software or our ability to align our cost structure
with revenue without retarding our ability to grow revenue in future periods.
If market conditions for our software do not improve or if we do not
successfully align our cost structure with our revenue without retarding our
ability to grow revenue, our operating performance and financial condition
could be harmed, and we could continue to incur significant losses.

WE RECORDED A GOODWILL IMPAIRMENT CHARGE OF $96.3 MILLION IN OUR FOURTH QUARTER
OF FISCAL 2003 AS A RESULT OF SEVERE DECLINES IN OUR STOCK PRICE OVER FISCAL
2003. IF OUR STOCK PRICE DECREASES TO LEVELS SUCH THAT THE IMPLIED FAIR VALUE
OF THE COMPANY IS SIGNIFICANTLY LESS THAN STOCKHOLDERS EQUITY FOR A SUSTAINED
PERIOD OF TIME, WE MAY BE REQUIRED TO RECORD ADDITIONAL SIGNIFICANT NON-CASH
CHARGES ASSOCIATED WITH GOODWILL IMPAIRMENT.

On March 1, 2002, we adopted SFAS 142, which changed the accounting for
goodwill from an amortization method to an impairment-only method. Effective
March 1, 2002, we stopped amortizing goodwill but will continue amortizing
other intangible assets with finite lives. As required by the provisions of
SFAS 142, we performed the initial goodwill impairment test required during our
first quarter of fiscal 2003. We consider ourselves to have a single reporting
unit. Accordingly, all of our goodwill is associated with our entire Company.
As of March 1, 2002, based upon our implied fair value, there was no impairment
of goodwill recorded upon implementation of SFAS 142.

During the quarters ended August 31, 2002, November 30, 2002 and February
28, 2003, we experienced adverse changes in our stock price resulting from a
decline in our financial performance caused by adverse business conditions that
have affected the technology industry, especially application software
companies. Based on these factors, we performed a test for goodwill impairment
at August 31, 2002, November 30, 2002 and February 28, 2003 and determined that
based upon the implied fair value (which includes factors such as, but not
limited to, the Companys market capitalization, control premium and recent stock price volatility) of the
Company as of August 31, 2002 and November 30, 2002, there was no impairment of
goodwill, and as of February 28, 2003, there was an impairment of goodwill. As
a result of the impairment of goodwill as of February 28, 2003, we recorded a
non-cash goodwill impairment charge of $96.3 million to reduce goodwill
associated with our acquisitions to their estimated fair value as of that date.
We will continue to test for impairment on an annual basis, coinciding with our
fiscal year end, or on an interim basis if circumstances change that would more
likely than not reduce the fair value of our reporting unit below its carrying
value. If our stock price is lower than recent levels such that the implied
fair value of the Company is significantly less than stockholders equity for a
sustained period of time, among other factors, we may be required to record an
additional impairment loss related to goodwill below its carrying amount. We
will perform a test for goodwill impairment at February 28, 2004, which is our
annual date for goodwill impairment review, or earlier if conditions are
present which may indicate an impairment.

OUR FUTURE RESULTS WILL BE ADVERSELY AFFECTED BY SEVERAL TYPES OF SIGNIFICANT
NON-CASH CHARGES WHICH COULD IMPAIR OUR ABILITY TO ACHIEVE OR MAINTAIN
PROFITABILITY IN THE FUTURE.

35



---



##### 



We will incur significant non-cash charges in the future related to the
amortization of intangible assets, including acquired technology relating to
the WDS, DFE, STG, CSD, SpaceWorks, Inc. and Talus acquisitions and non-cash
stock compensation expenses associated with our acquisition of Talus. In
addition, we have incurred and may in the future incur non-cash stock
compensation charges related to our stock option repricing in January 1999.
During fiscal 2002, we announced that we were required to write off our
investment in Converge, Inc., which resulted in a pre-tax charge of $10.2
million. In the three months ended August 31, 2002, we recorded a valuation
allowance for the full amount of our net deferred tax assets which resulted in
a $20.4 million non-cash charge to income tax expense. In the three months
ended February 28, 2003, we recorded a goodwill impairment charge of $96.3
million to reduce goodwill associated with our acquisitions to their estimated
fair value as of that date. We may also incur non-cash charges in future
periods related to impairments of long-lived assets. To achieve profitability
we must grow our revenue sufficiently to cover these charges. Our failure to
achieve profitability could cause our stock price to decline.

OUR OPERATING PERFORMANCE HAS BEEN NEGATIVELY IMPACTED BY THE PROGRESSIVE
WEAKENING OF GLOBAL ECONOMIC CONDITIONS AND INCREASED POLITICAL INSTABILITY
WHICH RESULTED IN A DETERIORATION OF OUR MARKETS. IN FISCAL 2002 AND FISCAL
2003, WE RECORDED CERTAIN RESTRUCTURING CHARGES AND ENACTED COST CONTAINMENT
AND COST REDUCTION MEASURES IN RESPONSE TO THE DOWNTURN IN OUR MARKETS. IF OUR
RESTRUCTURING PLANS AND OUR COST CONTAINMENT AND COST REDUCTION MEASURES FAIL
TO ACHIEVE THE DESIRED RESULTS OR RESULT IN UNANTICIPATED NEGATIVE
CONSEQUENCES, OR IF OUR MARKETS CONTINUE TO EXPERIENCE WEAKNESS, WE MAY SUFFER
MATERIAL HARM TO OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

Because of the downturn in our markets as a result of progressive
weakening of global economic conditions and increased political instability
during fiscal 2002 and fiscal 2003, we faced new challenges in our ability to
stabilize revenue and operating performance and expand market share. In
response to the impact on our financial performance, we implemented
restructuring plans and cost containment and cost reduction measures to reduce
our cost structure, which included, among other things, workforce reductions
and mandatory unpaid leave programs. In fiscal 2002 and 2003, we recorded
restructuring and impairment charges of $6.6 million and $19.2 million,
respectively. In addition, we expect to incur incremental restructuring charges
of approximately $10.0 million in our first quarter of fiscal 2004 as a result
of the cost containment and cost reduction initiatives commenced in our fourth
quarter of fiscal 2003, which include subleasing approximately
30% of our corporate headquarters space for an amount less than our current rent obligation. We expect to sublease the space by
August 31, 2003. If we fail to achieve the desired results of our restructuring
plans and our cost containment and cost reduction measures or if our markets
continue to experience weakness, we may suffer material harm to our operating
performance and financial condition.

WE HAVE REDUCED OUR WORKFORCE AS PART OF OUR RECENT COST CONTAINMENT AND COST
REDUCTION INITIATIVES. IF WE FAIL TO FIELD AND RETAIN A QUALIFIED WORKFORCE,
OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY
AFFECTED.

We believe that our success depends on our ability to motivate and retain
highly skilled technical, managerial, sales, marketing and services personnel.
Competition for skilled personnel can be intense, and there can be no assurance
that we will be successful in attracting, motivating and retaining the
personnel required to improve our financial performance and grow. In addition,
the cost of hiring and retaining skilled employees is high. Failure to attract
and retain highly skilled personnel could materially and adversely affect our
business.

Our recent cost containment and cost reduction initiatives may yield
unintended consequences, such as attrition beyond our planned reduction in
workforce, reduced employee morale and decreased productivity. In addition, the
recent trading levels of our stock have decreased the value of our stock
options granted to employees under our stock option plans. As a result of these
factors, our remaining personnel may seek alternate employment, such as with
larger, more established companies or companies that they perceive as having
less volatile stock prices or better prospects. Continuity of personnel is a
very important factor in sales and implementation of our software and our
product development efforts. Attrition beyond our planned reduction in
workforce or a material decrease in employee morale or productivity could have
a material adverse effect on our operating performance and financial condition.

OUR PRESIDENT, EXECUTIVE VICE PRESIDENT OF PRICING AND REVENUE MANAGEMENT AND
PRESIDENT OF EUROPEAN OPERATIONS RESIGNED IN FISCAL 2003. THE SUCCESS AND
GROWTH OF OUR BUSINESS MAY SUFFER IF WE LOSE ADDITIONAL KEY PERSONNEL.

Our success depends significantly on the continued service of our
executive officers. Three of our executive officers recently left the Company.
Gregory Cudahy, former Executive Vice President of Pricing and Revenue
Management resigned in May 2002. Richard

36



---



##### 



Bergmann, our former President, who had been on a personal leave of absence
since June 2002, resigned effective October 15, 2002. Terrence A. Austin, our
former Executive Vice President of European Operations, resigned effective
January 6, 2003. Andrew Hogenson, who has been with the Company since 1997,
most recently as our Senior Vice President of Product Development, replaced
Gregory Cudahy. Gregory Owens, Chairman and Chief Executive Officer, has
assumed certain of Richard Bergmanns duties. Jean-Claude Walravens, who has
been with the Company since 1999, most recently as our Vice President Sales,
Southern Europe, replaced Mr. Austin as our Senior Vice President and President
of European Operations. We do not have fixed-term employment agreements with
any of our executive officers, and we do not maintain key person life insurance
on our executive officers. The loss of services of any of our executive
officers for any reason could have a material adverse effect on our operating
performance and financial condition.

WE HAVE REDUCED OUR SALES FORCE AS PART OF OUR RECENT COST CONTAINMENT AND COST
REDUCTION INITIATIVES. IF WE FAIL TO FIELD AN EFFECTIVE SALES ORGANIZATION, OUR
ABILITY TO GROW WILL BE LIMITED, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

We have reduced our sales force in fiscal 2002 and fiscal 2003 as a result
of the deterioration in our markets. Decreasing software revenue and mandatory
leave programs have resulted in reduced compensation earned by members of our
sales force, which may result in further voluntary attrition of our sales force
over time. In order to grow our revenue, our existing sales force will have to
be more productive, and we will likely expand our sales force when the markets
for our products and solutions improve. Our past efforts to expand our sales
organization have required significant resources. New sales personnel require
training and take time to achieve full productivity. There is no assurance that
our existing salesforce will become more productive or that we will achieve
increased productivity in our existing sales force and successfully attract and
retain qualified sales people at levels sufficient to support growth. Any
failure to adequately sell our products could limit our growth and have a
material adverse effect on our operating performance and financial condition.

THE SALES CYCLES FOR OUR PRODUCTS AND SERVICES CAN BE LONG AND UNPREDICTABLE.
VARIATIONS IN THE TIME IT TAKES US TO LICENSE OUR SOFTWARE MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS.

The time it takes to license our software to prospective clients varies
substantially, but typically has ranged historically between three and twelve
months. Variations in the length of our sales cycles could cause our revenue to
fluctuate widely from period to period. Because we typically recognize a
substantial portion of our software revenue in the last month of a quarter, any
delay in the licensing of our products could cause significant variations in
our revenue from quarter to quarter. These delays have occurred on a number of
occasions in the past and materially adversely affected our financial
performance. Furthermore, these fluctuations could cause our operating results
to suffer in some future periods because our operating expenses are relatively
fixed over the short term, and we devote significant time and resources to
prospective clients. The length of our sales cycle depends on a number of
factors, including the following:



| |  |  | the complexities of client challenges our solutions address;                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the size, timing and complexity of contractual terms of licenses and sales of our products and services;                        
|
| |  |  | wide variations in contractual terms, which may result in deferred recognition of revenue;                                      
|
| |  |  | customer financial constraints and credit-worthiness;                                                                           
|
| |  |  | the breadth of the solution required by the client, including the
technical, organizational and geographic scope of the license;
|
| |  |  | the evaluation and approval processes employed by the clients and
prospects, which has become more complex and lengthy;         
|
| |  |  | economic, political and market conditions; and                                                                                  
|
| |  |  | any other delays arising from factors beyond our control.                                                                       

FAILURE TO MAINTAIN OUR SERVICE RATES FOR IMPLEMENTATION SERVICES COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

37



---



##### 



A significant portion of our revenue is derived from the hourly rates we
are able to charge for our implementation services consultants. Implementation
services are typically billed on a hourly basis (time and materials) and
sometimes under fixed price contracts. Implementation services billed on an
hourly basis are generally recognized as the work is performed. If we are not
able to maintain the current hourly service rates for our implementation
services, without corresponding cost reductions, our operating performance may
suffer. The hourly rates we are able to charge for our implementation services
depend on a number of factors, including the following:



| |  |  | our clients and prospects perceptions of our ability to add value through our implementation services;
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | competition;                                                                                            
|
| |  |  | pricing policies of our competitors and systems integrators;                                            
|
| |  |  | the use of globally sourced, lower-cost service delivery capabilities within our industry; and          
|
| |  |  | general economic conditions.                                                                            

CHANGES IN THE SIZE OF OUR SOFTWARE TRANSACTIONS MAY CAUSE MATERIAL
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.

The size of our software transactions fluctuates. Fluctuations in the size
of our software transactions have occurred, and may in the future occur, as a
result of changes in demand for our software and services. Losses of, or delays
in concluding, larger software transactions have had and could have a
proportionately greater effect on our revenue and financial performance for a
particular period. For example, we recorded 14 software transactions of $1.0
million or greater in fiscal 2000, 47 software transactions of $1.0 million or
greater in fiscal 2001, 38 software transactions of $1.0 million or greater in
fiscal 2002 and 19 software transactions of $1.0 million or greater in fiscal
2003. As a result of these changes in the size of our software transactions,
our quarterly revenue and financial performance have fluctuated significantly
and may cause significant fluctuations in the future.

WE EXPERIENCED DECLINES IN SOFTWARE REVENUE IN FISCAL 2002 AND FISCAL 2003. A
REDUCTION IN OUR REVENUE DERIVED FROM SOFTWARE LICENSES RESULTED AND MAY IN THE
FUTURE RESULT IN REDUCED SERVICES AND SUPPORT REVENUE.

Our ability to maintain or increase services revenue depends on our
ability to maintain or increase the amount of software we license to customers.
During our fourth quarter fiscal 2002 and third and fourth quarters of fiscal
2003, we experienced a decline in services revenue as a result of declining
software revenue in prior periods. Additional decreases or slowdowns in
licensing may have a material adverse effect on our services and support
revenues in future periods.

IN OUR THIRD QUARTER OF FISCAL 2003 WE EXPERIENCED A SEQUENTIAL DECLINE IN
SUPPORT REVENUE COMPARED TO OUR SECOND QUARTER OF FISCAL 2003 RESULTING FROM
BOTH THE RECENT DECLINE IN SOFTWARE REVENUE AND CLIENTS NOT RENEWING OR
PARTIALLY RENEWING EXISTING SUPPORT CONTRACTS. FURTHER DECLINES IN SOFTWARE
REVENUE, A REDUCTION IN THE RENEWAL RATE OF ANNUAL SUPPORT CONTRACTS, OR BOTH,
COULD RESULT IN A MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND
FINANCIAL CONDITION.

Our support revenue includes post-contract support and the rights to
unspecified software upgrades and enhancements. Support contracts are generally
renewable annually at the option of our customers. We have experienced high
rates of renewed annual support contracts from our customers. If our software
revenue does not grow and if our customers fail to renew or to fully renew
their support contracts at historical rates, our support revenue could
materially decline.

WE HAVE A RECENT HISTORY OF SUPPLEMENTING OUR ORGANIC REVENUE GROWTH THROUGH
ACQUISITIONS OF BUSINESS AND TECHNOLOGY. ACQUISITIONS INCREASE BUSINESS RISK.
WE HAVE EXPERIENCED DIFFICULTIES INTEGRATING ACQUISITIONS IN THE PAST.

Acquisitions involve the integration of companies that have previously
operated independently and increase the business risk of the acquirer. In
fiscal 2001 and 2002 we acquired the products and operations of Talus, STG,
OneRelease and CSD and the technology of SpaceWorks. During our first quarter
of fiscal 2003, we acquired the assets and businesses of WDS and DFE. In
connection with these and any future acquisitions, there can be no assurance
that we will:

38



---



##### 





| |  |  | effectively integrate employees, operations, products and systems;                                                                                                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | realize the expected benefits of the transaction;                                                                                                                      
|
| |  |  | retain key employees;                                                                                                                                                  
|
| |  |  | effectively develop and protect key technologies and proprietary
know-how;                                                                                             
|
| |  |  | avoid conflicts with our clients and business partners that have
commercial relationships or compete with the acquired company;                                        
|
| |  |  | avoid unanticipated operational difficulties or expenditures or both;
and                                                                                              
|
| |  |  | effectively operate our existing business lines, given the
significant diversion of resources and management attention required to
successfully integrate acquisitions.

Although we are not currently contemplating any acquisitions, future
acquisitions may result in a dilution to existing shareholders to the extent we
issue shares of our common stock as consideration or reduced liquidity and
capital resources to the extent we use cash as consideration.

IF THE MARKETS FOR OUR PRODUCTS DO NOT GROW OR SUFFER FURTHER DECLINES, OUR
OPERATING PERFORMANCE AND FINANCIAL CONDITION WILL BE MATERIALLY AND ADVERSELY
AFFECTED.

Substantially all of our software, services and support revenue have
arisen from, or are related directly to, our solutions. We expect to continue
to be dependent upon these solutions in the future, and any factor adversely
affecting the markets for our solutions would materially and adversely affect
our ability to generate revenue. The markets for our solutions have been and
may continue to be materially adversely affected by continuing or further
deteriorating economic and political conditions. While we believe the markets
for our solutions will expand as the economy improves, they may grow more
slowly than in the past or anticipated. If the markets for our solutions
further decline or do not grow as rapidly as we expect, revenue growth,
operating margins, or both, could be adversely affected.

OUR MARKETS ARE VERY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY.

The markets for our solutions are very competitive. The intensity of
competition in our markets has significantly increased in part as a result of
the deterioration in our markets. We expect this intensity of competition to
increase in the future. Our current and potential competitors may make
acquisitions of other competitors and may establish cooperative relationships
among themselves or with third parties. Some competitors are offering software
that competes with ours at little or no charge as components of bundled
products or on a stand-alone basis. Smaller niche software companies have been
and will likely continue to develop unique offerings that compete effectively
with some of our solutions. Further, our current or prospective clients and
partners may become competitors in the future. Increased competition has
resulted and in the future could result in price reductions, lower gross
margins, longer sales cycles and the loss of market share. Each of these
developments could have a material adverse effect on our operating performance
and financial condition.

MANY OF OUR CURRENT AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY GREATER
RESOURCES THAN WE DO, AND THEREFORE, WE MAY BE AT A DISADVANTAGE IN COMPETING
WITH THEM.

We directly compete with other enterprise application software vendors
including: Adexa, Aspen Technology, The Descartes Systems Group, Global
Logistics Technologies, i2 Technologies, JDA Software, Khimetrics, Logility,
Logisitics.com (recently acquired by Manhattan Associates), Mercia, Metreo,
PROS Revenue Management, Retek, SAP, Viewlocity (formerly SynQuest) and
YieldStar Technology. Certain ERP vendors, in addition to SAP, all of which are
substantially larger than Manugistics, have acquired or developed supply chain
management and supplier relationship management software companies, products,
or functionality or have announced intentions to develop and sell supply chain
management and supplier relationship management solutions. Such vendors include
Invensys, J.D. Edwards & Company; Oracle and PeopleSoft. Some of our current
and potential competitors, particularly the ERP vendors, have significantly
greater financial, marketing, technical and other competitive resources than we
do, as well as greater name recognition and a larger installed base of clients.
In addition, many of our competitors have well-established relationships with
our current and potential clients and have extensive knowledge of our industry.
As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in client requirements or to devote greater resources
to the development, promotion and sale of

39



---



##### 



their products than we can. Any of these factors could materially impair our
ability to compete and have a material adverse effect on our operating
performance and financial condition.

IF THE DEVELOPMENT OF OUR PRODUCTS AND SERVICES FAILS TO KEEP PACE WITH OUR
INDUSTRYS RAPIDLY EVOLVING TECHNOLOGY, OUR FUTURE RESULTS MAY BE MATERIALLY
AND ADVERSELY AFFECTED.

The markets for our solutions are subject to rapid technological change,
changing client needs, frequent new product introductions and evolving industry
standards. We have historically been successful in keeping pace with these
changes, but if we fail to do so in the future, our products and services may
be rendered less competitive or obsolete. Our product development and testing
efforts have required, and are expected to continue to require, substantial
investments. We recently released a web-native version of certain of our
products and will continue to develop and release web-native versions of our
products. We may not possess sufficient resources to continue to make further
necessary investments in technology. Recent cutbacks in our workforce could
lengthen the time necessary to develop our products. In addition, we may not
successfully identify new software opportunities or develop and bring new
software to market in a timely and efficient manner.

Our growth and future operating results will depend, in part, upon our
ability to continue to enhance existing applications and develop and introduce
new applications or capabilities that:



| |  |  | meet or exceed technological advances in the marketplace;                                                                                                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | meet changing market and client requirements, including rapid
realization of benefits and the need to rapidly manage and analyze
increasingly large volumes of data;
|
| |  |  | comply with changing industry standards;                                                                                                                            
|
| |  |  | achieve market acceptance;                                                                                                                                          
|
| |  |  | integrate third-party software effectively; and                                                                                                                     
|
| |  |  | respond to competitive offerings.                                                                                                                                   

If we are unable, for technological or other reasons, to develop and
introduce new and enhanced software in a timely manner, we may lose existing
clients and fail to attract new clients, which may have a material adverse
effect on our operating performance and financial condition.

DEFECTS IN OUR SOFTWARE OR PROBLEMS IN THE IMPLEMENTATION OF OUR SOFTWARE COULD
LEAD TO CLAIMS FOR DAMAGES BY OUR CLIENTS, LOSS OF REVENUE OR DELAYS IN THE
MARKET ACCEPTANCE OF OUR SOLUTIONS.

Our software is complex. This complexity can make it difficult to detect
errors or failure in our software prior to implementation. We may not discover
errors in our software until our customers install and use a given product or
until the volume of services that a product provides increases. When our
software is installed, the environment into which it is installed is frequently
complex and typically contains a wide variety of systems and third-party
software, with which our software must be integrated. This can make the process
of implementation difficult and lengthy. As a result, some customers may have
difficulty or be unable to implement our products successfully within
anticipated timeframes or otherwise achieve the expected benefits. These
problems may result in claims for damages suffered by our clients, a loss of,
or delays in, the market acceptance of our solutions, client dissatisfaction
and lost revenue and collection difficulties during the period required to
correct these errors.

WE UTILIZE THIRD-PARTY SOFTWARE THAT WE INCORPORATE INTO AND INCLUDE WITH OUR
PRODUCTS AND SOLUTIONS, AND IMPAIRED RELATIONS WITH THESE THIRD PARTIES,
DEFECTS IN THIRD-PARTY SOFTWARE OR THE INABILITY TO ENHANCE THEIR SOFTWARE OVER
TIME COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND
FINANCIAL CONDITION.

We incorporate and include third-party software into and with our products
and solutions. We are likely to incorporate and include additional third-party
software into and with our products and solutions as we expand our product
offerings. If our relations with any of these third-party software providers are
impaired, and if we are unable to obtain or develop a replacement for the
software, our

40



---



##### 



business could be harmed. The operation of our products would be impaired if
errors occur in the third-party software that we utilize. It may be more
difficult for us to correct any defects in third-party software because the
software is not within our control. Accordingly, our business could be
adversely affected in the event of any errors in this software. There can be no
assurance that these third parties will continue to invest the appropriate
levels of resources in their products and services to maintain and enhance the
software capabilities.

WE UTILIZE THIRD PARTIES TO INTEGRATE OUR SOFTWARE WITH OTHER SOFTWARE PRODUCTS
AND PLATFORMS. IF ANY OF THESE THIRD PARTIES SHOULD CEASE TO PROVIDE
INTEGRATION SERVICES TO US, OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION
COULD BE MATERIALLY ADVERSELY AFFECTED.

We depend on companies such as Business Objects, Inovus, Tibco Software,
Vignette, and webMethods to integrate our software with software and platforms
developed by third parties. If relations with any of these third-parties is
impaired, and if we are unable to secure a replacement on a timely basis, our
operating performance and financial condition could be harmed. If these
companies are unable to develop or maintain software that effectively
integrates our software and is free from defects, our ability to license our
products and provide solutions could be impaired and our operating performance
and financial condition could be harmed. There can be no assurance that these
third parties will continue to invest the appropriate levels of resources in
their products and services to maintain and enhance their softwares
capabilities.

OUR EFFORTS TO DEVELOP AND SUSTAIN RELATIONSHIPS WITH VENDORS SUCH AS SOFTWARE
COMPANIES, CONSULTING FIRMS, RESELLERS AND OTHERS TO IMPLEMENT AND PROMOTE OUR
SOFTWARE PRODUCTS MAY FAIL, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
OPERATING PERFORMANCE AND FINANCIAL CONDITION.

We are developing, maintaining and enhancing significant working
relationships with complementary vendors, such as software companies,
consulting firms, resellers and others that we believe can play important roles
in marketing our products and solutions. We are currently investing, and intend
to continue to invest, significant resources to develop and enhance these
relationships, which could adversely affect our operating margins. We may be
unable to develop relationships with organizations that will be able to market
our products effectively. Our arrangements with these organizations are not
exclusive and, in many cases, may be terminated by either party without cause.
Many of the organizations with which we are developing or maintaining marketing
relationships have commercial relationships with our competitors. There
can be no assurance that any organization will continue its involvement
with us and our products. The loss of relationships with important
organizations could materially and adversely affect on our operating
performance and financial condition.

AS A RESULT OF THE WDS ACQUISITION, AN INCREASED PERCENTAGE OF OUR REVENUE WILL
BE DERIVED FROM CONTRACTS WITH THE GOVERNMENT. GOVERNMENT CONTRACTS ARE SUBJECT
TO COST AUDITS BY THE GOVERNMENT AND TERMINATION FOR THE CONVENIENCE OF THE
GOVERNMENT. THE ADVERSE RESULT OF A GOVERNMENT AUDIT OR GOVERNMENT TERMINATION
OF ANY OF OUR CONTRACTS WITH THE GOVERNMENT COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

Although we have existing engagements for the Defense Logistics Agency,
United States Navy and United States Airforce, the WDS acquisition will
significantly increase the percentage of our revenue derived from contracts
with the federal Government. Government contractors are commonly subject to
various audits and investigations by Government agencies. One agency that
oversees or enforces contract performance is the Defense Contract Audit Agency
(DCAA). The DCAA generally performs a review of a contractors performance on
its contracts, its pricing practices, costs and compliance with applicable
laws, regulations and standards and to verify that costs have been properly
charged to the Government. Although the DCAA has completed an initial review of
our accounting practices and procedures allowing us to invoice the Government,
it has yet to exercise its option to perform an audit of our actual invoicing
of Government contracts. These audits may occur several years after completion
of the audited work. If an audit were to identify significant unallowable
costs, we could have a material charge to our earnings or reduction to our cash
position as a result of the audit and this could have a material adverse effect
on our operating performance and financial condition.

