-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UabiFAOL3C175WDisEuJ4j1+y5FJgVaySNcZITgnN+9jjeOcr0mUFsdQt5TcCAFn ET4uWDpCdOf0GbjEMhEH9Q== 0000950152-99-007703.txt : 19990922 0000950152-99-007703.hdr.sgml : 19990922 ACCESSION NUMBER: 0000950152-99-007703 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMIX SYSTEMS INC CENTRAL INDEX KEY: 0000872443 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 311083175 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19024 FILM NUMBER: 99714184 BUSINESS ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR CITY: COLUMBUS STATE: OH ZIP: 43231 BUSINESS PHONE: 6145237000 MAIL ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR CITY: COLUMBUS STATE: OH ZIP: 43231 10-K 1 SYMIX SYSTEMS, INC. FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K
(MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-19024 ------------------------ SYMIX SYSTEMS, INC. (Exact name of registrant as specified in its charter) OHIO 31-1083175 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 2800 CORPORATE EXCHANGE DRIVE 43231 COLUMBUS, OHIO (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (614) 523-7000 ------------------------ Securities registered pursuant to section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON SHARES NO-PAR VALUE Title of Class ------------------------ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at September 15, 1999 was $63,956,000. The number of common shares outstanding at September 15, 1999 was 7,660,050. DOCUMENTS INCORPORATED BY REFERENCE: (1) The Registrant's Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on November 17, 1999 is incorporated by reference into Part III of this Annual Report on Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS General Symix Systems, Inc. ("Symix" or the "Company") designs, develops, markets and supports integrated manufacturing, supply chain management, financial and e-commerce software solutions that address the enterprise requirements of mid-size manufacturing and distribution companies and business units of larger companies. Historically, manufacturers have implemented enterprise resource planning ("ERP") systems to achieve improvements in manufacturing operations and related cost reductions. Today, in order to remain competitive in an increasingly global environment, manufacturers must look beyond the factory walls to meet increasing customer service requirements and improve operating efficiencies of distribution. In response to this complex business environment, manufacturers have begun to focus on customer interaction, which requires further integrating customer requirements into the overall fulfillment cycle. Business software solutions not only must deliver the operational improvements of traditional ERP, but also must provide capabilities to enhance customer interaction and improve revenue performance. These solutions must be able to address the increasing customer service demands brought on by the Internet and e-commerce business to business requirements. Mid-market manufacturers generally are constrained by limited financial and technological resources; nevertheless, they require enterprise application solutions that offer a high degree of flexibility and functionality and can integrate customers with business processes. Through its Customer Synchronized Resource Planning ("CSRP") approach, the Company delivers to mid-market manufacturers a cost-effective enterprise application solution that facilitates a shift in focus from manufacturing-centric planning to customer-centric planning and prepares the manufacturer for the future of the Internet. CSRP incorporates and extends traditional ERP functionality to integrate customer requirements into manufacturers' core business processes. The Company's core ERP products, SyteLine and SyteCentre, improve manufacturers' performance with respect to customer service, planning and materials management, production management and enterprise administration. In addition, Symix offers complementary software capabilities including: - advanced planning and scheduling, which allows manufacturers to optimize scheduling of production operations to improve customer satisfaction and on-time delivery while reducing the manufacturers' and their customers' inventory carrying costs; - supply chain management, which enables manufacturers to create and distribute products to the end consumer through processes that involve relationships between predicting demand and fulfilling that demand; - electronic commerce and web enabled communication capabilities, which facilitate communication between businesses and their customers and suppliers; - configuration, which integrates the customer with the order process to increase the quality of complex product orders; - field service, which improves the quality and efficient delivery of field service and support; - on-line analytical processing, which aids in decision-making by providing comprehensive analysis of operational data stored by SyteLine and SyteCentre; and - enterprise process documentation, which speeds the implementation of ERP systems and facilitates the execution of ISO 9000 quality initiatives. The Company's CSRP approach provides highly integrated, client-focused, software solutions that address the critical business needs of mid-market manufacturers. 2 3 Symix offers a wide range of services, including project management, implementation, product education, technical consulting, programming services, system integration and maintenance and support. Symix works with consulting firms and third party vendors to deliver integrated CSRP solutions. The Company has more than 3,800 customer sites, which it services and supports through a worldwide network of 26 offices in 13 countries. Symix was incorporated under the laws of the State of Ohio in 1984. The Company's principal executive offices are located at 2800 Corporate Exchange Drive, Columbus, Ohio 43231, and its telephone number is (614) 523-7000. INDUSTRY BACKGROUND Manufacturers are increasingly subject to global competitive pressures. At the same time, customer requirements are becoming increasingly complex. Manufacturers must manage larger product portfolios, shorten product development and delivery cycles, reduce inventory levels, respond to customers' customization demands and implement complex multinational manufacturing and distribution strategies. In response, manufacturers have turned to business process reengineering and to ERP solutions to improve operational efficiency and to manage resources across the enterprise. According to Advanced Manufacturing Research, the worldwide ERP software marketplace will grow to approximately $20.2 billion in 1999 from an estimated $16.6 billion in 1998. Market growth through the year 2003 is estimated to exceed 30% per year. Traditional ERP systems enable the collection, management and integration of data concerning component procurement, inventory management, manufacturing control, distribution, finance and other functions with the goal of improving the efficiency of production. Manufacturers require functionality and flexibility beyond the scope of traditional ERP systems and seek to manage the collection and integration of all information that flows to and from customers, suppliers and business partners. Mid-market manufacturers' ability to synchronize individual customer preferences with their production and planning systems will be critical to their success. As manufacturers begin to achieve operational efficiencies within the factory through the implementation of enterprise systems, the focus on reducing costs and improving service has expanded to include distribution. The line between manufacturing and distribution is rapidly fading with manufacturers under increasing pressure to accelerate delivery at minimal costs. The emerging supply chain management market encompasses all software and services which automate and integrate the business processes required for moving product through the order-to-delivery cycle. The supply chain management market is projected to reach over $18.6 billion by 2003 according to Advanced Manufacturing Research. A host of software applications are included under the supply chain management umbrella including: - distribution management; - warehouse management; - logistics management; - demand planning; and - advanced planning and scheduling. E-commerce applications are becoming integral within the supply chain -- speeding communications and transactions throughout the chain, even defining or eliminating links in the chain. As business transactions are increasingly being conducted via the Internet -- through online trading sites, industry portals, or customer-direct storefronts -- customers have a convenient and cost-effective way to quickly compare products, prices and availability. The Internet holds significant market and competitive potential for manufacturers and distributors, but for most businesses this will require significant changes to current business practices. Mid-market manufacturers and distributors are impacted by the increasingly dynamic and competitive service-oriented environment and must address their needs for functionality and flexibility with limited staff and technical and financial resources. Such companies require an affordable enterprise system that incorporates broad functionality, is easy to install and maintain and can be rapidly deployed. 3 4 THE SYMIX SOLUTION Symix's CSRP approach creates a competitive advantage for manufacturers and distributors by integrating all aspects of their operations to satisfy customers' demands. The CSRP approach incorporates the customer-focused elements of a manufacturing and distribution business, including after-sale service, customized management, data mining for new opportunities and advanced planning and scheduling for fast, reliable delivery. The Company combines its core enterprise systems, SyteLine and SyteCentre, with complementary products to deliver CSRP solutions. Symix delivers a combination of technology, functionality and services to enable manufacturers and distributors to implement rapidly a solution that integrates customer needs and requirements into business planning and execution systems. The Company believes its approach results in enhanced customer relationships, increased productivity, improved operating efficiency and lower total cost of ownership. The benefits to companies using the Symix solution include the following: Improved customer relationships. CSRP integrates customer requirements with manufacturers' sales, marketing, engineering, manufacturing and customer service information, resulting in more accurate planning and scheduling decisions, rapid response times, better on-time deliveries, improved order fulfillment and improved field service delivery, thereby providing greater customer satisfaction. Reduced total cost of ownership. The Company's solutions are designed to minimize the total cost of implementing, operating and maintaining enterprise systems and to maximize operating efficiency. Symix's software runs on standard hardware platforms, providing users with the flexibility to leverage existing technology systems and to optimize system configurations. The modular design of the Company's software allows manufacturers and distributors to implement systems quickly and easily and provides the flexibility to add additional functionality or change business process models as customer needs and business requirements change. Reduced time to benefit. The Company believes its ability to implement its software solution rapidly and to reduce manufacturers' and distributors' time to benefit is a key competitive advantage. The Company reduces implementation time in three ways. First, Symix employs a structured implementation methodology that separates the solution implementation process into distinct and manageable phases, ensuring coordination throughout the implementation process. Second, the Company's proprietary business process modeling tool enables customers to map the appropriate systems and procedures necessary to increase the speed of the deployment process. Third, Symix maintains strategic relationships with numerous business partners, which enable the Company to provide a solution that addresses enterprise system needs in an integrated fashion with minimal customer disruption. STRATEGY The Company's objective is to be a leading provider of CSRP solutions to mid-market discrete manufacturers. The key components of the Company's strategy include: Expand CSRP solutions by integrating electronic commerce capabilities. The Company will continue to expand its CSRP vision by delivering midmarket-focused e-commerce solutions composed of: - packaged service offerings that provide to Symix customers a "roadmap" for executing an e-commerce strategy; - e-commerce software applications including Web store fronts and business to business transaction managers that support the "roadmap"; and - integration capabilities to e-commerce "marketplaces" and "information channels" in the Company's target industries. By integrating the transaction backbones of its CSRP software solutions with the Internet, Symix customers will be able to "make a promise" through the Internet and then "keep that promise" through the execution of its supporting systems. Evolve from manufacturing centric perspective to include supply chain management focus. With the acquisition of Distribution Architects International, Inc. ("DAI") in June 1999 and the future integration of DAI's products with SyteCentre, the Company will pursue a mid-market leadership position in supply chain 4 5 management by targeting light manufacturers and distributors with heavy distribution needs. The supply chain management solution will include: - advanced planning and scheduling; - forecast and demand planning; - warehouse management; and - traffic and transportation management. Strengthen mid-market leadership position. The Company believes that it is a leading provider of enterprise system solutions to mid-market manufacturers. The Company has more than 3,800 customer sites, which it services and supports through a worldwide network of 26 offices in 13 countries. The Company intends to leverage its technology and customer base to enhance its leadership position in its targeted vertical markets and to pursue new vertical markets in which it has expertise. Embrace simple and easy to use technology. The Company's CSRP approach emphasizes the commitment to a simple but powerful technology solution through Microsoft and Progress software. The use of technology tools from Microsoft and Progress standardizes and simplifies integration efforts and avoids the costly maintenance of internally supported proprietary development tools. The Company will continue to concentrate its development resources on these technology platforms. Pursue strategic partnerships. The Company will continue to provide the tools, techniques, methodologies and other elements required to simplify the task of implementing and supporting software solutions. Symix intends to pursue this strategy through alliances with industry leading partners and/or acquisitions of new technology. PRODUCTS Symix products are comprised of the following: - SyteLine. SyteLine is the Company's heavy manufacturing oriented product that was re-architected and developed from earlier versions of Symix enterprise system solutions. SyteLine targets make-to-order, high configuration manufacturers of industrial products in five key vertical markets: - industrial equipment; - fabricated metals; - furniture and fixtures; - containers and packaging; and - industrial electronics. - SyteCentre. SyteCentre was released in February, 1999 and targets light manufacturers of discrete products in three key vertical markets: - consumer electronics; - consumer durable and packaged goods; and - computer and related peripherals. - Complementary CSRP products. The Company offers complementary products to both SyteLine and SyteCentre that support the CSRP vision. These complementary products include: - advanced planning and scheduling (SyteAPS); - e-commerce tools, including Web Store Front, Internet business-to-business transaction manager and EDI communication solution; - configuration and pricing; 5 6 - business intelligence; - business process modeling; and - field service management. - SyteDistribution. SyteDistribution was acquired in connection with the acquisition of DAI in June 1999. SyteDistribution addresses the supply chain management requirements of distribution operations. Supply chain management refers to the overall process through which an organization creates and distributes its products and services to the end consumer. The Company intends to incorporate the functionality of SyteDistribution into SyteCentre over the next two years. SyteCentre and the key complementary CSRP products such as SyteAPS, sales and order configuration, and field service management are written in C++ programming language, operate in a Microsoft Windows NT operating environment, and use SQL as a database. SyteDistribution is written in a combination of C++ and Synergy DBL and operates in either a Windows NT or UNIX operating environment. SyteLine operates in either a Windows NT or UNIX operating environment and is written in PROGRESS, a proprietary programming language licensed by Symix from Progress Software Corporation. Symix depends upon the license of PROGRESS to its customers and the acceptance of PROGRESS by its customers. Symix markets and distributes PROGRESS in connection with the sale of its product under a non-exclusive agreement with Progress. The agreement may be terminated by either party upon 90 days written notice to the other party. In addition, the agreement may be terminated immediately by either party if a material breach of the agreement by the other party continues after 30 days' written notice. Symix's relationship with Progress involves other risks which could have a material adverse effect on Symix's business, operating results or financial condition, including the following: - the failure of Progress to continue its relationship with Symix; - the failure of Progress to develop, support or enhance PROGRESS in a manner which is competitive with enhancements of other programming languages; - the loss of market acceptance of PROGRESS and its relational database management system; and - the inability of Symix to migrate its software products to other programming languages on a timely basis if PROGRESS is no longer available. Both SyteLine and SyteCentre supports manufacturers' core business processes including customer service (estimating, configuring and accepting orders accurately and rapidly), planning and materials management, production management and enterprise administration (costing, financial management and reporting). SyteLine handles multi-national and multi-site requirements and is available currently in nineteen languages. SyteCentre is available currently only in North America with international and multi-site functionality scheduled to be deliverable in calendar year 2000. Descriptions of the complementary CSRP products offered with SyteLine and SyteCentre are as follows: SyteAPS. SyteAPS is an advanced planning and scheduling system that develops realistic and synchronized productions plans and schedules that simultaneously consider the multiple constraints and limitations of the production environment. SyteAPS is fully integrated with both SyteLine and SyteCentre. E-commerce. E-commerce applications were acquired in connection with the acquisition of DAI in June 1999 and provide manufacturers and distributors with a supporting technical infrastructure that integrates customer management software with the transactional backbone of enterprise software. These applications include a Web storefront, an Internet order management system and a business-to-business transaction manager. The combination of e-commerce applications with supporting transaction backbones enable manufacturers and distributors to offer online customer ordering and service ("make a promise"), and then execute by giving accurate pricing, reliable product delivery dates and post-sale field service ("keep a promise"). Configuration and Pricing. Configuration and Pricing is an interactive product configuration and sales force automation software application that was specially designed for and integrated with SyteLine and SyteCentre. 6 7 Configuration and Pricing was developed in conjunction with Trilogy Development Group, a leading provider of sales and marketing automation solutions. Configuration and Pricing provides manufacturers with the ability to configure, estimate, order and price complex products and services. Once the order and product are configured, the data is sent to production where bills of material and job routing instructions are automatically generated. The configuration component was released in September 1997 and the remote pricing and quotation component was released in January, 1999. Business Intelligence. Business Intelligence is a data analysis product utilizing Online Analytical Processing tools from Cognos Corporation, an industry leader in business intelligence software tools. Business Intelligence is an interactive, graphical data access and analysis solution that provides manufacturers a flexible, multi-dimensional view of business and operating data stored in SyteLine and SyteCentre. Business Intelligence was released in December 1996. Business Process Modeling. Business Process Modeling is an internally developed tool that provides custom enterprise modeling to speed ERP deployment and to provide a base for business process improvement initiatives such as ISO 9000. Business Process Modeling, which is comprised of a comprehensive set of implementation focused programs, resources and tools, was released in June 1997. EDI. EDI is an electronic commerce software application product that delivers customer and supplier focused business-to-business communication solutions for SyteLine customers. EDI was developed in conjunction with Sterling Commerce, Inc., an industry leader in electronic commerce solutions. EDI is integrated with SyteLine and was released in September 1997. Field Service Management. Field Service Management is a service management application software that supports manufacturers' service businesses more efficiently and profitably through manpower scheduling, contract management, remote field service communications and inventory and purchasing tracking. Field Service Management is based on the Company's stand-alone FieldPro product, and was integrated with SyteLine in December 1998. FieldPro. FieldPro is a service management application software product that supports a manufacturer's service business more efficiently and profitably through manpower scheduling, contract management, remote field service communications and inventory and purchasing tracking. FieldPro was acquired by Symix as a result of its acquisition of Visual Applications Software, Inc. in January 1997. FieldPro is marketed and sold under a separate and stand-alone business unit within Symix, the CIT Division. The CIT Division focuses on selling FieldPro to high technology and office equipment service operations. As of June 30, 1999, there were 30 employees in the CIT Division. SyteDistribution. SyteDistribution was acquired in connection with the acquisition of DAI in June 1999 and supports the supply chain management requirements of distribution operations. SyteDistribution has extensive functionality across a number of business processes and is designed to improve: - customer services (including electronic commerce and internet order entry); - demand, inventory and distribution planning; - warehouse management; - transportation management; and - financial management. Since 1976, DAI has sold its supply chain management solution to approximately 100 customers in various vertical industries, including retail, food, wholesale and consumer durable goods distribution. DAI historically sold its software product in flexible modular components, customizing solutions to address the individual needs of its customer. In December 1998, DAI launched an initiative to sell a more "packaged solution" with reduced implementation time. SyteDistribution is the result of that initiative. Symix intends to continue marketing and 7 8 selling SyteDistribution, and to eventually incorporate its supply chain management functionality into SyteCentre, combining the manufacturing capabilities of SyteCentre with the distribution capabilities of SyteDistribution. SERVICES AND SUPPORT The Company offers a full range of services that allow its customers to maximize the benefits of the Company's software products, including: - project management; - implementation; - product education; - technical consulting; - programming services; - system integration; and - maintenance and support. The Company's services are priced separately, and fees for its services generally are not included in the price for its software products. Fees for maintenance and support services generally are billed 12 months in advance while all remaining consulting, education and programming services generally are billed as incurred. The Company considers its ability to implement its software solution rapidly a key competitive factor. The Company's professional services organization, which employs approximately 180 consultants and managers, uses a structured implementation methodology, which divides a customer's implementation into distinct phases: - planning and installation; - education and business system simulations; - development of operating procedures; - conversion planning; - end-user training; and - cut-over and post implementation evaluation. The Company offers both on-site and classroom training. In addition to the consultants employed directly by the Company, customers can receive consulting services from the Company's approximately 40 business partners. The Company also has actively established relationships with consulting firms to provide additional support in project management, implementation and system integration services for customers. The Company views these relationships as an important source of future leads for prospective customers. Although the Company attempts to minimize customization of its software products, the Company does provide professional programming services to modify its software products to address specific customer requirements. These modifications may include designing and programming complete applications or integrating the Company's software products with legacy systems. Maintenance and support services are available to all customers using an active release of the Company's software products. Maintenance and support services include product enhancements and updates, free upgrades to new versions, telephone support during extended business hours, full-time emergency support and access to the Company's customer support module on the Company's Internet home page. The price for maintenance and support services is based primarily on a percentage of the list price of the Company's software product at the time a license is granted. Fees for maintenance and support services are billed 12 months in advance, and maintenance and service revenue is deferred and recognized ratably over the term of the maintenance and support agreement. 