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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Year Ended December 31, 1998, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22993
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INDUS INTERNATIONAL, INC.
(Exact name of Registrant issuer as specified in its charter)
Delaware 94-3273443
(State or other jurisdiction of (I.R.S.) Employer
incorporation or organization) Identification No.)
60 Spear Street, San Francisco, California 94105
(Address of principal executive offices) (Zip code)
(415) 904-5000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 10,
1999 as reported on the Nasdaq National Market, was approximately $42,177,854.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may by deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock, $.001 par
value was 31,774,206 at March 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1999 Annual Meeting of Stock-
holders to be held May 4, 1999 are incorporated by reference in Part III hereof,
to the extent stated herein.
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<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL INFORMATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Indus International, Inc. ("the Company") develops, markets,
implements and supports enterprise asset management software and service
solutions for capital intensive industries worldwide. Marketed
internationally as the Indus Solution Series, the offering consists of
business application systems and industry best practice service packages
which support such functional areas as: Asset & Work Management Systems,
Materials & Procurement Systems, Safety & Compliance Systems, and
Financial Integration products. Indus Solutions are designed to
interoperate with popular third-party applications that provide best
business practices function to its customers. Through strategic
alliances, the Company works with Oracle Corporation ("Oracle"),
PeopleSoft, Inc. ("PeopleSoft"), and certain industry-specific vendors
to create a software series that provides seamless interoperability with
corporate and financial applications, expert systems, and certain
industry specific systems to provide complete enterprise-wide solutions
that enable the Company's customers to improve operating efficiencies,
reduce costs and comply with governmental regulation. Markets of
primary focus for the Company's products include: the energy industry,
continuous process industries, industrial manufacturing, and the public
sector. Segments within these capital intensive markets include:
electric and gas utilities, telecommunications providers, petrochemical
refineries, mining and metals manufacturers, forest product producers,
consumer packaged goods manufacturers, educational systems, and
governmental institutions.
The software tools comprising the Indus Solution Series are based on
an open, client/server architecture featuring a layered and object-
oriented software design that enables customers to use various operating
systems, operate on multiple hardware platforms and interoperate with
many third-party software applications and legacy systems. Proprietary
systems implementation methodology tools and best practice education
tools facilitate rapid and effective deployment and utilization of its
Enterprise Asset Management (EAM) applications.
The Company's Enterprise Asset Management solutions include
consulting services provided by subject matter experts. This unique
approach helps customers implement advanced EAM maintenance principles,
materials management theories, and other advanced strategies designed to
provide a competitive advantage to the customer. The service package
content comprising this business process improvement solution leverages
the knowledge gained from hundreds of customer implementations and the
extensive plant experience of the Company's employees, and the global
experience of its user community.
Regionally located in close proximity to customer sites, the
Company's professional services organization supports the Indus sales
organization. The resulting process provides a high quality information
exchange as customers learn how the Indus Solution Series addresses
industry-specific requirements. The Company also offers global 7 (days a
week) x 24 (hours a day) multilingual customer support. The Company
believes this combination of enterprise software, vertically oriented
consulting services and worldwide customer support enables customers to
increase equipment and production capacity, reduce operating costs, and
safeguard the workforce and the environment.
The Company is a leading provider of systems, products, and services
addressing the highly specialized needs of the Enterprise Asset
Management (EAM) market. As of December 31, 1998, the Company products
were licensed for use by over 300,000 end users representing 440
customers in 48 countries.
Indus, Indus Solution Series, IndusWorld, PassPort Software
Solutions, ABACUS, ABACUS Toolkit, PORTAL/G, PORTAL/95, PORTAL/97,
VIEWPORT, Prism Consulting, Enterprise MPAC, Curator and AssetWare,
AssetCare and CareNet are trademarks and servicemarks of the Company.
All other brand names or trademarks are the property of their respective
holders.
The Indus Group, Inc., a California corporation entered into an
Agreement and Plan of Merger and Reorganization (the "Merger") on June
5, 1997 with TSW International, Inc., a Georgia corporation, pursuant to
which The Indus Group, Inc. and TSW International, Inc. each became
subsidiaries of a new Delaware corporation named Indus International,
Inc. ("the Company") which was formed for the purpose of the
transactions contemplated under the Merger. The transaction was
accounted for as a pooling of interests for financial reporting purposes
and structured to qualify as a tax-free reorganization. The
stockholders of each of The Indus Group, Inc. and TSW International,
Inc. approved the transaction and the Merger was consummated on August
25, 1997.
On December 31, 1997, the Company's subsidiaries, The Indus Group,
Inc. and TSW International, Inc., each merged with and into the Company
(the "Roll-up Merger"). The Company, as the surviving corporation,
assumed all obligations of the two subsidiaries, in connection with the
Roll-up Merger.
Products and Services
The Company offers software products and service packages, which
incorporate sophisticated EAM methodologies, extensive subject matter
expertise and advanced technology designed to interoperate seamlessly
with other enterprise business information systems. Marketed as the
Indus Solution Series, these business tools support the needs of an
organization's core decision makers in the operations and maintenance
workforce, inventory management and procurement professionals, safety
and compliance engineers, and related disciplines affected by asset care
decisions throughout the enterprise. This customer user group is
supported by such Indus Software Solutions as: Asset & Work Management
Systems, Materials and Procurement Systems, and Safety and Compliance
Systems, which seamlessly integrate to third party corporate financial
systems from Oracle, PeopleSoft, and other providers. Beyond providing
departmental information to affected workgroups throughout the customer
organization, EAM techniques employed by the Company integrate process
control systems from vendors such as Allen-Bradley and Johnson Controls,
optimizing capacity utilization through just-in-time maintenance
management practices. The Indus Solution Series reflects EAM best
practices, including Reliability Centered Maintenance (RCM), Total
Productive Maintenance (TPM), web-based electronic commerce, and
handheld mobile units to enable customers to apply Indus Solutions as a
means to achieving a strategic and competitive advantage.
A proprietary implementation methodology and set of data content
workbenches round out the service package offering available from the
regionally positioned professional services solutions centers throughout
the Americas, Europe, Middle East and Africa and Asia Pacific theaters
of operation. Marketed as ABACUS tools and implementation methodology,
ABACUS enables rapid implementation and configuration of Indus Software
Solutions. Workbenches are a set of software tools which support
application development, data migration and installation support used by
the Company and its customers to develop, install and configure Indus
Software Solutions. Integration products are also sold to enable Indus
Software Solutions to interoperate with corporate financial, payroll,
human resources, geographic information, outage management, and customer
information applications systems available, and other industry-specific
programs included in the Company's Business Partner Alliance program.
The Indus Software Solutions
EAM application business systems comprising the Indus Solution Series
are designed to reflect the requirements of specific vertical industry
function, and the technical architecture traditionally employed in these
industries. The resultant transaction engines are designed to support
Indus Solution Series products. Functions within the application product
lines have been tailored to encapsulate vertical business processing
requirements which are augmented by subject matter expertise and
consulting service packages, which uniquely position Indus to deliver a
total solution across the enterprise.
Indus Solution Series for Energy and Communications
Indus Software Solutions for Energy and Telecommunications provide a
series of business applications and business process improvement service
packages which meet the needs of both integrated electric and gas
utilities or standalone utility business units including: nuclear
generating stations, non-nuclear steam generating facilities, a
utility's energy delivery business including transmission and
distribution, and systems designed to manage Department of Energy
facilities. The specific needs of communications companies are also
addressed in a related offering for these firms.