In addition, Government contracts may be subject to termination by the
Government for its convenience, as well as termination, reduction or
modification in the event of budgetary constraints or any change in the
Governments requirements. If one of our time-and-materials or fixed-priced
contracts were to be terminated for the Governments convenience, we would only
receive the purchase price for items delivered prior to termination,
reimbursement for allowable costs for work-in-progress and an allowance for
profit on the contract, or an adjustment for loss if completion of performance
would have resulted in a loss. Government contracts are also

41



---



##### 



conditioned upon the continuing availability of Congressional appropriations.
Congress usually appropriates funds on a fiscal-year basis, even though the
contract performance may extend over many years. Consequently, at the outset of
a program, the contract is usually only partially funded and Congress must
annually determine if additional funds will be appropriated to the program. As
a result, long-term contracts are subject to cancellation if appropriations for
future periods become unavailable. We have not historically experienced any
significant material adverse effects as a result of the Governments failure to
fund programs awarded to us. If the Government were to terminate some or all of
our contracts or reduce appropriations, cancel appropriations or both to a program we have a
contract with, our operating performance and financial condition could be
materially adversely affected.

THE LIMITED ABILITY OF LEGAL PROTECTIONS TO SAFEGUARD OUR INTELLECTUAL PROPERTY
RIGHTS COULD IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.

Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of confidentiality procedures, contractual provisions, patent,
copyright, trademark and trade secret laws. Despite our efforts to protect our
proprietary rights, unauthorized parties may copy aspects of our products or
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult, particularly in certain foreign countries,
including, among others, The Peoples Republic of China. We are unable to
determine the extent to which piracy of our software products exists. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. Furthermore, our
competitors may independently develop technology similar to ours.

OUR PRODUCTS MAY INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
WHICH MAY CAUSE US TO INCUR UNEXPECTED COSTS OR PREVENT US FROM SELLING OUR
PRODUCTS.

The number of intellectual property claims in our industry may increase as
the number of competing products grows and the functionality of products in
different industry segments overlaps. In recent years, there has been a
tendency by software companies to file substantially increasing numbers of
patent applications, including those for business methods and processes. We
have no way of knowing what patent applications third parties have filed until
the application is published or until a patent is issued. Patent applications
are often published within 18 months of filing, but it can take as long as
three years or more for a patent to be granted after an application has been
filed. Although we are not aware that any of our products infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not claim infringement by us with respect to current or future
products. Any of these claims, with or without merit, could be time-consuming
to address, result in costly litigation, cause product shipment delays or
require us to enter into royalty or license agreements. These royalty or
license agreements might not be available on terms acceptable to us or at all,
which could materially and adversely affect our financial performance.

OUR INTERNATIONAL OPERATIONS POSE RISKS FOR OUR BUSINESS AND FINANCIAL
CONDITION.

We currently conduct operations in Australia, Belgium, Brazil, Canada,
France, Germany, Hong Kong, Japan, Malaysia, Mexico, Taiwan, The Netherlands,
The Peoples Republic of China, Singapore, Sweden and the United Kingdom and we also
have a relationship with a third-party in India to outsource a portion of our product development effort. We
intend to expand our international operations and to increase the proportion of
our revenue from outside the U.S. These operations require significant
management attention and financial resources and additionally subject us to
risks inherent in doing business internationally, such as:



| |  |  | failure to properly comply with foreign laws and regulations applicable
to our foreign activities;                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | failure to properly comply with U.S. laws and regulations relating to
the export of our products and services;                          
|
| |  |  | difficulties in managing foreign operations and appropriate levels of
staffing;                                                         
|
| |  |  | longer collection cycles;                                                                                                               
|
| |  |  | tariffs and other trade barriers;                                                                                                       
|
| |  |  | seasonal reductions in business activities, particularly throughout
Europe;                                                             
|
| |  |  | proper compliance with local tax laws which can be complex and may
result in unintended adverse tax consequences; and                   
|
| |  |  | increasing political instability, adverse economic conditions and the
potential for war or other hostilities in many of these countries.

42



---



##### 



Our failure to properly comply or address any of the above factors could
adversely affect the success of our international operations and could have a
material adverse effect on our operating performance and financial condition.

OUR CONTINUED SHIFT OF A SIGNIFICANT NUMBER OF OUR CONTRACTORS TO OUR PRODUCT
DEVELOPMENT OPERATIONS IN INDIA POSES SIGNIFICANT RISKS.

We have a relationship with a third-party to outsource
a portion of our product development effort. We have continued to increase the proportion of our product development
work being performed by contractors to India in order to take advantage of cost efficiencies associated with Indias lower wage scale.
However, we may not achieve the cost savings and other benefits we anticipate from this program and we may not be able to find
sufficient numbers of developers with the necessary skill sets in India to meet our needs. We have a heightened risk exposure to
changes in the economic, security and political conditions of India. Economic and political instability, military actions
and other unforeseen occurrences in India could impair our ability to develop and introduce new software applications
and functionality in a timely manner, which could put our products at a competitive disadvantage whereby we lose existing
customers and fail to attract new customers.

CHANGES IN THE VALUE OF THE U.S. DOLLAR, IN RELATION TO THE CURRENCIES OF
FOREIGN COUNTRIES WHERE WE TRANSACT BUSINESS, COULD HARM OUR OPERATING
PERFORMANCE AND FINANCIAL CONDITION.

During fiscal 2003, 25.0% of our total revenue was derived from outside
the United States. Our primary international operations are located throughout
Europe and Asia-Pacific. We also have operations in Brazil, Canada and Mexico.
Our international revenue and expenses are denominated in foreign currencies,
typically the local currency of the selling business unit. Therefore, changes
in the value of the U.S. Dollar as compared to these other currencies may
adversely affect our operating results. We intend to expand our international
operations and to increase the proportion of our revenue from outside the U.S.
For example, we recently opened offices in Malaysia and The Peoples Republic of
China. We expect to use an increasing number of foreign currencies, causing our
exposure to currency exchange rate fluctuations to increase. We generally do
not implement hedging programs to mitigate our exposure to currency
fluctuations affecting international accounts receivable, cash balances and
intercompany accounts, and we do not hedge our exposure to currency
fluctuations affecting future international revenues and expenses and other
commitments. For the foregoing reasons, currency exchange rate fluctuations
have caused, and likely will continue to cause, variability in our foreign
currency denominated revenue streams and our cost to settle foreign currency
denominated liabilities, which could have a material adverse effect on our
operating performance and financial condition.

WE MAY BE SUBJECT TO FUTURE LIABILITY CLAIMS, AND THE REPUTATIONS OF OUR
COMPANY AND PRODUCTS MAY SUFFER.

Many of our implementations involve projects that are critical to the
operations of our clients businesses and provide benefits that may be
difficult to quantify. Any failure in a clients system could result in a claim
for substantial damages against us, regardless of our responsibility for the
failure. We have entered into and plan to continue to enter into agreements
with software vendors, consulting firms, resellers and others whereby they
market our solutions. If these vendors fail to meet their clients expectations
or cause failures in their clients systems, our reputation and products could
be materially and adversely affected even if our software products perform in
accordance with their functional specifications.

IF REQUIREMENTS RELATING TO ACCOUNTING TREATMENT FOR EMPLOYEE STOCK OPTIONS ARE
CHANGED, WE MAY BE FORCED TO CHANGE OUR BUSINESS PRACTICES.

We currently account for the issuance of stock options under APB Opinion
No. 25, Accounting for Stock Issued to Employees. If proposals currently
under consideration by accounting standards organizations and governmental
authorities are adopted, we may be required to treat the value of the stock
options granted to employees as a compensation expense. As a result, we could
decide to reduce the number of stock options granted to employees or to grant
options to fewer employees. This could affect our ability to retain existing
employees and attract qualified candidates, and increase the cash compensation
or benefits we would have to pay to them. In addition, such a change could have
a material effect on our operating performance.

IT MAY BECOME INCREASINGLY EXPENSIVE TO OBTAIN AND MAINTAIN INSURANCE.

We obtain insurance to cover a variety of potential risks and liabilities.
In the current market, insurance coverage is becoming more restrictive and when
insurance coverage is offered, the deductible for which we are responsible is
larger and premiums have increased substantially. As a result, it may become
more difficult to maintain insurance coverage at historical levels, or if such
coverage is available, the cost to obtain or maintain it may increase
substantially. This may result in our being forced to bear the burden of an
increased portion of risks for which we have traditionally been covered by
insurance, which could have a material effect on our operating performance and
financial condition.

RISKS RELATED TO OUR INDUSTRY

OUR FUTURE GROWTH IS SUBSTANTIALLY DEPENDENT ON THE CONTINUED SUCCESS OF THE
INTERNET AS A RELIABLE AND SECURE COMMERCIAL MEDIUM. THE FAILURE OF THE
INTERNET AS A RELIABLE AND SECURE COMMERCIAL MEDIUM WOULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

43



---



##### 



The growth of the Internet increased demand for our solutions, as well as
created markets for new and enhanced product offerings. Therefore, our future
sales and financial performance are substantially dependent upon the Internet
as a reliable and secure commercial medium. The continued success of the
Internet as a reliable and secure commercial medium may be adversely affected
for a number of reasons, including:



| |  |  | potentially inadequate development of network infrastructure, delayed
development of enabling technologies, performance improvements and
security measures;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | sustained disruptions in the accessibility, security and reliability;                                                                                      
|
| |  |  | delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;                             
|
| |  |  | increased taxation and governmental regulation; or                                                                                                         
|
| |  |  | changes in, or insufficient availability of, communications services
to support the Internet, resulting in slower Internet user response
times.            

The occurrence of any of these factors could require us to modify our
technology and our business strategy. We have expended significant amounts of
resources to develop and deploy our products using the Internet as a medium.
Any such modifications could require us to expend significant additional
amounts of resources. In the event that the Internet does not remain a viable
and secure commercial medium, our operating performance and financial condition
could be materially and adversely affected.

NEW LAWS OR REGULATIONS AFFECTING THE INTERNET OR COMMERCE IN GENERAL COULD
REDUCE OUR REVENUE AND HAVE A MATERIAL ADVERSE EFFECT ON OUR GROWTH.

Congress and other domestic and foreign governmental authorities have
adopted and are considering legislation affecting the use of the Internet,
including laws relating to the use of the Internet for commerce and
distribution. The adoption or interpretation of laws regulating the Internet,
or of existing laws governing such things as taxation of commerce, consumer
protection, libel, property rights and personal privacy, could adversely affect
its use as a communications and commercial medium. If this occurs, companies
may decide not to use our products or services, and our operating performance
and financial condition could be materially adversely affected.

RISKS RELATED TO OUR COMMON STOCK

OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE. WE HAVE
RECENTLY EXPERIENCED SIGNIFICANT DECLINES IN OUR STOCK PRICE DUE TO OUR POOR
FINANCIAL PERFORMANCE.

The trading price of our common stock has been and is likely to be highly
volatile. Our stock price has been and could continue to be subject to wide
fluctuations in response to a variety of factors, including the following:



| |  |  | actual or anticipated variations in quarterly operating results and
continuing losses;                                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | continued or deteriorating adverse economic, political and market
conditions;                                                              
|
| |  |  | announcements of technological innovations;                                                                                                
|
| |  |  | new products or services offered by us or our competitors;                                                                                 
|
| |  |  | changes in financial estimates and ratings by securities analysts;                                                                         
|
| |  |  | changes in the performance, market valuations, or both, of our
current and potential competitors and the software industry in general;     
|
| |  |  | our announcement or a competitors announcement of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;

44



---



##### 





| |  |  | adoption of industry standards and the inclusion of our technology
in, or compatibility of our technology with, such standards;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | adverse or unfavorable publicity regarding us, or our products and
services or implementations;                                
|
| |  |  | adverse or unfavorable publicity regarding our competitors, including
their products and implementations;                      
|
| |  |  | additions or departures of key personnel;                                                                                      
|
| |  |  | sales or anticipated sales of additional debt or equity securities; and                                                        
|
| |  |  | other events or factors that may be beyond our control.                                                                        

In addition, the stock markets in general, The Nasdaq National Market and
the equity markets for software companies in particular, have experienced
extraordinary price and volume volatility in recent years. Such volatility has
adversely affected the stock prices for many companies irrespective of, or
disproportionately to, the operating performance of these companies. These
broad market and industry factors may materially and adversely further affect
the market price of our common stock, regardless of our actual operating
performance.

OUR CHARTER AND BYLAWS, DELAWARE LAW AND INDENTURE FOR THE NOTES CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER EVEN IF BENEFICIAL TO STOCKHOLDERS.

Our charter and our bylaws, in conjunction with Delaware law, contain
provisions that could make it more difficult for a third party to obtain
control of us even if doing so would be beneficial to stockholders. For
example, our bylaws provide for a classified board of directors and allow our
board of directors to expand its size and fill any vacancies without
stockholder approval. Furthermore, our board has the authority to issue
preferred stock and to designate the voting rights, dividend rate and
privileges of the preferred stock, all of which may be greater than the rights
of common stockholders. Additionally, upon a change of control of the Company, the holders of the Notes would
have the right to require us or our successor to repurchase the Notes at a purchase price equal to 100% of the
principal amount, plus accrued and unpaid interest to the date of repurchase in cash. This could make it more
difficult for a third party to obtain control of us even if doing so would be beneficial to stockholders.

Item7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

Foreign Currency Risk. We are subject to risk from changes in foreign
exchange rates for our subsidiaries which use a foreign currency as their
functional currency and are translated into U.S. dollars. Such changes could
result in cumulative translation gains or losses that are included in
shareholders equity. Revenue outside of the United States was 25.0%, 28.0% and
30.6% for fiscal 2003, 2002 and 2001, respectively. Revenue outside the United
States is derived from operations in Australia, Belgium, Brazil, Canada, China,
France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, Netherlands,
Singapore, Sweden, Taiwan and the United Kingdom. Exchange rate fluctuations
between the U.S. dollar and the currencies of these countries result in
positive or negative fluctuations in the amounts relating to foreign operations
reported in our consolidated financial statements. None of the components of
our financial statements were materially affected by exchange rate fluctuations
during fiscal 2003, 2002 and 2001. We generally do not use foreign currency
options and forward contracts to hedge against the earnings effects of such
fluctuations. While we do not expect to incur material losses as a result of
this currency risk, there can be no assurance that losses will not result.

Interest Rate Risk. Our marketable securities and certain cash equivalents
are subject to interest rate risk. We manage this risk by maintaining an
investment portfolio of available-for-sale instruments with high credit quality
and relatively short average maturities. These instruments include, but are not
limited to, commercial paper, money-market instruments, bank time deposits and
variable rate and fixed rate obligations of corporations and national, state
and local governments and agencies, in accordance with an investment policy
approved by our Board of Directors. These instruments are denominated in U.S.
dollars. The fair market value of marketable securities held was $2.9 million
and $4.3 million at February 28, 2003 and February 28, 2002, respectively.

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 deposits of the local bank. Such operating
cash balances held at banks outside of the United States are denominated in the
local currency.

The United States Federal Reserve Board influences the general market
rates of interest. During calendar 2001, the Federal Reserve Board decreased
the federal funds rate several times, by 475 basis points, to 1.75%. During
fiscal 2003, the federal funds rate was further reduced by 50 basis points to
1.25%. These actions have led to a general market decline in interest rates.

45



---



##### 



The weighted average yield on interest-bearing investments held as of
February 28, 2003 and 2002 was approximately 1.2% and 2.1%, respectively. Based
on our investment holdings at February 28, 2003, a 100 basis point decline in
the average yield would reduce our annual interest income by $1.4 million.

Credit Risk. Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments in marketable securities and trade accounts receivable. We have
policies that limit investments to investment grade securities and the amount
of credit exposure to any one issuer. We perform ongoing credit evaluations of
our customers and maintain an allowance for potential credit losses. We do not
require collateral or other security to support clients receivables since most
of our customers are large, well-established companies. Our credit risk is also
mitigated because our customer base is diversified both by geography and
industry and no single customer accounts for more than 10% our consolidated
revenue. We generally do not use foreign exchange contracts to hedge the risk
in receivables denominated in foreign currencies. We do not hold or issue
derivative financial instruments for trading or speculative purposes.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our consolidated financial statements and supplementary data, together
with the reports of Deloitte & Touche LLP, independent auditors, are included
in Part IV of this annual report on Form 10-K.

|                                                                                             |  | 
|-------------------------------------------------------------------------------------------- |  | 
|Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Reference is made to the information to be set forth in the definitive
Proxy Statement relating to the 2003 Annual Meeting of Stockholders (which we
anticipate will be filed with the Securities and Exchange Commission within 120
days after the end of our fiscal year ended February 28, 2003) (the Proxy
Statement) under the captions Election of Directors and Section 16(a)
Beneficial Ownership Reporting Compliance and to the information set forth in
Part I of this annual report on Form 10-K regarding executive officers under
the caption Item 4A. Executive Officers of the Registrant.

Item 11. EXECUTIVE COMPENSATION.

Reference is made to the information to be set forth in the Proxy
Statement under the caption Executive Compensation.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Reference is made to the information to be set forth in the Proxy
Statement under the caption Ownership of Manugistics Group, Inc. Stock.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Reference is made to the information to be set forth in the Proxy
Statement under the caption Certain Business Relationships.

Item 14. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness of
the Companys disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rule 13a-14(c)) as of a date (the Evaluation
Date) within 90 days before the filing date of this annual report, have
concluded that as of the Evaluation Date, our disclosure controls and
procedures were effective to ensure that material information relating to us
and our consolidated subsidiaries is recorded, processed, summarized and
reported in a timely manner.

Changes in Internal Controls. There were no significant changes in our
internal controls or, to our knowledge, in other factors that could
significantly affect such controls subsequent to the Evaluation Date.

46



---



##### 



PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  Documents filed as a part of this annual report:

|                                                                                                                                              |                                                              |  |                |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ |  | -------------- | --- | 
|                                                                                                                                              |                                                              |  | Page Number   
|                                                                                                                                              |                                                              |  | In This Report
|                                                                                                                                              |                                                              |  |               
|(1) Financial Statements:                                                                                                                     |                                                              |  |                |    
|                                                                                                                                              | Independent Auditors Report                                 |  |                | F-1 | 
|                                                                                                                                              | Consolidated Balance Sheets                                  |  |                | F-2 | 
|                                                                                                                                              | Consolidated Statements of Operations and Comprehensive Loss |  |                | F-3 | 
|                                                                                                                                              | Consolidated Statements of Stockholders Equity              |  |                | F-4 | 
|                                                                                                                                              | Consolidated Statements of Cash Flows                        |  |                | F-5 | 
|                                                                                                                                              | Notes to Consolidated Financial Statements                   |  |                | F-6 | 
|The financial statements listed above and the financial statement
schedules listed below are filed as part of this annual report on Form 10-K |                                                              |  |                |    
|                                                                                                                                             
|(2) Financial Statement Schedules:                                                                                                            |                                                              |  |                |    
|(A) Independent Auditors Report on Schedule                                                                                                  |                                                              |  | S-1            |    
|(B) Schedule II  Valuation and Qualifying Accounts                                                                                           |                                                              |  | S-2            |    

Schedules other than the ones listed above are omitted because they are not
required or are not applicable or the required information is shown in the
consolidated financial statements or notes thereto contained in this annual
report on Form 10-K.

(3)  Exhibits

The exhibits required by Item 601 of Regulation S-K are listed below and are
filed or incorporated by reference as part of this annual report on Form
10-K. Exhibits 10.1, 10.2, 10.11, 10.12, 10.13, 10.13(a),10.14, 10.16
through 10.28, and 10.32 through 10.37 are management
contracts or compensatory plans or arrangements required to be filed as
exhibits pursuant to Item 14(C) of this annual report.

|        |  |       |  |                                                                                                                                                                                                                           
|------- |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Notes |  | Description                                                                                                                                                                                                               
|        |  |       |  |                                                                                                                                                                                                                           
|2.1     |  | (K)   |  | Agreement and Plan of Merger dated June 1, 1998, among the Company, TYECIN Acquisition,
Inc., TYECIN Systems, Inc. and certain other persons                                                                              
|        |  |       |  |                                                                                                                                                                                                                           
|2.2     |  | (N)   |  | Agreement Plan of Merger by and among Manugistics Group, Inc., Talus Solutions, Inc. and
Manu Acquisition Corp. dated September 21, 2000                                                                                  
|        |  |       |  |                                                                                                                                                                                                                           
|2.3     |  | (R)   |  | Form of Executed Stock Purchase Agreement between Manugistics Group, Inc., Manugistics,
Inc., STG Holdings, Inc., each of the stockholders of STG Holdings, Inc. and Strathdon
Investments Limited dated December 22, 2000
|        |  |       |  |                                                                                                                                                                                                                           
|2.4     |  | (G)   |  | Stock Purchase Agreement dated February 13, 1998 between Manugistics Nova Scotia Company
and ProMIRA Software Incorporated, et al.                                                                                        
|        |  |       |  |                                                                                                                                                                                                                           
|3.1(a)  |  | (A)   |  | Amended and Restated Certificate of Incorporation of the Company                                                                                                                                                          
|        |  |       |  |                                                                                                                                                                                                                           
|3.1(b)  |  | (B)   |  | Certificate of Retirement and Elimination (relating to the Series A and Series B
preferred stock of the Company)                                                                                                          
|        |  |       |  |                                                                                                                                                                                                                           
|3.1 (c) |  | (C)   |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the
Company (effective July 29, 1997)                                                                                                    
|        |  |       |  |                                                                                                                                                                                                                           
|3.2     |  | (U)   |  | Amended and Restated By-Laws of the Company                                                                                                                                                                               
|        |  |       |  |                                                                                                                                                                                                                           
|3.3     |  |       |  | Amendment to Second Amended and Restated By-Laws of the Company (adopted January 22, 2003)                                                                                                                                
|        |  |       |  |                                                                                                                                                                                                                           
|4.1     |  | (N)   |  | Purchase Agreement dated October 16, 2000, between Deutsche Bank Securities, Inc.,(as
representative of the initial purchasers) and Manugistics Group, Inc.                                                               

47



---



##### 



|          |  |       |  |                                                                                                                                                                                                                        
|--------- |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number    |  | Notes |  | Description                                                                                                                                                                                                            
|          |  |       |  |                                                                                                                                                                                                                        
|4.2       |  | (N)   |  | Indenture dated as of October 20, 2000, between Manugistics Group, Inc., and State Street Bank and
Trust Company                                                                                                       
|          |  |       |  |                                                                                                                                                                                                                        
|4.3       |  | (N)   |  | Registration Rights Agreement dated as of October 20, 2000, and Deutsche Bank Securities Inc., and
Banc of America Securities LLC.4                                                                                    
|          |  |       |  |                                                                                                                                                                                                                        
|4.4       |  | (Q)   |  | Form of Note for Manugistics Group, Inc.s 5% Convertible Subordinated Notes due November 1, 2007                                                                                                                      
|          |  |       |  |                                                                                                                                                                                                                        
|4.5       |  | (R)   |  | Form of Executed Registration Rights Agreement by and among Manugistics Group, Inc., STG Holdings,
Inc., each of the stockholders of STG Holdings, Inc., and Strathdon Investments Limited dated as
of January 16, 2001
|          |  |       |  |                                                                                                                                                                                                                        
|10.1      |  | (F)   |  | Employee Incentive Stock Option Plan of the Company, as amended                                                                                                                                                        
|          |  |       |  |                                                                                                                                                                                                                        
|10.2      |  | (F)   |  | Fifth Amended and Restated Stock Option Plan of the Company                                                                                                                                                            
|          |  |       |  |                                                                                                                                                                                                                        
|10.3      |  | (A)   |  | Form of Notice of Grant of Option pursuant to the Director Stock Option Plan (previously
identified as Exhibit 10.4)                                                                                                   
|          |  |       |  |                                                                                                                                                                                                                        
|10.11     |  | (D)   |  | Outside Directors Non-Qualified Stock Option Plan                                                                                                                                                                      
|          |  |       |  |                                                                                                                                                                                                                        
|10.12     |  | (D)   |  | Executive Incentive Stock Option Plan                                                                                                                                                                                  
|          |  |       |  |                                                                                                                                                                                                                        
|10.13     |  | (U)   |  | Second Amended and Restated 1998 Stock Option Plan of the Company                                                                                                                                                      
|          |  |       |  |                                                                                                                                                                                                                        
|10.13 (a) |  |       |  | Amendment to the Second Amended and Restated 1998 Stock Option Plan of the Company (effective
March 1, 2003)                                                                                                           
|          |  |       |  |                                                                                                                                                                                                                        
|10.14     |  | (E)   |  | Employee Stock Purchase Plan of the Company                                                                                                                                                                            
|          |  |       |  |                                                                                                                                                                                                                        
|10.16     |  | (H)   |  | Employment Agreement dated April 25, 1999 among the Company, Manugistics, Inc. and with Gregory J.
Owens, Chief Executive Officer and President                                                                        
|          |  |       |  |                                                                                                                                                                                                                        
|10.17     |  | (I)   |  | Employment Agreement dated June 3, 1999 between Manugistics, Inc. and Richard F. Bergmann, as
amended (as of October 15, 2002, Mr. Bergmann was no longer an executive of the Company.)                                
|          |  |       |  |                                                                                                                                                                                                                        
|10.18     |  | (I)   |  | Employment Agreement dated June 7, 1999 between Manugistics, Inc. and Terrance A. Austin, as
amended (as of January 5, 2003, Mr. Austin was no longer an executive of the Company.)                                    
|          |  |       |  |                                                                                                                                                                                                                        
|10.19     |  | (I)   |  | Employment Agreement dated August 25, 1999 between Manugistics, Inc. and James J. Jeter, as amended                                                                                                                    
|          |  |       |  |                                                                                                                                                                                                                        
|10.20     |  | (J)   |  | Employment Agreement dated December 6, 1999 between Manugistics, Inc. and Raghavan Rajaji                                                                                                                              
|          |  |       |  |                                                                                                                                                                                                                        
|10.21     |  | (L)   |  | Employment Agreement dated December 6, 1999 between Manugistics, Inc. and Timothy T. Smith.                                                                                                                            
|          |  |       |  |                                                                                                                                                                                                                        
|10.23(a)  |  | (L)   |  | Stock Option Agreement dated April 27, 1999, between the Company and Gregory J. Owens                                                                                                                                  
|          |  |       |  |                                                                                                                                                                                                                        
|10.23(b)  |  | (L)   |  | Stock Option Agreement dated December 1, 1999, between the Company and Gregory J. Owens                                                                                                                                
|          |  |       |  |                                                                                                                                                                                                                        
|10.23(c)  |  | (L)   |  | Stock Option Agreement dated December 17, 1999, between the Company and Gregory J. Owens                                                                                                                               
|          |  |       |  |                                                                                                                                                                                                                        
|10.24(a)  |  | (L)   |  | Stock Option Agreement dated December 6, 1999, between the Company and Richard F. Bergmann (as of
October 15, 2002, Mr. Bergmann was no longer an executive of the Company.)                                           
|          |  |       |  |                                                                                                                                                                                                                        
|10.24(b)  |  | (L)   |  | Stock Option Agreement dated June 16, 1999, between the Company and Richard F. Bergmann (as of
October 15, 2002, Mr. Bergmann was no longer an executive of the Company.)                                              
|          |  |       |  |                                                                                                                                                                                                                        
|10.24(c)  |  | (M)   |  | Stock Option Agreement dated December 16, 1999, between the Company and Richard F. Bergmann (as of
October 15, 2002, Mr. Bergmann was no longer an executive of the Company.)                                          
|          |  |       |  |                                                                                                                                                                                                                        
|10.25     |  | (L)   |  | Stock Option Agreement dated June 7, 1999, between the Company and Terrence A. Austin (as of
January 5, 2003, Mr. Austin was no longer an executive of the Company.)                                                   
|          |  |       |  |                                                                                                                                                                                                                        
|10.27     |  | (P)   |  | Employment Agreement dated October 16, 2000, between the Company and Gregory Cudahy (as of May 3,
2002, Mr. Cudahy was no longer an executive of the Company.)                                                         
|          |  |       |  |                                                                                                                                                                                                                        
|10.28     |  | (O)   |  | Stock Option Agreement dated October 16, 2000, between the Company and Gregory Cudahy (as of May
3, 2002, Mr. Cudahy was no longer an executive of the Company.)                                                       