8 9 SALES AND DISTRIBUTION The Company currently licenses SyteLine and SyteCentre based on a license fee for each concurrent session or concurrent execution of its software products. The Company receives additional license fees whenever a customer increases the number of concurrent sessions, usually as a result of the growth of the customer's business or expansion to other sites. Both SyteLine and SyteCentre use an encrypted key that allows the customer to use only the number of concurrent sessions for which the customer has received a license. The Company principally sells its products and services through a direct sales and marketing force. The Company has made significant expenditures in recent years to expand its direct sales and marketing force, primarily outside the United States, and plans to continue such expansion. The Company's future success will depend in part upon the effectiveness of its direct sales and marketing force and the ability of the Company to continue to attract, integrate, train, motivate and retain new sales and marketing personnel. Competition for sales and marketing personnel in the software industry is intense. In addition, there can be no assurance that the Company's direct sales and marketing organization will be able to compete successfully against the sales and marketing operations of many of the Company's current and future competitors. If the Company is unable to develop and manage its direct sales and marketing force effectively, the Company's business, operating results or financial condition could be materially adversely affected. Sales leads are generated through a combination of in-house telemarketing, leads from consulting partners, advertising, trade shows and direct calls by sales staff. The Company sells its products and services through both a direct sales force and approximately 40 business partners worldwide. The Company currently maintains 26 sales and support offices worldwide: thirteen in North America, eight in Asia Pacific and five in Europe. Symix's business partners in North America target the lower end of the mid-market manufacturing sector while its business partners in Asia Pacific and Europe primarily sell independently to companies within a geographic region or country. The Company will need to maintain and expand its relationships with its existing business partners and enter into relationships with additional business partners in order to expand the distribution of its products. There can be no assurance that current or future business partners will provide the level of expertise and quality of service required to license the Company's products successfully, that the Company will be able to maintain effective, long-term relationships with such business partners or that selected business partners will continue to meet the Company's sales needs. Further, there can be no assurance that these business partners will not market software products in competition with the Company in the future or will not otherwise reduce or discontinue their relationships with, or support of, the Company and its products. If the Company fails to maintain successfully its existing business partner relationships or to establish new relationships in the future, or if any such business partner exclusively adopts a product other than the Company's products, materially reduces its sales efforts relating to the Company's products or materially increases its support for competitive products, the Company's business, operating results and financial condition could be materially and adversely affected. In addition to business partners and third party consultants, hardware vendors continue to be an important source of sales leads. The Company has entered into cooperative marketing programs with International Business Machines Corporation, Data General Corporation and Hewlett-Packard Company. The Company is responsible for providing support for its software to its customers, and the various hardware vendors are responsible for their products, under each agreement. In June, 1998, Mitsui & Co., Ltd. ("Mitsui"), the distributor of Symix products in Japan, acquired 13.3% of the ownership interest in the Company's Asia distribution operations for $2.0 million through the purchase of shares of Symix Computer Systems (Singapore) Pte. Ltd. ("Symix Singapore"). In connection with and prior to such investment, all of the outstanding shares of the Symix subsidiaries in Australia, New Zealand, Thailand, Hong Kong and Malaysia were transferred to Symix Singapore. Consequently, Mitsui currently owns 13.3% of the outstanding shares of Symix Singapore, with Symix owning the remaining 86.7%. Management believes that Mitsui's investment in Symix's Asia distribution operations along with Mitsui's increased sales support to Japanese companies throughout Asia will further legitimize Symix as a leading ERP vendor in the Asia Pacific region. 9 10 With recently established subsidiaries in Germany and Italy, and with continued growth in key areas such as China, the Company believes international sales will account for a significant portion of its total sales over the next several years. The Company derived approximately 22% of its fiscal 1999, 21% of its fiscal 1998, and 25% of its fiscal 1997 net revenues from sales outside of North America. The amount of net revenue, operating income and identifiable assets attributable to each of the Company's geographic market areas for fiscal 1999, fiscal 1998 and fiscal 1997 were as follows:
NORTH AMERICA ASIA/PACIFIC EUROPE ------------- ------------ ------- 1999 Net revenue..................................... $100,950 $ 11,722 $16,400 Operating income (loss)......................... 8,563* 709 (1,383) Identifiable assets............................. 70,920 8,321 11,359 1998 Net revenue..................................... $ 77,225 $ 8,665 $11,707 Operating income (loss)......................... 8,773* (694) 442 Identifiable assets............................. 47,778 9,392 9,212 1997 Net revenue..................................... $ 49,388 $ 8,259 $ 8,125 Operating income................................ 4,035 410 627 Identifiable assets............................. 32,531 5,766 5,955
- --------------- * Exclusive of acquisition research and development write-offs of $835,000 in fiscal 1999 and $6.5 million in fiscal 1998. The Company expects to continue to expand its existing international operations and to enter additional international markets, which will require significant management attention and financial resources. Historically, the Company's international operations have been characterized by lower operating margins during the period in which marketing and distribution channels were being developed. Costs associated with international expansion include the establishment of additional foreign offices, the hiring of additional personnel, the localization and marketing of products for particular foreign markets and the development of relationships with international service providers. If international revenue is not adequate to offset the expense of expanding foreign operations, the Company's business, operating results or financial condition could be materially adversely affected. A significant portion of the Company's international revenue is received in currencies other than U. S. dollars and, in the past, the Company has not engaged in hedging activities. As a result, the Company is subject to risks associated with foreign exchange rate fluctuations. Due to the substantial volatility of foreign exchange rates, there can be no assurance that foreign exchange rate fluctuations will not have a material adverse effect on the Company's business, operating results or financial condition. The Company's international operations are subject to other risks inherent in international business activities such as: - the impact of a recessionary environment in economies outside the United States; - cultural and language difficulties associated with servicing customers; - localization and translation of products for foreign countries; - difficulties in staffing and managing international operations; - difficulties in collecting accounts receivable and longer collection periods; - reduced protection for intellectual property rights in some countries; - exchange controls; - restrictions on the repatriation of foreign earnings; - political instability; 10 11 - trade restrictions; - tariff changes; and - the impact of local economic conditions and practices. The Company's success in expanding its international business will be dependent, in part, on its ability to anticipate and effectively manage these and other risks. There can be no assurance that these and other factors will not have a material adverse effect on the Company's business, operating results or financial condition. PRODUCT DEVELOPMENT Symix devotes a significant percentage of its resources to identifying manufacturers' needs, developing new features and enhancements to existing products and designing and developing new products. New products, updates and enhancements are developed by the Company's internal development staff. The Company's practice is to release updates and major enhancements on a regular basis. Symix works closely with manufacturers and business partners to improve and enhance its products. The market for the Company's products is characterized by rapid technological change, evolving industry standards in computer hardware and software technology, changes in customer requirements and frequent new product introductions and enhancements. The introduction of products embodying new technologies and the emergence of new industry standards can cause customers to delay their purchasing decisions and render existing products obsolete and unmarketable. The life cycles of the Company's software products are difficult to estimate. As a result, the Company's future success will depend, in part, upon its ability to continue to enhance existing products and to develop and introduce in a timely manner new products with technological developments that satisfy customer requirements and achieve market acceptance. There can be no assurance that the Company will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner or that products, capabilities or technologies developed by others will not render the Company's products or technologies obsolete or noncompetitive or shorten the life cycles of the Company's products. See "Item 1. Business--Competition." If the Company is unable to develop on a timely and cost-effective basis new software products or enhancements to existing products, or if such new products or enhancements do not achieve market acceptance, the Company's business, operating results or financial condition may be materially adversely affected. As a result of the complexities inherent in software development, in particular development for multi-platform environments, and the broad functionality and performance demanded by customers for enterprise system products, major new product enhancements and new products can require long development and testing periods before they are commercially released. The Company has on occasion experienced delays in the scheduled introduction of new and enhanced products, and future delays could have a material adverse effect on the Company's business, operating results or financial condition. Research and product development expenses, including amounts capitalized were $14,600,000, $12,200,000 and $8,759,000 for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Capitalized software expenditures were $4,400,000, $4,300,000, and $3,100,000 for the same respective periods and were capitalized in accordance with the Statement of Financial Accounting Standards No. 86. Amortization of capitalized software costs is included in cost of revenue. The Company generally retains the right to remarket specific modifications developed by its programming services group in or with future product releases. COMPETITION The market for ERP software is intensely competitive, rapidly changing and significantly affected by new product offerings and other market activities. The Company has a large number of competitors that vary in size, computing environments and overall product scope. Within its market, the primary competition comes from independent software vendors in two distinct groups: (i) large system developers who are moving into the Company's market, including Baan Company, N.V., J.D. Edwards & Company, Oracle Corporation and SAP Aktiengellschaft; and (ii) traditional mid-market competitors, including Epicor Software, QAD, Inc. and Lilly Software. 11 12 A number of companies offer products which are similar to the Company's products and are directed at the market for ERP systems for mid-market manufacturers. Many of the Company's existing competitors, as well as a number of potential new competitors, have more established and larger marketing and sales organizations, significantly greater financial, technical and other resources and a larger installed base of customers than the Company. Other competitors leverage vertical market expertise, reputation and price as competitive advantages. There can be no assurance that competitors will not offer or develop products that are superior to the Company's products or that achieve greater market acceptance. Several large companies which develop management information software applications for large multinational manufacturers are beginning to market to mid-market manufacturers targeted by the Company or otherwise develop applications that compete in the Company's markets. As the market for ERP software solutions expands, other companies may enter the Company's market or increase their market presence by acquiring or entering into alliances with competitors of the Company. As a result of all these factors, competition is likely to increase substantially, which may result in price competition, loss of market share or delayed purchasing decisions. There can be no assurance that the Company will be able to compete successfully against its competitors or that the competitive pressures faced by the Company will not adversely affect its financial performance. The Company believes that the most important considerations for potential customers for its software products are: - product functionality; - open systems technology; - ease of use; - rapid installations; - competitive pricing; - corporate reputation; - reliability and quality of technical support; - documentation and education; and - size of installed user base. The Company further believes that it competes favorably in these areas. PROPRIETARY TECHNOLOGY The Company's ability to compete is dependent in part upon its internally developed, proprietary intellectual property. The Company regards its products as proprietary trade secrets and confidential information. The Company relies largely upon its license agreements with customers, distribution agreements with distributors, and its own security systems, confidentiality procedures and employee agreements to maintain the trade secrecy of its products. In certain cases, the Company may seek to protect its programs, documentation and other written materials under copyright law. In addition, SYMIX, SyteLine and Pritsker are registered trademarks and SyteCentre, SyteDistribution, SyteAPS, and FieldPro are trademarks of the Company. None of the Company's products is patented. There can be no assurance that the Company's means of protecting its proprietary rights in the United States or abroad will be adequate or that competitors will not independently develop similar technology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights as fully as do the laws of the United States. Preventing or detecting unauthorized use of the Company's products is difficult. The Company also relies on certain other technology which it licenses from third parties, including software that is integrated with internally developed software and used in the Company's products to perform key functions. No assurance can be given that the steps taken by the Company will prevent misappropriation of its technology or that its license agreements will be enforceable. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such 12 13 litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results or financial condition. Although the Company does not believe that its products infringe the proprietary rights of third parties, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company or that any such assertions or prosecutions will not materially adversely affect the Company's business, operating results or financial condition. Regardless of the validity or the successful assertion of such claims, defending against such claims could result in significant costs and diversion of resources, which could have a material adverse effect on the Company's business, operating results or financial condition. In addition, the assertion of such infringement claims could result in injunctions preventing the Company from distributing certain products, which would have a material adverse effect on the Company's business, operating results and financial condition. If any claims or actions are asserted against the Company, the Company may seek to obtain a license to such intellectual property rights. There can be no assurance, however, that such a license would be available on reasonable terms or at all. The Company has in the past and may in the future resell certain software that it licenses from third parties and jointly develop software in which it will have co-ownership or cross-licensing rights. See "Item 1. Business--Products." EMPLOYEES As of June 30, 1999, the Company employed 835 persons, including 242 in North America sales and service operations, 280 in development and support, 215 in international operations outside of North America and 98 in marketing and administration. None of the Company's employees is represented by a labor union. The Company has never experienced a work stoppage and believes that its employee relations are good. The Company's success depends to a significant extent upon senior management and other key employees. The loss of one or more key employees could have a material adverse effect on the Company. The Company does not have employment agreements with its executive officers, except Stephen A. Sasser, President and Chief Executive Officer, and does not maintain key man life insurance on its executive officers. In addition, the Company believes that its future success will depend in part on its ability to attract and retain highly skilled technical, managerial, sales, marketing, service and support personnel. Competition for such personnel in the computer software industry is intense. There can be no assurance that the Company will be successful in attracting and retaining such personnel, and the failure to do so could have a material adverse effect on the Company's business, operating results or financial condition. EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers are as follows:
NAME AGE POSITIONS WITH THE COMPANY ---- --- -------------------------- Lawrence J. Fox........................... 43 Chairman of the Board Stephen A. Sasser......................... 50 President, Chief Executive Officer and a Director Stephen A. Yount.......................... 44 Vice President America's Field Operations Lawrence W. DeLeon........................ 44 Vice President, Chief Financial Officer and Secretary Otto E. Offereins......................... 53 Vice President and General Manager, e- Mongoose Division Daryll Wartluft........................... 58 Vice President and General Manager, SyteLine Division Robert D. Williams........................ 44 Vice President, Human Resources Catherine K. DeRosa....................... 38 Vice President of Marketing Jorge L. Lopez............................ 44 Vice President of Corporate Development/ Strategic Planning
13 14 Lawrence J. Fox founded Symix in 1979 as a sole proprietorship. He has held his present office since Symix was incorporated in 1984. From 1984 to 1998 he also served as Chief Executive Officer of he Company. Stephen A. Sasser has served as Chief Executive Officer of the Company since January 1999. He joined the Company in July 1995 as President and Chief Operating Officer. He has served as a director of the Company since July 1995. From October 1994 to June 1995, Mr. Sasser served as Vice President of International Operations for Trilogy Development Group, a provider of sales and marketing software. From August 1992 to October 1994, Mr. Sasser was Group Vice President of the Systems Management Division and Pacific Rim Operations of Legent Corporation, a provider of systems management software products and services ("Legent"). From April 1987 through its acquisition by Legent in 1992, Mr. Sasser served as President of the Data Center Management Division of Goal Systems International, Inc. ("Goal Systems"), which designed, developed, and marketed systems management software products. Stephen A. Yount joined the Company in May 1996 as Vice President of America's Sales and Services. In August 1998 he was elected as Vice President America's Field Operations. From 1995 to May 1996, he was Vice President of Sales at Tyecin Systems, a provider of client-server manufacturing software for the semi-contractor market. From 1993 to 1995, Mr. Yount served as Vice President of Sales and Services at Neuron Data, a client-server application development software company. From 1987 to 1993, he served in various senior sales positions at Legent, including Regional Vice President of Sales, Vice President of Sales and Director of Sales, Western Region. Lawrence W. DeLeon joined Symix in August 1995 as Vice President, Chief Financial Officer and Secretary. From 1991 to August 1995, Mr. DeLeon served in various capacities at Legent, including Treasurer for Goal Systems, Europe, Vice President-Finance and Administration and Vice President-Central Europe. From 1988 to 1991, Mr. DeLeon was Chief Financial Officer for Thunderbird Products Corporation, a boat manufacturer. Otto E. Offereins joined the Company in September 1995 as Vice President of Development and Support. In August 1999, Mr. Offereins was elected as Vice President and General Manager, e-Mongoose Division. From April 1998 until August 1999, he served as Vice President and General Manager, APS and ECC Division. He was Vice President and General Manager of Client Product Server Division of Legent from July 1994 to August 1995. From July 1992 to July 1994, Mr. Offereins served as Vice President of Support and Development for the Systems Management Division of Legent. From March 1991 to July 1992, he served as Vice President of Development and Support-Research and Development Division of Legent. Prior to March 1991, he was Executive Vice President of Operations for Syntelligence Corporation, a software company specializing in financial risk assessment. Daryll Wartluft joined the Company in May 1998 as Vice President and General Manager, SyteLine Division. From August 1995 to April 1998, he was President and Chief Executive Officer and a director of Pivotpoint Inc., an ERP software and services provider. From April 1994 to August 1995, he served as Group Vice President of Applications Management Division of Legent. Prior to that time, he held various management positions with Group Bull Worldwide Information Systems, a provider of systems management software products and services, and International Business Machines Corporation, a provider of advanced information technology and services. Robert D. Williams joined the Company in September 1995 as Vice President-Human Resources. Prior to that time, he served as Director, Human Resources/Associate Relations of Legent from August 1992 to August 1995. From March 1990 to August 1992 he was Executive Director of Human Resources and Administrative Services of Goal Systems. Catherine K. DeRosa joined the Company as Director of Product Marketing in August 1994. She has served the Company in the position of Vice President of Marketing since January 1996. Prior to joining Symix and from 1992 to August 1994, Ms. DeRosa served as an independent consultant to several major technology companies in the Silicon Valley. From 1989 to 1992, Ms. DeRosa served as a Senior Consultant with Price Waterhouse, a major accounting and consulting firm. She also has held a variety of positions with Micro Card Technologies, Inc., an electronic components manufacturer and Texas Instruments Inc., a leader in semi-conductors and electronics. 14 15 Ms. DeRosa is a Certified Public Accountant and received a masters in business administration degree from the Harvard Business School. Jorge L. Lopez joined the Company in November 1996 as Vice President of Corporate Development/ Strategic Planning. From 1995 to November 1996, Mr. Lopez served as Vice President of Marketing for Salesoft Inc., a provider of automated sales and marketing software. From 1989 to 1995, Mr. Lopez served as Vice President of Strategic Alliances for Avalon Software, Inc. an enterprise resource planning software and services company. Prior to that time, Mr. Lopez held various marketing and technical positions with International Business Machines Corporation, a provider of advanced information technology and services. The executive officers of the Company are appointed by and serve at the pleasure of the Symix Board of Directors. There are no arrangements or understandings between any officer and any other person pursuant to which the officer was so appointed. ITEM 2. PROPERTIES The Company's corporate headquarters and principal administrative, product development, and sales and marketing operations are located in approximately 75,000 square feet of leased office space in Columbus, Ohio. The lease agreement commenced in July 1991 and will expire on June 30, 2001. The lease agreement provides for an annual base rent of approximately $1.2 million. Additionally, the Company has 26 leased sales and support offices throughout the United States and elsewhere. ITEM 3. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims which arise in the normal course of business. While the outcome of these matters cannot be predicted with certainty, management does not believe the outcome of any of these legal matters will have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Shares are traded in the over-the-counter market and are quoted on the Nasdaq National Market under the symbol "SYMX." The following table sets forth the high and low sale prices for the Common Shares for fiscal 1998 and 1999, as reported by the Nasdaq National Market.