Specific packaged solutions in this series include:
Indus Solution Series for Nuclear Power Generation
Indus Solution Series for Conventional Power Generation
Indus Solution Series for Energy Delivery
Indus Solution Series for Department of Energy
Indus Solution Series for Telecommunications
Indus Solution Series for Integrated Manufacturing
Indus Software Solutions for Integrated Manufacturing provide a set
of business applications, which meet the needs of capital-intensive
industrial manufacturing businesses seeking a competitive advantage
through the application of technology. Business applications and
subject matter expertise in the areas of delivering advanced enterprise
asset management strategies across the enterprise have been packaged to
meet the needs of specific vertical industries in the series.
Specific packaged solutions in this series include:
Indus Solution Series for Oil,Gas & Chemical
Indus Solution Series for Metals & Mining
Indus Solution Series for Pulp & Paper
Indus Solution Series for Consumer Packaged Goods
Indus Solution Series for Public Sector
Indus Software Solutions for Public Sector provide a set of business
applications which meet the needs of municipalities, public works
departments, school districts, universities, and other entities that
require robust enterprise and facilities management software to help
attract private funds, upgrade infrastructures, and provide services
where required.
Specific packaged solutions in this series include:
Indus Solution Series for Municipalities
Indus Solution Series for Higher Education
Product Architecture and Development Strategy for Indus Products
Commercial Off-the-shelf Technology. The Company utilizes industry-
standard tools and technologies to develop its products, enabling
Software Solutions comprising this series to evolve along with rapidly
emerging standards and best business practices. The Company's Products
are largely platform independent, running on industry-standard UNIX and
Windows NT servers including the IBM RS/6000, HP 9000, Sun SPARCstation
and Intel-based systems. The Company's architecture utilizes the
functionality of both Oracle and IBM's DB2 databases with both text-
based and graphical user interfaces. Commencing with its latest
product releases, the Company provides versions of its client products
on the Internet, for both E-Commerce (Extranet) and internal (Intranet)
applications. The Company's "next generation" clients also support a
Windows Explorer navigational ability, which can be accessed from the
native product client as well as the Internet. The Company is also the
first EAM vendor to provide a suite of Mobile Computing modules to
support critical field and warehouse business practices.
Partitioned Application Architecture. The layers of the Company's
application architecture-the user interface, business logic, data
storage, workflow and browser interface-are interoperable but not
interdependent and support an n-tier environment. For example, changes
to the database layer are not dependent on the user interface. The
partitioning built into the Company components minimize the Company's
dependence on third-party vendors and efficiently utilizes desktop
computers, "thin clients," servers and networks. The Company believes
this architecture reduces its exposure to the risks of technology or
market shifts that require changes in one or more of the layers, and
enables rapid exploitation of technology advances.
Object-oriented Design and Third-party Interoperability. The Company
develops its products through an object-oriented design and development
methodology by which software "objects" (i.e., collections of
properties and methods) are used as building blocks to model real-world
business processes. Further, the Company's architecture is designed to
be an open system with Application Program Interfaces ("APIs") that
enable easy interoperability and extension at the application level. The
APIs are available to third party developers to facilitate the
integration of Indus Software Solutions with other client/server
applications. The Company believes object-oriented development has
several benefits including software reusability, which results in
decreased development expense and improved software quality, and
component management, which allows customers to implement and upgrade
subsets of the application.
Flexible Network Technology. The Company's applications can be
installed in a network configuration to enable customers to take full
advantage of client/server technology with low cost and low maintenance
"thin clients." Network-centric implementation is attractive to
clients concerned about the acquisition and systems management expense
associated with personal computers. The efficient network architecture
inherent in its Indus products is particularly important to clients with
low-bandwidth networks, prevalent in developing markets, which require
the minimization of network traffic to support advanced client/server
applications.
Implementation Methodology and Related Services
Indus Software Solutions are implemented through the Company's
proprietary ABACUS tools and implementation methodology. ABACUS consists
of software-driven analytical tools, implementation plans and
educational resources that encapsulate the Company's extensive
experience in implementing enterprise management software solutions.
ABACUS provides a step-by-step implementation life cycle framework for
all installation, integration, and education and business review
activities. In addition, ABACUS enhances the ongoing effectiveness of
Indus Software Solutions and assists customers in improving their
business processes.
ABACUS software tools use a time-sensitive and track-oriented
approach to help customers and the Company's business experts, technical
specialists and training professionals implement the Company's
applications. In addition to interactively identifying implementation
procedures, ABACUS contains over 575 "best practice" examples of how
such procedures were performed by other process industry companies,
drawn from the Company's extensive experience in implementing enterprise
asset management software solutions. The Company currently licenses
ABACUS software tools in conjunction with Indus Software Solutions which
includes the use of the ABACUS ToolKit, a version of the ABACUS software
that allows customers to tailor their internal project goals and
objectives with other corporate initiatives, modify implementation plans
and associated deliverables, supporting specific project/progress
reporting, etc. Versions of ABACUS products have been created to
effectively address the Company's entire product suite, as well as
implementation requirements and best practice selections of interest to
specific vertical industries.
A critical component of the ABACUS implementation is the partnership
between the software provider (the Company) and the customer. At the
outset of the project, the Company assigns a Project Manager or Account
Executive to help ensure a successful, on-schedule implementation.
Throughout the implementation process, the Company's/Customer's team
defines and then executes a customer-specific, yet time-proven,
implementation process that focuses heavily on critical Business Process
Improvement (BPI) and Return on Investment (ROI) processes to drive
current and future customer success. The Company has also developed
alliances with several of the "big five" firms as well as smaller
third party implementers and providers. This ensures that customers
with specific requirements can leverage the value-added services of
these firms when implementing the Indus Solution Series.
Indus Solution Series Workbenches
A series of best practice workbenches assist information engineers in
the development of business application systems and post-development
implementation support. These workbenches include programming tools,
data services workbenches for data load and system interface exercises,
data migration tools, and archiving mechanisms. These productivity tools
help the Company demonstrate rapid development of high quality, highly
functional applications on predictable schedules and within established
budgets. The Company also leverages critical third party components,
such as RDBMS, Network, and Operating system tools, to help customers
manage their software both during implementation and production.
The Company also licenses Indus Solution Series Workbenches to
customers desiring the ability to modify business applications to suit
internal needs and to perform system administration and maintenance over
the application life cycle.
Customer Support, Software Maintenance and Training
In addition to the standardized services offered through ABACUS, the
Company offers systems integration, customer support, software
maintenance and training through its regionally positioned professional
services capability. The Company provides systems integration and
customer support on a time and materials basis. The Company provides
software maintenance for a fixed fee based on the number and types of
applications licensed.
To help track and coordinate customer support and service
requirements, the Company has employed a service product marketed as
CareNet. This customer care system, used throughout the global support
organization, provides the customer support team with a consistent
approach towards an interactive help desk, warranty support, and post-
implementation services which are widely used by its customers.
Experienced product specialists who have direct access to product
development teams and technology specialists' staff the help desk. A
computerized system is used to log, track, close, and analyze all
customer calls.
Indus Education Services and Products, the Company's training
division, designs, manages, and implements comprehensive education and
training solutions for its user community. The Company's training and
technical professionals provide instructional design and courseware
development services, training coordination support, train-the-trainer
and end-user programs, and technical training for customer installations
worldwide. In addition, the Company has developed a comprehensive set of
training courseware to educate and train customers and internal staff.
Subjects covered by the courseware range from application product basics
to conducting business process reviews. Open enrollment training courses
are provided at the Company's training centers in San Francisco,
Atlanta, Dallas, Pittsburgh, and internationally in London, Paris and
Brisbane. In addition, training is also provided at customer sites at
the customer's option. The Company also provides computer-based and
web-based training modules to provide additional value to customers who
desire these training needs. Finally, the Indus Solution Series product
online help and wizards, including its CoPilot tool, help to guide the
new user through standard work processes by providing context-sensitive
assistance and pop-up screens.