48



---



##### 



|          |  |       |  |                                                                                                                                                           
|--------- |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Number    |  | Notes |  | Description                                                                                                                                               
|          |  |       |  |                                                                                                                                                           
|10.29 (a) |  | (O)   |  | Lease Agreement dated December 19, 2000, between the Company and DANAC Corporation.                                                                       
|          |  |       |  |                                                                                                                                                           
|10.29(b)  |  | (T)   |  | First amendment dated June 2001 to lease agreement dated December 19, 2000, between the Company
and DANAC Corporation.                                    
|          |  |       |  |                                                                                                                                                           
|10.31 (a) |  | (S)   |  | Amended and Restated Financing Agreement and Form of Revolving Promissory Note dated December
29, 2000 by the Company in favor of Bank of America, N.A.   
|          |  |       |  |                                                                                                                                                           
|10.31 (b) |  | (U)   |  | Credit Agreement dated as of February 28, 2002 by the Company in favor of Bank of America, N.A.                                                           
|          |  |       |  |                                                                                                                                                           
|10.31 (c) |  | (V)   |  | Amendment Agreement dated as of July 12, 2002 to Credit Agreement dated as of February 28, 2002
by the Company in favor of Bank of America, N.A.          
|          |  |       |  |                                                                                                                                                           
|10.31 (d) |  | (W)   |  | Amendment Agreement No. 2 dated as of November 22, 2002 to Credit Agreement dated as of
February 28, 2002 by the Company in favor of Bank of America, N.A.
|          |  |       |  |                                                                                                                                                           
|10.32     |  | (U)   |  | Second Amended and Restated 2000 Stock Option Plan of the Company (effective January 29, 2002)                                                            
|          |  |       |  |                                                                                                                                                           
|10.33     |  | (U)   |  | Employment Agreement dated November 21, 2000, between the Company and Jeffrey Hudkins                                                                     
|          |  |       |  |                                                                                                                                                           
|10.34     |  |       |  | Amended Employment Agreement dated February 27, 2002 between the Company and Jeffrey L. Holmes                                                            
|          |  |       |  |                                                                                                                                                           
|10.35     |  |       |  | Employment Agreement dated December 14, 2001 between the Company and Everett G. Plante                                                                    
|          |  |       |  |                                                                                                                                                           
|10.36     |  | (Y)   |  | Termination of Employment Agreement dated October 15, 2002 between the Company and Richard F.
Bergmann                                                    
|          |  |       |  |                                                                                                                                                           
|10.37     |  | (W)   |  | Termination of Employment Agreement dated January 3, 2003 between the Company and Terrance A.
Austin                                                      
|          |  |       |  |                                                                                                                                                           
|10.45     |  | (X)   |  | Standstill Agreement dated October 24, 2002 between Manugistics Group, Inc and Warburg Pincus
Private Equity VIII, LP.                                    
|          |  |       |  |                                                                                                                                                           
|10.50     |  | (Y)   |  | Loan and Security Agreement dated April 12, 2002 by the Company in favor of Silicon Valley Bank.                                                          
|          |  |       |  |                                                                                                                                                           
|10.51     |  | (Z)   |  | Financing Agreement and Form of Revolving Promissory Note dated January 14, 2003 by the Company
in favor of Silicon Valley Bank.                          
|          |  |       |  |                                                                                                                                                           
|10.52     |  | (Z)   |  | Amended Loan and Security Agreement dated January 14, 2003 by the Company in favor of Silicon
Valley Bank.                                                
|          |  |       |  |                                                                                                                                                           
|21        |  |       |  | Subsidiaries of the Company                                                                                                                               
|          |  |       |  |                                                                                                                                                           
|23        |  |       |  | Independent Auditors Consent                                                                                                                             
|          |  |       |  |                                                                                                                                                           
|99.1      |  |       |  | Section 1350 Certification                                                                                                                                



|(A) |  | Incorporated by reference from the exhibits to the Companys
registration statement on form S-1 (NO. 333-65312).                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | Incorporated by reference to 4.1(A) to the Companys registration statement
on form S-3 (REG. NO. 333-31949).                                                   
|   
|(C) |  | Incorporated by reference to exhibit 4.1 (b) to the Companys registration
statement on form S-3 (REG. NO. 333-31949).                                          
|   
|(D) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on form 10-Q for the quarter ended August 31, 1994.                               
|   
|(E) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on form 10-Q for the quarter ended August 31, 1995.                               
|   
|(F) |  | Incorporated by reference from the exhibits to the Companys definitive
proxy statement relating to the 1996 annual meeting of shareholders dated
June 20, 1996.
|   
|(G) |  | Incorporated by reference from the exhibits to the Companys current
report on form 8-K dated March 2, 1998                                                     

49



---



##### 





|(H) |  | Incorporated by reference from the exhibits to the Companys annual
report on Form 10-K for fiscal year ended February 28, 1999.                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(I) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended August 31, 1999.                                                                 
|   
|(J) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended November 30, 1999.                                                               
|   
|(K) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended August 31, 1998.                                                                 
|   
|(L) |  | Incorporated by reference from the exhibits to the Companys annual report
on Form 10-K for fiscal year ended February 29, 2000.                                                                  
|   
|(M) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended May 31, 2000.                                                                    
|   
|(N) |  | Incorporated by reference from the exhibits to the Companys current report
on form 8-K/A dated October 11, 2000.                                                                                 
|   
|(O) |  | Incorporated by reference from the exhibits to the Companys current report
on Form 10-Q for the quarter ended November 30, 2000.                                                                 
|   
|(P) |  | Incorporated by reference to the Companys registration statement Form
S-8 filed by the Company on December 22, 2000.                                                                             
|   
|(Q) |  | Incorporated by reference from the exhibits to the Companys registration
statement on form S-3/A (NO. 333-53918).                                                                                
|   
|(R) |  | Incorporated by reference from the exhibits to the Companys registration
statement on form S-3/A (333-55010).                                                                                    
|   
|(S) |  | Incorporated by reference from the exhibits to the Companys annual
report on Form 10-K for the fiscal year ended February 28, 2001.                                                              
|   
|(T) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended May 31, 2001.                                                                    
|   
|(U) |  | Incorporated by reference from the exhibits to the Companys annual
report on Form 10-K for the fiscal year ended February 28, 2002.                                                              
|   
|(V) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended May 31, 2002.                                                                    
|   
|(W) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended November 30, 2002.                                                               
|   
|(X) |  | Incorporated by reference from the exhibits to the Companys current
report on for 8-K dated October 25, 2002.                                                                                    
|   
|(Y) |  | Incorporated by reference from the exhibits to the Companys quarterly
report on Form 10-Q for the quarter ended August 31, 2002.                                                                 
|   
|(Z) |  | Incorporated by reference from the exhibits to the Companys current
report on for 8-K dated January 16, 2003.                                                                                    
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                               
|   
|1.  |  | On January 16, 2003, we filed a Current Report on Form 8-K reporting our
new one year unsecured revolving credit facility with Silicon Valley Bank.                                               
|   
|2.  |  | On February 11, 2003, we filed a Current Report on Form 8-K reporting our
press release on February 10, 2003, announcing that we had commenced a
voluntary employee stock option exchange program.

50



---



##### 



(c)  Exhibits

See the response to Item 15(a)(3) above.

51



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 28, 2003.

MANUGISTICS GROUP, INC.

(Registrant)

/s/ Gregory J. Owens
Gregory J. Owens
Chairman of the Board, President and Chief Executive Officer



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on May 28, 2003.

/s/ Gregory J. Owens
Gregory J. Owens
Chairman of the Board, President and Chief Executive Officer
(Principal executive officer)

/s/ Raghavan Rajaji
Raghavan Rajaji
Executive Vice President and
Chief Financial Officer
(Principal financial officer)

/s/ Jeffrey T. Hudkins
Jeffrey T. Hudkins
Vice President, Controller and
Chief Accounting Officer
(Principal accounting officer)

|                                                   |  |                                                 
|-------------------------------------------------- |  | ------------------------------------------------
|/s/ J. Michael Cline
J. Michael Cline
Director     |  | /s/ Thomas A. Skelton
Thomas A. Skelton
Director
|                                                   |  |                                                 
|/s/ William H. Janeway
William H. Janeway
Director |  | /s/ Lynn C. Fritz
Lynn C. Fritz
Director        
|                                                   |  |                                                 
|/s/ Joseph H. Jacovini
Joseph H. Jacovini
Director |  | /s/ William G. Nelson
William G. Nelson
Director

52



---



##### 



CERTIFICATIONS

I, Gregory J Owens, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-K of Manugistics Group,
Inc.;                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |     |  |                                                                                             
|------------------- |  | --- |  | --------------------------------------------------------------------------------------------
|Dated: May 28, 2003 |  | By: |  | /s/ Gregory J. Owens                                                                        
|                    |  |     |  |                                                                                             
|                    |  |     |  | Gregory J. Owens
Chairman, President and Chief Executive Officer
Principal Executive Officer

53



---



##### 



I, Raghavan Rajaji, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-K of Manugistics Group,
Inc.;                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |     |  |                                                                                                   
|------------------- |  | --- |  | --------------------------------------------------------------------------------------------------
|Dated: May 28, 2003 |  | By: |  | /s/ Raghavan Rajaji                                                                               
|                    |  |     |  |                                                                                                   
|                    |  |     |  | Raghavan Rajaji
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

54



---



##### 



INDEPENDENT AUDITORS REPORT

To the Board of Directors and
Stockholders of Manugistics Group, Inc.:Rockville, MD

We have audited the accompanying consolidated balance sheets of Manugistics
Group, Inc. and its subsidiaries (the Company) as of February 28, 2003 and
2002, and the related consolidated statements of operations and comprehensive
loss, stockholders equity and cash flows for each of the three years in the
period ended February 28, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Manugistics Group, Inc. and its
subsidiaries at February 28, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended February
28, 2003, in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Notes 1 and 5 to the consolidated financial statements, in 2003
the Company changed its method of accounting for goodwill to conform to
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, during the year ended February 28, 2003.

/s/ DELOITTE & TOUCHE LLP

McLean, VA
March 27, 2003

F-1



---



##### 



MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |         |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------------------ | -------- | ------------ | ------- | ------- | -------- | ------- | ------- | 
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          | February 28,
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |             
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          | 2003         |         | 2002   
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |        
|ASSETS                                     |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|CURRENT ASSETS:                            |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|                                           | Cash and cash equivalents                                                                                                                                                                                                             |                               | $                                                      | 134,789  |              |         | $       | 228,801  |        
|                                           | Marketable securities                                                                                                                                                                                                                 |                               |                                                        | 2,946    |              |         |         | 4,259    |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|                                           |                                                                                                                                                                                                                                       |                               | Total cash, cash equivalents and marketable securities |          |              | 137,735 |         |          |         | 233,060 | 
|                                           | Accounts receivable, net of allowance for doubtful accounts of $7,007 and
$8,308 at February 28, 2003 and February 28, 2002, respectively                                                                                             |                               |                                                        | 63,940   |              |         |         | 76,443   |        
|                                           | Deferred tax assets                                                                                                                                                                                                                   |                               |                                                        |         |              |         |         | 9,061    |        
|                                           | Other current assets                                                                                                                                                                                                                  |                               |                                                        | 11,612   |              |         |         | 11,471   |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|                                           |                                                                                                                                                                                                                                       | Total current assets          |                                                        |          | 213,287      |         |         |          | 330,035 |        
|NON-CURRENT ASSETS:                        |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|                                           | Property and equipment, net of accumulated depreciation                                                                                                                                                                               |                               |                                                        | 31,230   |              |         |         | 22,872   |        
|                                           | Software development costs, net of accumulated amortization                                                                                                                                                                           |                               |                                                        | 13,428   |              |         |         | 14,506   |        
|                                           | Restricted cash                                                                                                                                                                                                                       |                               |                                                        | 12,980   |              |         |         |         |        
|                                           | Goodwill                                                                                                                                                                                                                              |                               |                                                        | 187,438  |              |         |         | 269,998  |        
|                                           | Acquired technology, net of accumulated amortization                                                                                                                                                                                  |                               |                                                        | 41,232   |              |         |         | 36,086   |        
|                                           | Other intangible assets, net of accumulated amortization                                                                                                                                                                              |                               |                                                        | 23,072   |              |         |         | 30,018   |        
|                                           | Deferred tax assets                                                                                                                                                                                                                   |                               |                                                        |         |              |         |         | 11,289   |        
|                                           | Other non-current assets                                                                                                                                                                                                              |                               |                                                        | 6,706    |              |         |         | 7,836    |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|TOTAL ASSETS                               |                                                                                                                                                                                                                                       | $                             | 529,373                                                |          |              | $       | 722,640 |         
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|CURRENT LIABILITIES:                       |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|                                           | Accounts payable                                                                                                                                                                                                                      |                               | $                                                      | 9,738    |              |         | $       | 9,009    |        
|                                           | Accrued compensation                                                                                                                                                                                                                  |                               |                                                        | 7,156    |              |         |         | 12,720   |        
|                                           | Deferred revenue                                                                                                                                                                                                                      |                               |                                                        | 43,388   |              |         |         | 43,578   |        
|                                           | Other current liabilities                                                                                                                                                                                                             |                               |                                                        | 33,214   |              |         |         | 27,777   |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|                                           |                                                                                                                                                                                                                                       | Total current liabilities     |                                                        |          | 93,496       |         |         |          | 93,084  |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|NON-CURRENT LIABILITIES:                   |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|                                           | Convertible debt                                                                                                                                                                                                                      |                               |                                                        | 250,000  |              |         |         | 250,000  |        
|                                           | Long-term debt and capital leases                                                                                                                                                                                                     |                               |                                                        | 4,795    |              |         |         | 1,023    |        
|                                           | Other non-current liabilities                                                                                                                                                                                                         |                               |                                                        | 9,000    |              |         |         | 5,726    |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|                                           |                                                                                                                                                                                                                                       | Total non-current liabilities |                                                        |          | 263,795      |         |         |          | 256,749 |        
|COMMITMENTS AND CONTINGENCIES (Note 7)     |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|STOCKHOLDERS EQUITY:                      |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |         
|                                           | Preferred stock                                                                                                                                                                                                                       |                               |                                                        |         |              |         |         |         |        
|                                           | Common stock, $.002 par value per share; 300,000 shares authorized
at February 28, 2003 and February 28, 2002, respectively; 70,104 and 69,042
shares issued and outstanding at February 28, 2003
and February 28, 2002, respectively |                               |                                                        | 140      |              |         |         | 138      |        
|                                           | Additional paid-in capital                                                                                                                                                                                                            |                               |                                                        | 633,801  |              |         |         | 629,861  |        
|                                           | Deferred compensation                                                                                                                                                                                                                 |                               |                                                        | (3,094   | )            |         |         | (9,049   | )      
|                                           | Accumulated other comprehensive loss                                                                                                                                                                                                  |                               |                                                        | (1,087   | )            |         |         | (2,704   | )      
|                                           | Accumulated deficit                                                                                                                                                                                                                   |                               |                                                        | (457,678 | )            |         |         | (245,439 | )      
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|                                           |                                                                                                                                                                                                                                       | Total stockholders equity    |                                                        |          | 172,082      |         |         |          | 372,807 |        
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                                                                                                       | $                             | 529,373                                                |          |              | $       | 722,640 |         
|                                           |                                                                                                                                                                                                                                       |                               |                                                        |          |              |         |         |          |        

See accompanying notes to consolidated financial statements.

F-2



---



##### 



MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)


|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |        |         | 
|---------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------- | ------------- | ------- | ------------ | ------- | -------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | 
|                                                                             |                                                              |                                         |               |         | February 28,
|                                                                             |                                                              |                                         |               |         |             
|                                                                             |                                                              |                                         |               |         | 2003         |         | 2002     |         | 2001  
|                                                                             |                                                              |                                         |               |         |              |         |          |         |       
|REVENUE:                                                                     |                                                              |                                         |               |         |              |         |          |         |        |         |         |        
|                                                                             | Software                                                     |                                         | $             | 74,899  |              |         | $        | 129,772 |        |         | $       | 139,316 |       
|                                                                             | Services                                                     |                                         |               | 102,144 |              |         |          | 106,522 |        |         |         | 73,333  |       
|                                                                             | Support                                                      |                                         |               | 84,075  |              |         |          | 73,852  |        |         |         | 55,315  |       
|                                                                             | Reimbursed expenses                                          |                                         |               | 11,268  |              |         |          | 9,741   |        |         |         | 8,199   |       
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|                                                                             |                                                              |                                         | Total revenue |         |              | 272,386 |          |         |        | 319,887 |         |         |        | 276,163 | 
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|OPERATING EXPENSES:                                                          |                                                              |                                         |               |         |              |         |          |         |        |         |         |        
|Cost of revenue:                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |        
|                                                                             | Cost of software                                             |                                         |               | 19,127  |              |         |          | 21,144  |        |         |         | 19,146  |       
|                                                                             | Amortization of acquired technology                          |                                         |               | 13,623  |              |         |          | 9,168   |        |         |         | 1,122   |       
|                                                                            
|                                                                             | Cost of services and support                                 |                                         |               | 98,055  |              |         |          | 92,083  |        |         |         | 59,149  |       
|                                                                             | Cost of reimbursed expenses                                  |                                         |               | 11,268  |              |         |          | 9,741   |        |         |         | 8,199   |       
|                                                                             | Non-cash stock compensation expense for services and support |                                         |               | 1,673   |              |         |          | 52      |        |         |         | 4,579   |       
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Total cost of services and support                                           |                                                              |                                         | 110,996       |         |              |         | 101,876  |         |        |         | 71,927  |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Sales and marketing                                                          |                                                              |                                         | 95,627        |         |              |         | 120,437  |         |        |         | 115,610 |        
|Non-cash stock compensation expense (benefit) for sales and marketing        |                                                              |                                         | 931           |         |              |         | (1,794   | )       |        |         | 3,262   |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Total cost of sales and marketing                                            |                                                              |                                         | 96,558        |         |              |         | 118,643  |         |        |         | 118,872 |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Product development                                                          |                                                              |                                         | 63,055        |         |              |         | 70,477   |         |        |         | 40,830  |        
|Non-cash stock compensation expense (benefit) for product development        |                                                              |                                         | 298           |         |              |         | (1,310   | )       |        |         | 3,694   |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Total cost of product development                                            |                                                              |                                         | 63,353        |         |              |         | 69,167   |         |        |         | 44,524  |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|General and administrative                                                   |                                                              |                                         | 27,885        |         |              |         | 28,522   |         |        |         | 22,925  |        
|Non-cash stock compensation expense (benefit) for general and
administrative |                                                              |                                         | 524           |         |              |         | (59      | )       |        |         | 1,266   |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Total cost of general and administrative                                     |                                                              |                                         | 28,409        |         |              |         | 28,463   |         |        |         | 24,191  |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Amortization of intangibles                                                  |                                                              |                                         | 3,866         |         |              |         | 86,279   |         |        |         | 15,082  |        
|Goodwill impairment charge                                                   |                                                              |                                         | 96,349        |         |              |         |         |         |        |         |        |        
|Purchased research and development and acquisition-related expenses          |                                                              |                                         | 3,800         |         |              |         |         |         |        |         | 9,724   |        
|Restructuring and other impairment charges                                   |                                                              |                                         | 19,184        |         |              |         | 6,612    |         |        |         |        |        
|IRI settlement                                                               |                                                              |                                         |              |         |              |         | 3,115    |         |        |         |        |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|Total operating expenses                                                     |                                                              |                                         | 455,265       |         |              |         | 444,467  |         |        |         | 304,588 |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|LOSS FROM OPERATIONS                                                         |                                                              |                                         | (182,879      | )       |              |         | (124,580 | )       |        |         | (28,425 | )      
|OTHER (EXPENSE) INCOME, NET                                                  |                                                              |                                         | (7,942        | )       |              |         | (14,638  | )       |        |         | 2,899   |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|LOSS BEFORE INCOME TAXES                                                     |                                                              |                                         | (190,821      | )       |              |         | (139,218 | )       |        |         | (25,526 | )      
|PROVISION FOR (BENEFIT FROM) INCOME TAXES                                    |                                                              |                                         | 21,418        |         |              |         | (24,060  | )       |        |         | 2,552   |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|NET LOSS                                                                     |                                                              | $                                       | (212,239      | )       |              | $       | (115,158 | )       |        | $       | (28,078 | )      
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|BASIC AND DILUTED LOSS PER SHARE                                             |                                                              | $                                       | (3.04         | )       |              | $       | (1.69    | )       |        | $       | (0.48   | )      
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|SHARES USED IN BASIC AND DILUTED SHARE COMPUTATION                           |                                                              |                                         | 69,768        |         |              |         | 67,986   |         |        |         | 58,955  |        
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|COMPREHENSIVE LOSS:                                                          |                                                              |                                         |               |         |              |         |          |         |        |         |         |        
|Net loss                                                                     |                                                              | $                                       | (212,239      | )       |              | $       | (115,158 | )       |        | $       | (28,078 | )      
|Other comprehensive income (loss), net of tax:                               |                                                              |                                         |               |         |              |         |          |         |        |         |         |        
|                                                                             | Foreign currency translation adjustments                     |                                         |               | 1,658   |              |         |          | (2,036  | )      |         |         | (815    | )     
|                                                                             | Unrealized (losses) gains on securities                      |                                         |               | (41     | )            |         |          | 656     |        |         |         | (609    | )     
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|                                                                             |                                                              | Total other comprehensive income (loss) |               |         | 1,617        |         |          |         | (1,380 | )       |         |         | (1,424 | )      
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       
|TOTAL COMPREHENSIVE LOSS                                                     |                                                              | $                                       | (210,622      | )       |              | $       | (116,538 | )       |        | $       | (29,502 | )      
|                                                                             |                                                              |                                         |               |         |              |         |          |         |        |         |         |         |       

See accompanying notes to consolidated financial statements.

