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Manhattan Associates 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
MANHATTAN ASSOCIATES, INC.
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
     
o   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: 0-23999
MANHATTAN ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
     
Georgia
(State or Other Jurisdiction of Incorporation or Organization)
  58-2373424
(I.R.S. Employer Identification No.)
     
2300 Windy Ridge Parkway, Suite 1000
Atlanta, Georgia

(Address of Principal Executive Offices)
   
30339
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (770) 955-7070
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
         
   
Large accelerated filer þ
  Accelerated filer o
   
Non-accelerated filer o (Do not check if a smaller reporting company)
  Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the Registrant’s class of capital stock outstanding as of August 4, 2008, the latest practicable date, is as follows: 24,520,142 shares of common stock, $0.01 par value per share.
 
 

 


 

MANHATTAN ASSOCIATES, INC.
FORM 10-Q
Quarter Ended June 30, 2008
TABLE OF CONTENTS
             
        Page  
Item 1.          
   
 
       
        3  
   
 
       
        4  
   
 
       
        5  
   
 
       
        6  
   
 
       
Item 2.       14  
   
 
       
Item 3.       29  
   
 
       
Item 4.       30  
   
 
       
           
           
   
 
       
Item 1.       31  
   
 
       
Item 1A.       31  
   
 
       
Item 2.       31  
   
 
       
Item 3.       31  
   
 
       
Item 4.       31  
   
 
       
Item 5.       32  
   
 
       
Item 6.       32  
   
 
       
Signatures.     33  
 EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
 EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
 EX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO

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PART I
FINANCIAL INFORMATION
Item 1.   Financial Statements.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
                 
    June 30,     December 31,  
    2008     2007  
    (unaudited)          
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 76,928     $ 44,675  
Short term investments
          17,904  
Accounts receivable, net of allowance of $5,136 and $6,618 in 2008 and 2007, respectively
    77,098       72,534  
Deferred income taxes
    6,642       6,602  
Prepaid expenses and other current assets
    8,297       8,646  
 
           
Total current assets
    168,965       150,361  
Property and equipment, net
    25,090       24,421  
Long-term investments
    6,532       10,193  
Acquisition-related intangible assets, net
    7,966       9,691  
Goodwill, net
    62,300       62,285  
Deferred income taxes
    9,845       9,846  
Other assets
    4,042       4,863  
 
           
Total assets
  $ 284,740     $ 271,660  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 8,974     $ 9,112  
Accrued compensation and benefits
    16,536       19,357  
Accrued and other liabilities
    12,224       10,040  
Deferred revenue
    34,572       31,817  
Income taxes payable
    9,903       8,156  
 
           
Total current liabilities
    82,209       78,482  
 
               
Other non-current liabilities
    7,848       7,473  
 
               
Shareholders’ equity:
               
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2008 or 2007
           
Common stock, $.01 par value; 100,000,000 shares authorized; 24,681,791 and 24,899,919 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively
    245       249  
Additional paid-in capital
    12,041       17,744  
Retained earnings
    181,700       165,189  
Accumulated other comprehensive income
    697       2,523  
 
           
Total shareholders’ equity
    194,683       185,705  
 
           
Total liabilities and shareholders’ equity
  $ 284,740     $ 271,660  
 
           
See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

Item 1.   Financial Statements (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2008     2007     2008     2007  
    (unaudited)     (unaudited)  
Revenue:
                               
Software license
  $ 19,365     $ 23,398     $ 37,677     $ 37,151  
Services
    62,289       55,863       122,126       110,663  
Hardware and other
    8,836       10,368       19,011       20,005  
 
                       
Total Revenue
    90,490       89,629       178,814       167,819  
 
                               
Costs and Expenses:
                               
Cost of license
    1,641       1,303       2,785       2,446  
Cost of services
    29,856       27,284       61,136       53,283  
Cost of hardware and other
    7,317       8,864       15,583       17,225  
Research and development
    11,711       12,278       24,365       23,429  
Sales and marketing
    14,676       14,491       28,248       27,098  
General and administrative
    8,867       8,383       17,938       16,529  
Depreciation and amortization
    3,158       3,354       6,406       6,855  
 
                       
Total costs and expenses
    77,226       75,957       156,461       146,865  
 
                       
 
                               
Operating income
    13,264       13,672       22,353       20,954  
 
                               
Other income, net
    650       298       2,951       1,390  
 
                       
Income before income taxes
    13,914       13,970       25,304       22,344  
Income tax provision
    4,835       4,959       8,793       7,932  
 
                       
Net income
  $ 9,079     $ 9,011     $ 16,511     $ 14,412  
 
                       
 
                               
Basic earnings per share
  $ 0.37     $ 0.34     $ 0.68     $ 0.53  
Diluted earnings per share
  $ 0.37     $ 0.32     $ 0.66     $ 0.51  
 
                               
Weighted average number of shares:
                               
Basic
    24,259       26,555       24,341       26,953  
Diluted
    24,826       27,761       24,833       28,149  
See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

Item 1.   Financial Statements (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    Six Months Ended  
    June 30,  
    2008     2007  
    (unaudited)  
Operating activities:
               
Net income
  $ 16,511     $ 14,412  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    6,406       6,855  
Stock compensation
    4,337       3,155  
Loss/(gain) on disposal of equipment
    32       (3 )
Tax benefit of stock awards exercised/vested
    119       1,188  
Excess tax deficiency from stock based compensation
    (76 )     (519 )
Unrealized foreign currency gains
    (1,292 )     (52 )
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (3,840 )     (9,439 )
Other assets
    1,126       2,321  
Accounts payable, accrued and other liabilities
    (193 )     (4,633 )
Income taxes
    1,791       (65 )
Deferred revenue
    2,196       2,988  
 
           
Net cash provided by operating activities
    27,117       16,208  
 
           
 
               
Investing activities:
               
Purchase of property and equipment
    (5,560 )     (6,467 )
Net maturities of investments
    21,533       45,239  
 
           
Net cash provided by investing activities
    15,973       38,772  
 
           
 
               
Financing activities:
               
Purchase of common stock
    (12,351 )     (52,768 )
Excess tax benefits from stock based compensation
    76       519  
Proceeds from issuance of common stock from options exercised
    2,187       6,100  
 
           
Net cash used in financing activities
    (10,088 )     (46,149 )
 
           
 
               
Foreign currency impact on cash
    (749 )     923  
 
           
 
               
Net change in cash and cash equivalents
    32,253       9,754  
Cash and cash equivalents at beginning of period
    44,675       18,449  
 
           
Cash and cash equivalents at end of period
  $ 76,928     $ 28,203  
 
           
 
               
Supplemental disclosures of cash flow information — noncash investing activity:
               
Tenant improvements funded by landlord
  $     $ 7,918  
 
           
See accompanying Notes to Condensed Consolidated Financial Statements.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2008
(unaudited)
1. Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of our financial position at June 30, 2008, the results of operations for the three and six months ended June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007. The results for the three and six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with our audited consolidated financial statements and management’s discussion and analysis included in our annual report on Form 10-K for the year ended December 31, 2007.
2. Principles of Consolidation
     The accompanying condensed consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
3. Revenue Recognition
     The Company’s revenue consists of revenues from the licensing and hosting of software, fees from implementation and training services (collectively, “professional services”), plus customer support and software enhancements, and sales of hardware and other revenues (other revenues consists of reimbursements of out-of-pocket expenses incurred in connection with its professional services). All revenue is recognized net of any related sales taxes.
     The Company recognizes license revenue under Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position No. 98-9, “Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”), promulgated by the American Institute of Certified Public Accountants, specifically when the following criteria are met: (1) a signed contract is obtained; (2) delivery of the product has occurred; (3) the license fee is fixed or determinable; and (4) collection is probable. SOP 98-9 requires recognition of revenue using the “residual method” when (a) there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting; (b) vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements in the arrangement; and (c) all revenue-recognition criteria in SOP 97-2, other than the requirement for vendor-specific objective evidence of the fair value of each delivered element of the arrangement, are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized using contract accounting.
     The accounting related to license revenue recognition in the software industry is complex and affected by interpretations of the rules which are subject to change. Judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience and economic market conditions. If market conditions decline, or if the financial condition of our customers deteriorates, the Company may be unable to determine that