Customers
The Company provides enterprise management software solutions to
large process industry customers primarily in the energy industry,
continuous process industries, industrial manufacturing and the public
sector. Segments within these capital-intensive markets include:
electric and gas utilities, telecommunications providers, petrochemical
refineries, mining and metals, forest products producers, consumer
packaged goods manufacturers, educational systems, and governmental
institutions.
As of December 31, 1998, the Company products were licensed for use
by over 300,000 end-users representing 440 customers in 48 countries.
No single customer accounted for 10% or more of the Company's total
revenues in 1997 or 1998.
Sales and Marketing
The corporate marketing function is organized into vertical business
areas, which comprise capital intensive facilities and process
industries targeted by the Company. By segmenting the market into
vertical business areas, the Company can package and deliver its
products and service offerings effectively to the industries it serves.
As discussed in the Indus Solution Series discussion earlier, these
markets and subsectors consist of the following:
<TABLE>
<CAPTION>
<S>
Energy/Communications
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Nuclear power generation
Conventional power generation
Energy delivery
Department of Energy
Telecommunications
<S>
Integrated Process Manufacturing
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Oil, Gas, and Chemical
Metals and Mining
Pulp and Paper
CPG
<S>
Public Sector
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Municipalities
Higher Education
</TABLE>
The Company markets and sells its products and services in three
primary areas of the world: The Americas, with direct sales
representatives in the US, Canada, and Argentina; Europe, the Middle
East & Africa with direct sales representatives in the UK and France,
and Asia-Pacific with direct sales representatives in Australia and the
Philippines. In addition to these direct marketing and sales
resources, the Company utilizes business partner relationships and
channel partner programs directly and indirectly in other parts of the
world. As of December 31, 1998, the Company's Sales and Marketing
organization consisted of 138 employees. The marketing staff is based
at the Company's corporate headquarters in San Francisco, while the
sales organization is decentralized throughout the three operational
centers.
The direct sales cycle begins with the generation of a sales lead, or
the receipt of a request for proposal from a prospect, which is followed
by qualification of the lead, an analysis of the customer's needs,
response to a request for proposal, one or more presentations to the
customer utilizing the special knowledge of the industry vertical pre-
sales staff, customer internal sign-off activities, and contract
negotiation and finalization. While the sales cycle varies depending on
the customer, the sales cycle generally requires three to nine months.
In support of its sales force, the Company conducts comprehensive
industry-specific vertical marketing programs which include public
relations, trade advertising, industry seminars, trade shows and ongoing
customer communication programs through IndusWorld, the Company's
international user group. In addition, the Company's Account Manager
Program provides regional support and specialized attention for each of
its customers. Account Managers assist in implementing licensed
applications over multi-year engagements, promote licensing of
additional applications, and encourage existing customers to identify
and help fund new applications.
Strategic Relationships
Through its alliance and channel partner programs, the Company
intends to continue to develop new products, to keep pace with the
latest technological developments, and to extend its marketing, sales
and support efforts by building synergy between the Company's products
and services and those available from complementary third party
providers. The Company has entered into strategic alliances and other
formal and informal relationships with major software and hardware
vendors and with consulting firms, service providers and systems
integrators. Members of the Company's Alliance and Partner programs
assist the Company with sales and support activities and with product
localization in foreign countries.
Indus Alliance Program
The Indus Alliance Program is comprised of third party providers of
complementary software products, which interoperate with Indus Software
Solutions through integration products to provide additional license
revenues and services to the Company while delivering a broad suite of
enterprise-wide software capabilities. Membership in this program
includes Oracle for corporate financial systems, PeopleSoft for
corporate financial, human resources and payroll systems, Nuclear Fuels
Services/Radiation Protection Systems for jointly developed Nuclear
Health Physics Systems marketed as Total Exposure, and Identitech
Corporation, maker of electronic document management and workflow
software. Other third party integration alliance partners are currently
under consideration by the Company.
Indus Partner Program
The Indus Partner Program consists of three classes of third party
providers including: Indus Service Partners (foreign and domestic),
Indus Solution Series Platform Partners, and partners in the Indus
Extension Program.
Indus Service Partners include third-party consultants and system
integration firms, which help deliver the services required to implement
Indus Software Solutions. These recognized firms add specialty knowledge
to assist in training and reengineering services, help provide staff
leveling and supply peak load project resources to the regional
operators. These resources assist in the delivery of ABACUS services on
an as-needed basis. Domestically, implementation partners include:
Arthur Andersen, PriceWaterhouseCoopers, Computer Science Corporation,
Deloitte & Touche Consulting Group, Solbourne Group, Cimcorp, and The
Application Group. International implementation partners include
Enidata, Euriware, Gulf Data International, Innova, Maxon Engineering
Services, Inc., Eagle Technologies, SGA Integrators and PosData.
Indus Series Platform Partners are computer hardware providers and
operating system software providers that help the Company remain
technologically current with evolving releases of software and hardware
upgrades. Cooperative marketing, joint trade show participation, and
vendor fair participation at the the CompanyWORLD EXPO Annual Conference
of the User Group are extended to this cooperative group of vendors. The
Company participates in the Hewlett-Packard Channel Program, Digital
Equipment's Business Partner Program, the IBM Business Partner Program,
Sun MicroSystems Alliance Program, as well as Microsoft's Solution
Provider Program and Oracle's Cooperative Applications Initiative.
The Indus Extension Program is comprised of third party vendors
offering products, which provide value-added product extensions or
specialty services, taking Indus Solution Series data beyond the
specified scope of the Company's application systems. Both specialty
hardware and specialty point solution software vendors are recognized in
this program which include offerings from: Harbinger Corporation
(Acquion, Inc.), Commerce One, Inc., Dolphin Software, DEI Group, Future
Horizons, Identitech, Inc., Intermat, Meridium Corporation, Primavera,
Sqribe Technologies Corporation, Tadcom, and Telxon Corporation. For the
Energy Delivery Industry, Energy Delivery integration is provided with
AM/FM/GIS solutions from Intergraph, SHL Vision and Smallworld
Corporation.
Research and Development
The Company has a dedicated research and development and engineering
organization, and regularly releases new products and enhancements to
existing products. Research and development efforts are directed at
increasing product functionality, improving product performance, and
extending the capabilities of the products to interoperate with selected
third-party software products available from alliance partners such as
Oracle, PeopleSoft and others. These efforts include developing new
applications that address new horizontal and vertical functions, which
enhances the intellectual property content of the Company's offerings
and ensures that the products remain "best-of-class".
The Company believes that research and development is most
effectively accomplished if customers are involved in the process.
Through direct customer involvement and consensus input from user group
oversight committees, InSight and InFocus, product content is improved
and the customer acceptance threshold usually associated with new
software deployment significantly lowered. In addition, the interactive
development process promotes increased customer awareness of the
technological features of the product and fosters greater product
loyalty.
There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that
respond to technological change; changes in customer requirements, or
emerging industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of such products and enhancements; or that any
new products or enhancement that it may introduce will achieve market
acceptance. The inability of the Company, for technological or other
reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements,
technological change or emerging industry standards, would have a
material adverse effect on the Company's business or results of
operations.
As of December 31, 1998, the Company had 311 employees engaged in
research and development. The Company's research and development
expenses were approximately $23.3 million, $27.7 million, and $30.4
million in 1996, 1997 and 1998 respectively. Development costs funded by
customers as part of license and service contracts are included as part
of cost of revenues.
Competition
The enterprise asset management software solutions market is highly
competitive, rapidly changing and significantly affected by new product
introductions and other market activities of industry participants. The
Company's primary competition stems from companies offering enterprise
asset software solutions, vendors offering partial solutions and
suppliers of departmental systems (primarily LAN-based). The Company's
competitors include SAP, the Company's principal competitor, and other
software vendors such as Mincom, PSDI, Marcam, and Datastream. In the
future, the Company may face competition from its Alliance Partners. In
the electric utility market, the Company faces competition from
suppliers of energy delivery point applications, including Severn Trent
and Logica.