F-3



---



##### 



MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)

|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |          |  
|-------------------------- | ------------------------------------------------------------------------------------------ |  | ------------ | ----- | ----- | - | ------- | -- | ------- | - | ------------ | ------- | ------------- | - | ------------- | --- | ----------- | - | ------- | ------- | ----- | - | ------ | ------ | - | - | -------- | -------- | - | - | ------- | -------- | -
|                           |                                                                                            |  | Common Stock |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |       
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         | Accumulated   |   |               |     |             |   |         |         |      
|                           |                                                                                            |  |              |       |       |   |         |    |         |   | Additional   |         |               |   |               |     |             |   |         |         | Other |   |        |        |   |   |          |          |  
|                           |                                                                                            |  |              |       |       |   | Par     |    | Paid-in |   | Treasury     |         | Deferred      |   | Comprehensive |     | Accumulated |   |         |         |      
|                           |                                                                                            |  | Shares       |       | Value |   | Capital |    | Stock   |   | Compensation |         | Income (Loss) |   | (Deficit)     |     | Total      
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |            
|BALANCE, FEBRUARY 29, 2000 |                                                                                            |  | 57,342       |       |       | $ | 115     |    |         | $ | 189,423      |         |               | $ | (717          | )   |             |   |        |         |       | $ | 100    |        |   | $ | (102,203 | )        |   | $ | 86,718  |         
|                           | Issuance of common stock                                                                   |  |              | 103   |       |   |         |   |         |   |              | 1,732   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 1,732    |  
|                           | Issuance of common stock and
assumption of stock options and
warrants   Talus acquisition |  |              | 7,026 |       |   |         | 14 |         |   |              | 398,506 |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 398,520  |  
|                           | Issuance of common stock   STG acquisition                                                |  |              | 160   |       |   |         |   |         |   |              | 4,553   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 4,553    |  
|                           | Exercise of stock options                                                                  |  |              | 2,887 |       |   |         | 6  |         |   |              | 18,443  |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 18,449   |  
|                           | Stock option repricing                                                                     |  |              |      |       |   |         |   |         |   |              | 13,805  |               |   |               |    |             |   |         | (13,805 | )     |   |        |       |   |   |          |         |   |   |         |         |  
|                           | Stock-based compensation charge                                                            |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         | 12,801  |       |   |        |       |   |   |          |         |   |   |         | 12,801   |  
|                           | Deferred stock-based compensation
related to acquisitions                                  |  |              |      |       |   |         |   |         |   |              | (5,071  | )             |   |               |    |             |   |         | (18,312 | )     |   |        |       |   |   |          |         |   |   |         | (23,383  | )
|                           | Exercise of warrant                                                                        |  |              |      |       |   |         |   |         |   |              | 433     |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 433      |  
|                           | Translation adjustment                                                                     |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        | (815   | ) |   |          |         |   |   |         | (815     | )
|                           | Net change in unrealized gain / loss on
marketable securities                              |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        | (609   | ) |   |          |         |   |   |         | (609     | )
|                           | Net loss                                                                                   |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          | (28,078  | ) |   |         | (28,078  | )
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |         
|BALANCE, FEBRUARY 28, 2001 |                                                                                            |  | 67,518       |       |       | $ | 135     |    |         | $ | 621,824      |         |               | $ | (717          | )   |             | $ | (19,316 | )       |       | $ | (1,324 | )      |   | $ | (130,281 | )        |   | $ | 470,321 |         
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |         
|                           | Issuance of common stock                                                                   |  |              | 113   |       |   |         |   |         |   |              | 2,337   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 2,337    |  
|                           | Issuance of common stock   One Release
Acquisition                                        |  |              | 136   |       |   |         |   |         |   |              | 4,343   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 4,343    |  
|                           | Exercise of stock options and other                                                        |  |              | 1,787 |       |   |         | 4  |         |   |              | 10,561  |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 10,565   |  
|                           | Issuance of common stock  IRI settlement                                                  |  |              | 241   |       |   |         | 1  |         |   |              | 3,874   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 3,875    |  
|                           | Retirement of treasury shares, net purchases                                               |  |              | (753  | )     |   |         | (2 | )       |   |              | (715    | )             |   |               | 717 |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         |         |  
|                           | Stock option repricing                                                                     |  |              |      |       |   |         |   |         |   |              | (10,176 | )             |   |               |    |             |   |         | 10,176  |       |   |        |       |   |   |          |         |   |   |         |         |  
|                           | Stock-based compensation benefit                                                           |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         | (3,111  | )     |   |        |       |   |   |          |         |   |   |         | (3,111   | )
|                           | Deferred stock-based compensation
related to acquisitions                                  |  |              |      |       |   |         |   |         |   |              | (2,187  | )             |   |               |    |             |   |         | 3,202   |       |   |        |       |   |   |          |         |   |   |         | 1,015    |  
|                           | Translation adjustment                                                                     |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        | (2,036 | ) |   |          |         |   |   |         | (2,036   | )
|                           | Net change in unrealized gain / loss on
marketable securities                              |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        | 656    |   |   |          |         |   |   |         | 656      |  
|                           | Net loss                                                                                   |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          | (115,158 | ) |   |         | (115,158 | )
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |         
|BALANCE, FEBRUARY 28, 2002 |                                                                                            |  | 69,042       |       |       | $ | 138     |    |         | $ | 629,861      |         |               | $ |              |     |             | $ | (9,049  | )       |       | $ | (2,704 | )      |   | $ | (245,439 | )        |   | $ | 372,807 |         
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |         
|                           | Issuance of common stock                                                                   |  |              | 429   |       |   |         | 1  |         |   |              | 1,481   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 1,482    |  
|                           | Issuance of common stock   One Release
Acquisition                                        |  |              | 67    |       |   |         |   |         |   |              | 1,000   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 1,000    |  
|                           | Exercise of stock options                                                                  |  |              | 566   |       |   |         | 1  |         |   |              | 3,595   |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          |         |   |   |         | 3,596    |  
|                           | Stock-based compensation expense                                                           |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         | 3,426   |       |   |        |       |   |   |          |         |   |   |         | 3,426    |  
|                           | Deferred stock-based compensation
related to acquisitions and other                        |  |              |      |       |   |         |   |         |   |              | (2,136  | )             |   |               |    |             |   |         | 2,529   |       |   |        |       |   |   |          |         |   |   |         | 393      |  
|                           | Translation adjustment                                                                     |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        | 1,658  |   |   |          |         |   |   |         | 1,658    |  
|                           | Net change in unrealized gain / loss on
marketable securities                              |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        | (41    | ) |   |          |         |   |   |         | (41      | )
|                           | Net loss                                                                                   |  |              |      |       |   |         |   |         |   |              |        |               |   |               |    |             |   |         |        |       |   |        |       |   |   |          | (212,239 | ) |   |         | (212,239 | )
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |         
|BALANCE, FEBRUARY 28, 2003 |                                                                                            |  | 70,104       |       |       | $ | 140     |    |         | $ | 633,801      |         |               | $ |              |     |             | $ | (3,094  | )       |       | $ | (1,087 | )      |   | $ | (457,678 | )        |   | $ | 172,082 |         
|                           |                                                                                            |  |              |       |       |   |         |    |         |   |              |         |               |   |               |     |             |   |         |         |       |   |        |        |   |   |          |          |   |   |         |         

See accompanying notes to consolidated financial statements.

F-4



---



##### 



MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |          |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------------ | ------- | ---- | ------- | -------- | ------- | - | ------- | -------- | -------- | -
|                                                     |                                                                                           |                                                     |         | February 28,
|                                                     |                                                                                           |                                                     |         |             
|                                                     |                                                                                           |                                                     |         | 2003         |         | 2002 |         | 2001    
|                                                     |                                                                                           |                                                     |         |              |         |      |         |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |         
|                                                     | Net loss                                                                                  |                                                     | $       | (212,239     | )       |      | $       | (115,158 | )       |   | $       | (28,078  | )       
|                                                     | Adjustments to reconcile net loss to net cash
(used in) provided by operating activities: |                                                     |         |              |         |      |         |          |         |   |         |          |         
|                                                     | Depreciation and amortization                                                             |                                                     |         | 41,391       |         |      |         | 116,592  |         |   |         | 32,684   |         
|                                                     | Amortization of debt issuance costs                                                       |                                                     |         | 1,157        |         |      |         | 1,141    |         |   |         | 403      |         
|                                                     | Restructuring and other impairment charges                                                |                                                     |         | 19,184       |         |      |         | 6,612    |         |   |         |         |         
|                                                     | Goodwill impairment                                                                       |                                                     |         | 96,349       |         |      |         |         |         |   |         |         |         
|                                                     | Purchased research and development and acquisition-related expenses                       |                                                     |         | 3,800        |         |      |         |         |         |   |         | 9,724    |         
|                                                     | Deferred income taxes                                                                     |                                                     |         | 20,350       |         |      |         | (28,168  | )       |   |         | 1,077    |         
|                                                     | Non-cash stock compensation expense (benefit)                                             |                                                     |         | 3,426        |         |      |         | (3,111   | )       |   |         | 12,801   |         
|                                                     | Loss on investments                                                                       |                                                     |         | 41           |         |      |         | 10,561   |         |   |         |         |         
|                                                     | Other                                                                                     |                                                     |         | (47          | )       |      |         | 1,552    |         |   |         | 278      |         
|                                                     | Changes in assets and liabilities:                                                        |                                                     |         |              |         |      |         |          |         |   |         |          |         
|                                                     |                                                                                           | Accounts receivable                                 |         |              | 15,473  |      |         |          | 9,134   |   |         |          | (38,825  | )
|                                                     |                                                                                           | Other current assets                                |         |              | (34     | )    |         |          | 850     |   |         |          | (2,812   | )
|                                                     |                                                                                           | Other non-current assets                            |         |              | 119     |      |         |          | 1,289   |   |         |          | 619      |  
|                                                     |                                                                                           | Accounts payable                                    |         |              | (118    | )    |         |          | (3,791  | ) |         |          | 1,847    |  
|                                                     |                                                                                           | Accrued compensation                                |         |              | (7,023  | )    |         |          | (6,973  | ) |         |          | 6,096    |  
|                                                     |                                                                                           | Other liabilities                                   |         |              | (849    | )    |         |          | (4,127  | ) |         |          | 14,788   |  
|                                                     |                                                                                           | Deferred revenue                                    |         |              | (3,618  | )    |         |          | 2,015   |   |         |          | 9,356    |  
|                                                     |                                                                                           | Restructuring accrual                               |         |              | (8,037  | )    |         |          | (4,317  | ) |         |          | (4,444   | )
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|                                                     |                                                                                           | Net cash (used in) provided by operating activities |         |              | (30,675 | )    |         |          | (15,899 | ) |         |          | 15,514   |  
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |         
|                                                     | Acquisitions of businesses and acquired technology, net of cash
acquired                  |                                                     |         | (32,259      | )       |      |         | (30,951  | )       |   |         | (2,909   | )       
|                                                     | Restricted cash                                                                           |                                                     |         | (12,980      | )       |      |         |         |         |   |         |         |         
|                                                     | Sale of investment                                                                        |                                                     |         |             |         |      |         | 367      |         |   |         |         |         
|                                                     | Sales of marketable securities                                                            |                                                     |         | 3,511        |         |      |         | 102,387  |         |   |         | 35,850   |         
|                                                     | Purchases of marketable securities                                                        |                                                     |         | (2,198       | )       |      |         | (1,350   | )       |   |         | (128,244 | )       
|                                                     | Purchase of property and equipment                                                        |                                                     |         | (14,821      | )       |      |         | (10,179  | )       |   |         | (8,623   | )       
|                                                     | Investments in businesses                                                                 |                                                     |         |             |         |      |         | (10,150  | )       |   |         | (1,732   | )       
|                                                     | Capitalization and purchases of software                                                  |                                                     |         | (11,222      | )       |      |         | (13,547  | )       |   |         | (11,670  | )       
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|                                                     |                                                                                           | Net cash (used in) provided by investing activities |         |              | (69,969 | )    |         |          | 36,577  |   |         |          | (117,328 | )
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |         
|                                                     | Line of credit borrowings (repayments), net of issuance costs                             |                                                     |         | 2,830        |         |      |         |         |         |   |         | (6,000   | )       
|                                                     | Proceeds from issuance of convertible debt, net of issuance costs                         |                                                     |         |             |         |      |         | (180     | )       |   |         | 242,207  |         
|                                                     | Payments on long-term debt and capital lease obligations                                  |                                                     |         | (2,771       | )       |      |         | (310     | )       |   |         | (150     | )       
|                                                     | Proceeds from exercise of stock options and employee
stock plan purchases                 |                                                     |         | 5,078        |         |      |         | 12,902   |         |   |         | 20,181   |         
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|                                                     |                                                                                           | Net cash provided by financing activities           |         |              | 5,137   |      |         |          | 12,412  |   |         |          | 256,238  |  
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|EFFECTS OF EXCHANGE RATES ON CASH BALANCES           |                                                                                           |                                                     | 1,495   |              |         |      | (651    | )        |         |   | 135     |         
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                           |                                                     | (94,012 | )            |         |      | 32,439  |          |         |   | 154,559 |         
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       |                                                                                           |                                                     | 228,801 |              |         |      | 196,362 |          |         |   | 41,803  |         
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         
|CASH AND CASH EQUIVALENTS, END OF PERIOD             |                                                                                           | $                                                   | 134,789 |              |         | $    | 228,801 |          |         | $ | 196,362 |         
|                                                     |                                                                                           |                                                     |         |              |         |      |         |          |         |   |         |          |         

See Note 16 for supplemental cash flow information.

See accompanying notes to consolidated financial statements.


F-5



---



##### 



MANUGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

The Company

Manugistics Group, Inc. (the Company) is a leading global provider of
supply chain management and pricing and revenue optimization software. The
Company also provides supplier relationship management and service & parts
management software. Our software helps companies lower operating costs,
improve customer service, increase revenues, enhance profitability and
accelerate revenue and earnings growth.

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated. Certain prior year amounts have been
reclassified to conform with the current years financial statement
presentation.

On December 7, 2000, the Company completed a two-for-one stock split
through the issuance of a 100% stock dividend to shareholders of record as of
November 20, 2000. The accompanying consolidated financial statements, shares
outstanding, weighted average shares, amounts per share and all other
references to common stock have been restated to give effect to the stock
split.

Use of Estimates

The preparation of consolidated financial statements, in conformity with
accounting principles generally accepted in the United States of America
(GAAP), requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from these
estimates. Significant items subject to such estimates and assumptions include
the carrying amount of long-lived assets, valuation allowances for accounts
receivable and deferred tax assets, sublease income associated with the
restructuring plans, estimates to complete fixed price service arrangements and
potential litigation, claims and settlements.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of amounts in operating accounts,
money market investments and other short-term, highly liquid investments with
original maturities of three months or less. Each is recorded at cost, which
approximates market value. The Companys policy is to record short-term, highly
liquid investments as cash and cash equivalents. The balance at February 28,
2003 is comprised of $42.9 million in operating accounts, $72.4 million, with
an original maturity of three months or less, in money market investments and
$19.5 million in debt securities. The balance at February 28, 2002 is comprised
of $33.4 million in operating accounts, $86.4 million, with an original
maturity of three months or less, in money market investments and $109.0
million in debt securities.

Marketable Securities

The Companys short-term marketable securities are classified as
available-for-sale. These securities are recorded at fair value with
unrealized gains and losses reported as a component of stockholders equity and
comprehensive loss. Realized gains and losses on available-for-sale securities
are computed using the specific identification method. On February 28, 2003 and
February 28, 2002, marketable securities consisted of investments in corporate
debt, municipal bonds and other short-term investments which mature in one year
or less.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments in marketable securities and trade accounts receivable. The Company
has policies that limit investments to investment grade securities and the
amount of credit exposure to any one issuer. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for potential
credit losses. The Company does not require collateral or other security to

F-6



---



##### 



support clients receivables since most of its customers are large,
well-established companies. The Companys credit risk is also mitigated because
its customer base is diversified both by geography and industry and no single
customer accounts for more than 10% of consolidated revenue. The Company
initially records the provision for doubtful accounts based on historical
experience of write-offs and adjusts the allowance for doubtful accounts at the
end of each reporting period based on a detailed assessment of accounts
receivable. In estimating the allowance for doubtful accounts, management
considers the age of the accounts receivable, the Companys historical
write-offs, the credit worthiness of the customer, the economic conditions of
the customers industry and general economic conditions, among other factors.
Should any of these factors change, the estimates made by management will also
change, which could affect the level of the Companys future provision for
doubtful accounts.

Restricted Cash

Restricted cash is comprised of collateral for letters of credit
outstanding to secure our lease obligations for office space. The balance at
February 28, 2003 is comprised of $13.0 million, with a maturity of three
months or less, in money market investments. See Note 6.

Property and Equipment

Property and equipment is stated at cost. Furniture and fixtures are
depreciated on a straight-line basis over three to ten years. Computer
equipment and software are depreciated on a straight-line basis over two years.
Leasehold improvements are amortized over the shorter of the lease term or the
useful life of the improvements. Repairs and maintenance costs are expensed as
incurred.

Capitalized Software Development Costs

The Company capitalizes the development cost of software, other than
internal use software, in accordance with Statement of Financial Accounting
Standards No. 86 (SFAS 86), Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed. Software development costs are expensed
as incurred until technological feasibility has been established, at which time
such costs are capitalized until the product is available for general release
to clients.

Intangible Assets

Intangible assets include goodwill, customer relationships, assembled
workforce, acquired technology and software developed for internal use.
Goodwill, which is equal to the fair value of consideration paid in excess of
the fair value of the net assets purchased, has been recorded in conjunction
with several of the Companys purchase business combinations. Goodwill recorded
in purchase business combinations prior to June 30, 2001 was amortized on a
straight-line basis through February 28, 2002 over five years (see Note 12).
Customer relationships acquired in conjunction with certain of the Companys
purchase business combinations are amortized using the straight-line method
over seven years. Assembled workforce acquired in conjunction with certain of
the Companys purchase business combinations was amortized using the
straight-line method through February 28, 2002 over two years. Acquired
technology is amortized on a straight-line basis over four to six years. In
accordance with a new accounting standard issued in July 2001, we stopped
amortizing goodwill and assembled workforce, effective March 1, 2002. See New
Accounting Pronouncements.

Software Developed for Internal Use

The Company capitalizes certain costs to develop or obtain internal use
software in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position No. 98-1 (SOP 98-1), Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. These
capitalized costs are amortized on a straight-line basis over a period of two
to five years after completion or acquisition of the software. Software
developed for internal use is included in other intangible assets in our
Consolidated Balance Sheets as of February 28, 2003 and 2002.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including property and
equipment and software developed for internal use, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. When the Company determines that the
carrying value of such assets may not be recoverable, it measures any
impairment based on a projected discounted cash flow method using a discount
rate determined by management to be commensurate with the risk inherent in the
Companys current business model. In addition, at each balance sheet date, the
Company compares the net realizable value of capitalized software development
costs to the unamortized capitalized software development costs. To the extent
the unamortized capitalized costs exceed the net realizable value, the excess
amount is written off.

F-7



---



##### 



Purchased Research and Development and Acquisition-Related Expenses

Technology or business acquisitions may include the purchase of technology
that had not yet been determined to be technologically feasible and had no
alternative future use at its then-current stage of development. The portion of
the purchase price allocated to in-process research and development is expensed
immediately upon the consummation of the acquisition. In making the purchase
price allocation, we consider present value calculations of projected income,
an analysis of project accomplishments and remaining outstanding items, an
assessment of overall contributions, as well as project risks. The value
assigned to purchased in-process technology is determined by estimating the
costs to develop the acquired technology into commercially viable projects,
estimating the resulting cash flows from the projects, and discounting the net
cash flows to their present value. The revenue projection used to value the
in-process research and development is based on estimates of relevant market
sizes and growth factors, expected trends in technology, and the nature and
expected timing of new product introductions by our competitors and us as of
the acquisition date. The resulting net cash flows from such projects are based
on our estimates of cost of sales and operating expenses from such projects.

Other Non-Current Assets

Other non-current assets include deferred financing fees, net of
accumulated amortization, of $5.4 million that are being amortized over the
life of the related long-term debt.

Other Current Liabilities

Other current liabilities consist primarily of accrued interest, accrued
royalty fees, accrued restructuring obligations, accrued professional fees and
income taxes payable. No individual amounts exceed five percent of total
current liabilities.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, marketable securities,
accounts receivable and accounts payable approximate fair value due to the
short maturities of such instruments. The fair value of our convertible debt
was $131.6 million on February 28, 2003 and $176.9 million on February 28, 2002
based on market quotes.

Foreign Currency Translation and Operations

Assets and liabilities of the Companys foreign subsidiaries are
translated at the exchange rate in effect on the balance sheet date. The
related revenue and expenses are translated using the average exchange rate in
effect during the reporting period. Foreign currency translation adjustments
are disclosed as a separate component of stockholders equity and comprehensive
loss.

The Company generates revenue from sales outside the United States which
are denominated in foreign currencies, typically the local currency of the
selling business unit. There are certain economic, political, technological and
regulatory risks associated with operating in foreign countries. Foreign sales
and operations may be adversely affected by the imposition of governmental
controls, foreign currency exchange rate fluctuations and economic and
political instability.

Revenue Recognition and Deferred Revenue

The Companys revenue consists of software license revenue, services
revenue, support revenue and reimbursed expenses. Software license revenue is
recognized in accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition, as modified by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions(SOP 98-9), and
Securities and Exchange Commission (SEC) Staff Accounting Bulletin 101 (SAB
101), Revenue Recognition. Software license revenue, services revenue and
support revenue are generally recognized when the four basic criteria of SOP
97-2 and SAB 101 are met as follows:



| |  | Persuasive evidence of an arrangement exists: The Company considers a
non-cancelable agreement signed by the Company and the customer to be
evidence of an arrangement.                                                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Delivery has occurred or services have been rendered: Delivery is
considered to occur when media containing the licensed program is
provided to a common carrier FOB shipping point or, in the case of
electronic delivery, the customer is given access to the licensed
programs.
| 
| |  | Fixed or determinable fee: The Company considers the license fee to be
fixed or determinable if the fee is not subject to refund or
adjustment and is payable within 12 months from the agreement date. If
the arrangement fee is not fixed or determinable, the                  

F-8



---



##### 





|  |  | Company recognizes the revenue as amounts become due and payable. The Company
considers services fees to be fixed or determinable if the services fee or
rates for time and material contracts are not subject to refund or adjustment.                                                                                                                                                                                                                                     
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Collection is probable: The Company performs a credit review for all
significant transactions at the time the arrangement is executed to
determine the credit-worthiness of the customer. Collection is deemed
probable if the Company expects that the customer will be able to pay
amounts under the arrangement as they become due. If the Company
determines that collection is not probable, the Company defers the revenue
and recognizes the revenue upon collection.

If a software license contains customer acceptance criteria or a
cancellation right, the software revenue is deferred and recognized upon the
earlier of customer acceptance or the expiration of the acceptance period or
cancellation right. Fees are allocated to the various elements of software
license agreements using the residual method, based on vendor specific
objective evidence (VSOE) of fair value of any undelivered elements of the
arrangement. VSOE of fair value for support services is provided by the renewal
rate. VSOE of fair value for implementation services is based upon separate
sales of services at stated hourly rates by level of consultant. Under the
residual method, the Company defers revenue for the fair value of its
undelivered elements based on VSOE of fair value and the remaining portion of
the arrangement fee is allocated to the delivered elements and recognized as
revenue when the basic criteria in SOP 97-2 and SAB 101 have been met.

Typically, payments for software licenses are due within twelve months
from the agreement date. Where software license agreements call for payment
terms of twelve months or more from the agreement date, software revenue is
recognized as payments become due and all other conditions for revenue
recognition have been satisfied. When we provide services that are considered
essential to the functionality of software products licensed or if the licensed
software requires significant production, modification or customization, we
recognize revenue on a percentage-of-completion basis in accordance with SOP
81-1, Accounting for Performance of Construction Type and Certain Production
Type Contracts. In these cases, software revenue is deferred and recognized
based on labor hours incurred to date compared to total estimated labor hours
for the contract.

Implementation services are separately priced and sold, are generally
available from a number of suppliers and typically are not essential to the
functionality of our software products. Implementation services, which include
project management, systems planning, design and implementation, customer
configurations and training are typically billed on an hourly basis (time and
materials) and sometimes under fixed price contracts. Implementation services
are generally billed on an hourly basis and are recognized as the work is
performed. On fixed price contracts, services revenue is recognized using the
percentage-of-completion method of accounting by relating labor hours incurred
to date to total estimated labor hours. In the event services are billed in
advance of work being performed, the billed amount is initially recorded as
deferred services revenue and recognized as services revenue when the work is
performed.

Support revenue includes post-contract customer support and the rights to
unspecified software upgrades and enhancements. Customer support is generally
billed annually, initially recorded as deferred revenue and recognized as
support revenue ratably over the support period.

Payments received or billed in advance of recognizing revenue are
classified as deferred revenue in the Consolidated Balance Sheets and consist
of deferred support, services and software revenue.

Advertising

Advertising and promotional costs are expensed as incurred. Advertising
and promotional expense is included in sales and marketing expense and amounted
to $10.7 million, $13.2 million and $13.2 million in fiscal 2003, 2002 and
2001, respectively.

Provision for (Benefit From) Income Taxes

The provision for (benefit from) income taxes is the total of the current
year income tax due or refundable and the change in deferred tax assets and
liabilities. The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. The
Company assesses the likelihood that its deferred tax assets will be recovered
from its future taxable income, and to the extent the Company believes that
recovery is not likely, it establishes a valuation allowance. The Company
considers historical taxable income, estimates of future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the amount of
the valuation allowance. Adjustments could be required in the future if the
Company determines that the amount to be realized is greater or less than the
valuation allowance it has recorded. Based on various factors, including the
Companys cumulative losses for fiscal 2001, 2002 and 2003 when adjusted for
non-recurring items, the size of the Companys loss for fiscal 2003 and
estimates of future profitability, management has concluded that future taxable
income will, more

F-9



---



##### 



likely than not, be insufficient to recover its net deferred tax assets. Based
on the weight of positive and negative evidence regarding recoverability of its
deferred tax assets, the Company recorded a valuation allowance for the full
amount of its net deferred tax assets, which resulted in a $20.4 million charge
to income tax expense in fiscal 2003. Management will continue to monitor its
estimates of future profitability and realizability of its net deferred tax
assets based on evolving business conditions.

Net Loss Per Share

Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted net loss per share is computed
using the weighted average number of shares of common stock and, when dilutive,
potential common shares from options and warrants to purchase common stock
using the treasury stock method and the effect of the assumed conversion of the
Companys convertible subordinated debt. The dilutive effect of options and
warrants of 1.9 million, 5.6 million and 7.6 million shares has not been
considered in the computation of diluted loss per share in fiscal 2003, 2002
and 2001, respectively, because including these shares would be anti-dilutive
due to the Companys reported net loss. The assumed conversion of the Companys
convertible debt was excluded from the computation of diluted net loss per
share for fiscal 2003, 2002 and 2001 since it was anti-dilutive.

Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations using the intrinsic value
based method of accounting. If the Company accounted for its stock-based
compensation plan using the fair value based method of accounting in accordance
with the provisions as required by Statement of Financial Accounting Standards
No. 123 (SFAS 123), Accounting for
Stock-Based Compensation, as amended by
Statement of Financial Accounting Standards No. 148 (SFAS 148), Accounting
for Stock-Based Compensation  Transition and Disclosure, the Companys net
loss and loss per basic and diluted share amounts would have been as follows,
in thousands except per share amounts:

|                                                                                |  |              |          |      |  |      |          |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------ | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                                |  | February 28,
|                                                                                |  |             
|                                                                                |  | 2003         |          | 2002 |  | 2001
|                                                                                |  |              |          |      |  |     
|Net loss, as reported                                                           |  | $            | (212,239 | )    |  | $    | (115,158 | ) |  | $ | (28,078 | )
|Add: Stock-based compensation expense
included in reported net loss, net of tax |  |              | 3,426    |      |  |      | (3,111   | ) |  |   | 12,801  |  
|Less: Stock-based compensation, net of tax                                      |  |              | (26,564  | )    |  |      | (63,948  | ) |  |   | (60,037 | )
|                                                                                |  |              |          |      |  |      |          |   |  |   |         |  
|Pro forma net loss                                                              |  |              | (235,377 | )    |  | $    | (182,217 | ) |  | $ | (75,314 | )
|Basic and diluted loss per share, as reported                                   |  | $            | (3.04    | )    |  | $    | (1.69    | ) |  | $ | (0.48   | )
|Basic and diluted loss per share, pro forma                                     |  | $            | (3.37    | )    |  | $    | (2.68    | ) |  | $ | (1.28   | )

The Company adopted FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation (FIN 44) effective July 1, 2000.
In accordance with FIN 44, repriced stock options are accounted for as
compensatory options using variable accounting treatment (see Note 8). In
addition, deferred compensation is recorded for the intrinsic value of unvested
stock options exchanged in a purchase business combination (see Note 8 and Note
12) and amortized over the vesting period.