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
collectibility is probable, and the Company could be required to defer the recognition of revenue until the Company receives customer payments.
     The Company’s services revenue consists of fees generated from professional services and customer support and software enhancements related to the Company’s software products. Fees from professional services performed by the Company are generally billed on an hourly basis, and revenue is recognized as the services are performed. Professional services are sometimes rendered under agreements in which billings are limited to contractual maximums or based upon a fixed-fee for portions of or all of the engagement. Revenue related to fixed-fee based contracts is recognized on a proportional performance basis based on the hours incurred on discrete projects within an overall services arrangement. Project losses are provided for in their entirety in the period in which they become known. Revenue related to customer support services and software enhancement is generally paid in advance and recognized ratably over the term of the agreement, typically 12 months.
     Hardware and other revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, that are integrated with and complementary to the Company’s software solutions. As part of a complete solution, the Company’s customers periodically purchase hardware from the Company in conjunction with the licensing of software. These products include computer hardware, radio frequency terminal networks, radio frequency identification (“RFID”) chip readers, bar code printers and scanners and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. The Company generally purchases hardware from the Company’s vendors only after receiving an order from a customer. As a result, the Company does not maintain significant hardware inventory.
     In accordance with the Financial Accounting Standard Board’s (“FASB’s”) Emerging Issues Task Force (“EITF”) Issue No. 01-14 (“EITF No. 01-14”), “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred,” the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been classified to hardware and other revenue. The total amount of expense reimbursement recorded to revenue was $3.4 million and $6.4 million for the three and six months ended June 30, 2008, respectively and $3.1 million and $6.1 million for the three and six months ended June 30, 2007, respectively.
4. Investments
     In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a framework for reporting fair value and expands disclosures required for fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. However, in February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, which delayed for one year the applicability of SFAS No. 157’s fair-value measurements to nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis without material impact to the financial statements. On January 1, 2008, the Company partially adopted SFAS No. 157 related to all financial assets and liabilities and non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis. The Company is currently assessing the potential impact this statement will have on the Consolidated Financial Statements once it is adopted for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
     SFAS No. 157 establishes a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of asset or liability and their characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:
    Level 1—Quoted prices in active markets for identical instruments.
 
    Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
    Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
     The Company’s investments in marketable securities consist principally of debt instruments of state and local government agencies and U.S. corporate commercial paper. These investments are categorized as available-for-sale securities and recorded at fair market value, as defined by SFAS No. 157. Investments with maturities of 90 days or less from the date of purchase are classified as cash equivalents; investments with maturities of greater than 90 days from the date of purchase but less than one year are generally classified as short-term investments; and investments with maturities of greater than one year from the date of purchase are generally classified as long-term investments. The Company’s long-term investments consist of corporate or U.S. government debt instruments with maturities between one year and five years. The Company holds investments in Auction Rate Securities, which have original maturities greater than one year, but which have auctions to reset the yield every 7 to 35 days. Certain auctions failed during the second quarter of 2008 and the underlying securities were not called by the issuer. The Company classified $6.5 million of auction rate securities that failed as long-term investments as of June 30, 2008. In determining the fair values of these auction rate securities, the Company considered the credit worthiness of the counterparty, estimates of interest rates, expected holding periods, and the timing and value of expected future cash flows. The Company uses quoted prices from active markets which are classified at level 1 as a highest level observable input in the disclosure hierarchy framework as defined by SFAS No. 157 for all other available-for-sale securities. Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders’ equity until realized. For the purposes of computing realized gains and losses, cost is determined on a specific identification basis.
     The following table provides the assets and liabilities carried at fair value measured on a recurring basis at June 30, 2008 (in thousands):
                                 
    Fair Value Measurements at June 30, 2008 Using        
            Significant     Significant        
    Quoted     Other Observable     Unobservable        
    Prices     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
Available-for-sale securities
  $ 55,518     $     $ 6,506     $ 62,024  
 
                       
Total investments
  $ 55,518     $     $ 6,506     $ 62,024  
 
                       

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
     SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of SFAS 115” (“SFAS No. 159”), permits but does not require the Company to measure financial instruments and certain other items at fair value. The Company did not elect to measure at fair value any of its financial instruments under the provisions of SFAS No. 159, thus the Company’s adoption of this statement effective January 1, 2008 did not have an impact on the Company’s consolidated financial statements.
5. Stock-Based Compensation
     During the three months ended June 30, 2008 and 2007, the Company granted options to purchase 32,600 shares and 20,750 shares of common stock, respectively. The Company recorded stock option expense of $1.4 million and $1.1 million during the three months ended June 30, 2008 and 2007, respectively. During the six months ended June 30, 2008 and 2007, the Company granted options to purchase 621,336 shares and 600,113 shares of common stock, respectively. The Company recorded stock option expense of $2.7 million and $2.3 million during the six months ended June 30, 2008 and 2007, respectively.
     The Company also granted 10,864 and 5,665 shares of restricted stock during the three months ended June 30, 2008 and 2007, respectively. The Company recorded restricted stock expense of $0.9 million and $0.5 million during the three months ended June 30, 2008 and 2007, respectively. The Company granted 198,571 and 195,599 shares of restricted stock during the six months ended June 30, 2008 and 2007, respectively. The Company recorded restricted stock expense of $1.7 million and $0.9 million during the six months ended June 30, 2008 and 2007, respectively.
6. Income Taxes
     The Company adopted the provisions of FASB Interpretation No 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. During the three and six months ended June 30, 2008 there have been no material changes in the amount of the Company’s unrecognized tax benefits. Further, there have been no material changes in the Company’s expectations within the next 12 months regarding significant increases or decreases to unrecognized tax benefits as a result of positions taken.
     The Company recognizes potential accrued interest and penalties to unrecognized tax benefits within its global operations as income tax expense.
     The Company conducts business globally and, as a result, files income tax returns in the United States Federal jurisdiction and in many state and foreign jurisdictions. The Company is no longer subject to U.S. Federal, state and local, or non-U.S. income tax examinations for the years before 1999.
7. Comprehensive Income
     Comprehensive income includes net income, foreign currency translation adjustments and unrealized gains and losses on investments that are excluded from net income and reflected in shareholders’ equity.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
     The following table sets forth the calculation of comprehensive income (in thousands):
                                 
    For Three Months     For Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
Net income
  $ 9,079     $ 9,011     $ 16,511     $ 14,412  
 
                               
Other comprehensive (loss) income, net of tax:
                               
Foreign currency translation adjustment
    (820 )     1,121       (1,794 )     1,330  
Unrealized (loss) on investments
    (1 )     (26 )     (32 )     (21 )
 
                       
Other comprehensive (loss) income
    (821 )     1,095       (1,826 )     1,309  
 
                       
Comprehensive income
  $ 8,258     $ 10,106     $ 14,685     $ 15,721  
 
                       
8. Net Income Per Share
     Basic net income per share is computed using net income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for the period presented. Diluted net income per share is computed using net income divided by Weighted Shares plus common equivalent shares (“CESs”) outstanding for each period presented using the treasury stock method.
     The following is a reconciliation of the income and share amounts used in the computation of basic and diluted net income per common share:
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
            (in thousands, except per share data)          
Net income
  $ 9,079     $ 9,011     $ 16,511     $ 14,412  
Earnings per share:
                               