HIGH LOW ------ ------ Fiscal year ended June 30, 1999 First Quarter............................................. $26.38 $15.63 Second Quarter............................................ 22.63 15.25 Third Quarter............................................. 24.88 15.13 Fourth Quarter............................................ 15.88 6.50 Fiscal year ended June 30, 1998 First Quarter............................................. $21.00 $10.75 Second Quarter............................................ 19.00 14.00 Third Quarter............................................. 19.38 14.00 Fourth Quarter............................................ 22.88 18.13
15 16 The closing price on June 30, 1999 was $10.25. As of June 30, 1999, there were approximately 255 holders of record of the Common Shares, and the Company believes that there are more than 2,000 beneficial shareholders. The Company has never paid cash dividends on its Common Shares. The Company expects that all future earnings will be retained to finance the Company's operations and for the growth and development of its business. Accordingly, the Company does not currently anticipate paying cash dividends on its Common Shares in the foreseeable future. The payment of any future dividends will be subject to the discretion of the Board of Directors of the Company and will depend on the Company's results of operations, financial position and capital requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal restrictions on the payment of dividends and other factors the Board of Directors deems relevant. ITEM 6. SELECTED FINANCIAL DATA. The following table summarizes certain consolidated financial data for each of the five years presented. The selected financial data presented below has been derived from, and should be read in conjunction with, the Company's audited financial statements, and the notes thereto.
YEAR ENDED JUNE 30, 1999 1998 1997 1996 1995 ------------------- -------- ------- ------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING STATEMENT DATA: Net revenue............................ $129,072 $97,597 $65,772 $45,759 $42,828 Cost of revenue........................ 52,025 35,701 23,690 16,496 15,672 -------- ------- ------- ------- ------- Gross margin......................... 77,047 61,896 42,082 29,263 27,156 Operating expenses: Selling, general, and administrative.................... 58,941 45,474 31,351 21,593 24,774 Research and product development..... 10,217 7,901 5,659 3,673 3,744 Restructuring and other unusual charges........................... -- -- -- 506 -- Acquired research and development write-off......................... 835 6,503 -- -- -- -------- ------- ------- ------- ------- Total operating expenses..... 69,993 59,878 37,010 25,772 28,518 -------- ------- ------- ------- ------- Operating income (loss)................ 7,054 2,018 5,072 3,491 (1,362) Other income (expense), net............ 151 (178) 107 221 314 -------- ------- ------- ------- ------- Income (loss) before income taxes...... 7,205 1,840 5,179 3,712 (1,048) Provision (benefit) for income taxes... 3,206 3,196 1,916 1,404 (410) -------- ------- ------- ------- ------- Net income (loss).................... $ 3,999 $(1,356) $ 3,263 $ 2,308 $ (638) ======== ======= ======= ======= ======= Earnings (loss) per share(1)........... $ 0.55 $ (0.21) $ 0.54 $ 0.41 $ (0.12) Weighted average common and common share equivalents outstanding........ 7,264 6,317 6,079 5,582 5,424 BALANCE SHEET DATA: Working capital........................ $ 21,926 $13,575 $ 7,897 $ 7,538 $ 6,363 Total assets........................... 90,600 66,382 44,252 30,463 26,069 Total long-term debt and lease obligations.......................... 5,759 2,305 530 -- 138 Total shareholders' equity............. 42,401 31,301 23,361 17,102 14,508
- --------------- (1) Where appropriate, all share data and references in this report have been adjusted for the 2-for-1 share split, effected in the form of a share distribution of one share for each share outstanding to shareholders of record on September 10, 1996. In addition, share data has been restated to conform with the provisions of FASB Statement 128 for all years presented. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Symix designs, develops, markets and supports integrated manufacturing, supply chain management, financial and e-commerce software solutions that address the enterprise requirements of mid-size manufacturing and distribution companies and business units of larger companies. Following the fiscal 1995 year-end in which the Company incurred its first loss since becoming publicly traded in 1991, the Company hired a new president, Stephen A. Sasser, who implemented several changes in order to restore the Company to profitability. The new president reorganized the executive management staff by hiring several key executives and promoting certain employees into executive positions. Recognizing the strong foundation of the Company's core products and large customer base, the new management team initially refocused the Company's investments in development, marketing and promotional activities into supporting its traditional vertical markets within the mid-range discrete manufacturing market. The Company also restructured its sales channels by hiring new sales management in North America and Europe, revising sales compensation programs and reorganizing the services organization to align more directly with the sales organization. During the past three years, the Company has expanded its product offerings through internal development, partnerships with third party software vendors and acquisitions. These acquisitions were Visual Application Software, Inc. (field service management product) in fiscal 1997, Pritsker Corporation (advanced planning and scheduling solution) in fiscal 1998, and DAI (supply chain management and e-commerce products) in fiscal 1999. The Company today sells two core enterprise software application products: SyteLine, a manufacturing enterprise product targeting make-to-order discrete manufacturers which was released by Symix in fiscal 1996; and SyteCentre, a supply chain management product targeting light manufacturers with heavy distribution requirements which was released by Symix in fiscal 1999. Both products use the same complementary software products to support the Company's vision of CSRP or "Customer Synchronized Resource Planning". Management believes that the development, promotion and delivery of the CSRP vision has been a major contributor to the Company's success over the past three years. The Company's product development efforts are currently focused on the continued expansion of the CSRP vision through the introduction of supply chain management and e-commerce solutions. Product plans include the integration of the Company's e-commerce front end applications with its manufacturing and supply chain transaction backbones. Management considers the ability to deliver a complete e-commerce business system to mid-market manufacturers and distributors to be a key requirement for the Company's success in the future. The Company also has focused its efforts on building its international distribution channels through acquisitions and converting independent distributors to direct sales and services operations. During the past four years , the Company has converted distributors in Australia, Germany, New Zealand and the Netherlands to subsidiary operations, and has acquired a French sales and distribution operation. The Company also has opened new offices in China and Italy. Revenue from foreign operations accounted for approximately 22% of total revenue in fiscal 1999, compared to 21% in fiscal 1998 and 25% in fiscal 1997. The decline in the percentage of revenue from foreign operations from fiscal 1997 to fiscal 1998 was the result of a general slowdown in the Asian economies combined with a strong performance in North America. In fiscal 1999, the Company experienced the negative effects of the general market slowdown in industry software revenue growth as customers began postponing new technology spending and focusing on Year 2000 repairs on existing systems. The Company's license fee revenue grew 40% during the first half of the fiscal year, but remained flat in the second half. Offsetting the slowdown in license fee revenue was an accelerating growth in services revenue supporting software sales in previous quarters. The increased mix in services revenue adversely impacted gross margins which declined from 63% in fiscal 1998 to 60% in fiscal 1999. The decline in gross margins caused pretax operating margins, exclusive of acquired research and development write-offs, to decrease from 9% in fiscal 1998 to 6% in fiscal 1999. In fiscal 1999, the Company generated record revenues of $129.1 million and net income of $4.8 million, exclusive of the nonrecurring charge relating to the DAI acquisition. This compares to revenues of $97.6 million 17 18 in fiscal 1998 and $65.8 million in fiscal 1997 and net income exclusive of nonrecurring charges of $5.1 million in fiscal 1998 and $3.3 million in fiscal 1997. NET REVENUE The Company's net revenue is derived primarily from (1) licensing Symix software and providing custom programming services; (2) providing installation, implementation, training, consulting and systems integration services; and (3) providing maintenance and support on a subscription basis. Except for fiscal 1999, revenue for all periods presented is accounted for in accordance with Statement of Position (SOP) 91-1 on Software Revenue Recognition. Revenue for fiscal 1999 is accounted for in accordance with SOP 97-2. Net revenue increased 32% to $129.1 million in fiscal 1999, compared to increases of 48% and 44% for the years ended June 30, 1998 and 1997, respectively. The growth in fiscal 1999 and 1998 net revenue compared to previous years was the result of new software product offerings and the growth of the distribution channels. Both software license fee revenue and service, maintenance and support revenue contributed significantly to the net revenue increase in fiscals 1999 and 1998. The revenue mix since 1997 is shown in the table below:
YEAR ENDED JUNE 30, ------------------------------------------------------- 1999 1998 1997 --------------- -------------- -------------- (IN THOUSANDS, EXCEPT PERCENTAGES) Software license fees...... $ 67,423 52% $58,498 60% $36,477 55% Service, maintenance and support.................. 61,649 48% 39,099 40% 29,295 45% -------- --- ------- --- ------- --- Total............ $129,072 100% $97,597 100% $65,772 100%
Software license fee revenue increased 15% in fiscal 1999 compared to a 60% license fee revenue growth in fiscal 1998. The decline in the rate of increase of software license fee revenue growth in fiscal 1999 is attributable to the industry-wide trend of delays in new business system purchases due to the Year 2000 market dynamics, as companies delay major business system purchases. Despite this trend, an increased number of sales representatives and overall market acceptance of Symix's product line resulted in a 15% increase in software license fee revenue during fiscal 1999, more than offsetting the Year 2000 impact. The increase in software revenue in fiscal 1998 was primarily the result of (i) the expanding number of products that complement the Company's core ERP software product, SyteLine, and (ii) the acquisition of Pritsker Corporation in November 1997. Service, maintenance and support revenue is derived from installation, implementation, training, consulting, systems integration and software product maintenance and support services. Service, maintenance and support revenue increased 58% in fiscal 1999 to $61.6 million from $39.1 million in fiscal 1998 and $29.3 million in fiscal 1997. The continued increase in service, maintenance and support revenue is attributable to growth in licensed Symix software installations worldwide and the expanding product line. Service, maintenance and support revenue made up 48% of total revenue in fiscal 1999, compared to 40% and 45% in fiscal 1998 and fiscal 1997, respectively. Service, maintenance and support revenue as a percentage of total revenue increased from fiscal 1998 to fiscal 1999 due to the de-accelerating software license fee revenue growth, the expansion of the service's organization to support the increase of new licenses sold during previous quarters and the expanding product line. Generally, maintenance and support contracts are billed annually and revenue is recognized ratably over the contract period, which is typically twelve months. Deferred revenue on the Company's balance sheet relating primarily to maintenance and support contracts increased from $13.2 million at June 30, 1998 to $17.2 million at June 30, 1999. Cost of Revenue Total cost of net revenue as a percentage of net revenue was 40% for the year ended June 30, 1999 compared to 37% and 36% for the years ended June 30, 1998 and 1997, respectively. Cost of software license fees include royalties, amortization of capitalized software development costs and software delivery expenses. Cost of software license fees increased to 27% of software license fee revenue in 18 19 fiscal 1999 from 25% in fiscal 1998 and 27% in fiscal 1997. The percentage increase is attributable to the increase in the rate of amortization on capitalized software expenses relative to license fee revenue. Symix began amortizing capitalized software costs related to the new product initiative, SyteCentre, during the third fiscal quarter of fiscal year 1999. Cost of service, maintenance and support includes the personnel and related overhead costs for implementation, training and customer support services, together with fees paid to third parties for subcontracted services. Cost of service, maintenance and support was 55% of service, maintenance and support revenue in fiscal 1999 compared to 54% in fiscal 1998 and 48% in fiscal 1997. The increase in cost of service, maintenance and support in fiscal 1999 and fiscal 1998, respectively, was due to the continued use of subcontractors to supplement the work performed by Company employees. In general, the use of subcontractors results in lower margins than the use of employees but provides the Company increased flexibility in meeting customer demands. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of personnel and related overhead costs, including commissions for the sales, marketing, general and administrative activities of the Company, together with advertising and promotional costs. Selling, general and administrative expenses increased 30% in fiscal 1999 compared to a percentage increase of 45% in both fiscal 1998 and 1997. Selling, general and administrative expenses as a percent of net revenue were 46%, 47% and 48% for the years ended June 30, 1999, 1998 and 1997, respectively. The slight improvement in these percentages is related to the increase in percentage of service, maintenance and support revenue versus license fee revenue in the net revenue mix. Research and Development Research and development expenses include personnel and related overhead costs for product development, enhancement, upgrades, quality assurance and testing. Total research and development expenses, including amounts capitalized, were $14.6 million or 11% of net revenue for the year ended June 30, 1999, compared to $12.2 million or 13% of net revenue in fiscal 1998 and $8.8 million or 13% of net revenue in fiscal 1997. The Company capitalized research and development costs of $4.4 million, $4.3 million and $3.1 million for the years ended June 30, 1999, 1998 and 1997, respectively. Software development costs capitalized in a given period are dependent upon the nature and state of the development process and are recorded in accordance with Statement of Financial Accounting Standards No. 86. Upon general release of a product, related capitalized costs are amortized over three years and recorded as license fee cost of revenue. The Company incurred nonrecurring charges of approximately $6.5 million in 1998 and $835,000 in 1999 relating to the write-off of acquired in-process technology in conjunction with the Pritsker and DAI acquisitions. The increase in overall research and development expense is due to staff expansion relating to the Company's development of future releases of SyteLine and SyteCentre, increased development focus on interfacing with third-party software products and research involving new technologies and products. Provision for Income Taxes The effective tax rates for the years ended June 30, 1999, 1998 and 1997 were 44%, 174% and 37%, respectively. The increased effective tax rates in both fiscal 1999 and 1998 were primarily due to acquisition research and development write-offs of $835,000 in fiscal 1999 and $6.5 million in fiscal 1998, which were not deductible for income tax purposes. The rate also has increased as well due to, (i) the amount of foreign taxable earnings in countries with higher effective tax rates and (ii) the non-deductibility of the amortization of goodwill, thereby increasing Symix's overall tax rate. QUARTERLY RESULTS The following table sets forth certain unaudited operating results for each of the eight quarters in the two year period ended June 30, 1999. This information has been prepared by the Company on the same basis as its audited, consolidated financial statements, and includes all adjustments (consisting only of normal recurring 19 20 adjustments) necessary to present fairly this information when read in conjunction with the Company's audited, consolidated financial statements and the notes thereto. The Company's results of operations have fluctuated on a quarterly basis. The Company's expenses, with the principal exception of sales commissions and certain components of cost of revenue, are generally fixed and do not vary with revenue. As a result, because the Company's plans and commitments of resources are in advance of its planned revenue level, any shortfall of actual revenue in a given quarter would adversely affect net earnings for that quarter by a significant portion of the shortfall.