New Accounting Pronouncements

On March 1, 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 141 (SFAS 141) Business Combinations,
and Statement of Financial Accounting Standards No. 142 (SFAS 142) Goodwill
and Other Intangible Assets, with the exception of the immediate requirement
to use the purchase method of accounting for all business combinations
initiated after June 30, 2001. SFAS 141 establishes new standards for
accounting and reporting for business combinations and requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS 142 requires goodwill and certain intangible assets
to remain on the balance sheet and not be amortized. Therefore, the Company
stopped amortizing goodwill, including goodwill recorded in past business
combinations, on March 1, 2002. In addition, SFAS 142 requires assembled
workforce and certain other identifiable intangible assets to be reclassified
as goodwill. On an annual basis, and when there is reason to suspect that
values may have been impaired, goodwill must be tested for impairment and
write-downs may be necessary. SFAS 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. SFAS 142 also requires
recognized intangible assets with finite lives to be amortized over their
respective estimated useful lives and reviewed for impairment

F-10



---



##### 



in accordance with Statement of Financial Accounting Standards No. 144 (SFAS
144) Accounting for the Impairment of Long-Lived Assets.

SFAS 142 required the Company to perform an assessment of whether there
was an indication that goodwill was impaired at the date of adoption. To
accomplish this, the Company was required to identify its reporting units and
determined the carrying value of each reporting unit by assigning the assets
and liabilities, including existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The first test for potential
impairment requires the Company to determine the fair value of each reporting
unit and compare it to the reporting units carrying amount. To the extent the
reporting units carrying amount exceeds its fair value, an indication exists
that the reporting units goodwill may be impaired and the Company must perform
the second step of the impairment test. In the second step, the Company must
compare the implied fair value (which includes factors such as, but not limited
to, the Companys market capitalization, control premium and recent stock price volatility) of the
reporting units goodwill, determined by allocating the reporting units fair
value to all of its assets and liabilities in a manner similar to a purchase
price allocation in accordance with SFAS 141, to its carrying amount, both of
which would be measured as of the date of adoption.

The Company performed the initial goodwill impairment test required by
SFAS 142 during the first quarter of fiscal 2003. The Company considers itself
to have a single reporting unit. Accordingly, all of our goodwill is associated
with the entire Company. As of March 1, 2002, based on the Companys implied
fair value, there was no impairment of goodwill.

During the quarters ended August 31, 2002 and November 30, 2002, we
experienced adverse changes in our stock price resulting from a decline in our
financial performance and adverse business conditions that have affected the
technology industry, especially application software companies. Based on these
factors, we performed a test for goodwill impairment at August 31, 2002 and
November 30, 2002 and determined that based upon the implied fair value (which
includes factors such as, but not limited to, the Companys market
capitalization, control premium and recent stock price volatility) of the Company as of August 31, 2002
and November 30, 2002, there was no impairment of goodwill.

We performed another test for goodwill impairment as of February 28, 2003,
our annual date for goodwill impairment review, and determined that our implied
fair value was less than stockholders equity, including goodwill, an
indication that goodwill may be impaired. Therefore, we performed the second
step of the impairment test. As a result, we recorded a goodwill impairment
charge of $96.3 million to reduce goodwill associated with our acquisitions to
their estimated fair value as of that date. The goodwill impairment loss was
determined by calculating the difference between: a) our implied fair value as
of February 28, 2003 less the fair value of our net assets and b) the carrying
value of goodwill. Our implied fair value was estimated based on the closing
quoted market price of our common stock on February 28, 2003 multiplied by the
number of outstanding common shares (market capitalization) plus an implied
control premium as if we were
100% owned by a single stockholder.

We will continue to test goodwill for impairment on an annual basis,
coinciding with our fiscal year end, or on an interim basis if circumstances
change that would more likely than not reduce the fair value of our reporting
unit below its carrying value. If our stock price decreases to levels such that
the implied fair value of the Company is significantly less than stockholders
equity for a sustained period of time, among other factors, we may be required
to record additional impairment losses related to goodwill below its carrying
amount. We will perform a test for goodwill impairment at February 28, 2004,
which is our annual date for goodwill impairment review, or earlier if
conditions are present which may indicate an impairment (see Note 5).

Effective March 1, 2002, as required by SFAS 142, we have ceased
amortization of goodwill associated with acquisitions completed prior to July
1, 2001. Goodwill and intangible assets acquired in business combinations
initiated before July 1, 2001 were amortized until February 28, 2002. SFAS 142
does not require the restatement of prior period earnings, but does require
transitional disclosure for earnings per share and adjusted net income under
the revised rules (see Note 5).

On March 1, 2002, the Company adopted the provisions of SFAS 144. SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121 (SFAS 121) Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, but retains the
fundamental provisions of SFAS 121 for (i) recognition/measurement of
impairment of long-lived assets to be held and used and (ii) measurement of
long-lived assets to be disposed of by sale. SFAS 144 also supersedes the
accounting and reporting provisions of Accounting Principles Boards Opinion
No. 30 (APB 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, for segments of a business to
be disposed of but retains APB 30s requirement to report discontinued
operations separately from continuing operations and extends that reporting
requirement to a component of an entity that either has been disposed of or is
classified as held for sale. Adoption of this standard did not have a material
impact on the Companys consolidated financial statements.

F-11



---



##### 



On March 1, 2002, the Company adopted the provisions of Staff Announcement
Topic No. D-103 Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred, which was subsequently incorporated in
Emerging Issues Task Force No. 01-14 (EITF 01-14). EITF 01-14 establishes
that reimbursements received for out-of-pocket expenses such as airfare,
hotel stays and similar costs should be characterized as revenue in the income
statement. Adoption of the guidance had the resulting effect of increased
revenue and increased operating expenses. Prior to our adoption of this
standard, the Company recorded out-of-pocket expense reimbursements as a
reduction of cost of services. Accordingly, the Company reclassified these
amounts to revenue in our comparative financial statements beginning in our
first quarter of fiscal 2003. Application of EITF 01-14 did not result in any
net impact to operating income or net income in any past periods and will not
result in any net impact in future periods.

In June 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses
the recognition, measurement and reporting of costs associated with exit and
disposal activities (i.e., restructuring activities), including costs related
to terminating a contract that is not a capital lease and termination benefits
due to employees who are involuntarily terminated under the terms of a one-time
benefit arrangement.

SFAS 146 supersedes EITF 94-3 and EITF 88-10 and therefore prohibits
recognition of a liability based solely on an entitys commitment to a plan to
exit an activity. SFAS 146 requires that: (i) liabilities associated with exit
and disposal activities be measured at fair value and changes in the fair value
of the liability at each reporting period be measured using an interest
allocation approach; (ii) one-time termination benefits be expensed at the date
the entity notifies the employee, unless the employee must provide future
service, in which case the benefits are expensed ratably over the future
service period; (iii) liabilities to terminate a contract be recorded at fair
value when the contract is terminated; (iv) liabilities related to an existing
operating lease, unless terminated, be recorded at fair value, less estimated
sublease income, and measured when the contract does not have any future
economic benefit to the entity (i.e., the entity ceases to utilize the rights
conveyed by the contract); and (v) all other costs related to an exit or
disposal activity be expensed as incurred.

SFAS 146 is effective for exit or disposal activities initiated after
December 31, 2002. Retroactive application of SFAS 146 is prohibited and,
accordingly, liabilities recognized prior to the initial application of SFAS
146 must continue to be accounted for in accordance with EITF 94-3, EITF 88-10
or other applicable pre-existing guidance. Accordingly, the Company will
continue to account for its restructuring obligations recorded prior to
December 31, 2002 in accordance with EITF 94-3, EITF 88-10 or other applicable
pre-existing guidance. The Company recorded a restructuring charge during the quarter ending February 28, 2003. Adoption of SFAS 146
did not have a material effect on the restructuring charge reported or on the Companys operating performance or financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (Interpretation 45). Interpretation 45
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit, and provides new
disclosure requirements regarding indemnification provisions, including
indemnification provisions typically included in a software license
arrangement. It also clarifies that at the time a guarantee is issued, the
Company must recognize an initial liability for the fair value of the
obligations it assumes under the guarantee and must disclose that information
in its financial statements. The provisions related to recognizing a liability
at inception of the guarantee do not apply to product warranties,
indemnification provisions in the Companys software license arrangements, or
to guarantees accounted for as derivatives. The initial recognition and
measurement provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002, and the disclosure requirements apply to
interim periods ending after December 15, 2002. Adoption of Interpretation 45
will not have a material affect on the Companys operating performance or
financial condition.

In December 2002, SFAS 148 was issued. SFAS 148 amends SFAS 123 to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based compensation. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method used on the
reported results. The disclosure provisions of SFAS 148 are effective for
financial statements for fiscal years ending after December 15, 2002 and
interim periods beginning after December 15, 2002. The adoption of this
statement did not impact the Companys operating performance or financial
condition.

2. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents are comprised of amounts in operating accounts,
money market investments and other short-term, highly liquid investments with
original maturities of three months or less. Marketable securities mature in
one year or less. The following is a summary of cash, cash equivalents and
marketable securities as of February 28, 2003 and 2002 (in thousands):

F-12



---



##### 



|                                                           |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |        | 
|---------------------------------------------------------- | ----------------------- | ---- | ---------- | ------ |  | ---- | - | ------ |  |  | - | - |  | - | ------- | ------ | 
|                                                           |                         |      | Unrealized
|                                                           |                         |      |           
|February 28, 2003                                          |                         | Cost |            | Gain   |  | Loss |   | Market
|                                                           |                         |      |            |        |  |      |   |       
|Cash and cash equivalents:                                 |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       
|                                                           | Cash                    |      | $          | 42,931 |  |      |   |       |  |  |   |  |  |   | $       | 42,931 | 
|                                                           | Certificates of deposit |      |            |       |  |      |   |       |  |  |   |  |  |   |         |       | 
|                                                           | Money market funds (1)  |      |            | 72,358 |  |      |   |       |  |  |   |  |  |   |         | 72,358 | 
|Auction rate securities:                                   |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       
|                                                           | Corporate notes         |      |            | 4,500  |  |      |   |        |  |  |   |   |  |   |         | 4,500  | 
|                                                           | US treasury and agency  |      |            | 15,000 |  |      |   |       |  |  |   |  |  |   |         | 15,000 | 
|                                                           |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |        | 
|Total auction rate securities                              |                         |      | 19,500     |        |  |      |  |        |  |  |  |   |  |   | 19,500  |       
|Total cash and cash equivalents                            |                         |      | 134,789    |        |  |      |  |        |  |  |  |   |  |   | 134,789 |       
|                                                           |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |        | 
|Marketable securities                                      |                         |      | 2,946      |        |  |      |  |        |  |  |  |   |  |   | 2,946   |       
|Total cash, cash equivalents
and marketable securities (1) |                         | $    | 137,735    |        |  |      |  |        |  |  |  |   |  | $ | 137,735 |       
|                                                           |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |        | 

|                                                       |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |        | 
|------------------------------------------------------ | ----------------------- | ---- | ---------- | ------ |  | ---- | - | ------ |  |  | - | - |  | - | ------- | ------ | 
|                                                       |                         |      | Unrealized
|                                                       |                         |      |           
|February 28, 2002                                      |                         | Cost |            | Gain   |  | Loss |   | Market
|                                                       |                         |      |            |        |  |      |   |       
|Cash and cash equivalents:                             |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       
|                                                       | Cash                    |      | $          | 33,375 |  |      |   |       |  |  |   |  |  |   | $       | 33,375 | 
|                                                       | Certificates of deposit |      |            | 2,953  |  |      |   |       |  |  |   |  |  |   |         | 2,953  | 
|                                                       | Money market funds      |      |            | 83,496 |  |      |   |       |  |  |   |  |  |   |         | 83,496 | 
|Auction rate securities:                               |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       
|                                                       | Corporate notes         |      |            | 65,000 |  |      |   |        |  |  |   |   |  |   |         | 65,000 | 
|                                                       | US treasury and agency  |      |            | 43,977 |  |      |   |       |  |  |   |  |  |   |         | 43,977 | 
|                                                       |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       
|Total auction rate securities                          |                         |      | 108,977    |        |  |      |  |        |  |  |  |   |  |   | 108,977 |       
|Total cash and cash equivalents                        |                         |      | 228,801    |        |  |      |  |        |  |  |  |   |  |   | 228,801 |       
|                                                       |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       
|Marketable securities                                  |                         |      | 4,259      |        |  |      |  |        |  |  |  |   |  |   | 4,259   |       
|Total cash, cash equivalents
and marketable securities |                         | $    | 233,060    |        |  |      |  |        |  |  |  |   |  | $ | 233,060 |       
|                                                       |                         |      |            |        |  |      |   |        |  |  |   |   |  |   |         |       



---

|(1) |  | Does not include $13.0 million of restricted cash invested in money
market funds as of February 28, 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

|                                |       |                     |              |   |        |   |              |        |        |   |         |        | 
|------------------------------- | ----- | ------------------- | ------------ | - | ------ | - | ------------ | ------ | ------ | - | ------- | ------ | 
|                                |       |                     |              |   |        |   | February 28,
|                                |       |                     |              |   |        |   |             
|                                |       |                     | Useful lives |   | 2003   |   | 2002        
|                                |       |                     |              |   |        |   |             
|Computer equipment and software |       | Two years           |              | $ | 26,207 |   |              | $      | 36,277 |  
|Office furniture and equipment  |       | Three to ten years  |              |   | 16,644 |   |              |        | 13,508 |  
|Leasehold improvements          |       | Shorter of lease    |              |   | 14,467 |   |              |        | 9,777  |  
|                                |       | term or useful life |              |   |        |   |              |        |        |  
|                                |       | of the improvements |              |   |        |   |              |        |        |  
|                                | Total |                     |              |   |        |   |              | 57,318 |        |   |         | 59,562 | 
|Less: accumulated depreciation  |       |                     |              |   |        |   | (26,088      | )      |        |   | (36,690 | )     
|                                |       |                     |              |   |        |   |              |        |        |   |         |       
|Total property and equipment    |       |                     |              |   |        | $ | 31,230       |        |        | $ | 22,872  |       
|                                |       |                     |              |   |        |   |              |        |        |   |         |       

Depreciation expense for fiscal 2003, 2002 and 2001 was approximately $8.2
million, $9.8 million and $7.0 million, respectively.

|                                                                                  |  | 
|--------------------------------------------------------------------------------- |  | 
|4. CAPITALIZED SOFTWARE DEVELOPMENT COSTS AND SOFTWARE DEVELOPED FOR INTERNAL USE

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

The Company capitalizes costs incurred in the development of its software
products for commercial availability. Software development costs include
certain internal development costs and purchased software license costs for
products used in the development of the Companys products. Costs incurred
prior to establishing technological feasibility are charged to product
development expense as incurred. Software development costs are amortized using
the straight-line method over the estimated

F-13



---



##### 



economic life of the product, commencing with the date the product is first
available for general release. Generally, an economic life of two years is
assigned to capitalized software development costs.

The Company capitalized software development costs of $10.5 million, $10.5
million and $8.9 million and recorded related amortization expense of $11.6
million, $11.4 million and $9.5 million for fiscal 2003, 2002 and 2001,
respectively, in accordance with SFAS 86.

The total amortization expense for the Companys capitalized software
development costs for fiscal 2003, 2002 and 2001 include write-offs totaling
approximately $1.2 million, $1.5 million and $0.4 million, respectively, of
previously capitalized software development costs. These capitalized costs were
deemed to exceed their future net realizable value as a result of new
technologies developed by the Company and acquired in connection with
acquisitions.

In addition, the Company recorded amortization expense of $2.5 million,
$1.8 million and $0.7 million for fiscal 2003, 2002 and 2001, respectively,
related to purchased software licenses.

SOFTWARE DEVELOPED FOR INTERNAL USE

The Company capitalized purchased licensed software and internally
developed software costs, excluding amounts acquired, of $0.5 million, $3.1
million and $2.8 million and recorded related amortization of $1.6 million,
$1.0 million and $0.5 million for fiscal 2003, 2002 and 2001, respectively, in
accordance with SOP 98-1. Costs associated with software developed for internal
use are capitalized as they are incurred and presented as a component of other
intangible assets on the consolidated balance sheets.

During fiscal 2003 the Company wrote-off approximately $1.4 million of
previously capitalized software developed for internal use (see Note 14).

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

|                               |  |              |         |      |  |   |         |  
|------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | -
|                               |  | February 28,
|                               |  |             
|                               |  | 2003         |         | 2002
|                               |  |              |         |     
|Acquired technology            |  | $            | 65,454  |      |  | $ | 46,639  |  
|Less: accumulated amortization |  |              | (24,222 | )    |  |   | (10,553 | )
|                               |  |              |         |      |  |   |         |  
|Acquired technology, net       |  | $            | 41,232  |      |  | $ | 36,086  |  
|                               |  |              |         |      |  |   |         |  
|Customer relationships         |  |              | 29,012  |      |  |   | 22,438  |  
|Assembled workforce            |  |              |        |      |  |   | 19,469  |  
|Other                          |  |              | 4,947   |      |  |   | 5,783   |  
|                               |  |              |         |      |  |   |         |  
|Total                          |  |              | 33,959  |      |  |   | 47,690  |  
|Less: accumulated amortization |  |              | (10,887 | )    |  |   | (17,672 | )
|                               |  |              |         |      |  |   |         |  
|Other intangibles, net         |  | $            | 23,072  |      |  | $ | 30,018  |  
|                               |  |              |         |      |  |   |         |  

The changes in the carrying amount of goodwill for fiscal 2003 are as
follows (amounts in thousands):

|                                |                                                                 |   |            |         |  
|------------------------------- | --------------------------------------------------------------- | - | ---------- | ------- | -
|                                |                                                                 |   | Net Assets
|                                |                                                                 |   |           
|Balance as of February 28, 2002 |                                                                 | $ | 269,998    |        
|                                | Goodwill impairment charge                                      |   |            | (96,349 | )
|                                | Reclassification of assembled workforce as required by SFAS 142 |   |            | 7,101   |  
|                                | WDS and DFE acquisitions (see Note 12)                          |   |            | 5,747   |  
|                                | Other                                                           |   |            | 941     |  
|                                |                                                                 |   |            |        
|Balance as of February 28, 2003 |                                                                 | $ | 187,438    |        
|                                |                                                                 |   |            |        

Amortization expense related to goodwill and other intangible assets was
$17.5 million, $95.4 million and $16.2 million during fiscal 2003, 2002 and
2001, respectively. During fiscal 2003, the Company recorded a goodwill
impairment charge of approximately $96.3 million. Estimated aggregate future
amortization expense for intangible assets in future fiscal years are as
follows (amounts in thousands):

F-14



---



##### 



|                     |  |                                       |         |      |  |      |         |      |  |      |         |            |  |       |         |  |  |  |        |  |  |  |        |  |  |  |         | 
|-------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------- | 
|                     |  | Fiscal Year Ending February 28 or 29,
|                     |  |                                      
|                     |  | 2004                                  |         | 2005 |  | 2006 |         | 2007 |  | 2008 |         | Thereafter |  | Total
|                     |  |                                       |         |      |  |      |         |      |  |      |         |            |  |      
|Amortization expense |  |                                       | $19,178 |      |  |      | $17,885 |      |  |      | $11,177 |            |  |       | $10,181 |  |  |  | $4,739 |  |  |  | $1,144 |  |  |  | $64,304 | 

In accordance with SFAS 142, the assembled workforce intangible asset was
reclassified to goodwill and the Company no longer amortizes goodwill effective
March 1, 2002.

Summarized below are the effects on net loss and net loss per share data,
if the Company had followed the amortization provisions of SFAS 142 for all
periods presented (amounts in thousands, except per share data):

|                                                            |                                                                  |   |                                        |          |      |   |         |          |   |   |         |         |  
|----------------------------------------------------------- | ---------------------------------------------------------------- | - | -------------------------------------- | -------- | ---- | - | ------- | -------- | - | - | ------- | ------- | -
|                                                            |                                                                  |   | For the fiscal year ended February 28,
|                                                            |                                                                  |   |                                       
|                                                            |                                                                  |   | 2003                                   |          | 2002 |   | 2001   
|                                                            |                                                                  |   |                                        |          |      |   |        
|Net loss:                                                   |                                                                  |   |                                        |          |      |   |         |          |   |   |         |        
|                                                            | As reported                                                      |   | $                                      | (212,239 | )    |   | $       | (115,158 | ) |   | $       | (28,078 | )
|                                                            | Add: goodwill and assembled workforce
amortization, net of taxes |   |                                        |         |      |   |         | 77,394   |   |   |         | 13,317  |  
|                                                            |                                                                  |   |                                        |          |      |   |         |          |   |   |         |         |  
|Net loss, pro forma                                         |                                                                  | $ | (212,239                               | )        |      | $ | (37,764 | )        |   | $ | (14,761 | )      
|                                                            |                                                                  |   |                                        |          |      |   |         |          |   |   |         |         |  
|Basic and diluted loss per share:                           |                                                                  |   |                                        |          |      |   |         |          |   |   |         |        
|                                                            | As reported                                                      |   | $                                      | (3.04    | )    |   | $       | (1.69    | ) |   | $       | (0.48   | )
|                                                            | Add: goodwill and assembled workforce
amortization, net of taxes |   |                                        |         |      |   | $       | 1.14     |   |   | $       | 0.23    |  
|                                                            |                                                                  |   |                                        |          |      |   |         |          |   |   |         |         |  
|Basic and diluted loss per share, pro forma                 |                                                                  | $ | (3.04                                  | )        |      | $ | (0.55   | )        |   | $ | (0.25   | )      
|                                                            |                                                                  |   |                                        |          |      |   |         |          |   |   |         |         |  
|Shares used in basic and diluted loss per
share calculation |                                                                  |   | 69,768                                 |          |      |   | 67,986  |          |   |   | 58,955  |        
|                                                            |                                                                  |   |                                        |          |      |   |         |          |   |   |         |         |  

Please refer to Note 1 for further discussion of SFAS 142.

GOODWILL IMPAIRMENT

On March 1, 2002, the Company adopted the provisions of SFAS 142, which
requires assembled workforce and certain other identifiable intangible assets
to be reclassified as goodwill. On an annual basis, and when there is reason to
suspect that values may have been impaired, goodwill must be tested for
impairment and write-downs may be necessary. During the quarters ended August
31, 2002 and November 30, 2002, the Company experienced adverse changes in its
stock price resulting from a decline in our financial performance and adverse
business conditions that have affected the technology industry, especially
application software companies. Based on these factors, the Company performed a
test for goodwill impairment at August 31, 2002 and November 30, 2002 and
determined that based upon the implied fair value (which includes factors such
as, but not limited to, the Companys market capitalization, control premium and recent stock price
volatility) of the Company as of August 31, 2002 and November 30, 2002, there
was no impairment of goodwill.

The Company performed another test for goodwill impairment as of February
28, 2003, the Companys annual date for goodwill impairment review and
determined the implied fair value of the Company was less than stockholders
equity, including goodwill, an indication that goodwill may be impaired.
Therefore, the Company performed the second step of the impairment test. As a
result, the Company recorded a goodwill impairment charge of $96.3 million to
reduce goodwill associated with acquisitions to their estimated fair value as
of that date. The goodwill impairment loss was determined by calculating the
difference between: a) the implied fair value of the Company as of February 28,
2003 less the fair value of the net assets of the Company and b) the carrying
value of goodwill. The fair value of the identifiable intangible assets of the Company were determined by an independent valuation. The implied fair value of the Company was estimated based on
the closing quoted market price of the Companys common stock on February 28,
2003 multiplied by the number of outstanding common shares (market
capitalization) plus an implied control premium as if the Company were 100% owned by a single stockholder. The implied control premium used for purposes of measuring the implied fair value of the Company
was determined by review of the premiums paid by other companies in past public technology and software acquisitions.

The Company will continue to test for impairment on an annual basis,
coinciding with our fiscal year end, or on an interim basis if circumstances
change that would more likely than not reduce the implied fair value of the
Company below its carrying value.

6. LONG-TERM DEBT

5% Convertible Subordinated Notes. The Company completed a private
placement of $250.0 million of 5% convertible subordinated notes (the Notes)
in October and November 2000. The Notes bear interest at 5.0% per annum which
is payable semi-annually. The fair market value of the Notes was $131.6 million
and $176.9 million on February 28, 2003 and February 28, 2002,

F-15



---



##### 



respectively, based on a market quote. The Notes mature in November 2007 and
are convertible into approximately 5.7 million shares of the Companys common
stock at a conversion price of $44.06, subject to adjustment under certain
conditions. The conversion price of the Notes will be adjusted in the event
that we issue our common stock as a dividend or distribution with respect to
our common stock, we subdivide, combine or reclassify our common stock, we
issue rights to our common stockholders to purchase our common stock at less
than market price, we make certain distributions of securities, cash or other
property to our common stockholders (other than ordinary cash dividends), or we
make certain repurchases of our common stock. Upon a change of control of the
Company, the holders of the Notes would have the right to require the Company
or its successor to repurchase the Notes at a purchase price equal to 100% of
the principal amount, plus accrued and unpaid interest to the date of
repurchase in cash. The Notes do not have any financial covenants.

At any time on or after November 7, 2003, the Company may redeem, from
time to time, the Notes in whole, or in part, at the Companys option.
Redemption can be made on at least 30 days notice if the trading price or the
Companys common stock for 20 trading days in a period of 30 consecutive
trading days ending on the day prior to the mailing of notice of redemption
exceeds 120% of the conversion price of the Notes. The redemption price,
expressed as a percentage of the principal amount, is:

|                                          |  |                  |     |  
|----------------------------------------- |  | ---------------- | --- | -
|Redemption Period                         |  | Redemption Price
|                                          |  |                 
|November 7, 2003 through October 31, 2004 |  |                  | 103 | %
|November 1, 2004 through October 31, 2005 |  |                  | 102 | %
|November 1, 2005 through October 31, 2006 |  |                  | 101 | %
|November 1, 2006 through maturity         |  |                  | 100 | %

Line of Credit  The Company has a one-year unsecured revolving credit
facility with Silicon Valley Bank (SVB.) The current agreement expires
January 31, 2004. Under its terms, the Company may request cash advances,
letters of credit or both. The Company may make borrowings under the facility
for short-term working capital purposes. The credit facility requires us to
comply with the following financial covenants: (i) minimum tangible net worth
must be greater than $150.0 million as of February 28, 2003, with future
quarters covenants to be determined during the first quarter of fiscal 2004;
and ii) a ratio of (a) cash and cash equivalents deposited with SVB and its
affiliates plus accounts receivable to (b) current liabilities plus long-term
indebtedness to SVB and outstanding letters of credit minus deferred revenue,
of at least a ratio of 2.0 to 1.0.