Basic
  $ 0.37     $ 0.34     $ 0.68     $ 0.53  
Effect of CESs
          (0.02 )     (0.02 )     (0.02 )
 
                       
Diluted
  $ 0.37     $ 0.32     $ 0.66     $ 0.51  
 
                               
Weighted average number of shares:
                               
Basic
    24,259       26,555       24,341       26,953  
Effect of CESs
    567       1,206       492       1,196  
 
                       
Diluted
    24,826       27,761       24,833       28,149  
     Weighted average shares issuable upon the exercise of stock options that were not included in the calculation of diluted earnings per share were 3,515,818 shares and 1,421,516 shares for the three months ended June 30, 2008 and 2007, respectively, and 3,816,752 shares and 1,462,266 shares for the six months ended June 30, 2008 and 2007, respectively. Such shares were not included because they were anti-dilutive.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
9. Contingencies
     From time to time, the Company may be involved in litigation relating to claims arising out of its ordinary course of business. Many of the Company’s installations involve products that are critical to the operations of its clients’ businesses. Any failure in a product could result in a claim for substantial damages against the Company, regardless of its responsibility for such failure. Although the Company attempts to limit contractually its liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in the Company’s contracts will be enforceable in all instances. The Company is not presently involved in any material litigation. However, it is involved in various legal proceedings. The Company believes that any liability that may arise as a result of these proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows. The Company expenses legal costs associated with loss contingencies as such legal costs are incurred.
10. Operating Segments
     The Company operates its business in three geographical segments: the Americas (North America and Latin America), Europe, Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”). The information for the periods presented below reflects these segments. All segments derive revenue from the sale and implementation of the Company’s supply chain execution and planning solutions. The individual products sold by the segments are similar in nature, and are all designed to help companies manage the effectiveness and efficiency of their supply chain. The Company uses the same accounting policies for each operating segment. The Chief Executive Officer and Chief Financial Officer evaluate performance based on revenue and operating results for each region.
     The Americas segment charges royalty fees to the EMEA and APAC segments based on software licenses sold by those operating segments. The royalties, which totaled approximately $1.0 million and $1.1 million for the three months ended June 30, 2008 and 2007, respectively, and $2.2 million and $1.2 million for the six months ended June 30, 2008 and 2007, respectively, are included in cost of revenue in EMEA and APAC with a corresponding reduction in the Americas cost of revenue. The revenues represented below are from external customers only. The geographical-based costs consist of costs of personnel, direct sales and marketing expenses, and general and administrative costs to support the business. There are certain corporate expenses included in the Americas region that are not charged to the other segments including research and development, certain marketing and general and administrative costs that support the global organization and the amortization of acquired developed technology. Included in the Americas costs are all research and development costs including the costs associated with the Company’s India operations.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
     The following table presents the revenues, expenses and operating income (loss) by reporting segment for the three and six months ended June 30, 2008 and 2007 (in thousands):
                                                                 
    For the Three Months ended June 30, 2008     For the Three Months ended June 30, 2007  
    Americas     EMEA     APAC     Total     Americas     EMEA     APAC     Total  
Revenue:
                                                               
License
  $ 15,252     $ 2,448     $ 1,665     $ 19,365     $ 18,946     $ 3,967     $ 485     $ 23,398  
Services
    50,166       9,120       3,003       62,289       46,791       5,475       3,597       55,863  
Hardware and other
    8,133       393       310       8,836       9,862       367       139       10,368  
 
                                               
Total revenue
    73,551       11,961       4,978       90,490       75,599       9,809       4,221       89,629  
 
                                               
Costs and Expenses:
                                                               
Cost of revenue
    29,585       6,250       2,979       38,814       29,301       5,265       2,885       37,451  
Operating expenses
    30,380       3,340       1,534       35,254       30,922       3,142       1,088       35,152  
Depreciation and amortization
    2,943       156       59       3,158       3,038       257       59       3,354  
 
                                               
Total costs and expenses
    62,908       9,746       4,572       77,226       63,261       8,664       4,032       75,957  
 
                                               
Operating income
  $ 10,643     $ 2,215     $ 406     $ 13,264     $ 12,338     $ 1,145     $ 189     $ 13,672  
 
                                               
 
                                               
                                                                 
    For the Six Months ended June 30, 2008     For the Six Months ended June 30, 2007  
    Americas     EMEA     APAC     Total     Americas     EMEA     APAC     Total  
Revenue:
                                                               
License
  $ 28,679     $ 6,019     $ 2,979     $ 37,677     $ 32,346     $ 4,266     $ 539     $ 37,151  
Services
    99,317       17,152       5,657       122,126       92,639       10,703       7,321       110,663  
Hardware and other
    17,684       818       509       19,011       19,060       684       261       20,005  
 
                                               
Total revenue
    145,680       23,989       9,145       178,814       144,045       15,653       8,121       167,819  
Costs and Expenses:
                                                               
Cost of revenue
    60,862       12,850       5,792       79,504       57,928       9,287       5,739       72,954  
Operating expenses
    61,147       6,542       2,862       70,551       58,862       5,994       2,200       67,056  
Depreciation and amortization
    5,963       327       116       6,406       6,183       548       124       6,855  
 
                                               
Total costs and expenses
    127,972       19,719       8,770       156,461       122,973       15,829       8,063       146,865  
 
                                               
Operating income (loss)
  $ 17,708     $ 4,270     $ 375     $ 22,353     $ 21,072     $ (176 )   $ 58     $ 20,954  
 
                                               
     Our services revenue consists of fees generated from professional services and customer support and software enhancements related to our software products for the three and six months ended in June 30, 2008 and 2007 are as follows (in thousands):

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
Professional services
  $ 42,866     $ 39,865     $ 84,584     $ 78,696  
Customer support and software enhancements
    19,423       15,998       37,542       31,967  
 
                       
Total services revenue
  $ 62,289     $ 55,863     $ 122,126     $ 110,663  
 
                       
     License revenues related to our warehouse and non-warehouse product groups for the three and six months ended in June 30, 2008 and 2007 are as follows (in thousands):
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
Warehouse
  $ 10,515     $ 10,527     $ 19,678     $ 18,318  
Non-Warehouse
    8,850       12,871       17,999       18,833  
 
                       
Total license revenue
  $ 19,365     $ 23,398     $ 37,677     $ 37,151  
 
                       
11. New Accounting Pronouncements
     In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a framework for reporting fair value and expands disclosures required for fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. However, in February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” which delayed for one year the applicability of SFAS No. 157’s fair-value measurements to nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. The Company partially adopted SFAS No. 157 on January 1, 2008 related to all financial assets and liabilities and non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis. The Company is currently assessing the potential impact this statement will have on the Consolidated Financial Statements once it is adopted for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. See Note 4, Investments, for further discussion of the adoption.
     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157, “Fair Value Measurements,” and FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective for the entity’s fiscal year that begins after November 15, 2007. The Company did not elect to measure at fair value any of its financial instruments under the provisions of SFAS No. 159, thus the adoption of this statement effective January 1, 2008 did not have an impact on the Company’s consolidated financial statements.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2008
(unaudited)
     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (SFAS No. 141(R)”) which amends SFAS No. 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively. The Company will adopt SFAS No. 141(R) effective January 1, 2009 and apply it to any business combinations on or after that date.
     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51,” (“SFAS No. 160”) which establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect that the implementation of SFAS No. 160 will have a material impact on its consolidated financial statements.
     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161,”) an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect that the implementation of SFAS No. 161 will have a material impact on its consolidated financial statements.
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
     Certain statements contained in this filing are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to plans for future business development activities, anticipated costs of revenues, product mix and service revenues, research and development and selling, general and administrative activities, and liquidity and capital needs and resources. When used in this report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this quarterly report. Such forward-looking statements are subject to risks, uncertainties