In addition, the Company faces indirect competition from suppliers of
custom-developed business applications software that have focused
largely on proprietary mainframe and minicomputer-based systems with
highly customized software, such as the systems consulting groups of
major accounting firms and systems integrators. The Company also faces
indirect competition from systems developed by the internal MIS
departments of large organizations.
Many of the Company's competitors and potential competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition, and a larger
installed base of customers than the Company. In addition, certain
competitors, including SAP, have well-established relationships with
customers of the Company and with accounting and consulting firms that
may have an incentive to recommend such competitors over the Company.
Furthermore, as the enterprise management software solutions market for
process industries expands, companies with significantly greater
resources than the Company could attempt to increase their presence in
this market by acquiring or forming strategic alliances with competitors
of the Company.
The principal competitive factors affecting the market for the
Company's software products are responsiveness to the needs of capital
intensive industries, product functionality and ease of use, speed of
implementation, product architecture, quality and reliability, vendor
and product reputation, quality of customer support and price. Based on
these factors, the Company believes that it has competed effectively to
date. In order to be successful in the future, the Company must continue
to respond promptly and effectively to the challenges of technological
change and its competitors' innovations by continually enhancing its own
product offerings. There can be no assurance, however, that the
Company's products will continue to compete favorably or that the
Company will be successful in the face of increasing competition from
new products and enhancements introduced by existing competitors or new
companies entering this market.
Proprietary Rights and Licensing
The Company relies on a combination of the protections provided under
applicable copyright, trademark and trade secret laws, as well as on
confidentiality procedures and licensing arrangements to establish and
protect its rights in its software. Despite the Company's efforts, it
may be possible for unauthorized third parties to copy certain portions
of the Company's products or to reverse engineer or obtain and use
information that the Company regards as proprietary. In addition, the
laws of certain countries do not protect the Company's proprietary
rights to the same extent, as do the laws of the United States.
Furthermore, the Company has no patents, and existing copyright laws
afford only limited protection. Accordingly, there can be no assurance
that the Company will be able to protect its proprietary software
against unauthorized third party copying or use, which could adversely
affect the Company's competitive position.
The Company licenses its applications to customers under license
agreements, which are generally in standard form, although each license
is individually negotiated and may contain variations. The standard form
agreement allows the customer to use the Company's products solely on
the customer's computer equipment for the customer's internal purposes,
and the customer is generally prohibited from sub-licensing or
transferring the applications. The agreements generally provide that the
Company's warranty for its products is limited to correction or
replacement of the affected product, and in most cases the Company's
warranty liability may not exceed the licensing fees from the customer.
The Company's form agreement also includes a confidentiality clause
protecting proprietary information relating to the licensed
applications.
The Company's products are generally provided to customers in object
code (machine-readable) format only. From time to time, in limited
circumstances, the Company has licensed source code (human-readable
form) subject to customary protections such as use restrictions and
confidentiality agreements. In addition, customers can be beneficiaries
of a master source code escrow for the applications, pursuant to which
the source code will be released to end users upon the occurrence of
certain events, such as the commencement of bankruptcy or insolvency
proceedings by or against the Company, or certain material breaches of
the agreement. The Company has the right to object to the release of the
source code in such circumstances, and to submit the matter to dispute
resolution procedures. In the event of any release of the source code
from escrow, the customer's license is limited to use of the source code
to maintain, support and configure the Company applications.
The Company may from time to time receive notices from third parties
claiming infringement by the Company's products of proprietary rights of
others. As the number of software products in the industry increases and
the functionality of these products further overlap, the Company
believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend or could require the Company to enter
into royalty and licensing agreements. Such agreements, if required, may
not be available on terms acceptable to the Company, or at all.
Employees
As of December 31, 1998, the Company employed 1,037 people, of which
311 were primarily engaged in research and development activities, 494
in post-sales support and customer project operations, 138 in sales and
marketing, and 94 in administration and finance. None of the Company's
employees is represented by a labor union. The Company has experienced
no work stoppages and believes that its relationship with its employees
is excellent.
The Company's future success depends, in large part, on the
continued service of its key management, sales, product development and
operational personnel and on its ability to attract and retain highly
qualified employees, including management personnel. There can be no
assurance that the Company will be successful in attracting, retaining
and motivating key personnel.
Executive Officers
The executive officers of the Company as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation
- ------------------------- ----- ------------------------------------------
<S> <C> <C>
Robert W. Felton....... 60 Chief Executive Officer and Chairman of the
Board
William J. Grabske .... 56 President and Chief Operating Officer
Kerry P. Lamson ....... 47 Senior Vice President of Worldwide Marketing
Philip C. Mezey ....... 39 Senior Vice President of Development
Robert A. Pocsik ...... 57 Senior Vice President of Human Resources
and Administration
C. Jeffrey Simpson .... 49 Executive Vice President of Worldwide Sales
Albert J. Wood ........ 42 Vice President of Finance and Treasurer
</TABLE>
- ----------------
A biography, including the principal occupations for the past five
years of each of the executive officers, is provided below. There is no
family relationship between any executive officer of the Company.
Mr. Felton is a founder of The Indus Group, Inc. and has been on the
Board of Directors since the consummation of the Merger on August 25,
1997. He served as Chairman of the Board until March 17, 1999. He
also served as Chief Executive Officer of the Company until December
31, 1998. From 1988 until August 25, 1997, he was the Chairman,
President and Chief Executive Officer of The Indus Group, Inc.
Mr. Grabske was elected as Chief Executive Officer and director of
the Company on January 1, 1999. He was also elected as Chairman of the
Board of Directors on March 17, 1999. He has served as President since
June 15, 1998. From June 15, 1998 until December 31, 1998, he served
as Chief Operating Officer of the Company. From September 1995 to June
1998, Mr. Grabske was President of the Utilities Industry at EDS, a
technical services company. From August 1990 to August 1995, Mr.
Grabske was Senior Vice President a Managing Director of JWP
International, a technical services company.
Mr. Lamson has served as Senior Vice President of Worldwide
Marketing of the Company since May 1998. From March 1996 to April
1998, Mr. Lamson was Vice President of Applications Product Marketing
for Oracle Corporation, an information management software company.
From January 1993 to March 1996, Mr. Lamson was Director of Electronic
Commerce and Integration Products for Systems Software Associates, an
enterprise application software company.
Mr. Mezey has served as Senior Vice President of Development of the
Company since July 1998. Prior to July 1998, he was Vice-President of
Development of the Company since the consummation of the Merger on
August 25, 1997. From January 1991 to August 25, 1997, he was the Vice
President of Development of The Indus Group, Inc.
Mr. Pocsik has served as Senior Vice President of Human Resources
and Administration since October 1998. From January 1997 to June 1998,
he served as Managing Director of Imcor, an executive development and
search firm. From December 1992 to December 1997, he was President and
Chief Executive officer of Haden Wegman, an engineering infra-structure
firm.
Mr. Simpson became a consultant to the Chief Executive Officer on
January 1, 1999 and left the Company March 1999. Mr. Simpson served as
Executive Vice President of Worldwide Sales since May 1998. From July
1996 to May 1998, he invested in and consulted in several startup
software companies in Atlanta. Prior to July 1996, he served as Field
Vice President of the Communications Industry at Oracle Corporation, an
information management software company.
Mr. Wood has served as Vice President of Finance and Treasurer since
December 1997. From September 1996 to September 1997, Mr. Wood was
Controller for Prism Solutions, a software and consulting services
company. From November 1993 to September 1996, Mr. Wood was Director
of Finance/Treasurer and Sales Controller for Pyramid Technology, a
computer manufacturing and consulting services company.