THREE MONTHS ENDED --------------------------------------------------------------------------------------- JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, 1999 1999 1998 1998 1998 1998 1997 1997 -------- -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATE) Net revenue....................... $37,755 $31,325 $33,101 $26,891 $31,692 $24,322 $24,017 $17,565 Cost of revenue................... 15,861 13,249 12,719 10,196 11,122 9,151 8,537 6,891 ------- ------- ------- ------- ------- ------- ------- ------- Gross margin.................... 21,894 18,076 20,382 16,695 20,570 15,171 15,480 10,674 Operating expenses................ Selling, general, and administrative................ 17,337 14,180 14,331 13,093 14,395 12,204 11,133 7,741 Research and product development................... 3,155 2,617 2,249 2,196 2,287 1,870 1,709 2,034 Acquired research and development write-off......... 835 -- -- -- -- -- 6,503 -- ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses............... 21,327 16,797 16,580 15,289 16,682 14,074 19,345 9,775 ------- ------- ------- ------- ------- ------- ------- ------- Operating income (loss)........... 567 1,279 3,802 1,406 3,888 1,097 (3,865) 899 Other income (expenses), net...... 34 26 80 11 (46) (67) (16) (50) ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes........................... 601 1,305 3,882 1,417 3,842 1,030 (3,881) 849 Provision for income taxes........ 571 522 1,553 560 1,486 389 1,004 317 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)................. $ 30 $ 783 $ 2,329 $ 857 $ 2,356 $ 641 ($4,885) $ 532 ======= ======= ======= ======= ======= ======= ======= ======= Basic earnings (loss) per share... $ 0.00 $ 0.12 $ 0.35 $ 0.13 $ 0.36 $ 0.10 ($ 0.79) $ 0.09 ======= ======= ======= ======= ======= ======= ======= ======= Diluted earnings (loss) per share........................... $ 0.00 $ 0.11 $ 0.32 $ 0.12 $ 0.33 $ 0.09 ($ 0.79) $ 0.08 ======= ======= ======= ======= ======= ======= ======= ======= Diluted earnings per share exclusive of acquired R&D write-off....................... $ 0.12 $ 0.11 $ 0.32 $ 0.12 $ 0.33 $ 0.09 $ 0.24 $ 0.08 ======= ======= ======= ======= ======= ======= ======= ======= Weighted average number of common shares outstanding.............. 6,874 6,700 6,648 6,622 6,586 6,519 6,179 5,982 Weighted average number of common shares outstanding assuming dilution........................ 7,207 7,309 7,281 7,260 7,222 7,115 6,179 6,567 Weighted average number of common shares outstanding assuming dilution and exclusive of acquired R&D write-off.......... 7,207 7,309 7,281 7,260 7,222 7,115 6,783 6,567
- --------------- Note: Share data has been restated to conform with the provisions of FASB Statement 128. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations decreased from $8.8 million in fiscal 1998 to $5.5 million in fiscal 1999. In all periods presented, cash provided by operating activities was due to earnings plus non-cash items including acquired research and development write-offs, increases in deferred revenue, accounts payable and accrued expenses, offset by an increase in trade accounts receivable. Trade accounts receivable days sales outstanding were 110 days at June 30, 1999 in comparison to 97 days and 95 days at June 30, 1998 and 1997, respectively. For all three years presented, cash provided by operations was used primarily to fund software development costs and to purchase computer equipment. In fiscal 1998, the Company received $2.0 million cash from Mitsui & Co., Ltd. in exchange for a 13.3% minority equity interest in the Symix Asia distribution operation. Cash at June 30, 20 21 1999 decreased to $5.2 million from $6.1 million at June 30, 1998, and increased from $2.3 million at June 30, 1997. Working capital was $21.9 million at June 30, 1999 compared to $13.6 million at June 30, 1998 and $7.9 million at June 30, 1997. The increase in working capital in fiscal 1999 and 1998 is primarily attributable to the increase in trade accounts receivable resulting from revenue growth and increase in days sales outstanding. For both fiscal 1999 and fiscal 1998, the increase in current assets was partially offset by the increase in deferred revenue due to the increased Symix customer base and renewed service contracts. In addition to its present working capital, the Company has a $15.0 million unsecured revolving bank line of credit that expires in fiscal 2001. As of June 30, 1999, $5.4 million was drawn under the line of credit to fund the Company's working capital needs. The Company anticipates that cash on hand, cash flow from operations, and the bank line of credit will be sufficient to satisfy expected cash needs for the next 12 months. YEAR 2000 COMPLIANCE The Company faces "Year 2000 compliance" issues similar to those faced by other companies in the information technology industry. Year 2000 compliance issues typically arise with respect to computer software systems and programs that use only two digits, rather than four digits, to represent a particular year. Consequently, these systems and programs may not process dates beyond the year 1999 and may result in miscalculations or system failures. Year 2000 compliance problems also may arise in embedded systems, such as environmental system controls, elevators and other products that use microprocessors or computer chips. The Company's current product and service offerings, including those products developed and supported by third party software vendors, have been designed to be Year 2000 compliant. New products also are being designed by the Company to be Year 2000 compliant. The Company's existing contracts with active customers (e.g., customers with effective maintenance and support agreements with the Company) cover recent software products that are Year 2000 compliant or for which a Year 2000 ready upgrade is available, or do not expressly obligate the Company to furnish an updated release that is Year 2000 compliant. The Company has communicated with its customers regarding Year 2000 compliance, notifying them of the availability of upgraded or new releases of the Company's products which are Year 2000 compliant for certain older software products released by the Company which still may be in use by them. In certain cases, the Company has warranted that the Company's current software product offerings are Year 2000 ready when specifically requested by the customer. Although the software products currently offered by the Company have been tested for Year 2000 readiness, any failure of the Company's software products to perform, including the failure to process dates beyond the year 1999, could have a material adverse effect on the Company's business, operating results or financial condition. The Company has substantially completed its assessment of selected third parties, including key suppliers, subcontractors, business partners and customers regarding their year 2000 readiness. To the extent that the Company uses third party products or technology in its computer software products, the Company has obtained confirmation of Year 2000 compliance from such third party providers. A failure of one or more of such suppliers, subcontractors, business partners, or customers of the Company to sufficiently address their Year 2000 compliance issues could adversely affect the Company's business, operating results or financial condition. The Company also has substantially completed its review of its internal computer information system and non-computer systems, such as telecommunications equipment, building elevators, etc., which contain embedded computer technology, to determine whether such systems are Year 2000 compliant. Most of the embedded systems on which the Company relies in its daily operations are owned and managed by the lessors of the facilities in which the Company's operations are located, or by agents of such lessors. The Company presently believes that such systems are Year 2000 compliant. The Company is less certain of the Year 2000 readiness of third parties who provide external services, such as public utilities, which could adversely impact the Company's operations. For example, the failure or interruption of electrical services would disrupt the Company's ability to communicate with its customers, suppliers, business partners and others. All costs related to Year 2000 issues are being expensed by the Company. The Company does not expect that the total costs of evaluation and compliance relating to the Company's Year 2000 issues will be material. 21 22 The Company's statements regarding its year 2000 readiness are forward-looking statements and, therefore, are subject to change as a result of known and unknown factors. The Company's estimate of year 2000 related costs and assessment of its year 2000 readiness are dependent upon the Company's ability to successfully identify all relevant year 2000 issues, the nature and amount of remediation required, and the year 2000 success attained by its key third party providers and customers. Although these and other unforeseen factors could have a material adverse effect on the Company's business, operating results or financial condition, management believes that it has implemented an effective year 2000 compliance program. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K AND OTHER WRITTEN AND ORAL STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ARE "FORWARD-LOOKING" STATEMENTS, INCLUDING STATEMENTS REGARDING FUTURE ECONOMIC PERFORMANCE OF THE COMPANY AND THE PLANS, OBJECTIVES AND EXPECTATIONS OF THE COMPANY'S MANAGEMENT. THE WORDS "EXPECT," "ANTICIPATE," "INTEND," "PLAN," "BELIEVE," "ESTIMATE," AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS PROVIDE CURRENT EXPECTATIONS AND FORECASTS OF FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, KNOWN AND UNKNOWN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE PLANS, OBJECTIVES AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY THE FORWARD-LOOKING STATEMENTS ARE BASED UPON REASONABLE ASSUMPTIONS, NO ASSURANCE CAN BE GIVEN THAT SUCH PLANS, OBJECTIVES OR EXPECTATIONS WILL BE ACHIEVED. IN SOME CASES, INFORMATION REGARDING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM A FORWARD-LOOKING STATEMENT APPEAR TOGETHER WITH SUCH STATEMENT. OTHER UNCERTAINTIES AND RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE DEMAND FOR AND MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES; THE IMPACT OF COMPETITIVE PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN EFFICIENT MARKETING AND DISTRIBUTION OPERATIONS DOMESTICALLY AND INTERNATIONALLY; FUTURE WORLDWIDE POLITICAL, ECONOMIC, COMPETITIVE AND MARKET CONDITIONS; THE COMPANY'S ABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED TECHNICAL, MANAGERIAL, SALES, MARKETING, SERVICE AND SUPPORT STAFF AND TO RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL; TIMING OF PRODUCT DEVELOPMENT AND GENERAL RELEASE; EXCHANGE RATE FLUCTUATIONS, THE COMPANY'S ABILITY TO PROTECT IS PROPRIETARY TECHNOLOGY; RISKS GENERALLY ASSOCIATED WITH NEW PRODUCT INTRODUCTION; THE COMPANY'S ABILITY TO SUCCESSFULLY RESOLVE ANY REMAINING YEAR 2000 ISSUES; PRODUCT PRICING; AND OTHER FACTORS DETAILED IN THIS ANNUAL REPORT ON FORM 10-K AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. IT IS NOT POSSIBLE TO IDENTIFY OR FORESEE ALL SUCH RISKS OR UNCERTAINTIES. CONSEQUENTLY, THE FOREGOING SHOULD NOT BE CONSIDERED AN EXHAUSTIVE STATEMENT OF ALL RISKS, UNCERTAINTIES OR POTENTIALLY INACCURATE ASSUMPTIONS RELATING TO SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. FOREIGN EXCHANGE Symix's revenue originating outside the United States was 22% and 21% of total revenues in fiscal 1999 and fiscal 1998, respectively. In fiscal 1999 international revenues from each geographic region were: Europe 13% of total revenues and Asia Pacific 9% of total revenues. In fiscal 1998 the respective percentages were 12% and 9%. International sales are made mostly from the Company's foreign sales subsidiaries in the local countries and are typically denominated in the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. The Company's 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; 22 23 - other regulations and restrictions; and - foreign exchange rate volatility. Accordingly, the Company's future results could be materially adversely impacted by changes in these or other factors. The Company's exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which cost of software, including certain development costs, incurred in the United States is charged to the Company's foreign sales subsidiaries. These intercompany accounts are typically denominated in the functional currency of the foreign subsidiary in order to centralize foreign exchange risk with the parent company in the United States. The Company is also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall profitability. To date the Company has not realized material fluctuations due to foreign exchange rates. However, due to the growth of the international business, management is reviewing a foreign exchange hedge program in order to minimize this particular exposure. INFLATION AND INTEREST RATES The Company has not been significantly affected by inflation in recent years and anticipates that it will not be significantly affected by inflation in fiscal 2000. A material change in interest rates could have an impact on the Company's financial results, as the Company is presently paying a variable interest rate on its outstanding debt. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE -------- Report of Independent Auditors.............................. 26 Consolidated Statements of Operations -- Years ended June 30, 1999, 1998, and 1997.................................. 27 Consolidated Balance Sheets -- June 30, 1999 and 1998....... 28 Consolidated Statements of Cash Flows -- Years ended June 30, 1999, 1998, and 1997.................................. 29 Consolidated Statements of Shareholders' Equity -- Years ended June 30, 1999, 1998, and 1997....................... 30 Notes to Consolidated Financial Statements -- June 30, 1999...................................................... 31 Financial statement schedule: Schedule II -- Valuation and Qualifying Accounts............ 40
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 23 24 PART III In accordance with general instruction G(3), the information required by Items 10, 11, 12 and 13 is hereby incorporated herein by reference from the Company's definitive proxy statement for its annual meeting of shareholders to be held on November 17, 1999, which is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the Company's fiscal year covered by this report, except that certain information required by Item 10 with respect to executive officers of the Company is set forth in Part I hereof under "Item 1. Business--Executive Officers of the Registrant". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents Filed as Part of This Report: 1 Financial Statements See Item 8.--Index to Financial Statements and Financial Statement Schedules 2 Financial Statement Schedules See Item 8.--Index to Financial Statements and Financial Statement Schedules 3 Exhibits: See Exhibit Index in this Report.
(b) Reports on Form 8-K: None. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of September, 1999. SYMIX SYSTEMS, INC. By /s/ Lawrence W. DeLeon ---------------------------------- Lawrence W. DeLeon Vice President, Chief Financial Officer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 20th day of September, 1999.
SIGNATURE TITLE --------- ----- Lawrence J. Fox* Chairman of the Board and Director - ------------------------------------------------ Lawrence J. Fox Stephen A. Sasser* President, Chief Executive Officer and Director - ------------------------------------------------ Stephen A. Sasser /s/ Lawrence W. DeLeon Vice President, Chief Financial Officer and - ------------------------------------------------ Secretary Lawrence W. DeLeon John T. Tait* Director - ------------------------------------------------ John T. Tait Duke W. Thomas* Director - ------------------------------------------------ Duke W. Thomas Director - ------------------------------------------------ Larry L. Liebert James A. Rutherford* Director - ------------------------------------------------ James A. Rutherford * By Power of Attorney /s/ Lawrence W. DeLeon - ------------------------------------------------ Lawrence W. DeLeon (Attorney-in-Fact)
25 26 REPORT OF INDEPENDENT AUDITORS Board of Directors Symix Systems, Inc. We have audited the accompanying consolidated balance sheets of Symix Systems, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Symix Systems, Inc. and Subsidiaries at June 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth herein. /s/ Ernst & Young LLP Columbus, Ohio July 26, 1999 26 27 CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: License fees................................................ $67,423 $58,498 $36,477 Service, maintenance and support............................ 61,649 39,099 29,295 ------- ------- ------- Net revenue............................................... 129,072 97,597 65,772 Cost of revenue: License fees................................................ 18,317 14,746 9,721 Service, maintenance and support............................ 33,708 20,955 13,969 ------- ------- ------- Cost of revenue........................................... 52,025 35,701 23,690 ------- ------- ------- Gross margin.............................................. 77,047 61,896 42,082 Selling, general and administrative......................... 58,941 45,474 31,351 Research and product development............................ 10,217 7,901 5,659 Acquisition research and development write-off.............. 835 6,503 -- ------- ------- ------- Total operating expenses.......................... 69,993 59,878 37,010 ------- ------- ------- Operating income.......................................... 7,054 2,018 5,072 Other income (expense), net................................. 151 (178) 107 ------- ------- ------- Income before income taxes................................ 7,205 1,840 5,179 Provision for income taxes -- Note F........................ 3,206 3,196 1,916 ------- ------- ------- Net income (loss)......................................... $ 3,999 ($1,356) $ 3,263 ======= ======= ======= Basic EPS: Net income (loss) per share............................... $ 0.60 ($ 0.21) $ 0.57 ======= ======= ======= Diluted EPS: Net income (loss) per share............................... $ 0.55 ($ 0.21) $ 0.54 ======= ======= ======= Weighted average number of common shares outstanding........ 6,711 6,317 5,753 Weighted average number of common shares outstanding assuming dilution......................................... 7,264 6,317 6,079
See notes to consolidated financial statements 27 28 CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30, 1999 1998 -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 5,236 $ 6,115 Trade accounts receivable, less allowance for doubtful accounts of $1,500 at June 30, 1999 and $1,063 at June 30, 1998............................................... 46,251 32,925 Inventories............................................... 767 489 Prepaid expenses.......................................... 2,518 1,346 Other receivables......................................... 1,346 427 Deferred income taxes -- Note F........................... 811 573 ------- ------- Total current assets.............................. 56,929 41,875 Other assets: Capitalized software, net of accumulated amortization of $10,833 at June 30, 1999 and $8,164 at June 30, 1998................................................... 16,250 11,012 Deferred income taxes -- Note F........................... -- 180 Intangibles, net.......................................... 7,191 5,091 Deposits and other assets................................. 2,033 1,725 ------- ------- 25,474 18,008 Equipment and improvements: Furniture and fixtures.................................... 3,101 2,880 Computer and other equipment.............................. 15,767 11,573 Leasehold improvements.................................... 1,472 1,262 ------- ------- 20,340 15,715 Less allowance for depreciation and amortization.......... 12,143 9,216 ------- ------- 8,197 6,499 ------- ------- Total assets...................................... $90,600 $66,382 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses-Note G.............. $16,052 $13,276 Customer deposits......................................... 148 288 Deferred revenue.......................................... 17,209 13,155 Income taxes payable...................................... 470 1,304 Current portion of long term obligations-Note I........... 1,124 277 ------- ------- Total current liabilities......................... 35,003 28,300 Long-term obligations -- Note I............................. 392 305 Bank credit agreement -- Note E............................. 5,367 2,000 Deferred income taxes -- Note F............................. 5,417 2,476 Minority interest -- Note K................................. 2,020 2,000 Shareholders' equity -- Note C Common stock, authorized 20,000 shares; issued 7,654 shares at June 30, 1999, and 6,778 at June 30, 1998; at stated capital amounts of $.01 per share............... 76 68 Convertible preferred stock of subsidiary-Note H.......... -- 1,031 Capital in excess of stated value......................... 32,363 23,937 Retained earnings......................................... 13,496 9,497 Accumulated other comprehensive loss...................... (2,214) (1,912) ------- ------- 43,721 32,621 Less: Common stock in treasury: 304 shares, at cost....................................... (1,320) (1,320) ------- ------- Total shareholders' equity........................ 42,401 31,301 ------- ------- Total liabilities and shareholders' equity........ $90,600 $66,382 ======= =======
See notes to consolidated financial statements 28 29 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, ------------------------------ 1999 1998 1997 -------- -------- ------ (IN THOUSANDS) Increase (decrease) in cash Operating activities: Net income (loss)........................................... $ 3,999 ($ 1,356) $3,263 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Acquisition research and development write-off............ 835 6,503 -- Depreciation and amortization............................. 8,510 6,220 4,593 Provision for losses on accounts receivable............... 437 353 261 Provision for deferred income taxes....................... 362 572 1,417 Changes in operating assets and liabilities: Trade accounts receivable............................ (11,829) (11,942) (9,151) Prepaid expenses and other receivables............... (1,344) (181) (474) Inventory............................................ (277) (133) (45) Deposits and other assets............................ (343) (1,084) (611) Accounts payable and accrued expenses................ 1,688 5,285 157 Customer deposits.................................... (153) (14) 57 Deferred revenue..................................... 3,996 2,831 3,216 Income taxes payable/refundable...................... (407) 1,721 (165) -------- -------- ------ Net cash provided by operating activities............ 5,474 8,775 2,518 -------- -------- ------ Investing activities: Purchase of equipment and improvements...................... (3,624) (3,273) (2,649) Additions to purchased and developed software............... (4,871) (4,667) (3,637) Purchase of subsidiaries, net of cash acquired.............. (1,069) (699) (1,191) -------- -------- ------ Net cash used by investing activities................ (9,564) (8,639) (7,477) -------- -------- ------ Financing activities: Proceeds from issuance of common stock and exercise of stock options.......................................... 1,004 815 806 Additions to long-term obligations, net of payments......... 2,204 1,152 (151) Additions to paid in capital................................ -- 2,000 -- -------- -------- ------ Net cash provided by financing activities............ 3,208 3,967 655 -------- -------- ------ Effect of exchange rate changes on cash..................... 3 (320) (138) Net increase (decrease) in cash............................. (879) 3,783 (4,442) Cash at beginning of period................................. 6,115 2,332 6,774 -------- -------- ------ Cash at end of period....................................... $ 5,236 $ 6,115 $2,332 -------- -------- ------ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest............................................... $ 320 $ 374 $ 8 Income taxes (net of refunds).......................... 2,381 78 639 -------- -------- ------