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and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. For further information about these and other factors that could affect our future results, please see “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2007. Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. The following discussion should be read in conjunction with the condensed consolidated financial statements for the three and six months ended June 30, 2008 and 2007, including the notes to those statements, included elsewhere in this quarterly report (the “Condensed Consolidated Financial Statements”). We also recommend the following discussion be read in conjunction with management’s discussion and analysis and consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2007.
     References in this filing to the “Company,” “Manhattan,” “Manhattan Associates,” “we,” “our,” and “us” refer to Manhattan Associates, Inc., our predecessors, and our wholly-owned and consolidated subsidiaries.
Business
     We are a leading developer and provider of supply chain solutions that help organizations optimize the effectiveness, efficiency, and strategic advantages of their supply chains. Our business is organized into three geographical reporting segments: Americas, EMEA, and APAC. Our solutions consist of software, services and hardware, which coordinate people, workflows, assets, events and tasks holistically across the functions linked in a supply chain from planning through execution. These solutions also help coordinate the actions, data exchange and communication of participants in supply chain ecosystems, such as manufacturers, suppliers, distributors, trading partners, transportation providers, channels (such as catalogers, store retailers and Web outlets) and consumers.
     Our solutions are designed to help organizations optimize their supply chain operations holistically, from planning through execution. We call our portfolio of supply chain software solutions Manhattan SCOPETM (Supply Chain Optimization from Planning through Execution). SCOPE includes our five supply chain solution suites: Planning and Forecasting, Inventory Optimization, Order Lifecycle Management, Transportation Lifecycle Management and Distribution Management. For all of our solution suites, we offer services such as design, configuration, implementation, product assessment and training plus customer support and software enhancement subscriptions.
     For additional information regarding our supply chain software solutions, please refer to the Software Solutions section under Item 1, Business of our annual report on Form 10-K for the year ended December 31, 2007.
     For all of our solutions, we offer services such as design, configuration, implementation, product assessment and training plus customer support and software enhancement subscriptions.
Highlights of Second Quarter 2008 Condensed Consolidated Financial Results
     Summarized highlights of the 2008 second quarter results, as compared to the 2007 second quarter, follow:
    Consolidated revenue increased 1% to $90.5 million.
    License revenue decreased 17% to $19.4 million.
 
    Services revenue totaled $62.3 million, increasing 12%;

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    Operating income decreased 3% to $13.3 million;
 
    Diluted earnings per share increased 16% to $0.37 per share;
 
    Cash Flow from Operations increased 58% to $21.0 million;
 
    Cash and Investments on hand was $83.5 million and $72.8 million at June 30, 2008 and December 31, 2007, respectively;
 
    The Company did not execute any share repurchases in the second quarter of 2008. The Company has $12.6 million of remaining share repurchase authority.
Results of Operations
     The following table summarizes our consolidated results for the three and six months ended June 30, 2008 and 2007.
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2008     2007     2008     2007  
    (in thousands, except per share data)  
Revenue
  $ 90,490     $ 89,629     $ 178,814     $ 167,819  
Costs and expenses
    77,226       75,957       156,461       146,865  
 
                       
Operating income
    13,264       13,672       22,353       20,954  
Other income, net
    650       298       2,951       1,390  
 
                       
Income before taxes
    13,914       13,970       25,304       22,344  
Net income
  $ 9,079     $ 9,011     $ 16,511     $ 14,412  
 
                       
Diluted net income per share
  $ 0.37     $ 0.32     $ 0.66     $ 0.51  
 
                       
Diluted weighted average number of shares
    24,826       27,761       24,833       28,149  
 
                       
     We manage our business based on three geographic regions: the Americas, EMEA, and APAC. Geographic revenue information is based on the location of sale. During the three and six months ended June 30, 2008 and 2007, we derived the majority of our revenues from sales to customers within our Americas region. The following table summarizes revenue and operating profit by region:

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    Three Months Ended June 30,     Six Months Ended June 30,  
                    % Change                     % Change  
    2008     2007     2008 to 2007     2008     2007     2008 to 2007  
    (in thousands)             (in thousands)          
Revenue:
                                               
License
                                               
Americas
  $ 15,252     $ 18,946       -19 %   $ 28,679     $ 32,346       -11 %
EMEA
    2,448       3,967       -38 %     6,019       4,266       41 %
APAC
    1,665       485       243 %     2,979       539       453 %
 
                                   
Total license
  $ 19,365     $ 23,398       -17 %   $ 37,677     $ 37,151       1 %
 
                                               
Services
                                               
Americas
  $ 50,166     $ 46,791       7 %   $ 99,317     $ 92,639       7 %
EMEA
    9,120       5,475       67 %     17,152       10,703       60 %
APAC
    3,003       3,597       -17 %     5,657       7,321       -23 %
 
                                   
Total services
  $ 62,289     $ 55,863       12 %   $ 122,126     $ 110,663       10 %
 
                                               
Hardware and other
                                               
Americas
  $ 8,133     $ 9,862       -18 %   $ 17,684     $ 19,060       -7 %
EMEA
    393       367       7 %     818       684       20 %
APAC
    310       139       123 %     509       261       95 %
 
                                   
Total hardware and other
  $ 8,836     $ 10,368       -15 %   $ 19,011     $ 20,005       -5 %
 
                                               
Total Revenue
                                               
Americas
  $ 73,551     $ 75,599       -3 %   $ 145,680     $ 144,045       1 %
EMEA
    11,961       9,809       22 %     23,989       15,653       53 %
APAC
    4,978       4,221       18 %     9,145       8,121       13 %
 
                                   
Total revenue
  $ 90,490     $ 89,629       1 %   $ 178,814     $ 167,819       7 %
 
                                   
 
                                               
Operating income (loss):
                                               
Americas
  $ 10,643     $ 12,338       -14 %   $ 17,708     $ 21,072       -16 %
EMEA
    2,215       1,145       93 %     4,270       (176 )     2526 %
APAC
    406       189       115 %     375       58       547 %
 
                                       
Total operating income
  $ 13,264     $ 13,672       -3 %   $ 22,353     $ 20,954       7 %
 
                                   

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Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
     The results of our operations for second quarter 2008 and 2007 are discussed below.
Revenue
                                         
    Three Months Ended June 30,  
                    % Change     % of Total Revenue  
    2008     2007     2008 to 2007     2008     2007  
    (in thousands)                          
License
  $ 19,365     $ 23,398       -17 %     21 %     26 %
Services
    62,289       55,863       12 %     69 %     62 %
Hardware and other
    8,836       10,368       -15 %     10 %     12 %
 
                             
Total revenue
  $ 90,490     $ 89,629       1 %     100 %     100 %
 
                             
     Our revenue consists of fees generated from the licensing and hosting of software; fees from professional services and customer support and software enhancements; and sales of complementary radio frequency and computer equipment. We believe our revenue growth in the last year is attributable to several factors, including, among others, our market leadership position as to the breadth of our product offerings, financial stability, a compelling return on investment proposition for our customers, and increased services associated with implementations of our expanded product suite.
     License revenue. License revenue decreased $4.0 million or 17% in the quarter ended June 30, 2008 over the prior year primarily driven by record license revenue in our Americas and EMEA in the second quarter 2007 as well as the impact of the current macro economic environment which somewhat lengthened the sales cycles in the Americas market in 2008. The Americas and EMEA license revenues decreased $3.7 million and $1.5 million, respectively compared to the prior year. This decrease was partially offset by an increase in APAC license revenue of $1.2 million in the second quarter of 2008.
     License sales mix across our product suite remained well-balanced in the quarter with 54% of sales in our warehouse management solutions and 46% in non-warehouse management solutions. Our core warehouse management solutions were flat in the second quarter of 2008 compared to the same quarter in the prior year and non-warehouse management solutions decreased 31% compared to the same quarter in the prior year.
     Services revenue. Services revenue increased $6.4 million or 12% in the second quarter of 2008 compared to the same quarter in the prior year principally due to $3.0 million or 8% increase in professional services revenue from larger implementation projects, increased license sales and $3.4 million or 21% increase in revenue from customer support and software enhancements. The Americas and EMEA segments had record services revenue for the quarter with an increase of $3.4 million or 7% and $3.6 million or 67%, respectively, from the second quarter of 2008 compared to the second quarter of 2007 largely due to implementation services for license deals signed during 2007. These increases were partially offset by a decrease in APAC services revenue of $0.6 million, or 17%, from the second quarter of 2008 compared to the second quarter of 2007 largely because license sales, which drive services revenues, were lower from mid 2006 to mid 2007.