Risk Factors
This report contains forward-looking statements that involve risks
and uncertainties. Forward-looking statements have been made pursuant
to the provisions of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934, including
without limitation statements regarding the Company's expectations,
beliefs, intentions, plans or strategies regarding the future. Unless
required by law, the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth below and
elsewhere in this report.
Volatility of Operating Results
Fluctuating Operating Results. The Company's operating results have
fluctuated in the past, and the Company's results may fluctuate
significantly in the future depending on a number of factors, including
(i) the relatively long sales cycles for its products, (ii) the variable
size and timing of individual license transactions, (iii) changes in
demand for their products and services, (iv) competitive conditions in
the industry, (v) changes in customer budgets, (vi) the timing of the
introduction of new products or product enhancements by each such
company or its competitors, (vii) their success in and costs associated
with developing and introducing new products, (viii) product life
cycles, (ix) variability in new licenses obtained, (x) changes in the
proportion of revenues attributable to license fees versus services,
(xi) changes in the level of operating expenses, (xii) delay or deferral
of customer implementations of their software, (xiii) software defects
and other product quality problems, and (xiv) other economic conditions
generally or in specific process industry segments. Further, the
purchase of the Company's products generally involves a significant
commitment of capital, with the attendant delays frequently associated
with large capital expenditures and authorization procedures within
large organizations. For these and other reasons, the sales cycles for
the Company's products are typically lengthy and subject to a number of
significant risks over which each such company has little or no control,
including customers' budget constraints and internal authorization
reviews. In addition, delays in the completion of a product
implementation may require that the revenues associated with such
implementation be recognized over a longer period than originally
anticipated. Such delays in the implementation or execution of orders
have caused, and may in the future cause, material fluctuations in the
Company's operating results. Similarly, customers may cancel
implementation projects at any time without penalty, and such
cancellations could have a material adverse effect on the Company's
business or results of operations. Because the Company's expenses are
relatively fixed, a small variation in the timing of recognition of
specific revenues can cause significant variations in operating results
from quarter to quarter and may in some future quarter result in losses
or have a material adverse effect on the Company's business or results
of operations.
Additional factors that may contribute to future fluctuations in the
Company's quarterly operating results include, but are not limited to:
(i) development and introduction of new operating systems that require
additional development efforts; (ii) introduction or enhancement of
products by the Company or its competitors; (iii) changes in pricing
policies of the Company or its competitors; (iv) increased competition;
(v) technological changes in computer systems and environments; (vi) the
ability of the Company to timely develop, introduce and market new
products; (vii) quality control of products sold; (viii) market
acceptance of new products and product enhancements; (ix) the Company's
success in expanding its sales and marketing programs; (x) personnel
changes; (xi) foreign currency exchange rates; (xii) mix of products
sold; (xiii) acquisition costs; and (xiv) general economic conditions.
Management of Growth; Dependence on Key Personnel
The Company's business has grown rapidly in recent periods, with
total revenues increasing from $143.0 million in 1996 to $177.0 million
in 1997 and $195.5 million in 1998. The growth of the Company's business
and expansion of customer base has placed a strain on management and
operations. The recent expansion has also resulted in substantial growth
in the number of its employees, the scope of its operating and financial
systems and the geographic area of its operations, resulting in
increased responsibility for management personnel.
In the future, the Company will be required to continue to improve
its financial and management controls, reporting systems and procedures
on a timely basis and to expand, train and manage its employee work
force. There can be no assurance that the Company will be able to
effectively manage such growth. Our failure to do so would have a
material adverse effect on its business, operating results and financial
condition. Competition for qualified sales, technical and other
personnel is intense, and there can be no assurance that the Company
will be able to attract, assimilate or retain additional highly
qualified employees in the future. If the Company were unable to hire
and retain such personnel, particularly those in key positions, its
business, operating results and financial condition would be materially
adversely affected. The Company's future success also depends in
significant part upon the continued service of its key technical, sales
and senior management personnel. The loss of the services of one or more
of this key employees could have a material adverse effect on its
business, operating results and financial condition. Additions of new
and departures of existing personnel, particularly in key positions, can
be disruptive and have a material adverse effect on the Company's
business, operating results and financial condition.
Intense Competition
The enterprise asset management software solutions business is
highly competitive, rapidly changing and significantly affected by new
product introductions and other market activities of industry
participants. The Company's primary competition stems from companies
offering enterprise software solutions, vendors offering partial
solutions and suppliers of departmental systems (primarily LAN-based).
The Company's competitors include SAP, and other software vendors such
as Mincom Corp., Project Software & Development, Inc.and DataStream,
Inc., firms that provide software products to electric utilities such as
Severn Trent Systems and Synercom, and many other firms. In the future,
the Company may also face competition from Oracle, PeopleSoft and SPL
WorldGroup B.V., through which it is developing PassBook integration
products to provide interoperability with Oracle's corporate financial
applications and PeopleSoft's corporate financial, payroll and human
resources applications. In addition, the Company faces competition from
suppliers of custom-developed business application software that have
focused largely on proprietary mainframe- and microcomputer-based
systems with highly customized software, such as the systems consulting
groups of major accounting firms and systems integrators. The Company
also faces competition from systems developed by the internal MIS
departments of large organizations.
The businesses in which the Company competes are intensely
competitive and rapidly changing and, in order to compete, the Company
will have to enhance current products and develop new products in a
timely fashion. Management believes that the principal competitive
factors in the Company's businesses will be product performance and
functionality, cost of internal product development as compared with
cost of purchase of products supplied by outside vendors, cost of on-
going maintenance and time-to-market. Many of the Company's competitors
will have substantially greater financial, technical, sales, marketing
and other resources, as well as greater name recognition and a larger
customer base, than the Company. The Company's success will also depend
significantly on its ability to develop more advanced products more
quickly and less expensively than its existing competitors and potential
competitors and to educate potential customers of the benefits of
licensing the Company's products rather than developing their own
products. The Company's current and future competitors could introduce
products with more features, greater functionality and lower prices than
the Company's products. These competitors could also bundle existing or
new products with other, more established products in order to compete
with the Company. In addition, because there are relatively low barriers
to entry for the software market, the Company expects additional
competition from other established and emerging companies. Increased
competition is likely to result in price reductions, reduced gross
margins and loss of sales volume, any of which could materially and
adversely affect the Company's business, operating results and financial
condition. Any material reduction in the price of the Company's products
would negatively affect its gross revenues and could have a material
adverse effect on its business, operating results and financial
condition. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the
failure to do so would have a material adverse effect upon the Company's
business, operating results and financial condition.
Rapid Technological Change; Need to Develop New Products; Requirement
for Frequent Product Transitions
The industries in which the Company participates are intensely
competitive and 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,
the emergence of new standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a
result, the Company's success will depend in part upon its ability to
continue to enhance existing products and expand its products, continue
to provide enterprise solutions and develop and introduce new products
that keep pace with technological developments, satisfy increasingly
sophisticated customer requirements and achieve customer acceptance.
Customer requirements include, but are not limited to, product
operability and support across distributed and changing heterogeneous
hardware platforms, operating systems, relational databases and
networks. There can be no assurance that the Company's products will
achieve customer acceptance or will adequately address the changing
needs of the marketplace or that the Company will be successful in
developing and marketing enhancements to its existing products or new
products incorporating new technology on a timely basis. The Company has
in the past experienced delays in product development, and there can be
no assurance that the Company will not experience further delays in
connection with its current product development or future development
activities. If the Company is unable to develop and introduce new
products, or enhancements to existing products, in a timely manner in
response to changing market conditions or customer requirements, the
Company's business, operating results and financial condition will be
materially and adversely affected. Because the Company has limited
resources, the Company must effectively manage and properly allocate and
prioritize its product development efforts and its porting efforts
relating to newer products and operating systems. There can be no
assurance that these efforts will be successful or, even if successful,
that any resulting products or operating systems will achieve customer
acceptance.