In addition, the SVB credit facility requires the Company to maintain
$70.0 million in funds with SVB and its affiliates. The credit facility also
restricts the amount of additional debt the Company can incur and restricts the
amount of cash that the Company can use for acquisitions and for the repurchase
of convertible debt. Under terms of the SVB credit facility, the Company
maintains the right to terminate the facility at any time upon repayment of any
advances and the posting of cash collateral for any outstanding letters of
credit. Under the loan documents for the credit facility, SVB has the right to
obtain a lien on all of the Companys assets upon an occurrence of default,
unless the Company terminates the facility as provided above. The credit
facility also provides that the Company is prohibited from paying a cash
dividend if it is in default or would be in default of the loan agreement as a
result of payment of the dividend or if it would not be in compliance with the
financial covenants after the payment. As of February 28, 2003, the Company had
$1.1 million in letters of credit outstanding under this line to secure its
lease obligations for office space. The Company was in compliance of all
financial covenants as of February 28, 2003.

Prior to entering into our credit facility agreement with SVB, the Company
had a credit facility agreement with Bank of America (BOA) that expired on
February 26, 2003.

The Company had $13.0 million in outstanding letters of credit with BOA as
of February 28, 2003 which are fully collateralized. This cash collateral is
presented as restricted cash in our consolidated balance sheet as of February
28, 2003. The cash restriction will be eliminated once all outstanding letters
of credit have been transferred to SVB. In March 2003 $9.3 million outstanding
letters of credit with BOA were transferred to SVB.

In April 2002, the Company entered into a credit agreement with SVB, as
amended, under which the Company could borrow up to $5.0 million for the
purchase of equipment. Amounts borrowed under the facility accrue interest at a
rate equal to the greater of the three-year treasury note rate plus 5% or
8.25%, and are repaid monthly over a 36 month period. During fiscal 2003, the
Company borrowed $2.9 million under this credit facility. The facility allowed
for borrowings through March 31, 2003. We were in compliance with all financial
covenants as of February 28, 2003.

F-16



---



##### 



7. COMMITMENTS AND CONTINGENCIES

Commitments  The Company leases office space, office equipment and
automobiles under operating leases and various computers and other equipment
under capital leases. Aggregate property acquired through capital leases
amounted to $7.7 million and $4.1 million at February 28, 2003 and February 28,
2002, respectively, and has been included in software and office furniture and equipment
(see Note 3). Total accumulated amortization relating to these leases was $1.5
million and $1.3 million as of February 28, 2003 and February 28, 2002,
respectively.

Rent expense for fiscal 2003, 2002 and 2001, was approximately $27.5
million, $23.6 million and $17.2 million, respectively. The future minimum
lease payments under these capital and operating leases for each of the
succeeding fiscal years beginning March 1, 2003 are as follows (in thousands):

|                                            |  |         |       |           |  |   |         |  
|------------------------------------------- |  | ------- | ----- | --------- |  | - | ------- | -
|                                            |  | Capital |       | Operating
|Fiscal Year                                 |  | Leases  |       | Leases   
|                                            |  |         |       |          
|2004                                        |  | $       | 2,179 |           |  | $ | 19,096  |  
|2005                                        |  |         | 1,364 |           |  |   | 16,522  |  
|2006                                        |  |         | 1,321 |           |  |   | 15,406  |  
|2007                                        |  |         | 546   |           |  |   | 14,583  |  
|2008                                        |  |         |      |           |  |   | 12,959  |  
|Thereafter                                  |  |         |      |           |  |   | 53,539  |  
|                                            |  |         |       |           |  |   |         |  
|Total minimum lease payments                |  |         | 5,410 |           |  |   | 132,105 |  
|Less amounts representing interest          |  |         | (428  | )         |  |   |        |  
|Less sublease income                        |  |         |      |           |  |   | (1,821  | )
|                                            |  |         |       |           |  |   |         |  
|Present value of net minimum lease payments |  | $       | 4,982 | (1)       |  | $ | 130,284 |  
|                                            |  |         |       |           |  |   |         |  



---

|(1) |  | Approximately $2.0 million and $3.0 million is included in other
current liabilities and long-term debt and capital leases, respectively,
in the consolidated balance sheet as of February 28, 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Contingencies  The Company is involved in disputes and litigation in the
normal course of business. The Company does not believe that the outcome of any
of these disputes or litigation will have a material affect on the Companys
operating performance and financial condition or results of operations. The
Company has established accruals related to such matters that are probable and
reasonably estimable. However, an unfavorable outcome of some or all of these
matters could have a material affect on the Companys operating performance,
financial condition and cash flows.

The Company has previously reported its legal proceedings with Information
Resources, Inc. (IRI) arising from the acquisition of certain assets from IRI
in March 1997. IRIs claims involving revenue streams was submitted to
arbitration. IRI sought a total of $15.9 million in damages. The Company
contended that the conditions to these amounts becoming due have never been
satisfied and that no amounts were due to IRI, because, among other reasons, of
a failure of consideration in the overall transaction.

In December 2001, the Company and IRI settled their dispute. The Company
agreed to pay to IRI an aggregate of approximately $8.6 million in various
installments. The payment obligation had two components. The Company made cash
payments totaling approximately $2.7 million and $2.0 million to IRI, in fiscal
2002 and 2003, respectively. In addition, the Company issued 240,683 shares of
its common stock to IRI in payment of the remaining $3.9 million on February
27, 2002.

The Company had recorded a liability of approximately $5.5 million in
prior years related to this matter. The $3.1 million difference between the
$5.5 million previously accrued and the total settlement of $8.6 million was
expensed in the third quarter of fiscal 2002.

8. STOCKHOLDERS EQUITY

Preferred Stock

The Company has authorized 4,620,253 shares of $.01 par value preferred
stock. As of February 28, 2003, no preferred shares were outstanding.

F-17



---



##### 



Common Stock

The Company has authorized 300,000,000 shares of $.002 par value common
stock. No cash dividends on common stock have been declared or paid in any of
the fiscal years presented.

Warrants and Customer Stock Issuances

In connection with the acquisition of Talus Solutions, Inc. (Talus) (see
Note 12), the Company assumed warrants issued to purchase up to 65,000 shares
of the Companys common stock for certain past services rendered by outside
consultants and the issuance of certain notes payable. On February 28, 2001,
warrants to purchase 49,096 shares were exercised. As of February 28, 2003,
warrants to purchase up to 15,904 shares were exercisable and have exercise
prices ranging from $6.83 to $16.90 and expire between July 2004 and June 2005.

Talus issued common stock to a customer at a price below fair value prior
to the acquisition date. The fair value of the common stock issued by Talus,
net of proceeds received, on December 21, 2000, the date of the Talus
acquisition, was $1.9 million. This $1.9 million is being recognized as a
reduction of revenue in proportion to the revenue recognized under the
contract. The Company reduced revenue by $0.1 million in fiscal 2003 and $1.0
million in fiscal year 2002.

Employee Stock Purchase Plan

In October 1994, the Company adopted an employee stock purchase plan
(ESPP) that authorizes the Company to sell up to 3,000,000 shares of common
stock to employees through voluntary payroll withholdings. The stock price to
be paid by employees is equal to 85% or 95% of the lower of the average market
price as reported on the National Association of Securities Dealers Automated
Quotation System for either the first or last day of each six-month withholding
period. Payroll deductions may not exceed the lesser of 10% of a participants
compensation or $25,000 per year. The number of shares purchased under this
plan by employees totaled 428,972 shares, 113,137 shares and 103,003 shares in
fiscal 2003, 2002 and 2001, respectively. The weighted average fair value of
shares purchased in fiscal 2003, 2002 and 2001 was $3.96, $23.84 and $40.44,
respectively.

Stock Options

Effective September 13, 2000, the Company adopted the 2000 Non-Qualified
Stock Option Plan (2000 Plan) under which non-qualified stock options may be
granted to officers, directors and employees to purchase a total of up to 8.0
million new shares of common stock at prices not less than fair market value at
the time of grant. Effective July 24, 1998, the Company adopted the 1998 Plan
under which incentive and non-qualified stock options may be granted to
officers, directors and employees to purchase a total of up to 10.5 million new
shares of common stock at prices not less than the fair market value at the
time of grant. In April 2001, the Board of Directors of the Company adopted a
proposed amendment to the 1998 Stock Option Plan (1998 Plan) to increase the
number of shares of Common Stock reserved for issuance to 20,475,800. In
addition, the Board of Directors approved the termination of the 2000 Plan. The
terms of the 2000 Plan remain in effect for options outstanding at the
termination date. Prior to the adoption of the 1998 Plan, the Company had
additional plans under which it granted stock options including the 1994
Employee Stock Option Plan (1994 Plan), the 1994 Outside Directors
Non-qualified Stock Option Plan (1994 Director Plan) and the 1994 Executive
Incentive Stock Option Plan (1994 Executive Plan). No new options will be
granted under these additional stock option plans, which will remain in effect
with respect to options outstanding under such plans until such options are
exercised, terminated or expire. Options under the employee option
exchange program (see below) will be granted under the 1998 Plan and the 2000 Plan. As of February 28, 2003, the Company has
cumulatively granted options on 3.5 million shares under the 2000 Plan, 14.5
million shares under the 1998 Plan, 12.2 million shares under the 1994 plan,
763,000 shares under the 1994 Director Plan and 369,332 shares under the 1994
Executive Plan.

Under the 2000 Plan and the 1998 Plan, the vesting period for new options
issued is in accordance with the Incentive and Non-Qualified Stock Option
Policy approved by the Compensation Committee of the Board of Directors.
Options outstanding under the plans vest over various terms, ranging from
immediate vesting to annual vesting over a five-year period from the date of
grant. The right to exercise the vested options expires upon the earlier of
either ten years (or for options granted prior to 1994, eleven years) from the
date of grant or, generally, within thirty days of termination of employment.

During fiscal 2001 and 2000, the Company granted non-qualified stock
options in the amount of 770,000 and 7.3 million shares, respectively, to
several of the Companys executive officers and employees. These stock option
grants were approved by the Companys Board of Directors and were not granted
under any of the above-mentioned stock option plans. These shares vest and
become exercisable over periods ranging from immediate vesting to monthly
vesting over a period of five years from the date of grant. As of February 28,
2003, 5.8 million shares were outstanding. No options of this nature were
granted in fiscal 2003 and fiscal 2002.

F-18



---



##### 



Effective January 29, 1999, the Company completed a stock option repricing
program in which options to purchase a total of approximately 3.0 million
shares of the Companys common stock were repriced. Under the repricing
program, which was approved by the shareholders of the Company, outstanding
options (other than those held by executive officers and directors) surrendered
for repricing were exchanged for an equivalent number of repriced options. The
exercise price of the repriced options is $4.38 per share (the fair market
value of the common stock at that date) and the four-year vesting schedule of
each option restarted on February 1, 1999. In conjunction with the Companys
restructuring, the vesting period for the first two years was accelerated as
previously provided for in the plan and approved by the Compensation Committee
of the Board of Directors, pursuant to authority granted to it under the
related option plans, due to certain earnings milestones being met in fiscal
2001 and 2000.

Under FASB Interpretation No. 44 Accounting for Certain Transactions
Involving Stock Compensation, (FIN 44), which is retroactive to option
repricings effected after December 15, 1998, companies are required to treat
repriced options as compensatory options accounted for using variable
accounting treatment. As a result, the Company will record non-cash stock
compensation (benefit) expense, over the term of the option, based upon changes
in the market price of its common stock over the market price at July 1, 2000
($22.19 per share). As of February 28, 2003, the Company had approximately 0.8
million repriced options outstanding. The Company recorded a benefit of $(8.0)
million during fiscal 2002 and a charge of $11.1 million in fiscal 2001 related
to repriced stock options. Since our stock price at the beginning and end of
each of our fiscal 2003 quarters was below $22.19, no charge or benefit was
recorded during fiscal 2003.

As part of the Talus acquisition (see Note 12), the Company assumed all
outstanding stock options, which were converted into Manugistics stock
options. Options to purchase approximately 631,000 shares of Manugistics
common stock were unvested at the acquisition date. FIN 44 requires the
acquiring company to measure the intrinsic value of unvested stock options
assumed at the acquisition date in a purchase business combination and record a
compensation charge over the remaining vesting period of those options to the
extent those options remain outstanding. This resulted in a charge of $3.4
million, $4.8 million and $1.2 million in fiscal 2003, 2002 and 2001,
respectively.

A summary of the status of the Companys stock option plans and changes
during the fiscal years is presented below with share amounts in thousands:

|                                 |  |              |        |           |  |          |       |            |  |          |        |           |  |            |       |  |  |  |        |   |  |   |       | 
|-------------------------------- |  | ------------ | ------ | --------- |  | -------- | ----- | ---------- |  | -------- | ------ | --------- |  | ---------- | ----- |  |  |  | ------ | - |  | - | ----- | 
|                                 |  | February 28,
|                                 |  |             
|                                 |  | 2003         |        | 2002      |  | 2001    
|                                 |  |              |        |           |  |         
|                                 |  | Options to   |        |           |  |          |       | Options to |  |          |        |           |  | Options to |       |  |  | 
|                                 |  | Purchase     |        | Wtd. Avg. |  | Purchase |       | Wtd. Avg.  |  | Purchase |        | Wtd. Avg.
|                                 |  | Shares       |        | Ex. Price |  | Shares   |       | Ex. Price  |  | Shares   |        | Ex. Price
|                                 |  |              |        |           |  |          |       |            |  |          |        |          
|Outstanding at beginning of year |  |              | 22,360 |           |  | $        | 16.16 |            |  |          | 20,948 |           |  | $          | 17.49 |  |  |  | 15,970 |   |  | $ | 6.83  | 
|Options assumed in acquisition   |  |              |       |           |  |          |      |            |  |          |       |           |  |            |      |  |  |  | 1,345  |   |  |   | 7.50  | 
|Options granted at market value  |  |              | 3,153  |           |  |          | 5.11  |            |  |          | 5,407  |           |  |            | 10.91 |  |  |  | 7,835  |   |  |   | 35.67 | 
|Exercised                        |  |              | (566   | )         |  |          | 6.36  |            |  |          | (1,683 | )         |  |            | 6.27  |  |  |  | (2,887 | ) |  |   | 6.23  | 
|Cancelled                        |  |              | (4,292 | )         |  |          | 22.68 |            |  |          | (2,312 | )         |  |            | 28.15 |  |  |  | (1,315 | ) |  |   | 11.74 | 
|                                 |  |              |        |           |  |          |       |            |  |          |        |           |  |            |       |  |  |  |        |   |  |   |       | 
|Outstanding at end of year       |  |              | 20,655 |           |  | $        | 13.38 |            |  |          | 22,360 |           |  | $          | 16.16 |  |  |  | 20,948 |   |  | $ | 17.49 | 
|                                 |  |              |        |           |  |          |       |            |  |          |        |           |  |            |       |  |  |  |        |   |  |   |       | 
|Exercisable at end of year       |  |              | 11,482 |           |  | $        | 13.19 |            |  |          | 7,665  |           |  | $          | 13.76 |  |  |  | 4,603  |   |  | $ | 8.26  | 
|                                 |  |              |        |           |  |          |       |            |  |          |        |           |  |            |       |  |  |  |        |   |  |   |       | 

Stock-Based Compensation

As permitted under SFAS No. 123, as amended by SFAS 148, the Company
continues to account for stock-based compensation to employees in accordance
with APB Opinion No. 25, under which no compensation expense is recognized,
since the exercise price of options granted is equal to or greater than the
fair market value of the underlying security on the grant date. Pro forma
information regarding net loss and loss per share is required by SFAS No. 123,
which uses the fair value method. The fair value of the Companys stock-based
awards to employees was estimated as of the date of grant using the
Black-Scholes option pricing model. Limitations on the effectiveness of the
Black-Scholes option pricing model include that it was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable and that the model requires the use of highly
subjective assumptions including expected stock price volatility. Because the
Companys stock-based awards to employees have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock-based awards.

Had compensation cost for these plans been recorded, the Companys net
loss and loss per basic and diluted share amounts would have been as follows,
in thousands except per share amounts:

F-19



---



##### 



|                                                                                |  |              |          |      |  |      |          |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------ | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                                |  | February 28,
|                                                                                |  |             
|                                                                                |  | 2003         |          | 2002 |  | 2001
|                                                                                |  |              |          |      |  |     
|Net loss, as reported                                                           |  | $            | (212,239 | )    |  | $    | (115,158 | ) |  | $ | (28,078 | )
|Add: Stock-based compensation expense
included in reported net loss, net of tax |  |              | 3,426    |      |  |      | (3,111   | ) |  |   | 12,801  |  
|Less: Stock-based compensation, net of tax                                      |  |              | (26,564  | )    |  |      | (63,948  | ) |  |   | (60,037 | )
|                                                                                |  |              |          |      |  |      |          |   |  |   |         |  
|Pro forma net loss                                                              |  |              | (235,377 | )    |  | $    | (182,217 | ) |  | $ | (75,314 | )
|Basic and diluted loss per share, as reported                                   |  | $            | (3.04    | )    |  | $    | (1.69    | ) |  | $ | (0.48   | )
|Basic and diluted loss per share, pro forma                                     |  | $            | (3.37    | )    |  | $    | (2.68    | ) |  | $ | (1.28   | )

Fiscal 2003, 2002 and 2001 pro forma amounts include $557, $945 and $736,
respectively, related to the purchases under the employee stock purchase plan.

The weighted average fair value of options granted in fiscal 2003, 2002
and 2001 was $3.48, $5.97 and $35.16 per share, respectively. The fair value of
options granted was estimated assuming no dividends and using the following
weighted-average assumptions for each of the fiscal years presented:

|                         |  |            |      |            |  |            |       |          |  |          |       |          |  |  |       |   |  |  |       |   |  |  |       |  
|------------------------ |  | ---------- | ---- | ---------- |  | ---------- | ----- | -------- |  | -------- | ----- | -------- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                         |  | OPTIONS    |      | ESPP      
|                         |  |            |      |           
|                         |  | 2003       |      | 2002       |  | 2001       |       | 2003     |  | 2002     |       | 2001    
|                         |  |            |      |            |  |            |       |          |  |          |       |         
|Risk-free interest rates |  |            | 2.53 | %          |  |            | 3.63  | %        |  |          | 5.95  | %        |  |  | 1.75  | % |  |  | 3.35  | % |  |  | 5.97  | %
|Expected term            |  | 3.95 years |      | 3.11 years |  | 3.26 years |       | 6 months |  | 6 months |       | 6 months
|Volatility               |  |            | 1.01 |            |  |            | .8282 |          |  |          | .7690 |          |  |  | .8705 |   |  |  | .8268 |   |  |  | .7531 |  

A summary of the weighted average remaining contractual life and the
weighted average exercise price of options outstanding as of February 28, 2003
is presented below with share amounts in thousands:

|                |  |             |        |             |        |          |           |             |               |          |        |  |               |  |        |  |  |   |       |  |  |  | 
|--------------- |  | ----------- | ------ | ----------- | ------ | -------- | --------- | ----------- | ------------- | -------- | ------ |  | ------------- |  | ------ |  |  | - | ----- |  |  |  | 
|                |  |             |        |             |        |          |           |             | Weighted Avg. |          |        |  |               |  |        |  |  |   |       |  | 
|                |  |             |        |             | Number |          | Remaining |             | Weighted Avg. |          | Number |  | Weighted Avg.
|Range of        |  | Outstanding |        | Contractual |        | Exercise |           | Exercisable |               | Exercise
|Exercise Prices |  | at 2/28/03  |        | Life        |        | Price    |           | at 2/28/03  |               | Price   
|                |  |             |        |             |        |          |           |             |               |         
|$0.00  $6.10   |  |             | 9,991  |             |        |          | 6.4       |             |               | $        | 4.33   |  |               |  | 5,314  |  |  | $ | 4.35  | 
|6.10  12.21    |  |             | 4,020  |             |        |          | 7.2       |             |               |          | 8.08   |  |               |  | 2,359  |  |  |   | 8.36  | 
|12.21  30.52   |  |             | 3,364  |             |        |          | 6.9       |             |               |          | 18.39  |  |               |  | 2,156  |  |  |   | 17.72 | 
|30.52  42.72   |  |             | 1,903  |             |        |          | 6.9       |             |               |          | 39.94  |  |               |  | 951    |  |  |   | 40.17 | 
|42.72  61.03   |  |             | 1,377  |             |        |          | 5.2       |             |               |          | 45.66  |  |               |  | 702    |  |  |   | 45.86 | 
|                |  |             |        |             |        |          |           |             |               |          |        |  |               |  |        |  |  |   |       | 
|$0.00  $61.03  |  |             | 20,655 |             |        |          | 6.6       |             |               | $        | 13.38  |  |               |  | 11,482 |  |  | $ | 13.19 | 
|                |  |             |        |             |        |          |           |             |               |          |        |  |               |  |        |  |  |   |       | 

Employee Stock Option Exchange Program

On February 10, 2003, the Company announced a voluntary stock option
exchange program for its employees. Under the program, the Company offered to
exchange options to purchase approximately an aggregate of 6.1 million shares
of Manugistics common stock held by eligible employees, vested or unvested,
that have exercise prices equal to or greater than $7.0001 per share. All
employees had the opportunity to exchange existing eligible options for a
promise to grant new options at exchange ratios dependent on the exercise
price of the exchanged options. Members of our Board of Directors did not
participate in this program.

On March 10, 2003, the Company announced that it had accepted for
cancellation and exchange options to purchase approximately 4.8 million
shares of its common stock in exchange for approximately 1.5 million new
options of its common stock, to be granted on September 16, 2003. The
replacement options have terms and conditions that are substantially the same
as those of the cancelled options. The exercise price of the replacement
options will be the greater of: a) the market value of the Companys common
stock on the date of grant or b) $2.30.

9. RETIREMENT PLANS

The Company has two defined contribution retirement savings plans (one in
the U.S. and another in the U.K.) under the terms of which the Company matches
a percentage of the employees qualified contributions. New employees are
eligible to participate in the plans upon completing one month of service. The
Companys contribution to the plans totaled $2.1 million, $2.2 million and $1.8
million for fiscal 2003, 2002 and 2001, respectively.

F-20



---



##### 



10. INCOME TAXES

Income Tax Provision. The components of the income tax provision (benefit)
are as follows (in thousands):

|                                                |               |   |              |        |      |   |         |         |   |   |       |        |  
|----------------------------------------------- | ------------- | - | ------------ | ------ | ---- | - | ------- | ------- | - | - | ----- | ------ | -
|                                                |               |   | February 28,
|                                                |               |   |             
|                                                |               |   | 2003         |        | 2002 |   | 2001   
|                                                |               |   |              |        |      |   |        
|Current:                                        |               |   |              |        |      |   |         |         |   |   |       |       
|                                                | Federal       |   | $            | (799   | )    |   | $       |        |   |   | $     | 257    |  
|                                                | State         |   |              | 150    |      |   |         | 100     |   |   |       | 286    |  
|                                                | Foreign       |   |              | 1,717  |      |   |         | 1,332   |   |   |       | 1,165  |  
|                                                |               |   |              |        |      |   |         |         |   |   |       |       
|                                                | Total current |   | $            | 1,068  |      |   | $       | 1,432   |   |   | $     | 1,708  |  
|                                                |               |   |              |        |      |   |         |         |   |   |       |       
|Deferred:                                       |               |   |              |        |      |   |         |         |   |   |       |       
|                                                | Federal       |   | $            | 15,558 |      |   | $       | (21,973 | ) |   | $     | 2,889  |  
|                                                | State         |   |              | 2,082  |      |   |         | (2,938  | ) |   |       | 387    |  
|                                                | Foreign       |   |              | 2,710  |      |   |         | (581    | ) |   |       | (2,432 | )
|                                                |               |   |              |        |      |   |         |         |   |   |       |       
|Total deferred                                  |               | $ | 20,350       |        |      | $ | (25,492 | )       |   | $ | 844   |       
|                                                |               |   |              |        |      |   |         |         |   |   |       |       
|Total provision for (benefit from) income taxes |               | $ | 21,418       |        |      | $ | (24,060 | )       |   | $ | 2,552 |       
|                                                |               |   |              |        |      |   |         |         |   |   |       |       

Loss before income taxes includes losses
from foreign operations of approximately $20.0 million, $15.6 million and $20.1
million in fiscal 2003, 2002 and 2001, respectively.

Deferred Income Taxes. The components of the Companys deferred tax assets
and liabilities are as follows (in thousands):

|                               |                           |                               |          |          |              |        |         |          |         |        | 
|------------------------------ | ------------------------- | ----------------------------- | -------- | -------- | ------------ | ------ | ------- | -------- | ------- | ------ | 
|                               |                           |                               |          |          | February 28,
|                               |                           |                               |          |          |             
|                               |                           |                               |          |          | 2003         |        | 2002   
|                               |                           |                               |          |          |              |        |        
|Deferred Tax Assets:           |                           |                               |          |          |              |        |         |         
|                               |                           | Accrued expenses              |          |          | 3,002        |        |         |          | 4,152   |       
|                               |                           | Operating loss carryforwards: |          |          |              |        |         |          |         |       
|                               |                           |                               | Domestic |          |              | 97,756 |         |          |         | 82,429 | 
|                               |                           |                               | Foreign  |          |              | 31,120 |         |          |         | 25,182 | 
|                               |                           | Restructuring charges         |          |          | 8,387        |        |         |          | 4,131   |       
|                               |                           | Tax credit carryforwards      |          |          | 5,787        |        |         |          | 6,041   |       
|                               |                           | Stock-based transactions      |          |          | 4,426        |        |         |          | 3,073   |       
|                               |                           | Investment losses             |          |          | 4,186        |        |         |          | 4,186   |       
|                               |                           | Depreciation and amortization |          |          | 21,642       |        |         |          | 20,327  |       
|                               |                           | Other temporary differences   |          |          | 4,833        |        |         |          | 5,779   |       
|                               |                           |                               |          |          |              |        |         |         
|Deferred tax assets            |                           |                               | 181,139  |          |              |        | 155,300 |         
|                               | Less: valuation allowance |                               |          | (166,731 | )            |        |         | (112,469 | )      
|                               |                           |                               |          |          |              |        |         |         
|Total deferred tax assets      |                           |                               | 14,408   |          |              |        | 42,831  |         
|Deferred tax liabilities:      |                           |                               |          |          |              |        |         |         
|                               |                           | Software development costs    |          |          | (852         | )      |         |          | (5,097  | )     
|                               |                           | Acquired intangibles          |          |          | (12,380      | )      |         |          | (16,210 | )     
|                               |                           | Other                         |          |          | (1,176       | )      |         |          | (1,174  | )     
|                               |                           |                               |          |          |              |        |         |         
|Total deferred tax liabilities |                           |                               | (14,408  | )        |              |        | (22,481 | )       
|                               |                           |                               |          |          |              |        |         |         
|Net deferred tax assets        |                           | $                             |         |          |              | $      | 20,350  |         
|                               |                           |                               |          |          |              |        |         |         

We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. We assess the
likelihood that our deferred tax assets will be recovered from our future
taxable income, and to the extent we believe that recovery is not likely, we
establish a valuation allowance. We consider historical taxable income,
estimates of future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the amount of the valuation allowance.
Adjustments could be required in the future if we determine that the amount to
be realized is greater or less than the valuation allowance we have recorded.
Based on various factors, including our cumulative losses for fiscal 2001, 2002
and 2003 when adjusted for non-recurring items, the size of our loss for fiscal
2003 and estimates of future profitability, management has concluded that
future taxable income will, more likely than not, be insufficient to recover
its net deferred tax assets. Based on the weight of positive and negative
evidence regarding recoverability of our deferred tax assets, we recorded a
valuation allowance for the full amount of our net deferred tax assets, which
resulted in a $20.4 million charge to income tax expense in the fiscal year
ended February 28, 2003.