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     Over the past several years, our services revenue has been affected by some pricing pressures. We believe that the pricing pressures are attributable to global macro-economic conditions and competitive pressures. In addition, our services revenue growth has been and will likely continue to be affected by the mix of products sold. The individual engagements involving our non-warehouse management solutions typically require fewer implementation services.
     Hardware and other. Hardware sales decreased by 25% to $5.4 million in the second quarter of 2008 compared to $7.3 million in the second quarter of 2007. Sales of hardware are largely dependent upon customer-specific desires, which fluctuate from quarter to quarter. Reimbursements for out-of-pocket expenses are required to be classified as revenue and are included in hardware and other revenue. For the quarters ended June 30, 2008 and 2007, reimbursements by customers for out-of-pocket expenses were approximately $3.4 million and $3.1 million, respectively.
Cost of Revenue
                         
    Three Months Ended June 30,  
                    % Change  
    2008     2007     2008 to 2007  
    (in thousands)          
Cost of license
  $ 1,641     $ 1,303       26 %
Cost of services
    29,856       27,284       9 %
Cost of hardware and other
    7,317       8,864       -17 %
 
                 
Total cost of revenue
  $ 38,814     $ 37,451       4 %
 
                 
     Cost of license. Cost of license consists of the costs associated with software reproduction; hosting services; funded development; media, packaging and delivery, documentation and other related costs; and royalties on third-party software sold with or as part of our products. Cost of license increased $0.3 million or 26% in the second quarter of 2008 compared to second quarter of 2007, due to license product mix driving higher third party software costs associated with embedded software sold as part of our solutions.
     Cost of services. Cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services. The $2.6 million increase in cost of services in the quarter ended June 30, 2008 was principally due to (i) a $2.2 million increase in salary-related costs resulting from a 17% increase in the average number of personnel dedicated to the delivery of professional services and annual compensation increases for 2008 and (ii) a $0.5 million increase in travel expense.
     Services gross margin increased 90 basis points to 52.1% in the second quarter of 2008 from 51.2% in the second quarter of 2007. The increase in margin is primarily contributed by record service revenue in the quarter.
     Cost of hardware and other. Cost of hardware decreased $1.6 million to approximately $3.9 million in the second quarter of 2008 from approximately $5.6 million in the second quarter of 2007. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $3.4 million and $3.3 million for the quarters ended June 30, 2008 and 2007, respectively.

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Operating Expenses
                         
    Three Months Ended June 30,  
                    % Change  
    2008     2007     2008 to 2007  
    (in thousands)          
Research and development
  $ 11,711     $ 12,278       -5 %
Sales and marketing
    14,676       14,491       1 %
General and administrative
    8,867       8,383       6 %
Depreciation and amortization
    3,158       3,354       -6 %
 
                 
Operating expenses
  $ 38,412     $ 38,506       0 %
 
                 
     Research and development. Research and development expenses primarily consist of salaries and other personnel-related costs for personnel involved in our research and development activities. Research and development expenses for the quarter ended June 30, 2008 decreased $0.6 million compared to the same quarter of the prior year. This decrease was mainly attributable to a $0.3 million decrease in salary-related costs and a $0.2 million decrease in professional fees related to translation services and visa permits.
     Our principal research and development activities have focused on the expansion and integration of new products acquired and new product releases and expanding the product footprint of our supply chain optimization solutions called Supply Chain Optimization from Planning through Execution. The Manhattan SCOPE Platform provides not only a sophisticated service oriented architecture based application framework, but a platform that facilitates the integration with Enterprise Resource Planning (ERP) and other supply chain solutions. For the quarters ended June 30, 2008 and 2007, we did not capitalize any research and development costs.
     Sales and marketing. Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs and the costs of our marketing and alliance programs and related activities. Sales and marketing expenses increased slightly by $0.2 million or 1% in the second quarter of 2008 compared to the same quarter of the prior year.
     General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology and administrative personnel, as well as facilities, legal, insurance, accounting and other administrative expenses. The $0.5 million increase in general and administrative expenses during the quarter ended June 30, 2008 was primarily attributable to a $0.7 million reduction in recoveries of previously expensed sales tax.
     Depreciation and amortization. Depreciation expense amounted to $2.3 million and $2.2 million for the quarters ended June 30 2008 and 2007, respectively. Amortization of intangibles associated with various acquisitions totaled $0.9 million and $1.2 million for the quarters ended June 30, 2008 and 2007, respectively.

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Operating Income
     Income from Operations. Operating income for the second quarter of 2008 decreased by $0.4 million or 3% while consolidated revenue grew 1%. Operating margins decreased to 14.7% for the second quarter of 2008 from 15.3% for the second quarter of 2007. Operating income and margins declined $0.4 million due to lower license revenues and a decrease of $0.7 million in sales tax accrual recoveries.
Other Income and Taxes
                         
    Three Months Ended June 30,  
                    % Change  
    2008     2007     2008 to 2007  
Other income, net
  $ 650     $ 298       118 %
Income tax provision
    4,835       4,959       -3 %
     Other income, net. Other income, net principally includes interest income and foreign currency gains and losses. Other income, net increased $0.4 million in the second quarter of 2008 compared to the second quarter of 2007 primarily due to the fluctuation of the U.S. dollar relative to foreign currencies partially offset by the decrease in interest income. We recorded a net foreign currency gain of $0.3 million during the three months ended June 30, 2008. The foreign currency gains and losses resulted from gains or losses on intercompany balances with subsidiaries due to the fluctuation of the U.S. dollar relative to other foreign currencies, principally the Indian Rupee, the Australian Dollar, and the Japanese Yen. Interest income decreased to $0.4 million for the second quarter of 2008 from $0.8 million for the second quarter of 2007 due to lower average investment balances in the second quarter of 2008. The weighted-average interest rate earned on investment securities during the three month periods ended June 30, 2008 and 2007 was approximately 2.7% and 3.7%, respectively.
     Income tax provision. Our effective income tax rates were 34.75% and 35.5% in the quarters ended June 30, 2008 and 2007, respectively. The reduction in the effective income tax rate is due to continued tax planning and implementation of various international tax planning strategies.
Highlights of the first half of 2008 Condensed Consolidated Financial Results
     Summarized highlights of the first half of 2008, as compared to the first half of 2007, are as follows:
    Consolidated revenue increased 7% to $178.8 million;
    License revenue was $37.7 million, an increase of 1%;
 
    Services revenue totaled $122.1 million, a 10% increase;
    Operating income increased 7% to $22.4 million;
 
    Diluted earnings per share increased 29% to $0.66;
 
    Cash Flow from Operations increased 67% to $27.1 million;
    The Company repurchased 542,596 common shares during the first six months of 2008 totaling $12.4 million at an average share price of $22.76. All of these shares were repurchased in the first quarter of 2008.