International Operations
International revenue (from sales outside the United States, Canada
and Mexico) accounted for approximately 20%, 14% and 13% of total
revenues in 1996, 1997 and 1998, respectively. The Company maintains an
operational presence in the United Kingdom and France. In addition, the
Company has established sales and support offices in Europe and
Australia; and expects international sales to continue to become a more
significant component of its business. International expansion may
require the Company to establish additional foreign operations and hire
additional personnel. This may require significant management attention
and financial resources and could adversely affect the Company's
operating margin. To the extent the Company is unable to effect these
additions efficiently and in a timely manner, its growth, if any, in
international sales will be limited, and its business, operating results
and financial condition could be materially and adversely affected.
There can be no assurance that the Company will be able to maintain or
increase international market demand for its products.
The Company's international business will also involve a number of
additional risks, including lack of acceptance of localized products,
cultural differences in the conduct of business, longer accounts
receivable payment cycles, greater difficulty in accounts receivable
collection, seasonality due to the slow-down in European business
activity during the Company's third fiscal quarter, unexpected changes
in regulatory requirements and royalty and withholding taxes that
restrict the repatriation of earnings, tariffs and other trade barriers,
and the burden of complying with a wide variety of foreign laws. The
Company's international sales will be generated primarily through its
international sales subsidiaries and indirect sales channel partners and
are expected to be denominated in local currency, creating a risk of
foreign currency translation gains and losses. To the extent profit is
generated or losses are incurred in foreign countries, the Company's
effective income tax rate may be materially and adversely affected. In
some markets, localization of the Company's products will be essential
to achieve market penetration. The Company may incur substantial costs
and experience delays in localizing its products, and there can be no
assurance that any localized product will ever generate significant
revenue. There can be no assurance that any of the factors described
herein will not have a material adverse effect on the Company's future
international sales and operations and, consequently, its business,
operating results and financial condition.
Recent economic trends, particularly in the Asia-Pacific
marketplace, have caused a heightened awareness of the impact this
portion of the world's economy can have on the overall economy. As the
Asia-Pacific market currently represents almost one-third of the world's
buying power and approximately 3% of the Company's revenues are to this
region, changes in this area's economic growth rate may impact suppliers
of product into that market. While the actual magnitude of the business
at risk is unknown, it is likely that capital spending in this market
will decrease and thus, the Company's ability to increase revenues in
this region may be negatively impacted.
Dependence on Proprietary Technology; Risks of Infringement
The Company's success is heavily dependent upon its proprietary
technology. The Company will rely on a combination of the protections
provided under applicable copyright, trademark and trade secret laws,
confidentiality procedures and licensing arrangements, to establish and
protect its proprietary rights. As part of its confidentiality
procedures, the Company will generally enter into non-disclosure
agreements with its employees, distributors and corporate partners, and
license agreements with respect to its software, documentation and other
proprietary information. Despite these precautions, it may be possible
for unauthorized third parties to copy certain portions of the Company's
products or to reverse engineer or obtain and use information that the
Company regards as proprietary the Company's products or technology
without authorization, or to develop similar technology independently.
Moreover, the laws of certain countries do not protect the Company's
proprietary rights to the same extent, as do the laws of the United
States. Furthermore, the Company has no patents, and existing copyright
laws afford only limited protection. The Company will make source code
available for certain of its products and the provision of such source
code may increase the likelihood of misappropriation or other misuses of
the Company's intellectual property. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary
software against unauthorized third party copying or use, which could
adversely affect the Company's competitive position.
The Company is not aware that any of its products infringe the
proprietary rights of third parties. There can be no assurance that a
third party will not assert that the Company's technology violates its
patents in the future. As the number of software products in the
industry increases and the functionality of these products further
overlap, the Company believes that software developers may become
increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend or could
require the Company to enter into royalty and licensing agreements. Such
claims might require the Company to enter into royalty or license
agreements. Such royalty or license agreements, if required, may not be
available on terms acceptable to the Company or at all, which could have
a material adverse effect upon the Company's business, operating results
and financial condition.
Lengthy Sales and Implementation Cycle; Large Order Size
The purchase and implementation of the Company's software solutions
by a customer will generally involve a significant commitment of capital
over a long period of time, with the risk of delays frequently
associated with large capital expenditures and implementation procedures
within an organization, such as budgetary constraints and internal
approval review. During the sales process, the Company may devote
significant time and resources to a prospective customer, including
costs associated with multiple site visits, product demonstrations and
feasibility studies, and experience significant delays over which the
Company will have no control. In addition, following license sales, the
implementation of the Company's products will involve a lengthy process,
including customer training and consultation. A successful
implementation will require a close working relationship between the
Company, the customer and, if applicable, third party consultants and
systems integrators who assist in the process. These factors may
increase the costs associated with completion of any given sale, and
risks of cancellation or delay of such sales.
Dependence on Licensed Technology
Elements of the Company's products, particularly in its EMPAC
workflow engine, are licensed from third parties under license
agreements. The loss of the Company's right to use and license such
technology could limit the Company's ability to successfully market
certain modules of EMPAC. While the Company believes that the it would
be able to either license or develop alternatives to such component
technologies, there can be no assurance that the Company would be able
to do so, or that such alternatives would achieve market acceptance or
be available on a timely basis. Failure to obtain the necessary licenses
or to develop needed technologies could have a material adverse effect
on the Company's business, operating results and financial condition.
Dependence on Third Parties
Implementation and development of EMPAC software depends on
proprietary technology licensed from third parties. Implementation of
EMPAC requires the use of the Windows environment licensed from
Microsoft Corporation. The introduction and increased market acceptance
of operating systems that are incompatible with the Company's products,
or the failure of Microsoft's operating systems to achieve continued
market acceptance, could adversely affect the market for the Company's
products. EMPAC also relies on certain proprietary features of the
database management system developed by Oracle. The introduction and
increased market acceptance of database management systems that are
incompatible with the Company's products, or the failure of Oracle
products to achieve continued market acceptance, could adversely affect
the market for the Company's products. In addition, certain elements of
EMPAC have been developed in PowerBuilder, a client/server development
product that has been traditionally database independent. Sybase, Inc.
acquired Powersoft Corporation, which licenses PowerBuilder, in 1994.
If PowerBuilder does not continue to be database independent, future
development of the Company's Windows-based components which operate in
conjunction with the Oracle database management system may be adversely
affected. Although the Company's strategy has been to develop software
products that are minimally dependent on any particular element of the
underlying platform, there can be no assurance that the Company will be
able to avoid the obsolescence of its products due to rapid
technological change and evolving industry standards.
Risk of Software Defects; Product Liability
The sale and support of the Company's products may entail the risk
of product liability claims. The license agreements of the Company
typically contain provisions designed to limit exposure to potential
product liability claims. It is possible, however, that the limitation
of liability provisions contained in such license agreements may not be
effective as a result of federal, state or local laws or ordinances or
unfavorable judicial decisions. A successful product liability claim
brought against the Company could have a material adverse effect upon
the Company's business, operating results and financial condition.
Past and Future Acquisitions.
The Company, as well as its predecessor corporations, The Indus
Group, Inc. and TSW International, Inc. has made acquisitions in the
past. Acquisitions of companies, divisions of companies or products
entail numerous risks, including difficulty in successfully assimilating
acquired operations, diversion of management's attention and loss of key
employees of acquired companies. In 1997, The Indus Group, Inc.
completed two acquisitions. In 1994 and 1995, TSW International, Inc.
concluded a total of three acquisitions of companies, divisions of
companies or products. The Company may make additional acquisitions in
the future. Products acquired by The Indus Group, Inc. and TSW
International, Inc. in the past required significant additional
development before they could be marketed and some failed to generate
any revenue for The Indus Group, Inc. or TSW International, Inc. Any
problems related to acquisitions could have a material adverse effect on
the Company's business, operating results and financial condition. In
addition, future acquisitions by the Company may result in dilutive
issuance of equity securities, incurring additional debt, large one-time
write-offs and the creation of goodwill or other intangible assets that
could result in amortization expense. These factors could have a
material adverse effect on the Company's business, operating results and
financial condition.