F-21



---



##### 



Management will continue to monitor its estimates of future profitability and
realizability of its net deferred tax assets based on evolving business
conditions.

Deferred tax assets of approximately $45.1 million pertain to certain net
operating loss carryforwards resulting from the exercise of employee stock
options. The Company has provided a valuation allowance on these deferred tax
assets. The valuation allowance on these deferred tax assets will be reduced in
the period in which the Company realizes a benefit on its tax return from a
reduction of income tax payable stemming from the utilization of these losses.
When realized, the tax benefits of these credits and losses will be accounted
for as a credit to stockholders equity rather than as a reduction of the income
tax provision.

Changes in the valuation allowance during fiscal 2003 are as follows (in
thousands):

|                                             |  |   |         | 
|-------------------------------------------- |  | - | ------- | 
|Balance, February 28, 2002                   |  | $ | 112,469 | 
|Charge against prior year deferred tax asset |  |   | 20,350  | 
|Current year operations                      |  |   | 33,912  | 
|                                             |  |   |         | 
|Balance, February 28, 2003                   |  | $ | 166,731 | 
|                                             |  |   |         | 

At February 28, 2003, the Company had a total of approximately $246.4
million of U.S. federal and $94.1 million of foreign net operating losses
available to offset future taxable income in those respective taxing
jurisdictions. The federal net operating losses expire during the fiscal years
2012 to 2023. Approximately $37.7 million of the foreign net operating losses
expire during the calendar years 2003 to 2013, while the remaining foreign net
operating losses are available in perpetuity. The Company considers the
earnings of foreign subsidiaries to be permanently reinvested outside of the
United States. Accordingly, no United States income tax on these earnings has
been provided.

The Company also has $4.5 million of research and development tax credit
carryforwards, which expire between 2011 and 2022, and $1.3 million of foreign
tax credit carryforwards that expire between 2003 and 2006.

Statutory Rate Reconciliation. The difference between the reported amount
of income tax (benefit) expense and the amount of income tax expense that would
result from applying statutory U.S. federal tax rate of 35% is summarized as
follows (in thousands):

|                                                    |                                                        |   |              |        |      |   |         |        |   |   |        |        |  
|--------------------------------------------------- | ------------------------------------------------------ | - | ------------ | ------ | ---- | - | ------- | ------ | - | - | ------ | ------ | -
|                                                    |                                                        |   | February 28,
|                                                    |                                                        |   |             
|                                                    |                                                        |   | 2003         |        | 2002 |   | 2001   
|                                                    |                                                        |   |              |        |      |   |        
|Benefit for income taxes computed at statutory rate |                                                        | $ | (66,787      | )      |      | $ | (48,726 | )      |   | $ | (8,934 | )     
|(Reduction) increase in taxes resulting from:       |                                                        |   |              |        |      |   |         |        |   |   |        |       
|                                                    | State and foreign taxes, net of federal benefit        |   |              | (293   | )    |   |         | (562   | ) |   |        | 1,482  |  
|                                                    | Net change in valuation allowance                      |   |              | 54,262 |      |   |         | (1,894 | ) |   |        | 4,888  |  
|                                                    | Goodwill amortization and impairment                   |   |              | 33,722 |      |   |         | 24,020 |   |   |        | 3,989  |  
|                                                    | Purchased research and development                     |   |              |       |      |   |         |       |   |   |        | 3,403  |  
|                                                    | Meals, entertainment and other non-deductible expenses |   |              | 388    |      |   |         | 421    |   |   |        | (2,195 | )
|                                                    | Other                                                  |   |              | 126    |      |   |         | 2,681  |   |   |        | (81    | )
|                                                    |                                                        |   |              |        |      |   |         |        |   |   |        |       
|Provision for (benefit from) income taxes           |                                                        | $ | 21,418       |        |      | $ | (24,060 | )      |   | $ | 2,552  |       
|                                                    |                                                        |   |              |        |      |   |         |        |   |   |        |       

11. OTHER (EXPENSE) INCOME

Other (expense) income consists of the following (in thousands):

|                               |  |              |         |      |  |      |         |   |  |   |        |  
|------------------------------ |  | ------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                               |  | February 28,
|                               |  |             
|                               |  | 2003         |         | 2002 |  | 2001
|                               |  |              |         |      |  |     
|Interest income                |  | $            | 3,635   |      |  | $    | 9,345   |   |  | $ | 7,832  |  
|Interest expense               |  |              | (14,127 | )    |  |      | (13,757 | ) |  |   | (4,861 | )
|Converge, Inc. investment loss |  |              |        |      |  |      | (10,150 | ) |  |   |       |  
|Other                          |  |              | 2,550   |      |  |      | (76     | ) |  |   | (72    | )
|                               |  |              |         |      |  |      |         |   |  |   |        |  
|Total other (expense) income   |  | $            | (7,942  | )    |  | $    | (14,638 | ) |  | $ | 2,899  |  
|                               |  |              |         |      |  |      |         |   |  |   |        |  

F-22



---



##### 



12. ACQUISITIONS

During the three years ended February 28, 2003, we completed the following
transactions:

Digital Freight Exchange, Inc.

On May 23, 2002, the Company acquired substantially all of the assets of
Digital Freight Exchange, Inc. (DFE) for $4.5 million in cash. DFE was a
provider of collaborative transportation logistics services that facilitate
online, real-time bids for global transportation contracts. Approximately $0.3
million of the purchase price was paid in cash at closing. The remaining
purchase price of $4.2 million was paid in cash in September 2002.
Approximately $675,000 of the purchase price is being held in escrow for the
satisfaction of indemnification claims under the terms of the acquisition
agreement.

Western Data Systems of Nevada, Inc.

On April 26, 2002, the Company acquired certain assets and assumed certain
liabilities of Western Data Systems of Nevada, Inc. (WDS) for $26.2 million
in cash. At the time of the acquisition, WDS was a leading provider of
application software and services to 135 customers in commercial aerospace,
defense and maritime industries and the military. The WDS acquisition added to
our offering of service & parts management solutions that address the complex
business operations inherent to asset intensive industries. WDS software
includes capabilities ranging from predictive system failure forecasting and
parts optimization, to finite capacity and labor resource scheduling, to
maintenance, repair and overhaul (MRO) shop planning and execution, and
direct materials purchase management. Approximately $2.6 million of the
purchase price was paid in cash at closing. The remaining purchase price of
$23.6 million was paid in cash in November 2002. Approximately $3.9 million of
the purchase price is being held in escrow for the satisfaction of
indemnification claims under the terms of the acquisition agreement. During the
year ended and as of January 31, 2002, WDS had revenue of approximately $28.0
million and had approximately 160 employees.

The results of operations for WDS have been included in the Companys
operations since the acquisition date. The purchase price has been allocated to
the assets acquired and liabilities assumed based on their estimated fair
values at the acquisition date. The fair value of identifiable intangible
assets related to the WDS acquisition was determined by an independent
valuation and includes $16.2 million of acquired technology to be amortized
over five years, $6.4 million of customer relationships to be amortized over
seven years and $3.3 million of goodwill.

In connection with the acquisition of WDS, the Company allocated $3.8
million, or 14.5% of the purchase price to in-process research and development
projects. There were several in-process research and development projects at
the time of the WDS acquisition. At the acquisition date, WDS was evaluating
the efforts required to complete acquired in-process research and development
projects including planning, designing, testing and other activities necessary
to establish that the product or enhancements to existing products could be
produced to meet desired functionality and technical performance requirements.
This was being done in conjunction with the enhancement of three software
products. The most significant of these projects was the completion of the
Buying Advantage product, which is an advanced internet-based direct
procurement solution designed for large aerospace and defense companies,
mid-sized suppliers and maintenance, repair and overhaul facilities in industry
and government. It enables single-site or multi-site organizations to leverage
the supplier community as a strategic asset through aggregated sourcing and
buying, increased buyer efficiencies and through efficient collaboration and
integration with suppliers. This results in reduced lead-time and cost and
improved responsiveness. The value assigned to Buying Advantage was $3.3
million.

The value of the purchased in-process research and development was
computed using discount rates ranging from 26% to 30% on the anticipated income
stream of the related product revenue using the income approach appraisal
method. The discounted cash flows were based on managements forecast of future
revenue, costs of revenue and operating expenses related to the products and
technologies purchased from WDS. The determined value was then adjusted to
reflect only the value creation efforts of WDS prior to the close of the
acquisition. At the time of the acquisition, the products and enhancements were
at various stages of completion, ranging from approximately 5% to 96% complete
and future costs to complete the projects were anticipated to be $2.8 million.
Anticipated completion dates ranged from one month to 15 months. The resulting
value of purchased in-process research and development was further reduced by
the estimated value of core technology. A purchased research and development
charge of $3.8 million was recorded in fiscal 2003.

The estimated revenue for the in-process projects were expected to
commence in calendar 2002 and 2003 upon project completion and to decline over
four years as new products and technologies enter the market. The discount rate
utilized was higher than our weighted-average cost of capital due to the
inherent uncertainties surrounding the successful development of the purchased
in-process technology, the useful life of such technology, the profitability
levels of the technology and the uncertainty of technological

F-23



---



##### 



advances that were unknown at the time of the acquisition. The original
research and development projects are still in the process of being completed
in accordance with the plans outlined above.

SpaceWorks, Inc.

On July 25, 2001, the Company acquired the intellectual property and
certain other assets of SpaceWorks, Inc. (the SpaceWorks Transaction) for
$8.3 million in cash. SpaceWorks, Inc. was a developer of software solutions
that helped enable companies to automate complex order-management related
activities. These solutions expand the Companys supply chain
execution capabilities. The SpaceWorks Transaction was accounted for as a purchase of
developed technology.

PartMiner CSD, Inc.

On May 31, 2001, the Company acquired the collaborative sourcing and
design assets of PartMiner CSD, Inc., as well as related assets from its
parent, PartMiner, Inc. and its affiliates (the CSD Acquisition) for $20.0
million in cash. PartMiner CSD, Inc. was a developer of product design and
sourcing software which now constitutes a portion of the Companys supplier
relationship management software offering. The CSD Acquisition included
developed technology, existing customer contracts, personnel and other
intangible assets. The CSD Acquisition was accounted for using the purchase
method of accounting. The purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
acquisition date. Intangible assets related to the CSD Acquisition include
developed technology and goodwill. During the year ended December 31, 2000,
Partminer CSD, Inc. had revenue of approximately $4.0 million.
Contemporaneously, in a separate transaction, the Company entered into a
software license agreement with Partminer, Inc. for various products for use in
PartMiners electronic components procurement and sourcing business.

One Release, LLC.

On May 17, 2001, the Company acquired certain assets of One Release, LLC
and its affiliates (the One Release Acquisition), a software engineering
services and systems business, for $4.3 million of common stock (135,793
shares). The Company also paid an additional $1.0 million in shares of the
Companys common stock in May 2002 as contingent consideration for certain
performance criteria attained during the first year after the acquisition date.
The additional consideration was recorded as goodwill. The One
Release acquisition added approximately 25 software developers to
help enhance our pricing optimization products. The One Release
Acquisition was accounted for using the purchase method of accounting. The
results of operations for One Release have been included in the Companys
operations since the acquisition date. The Company allocated approximately $7.4
million to assembled workforce. This balance was reclassified to goodwill
effective March 1, 2002. (see Note 5.)

Talus Solutions, Inc.

General

On December 21, 2000, the Company acquired Talus, a leading provider of
pricing and revenue optimization software products and services. The Talus
acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values on the acquisition
date. The results of operations for Talus have been included in the Companys
financial statements since the acquisition date. The fair value of identifiable
intangible assets was determined by an independent valuation using a
combination of methods, including an income approach for developed technology
and customer relationships and a cost approach for assembled workforce.
Identifiable intangible assets are being amortized over their estimated useful
lives of four years for developed technology and seven years for customer
relationships.

Determination and Allocation of Purchase Price

The purchase price of approximately $402.0 million consisted of the
issuance of approximately 7.0 million shares of the Companys common stock with
a fair value of approximately $340.0 million, the assumption of stock options
and warrants with a fair value of approximately $58.5 million and
acquisition-related costs of $3.5 million, consisting primarily of investment
banking and legal fees. The value of the common stock issued in the transaction
was based on the Companys average stock price for a few days before and after
September 21, 2000, the date the terms of the acquisition were agreed to and
publicly announced. The value of the stock options and warrants assumed in the
transaction was determined by using the Black-Scholes method of option
valuation.

In connection with the acquisition of Talus, we allocated $8.6 million, or
2.1% of the purchase price to in-process research and development projects.
There were several in-process research and development projects at the time of
the Talus acquisition. At the acquisition date, Talus was evaluating the effort
required to complete acquired in-process research and development including

F-24



---



##### 



planning, designing, testing and other activities necessary to establish that
the product or enhancement to existing products can be produced to meet desired
functionality and technical performance requirements. This was done in
conjunction with enhancements to three revenue software products specific to
the Air Cargo, Hotel and Rental Car industries and two pricing optimization
products, Target Pricing and Precision Pricing, that could be utilized in
various industries. The revenue management products are designed to optimize
revenues and enhance profits while considering product perishability and
capacity utilization. The value assigned to acquired in-process research and
development for the revenue optimization products was $6.5 million. Target
Pricing systematically integrates market information, cost information,
customer information and strategic goals to forecast the most profitable price
quotation. In arriving at a pricing recommendation, the solution uses advanced
statistical methods to balance the probability of winning a deal with its total
contribution to profit. Precision Pricing predicts the responses of customer
segments to a companys products and prices. Based on the predicted customer
response, the solution determines the optimal list price for each product in
each customer segment to enhance profit, increase market share, or achieve
other strategic goals. The value assigned to acquired in-process research and
development for the pricing optimization products was $2.1 million.

The value of the purchased in-process research and development was
computed using discount rates ranging from 30% to 40% on the anticipated income
stream of the related product revenue using the income appraisal method. The
discounted cash flows was based on managements forecast of future revenue,
costs of revenue and operating expenses related to the products and
technologies purchased from Talus. The determined value was then adjusted to
reflect only the value creation efforts of Talus prior to the close of the
acquisition. At the time of the acquisition, the products and enhancements were
12.5% to 37.5% complete and it was anticipated that future costs to complete
the projects would be $5.4 million. Anticipated completion dates ranged from
four to twelve months. The resulting value of purchased in-process research and
development was further reduced by the estimated value of core technology. The
purchased research and development charge of $8.6 million was expensed in
fiscal 2001.

The estimated revenues for the in-process projects were expected to
commence in calendar 2001 and 2002 upon project completion and decline in three
to five years as other new products and technologies enter the market. The
discount rate utilized was higher than our weighted-average cost of capital due
to the inherent uncertainties surrounding the successful development of the
purchased in-process technology, the useful life of such technology, the
profitability levels of the technology, and the uncertainty of technological
advances that were unknown at the time of the acquisition.

We have completed the original research and development projects in
accordance with the plans outlined above for Cargo Revenue Optimizer, Target
Pricing and Precision Pricing. Additional, subsequent versions of existing
software have been expanded with several other projects and integrated into our
overall product solutions. Our Hotel and Rental Car Revenue Optimization
enhancements were not completed as a result of a change in the Companys
strategic direction and weakness in the travel and hospitality markets in
fiscal 2002 and 2003. Actual results have been lower than forecasts with
respect to revenues generated by the acquired in-process research and
development.

The Company recorded a reduction of stockholders equity of approximately
$22.8 million for the intrinsic value of unvested stock options (Deferred
Compensation) assumed in the transaction as required by FIN 44. Deferred
Compensation is being amortized by charges to operations over the vesting
period of the options. Non-cash stock-based compensation associated with the
Talus acquisition was approximately $3.4 million in fiscal 2003, $4.8 million
in fiscal 2002 and $1.2 million in fiscal 2001.

The following is a summary of the allocation of the purchase price in the
Talus acquisition (in thousands):

|                                   |       |   |         |         | 
|---------------------------------- | ----- | - | ------- | ------- | 
|Identifiable intangible assets:    |       |   |         |        
|Developed technology               |       | $ | 22,000  |        
|Customer relationships             |       |   | 19,200  |        
|Assembled workforce                |       |   | 10,400  |        
|Purchased research and development |       |   | 8,600   |        
|Deferred compensation              |       |   | 22,790  |        
|Net assets acquired                |       |   | 1,310   |        
|Deferred taxes                     |       |   | (17,435 | )      
|Transaction costs                  |       |   | (3,500  | )      
|Severance costs and office closure |       |   | (2,548  | )      
|Goodwill                           |       |   | 341,203 |        
|                                   |       |   |         |        
|                                   | Total |   | $       | 402,020 | 
|                                   |       |   |         |        

The Company eliminated 28 positions in the acquisition integration plan,
primarily affecting former senior management of Talus and certain
administrative functions such as legal, human resources, marketing and finance.

F-25



---



##### 



STG Holdings, Inc.

On January 16, 2001, the Company acquired STG Holdings, Inc. (STG), a
leading developer of advanced planning, scheduling and simulation software for
single factory and multi-factory enterprises. The STG acquisition was accounted
for using the purchase method of accounting and, accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based on
their estimated fair values on the acquisition date. The results of operations
of STG have been included in the Companys financial statements since the
acquisition date.

The initial purchase price of approximately $6.9 million consisted of
common stock of approximately $4.5 million, cash of approximately $1.5 million
and transaction costs of approximately $0.9 million. Approximately $6.7 million
of the purchase price was allocated to identifiable intangible assets and
approximately $1.1 million to purchased research and development charge was
expensed in the period the transaction was consummated.

The revenue projections used to value the in-process research and
development were based on estimates of relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of
new project introductions by us and our competitors at the acquisition date. At
the date of each acquisition, the products under development had not reached
technological feasibility and had no alternative future use. The value assigned
to in-process research and development is comprised of various research and
development projects. These projects include the introduction of new
technologies as well as revisions of enhancements to certain acquired
technologies. There is a risk associated with the completion of the projects,
and there is no assurance that each will attain either technological
feasibility or commercial success.

The acquisition agreement contained an additional contingent payment of up
to $27.9 million if certain revenue-based performance criteria were met during
the 21-month period ended October 31, 2002. The revenue-based performance
criteria were not met and no contingent payment was made.

13. INVESTMENTS IN BUSINESS

On May 30, 2001, the Company purchased approximately $10.2 million of
preferred stock of Converge, Inc. (the Converge Investment). Converge, Inc.
is a private marketplace exchange for components used by electronics and high
technology manufacturers. Founding investors in Converge, Inc. include Agilent
Technologies, Inc., Compaq Computer Corporation and Hewlett-Packard Company,
among others. The Converge Investment is accounted for under the cost method of
accounting for investments. In a separate transaction approximately two weeks
prior to the Converge Investment, the Company entered into a software license
agreement with Converge, Inc. for various products for use in its marketplace
exchange business.

During the third quarter of fiscal 2002, the Company recorded an
impairment loss of approximately $10.2 million relating to an
other-than-temporary decline in the fair value of its equity investment in
Converge, Inc. The impairment was recorded to reflect the investment at fair
value. As of February 28, 2002, the Companys recorded basis in the Converge
Investment was reduced to $0 due to concerns about the ability of Converge to
continue funding its operations in light of current market conditions in the
high technology sector. The impairment loss is included in other (expense)
income in the consolidated statements of operations and comprehensive loss for
the fiscal year ended February 28, 2002 (see Note 11).

14. RESTRUCTURING OF OPERATIONS

Fiscal 2003 Restructuring and Other Impairment Charges.

Plan FY03Q2 Restructuring
  Charges (Plan FY03 Q2). During the three months ended August 31,
  2002, the Company announced and implemented a restructuring plan designed to
  better align our cost structure with expected revenue. Actions taken included
  a reduction in the Companys employee workforce by approximately 9%, a
  reduction in the number of contractors, reductions in discretionary spending
  and the closure of our remaining office space in Denver, Colorado and reduction
  of office space in Atlanta, Georgia and Chicago, Illinois. The reduction in
  workforce was achieved through a combination of attrition and involuntary terminations
  and totaled 123 employees across most business functions and geographic regions.
  Terminations by geographic region included 83 in the U.S., 37 in Europe, 2 in
  Mexico and 1 in Canada. All terminated employees were notified by August 31,
  2002. The Company recorded a charge for severance and related benefits of approximately
  $2.8 million during the three months ended August 31, 2002. The Company
  also recorded a facility charge of approximately $4.9 million during the
  three months ended August 31, 2002, related to the abandonment of leased
  office space in Denver and the reduction of office space in Atlanta, offset
  by a credit of approximately $0.7 million related to the reduction of a previously
  recorded office space liability assumed as part of the Talus acquisition (see
  Note 12) where the landlord subsequently agreed to reduce the remaining office
  space and lease obligation held by the Company.

F-26



---



##### 



These costs include managements best estimates of expected sublease
income. The Company also recorded a charge of approximately $0.3 million
during the three months ended August 31, 2002, related to contract termination
costs.

In accordance with SFAS 144, the Company recorded a write-down relating
to the restructuring of approximately $0.2 million during the three months
ended August 31, 2002. The write-down consisted of the abandonment of certain
furniture, fixtures, computer equipment and leasehold improvements related to
the closure of certain facilities.

Plan FY03Q2 Other Impairment Charges.In accordance with SFAS 144, the
Company recorded an impairment charge of approximately $1.2 million during the
three months ended August 31, 2002 related to the discontinued use of a
portion of the Companys sales force automation software, which is being
replaced with another tool. The remaining net book value at August 31, 2002 of
$0.7 million is being amortized over its remaining useful life of
approximately one year.

The following table sets forth a summary of Plan FY03Q2 restructuring and
other impairment charges, payments made against those charges and the
remaining liabilities as of February 28, 2003, (in thousands):

|                                   |  |               |   |               |  |                    |       |                    |  |                     |     |                |  |   |        |          |  |                |        |   |  |   |       | 
|---------------------------------- |  | ------------- | - | ------------- |  | ------------------ | ----- | ------------------ |  | ------------------- | --- | -------------- |  | - | ------ | -------- |  | -------------- | ------ | - |  | - | ----- | 
|                                   |  |               |   |               |  |                    |       |                    |  |                     |     |                |  |   |        |          |  | Non-cash asset |        |   |  |  
|                                   |  |               |   |               |  |                    |       |                    |  | Adjustments to Plan |     |                |  |   |        | disposal |  |                |        |  
|                                   |  |               |   |               |  | Charges in three   |       | FY03Q2 charges in  |  | Utilization of cash |     | losses in nine |  |   |        |         
|                                   |  | Balance as of |   | months ended  |  | three months ended |       | in nine months     |  | months ended        |     | Balance as of 
|Plan FY03Q2                        |  | Feb 28, 2002  |   | Aug. 31, 2002 |  | Nov. 30, 2002      |       | ended Feb 28, 2003 |  | Feb 28, 2003        |     | Feb 28, 2003  
|                                   |  |               |   |               |  |                    |       |                    |  |                     |     |               
|Lease obligations and terminations |  | $             |  |               |  | $                  | 4,211 |                    |  | $                   | (32 | )              |  | $ | (163   | )        |  | $              |       |   |  | $ | 4,016 | 
|Severance and related benefits     |  |               |  |               |  |                    | 2,818 |                    |  |                     | 48  |                |  |   | (2,701 | )        |  |                |       |   |  |   | 165   | 
|Impairment charges and write-downs |  |               |  |               |  |                    | 1,449 |                    |  |                     |    |                |  |   |       |          |  |                | (1,449 | ) |  |   |      | 
|Other                              |  |               |  |               |  |                    | 290   |                    |  |                     | (44 | )              |  |   | (111   | )        |  |                | (135   | ) |  |   |      | 
|                                   |  |               |   |               |  |                    |       |                    |  |                     |     |                |  |   |        |          |  |                |        |   |  |   |       | 
|Total                              |  | $             |  |               |  | $                  | 8,768 |                    |  | $                   | (28 | )              |  | $ | (2,975 | )        |  | $              | (1,584 | ) |  | $ | 4,181 | 
|                                   |  |               |   |               |  |                    |       |                    |  |                     |     |                |  |   |        |          |  |                |        |   |  |   |       | 

Plan FY03Q3 Restructuring Charges (Plan FY03 Q3). During the three
months ended November 30, 2002, the Company announced and implemented an
additional restructuring plan designed to further align our cost structure
with expected revenue. Actions taken included a reduction in the Companys
employee workforce by approximately 12%, a reduction in contractors, further
reductions in discretionary spending, the planned closure of our office in
Ratingen, Germany and relocation of our German operations to Munich and
reduction of office space in London, England and San Carlos, California. The
reduction in workforce was achieved through a combination of attrition and
involuntary terminations and totaled 163 employees, 144 of which were
involuntary, across most business functions and geographic regions.
Terminations by geographic region included 96 in the U.S, 42 in Europe, 3 in
Asia-Pacific, 2 in Canada and 1 in Mexico. All terminated employees were
notified by November 30, 2002. The Company recorded a charge for severance and
related benefits of approximately $3.6 million during the three months ended
November 30, 2002. The Company also recorded a facility charge of
approximately $3.3 million during the three months ended November 30, 2002,
related to the planned abandonment of leased office space in Ratingen Germany
and the reduction of office space in London, England and San Carlos,
California. These costs include managements best estimates of expected
sublease income. The Company also recorded other charges of approximately
$0.3 million related to contract termination costs.

In accordance with SFAS 144, the Company recorded a write down relating
to the restructuring of approximately $1.0 million during the three months
ended November 30, 2002. The write-down consisted of the abandonment of
certain furniture, fixtures, computer equipment and leasehold improvements
related to the closure of certain facilities.