See notes to consolidated financial statements 29 30 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CONVERTIBLE COMMON STOCK PREFERRED STOCK ACCUMULATED OTHER --------------- --------------- CAPITAL IN EXCESS OF RETAINED COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT STATED VALUE EARNINGS INCOME ------ ------ ------ ------ -------------------- -------- ----------------- (IN THOUSANDS) Balances at June 30, 1996..................... 5,826 $58 $10,985 $ 7,590 $ (211) Issuance of shares on exercise of stock options.................. 182 2 662 Tax benefit on stock options exercised........ 322 Issuance of convertible preferred shares of subsidiary............... 250 $2,062 Exercise of convertible preferred shares......... 125 1 (125) (1,031) 1,030 Issuance of shares for employee stock purchase plan..................... 27 1 142 Compensatory portion of stock options granted.... 150 Net income................. 3,263 Foreign currency translation adjustments.............. (345) Comprehensive income....... ----- --- ---- ------ ------- ------- ------- Balances at June 30, 1997..................... 6,160 62 125 1,031 13,291 10,853 (556) Issuance of shares on exercise of stock options.................. 97 1 617 Tax benefit on stock options exercised........ 459 Issuance of shares for employee stock purchase plan..................... 36 257 Compensatory portion of stock options granted.... 150 Issuance of shares and options related to acquisition.............. 485 5 9,163 Net loss................... (1,356) Foreign currency translation adjustments.............. (1,356) Comprehensive loss......... ----- --- ---- ------ ------- ------- ------- Balances at June 30, 1998..................... 6,778 68 125 1,031 23,937 9,497 (1,912) Issuance of shares on exercise of stock options.................. 75 1 516 Tax benefit on stock options exercised........ 330 Exercise of convertible preferred shares......... 144 1 (125) (1,031) 1,341 Issuance of shares for employee stock purchase plan..................... 38 533 Compensatory portion of stock options granted.... 140 Issuance of shares related to acquisition........... 619 6 5,566 Net income 3,999 Foreign currency translation adjustments.............. (302) Comprehensive income....... ----- --- ---- ------ ------- ------- ------- Balances at June 30, 1999..................... 7,654 $76 -- -- $32,363 $13,496 ($2,214) TOTAL TREASURY SHAREHOLDERS' STOCK EQUITY -------- ------------- (IN THOUSANDS) Balances at June 30, 1996..................... $(1,320) $17,102 Issuance of shares on exercise of stock options.................. 664 Tax benefit on stock options exercised........ 322 Issuance of convertible preferred shares of subsidiary............... 2,062 Exercise of convertible preferred shares......... -- Issuance of shares for employee stock purchase plan..................... 143 Compensatory portion of stock options granted.... 150 Net income................. 3,263 Foreign currency translation adjustments.............. (345) ------- Comprehensive income....... 2,918 ------- ------- Balances at June 30, 1997..................... (1,320) 23,361 Issuance of shares on exercise of stock options.................. 618 Tax benefit on stock options exercised........ 459 Issuance of shares for employee stock purchase plan..................... 257 Compensatory portion of stock options granted.... 150 Issuance of shares and options related to acquisition.............. 9,168 Net loss................... (1,356) Foreign currency translation adjustments.............. (1,356) ------- Comprehensive loss......... (2,712) ------- ------- Balances at June 30, 1998..................... (1,320) 31,301 Issuance of shares on exercise of stock options.................. 517 Tax benefit on stock options exercised........ 330 Exercise of convertible preferred shares......... 311 Issuance of shares for employee stock purchase plan..................... 533 Compensatory portion of stock options granted.... 140 Issuance of shares related to acquisition........... 5,572 Net income 3,999 Foreign currency translation adjustments.............. (302) ------- Comprehensive income....... 3,697 ------- ------- Balances at June 30, 1999..................... ($1,320) $42,401
30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying financial statements include the accounts of Symix Systems, Inc., and its wholly owned subsidiaries after elimination of intercompany accounts and transactions. Organization: Symix Systems, Inc. designs, develops, markets and supports integrated manufacturing, supply claim management, financial and e-commerce software solutions for mid-market, discrete manufacturers and business units of larger companies. The Company today sells two core enterprise software application products: StyeLine, a manufacturing enterprise product targeting make-to-order discrete manufacturers; and SyteCentre, a supply chain management product targeting light manufacturers with heavy distribution requirements. Founded in 1979, Symix is headquartered in Columbus, Ohio, employing more than 835 people, with direct sales and support offices in the Americas, Europe, and Asia Pacific. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition: In October 1997, the American Institute of Certified Public Accountants ("AICPA") issued SOP 97-2, "Software Revenue Recognition," which provides guidance on recognizing revenue on software transactions and supersedes SOP 91-1. Further guidance was published during 1998 in SOP 98-4, "Software Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." The Company adopted the provisions of SOP 97-2 effective July 1, 1998. Revenue is derived principally from the sale of internally produced software products and maintenance and support agreements from software sales. The Company licenses software generally under non-cancelable license agreements and provides product support services and periodic updates including training, installation, consulting and maintenance. License fee revenues are generally recognized when a non-cancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. For customer license agreements, which meet these recognition criteria, the portion of the fees related to software licenses will generally be recognized in the current period, while the portion of the fees related to services is recognized as the services are performed. Revenue from maintenance and support agreements is billed periodically, deferred, and recognized ratably over the life of the agreements. Revenue from consulting, education, and other services is recognized as the services are provided. The Company establishes allowances to provide for uncollectible trade receivables and anticipated adjustments to amounts previously billed. Capitalized Software: Capitalized software is stated at the lower of cost or net realizable value. The Company capitalizes the cost of purchased software and the qualifying internal cost of developing its software products in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Capitalized software costs are amortized by the straight-line method using estimated useful lives of three to five years. Amortization expense was $3,437,000, $2,115,000, and $1,795,000 for the years ended June 30, 1999, 1998 and 1997, respectively. Inventories: Inventories consist primarily of software-related products that are held for resale. The Company values inventory at the lower of cost or market. Cost is determined using the specific identification method. Equipment and Improvements: Equipment and improvements are stated on the basis of cost. Provisions for depreciation and amortization are computed by the straight-line method over the estimated lives of the related assets. Depreciation expense was $3,221,000, $2,434,000, and $1,952,000 for the years ended June 30, 1999, 1998 and 1997, respectively. Foreign Currency Translation: The Company has determined that the functional currency of each foreign operation is the local currency. The effects of translation rate changes related to assets and liabilities located 31 32 outside the United States are included as a component of other comprehensive income. Foreign currency transaction gains and losses are included in Other Income, Net on the Consolidated Statements of Operations. Income Taxes: The Company accounts for income taxes under the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Share: The Company computes earnings per share in accordance with the requirements of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Under SFAS 128, basic earnings per share computations are based on the weighted-average number of common shares outstanding during the period presented. Diluted earnings per share calculations reflect the assumed exercise and conversion of employee stock options. Comprehensive Income: The Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income" as of July 1, 1998. SFAS 130 requires disclosure of the components of total non-stockholder changes in equity as comprehensive income. The Company's only items that meet the definition for adjustment to arrive at comprehensive income are changes in cumulative translation adjustments. Stock-based Compensation: The Company accounts for stock compensation arrangements in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." The pro forma information regarding net income and earnings per share as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) is disclosed in "Note C -- Common Stock and Stock Options". Preferred Stock: The Company's Articles of Incorporation authorize 1,000,000 shares of preferred stock, no par value. The Board of Directors is authorized to determine the rights and preferences of these shares. Presently, no preferred shares are issued and outstanding. Cash and Cash Equivalents: The Company considers all demand deposits and highly liquid investments with a maturity of three months or less as cash equivalents. Intangible Assets: Intangible assets consist principally of goodwill and other intangible assets resulting from acquisitions accounted for using the purchase method of accounting. The intangible assets are amortized using the straight-line method over a period of three to ten years. The accumulated amortization of intangible assets relating to acquired businesses was $1,679,000, $1,479,000 and $608,000 at June 30, 1999, 1998 and 1997, respectively. Reclassification: Certain reclassifications have been made to prior year amounts to conform to the 1999 presentation. NOTE B -- LEASES The Company has entered into certain operating lease agreements for the rental of office facilities and computer equipment. The facility leases provide for annual rentals which are subject to escalation for increased operating costs. Amounts expensed under all operating lease agreements were: $4,415,000, $3,727,000, and $2,702,000 for the years ended June 30, 1999, 1998 and 1997, respectively. 32 33 The following is a schedule of future minimum lease payments required under the capital and operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 1999:
CAPITAL OPERATING FISCAL YEARS LEASE LEASE ------------ ------- --------- (IN THOUSANDS) 2000.............................................. $160 $3,166 2001.............................................. 98 2,629 2002.............................................. 32 859 2003 -- 551 2004 and thereafter -- 552 ---- ------ Total minimum payments...................................... $290 $7,757 ====== Less amount representing interest........................... 27 ---- Present value of future minimum lease payments.............. $263 ====
NOTE C -- COMMON STOCK AND STOCK OPTIONS On July 8, 1996, shareholder approval was obtained to amend the Company's Amended Articles of Incorporation to increase its authorized shares from 6,000,000 to 21,000,000 shares, of which 20,000,000 are common shares and 1,000,000 are preferred shares. The Company has a non-qualified stock option plan ("the Plan") that provides for the granting of options to officers and other key employees for common shares at purchase prices of not less than the fair market value on the date of the grant as determined by the Compensation Committee of the Board of Directors. The maximum number of common shares which may be optioned under the Plan was 2,653,070 as of June 30, 1999. Options under the Plan generally vest over periods of up to four years and must be exercised within ten years of the date of grant. The Company also has a non-qualified stock option plan for Key Executives ("Key Executives Plan"). A total of 400,000 common shares are designated for issuance under the Key Executives Plan. The Compensation Committee of the Board of Directors is authorized to set the price and terms and conditions of the options granted under the Key Executives Plan. Options under the Key Executives Plan must be exercised within ten years of the date of the grant. The Company also has a Stock Option Plan for Outside Directors ("Outside Directors Plan"). The Outside Directors Plan provides for the issuance of options for 20,000 shares of stock to each Outside Director upon his/her election to the Board of Directors. A total of 200,000 common shares may be issued under the Outside Directors Plan. Options under the Outside Directors Plan vest immediately and must be exercised within ten years of the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997: risk-free interest rate of 6.0%, 6.50%, and 6.50%, respectively; no dividend yield; volatility factor of the Company's common shares of 0.5, 0.4, and 0.4, respectively; and a weighted-average expected life of each option of 6 years. 33 34 If the Company had elected to recognize compensation cost based on the fair value of options at the grant date (which includes shares issuable under the Employee Stock Purchase Plan - see Note D) as prescribed by SFAS 123, the following displays what reported net income (loss) and per share amounts would have been:
PRO FORMA YEAR ENDED JUNE 30, ------------------------------ 1999 1998 1997 ------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income (loss)........................................ $2,955 ($2,047) $2,848 Net income (loss) per share.............................. $ 0.41 ($ 0.32) $ 0.47
The pro forma financial effects of applying SFAS 123 may not be representative of the pro forma effects on reported results of operations for future years. Information with respect to options granted under the three Plans is as follows:
WEIGHTED- NUMBER AVERAGE PRICE OF SHARES PER SHARE --------- ------------- Outstanding at June 30, 1996................................ 1,317,902 $4.72 Granted..................................................... 361,750 7.89 Cancelled................................................... (20,000) 5.42 Exercised................................................... (181,902) 3.44 Outstanding at June 30, 1997................................ 1,477,750 5.61 Granted..................................................... 256,630 15.29 Cancelled................................................... (18,638) 8.04 Exercised................................................... (96,207) 6.42 Outstanding at June 30, 1998................................ 1,619,535 7.17 Granted..................................................... 263,050 15.92 Cancelled................................................... (52,425) 11.81 Exercised................................................... (74,888) 6.90 Outstanding at June 30, 1999................................ 1,755,272 $8.26
The price range of outstanding options is from $3.82 to $24.06. The weighted-average fair value of options granted during the years ended June 30, 1999, 1998 and 1997 was $5.39, $4.63 and $2.78, respectively. The weighted-average remaining contractual life of those options is 8 years. At June 30, 1999, options for 1,017,122 shares were exercisable, and 213,629 shares remained available for grant. NOTE D -- EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan that covers substantially all employees over 21 years of age. The Company contributes to the plan based upon employee contributions and may make additional contributions at the discretion of the Board of Directors. The Company made contributions to this plan of approximately $608,000, $496,000, and $287,000 for the years ended June 30, 1999, 1998 and 1997, respectively. The Company has an employee stock purchase plan that is in accordance with Section 423 of the Internal Revenue Code whereby participants are eligible to purchase common shares of the Company during the plan year. The purchase price for a common share is determined by the Compensation Committee of the Board of Directors prior to the effective date. The purchase price may not be less than 90% of the per share fair market value of the Company's common shares on either the effective date or the option date for the offering, whichever is the lesser. Substantially, all employees are eligible to participate. NOTE E -- LINE OF CREDIT In June, 1998 the Company negotiated with a bank a $15.0 million unsecured revolving line of credit that expires in fiscal year 2001, convertible to a five year term loan at any time on or before March 31, 2001. Borrowings on the line of credit were $5,367,000 and $2,000,000 at June 30, 1999 and 1998, respectively. 34 35 NOTE F -- INCOME TAXES SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. For the years ended June 30, 1999, 1998 and 1997, domestic operations contributed approximately $6.6 million, $2.3 million, and $525,000 to pre-tax earnings, respectively, while foreign affiliates generated income (losses) of $633,000, ($424,000), and $4.6 million for the same periods. Income taxes are summarized as follows:
YEAR ENDED JUNE 30, -------------------------- 1999 1998 1997 ------ ------ ------ (IN THOUSANDS) Current: Federal................................................ $1,927 $1,949 $ (336) State and local........................................ 475 406 (80) Foreign................................................ 582 356 1,919 ------ ------ ------ 2,984 2,711 1,503 Deferred: Federal................................................ 131 412 444 State and local........................................ 43 73 68 Foreign................................................ 48 -- (99) ------ ------ ------ 222 485 413 ------ ------ ------ $3,206 $3,196 $1,916 ------ ------ ------
During the years ended June 30, 1999, 1998 and 1997, the Company recorded a tax benefit of approximately $330,000, $459,000, and $322,000, respectively, in connection with the exercise of stock options. The benefit, which was due to the difference in the fair market value and the exercise price of the options at the date of exercise, was recorded as an increase in capital in excess of stated value. 35 36 Significant components of the Company's deferred tax assets and liabilities as of June 30, 1999 and 1998 are as follows:
YEAR ENDED JUNE 30, ------------------- 1999 1998 -------- ------- (IN THOUSANDS) Current deferred tax asset: Allowance for doubtful accounts........................... $ 666 $ 424 Customer deposits......................................... -- 51 Accrued liabilities....................................... 145 98 ------- ------ Total current deferred tax assets................. $ 811 $ 573 Long-term deferred tax assets: Book over tax depreciation................................ 435 353 Domestic losses........................................... 1,696 700 Foreign losses............................................ 226 180 Tax credits............................................... 311 -- Other..................................................... -- 168 ------- ------ Total long-term deferred tax assets............... $ 2,668 $1,401 ------- ------ Long-term deferred tax liabilities: Capitalized software...................................... $ 5,683 $3,697 Intangibles............................................... 917 -- Capitalized leases........................................ 433 -- Accrued liabilities....................................... 1,052 -- ------- ------ Total long-term deferred tax liabilities.......... $ 8,085 $3,697 ------- ------ Net long-term deferred tax liabilities.................... $ 5,417 $2,296 ------- ------
The long-term deferred tax assets pertaining to foreign losses are net operating loss carryforwards for certain foreign subsidiaries which the Company believes will be utilized in future tax periods. The Company's effective tax rate differs from the statutory U.S. federal income tax rate as follows:
YEAR ENDED JUNE 30, -------------------- 1999 1998 1997 ---- ---- ---- Federal income tax statutory rate........................... 34% 34% 34% State and local income taxes net of federal tax benefit..... 4 3 -- Foreign operations taxed at rates different from U.S. federal statutory rate.................................... 6 13 5 Other....................................................... -- -- (2) Non-deductible acquisition research and development write off....................................................... 4 134 -- General business credits.................................... (7) (14) -- Non-deductible permanent differences........................ 3 4 -- -- -- -- 44% 174% 37% -- -- --
The Company has net operating losses for tax purposes of $490,000, $347,000, $37,000, $752,000 and $2,600,000 which expire in fiscal years 2008, 2010, 2012, 2013 and 2018, respectively. 36 37 NOTE G -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses are summarized as follows:
JUNE 30, ------------------- 1999 1998 -------- ------- (IN THOUSANDS) Accounts payable............................................ $ 4,685 $ 3,699 Accrued commissions & bonus................................. 3,087 2,635 Third party royalties....................................... 3,265 3,752 Other....................................................... 5,015 3,190 -------- ------- $ 16,052 $13,276 ======== =======
NOTE H -- ACQUISITIONS On July 1, 1996 the Company acquired the net assets of Synchrony Manufacturing Systems, Pty. Limited, its former distributor in Australia, for approximately $220,000 which was payable in twenty four equal installments over two years, and was paid in full as of June 30, 1998. The acquisition was accounted for using purchase accounting with results included since the date of acquisition. Acquisition costs exceeded the fair value of the net assets acquired by approximately $451,000, which is being amortized over five years. On August 8, 1996 the Company acquired all of the outstanding stock of RDD, the parent company of GSI Industrie ("GSI"), a French manufacturing software specialist, from its shareholders for approximately $2.3 million, of which $944,000 was paid in cash at closing. The remaining balance is payable (a) in three equal annual installments beginning August 1997 and (b) a final payment of $466,000, equal to a percentage of cumulative software sales, due on October 15, 1999 and recorded on June 30, 1999. The acquisition was accounted for using purchase accounting with results included since the date of acquisition. Acquisition costs exceeded the fair value of the net assets acquired by approximately $2.4 million, which is being amortized over five years. On January 9, 1997 the Company acquired an Ontario, Canada corporation called Visual Applications Software, Inc. ("VAS") for $1.0 million (Canadian) in cash, and 250,000 convertible Class A Preference Shares (the "Class A Shares") and 500,000 redeemable Class B Preference Shares (the "Class B Shares") of a subsidiary of the Company. The Class A Shares have been converted to common shares of the Company and the Class B Shares have been redeemed by the holders for $1.00 (Canadian) per share. The acquisition was accounted for using purchase accounting with results included since the date of acquisition. Acquisition costs exceeded the fair value of the net assets acquired by approximately $3.4 million which is being amortized over five years. On November 24, 1997, the Company acquired Pritsker Corporation ("Pritsker"), for $737,000 in cash and 485,000 common shares of the Company. Pritsker markets advanced planning and scheduling and simulation software to mid-market manufacturers. Pursuant to the acquisition agreement, (i) Pritsker was merged with and into a wholly-owned subsidiary of the Company incorporated in Ohio, (ii) each share of Pritsker common stock was converted into the right to receive 0.170108 common shares of the Company and (iii) each share of Pritsker preferred stock was converted into the right to receive $5.23 in cash plus accrued and unpaid dividends. Each unexercised employee stock option and outstanding warrant for Pritsker common stock was assumed by Symix and converted into the right to acquire that number of common shares of the Company to which the holder would have been entitled if such holder had exercised the option or warrant immediately prior to the merger. The transaction was accounted for as a purchase and resulted in a one-time, non-recurring charge of approximately $6.5 million relating to the write-off of acquired in-process technology of Pritsker. On June 10, 1999 the Company acquired Distribution Architects International, Inc. ("DAI") for 619,000 common shares of the Company and $813,000 in cash. Pursuant to the acquisition agreement, DAI was merged with and into a wholly-owned subsidiary of the Company incorporated in Ohio, and each share of DAI common stock was converted into the right to receive .1313 common shares of the Company. Each DAI option outstanding immediately prior to the merger was canceled and terminated. The holder of each option was entitled to receive 37 38 that number of Symix shares equal to $2.17 (the per share value of DAI stock as agreed to by DAI and Symix) less $1.242 (the stock option exercise price), multiplied by the number of shares of DAI covered by the option, and divided by $18.50. DAI is a provider of supply chain management applications for distribution organizations. The transaction was accounted for as a purchase and resulted in a one-time, non-recurring charge of $835,000 relating to the write-off of acquired in-process technology of DAI. The following proforma information shows revenue, net income and earnings per share assuming the Company, Pritsker and DAI had been combined at the beginning of the period indicated. The non-recurring charges of $6.5 million and $835,000 are excluded from proforma net income.