ITEM 2. PROPERTIES
Certain information concerning the Company's office space at December 31,
1998 is set forth below:
<TABLE>
<CAPTION>
Location Principal use Footage Ownership
- -------------------------------------- -------------------------------- --------- ---------
<S> <C> <C> <C>
Domestic Offices:
Atlanta, GA...................... Regional Headquarters, Research 105,654 Lease
and Development, Sales and
Marketing, Operations
San Francisco, CA................ Corporate Headquarters, Research 79,513 Lease
and Development, Sales and
Marketing, Operations
Pittsburgh, PA................... Regional Operations 28,261 Lease
Dallas, TX....................... Regional Operations 9,041 Lease
Lake Oswego, OR.................. Regional Operations 5,507 Lease
Malvern, PA...................... Regional Operations 4,075 Lease
Other executive offices.......... Sales 1,975 Lease
International Offices:
Woking, Surrey, United Kingdom... Regional Operations 9,300 Lease
Brisbane, Australia.............. Regional Operations 6,695 Lease
Paris, France..................... Regional Operations 6,660 Lease
Chertsey, Surrey, United Kingdom. Regional Operations 5,500 Lease
Toronto, Canada.................. Regional Operations 2,180 Lease
Executive offices in Australia Sales 650 Lease
</TABLE>
In the third and fourth quarter of 1998, the Company entered into
additional lease agreements for additional office space, in Canada and
San Francisco of 2,180 and 12,835 square feet, respectively. Management
is currently and will continue to evaluate additional leased facilities
to accommodate the anticipated growth in operations for 1999. The
Company owns substantially all of the equipment used in its facilities.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings
incidental to the conduct of its business. While the outcome of these
claims cannot be predicted with certainty, the Company does not believe
that the litigation, individually or in the aggregate, to which it is
currently a party is likely to have a material adverse effect on the
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock, $.001 par value, is traded on the Nasdaq
National Market under the symbol "IINT". The table sets forth the
high and low closing prices of the Company's common stock for the
periods indicated. Information included in the table for the periods
prior to the consummation of the Merger on August 25, 1997 reflect the
stock prices of the common stock of The Indus Group, Inc., the Company's
predecessor issuer, which was traded on the Nasdaq National Market under
the symbol "IGRP" commencing on February 29, 1996, the date of its
initial public offering.
High Low
--------- ---------
Fiscal 1997:
First quarter.................................... $ 25-3/4 $ 14
Second quarter................................... 20-1/4 13-1/2
Third quarter.................................... 19-3/4 15-3/8
Fourth quarter................................... 17-3/4 6-1/2
Fiscal 1998:
First quarter.................................... $ 10-1/2 $ 7
Second quarter................................... 12 8
Third quarter.................................... 11-1/2 4-7/8
Fourth quarter................................... 7 3
The Company anticipates that any future earnings will be retained to
finance the continuing development of its business. The Company has not declared
or paid any cash dividends on its Common Stock and does not anticipate paying
cash dividends in the foreseeable future.
The number of stockholders of record for the Company's common stock as of
March 10, 1999 was 375.
ITEM 6. SELECTED FINANCIAL INFORMATION
The following selected financial information of the Company is
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto and other financial
information included elsewhere herein. During 1997, The Indus Group,
Inc. entered into an Agreement and Plan of Merger and Reorganization
with TSW International, Inc. The merger was consummated on August 25,
1997 and was accounted for as a pooling of interests. All financial
information was restated to reflect the combined operations of The Indus
Group, Inc. and TSW International, Inc. The summary consolidated
statements of operations data for the years ended December 31, 1996,
1997, and 1998 and summary consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from and qualified by reference
to the audited financial statements of the Company which are included
elsewhere herein. The summary consolidated balance sheet data as of
December 31, 1994, 1995 and 1996 and the summary consolidated statement
of operations for the years ended December 31, 1994 and 1995 are derived
from the audited financial statements of the Company which are not
included herein.
INDUS INTERNATIONAL, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------- ---------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues:
Software licensing fees (1) (2) ................. $15,380 $32,816 $43,060 $55,958 $55,546
Services and maintenance ........................ 41,901 67,824 97,515 119,382 138,956
Other revenue ................................... 824 1,184 2,463 1,694 975
--------- --------- --------- --------- ---------
Total revenues ................................ 58,105 101,824 143,038 177,034 195,477
Cost of revenues ................................... 27,664 47,872 63,738 78,575 103,517
--------- --------- --------- --------- ---------
Gross margin ....................................... 30,441 53,952 79,300 98,459 91,960
--------- --------- --------- --------- ---------
Operating expenses:
Research and development ....................... 19,063 18,151 23,265 27,664 30,372
Sales and marketing ............................. 13,084 19,915 26,523 33,568 31,517
General and administrative ...................... 10,352 12,996 14,951 14,991 15,270
Compensation charge-stock options (3) ........... -- 18,900 -- -- --
Merger and restructuring expenses(4) ............ -- -- -- 12,083 --
--------- --------- --------- --------- ---------
Total operating expenses ...................... 42,499 69,962 64,739 88,306 77,159
--------- --------- --------- --------- ---------
Income (loss) from operations ...................... (12,058) (16,010) 14,561 10,153 14,801
Other income (expense) net ......................... (783) (2,112) (1,887) (1,968) (936)
--------- --------- --------- --------- ---------
Income (loss) before taxes ......................... (12,841) (18,122) 12,674 8,185 13,865
Provision (benefit) for income taxes ............... (1,195) 423 6,849 6,408 450
Cumulative effect of deferred income taxes
provided upon conversion by Indus to C
Corporation(5) ..................................... -- -- 6,700 -- --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ............ (11,646) (18,545) (875) 1,777 13,415
Extraordinary item ................................. -- -- -- (787) --
--------- --------- --------- --------- ---------
Net Income (loss) .................................. ($11,646) ($18,545) ($875) $990 $13,415
========= ========= ========= ========= =========
Pro forma statement of operations as adjusted:
Income (loss) before income taxes ............... ($18,122) $12,674
Add back portion of compensation charge-stock
options (3) ..................................... 17,900 --
--------- ---------
Income (loss) before income taxes, as adjusted . (222) 12,674
Provision for income taxes (federal, state
and foreign) (5) ................................ 5,181 6,849
--------- ---------
Pro forma net income (loss) ..................... ($5,403) $5,825
========= =========
Income (loss) per share (computed on pro forma
net income (loss) in 1995 and 1996) - basic (7) .... ($0.25) $0.22 $0.03 $0.44
========= ========= ========= =========
Shares used in computing per share data ............ 22,027 25,976 28,574 30,717
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------- ---------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital .................................. $226 ($291) $43,064 $37,238 $58,609
Total assets ..................................... 39,857 57,734 117,855 136,725 150,785
Short-term debt .................................. 4,496 16,481 16,951 29,054 21,005
Long-term debt ................................... 665 1,222 2,126 1,105 257
Subordinated long-term notes ..................... 9,650 16,251 18,065 -- --
TSW redeemable preferred stock ................... 11,100 13,100 18,100 -- --
Total stockholder's equity ....................... (11,846) (20,473) 20,666 70,230 86,075
<FN>
(1) Effective in the third quarter of 1997, Indus International, Inc. began
to report applicable new license fees on standard software products not
requiring substantial modification or customization as earned revenue upon
shipment to customers. Previously, because substantial modification and
customization of software products was expected by customers, The Indus
Group, Inc. had deferred the applicable license fees initially and
recognized those fees as earned over the period of modification,
customization and other installation services. TSW International, Inc.,
which had not been required to perform substantial customization services,
continued to recognize the applicable portion of license fees as earned
upon shipment of standard software products to customers.