The following table sets forth a summary of Plan FY03Q3 restructuring and
other impairment charges, payments made against those charges and the
remaining liabilities as of February 28, 2003 (in thousands):

|                                   |  |               |   |               |  |                    |       |                     |  |                     |     |               |  |   |        |          |  |                |        |   |  |   |       | 
|---------------------------------- |  | ------------- | - | ------------- |  | ------------------ | ----- | ------------------- |  | ------------------- | --- | ------------- |  | - | ------ | -------- |  | -------------- | ------ | - |  | - | ----- | 
|                                   |  |               |   |               |  |                    |       |                     |  |                     |     |               |  |   |        |          |  | Non-cash asset |        |   |  |  
|                                   |  |               |   |               |  |                    |       |                     |  | Adjustments to Plan |     |               |  |   |        | disposal |  |                |        |  
|                                   |  |               |   |               |  | Charges in three   |       | FY03 Q3 charges in  |  | Utilization of cash |     | losses in six |  |   |        |         
|                                   |  | Balance as of |   | months ended  |  | three months ended |       | in six months ended |  | months ended        |     | Balance as of
|Plan FY03Q3                        |  | Feb 28, 2002  |   | Nov. 30, 2002 |  | Feb. 28, 2003      |       | Feb. 28, 2003       |  | Feb. 28, 2003       |     | Feb. 28, 2003
|                                   |  |               |   |               |  |                    |       |                     |  |                     |     |              
|Lease obligations and terminations |  | $             |  |               |  | $                  | 3,305 |                     |  | $                   | 149 |               |  | $ | (292   | )        |  | $              |       |   |  | $ | 3,162 | 
|Severance and related benefits     |  |               |  |               |  |                    | 3,585 |                     |  |                     | 32  |               |  |   | (2,606 | )        |  |                |       |   |  |   | 1,011 | 
|Impairment charges and write-downs |  |               |  |               |  |                    | 1,035 |                     |  |                     | 39  |               |  |   |       |          |  |                | (1,074 | ) |  |   |      | 
|Other                              |  |               |  |               |  |                    | 262   |                     |  |                     |    |               |  |   | (242   | )        |  |                |       |   |  |   | 20    | 
|                                   |  |               |   |               |  |                    |       |                     |  |                     |     |               |  |   |        |          |  |                |        |   |  |   |       | 
|Total                              |  | $             |  |               |  | $                  | 8,187 |                     |  | $                   | 220 |               |  | $ | (3,140 | )        |  | $              | (1,074 | ) |  | $ | 4,193 | 
|                                   |  |               |   |               |  |                    |       |                     |  |                     |     |               |  |   |        |          |  |                |        |   |  |   |       | 

F-27



---



##### 



Plan FY03Q4 Restructuring Charges (Plan FY03 Q4). During the three
months ended February 28, 2003, the Company announced and implemented an
additional restructuring plan designed to further align our cost structure
with expected revenue. Actions taken included a reduction in the Companys
employee workforce by approximately 10%, consolidation of our U.S. product
development functions to our corporate headquarters in Rockville, MD, further
reduced discretionary spending and lease termination costs. The reduction in
workforce was achieved through a combination of attrition and involuntary
terminations and totaled 123 employees, 76 of which were involuntary, across
most business functions and geographic regions. Involuntary terminations by
geographic region included 68 in the U.S., 7 in Europe and 1 in Canada. All
terminated employees were notified by February 28, 2003 and were
not required to render service to the Company beyond the earlier of
their notification date or minimum retention period of 60 days (as
defined by SFAS 146). The Company recorded
a charge for severance and related benefits of approximately $1.4 million
during the three months ended February 28, 2003. The Company also recorded a
facility charge of approximately $0.4 million during the three months ended
February 28, 2003, related to closure of the Milan, Italy office and the
expected loss of sublease rental income from a previously closed office in
London, England. These costs include managements best estimates of expected
sublease income. The Company also recorded other charges of approximately
$0.2 million related to relocation costs. The Company adopted SFAS 146 in the quarter ending February 28, 2003.
Adoption of SFAS 146 did not have a material effect on the restructuring charge reported or on the Companys operating
performance or financial condition.

The following table sets forth a summary of Plan FY03Q4 restructuring and
other impairment charges, payments made against those charges and the
remaining liabilities as of February 28, 2003 (in thousands):

|                                   |  |               |   |               |  |                     |       |                     |  |                 |      |   |  |                |    |   |  |   |       | 
|---------------------------------- |  | ------------- | - | ------------- |  | ------------------- | ----- | ------------------- |  | --------------- | ---- | - |  | -------------- | -- | - |  | - | ----- | 
|                                   |  |               |   |               |  |                     |       |                     |  |                 |      |   |  | Non-cash asset |    |   |  |  
|                                   |  |               |   |               |  |                     |       |                     |  |                 |      |   |  | disposal       |    |   |  |  
|                                   |  |               |   |               |  | Charges in three    |       | Utilization of cash |  | losses in three |      |   |  |               
|                                   |  | Balance as of |   | months ended  |  | in three months     |       | months ended        |  | Balance as of  
|Plan FY03Q4                        |  | Feb 28, 2002  |   | Feb. 28, 2003 |  | ended Feb. 28, 2003 |       | Feb. 28, 2003       |  | Feb. 28, 2003  
|                                   |  |               |   |               |  |                     |       |                     |  |                
|Lease obligations and terminations |  | $             |  |               |  | $                   | 386   |                     |  | $               | (119 | ) |  | $              |   |   |  | $ | 267   | 
|Severance and related benefits     |  |               |  |               |  |                     | 1,390 |                     |  |                 | (329 | ) |  |                |   |   |  |   | 1,061 | 
|Impairment charges and write-downs |  |               |  |               |  |                     | 5     |                     |  |                 |     |   |  |                | (5 | ) |  |   |      | 
|Other                              |  |               |  |               |  |                     | 233   |                     |  |                 | (46  | ) |  |                |   |   |  |   | 187   | 
|                                   |  |               |   |               |  |                     |       |                     |  |                 |      |   |  |                |    |   |  |   |       | 
|Total                              |  | $             |  |               |  | $                   | 2,014 |                     |  | $               | (494 | ) |  | $              | (5 | ) |  | $ | 1,515 | 
|                                   |  |               |   |               |  |                     |       |                     |  |                 |      |   |  |                |    |   |  |   |       | 

Fiscal 2002 Restructuring Charges.

Plan FY02Q2 Restructuring Charges (Plan FY02 Q2).During June 2001, the
Company adopted a restructuring plan in order to centralize certain of its
product development functions in Rockville, MD from Denver, Colorado and
Ottawa, Canada. This resulted in the closure of the Ottawa office and reduction
of space occupied in the Denver office, as well as the relocation and
termination of approximately 10 and 40 employees, respectively. As a result,
the Company recorded a restructuring charge related to the product development
consolidation of approximately $2.4 million during the three months ended
August 31, 2001.

The following table sets forth a summary of Plan FY02Q2 restructuring
charges, payments made against those charges and the remaining liabilities as
of February 28, 2003 (in thousands):

|                                   |  |               |       |                    |  |                     |     |                     |  |   |      |   |  |   |     | 
|---------------------------------- |  | ------------- | ----- | ------------------ |  | ------------------- | --- | ------------------- |  | - | ---- | - |  | - | --- | 
|                                   |  |               |       |                    |  | Adjustments to Plan |     | Utilization of cash |  |   |      |  
|                                   |  |               |       |                    |  | FY02 Q2 charges in  |     | in fiscal year      |  |   |      |  
|                                   |  | Balance as of |       | three months ended |  | ended               |     | Balance as of      
|Plan FY02Q2                        |  | Feb 28, 2002  |       | Feb. 28, 2003      |  | Feb. 28, 2003       |     | Feb. 28, 2003      
|                                   |  |               |       |                    |  |                     |     |                    
|Lease obligations and terminations |  | $             | 1,072 |                    |  | $                   | (46 | )                   |  | $ | (309 | ) |  | $ | 717 | 
|Severance and related benefits     |  |               | 93    |                    |  |                     |    |                     |  |   | (93  | ) |  |   |    | 
|Impairment charges and write-downs |  |               |      |                    |  |                     |    |                     |  |   |     |   |  |   |    | 
|Other                              |  |               | 15    |                    |  |                     |    |                     |  |   | (15  | ) |  |   |    | 
|                                   |  |               |       |                    |  |                     |     |                     |  |   |      |   |  |   |     | 
|Total                              |  | $             | 1,180 |                    |  | $                   | (46 | )                   |  | $ | (417 | ) |  | $ | 717 | 
|                                   |  |               |       |                    |  |                     |     |                     |  |   |      |   |  |   |     | 

Plan FY02Q3 Restructuring Charges (Plan FY02Q3). During October 2001,
the Company announced and implemented an additional restructuring plan designed
to reduce expenses as a result of expected reduction in revenue caused by
client concerns about committing to large capital projects in the face of
weakening global economic conditions. We believe that these concerns were
heightened further by the terrorist attacks in the United States on September
11, 2001 making it difficult for us to accurately forecast our revenues while
global economic conditions were uncertain. Actions taken included a reduction
in the Companys employee workforce and a reduction in the amount of office
space to be used in two of the Companys leased facilities in the U.S.
Involuntary employee terminations totaled 123 across most business functions
and geographic regions through November 30, 2001. Terminations by geographic
region included 112 in the U.S. and 11 in Europe. All terminated employees were
notified by November 30, 2001. The Company recorded a charge for severance and
related benefits of approximately $1.9 million during the three months ended
November 30, 2001. The Company recorded a facility charge of approximately $2.3
million during the three months ended November 30, 2001 resulting from
approximately $0.7 million related to the abandonment of leased office space in
two offices as well as

F-28



---



##### 



approximately $1.6 million from the expected loss of sublease rental income on
office space in Chicago, Illinois that was closed in fiscal 1999. These costs
include managements best estimates of the remaining lease obligations and loss
of sublease rental income.

The following table sets forth a summary of Plan FY02Q3 restructuring
charges, payments made against those charges and the remaining liabilities as
of February 28, 2003 (in thousands):

|                                   |  |               |     |                    |  |                     |    |                     |  |   |      |   |  |   |     | 
|---------------------------------- |  | ------------- | --- | ------------------ |  | ------------------- | -- | ------------------- |  | - | ---- | - |  | - | --- | 
|                                   |  |               |     |                    |  | Adjustments to Plan |    | Utilization of cash |  |   |      |  
|                                   |  |               |     |                    |  | FY02Q3 charges in   |    | in fiscal year      |  |   |      |  
|                                   |  | Balance as of |     | three months ended |  | ended               |    | Balance as of      
|Plan FY02Q3                        |  | Feb 28, 2002  |     | Aug. 31, 2002      |  | Feb. 28, 2003       |    | Feb. 28, 2003      
|                                   |  |               |     |                    |  |                     |    |                    
|Lease obligations and terminations |  | $             | 517 |                    |  | $                   |   |                     |  | $ | (218 | ) |  | $ | 299 | 
|Severance and related benefits     |  |               | 151 |                    |  |                     | 69 |                     |  |   | (161 | ) |  |   | 59  | 
|Impairment charges and write-downs |  |               |    |                    |  |                     |   |                     |  |   |     |   |  |   |    | 
|                                   |  |               |     |                    |  |                     |    |                     |  |   |      |   |  |   |     | 
|Total                              |  | $             | 668 |                    |  | $                   | 69 |                     |  | $ | (379 | ) |  | $ | 358 | 
|                                   |  |               |     |                    |  |                     |    |                     |  |   |      |   |  |   |     | 

Fiscal 1999 Restructuring Charges

Plan FY99 Restructuring Charges (Plan FY99). During the third and fourth
quarters of fiscal 1999, the Company implemented a restructuring plan aimed at
reducing costs and returning the Company to profitability. Actions taken
included a reduction in the Companys workforce of 412 employees across all
business functions in the United States, the abandonment of future lease
commitments on office facilities that were closed and write-downs of operating
assets, goodwill and capitalized software made in accordance with SFAS 121.

The following table sets forth a summary of Plan FY99 restructuring
charges, payments made against those charges and the remaining liabilities as
of February 28, 2003 (in thousands):

|                                   |  |               |       |               |  |                |      |   |  |   |       | 
|---------------------------------- |  | ------------- | ----- | ------------- |  | -------------- | ---- | - |  | - | ----- | 
|                                   |  |               |       |               |  | Utilization of |      |   |  |  
|                                   |  |               |       |               |  | cash in fiscal |      |   |  |  
|                                   |  | Balance as of |       | year ended    |  | Balance as of 
|Plan FY99                          |  | Feb 28, 2002  |       | Feb. 28, 2003 |  | Feb. 28, 2003 
|                                   |  |               |       |               |  |               
|Lease obligations and terminations |  | $             | 3,708 |               |  | $              | (532 | ) |  | $ | 3,176 | 
|Severance and related benefits     |  |               |      |               |  |                |     |   |  |   |      | 
|Impairment charges and write-downs |  |               |      |               |  |                |     |   |  |   |      | 
|Other                              |  |               | 179   |               |  |                | (99  | ) |  |   | 80    | 
|                                   |  |               |       |               |  |                |      |   |  |   |       | 
|Total                              |  | $             | 3,887 |               |  | $              | (631 | ) |  | $ | 3,256 | 
|                                   |  |               |       |               |  |                |      |   |  |   |       | 

The following table sets forth a summary of total restructuring and other
impairment charges, payments made against those charges and the remaining
liabilities as of February 28, 2003 (in thousands):

|                                   |  |               |       |                   |  |                |        |                |  |                  |        |                |  |   |        |   |  |   |        |    
|---------------------------------- |  | ------------- | ----- | ----------------- |  | -------------- | ------ | -------------- |  | ---------------- | ------ | -------------- |  | - | ------ | - |  | - | ------ | ---
|                                   |  |               |       |                   |  | Charges and    |        |                |  |                  |        | Non-cash asset |  |   |        |  
|                                   |  |               |       |                   |  | adjustments to |        | Utilization of |  | disposal         |        |                |  |  
|                                   |  |               |       |                   |  | charges in     |        | cash in fiscal |  | losses in fiscal |        |                |  |  
|                                   |  | Balance as of |       | fiscal year ended |  | year ended     |        | year ended     |  | Balance as of   
|All Plans                          |  | Feb 28, 2002  |       | Feb. 28, 2003     |  | Feb. 28, 2003  |        | Feb. 28, 2003  |  | Feb. 28, 2003   
|                                   |  |               |       |                   |  |                |        |                |  |                 
|Lease obligations and terminations |  | $             | 5,297 |                   |  | $              | 7,973  |                |  | $                | (1,633 | )              |  | $ |       |   |  | $ | 11,637 | (2)
|Severance and related benefits     |  |               | 244   |                   |  |                | 7,942  |                |  |                  | (5,890 | )              |  |   |       |   |  |   | 2,296  |    
|Impairment charges and write-downs |  |               |      |                   |  |                | 2,528  |                |  |                  |       |                |  |   | (2,528 | ) |  |   |       |    
|Other                              |  |               | 194   |                   |  |                | 741    |                |  |                  | (513   | )              |  |   | (135   | ) |  |   | 287    |    
|                                   |  |               |       |                   |  |                |        |                |  |                  |        |                |  |   |        |   |  |   |        |    
|Total                              |  | $             | 5,735 |                   |  | $              | 19,184 |                |  | $                | (8,036 | )              |  | $ | (2,663 | ) |  | $ | 14,220 | (1)
|                                   |  |               |       |                   |  |                |        |                |  |                  |        |                |  |   |        |   |  |   |        |    



---

|(1) |  | $5.9 million and $8.3 million are included in other accrued current
liabilities and other non-current liabilities, respectively, in the
consolidated balance sheet as of February 28, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Certain accrued lease obligations extend through fiscal year 2009.                                                                                                                         

15. SEGMENT INFORMATION

The Company and its subsidiaries are principally engaged in the design,
development, marketing, licensing and support and implementation of an
integrated suite of supply chain planning, pricing and revenue optimization,
supplier relationship management and service & parts management software
products. Substantially all revenue results from the licensing of the Companys
software products and related consulting and support services. The Companys
chief operating decision maker reviews financial information,

F-29



---



##### 



presented on a consolidated basis, accompanied by disaggregated information
about revenue by geographic region for purposes of
making operating decisions and assessing financial performance. Accordingly,
the Company considers itself to be in a single industry segment.

Revenue is attributable to geographic regions based on the location of the
Companys customers. The following table presents total revenue and total
long-lived assets by geographic region for fiscal 2003, 2002 and 2001:

|                   |               |   |                |         |      |   |         |         |  |   |         |         | 
|------------------ | ------------- | - | -------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                   |               |   | February 28,  
|                   |               |   |               
|                   |               |   | 2003           |         | 2002 |   | 2001   
|                   |               |   |                |         |      |   |        
|                   |               |   | (in thousands)
|Revenue:           |               |   |                |         |      |   |         |         |  |   |         |        
|                   | United States |   | $              | 204,352 |      |   | $       | 230,470 |  |   | $       | 191,521 | 
|                   | Europe        |   |                | 44,932  |      |   |         | 62,828  |  |   |         | 51,815  | 
|                   | Asia/Pacific  |   |                | 17,666  |      |   |         | 20,839  |  |   |         | 13,914  | 
|                   | Other         |   |                | 5,436   |      |   |         | 5,750   |  |   |         | 18,913  | 
|                   |               |   |                |         |      |   |         |         |  |   |         |        
|                   |               | $ | 272,386        |         |      | $ | 319,887 |         |  | $ | 276,163 |        
|                   |               |   |                |         |      |   |         |         |  |   |         |        
|Long-lived Assets: |               |   |                |         |      |   |         |         |  |   |         |        
|                   | United States |   | $              | 308,587 |      |   | $       | 383,231 |  |   | $       | 418,604 | 
|                   | Europe        |   |                | 3,584   |      |   |         | 3,625   |  |   |         | 12,683  | 
|                   | Asia/Pacific  |   |                | 2,072   |      |   |         | 2,086   |  |   |         | 2,214   | 
|                   | Other         |   |                | 1,843   |      |   |         | 3,663   |  |   |         | 7,530   | 
|                   |               |   |                |         |      |   |         |         |  |   |         |        
|                   |               | $ | 316,086        |         |      | $ | 392,605 |         |  | $ | 441,031 |        
|                   |               |   |                |         |      |   |         |         |  |   |         |        

No single customer accounted for 10% or more of the Companys revenue in
fiscal 2003, 2002 or 2001.

16. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest amounted to approximately $12.8 million, $12.6
million and $0.5 million in fiscal 2003, 2002 and 2001, respectively. Cash paid
for income taxes amounted to approximately $1.4 million, $1.6 million and $1.9
million, in fiscal 2003, 2002 and 2001, respectively.



| | Supplemental information of non-cash operating activities is as follows:
| | ------------------------------------------------------------------------
|
| | Fiscal 2002.                                                            
|
| |                                                                        
|
| | Supplemental information of non-cash investing activities is as follows:
|
| | Fiscal 2003                                                             
|
| |                                                                        
|
| | Fiscal 2002.                                                            
|
| |                                                                        
|
| | Fiscal 2001.                                                            
|
| |                                                                        
|
| |                                                                        
|
| | Supplemental information of non-cash financing activities is as follows:
|
| | Fiscal 2003                                                             

F-30



---



##### 





| |             |  | We recorded approximately $4.5 million in capital leases (see Note 7)                                 
| | ------------ |  | ------------------------------------------------------------------------------------------------------
|
| | Fiscal 2002.
|
| |             |  | We retired all of our 754,107 treasury shares during fiscal 2002; and                                 
|
| |             |  | We recorded approximately $2.5 million in capital leases (see Note 7).                                
|
| | Fiscal 2001.
|
| |             |  | A warrant for the purchase of 13,987 shares was exercised by a holder electing to surrender 31 shares.

17. RELATED PARTY TRANSACTIONS

Relationship with Warburg Pincus

In October, 2002, the Company appointed William H. Janeway, a
Vice-Chairman of Warburg Pincus LLC, a private equity investment firm, as a
Class III director of our Board of Directors, with a term expiring in 2004. In
connection with Dr. Janeways appointment to the Board, the Company entered
into an agreement with Warburg Pincus Private Equity VIII, L.P. in which the
Company consented to the acquisition by Warburg Pincus and certain of its
affiliates of up to 19.9% of Manugistics common stock and agreed that for as
long as Warburg Pincus and is affiliates beneficially own at least ten percent
(10%) of Manugistics common stock, the Company would nominate and use its best
efforts to have elected to its Board one person designated by Warburg Pincus
and reasonably acceptable to the Company. In addition, Warburg Pincus agreed
that, for the duration of the standstill period, neither it nor its affiliates
would acquire more than 19.9% of Manugistics common stock.

The standstill period is the earlier of:



| |  |  | three years;                                                                                                                                                                                    
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the date on which another person acquires more than 15% of
Manugistics common stock with the Companys consent and on terms more
favorable than those obtained by Warburg Pincus; or            
|
| |  |  | the date on which the Company fails to perform its agreement with
respect to the acquisition of additional shares by Warburg Pincus and
the election of a director designated by Warburg Pincus.

At the time the agreement was entered into, Warburg Pincus and certain of
its affiliates held approximately 10.9% of Manugistics common stock.

18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly consolidated financial information for fiscal 2003
and 2002 follows:

|                                                   |  |                                       |         |             |  |             |         |             |  |   |         |   |  |   |          |  
|-------------------------------------------------- |  | ------------------------------------- | ------- | ----------- |  | ----------- | ------- | ----------- |  | - | ------- | - |  | - | -------- | -
|                                                   |  | 1st Quarter                           |         | 2nd Quarter |  | 3rd Quarter |         | 4th Quarter
|                                                   |  |                                       |         |             |  |             |         |            
|                                                   |  | (in thousands, except per share data)
|Fiscal 2003                                        |  |                                       |         |             |  |             |         |             |  |   |         |   |  |   |          |  
|Total revenue                                      |  | $                                     | 74,600  |             |  | $           | 69,929  |             |  | $ | 62,364  |   |  | $ | 65,493   |  
|Operating loss                                     |  |                                       | (24,809 | )           |  |             | (25,511 | )           |  |   | (23,682 | ) |  |   | (108,877 | )
|Net loss                                           |  |                                       | (27,081 | )           |  |             | (47,717 | )           |  |   | (26,003 | ) |  |   | (111,438 | )
|Basic and diluted loss per share                   |  | $                                     | (0.39   | )           |  | $           | (0.68   | )           |  | $ | (0.37   | ) |  | $ | (1.59    | )
|Shares used in basic and
diluted share computation |  |                                       | 69,356  |             |  |             | 69,812  |             |  |   | 69,876  |   |  |   | 70,028   |  
|Fiscal 2002                                        |  |                                       |         |             |  |             |         |             |  |   |         |   |  |   |          |  
|Total revenue                                      |  | $                                     | 92,442  |             |  | $           | 73,774  |             |  | $ | 71,012  |   |  | $ | 82,659   |  
|Operating loss                                     |  |                                       | (24,312 | )           |  |             | (30,080 | )           |  |   | (43,164 | ) |  |   | (27,024  | )
|Net loss                                           |  |                                       | (23,426 | )           |  |             | (21,664 | )           |  |   | (44,980 | ) |  |   | (25,088  | )
|Basic and diluted loss per share                   |  | $                                     | (0.35   | )           |  | $           | (0.32   | )           |  | $ | (0.66   | ) |  | $ | (0.36    | )
|Shares used in basic and
diluted share computation |  |                                       | 67,041  |             |  |             | 67,884  |             |  |   | 68,142  |   |  |   | 68,750   |  

Included in the second, third and fourth quarters of fiscal 2003 and the
second and third quarters of fiscal 2002 are restructuring charges (see Note
14). Included in the fourth quarter of fiscal 2003 is the goodwill impairment
charge (see Note 5). Included in all quarters fiscal 2002 is non-cash stock
compensation (benefits) charges related to the repricing of stock options (see
Note 8). Included

F-31



---



##### 



in all quarters of fiscal 2003 and fiscal 2002 is the amortization of unvested
stock options assumed in the acquisition of Talus (see Note 8). Included in the
first quarter of fiscal 2003 are non-recurring charges for purchased research
and development related to the
acquisition of WDS (see Note 12). Included in the third quarter of fiscal 2002
is the IRI settlement charge and the Converge, Inc. investment impairment (see
Note 7 and 13).

F-32



---



##### 



INDEPENDENT AUDITORS REPORT ON SCHEDULE

To the Board of Directors and Stockholders of Manugistics Group, Inc.
Rockville, MD

We have audited the consolidated financial statements of Manugistics
Group, Inc. and its subsidiaries (the Company) as of February 28, 2003 and
2002, and for each of the three years in the period ended February 28, 2003,
and have issued our report thereon dated March 27, 2003; (which report expresses an unqualified opinion
and includes an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002); such financial
statements and report are included elsewhere in this Form 10-K. Our audits also
included the consolidated financial statement schedule of Manugistics Group,
Inc., listed in Item 15. This consolidated financial statement schedule is the
responsibility of the Companys management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

McLean, VA
March 27, 2003

S-1



---



##### 



MANUGISTICS GROUP, INC. AND SUBSIDIARIES
SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)

|                                |  |            |       |            |  |            |       |              |  |            |        |            |  |   |       |  |  |   |       | 
|------------------------------- |  | ---------- | ----- | ---------- |  | ---------- | ----- | ------------ |  | ---------- | ------ | ---------- |  | - | ----- |  |  | - | ----- | 
|                                |  | Balance at |       | Charged to |  |            |       |              |  | Charged to |        | Balance at
|                                |  | Beginning  |       | Costs and  |  |            |       |              |  | Other      |        | End       
|                                |  | of Period  |       | Expenses   |  | Write-offs |       | Accounts (1) |  | of Period 
|                                |  |            |       |            |  |            |       |              |  |           
|Allowance for doubtful accounts
|Year ended February 28, 2003    |  | $          | 8,308 |            |  | $          | 5,072 |              |  | $          | (6,433 | )          |  | $ | 60    |  |  | $ | 7,007 | 
|Year ended February 28, 2002    |  |            | 5,604 |            |  |            | 7,096 |              |  |            | (5,365 | )          |  |   | 973   |  |  |   | 8,308 | 
|Year ended February 28, 2001    |  |            | 1,875 |            |  |            | 7,448 |              |  |            | (4,740 | )          |  |   | 1,021 |  |  |   | 5,604 | 



---

|(1) |  | Allowance for doubtful accounts assumed in acquisitions.
|--- |  | --------------------------------------------------------

S-2