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Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
     The results of our operations for the first half of 2008 and 2007 are discussed below.
Revenue
                                         
    Six Months Ended June 30,  
                    % Change     % of Total Revenue  
    2008     2007     2008 to 2007     2008     2007  
    (in thousands)                          
License
  $ 37,677     $ 37,151       1 %     21 %     22 %
Services
    122,126       110,663       10 %     68 %     66 %
Hardware and other
    19,011       20,005       -5 %     11 %     12 %
 
                             
Total revenue
  $ 178,814     $ 167,819       7 %     100 %     100 %
 
                             
     License revenue. License revenue increased 1% in the six months ended June 30, 2008 over the prior year. EMEA and APAC license revenue increased $1.8 million or 41% and $2.4 million or 453%, respectively, which resulted in record first half license revenue from both segments. The increases were partially offset by a $3.7 million decrease in Americas license revenue for the six months ended June 30, 2008 compared to the same period in the prior year.
     License sales mix across our product suite remained well-balanced in the first half of 2008 with 52% of sales in our warehouse management solutions and 48% in non-warehouse management solutions. With our expanded suite of supply chain solutions we continue to see strong growth in our core warehouse management solutions with 7% growth in the first half of 2008 compared to the same period in the prior year. Non-warehouse management solutions declined 4% compared to the same period in the prior year.
     Services revenue. Services revenue increased 10% or $11.5 million in the first half of 2008 compared to the same period in the prior year principally due to: (i) a 7% or $5.9 million increase in professional services revenue from larger implementation projects and increased license sales and (ii) a 17% or $5.6 million increase in revenue from customer support and software enhancements. The Americas segment led the growth in revenue with an increase in services revenue of $6.7 million or 7%, from the first half of 2007 compared to the first half of 2008. Services revenue in EMEA also increased by $6.4 million or 60%, from the first half of 2007 to the first half of 2008 on strong license growth. These increases were partially offset by a decrease in APAC services revenue of $1.7 million or 23%, from the first half of 2007 compared to the first half of 2008 largely because license sales, which drive services revenue, were lower from mid 2006 to mid 2007, and we completed the implementation of a large client in the region.
     Over the past several years, our services revenue has been affected by some pricing pressures. We believe that the pricing pressures are attributable to global macro-economic conditions and competitive pressures. In addition, our services revenue growth has been and will likely continue to be affected by the mix of products sold. The individual engagements involving our non-warehouse management solutions typically require fewer implementation services.
     Hardware and other. Hardware sales decreased by 10% or $1.4 million to $12.6 million in the first half of 2008 compared to $13.9 million in the first half of 2007. Sales of hardware are largely dependent upon customer-specific desires, which fluctuate from year to year. Reimbursements for out-of-pocket

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expenses are required to be classified as revenue and are included in hardware and other revenue. For the six months ended June 30, 2008 and 2007, reimbursements by customers for out-of-pocket expenses were approximately $6.4 million and $6.1 million, respectively.
Cost of Revenue
                         
    Six Months Ended June 30,  
                    % Change  
    2008     2007     2008 to 2007  
    (in thousands)          
Cost of license
  $ 2,785     $ 2,446       14 %
Cost of services
    61,136       53,283       15 %
Cost of hardware and other
    15,583       17,225       -10 %
 
                 
Total cost of revenue
  $ 79,504     $ 72,954       9 %
 
                 
     Cost of license. Cost of license consists of the costs associated with software reproduction; hosting services; funded development; media, packaging and delivery, documentation and other related costs; and royalties on third-party software sold with or as part of our products. Cost of license increased 14%, or $0.3 million, in the first half of 2008 compared to the first half of 2007 on a 1% increase in license revenue due to license product mix driving higher third party software costs associated with embedded software sold as part of our solutions.
     Cost of services. Cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services. Cost of services increased $7.9 million, or 15%, in the six months ended June 30, 2008 principally due to a $7.1 million increase in salary-related costs and $1.2 million in travel expenses resulting from a 20% increase in our average professional services headcount.
     Services gross margin decreased to 49.9% in the first half of 2008 from 51.9% in the first half of 2007. The decline in margin is due to a 20% increased investment in Services headcount to support growing demand for our services engagements and to enhance our ability to satisfy customer needs combined with a shift in product mix from our heritage System i platforms to Open Systems platforms.
     Cost of hardware and other. Cost of hardware decreased $1.6 million or 14% to approximately $9.3 million in the first half of 2008 from approximately $10.9 million in the first half of 2007. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $6.3 million for each of the six months ended June 30, 2008 and 2007.

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Operating Expenses
                         
    Six Months Ended June 30,  
                    % Change  
    2008     2007     2008 to 2007  
    (in thousands)          
Research and development
  $ 24,365     $ 23,429       4 %
Sales and marketing
    28,248       27,098       4 %
General and administrative
    17,938       16,529       9 %
Depreciation and amortization
    6,406       6,855       -7 %
 
                 
Operating expenses
  $ 76,957     $ 73,911       4 %
 
                 
     Research and development. Research and development expenses primarily consist of salaries and other personnel-related costs for personnel involved in our research and development activities. The increase of $0.9 million or 4% in research and development expenses for the first half of 2008 compared to the same period of the prior year was mainly attributable to an increase in compensation costs of $0.7 million resulting from headcount growth and annual compensation increases.
     Sales and marketing. Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs and the costs of our marketing and alliance programs and related activities. The $1.2 million or 4% increase in sales and marketing expenses in the six months ended June 30, 2008 was attributable to: (i) a $0.5 million increase in marketing programs, (ii) $0.3 million increase in stock compensation expense, and (iii) a $0.3 million increase in travel expenses.
     General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology and administrative personnel, as well as facilities, legal, insurance, accounting and other administrative expenses. The net increase of $1.4 million or 9% in general and administrative expenses during the six months ended June 30, 2008 was primarily attributable to a $0.6 million increase in stock compensation expense and a $0.8 million reduction in recoveries of previously expensed sales tax.
     Depreciation and amortization. Depreciation expense amounted to $4.7 million and $4.5 million for the six months ended June 30, 2008 and 2007. Amortization of intangibles associated with various acquisitions totaled $1.7 million and $2.4 million for the six months ended June 30, 2008 and 2007, respectively.
Operating Income
     Income from Operations. Operating income for the six months ended June 30, 2008 increased by $1.4 million, or 7%, based on consolidated revenue growth of 7%. Operating margins were 12.5% for the first half of 2008 and 2007. Operating income in the EMEA segment increased by $4.4 million due to record revenue growth in the first half of 2008. Operating income in APAC increased slightly by $0.3 million. The increases in EMEA and APAC were partially offset by the decrease in the Americas segment of $3.4 million.