TWELVE MONTHS ENDED JUNE 30, -------------------- 1999 1998 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue..................................................... $139,123 $112,217 Net Income.................................................. $ 3,266 $ 4,458 Earnings per share.......................................... $ 0.42 $ 0.58
NOTE I -- LONG-TERM OBLIGATIONS Long-term obligations consist of the following:
JUNE 30, -------------- 1999 1998 ------ ---- (IN THOUSANDS) GSI acquisition note payable................................ $ 305 $582 ExperTeam GmbH acquisition note payable..................... 600 -- Mortgage loan payable....................................... 348 -- Present value of minimum capital lease payments............. 263 -- ------ ---- 1,516 582 Less current portion........................................ 1,124 277 ------ ---- Long-term obligations....................................... $ 392 $305 ====== ====
The GSI acquisition note is secured by a letter of credit. NOTE J -- EARNINGS PER SHARE The Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) during the fiscal year 1998. In accordance with the provisions, earnings per share for 1997 have been restated. The following table sets forth the computation of basic and diluted earnings (loss) per share:
YEAR ENDED JUNE 30, --------------------------- 1999 1998 1997 ------ ------- ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Numerator: Net income (loss) for both basic and diluted earnings (loss) per share....................................... $3,999 $(1,356) $3,263 Denominator: Weighted-average shares outstanding....................... 6,654 6,192 5,682 Contingently issuable shares (VAS)........................ 57 125 71 Denominator for basic earnings (loss) per share........... 6,711 6,317 5,753 Effect of dilutive securities: Employee stock options.................................... 553 n/a 326 Denominator for diluted earnings (loss) per share......... 7,264 6,317 6,079 Basic earnings (loss) per share........................... $ 0.60 $ (0.21) $ 0.57 Diluted earnings (loss) per share......................... $ 0.55 $ (0.21) $ 0.54
38 39 NOTE K -- MINORITY INTEREST In June, 1998, a wholly-owned subsidiary of the Company sold previously unissued shares of common stock (representing a 13.3% interest in that subsidiary) for $2 million. No gain or loss was recognized on the sale of the subsidiary stock. The proceeds from the sale are recorded on the accompanying balance sheet as minority interest. The Company and the minority interest investor also entered into a put option agreement which provides that during a six month period commencing September 1, 2001, the minority interest investor has the right to put its shares in the subsidiary to the Company at a formula price as provided in the put agreement. The minority interest in the subsidiary will be adjusted to its expected redemption value each year as a credit or charge to income until the put is exercised or the redemption period expires. NOTE L -- BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company has adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards for the way that companies report information about operating segments, geographic areas, and major customers. The Company designs, develops, markets and supports a fully integrated manufacturing, planning and financial software system. The software was developed for mid-market, discrete manufacturers. The Company operates exclusively in this market therefore only reports on one primary segment. The amount of net revenue, operating income (loss), and identifiable assets attributable to each of the Company's geographic areas for fiscal 1999, 1998, and 1997 were as follows:
NORTH AMERICA ASIA/PACIFIC EUROPE --------------- -------------- -------------- (IN THOUSANDS, EXCEPT PERCENTAGES) YEAR ENDED JUNE 30, 1999 Net revenue............................ $100,950 78% $11,722 9% $16,400 13% Operating income (loss)................ 7,728 110% 709 10% (1,383) (20%) Identifiable assets.................... 70,920 78% 8,321 9% 11,359 13% YEAR ENDED JUNE 30, 1998 Net revenue............................ 77,225 79% 8,665 9% 11,707 12% Operating income (loss)................ 2,270 112% (694) (34%) 442 22% Identifiable assets.................... 47,778 72% 9,392 14% 9,212 14% YEAR ENDED JUNE 30, 1997 Net revenue............................ 49,388 75% 8,259 13% 8,125 12% Operating income....................... 4,035 80% 410 8% 627 12% Identifiable assets.................... 32,531 74% 5,766 13% 5,955 13%
39 40 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT END OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ---------- ---------- ---------- -------------- Year ended June 30, 1999 Deducted from asset accounts: Allowance for doubtful accounts.......... $1,063,000 $1,270,000 $833,000 $1,500,000 ---------- ---------- -------- ---------- Year ended June 30, 1998 Deducted from asset accounts: Allowance for doubtful accounts.......... 702,000 918,000 557,000 1,063,000 ---------- ---------- -------- ---------- Year ended June 30, 1997 Deducted from asset accounts: Allowance for doubtful accounts.......... 450,400 560,500 308,900 702,000 ---------- ---------- -------- ----------
40 41 INDEX TO EXHIBITS
Exhibit No. Description Page - ----------- ----------- ---- 3(a)(1) Amended Articles of Incorporation of Incorporated by reference to Exhibit Symix Systems, Inc. (as filed on 3(a)(1) to Registrant's Annual Report on February 8, 1991) Form 10-K for the fiscal year ended June 30, 1997 3(a)(2) Certificate of Amendment to the Incorporated by reference to Amended Articles of Exhibit 3(a)(2) to Registrant's Incorporation of Symix Annual Report on Form 10-K for Systems, Inc. (as filed on July the fiscal year ended 30, 1997 16, 1996) 3(a)(3) Amended Articles of Incorporation of Incorporated herein by reference to Symix Systems, Inc. (reflecting Exhibit 3(a)(3) to Registrant's Annual amendments through July 16, 1996, for Report on Form 10-K for the fiscal year purposes of SEC reporting compliance ended June 30, 1997 only) 3(b) Amended Regulations of Symix Systems, Incorporated herein by reference to Inc. Exhibit 3(b) to the Registration Statement on Form S-1 of Registrant, filed February 12, 1991 (Registration No. 33-38878) 4(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to Symix Systems, Inc. (as filed on Exhibit 3(a) (1)of this Annual Report on February 8, 1991) Form 10-K 4(a)(2) Certificate of Amendment to the Incorporated herein by reference to Amended Articles of Incorporation Exhibit 3(a)(2) of this Annual Report on of Symix Systems, Inc. (as filed on Form 10-K July 16, 1996) 4(a)(3) Amended Articles of Incorporation of Incorporated herein by reference to Symix Systems, Inc. (reflecting Exhibit 3(a)(3) of this Annual Report on amendments through July 16, 1996, for Form 10-K purposes of SEC reporting compliance only) 4(b) Amended Regulations of Symix Systems, Incorporated herein by reference to Inc. Exhibit 3(b) of this Annual Report
41 42 on Form 10-K 4(c) Share Exchange Agreement Incorporated herein by reference to dated January 9, 1997 Exhibit 99 to Registrant's Current Report on Form 8-K dated January 9, 1997 10(a) Lease Agreement dated April 3, 1991 Incorporated herein by reference to for corporate offices located at 2800 Exhibit 10(c) to Registrant's Annual Corporate Exchange Drive, Columbus, Report on Form 10-K for the fiscal year Ohio ended June 30, 1991 10(b) Amendment to corporate offices lease Incorporated herein by reference to Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998. 10(c) Second Amendment to corporate offices Incorporated herein by reference to lease Exhibit 10(c) to Registrants' Annual Report on Form 10-K for the fiscal year ended June 30, 1998. 10(d) Third Amendment to corporate offices Incorporated herein by reference to lease Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994 10(e) Fourth Amendment to corporate offices Incorporated herein by reference to lease Exhibit 10(e) to Registrants' Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
42 43 10(f) Fifth Amendment to corporate offices Incorporated herein by reference to lease Exhibit 10(f) to Registrants' Annual Report on Form 10-K for the fiscal year ended June 30, 1998. 10(g) Progress Software Application Partner Incorporated herein by reference to Agreement dated February 8, 1995 Exhibit 10(e) to Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended March 31, 1995 10(h) Amendment to Progress Software Incorporated herein by reference to Application Partner Agreement dated Exhibit 10(h) to Registrants' Annual July 1, 1997 Report on Form 10-K for the fiscal year ended June 30, 1998. 10(i) Second Amendment to Progress Software Incorporated herein by reference to Application Partner Agreement dated Exhibit 10(i) to Registrants' Annual July 1, 1998 Report on Form 10-K for the fiscal year ended June 30, 1998. 10(j)* Summary of Bonus Plan Filed herein. 10(k)* Symix Systems, Inc. Stock Option Plan Incorporated herein by reference to for Outside Directors Exhibit 10(i) of Registrant's Annual Report on Form 10-K for fiscal year ended June 30, 1993 10(l)* Symix Systems, Inc. Non-Qualified Incorporated herein by reference to Stock Option Plan for Key Executives Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended March 31, 1996 10(m)* Symix Systems, Inc. Non-Qualified Incorporated herein by reference to Stock Option Plan for Key Employees, Exhibit 10(a) to Registrant's Annual as amended Report on Form 10-K for the fiscal year ended June 30, 1993 10(n)* Symix Systems, Inc. 1999 Non-Qualified Filed herein. Stock Option Plan for Key Employees
43 44 10(o)* Sasser Employment Agreement Incorporated herein by reference to Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended March 31, 1996 10(p)* Amendment to Sasser Employment Filed herein Agreement 10(q)* Second Amendment to Sasser Employment Filed herein Agreement 10(r)* Stock Option Agreement between the Incorporated herein by reference to Company and Stephen A. Sasser dated Exhibit 10(c) to Registrant's Quarterly January 17, 1996 Report on Form 10-Q for fiscal quarter ended March 31, 1996 10(s) Loan Agreement among Symix Systems, Incorporated herein by reference to Inc., Symix Computer Systems, Inc. and Exhibit 10(a)(1) to Registrant's Form Bank One, Columbus, N.A. dated May 20, 10-Q for fiscal quarter ended September 1996 30, 1997 10(t) First Amendment to Loan Agreement Incorporated herein by reference to among Symix Systems, Inc., Symix Exhibit 10(b) to Registrant's Form 10-Q Computer Systems, Inc. and Bank One, for fiscal quarter ended September 30, Columbus, N.A. 1997 10(u) Second Amendment to Loan Agreement Incorporated herein by reference to among Symix Systems, Inc., Symix Exhibit 10(b) to Registrant's Form 10-Q Computer Systems, Inc. and Bank for fiscal quarter ended March 31, 1998. One, NA 10(v) Third Amendment to Loan Agreement Incorporated herein by reference to among Symix Systems, Inc., Symix Exhibit 10(u) to Registrant's Annual Computer Systems, Inc. and Bank Report on Form 10-K for the fiscal year One, NA ended June 30, 1998. 10(w) Fourth Amendment to Loan Agreement Filed herein among Symix Systems, Inc., Symix Computer Systems, Inc. and Bank One, N.A. 10(x) Fifth Amendment to Loan Agreement Filed herein among Symix Systems, Inc., Symix
44 45 Computer Systems, Inc. and Bank One, N.A. 21 Subsidiaries of the Registrant Filed herein 23 Consent of Independent Auditors Filed herein 24 Powers of Attorney Filed herein 27 Financial Data Schedule Filed herein - ------------------
*Indicates management contracts or compensatory plans or arrangements that are required to be filed as an exhibit to this Annual Report on Form 10-K for the fiscal year ended June 30, 1999. 45 EX-10.J 2 EXHIBIT 10(J) 1 EXHIBIT 10(j) TO SYMIX SYSTEMS, INC. 1999 FORM 10-K --------------------------------------------------- SUMMARY OF BONUS PLAN The executive officers named in the Symix Systems, Inc. ("Symix" or the "Company") Annual Report on Form 10-K for its fiscal year ended June 30, 1999 and other management employees of Symix ("Participants") participate in compensation plans based upon the performance of Symix. Annual target bonuses are established by the Symix Compensation Committee for executive officers and by executive officers for all other Participants. Total targeted compensation is determined based on average compensation (base compensation plus bonus) levels for the industry. Under the Company's fiscal year 2000 plan (the "Plan"), a Participant can earn a bonus based upon the performance of Symix as reflected by Symix's earnings per share and revenue achievements in relation to its targeted performance. Bonuses for revenue achievement are paid quarterly based upon year-to-date performance. Quarterly eligible components are pro-rated against targeted annual objectives. Bonuses are based on formulas which provide larger bonuses for higher earnings per share and/or revenue achievement. The annual earnings per share must be at least ninety percent (90%) of target before any bonuses are earned. Variable components of the compensation plan are self-correcting to reflect over or under achievement on a quarterly basis. A maximum of 200% of the targeted bonus based on earnings per share and revenue objectives is payable under the compensation plans in the event actual performance of the Company exceeds 150% of targeted performance. In addition, individual bonus plans may contain other variable components related to management objectives, operating margins, and market or geographic revenue targets. The Company's Chief Executive Officer is not a participant in the Plan and his compensation is covered by his Employment Agreement with the Company. 46 EX-10.N 3 EXHIBIT 10(N) 1 EXHIBIT 10(n) TO SYMIX SYSTEMS, INC. 1999 FORM 10-K --------------------------------------------------- SYMIX SYSTEMS, INC. 1999 NON-QUALIFIED STOCK OPTION PLAN FOR KEY EMPLOYEES ARTICLE ONE PURPOSE The purpose of this Symix Systems, Inc. 1999 Non-Qualified Stock Option Plan (the "Plan") is to secure the benefits which accrue from a program of offering to the Key Employees of Symix Systems, Inc. (the "Company") and any Subsidiary the opportunity to acquire and increase their proprietary interest in the success of the Company and thereby to attain the objectives of this Plan which are: (1) To obtain and retain the services of Participants; (2) To encourage and reward efficient and profitable operation; and (3) To promote the development of the business of the Company. ARTICLE TWO DEFINITIONS For purposes of the Plan, the following terms when capitalized shall have the meaning designated herein unless a different meaning is plainly required by the context. Where applicable, the masculine pronoun shall mean or include the feminine, and the singular shall include the plural. (a) "Board of Directors" shall mean the Board of Directors of the Company. (b) "Committee" shall be the Committee of the Board of Directors, whose membership shall be determined as provided under Article Four, appointed to administer the Plan. (c) "Common Shares" shall mean the common shares, no par value, of the Company. (d) "Company" shall mean Symix Systems, Inc. (e) "Director" shall mean a member of the Board of Directors of the Company. 47 2 (f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor statute. (g) "Fair Market Value" on a particular day shall mean the average of the highest and lowest prices of the Common Shares, as reported on the NASDAQ National Market System on a particular day, or, if Common Shares were not traded on such date, on the next preceding day on which Common Shares were traded. (h) "Key Employees" shall mean employees of the Company or a Subsidiary who, in the opinion of the Committee, have demonstrated a capacity for contributing in a substantial measure to the success of the Company. (i) "Participant" shall mean a Key Employee selected by the Committee to receive stock options under the Plan. (j) "Plan" shall mean the Symix Systems, Inc. 1999 Non-Qualified Stock Option Plan as herein set forth. (k) "Securities Act" shall mean the Securities Act of 1933, as amended. (l) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of any options under the Plan, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. ARTICLE THREE SHARES SUBJECT TO THE PLAN Six Hundred Thousand (600,000) of the Company's authorized but unissued Common Shares shall be reserved by the Board of Directors for the purpose of granting options under the Plan to Key Employees, in each case at a price of not less than one hundred percent of the Fair Market Value of such Common Shares at the time of the granting of an option and upon such other terms and conditions as the Committee might impose. In the event that options granted under the Plan shall terminate, any Common Shares covered thereby and not purchased thereunder may again be the subject of an option under the Plan. ARTICLE FOUR 48 3 ADMINISTRATION The Plan shall be administered by a Committee appointed by the Board of Directors. The Committee shall consist of two or more Directors, as the Board of Directors may determine, provided each member of the Committee shall qualify to administer the Plan as contemplated by Rule l6b-3 of the Exchange Act. The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed. Subject to the express provisions of the Plan, the Committee may determine the individuals to whom and the time or times at which options shall be granted, the number of Common Shares to be subject to each option, the period of each option, the vested rights of each Participant in his options (including the vesting schedule and acceleration of exercise of such options) and other terms and conditions thereof and shall report its determination to the Board of Directors. The proper officers of the Company shall carry such determination into effect, but no action of the Committee or of an officer of the Company shall bind or become binding upon the Company or create any obligation of the Company whatsoever unless and until the Company shall have entered into a written and definitive contract with a proposed Participant in respect of an option for the purchase of Common Shares and no such contract shall obligate the Company to any person other than the Participant who is a party to such written contract and to such persons, if any, as shall be expressly named or provided for in such written contract. The Committee is authorized to construe and interpret the Plan, to promulgate, amend and rescind rules and regulations relating to the implementation of the Plan and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may designate persons other than members of the Committee to carry out its responsibilities under such conditions and limitations as it may prescribe, except that the Committee may not delegate its authority with regard to selection for, participation of and the granting of options to persons subject to Section 16(a) and 16(b) of the Exchange Act. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, or application of the Plan shall be final, conclusive and binding upon all Participants and any person validly claiming under or through Participants. ARTICLE FIVE ELIGIBILITY 49 4 Options may be granted only to those Key Employees as may from time to time be designated by the Committee. Neither the provisions of the Plan nor its adoption by the Board of Directors shall be deemed to give any person a contractual or other right to receive an option under the Plan. ARTICLE SIX OPTION PRICE The purchase price pursuant to which Common Shares may be purchased under each option granted hereunder shall be fixed by the Committee, but such purchase price shall in no event be less than one hundred percent (100%) of the Fair Market Value of the Common Shares on the date on which the option is granted. ARTICLE SEVEN TERM OF OPTION The term of each option shall be fixed by the Committee, but in no event shall any option permit the purchase of Common Shares thereunder after the tenth (10th) anniversary of the date on which the option is granted. ARTICLE EIGHT EXERCISE OF OPTION Subject to the provisions of the written option agreement pursuant to which it is granted, an option may be exercised by giving to the Company notice in writing (in such form as may from time to time be specified by the Committee) stating the number of Common Shares subject to the option in respect of which it is being exercised, accompanied by a check or cash in full payment of all Common Shares in respect of which the option is being exercised. Each such notice of exercise of an option shall be delivered to the Chief Financial Officer of the Company. The Company shall have a reasonable time after receipt of any such notice in which to make delivery of share certificates for the Common Shares in respect of which an option is exercised. ARTICLE NINE TERMINATION OF SERVICE 50 5 In case a Participant shall cease to be a Key Employee for any reason, within ninety (90) days next succeeding such termination, but not later than ten (10) years from the date of grant of the option, the Participant (or the executor or administrator of his estate) may exercise such option rights as he then has under this Plan. Options not exercised within the period set forth in the preceding sentence shall thereupon expire and shall not be exercisable thereafter. ARTICLE TEN NON-TRANSFERABILITY OF OPTION No option granted under this Plan shall be transferable otherwise than by will or the laws of descent and distribution and an option may not be exercised during the lifetime of a Participant except by him or by his guardian or legal representative. ARTICLE ELEVEN ADJUSTMENTS In the event of any change in the outstanding Common Shares by stock dividend, stock split, stock combination, reclassification, recapitalization, merger, reorganization or other change in the Common Shares, the Committee, upon the advice of accountants and counsel for the Company, shall determine appropriate adjustments, if any, to be made in the number of Common Shares and the prices per share in respect of Common Shares subject to outstanding options and the number of Common Shares then reserved for options which may thereafter be granted. ARTICLE TWELVE AMENDMENT AND TERMINATION OF THE PLAN The Company, by action of the Board of Directors, reserves the right to amend, modify or terminate this Plan at any time, except that the Company may not, without shareholder approval, increase the total number of Common Shares subject to options under this Plan (except increases attributable to the adjustments authorized in Article Eleven hereof), materially increase the benefits or materially modify the requirements as to eligibility. ARTICLE THIRTEEN RESTRICTIONS AND COMPLIANCE WITH SECURITIES LAWS 51 6 Anything contained in the Plan or elsewhere to the contrary notwithstanding: (l) No option granted under the Plan shall be exercisable for the purchase of any Common Shares subject thereto except for: (A) Common Shares subject thereto which at the time of such exercise and purchase are registered under the Securities Act or which, upon the completion of such exercise, would be issued in a transaction exempt from registration under the Securities Act; and (B) Common Shares subject thereto which at the time of such exercise and purchase are exempt or are the subject matter of an exempt transaction, are registered by description, by coordination, or by qualification, or at such time are the subject matter of a transaction which has been registered by description, all in accordance with Chapter 1707 of the Ohio Revised Code, as amended; and (C) Common Shares subject thereto in respect of which the laws of any state applicable to such exercise and purchase have been satisfied. (2) If Common Shares subject to an option are sold and transferred upon the exercise thereof to a person who (at the time of such exercise or thereafter) controls, is controlled by or is under common control with the Company, or are sold and transferred in reliance upon an exemption claimed in respect of the securities Act, then upon such sale and transfer: (A) such Common Shares shall not be transferable by the holder thereof, and neither the Company nor its transfer agent or registrar, if any, shall be required to register or otherwise to give effect to any transfer thereof and may prevent any such transfer, unless the Company shall have received an opinion from its counsel to the effect that any such transfer would not violate the Securities Act and the applicable laws of any state; and (B) the Company shall cause each share certificate evidencing such Common Shares to bear a legend reflecting applicable restrictions on the transfer thereof and may use the following or any other appropriate legend for that purpose: SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS, ARE RESTRICTED SECURITIES WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE ACT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISTRIBUTED EXCEPT PURSUANT TO (1) AN EFFECTIVE REGISTRATION STATEMENT REGISTERING THE SHARES UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS, IF REQUIRED OR (2) UNTIL THE COMPANY HAS RECEIVED AN OPINION FROM ITS COUNSEL TO THE EFFECT 52 7 THAT SUCH TRANSFER DOES NOT VIOLATE THE ACT AND THE APPLICABLE SECURITIES LAWS OF ANY STATE. (3) Nothing contained in the Plan or elsewhere shall be construed to require the Company to take any action whatsoever to make exercisable any option granted under the Plan or to make transferable any Common Shares issued upon the exercise of any such option. ARTICLE FOURTEEN TAX WITHHOLDING Any person exercising an option shall be required to pay to the Company the amount of any taxes the Company is required by law to withhold with respect to the exercise of such option. Such payment shall be due on the date the Company is required by law to withhold such taxes. In the event that such payment is not made when due, the Company shall have the right to deduct, to the extent permitted by law, from any payment of any kind (but only as permitted by Rule l6b-3 of the Exchange Act for persons subject to Section 16 of the Exchange Act) otherwise due to such person from the Company all or part of the amount required to be withheld. 53 EX-10.P 4 EXHIBIT 10(P) 1 EXHIBIT 10(p) TO SYMIX SYSTEMS, INC. 1999 FORM 10-K --------------------------------------------------- AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT is made to be effective as of the 1st day of April 1997, between Symix Systems, Inc., an Ohio corporation (the "Company") and Stephen A. Sasser ("Employee"). WITNESSETH WHEREAS, the Company and Employee are parties to an Employment Agreement dated July 5, 1995 pursuant to which the Company engaged Employee to serve as President and Chief Operating Officer of the Company (the "Employment Agreement"); and WHEREAS, the Company and Employee desire to modify the Employment Agreement as set forth herein; NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. MODIFICATION OF COMPENSATION ARRANGEMENT. Subparagraphs 3(a) and 3(b) of the Employment Agreement are hereby amended to read in their entirety as follows: "(a) BASE SALARY. Employee shall receive an annual base salary of not less than $242,000 (the "Base Salary") to be paid semi-monthly in equal installments. The Base Salary shall be reviewed not less frequently than annually and shall be subject to such upward adjustments as the Compensation Committee (the "Compensation Committee") of the Board of Directors of the Company (the "Board") may deem appropriate in its discretion. (b) INCENTIVE COMPENSATION. During the Term of this Agreement, Employee shall be entitled to additional compensation pursuant to a bonus plan to be approved by the Compensation Committee and to be consistent with this paragraph 3(b). Employee's annual target bonus will be as follows: (i) $174,500, for the Company's fiscal year ended June 30, 1997, of which 80% ($139,600) will be earned if and to the extent the Company's earnings per share achieve targets proposed by Employee and approved by the Compensation Committee for such fiscal year and 20% ($34,900) will be earned if and to the extent the Company achieves other strategic objectives proposed by Employee and approved by the Compensation Committee for such fiscal year; and (ii) $158,000 during the remaining term of this Agreement, of which 80% ($126,400) will be earned if and to the extent the Company's earnings per share achieve targets proposed annually by Employee and approved by the Compensation Committee and 20% ($31,600) will be earned if and to the extent the Company achieves other strategic objectives proposed annually by Employee and approved by the Compensation Committee." 54 2 The foregoing provisions shall be substituted for and shall be deemed to replace the language heretofore set forth in Subparagraphs 3(a) and (b) of the Employment Agreement as if such substituted language had been included in the originally-executed Employment Agreement, except that such substituted provisions shall apply prospectively only from the effective date hereof. 2. NO MODIFICATION OF OTHER PROVISIONS. Except as provided in Paragraph 1 hereinabove, the terms and provisions of the Employment Agreement shall remain in full force and effect and shall apply to this Amendment to Employment Agreement as if fully incorporated herein. IN WITNESS WHEREOF, the parties have executed this Amendment to Employment Agreement as of the date first hereinabove written. SYMIX SYSTEMS, INC. By /s/ Lawrence J. Fox ---------------------------- Lawrence J. Fox Chairman and Chief Executive Officer EMPLOYEE /s/ Stephen A. Sasser --------------------- Stephen A. Sasser 55 EX-10.Q 5 EXHIBIT 10(Q) 1 EXHIBIT 10(q) TO SYMIX SYSTEMS, INC. 1999 FORM 10-K --------------------------------------------------- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ---------------------------------------- THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT is made to be effective as of the 15th day of December, 1998, between Symix Systems, Inc., an Ohio corporation (the "Company") and Stephen A. Sasser ("Employee"). WITNESSETH ---------- WHEREAS, the Company and Employee are parties to an Employment Agreement dated July 5, 1995 (the "Employment Agreement"), as amended by the Amendment to the Employment Agreement dated April 1, 1997 between the Company and Employee (the "First Amendment"), pursuant to which the Company has engaged Employee to serve as President and Chief Operating Officer of the Company (the Employment Agreement and the First Amendment being referred to herein collectively as the "Agreement"); and WHEREAS, THE ORIGINAL TERM OF THE AGREEMENT EXPIRES ON JULY 5, 1999 (THE "ORIGINAL TERM") AND WHEREAS, the Company desires to induce Employee to continue his employment as a senior officer of the Company, and Employee desires to continue such employment, subject to the terms and conditions hereof; and WHEREAS, the Company and Employee desire to further modify the Employment Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. TERM. Notwithstanding anything else to the contrary contained in the Agreement, the Term of the Agreement shall be extended for a period of three (3) years, commencing upon expiration of the Original Term, unless sooner terminated pursuant to paragraph 10 of the Agreement. Thereafter, unless sooner terminated pursuant to paragraph 10 of the Agreement, the Term of the Agreement automatically shall be extended for additional, consecutive one-year Terms (each, an "Extended Term") unless, in accordance with paragraph 14 of the Agreement, (i) at least one hundred and fifty (150) days prior to the expiration of the extended three (3) year term provided for herein or any other Extended Term, the Company gives notice to Employee that the Company does not wish to extend the Term of this Agreement, or (ii) at least one hundred and twenty (120) days prior to the expiration of the extended three (3) year term provided for herein or any other Extended Term, Employee gives notice to the Company that Employee does not wish to extend the Term of this Agreement. The Original Term and the extended three (3) year term provided for herein, together with all other Extended Terms, are referred to herein and in the Agreement as the "Term". 2. MODIFICATION OF COMPENSATION ARRANGEMENT. Subparagraphs 3(a) and 3(b) of the Employment Agreement are hereby amended to read in their entirety as follows: 56 2 "(a) BASE SALARY. Commencing on December 15, , 1998, Employee shall receive an annual base salary of not less than $272,000 (the "Base Salary") to be paid semi-monthly in equal installments. The Base Salary shall be reviewed not less frequently than annually and shall be subject to such upward adjustments as the Compensation Committee (the "Compensation Committee") of the Board of Directors of the Company (the "Board") may deem appropriate in its discretion. (b) INCENTIVE COMPENSATION. Commencing on December 15, 1998, Employee shall be entitled to additional compensation pursuant to a bonus plan to be approved by the Compensation Committee and to be consistent with this paragraph 3(b). Employee's annual target bonus for each fiscal year of the Company will be $188,000, of which (i) 75% ($141,000) will be earned by Employee and payable by the Company if and to the extent the Company's earnings per share achieve targets proposed by Employee and approved by the Compensation Committee for such fiscal year and (ii) 25% ($47,900) will be earned if and to the extent the market price performance per share of the Company's common shares meets or exceed the average market price performance of the stocks included in the NASDAQ Computer and Data Processing Stock Market Index or other strategic objective(s) approved by the Compensation Committee for such fiscal year." The foregoing provisions shall be substituted for and shall be deemed to replace the language heretofore set forth in Subparagraphs 3(a) and (b) of the Employment Agreement (including any amendment thereto) as if such substituted language had been included in the originally-executed Employment Agreement, except that such substituted provisions shall apply prospectively only from the effective date hereof. 3. DUTIES. Employee is engaged to serve as President and Chief Executive Officer of the Company and Employee promises to perform and discharge well, faithfully and to the best of his abilities the duties ordinarily performed by the president and/or chief executive officer of a company and such other duties which may be assigned to him from time to time by the Board of Directors of the Company. Employee shall serve as a director of the Company and as an officer or director (or both) of any of its subsidiaries and affiliates if elected as such. The provisions of this paragraph 3 shall be substituted for, supersede and replace in their entirety the provisions of paragraph 4 of the Employment Agreement. 4. NO MODIFICATION OF OTHER PROVISIONS. Except as provided in this Second Amendment to Employment Agreement, the terms and provisions of the Agreement shall remain in full force and effect and shall apply to this Second Amendment to Employment Agreement as if fully written or incorporated herein. IN WITNESS WHEREOF, the parties have executed this Second Amendment to Employment Agreement as of the date first written hereinabove. SYMIX SYSTEMS, INC. EMPLOYEE By /s/ Lawrence J. Fox /s/ Stephen A. Sasser -------------------------------- ----------------------------------- Lawrence J. Fox Stephen A. Sasser Chairman and Chief an individual Executive Officer 57 EX-10.W 6 EXHIBIT 10(W) 1 EXHIBIT 10(w) TO SYMIX SYSTEMS, INC. 1999 FORM 10-K --------------------------------------------------- FOURTH AMENDMENT TO LOAN AGREEMENT AMONG SYMIX SYSTEMS, INC. AND SYMIX COMPUTER SYSTEMS, INC. AND BANK ONE, NA THIS FOURTH AMENDMENT ("Fourth Amendment") is dated as of December 24, 1998 between SYMIX SYSTEMS, INC., an Ohio corporation ("SSI") and SYMIX COMPUTER SYSTEMS, INC., an Ohio corporation ("SCSI" and, collectively with SSI, the "Companies") and BANK ONE, NA, a national association ("Bank One"). WITNESSETH: WHEREAS, the Companies and Bank One, parties to that certain Loan Agreement dated as of May 20, 1996, amended by First Amendment dated as of August 13, 1997, Second Amendment dated as of March 4, 1998 and further amended by Third Amendment dated as of June 1, 1998 (the "Agreement"), have agreed to amend the Agreement on the terms and conditions hereinafter set forth. Terms not otherwise defined herein are used as defined in the Agreement as amended hereby NOW THEREFORE, the Companies and Bank One hereby agree as follows: SECTION 1. AMENDMENT OF THE AGREEMENT. The Agreement is, effective the date hereof, hereby amended as follows: 1.1. In Section 1.1.5, the words "daily average unused portion" shall be deleted and the words "daily unused portion" shall be inserted in their place. 1.2. In Section 8, the definition of "Debt Service Coverage Ratio" shall be amended and restated in its entirety as follows: "Debt Service Coverage Ratio" shall mean the ratio of (a) net income after tax plus depreciation and amortization plus interest expense plus $6,503,000 for the non-recurring charge related to the acquisition and research and development write-off appearing in the June 30, 1998 financial statements minus capitalized software minus capital expenditures to (b) current maturities of long term debt plus interest expense, all determined in accordance with generally accepted accounting principles applied on a consistent basis. The current maturities of long term debt under the Revolving Credit Note shall be determined on a pro forma basis assuming that the then-current principal balance of the Revolving Credit Note would be amortized, on a straight line basis, over 60 months. 1.3. Section 4.20 shall be amended and restated in its entirety as follows: 4.20. PLEDGE OF INTERCOMPANY NOTE. The Companies shall cause all the Non-Obligor Subsidiaries (except Symix Computer Systems (Malaysia) Sdn Bhd.) to execute an intercompany promissory note that evidences all borrowings that such Non-Obligor Subsidiaries make from the Companies of funds borrowed under the $13,000,000 Revolving 58 2 Credit Note, and the Companies shall deliver such intercompany promissory note to Bank One as security for the amounts due hereunder and under the Revolving Credit Notes. 