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Other Income and Taxes
                         
    Six Months Ended June 30,  
                    % Change  
    2008     2007     2008 to 2007  
Other income, net
  $ 2,951     $ 1,390       112 %
Income tax provision
    8,793       7,932       11 %
     Other income, net. Other income, net principally includes interest income and foreign currency gains and losses. Other income increased $1.6 million in the six months ended June 30, 2008 compared to the same period in the prior year, which is principally attributable to fluctuation of the U.S. dollar relative to other foreign currencies partially offset by the decrease in interest income. We recorded a net foreign currency gain of $1.9 million during the six months ended June 30, 2008. The foreign currency gains and losses resulted from gains or losses on intercompany balances with subsidiaries due to the fluctuation of the U.S. dollar relative to other foreign currencies, primarily the Indian Rupee, the British Pound, the Euro and the Australian dollar. Interest income decreased $0.9 million to $1.0 million for the six months ended June 30, 2008 from $1.9 million for the six months ended June 30, 2007 based on lower average investment balances in the first half of 2008. The weighted-average interest rate earned on investment securities during the six month periods ended June 30, 2008 and 2007 was approximately 3.5% and 4.2%, respectively.
     Income tax provision. Our effective income tax rates were 34.75% and 35.5% in the six months ended June 30, 2008 and 2007, respectively. The reduction in the effective income tax rate was a result of continued tax planning and implementation of various international tax planning strategies.
Liquidity and Capital Resources
     As of June 30, 2008, we had approximately $83.5 million in cash, cash equivalents and investments, as compared to $72.8 million at December 31, 2007. Our main source of operating cash flows is cash collections from our customers which we use to fund our operations. Our primarily use of cash is to support continuing operations and capital expenditure requirements resulting from growth and to buy back our common stock in the open market.
     Our operating activities generated cash flow of approximately $27.1 million for the six months ended June 30, 2008 and $16.2 million for the six months ended June 30, 2007. Cash flow from operating activities for the six months ended June 30, 2008 increased due to strong operating earnings growth and accounts receivable collections. In addition, cash flow from operations in the first half of 2007 included legal settlement payments of $3.0 million for legal settlements in fourth quarter of 2006. Days sales outstanding (“DSO”) decreased to 78 days at June 30, 2008 from 79 days at December 31, 2007.
     Our investing activities provided cash of approximately $16.0 million and $38.8 million for the six months ended June 30, 2008 and 2007, respectively. The source of cash provided by investing activities for the six months ended June 30, 2008 was from the net maturities of investments of approximately $21.5 million, offset by capital expenditures of approximately $5.5 million. The source of cash provided by investing activities for the six months ended June 30, 2007 was net maturities of investments of approximately $45.2 million offset by capital expenditures of $6.5 million.
     Our financing activities used cash of approximately $10.1 million and $46.1 million for the six months ended June 30, 2008 and 2007, respectively. The principal use of cash for financing activities for the six months ended June 30, 2008 was to purchase approximately $12.4 million of our common stock,

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partially offset by proceeds generated from options exercised of $2.2 million. The principal use of cash for financing activities for the six months ended June 30, 2007 was to purchase approximately $52.8 million of our common stock, partially offset by proceeds generated from options exercised of $6.1 million.
     Periodically, opportunities may arise to grow our business through the acquisition of complementary and synergistic companies, products and technologies. Any material acquisition could result in a decrease to our working capital depending on the amount, timing and nature of the consideration to be paid. We believe that existing balances of cash and investments will be sufficient to meet our working capital and capital expenditure needs at least for the next twelve months, although there can be no assurance that this will be the case.
Critical Accounting Policies and Estimates
     The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
     Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. We believe that estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions were made. To the extent there are material differences between those estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that we believe reflect our more significant estimates, judgments and assumptions which we have identified as our critical accounting policies are: Revenue Recognition, Allowance for Doubtful Accounts, Valuation of Goodwill, Accounting for Income Taxes, Stock-based Compensation, and Business Combinations.
Revenue Recognition
     Our revenue consists of revenues from the licensing and hosting of software, fees from implementation and training services (collectively, “professional services”), plus customer support and software enhancements, and sales of hardware and other revenues (other revenues consists of reimbursements of out-of-pocket expenses incurred by professional services). All revenue is recognized net of any related sales taxes.
     We recognize license revenue under Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position No. 98-9, “Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”), specifically when the following criteria are met: (1) a signed contract is obtained; (2) delivery of the product has occurred; (3) the license fee is fixed or determinable; and (4) collectibility is probable. SOP 98-9 requires recognition of revenue using the “residual method” when (a) there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting; (b) vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements in the arrangement; and (c) all revenue-recognition criteria in SOP 97-2, other than the requirement for vendor-specific objective evidence of the fair value of each delivered element of the arrangement are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized using contract accounting.

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     The accounting related to license revenue recognition in the software industry is complex and affected by interpretations of the rules which are subject to change. Our judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience and economic market conditions. If market conditions decline, or if the financial condition of our customers deteriorates, we may be unable to determine that collectibility is probable, and we could be required to defer the recognition of revenue until we receive customer payments.
     Our services revenue consists of fees generated from professional services, customer support services and software enhancements related to our software products. Fees from professional services performed by us are generally billed on an hourly basis, and revenue is recognized as the services are performed. Professional services are sometimes rendered under agreements in which billings are limited to contractual maximums or based upon a fixed-fee for portions of or all of the engagement. Revenue related to fixed-fee based contracts is recognized on a proportional performance basis based on the hours incurred on discrete projects within an overall services arrangement. Project losses are provided for in their entirety in the period in which they become known. Revenue related to customer support services and software enhancements are generally paid in advance and recognized ratably over the term of the agreement, typically 12 months.
     Hardware and other revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties that are integrated with and complementary to our software solutions. As part of a complete solution, our customers periodically purchase hardware from us in conjunction with the licensing of software. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. We generally purchase hardware from our vendors only after receiving an order from a customer. As a result, we do not maintain significant hardware inventory.
     In accordance with the Financial Accounting Standard Board’s (“FASB’s”) Emerging Issues Task Force (“EITF”) Issue No. 01-14 (“EITF No. 01-14”), “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred,” we recognize amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been included in hardware and other revenue. The total amount of expense reimbursement recorded as revenue for the three months ended June 30, 2008 and 2007 was $3.4 million and $3.1 million, respectively and for the six months ended June 30, 2008 and 2007 was $6.4 million and $6.1 million, respectively.
Allowance for Doubtful Accounts
     We continuously monitor collections and payments from our customers and maintain an allowance for estimated credits based upon our historical experience and any specific customer collection issues that we have identified. Additions to the allowance for doubtful accounts generally represent a sales allowance on services revenue, which are recorded to operations as a reduction to services revenue. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.
Valuation of Goodwill
     In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, we do not amortize goodwill and other intangible assets with indefinite lives. Our goodwill is subject to an annual impairment test, which requires us to estimate the fair value of our business compared to the carrying value. The impairment reviews require an analysis of future projections and assumptions about our operating performance. Should such review indicate the assets are impaired, we would record an expense for the impaired assets.

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     Annual tests or other future events could cause us to conclude that impairment indicators exist and that our goodwill is impaired. For example, if we had reason to believe that our recorded goodwill had become impaired due to decreases in the fair market value of the underlying business, we would have to take a charge to income for that portion of goodwill that we believed was impaired. Any resulting impairment loss could have a material adverse impact on our financial position and results of operations. At June 30, 2008, our goodwill balance was $62.3 million.
Accounting for Income Taxes
     We provide for the effect of income taxes on our financial position and results of operations in accordance with SFAS No. 109, Accounting for Income Taxes. Under this accounting pronouncement, income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return. Management must make significant assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset.
     Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, allowable deductions, projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations. Our assumptions, judgments and estimates relative to the value of our net deferred tax asset take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus materially impacting our financial position and results of operations.
     On January 1, 2007, we adopted the provisions of FASB Interpretation No 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). As a result of the implementation of FIN 48, we recognized an increase of $2.6 million in the gross liability for unrecognized tax benefits, and recorded a corresponding deferred tax asset for future benefits of $0.7 million, with the net amount of $1.9 million accounted for as a decrease to the January 1, 2007 balance of retained earnings. As of the date of adoption and after the impact of recognizing the increase in liability noted above, our unrecognized tax benefits totaled $7.6 million, of which $6.0 million, if recognized, would affect the effective tax rate.
Stock-based compensation
     We estimate the fair value of options granted on the date of grant using the Black-Scholes option pricing model. We base our estimate of fair value on certain assumptions, including the expected term of the option, the expected volatility of the price of the underlying share for the expected term of the option, the expected dividends on the underlying share for the expected term, and the risk-free interest rate for the expected term of the option. We base our expected volatilities on a combination of the historical volatility of our stock and the implied volatility of our publicly traded stock options. Due to the limited trading volume of our publicly traded options, we place a greater emphasis on historical volatility. We also use historical data to estimate the term that options are expected to be outstanding and the forfeiture rate of options granted. We base the risk-free interest rate on the rate for U.S. Treasury zero-coupon issues with a term approximating the expected term of the option.