1.4. Section 5.13 shall be amended and restated in its entirety as follows: 5.13. FUNDING. The Companies shall not use the proceeds of the Revolving Credit Notes to fund any Non-Obligor Subsidiary acquisitions or non-operational purposes or obligations other than operating cash flow of such Non-Obligor Subsidiary. The Companies shall not (and shall not permit any Subsidiary to) loan or otherwise advance funds to Symix Computer Systems (Malaysia) Sdn Bhd. in an amount to exceed $200,000 in the aggregate outstanding at any time. 1.5. All references to Symix Italia S.p.A. shall be changed to Symix Italia S.r.l. SECTION 2. GOVERNING LAW. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Ohio. SECTION 3. COSTS AND EXPENSES. All fees, costs or expenses, including reasonable fees and expenses of outside legal counsel, incurred by Bank One in connection with either the preparation, administration, amendment, modification or enforcement of this Fourth Amendment shall be paid by the Companies on request. SECTION 4. COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 5. CONFESSION OF JUDGMENT. Each Company hereby authorizes any attorney at law to appear for the Company, in an action on this Fourth Amendment, at any time after the same becomes due, as herein provided, in any court of record in or of the State of Ohio, or elsewhere, to waive the issuing and service of process against the Company and to confess judgment in favor of the holder of this Fourth Amendment or the party entitled to the benefits of this Fourth Amendment against the Company for the amount that may be due, with interest at the rate herein mentioned and costs of suit, and to waive and release all errors in said proceedings and judgment, and all petitions in error, and right of appeal from the judgment rendered. No judgment against one Company shall preclude Bank One from taking a confessed judgment against the other Company. SECTION 6. CONDITIONS PRECEDENT. Simultaneously with the execution hereof, Bank One shall receive all of the following, each dated the date hereof, in form and substance satisfactory to Bank One: 6.1. The Assignment of Intercompany Note, dated as of June 1, 1998. 6.2. Such other documents as Bank One may, in its reasonable discretion, so require. SECTION 7. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES; NO DEFAULTS. The Companies hereby expressly acknowledge and confirm that the representations and warranties of the Company set forth in Section 3 of the Agreement are true and accurate on this date with the same effect as if made on and as of this date; that no financial condition or circumstance exists which would inevitably result in the occurrence of an Event of Default under Section 6 of the Agreement; and that no event has occurred or no condition exists which constitutes, or with the running of time or the giving of notice would constitute an Event of Default under Section 6 of the Agreement, 59 3 SECTION 8. REAFFIRMATION OF DOCUMENTS. Except as herein expressly modified, the parties hereto ratify and confirm all of the terms, conditions, warranties and covenants of the Agreement, and all security agreements, pledge agreements, mortgage deeds, assignments, subordination agreements, or other instruments or documents executed in connection with the Agreement, including provisions for the payment of the Notes pursuant to the terms of the Agreement. This Fourth Amendment does not constitute the extinguishment of any obligation or indebtedness previously incurred, nor does it in any manner affect or impair any security interest granted to Bank One, all of such security interests to be continued in full force and effect until the indebtedness described herein is fully satisfied. 60 4 The Companies have executed this Fifth Amendment as of the date first above written. SYMIX SYSTEMS, INC. SYMIX COMPUTER SYSTEMS, INC. /s/ Lawrence W. DeLeon /s/ Lawrence W. DeLeon - --------------------------------------------- ------------------------------------- Name: Lawrence W. DeLeon Name: Lawrence W. DeLeon Its: Vice President, Chief Financial Officer Its: Vice President, Chief Financial and Secretary Officer and Secretary
- -------------------------------------------------------------------------------- WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - -------------------------------------------------------------------------------- BANK ONE, NA /s/ Kimberly C. Currie - ---------------------------------------- Name: Kimberly C. Currie Its: Vice President 61 EX-10.X 7 EXHIBIT 10(X) 1 EXHIBIT 10(x) TO SYMIX SYSTEMS, INC. 1999 FORM 10-K FIFTH AMENDMENT TO LOAN AGREEMENT AMONG SYMIX SYSTEMS, INC. AND SYMIX COMPUTER SYSTEMS, INC. AND BANK ONE, NA THIS FIFTH AMENDMENT (Fifth Amendment") is dated as of June 10, 1999, between SYMIX SYSTEMS, INC., an Ohio corporation ("SSI") and SYMIX COMPUTER SYSTEMS, INC., an Ohio corporation ("SCSI" and, collectively with SSI, the "Companies") and BANK ONE, NA, a national association ("Bank One"). WITNESSETH: WHEREAS, the Companies and Bank One, parties to that certain Loan Agreement dated as of May 20, 1996, amended by First Amendment dated as of August 13, 1997, Second Amendment dated as of March 4, 1998, Third Amendment dated as of June 1, 1998 and further amended by Fourth Amendment dated as of December 24, 1998 (the "Agreement"), have agreed to amend the Agreement on the terms and conditions hereinafter set forth. Terms not otherwise defined herein are used as defined in the Agreement as amended hereby. NOW, THEREFORE, the Companies and Bank One hereby agree as follows: SECTION 1. AMENDMENT OF THE AGREEMENT. The Agreement is, effective the date hereof, hereby amended as follows: 1.1. Section 4.18 shall be amended and restated in its entirety as follows: 4.18. ACCOUNTS RECEIVABLE REPORTING. SCSI will furnish to Bank One as soon as practicable after the end of each calendar month, and in any event within 20 days thereafter, a summary Accounts aging report in a format acceptable to Bank One and a Borrowing Base Certificate for such month. From time to time, SCSI shall be required to deliver detailed aging schedules, trial balances, test verifications of Accounts and other reports reasonably requested by Bank One. 1.2. Section 5.2 shall be amended and restated in its entirety as follows: 5.2. FUNDING. Companies and Subsidiaries shall not create, incur, assume or suffer to exist any Funded Debt or Current Debt except (1) debt represented by the Notes, (2) other indebtedness to Bank One, (3) purchase money debt for fixed assets that shall not exceed an aggregate of Three Million Dollars ($3,000,000), (4) unsecured indebtedness to trade creditors arising out of the ordinary course of business and (5) indebtedness incurred by Symix (U.K.) Ltd. pursuant to an overdraft facility provided by Barclays Bank PLC in an amount not to exceed (pound)100,000. 62 2 1.3. Section 5.3 shall be amended and restated in its entirety as follows: 5.3. GUARANTY OF OTHERS' DEBTS. Companies and Subsidiaries shall not assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligations of any Person; PROVIDED, HOWEVER, that Companies may guarantee, endorse or otherwise become liable upon the obligations of Subsidiaries (1) to the extent Subsidiaries have incurred debt permitted by Section 5.2(3) of this Agreement, (2) to the extent Subsidiaries have entered into leases of real property with annual payments not to exceed $100,000 and (3) regarding indebtedness incurred by Symix (U.K.) Ltd. pursuant to an overdraft facility provided by Barclays Bank PLC in an amount not to exceed (pound)100,000 principal and (pound)20,000 interest and expenses. 1.4. The definition of "Guarantors" in Section 8 shall be amended and restated in its entirety as follows: "Guarantors" shall mean Pritsker Corporation, Distribution Architects International, Inc. , Symix Computer Systems (Canada), Inc., Symix (UK) Ltd., Symix Computer Systems (UK) Ltd., Symix Systems B.V. and Symix Computer Systems (Mexico) S. De R.L De C.V. SECTION 2 GOVERNING LAW. This Fifth Amendment shall be governed by and construed in accordance with the laws of the State of Ohio. SECTION 3. COSTS AND EXPENSES. All fees, costs or expenses, including reasonable fees and expenses of outside legal counsel, incurred by Bank One in connection with either the preparation, administration, amendment, modification or enforcement of this Fifth Amendment shall be paid by the Companies on request. SECTION 4. COUNTERPARTS. This Fifth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 5. CONFESSION OF JUDGMENT. Each Company hereby authorizes any attorney at law to appear for the Company, in an action on this Fifth Amendment, at any time after the same becomes due, as herein provided, in any court of record in or of the State of Ohio, or elsewhere, to waive the issuing and service of process against the Company and to confess judgment in favor of the holder of this Fifth Amendment or the party entitled to the benefits of this Fifth Amendment against the Company for the amount that may be due, with interest at the rate herein mentioned and costs of suit, and to waive and release all errors in said proceedings and judgment, and all petitions in error, and right of appeal from the judgment rendered. No judgment against one Company shall preclude Bank One from taking a confessed judgment against the other Company. SECTION 6. CONDITIONS PRECEDENT. Simultaneously with the execution hereof, Bank One shall receive all of the following, each dated the date hereof, in form and substance satisfactory to Bank One: 6.1. Certified copies of (a) the resolutions of the board of directors of each Company evidencing authorization of the execution, delivery, and performance of this Fifth Amendment and such other instruments and agreements contemplated thereby; and (b) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Fifth Amendment or the transactions contemplated hereby. 63 3 6.2. Unconditional Continuing Guaranty of Dissolution Architects International, Inc. accompanied by (a) certified copies of the resolutions of such corporation's board of directors evidencing the authorization of the execution, delivery and performance of such guaranty and (b) an incumbency certificate of such corporation. 6.3. Such other documents as Bank One may, in its reasonable discretion, so require. SECTION 7. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES; NO DEFAULTS. The Companies hereby expressly acknowledge and confirm that the representations and warranties of the Company set forth in Section 3 of the Agreement are true and accurate on this date with the same effect as if made on and as of this date; that no financial condition or circumstance exists which would inevitably result in the occurrence of an Event of Default under Section 6 of the Agreement; and that no event has occurred or no condition exists which constitutes, or with the running of time or the giving of notice would constitute an Event of Default under Section 6 of the Agreement; PROVIDED. HOWEVER, THAT the Companies and the Bank agree that the acquisition of Distribution Architects International, Inc., a Texas corporation that merged with and into Distribution Architects International, Inc., an Ohio corporation, on or about June 9, 1999 (the "DAI Acquisition"), exceeds the limits set forth in Section 5.4 of the Agreement. The Bank consented to the DAI Acquisition and waived the violation of Section 5.4 related to the DAI Acquisition by letter dated June 7, 1999. SECTION 8. REAFFIRMATION OF DOCUMENTS. Except as herein expressly modified, the parties hereto ratify and confirm all of the terms, conditions, warranties and covenants of the Agreement, and all security agreements, pledge agreements, mortgage deeds, assignments. subordination agreements, or other instruments or documents executed in connection with the Agreement, including provisions for the payment of the Notes pursuant to the terms of the Agreement. This Fifth Amendment does not constitute the extinguishment of any obligation or indebtedness previously incurred, nor does it in any manner affect or impair any security interest granted to Bank One, all of such security interests to be continued in full force and effect until the indebtedness described herein is fully satisfied. 64 4 The Companies have executed this Fifth Amendment as of the date first above written. SYMIX SYSTEMS, INC. SYMIX COMPUTER SYSTEMS, INC. /s/ Lawrence W. DeLeon /s/ Lawrence W. DeLeon - --------------------------------------------- --------------------------------------------- Name: Lawrence W. DeLeon Name: Lawrence W. DeLeon Its: Vice President, Chief Financial Officer Its: Vice President, Chief Financial and Secretary Officer and Secretary
- -------------------------------------------------------------------------------- WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - -------------------------------------------------------------------------------- BANK ONE, NA /s/ Michael R. Zaksheske - ------------------------------------- Name: Michael R. Zaksheske Its: Vice President 65 EX-21 8 EXHIBIT 21 1 EXHIBIT 21 TO SYMIX SYSTEMS, INC. 1999 FORM 10-K ------------------------------------------------ SUBSIDIARIES OF REGISTRANT SUBSIDIARIES OF REGISTRANT --------------------------
NAME JURISDICTION % OWNERSHIP Symix Computer Systems, Inc. Ohio 100 Symix Systems, B.V. The Netherlands 100 Symix France, SA France 100 Pritsker Corporation Ohio 100 Symix distribution.com, Inc. Ohio 100 e-Mongoose, Inc. Ohio 100
SUBSIDIARIES OF SYMIX COMPUTER SYSTEMS, INC. -------------------------------------------- Symix Computer Systems Delaware, Inc. Delaware 100 Symix Systems (Ontario) Inc. Canada 100 Symix Computer Systems (Canada) Inc. Canada 100 Symix Computer Systems (UK) Ltd. The United Kingdom 100 Symix Computer Systems (Singapore) Pte. Ltd. Singapore 86.7 Symix Computer Systems (Mexico) S. De R.L. De C.V. Mexico 100
SUBSIDIARIES OF SYMIX SYSTEMS, B.V. ----------------------------------- Symix (U.K.) Ltd. The United Kingdom 100 Symix Systems GmbH Germany 100 Symix Italia S.r.l. Italy 95* - --------
66 2 *Remaining 5% owned by Symix Systems, Inc. SUBSIDIARIES OF SYMIX SYSTEMS (ONTARIO) INC. -------------------------------------------- Visual Applications Software, Inc. Canada 100
SUBSIDIARIES OF SYMIX SYSTEMS (SINGAPORE) PTE. LTD. --------------------------------------------------- Symix Asia Company Ltd. Thailand 100 Symix Computer Systems (Hong Kong) Ltd. Hong Kong 100 Symix Computer Systems (Australia) Pty. Ltd. Australia 100 Symix New Zealand Ltd. New Zealand 100 Symix Computer Systems Malaysia 100 (Malaysia) Sdn Bhd.
67 EX-23 9 EXHIBIT 23 1 EXHIBIT 23 TO SYMIX SYSTEMS, INC. 1999 FORM 10-K CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-40546, No. 33-45416, No. 33-73014, No. 33-73016, No. 333-660, No. 333-10631, No. 333-10633 and No. 333-43947, Forms S-3 No. 333-64677 and No. 333-71357 and Form S-4 No. 333-76567) of Symix Systems, Inc. of our report dated July 26, 1999, with respect to the consolidated financial statements and the financial statement schedule included in this Annual Report (Form 10-K) of Symix Systems, Inc. /s/Ernst & Young LLP Columbus, Ohio September 20, 1999 68 EX-24 10 EXHIBIT 24 1 EXHIBIT 24 TO SYMIX SYSTEMS, INC. 1999 FORM 10-K ------------------------------------------------ POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Symix Systems, Inc., an Ohio corporation which is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended June 30, 1999, hereby constitutes and appoints Stephen A. Sasser and Lawrence W. DeLeon, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign such Annual Report on Form 10-K, and to file the same with all exhibits and financial statements and schedules thereto, and other documents in connection therewith, including any amendment thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunder set his hand this 19th day of September, 1999. /s/ Lawrence J. Fox ------------------------ Lawrence J. Fox Chairman of the Board and Director 69 2 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Symix Systems, Inc., an Ohio corporation which is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended June 30, 1999, hereby constitutes and appoints Lawrence J. Fox and Lawrence W. DeLeon, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign such Annual Report on Form 10-K, and to file the same with all exhibits and financial statements and schedules thereto, and other documents in connection therewith, including any amendment thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunder set his hand this 19th day of September, 1999. /s/ Stephen A. Sasser ------------------------- Stephen A. Sasser President, Chief Executive Officer and Director 70 3 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Symix Systems, Inc., an Ohio corporation which is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended June 30, 1999, hereby constitutes and appoints Lawrence J. Fox, Stephen A. Sasser and Lawrence W. DeLeon, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign such Annual Report on Form 10-K, and to file the same with all exhibits and financial statements and schedules thereto, and other documents in connection therewith, including any amendment thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunder set his hand this 13 day of September, 1999. /s/ John T. Tait ------------------ John T. Tait Director 71 4 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Symix Systems, Inc., an Ohio corporation which is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended June 30, 1999, hereby constitutes and appoints Lawrence J. Fox, Stephen A. Sasser and Lawrence W. DeLeon, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign such Annual Report on Form 10-K, and to file the same with all exhibits and financial statements and schedules thereto, and other documents in connection therewith, including any amendment thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunder set his hand this 17th day of September, 1999. /s/ Duke W. Thomas --------------------- Duke W. Thomas Director 72 5 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Symix Systems, Inc., an Ohio corporation which is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended June 30, 1999, hereby constitutes and appoints Lawrence J. Fox, Stephen A. Sasser and Lawrence W. DeLeon, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign such Annual Report on Form 10-K, and to file the same with all exhibits and financial statements and schedules thereto, and other documents in connection therewith, including any amendment thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunder set his hand this 13th day of September, 1999. /s/ James A. Rutherford --------------------------- James A. Rutherford Director 73 EX-27 11 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1999 FOR SYMIX SYSTEMS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 US DOLLARS YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 1 5,236 0 47,751 1,500 767 56,929 20,340 12,143 90,600 35,003 0 0 0 76 42,325 90,600 67,423 129,072 18,317 52,025 69,993 437 320 7,205 3,206 3,999 0 0 0 3,999 0.60 0.55
-----END PRIVACY-ENHANCED MESSAGE-----