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     We recognize compensation cost for awards with graded vesting using the straight-line attribution method, with the amount of compensation cost recognized at any date at least equal to the portion of the grant-date value of the award that is vested at that date. Compensation cost recognized in any period is affected by the number of stock options granted and the vesting period (which generally is four years), as well as the underlying assumptions used in estimating the fair value on the date of grant. This estimate is dependent upon a number of variables such as the number of options awarded, cancelled or exercised and fluctuations in our share price during the year.
Business Combinations
     In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.
     Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets include but are not limited to future expected cash flows from customer contracts and acquired developed technologies; the acquired company’s brand awareness and market position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and discount rates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
     In connection with purchase price allocations, we estimate the fair value of the support obligations assumed in connection with acquisitions. The estimated fair value of the support obligations is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The estimated costs to fulfill the support obligations are based on the historical direct costs related to providing the support services and to correcting any errors in the software products acquired. We do not include any costs associated with selling efforts, available upgrades, or research and development or the related fulfillment margins on these costs. Profit associated with selling effort is excluded because the acquired entities would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the support obligation.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.
Foreign Business
     Our international business is subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Our international operations currently include business activity out of offices in the United Kingdom, the Netherlands, Germany, France, Australia, Japan, China, Singapore and India. When the U.S. dollar strengthens against a foreign currency, the value of our sales and expenses in that currency converted to U.S. dollars decreases. When the U.S. dollar weakens, the value of our sales and expenses in that currency converted to U.S. dollars

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increases. The appreciation in the Rupee in 2007 and the first quarter of 2008 negatively impacted the Company’s operating margins and earnings per share.
     We recorded a foreign exchange rate gain of $1.9 million during the six months ended June 30, 2008 and a foreign exchange rate loss of $0.6 million during the six months ended June 30, 2007, respectively. Foreign exchange rate transaction gains and losses are classified in “Other income, net” on our Condensed Consolidated Statements of Income. A fluctuation of 10% in the period end exchange rates at June 30, 2008 relative to the U.S. dollar would result in approximately a $1.0 million change in the reported foreign currency gain for the six months ended June 30, 2008.
Interest Rates
     We invest our cash in a variety of financial instruments, including taxable and tax-advantaged floating rate and fixed rate obligations of corporations, municipalities, and local, state and national governmental entities and agencies. These investments are denominated in U.S. dollars. Cash balances in foreign currencies overseas are derived from operations.
     We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). All of the cash equivalents and investments are treated as available-for-sale under SFAS No. 115. At June 30, 2008, we have $6.5 million invested in auction rate securities. These securities have original maturities of up to 30 years, but have auctions to reset the yield every 7 to 35 days. Certain auctions failed during the second quarter of 2008, but the underlying securities were not called by the issuer. We may not able to access these funds until a successful auction occurs, until the issuers call the underlying notes, or until the final maturity of the underlying notes. We classified $6.5 million of auction rate securities that incurred failed auctions and had not been called by the issuers as long-term investments. The fair values of these auction rate securities considered the credit worthiness of the counterparty, estimates of interest rates, expected holding periods, and the timing and value of expected future cash flows. Changes in the assumptions of our valuation could have a significant impact on the value of these securities, which may cause losses and affect our liquidity specifically for these securities potentially requiring us to record an impairment charge on these investments in the future.
     Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities that have seen a decline in market value due to changes in interest rates. The weighted-average interest rate on investment securities held at June 30, 2008 and 2007 was approximately 3.5% and 4.2%, respectively. The fair value of investments held at June 30, 2008 was approximately $62.0 million. Based on the average investments outstanding during the six months ended June 30, 2008, an increase or decrease of 25 basis points would result in an increase or decrease in interest income of approximately $37 thousand from the reported interest income for the six months ended June 30, 2008.
Item 4.   Controls and Procedures.
     We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management,

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including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
     As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of management, the effectiveness of our disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.
Change in Internal Control over Financial Reporting
     During the six months ended June 30, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions with regard to material weaknesses.
PART II
OTHER INFORMATION
Item 1.   Legal Proceedings.
     From time to time, we are party to various legal proceedings arising in the ordinary course of business. The Company is not currently a party to any other legal proceeding the result of which it believes could have a material adverse impact upon its business, financial position or results of operations.
     Many of our installations involve products that are critical to the operations of our clients’ businesses. Any failure in our products could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to limit contractually our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance the limitations of liability set forth in our contracts will be enforceable in all instances.
Item 1A. Risk Factors.
     There have been no material changes to the Company’s “Risk Factors” set forth in Item 1A to its Annual Report on Form 10-K for the year ended December 31, 2007.
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.
     On October 23, 2007, it was announced that the Company’s Board of Directors increased the Company’s remaining repurchase authority to $50 million. During the six months ended June 30, 2008, the Company repurchased 542,596 common shares totaling $12.4 million. All of these shares were repurchased in the first quarter of 2008.
     As of June 30, 2008, we have $12.6 million of remaining share repurchase authority.
Item 3.   Defaults Upon Senior Securities.
     No events occurred during the quarter covered by the report that would require a response to this item.
Item 4.   Submission of Matters to a Vote of Security Holders.

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     Our Annual Meeting of Shareholders (the “Annual Meeting”) was held on May 30, 2008. There were present at the Annual Meeting, in person or by proxy, holders of 23,065,194 shares (or 94%) of the common stock entitled to vote.
     The following directors were elected to hold office for a term at the Annual Meeting disclosed below or until their successors are elected and qualified, with the vote for the directors being reflected below:
                     
Name   Term Expires   Vote For     Vote Withheld  
Brian J. Cassidy
  2011     21,296,970       1,768,224  
Paul R. Goodwin
  2011     22,791,260       273,934  
Peter J. Kight
  2009     21,294,880       1,770,314  
Dan J. Lautenbach
  2010     22,791,260       273,934  
     The affirmative vote of the holders of a plurality of the outstanding shares of common stock represented at the Annual Meeting was required to elect the directors.
     Continuing Class II Directors serving until the 2009 Annual Meeting of Shareholders are Deepak Raghavan and Peter F. Sinisgalli.
     Continuing Class III Directors serving until the 2010 Annual Meeting of Shareholders are John J. Huntz, Jr. and Thomas E. Noonan.
     The appointment of Ernst & Young LLP as the independent registered public accounting firm to audit our consolidated financial statements and our internal controls over financial reporting for the year ending December 31, 2008, was ratified with 21,655,274 affirmative votes cast, 1,408,149 negative votes cast and 1,771 abstentions. The affirmative vote of the holders of a majority of the outstanding shares of common stock represented at the Annual Meeting was required to ratify the appointment of Ernst & Young LLP.
Item 5.   Other Information.
     No events occurred during the quarter covered by the report that would require a response to this item.
Item 6.   Exhibits.
         
    Exhibit 31.1  
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
    Exhibit 31.2  
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
    Exhibit 32*  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
       
*In accordance with Item 601(b)(32)(ii) of the SEC’s Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  MANHATTAN ASSOCIATES, INC.
 
 
Date: August 6, 2008  /s/ Peter F. Sinisgalli    
  Peter F. Sinisgalli   
  Chief Executive Officer, President and Director
(Principal Executive Officer) 
 
 
     
Date: August 6, 2008  /s/ Dennis B. Story    
  Dennis B. Story   
  Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer) 
 

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EXHIBIT INDEX
         
    Exhibit 31.1  
Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
 
    Exhibit 31.2  
Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
 
    Exhibit 32  
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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