(2) TSW International, Inc. began recognizing license fee revenue from EMPAC in
the quarter ended December 31, 1995, when EMPAC first became operational at
a customer site.
(3) Reflects nonrecurring expense incurred in the third quarter of 1995 in
connection with an amendment to The Indus Group, Inc.1992 Stock Option Plan
to accelerate the exercisability of outstanding stock options, which had
previously been contingent upon the occurrence of certain events. The pro
forma adjustment of $17,900,000 is to reduce 1995 compensation expense to
the amount related to options granted in 1995 only.
(4) See Note 1 of the Notes to the Consolidated Financial Statements for an
explanation of the merger and restructuring expenses.
(5) Prior to January 1, 1996, The Indus Group, Inc. was not subject to federal
corporate income taxation because of its election to be taxed under the
provisions of Subchapter S of the Code. Pro forma net income for 1995 has
been determined by assuming that the Company had been taxed as a C
Corporation for 1995. Pro forma net income for 1996 reflects the
elimination of a nonrecurring charge for the cumulative effect of deferred
income taxes incurred in the first quarter of 1996 in connection with the
termination of The Indus Group's S Corporation status. See Note 1 to the
Consolidated Financial Statements.
(6) There were no material transactions between The Indus Group, Inc. and TSW
International, Inc. prior to the consummation of the merger on August 25,
1997.
(7) After $0.03 per share loss from extraordinary item in 1997. Fully diluted
per share amounts differ in 1996 ($0.20) and 1998 ($0.38).
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements located in the
Research and Development, Sales and Marketing, and Liquidity and Capital
Resources sections as a result of the factors set forth below, among
others.
The Company has experienced, and may in the future experience,
significant fluctuations in revenues and operating results. The
Company's revenues and operating results in general, and in particular
its revenues from new licenses, are relatively difficult to forecast for
a number of reasons, including:(i) the relatively long sales cycles for
the Company's products, (ii) the variable size and timing of individual
license transactions, (iii) changes in demand for the Company's products
and services, (iv) competitive conditions in the industry, (v) changes
in customer budgets, (vi) the timing of the introduction of new products
or product enhancements by the Company or its competitors, (vii) the
Company's success in and costs associated with developing and
introducing new products, (viii) product life cycles, (ix) changes in
the proportion of revenues attributable to license fees versus services,
(x) the percentage of license fees attributable to third party software,
(xi) changes in the level of operating expenses, (xii) delay or deferral
of customer implementations of the Company's software, (xiii) software
defects and other product quality problems, and (xiv) effect of AICPA
Statements of Position on the Company's revenue recognition, (xv) other
economic conditions generally or in specific industry segments.
Further, the purchase of the Company's products generally involves a
significant commitment of capital, with the attendant delays frequently
associated with large capital expenditures and authorization procedures
within large organizations. For these and other reasons, the sales
cycles for the Company's products are typically lengthy and subject to a
number of significant risks over which the Company has little or no
control, including customers' budget constraints and internal
authorization reviews. In addition, delays in the completion of a
product implementation may require that the revenues associated with
such implementation be recognized over a longer period than originally
anticipated. Such delays in the implementation or execution of orders
have caused, and may in the future cause, material fluctuations in the
Company's operating results. Similarly, customers may cancel
implementation projects at any time without penalty, and such
cancellation could have a material adverse effect on the Company's
business or results of operations. Because the Company's expenses are
relatively fixed, a small variation in the timing of recognition of
specific revenues can cause significant variations in operating results
and may in some future period result in losses or have a material
adverse effect on the Company's business or results of operations.
RESULTS OF OPERATIONS
Overview
Business. Indus International, Inc. (the "Company" or "Indus")
develops, markets, and supports a proprietary line of enterprise asset
management software and implementation services. The Company serves as
an agent of change for its customers, who seek to improve their return
on investment and efficiencies in core business functions in the
utilities and energy industry, process, discreet and consumer packaged
goods companies, as well as educational, municipal and transportation
authorities worldwide.
Merger. The Indus Group, Inc. entered into an agreement and plan of
merger and reorganization on June 5, 1997 with TSW International, Inc.,
a Georgia corporation(the "Merger), pursuant to which The Indus Group,
Inc. and TSW International, Inc. each became subsidiaries of a new
Delaware corporation named Indus International, Inc.. On December 31,
1997, the Company's subsidiaries, The Indus Group, Inc. and TSW
International, Inc., each merged with and into the Company. The
Company, as the surviving corporation, assumed all obligations of the
two subsidiaries. The Merger was consummated on August 25, 1997, as a
tax-free reorganization pursuant to the provisions of Section 368 of the
Internal Revenue Code of 1986, and has been accounted for as a pooling
of interests. See Note 1 to the Consolidated Financial Statements
Other risks relating to the Company's business as a result of the Merger
include: (i) the Combined Company's ability to manage growth; (ii) the
utilization by the Company of new distribution channels; and (iii) risks
relating to the successful integration of current and future products
and technologies.
The Company derives its revenues primarily from software licenses,
implementation and training services and maintenance fees. While the
Company has derived a significant portion of its revenues from electric
utilities to date, it also derives revenues from customers such as the
oil and gas companies, petrochemical companies, manufacturers,
hospitals, educational systems, governments, transportation authorities
and steel and forest product companies.
The Company provides its software to customers under contracts, which
provide for software license fees and system implementation services.
Revenues from software license fees, which typically have ranged from
approximately $100,000 to $5 million for initial software license fees,
are recognized as earned revenue in accordance with AICPA Statement of
Position 97-2, Software Revenue Recognition, when persuasive evidence of
arrangement exists, delivery has occurred, the license fee is fixed and
determinable and collection of the resulting receivable is deemed
probable. Effective in the three months ended September 30, 1997, The
Indus Group, Inc., began to report applicable new license fees on
standard software products not requiring substantial modification or
customization as earned revenue upon shipment to customers. Previously,
because substantial modification and customization of software products
was expected by customers, The Indus Group, Inc. had deferred the
applicable license fees initially and recognized those fees as earned
over the period of modification, customization and other installation
services. TSW International, Inc. had always recognized license fees
upon shipment of product. Revenues from system implementation services,
which typically are time and material-based, are recognized as direct
contract costs are incurred, and typically range from one to three times
the license fees.
Revenues depend in part on revenues from the closing of new contracts
during the year. Maintenance and support services, for which the Company
typically charges 15-18% of the original license fee per year, are
subject to separate contracts whereby revenue is recognized ratably over
the contract period.
In March 1997, Indus International, Inc. acquired a 10% interest in
TenFold Corporation, a private software company for approximately $8
million in cash. The Indus Group, Inc. received a perpetual,
unrestricted license for future applications and tools developed with
TenFold's technology. In April 1997, The Indus Group, Inc. acquired
Prism Consulting, Inc. a private management-consulting firm, for $4.75
million of The Indus Group, Inc.'s stock at the then current market
value and $250,000 in cash. Substantially all of the purchase cost was
allocated to intangible assets and is included in investments and
intangible assets. In September 1998, the Company purchased the right,
title and interest to the intellectual property related to radiological
recording and tracking software called Total Exposure for $469,000. The
$469,000 acquisition cost is being amortized over a two and a half-year
period.
The Company has in the past and may in the future acquire complementary
products or businesses. Risks associated with such transactions include
difficulty in retaining and assimilating the personnel of the combined
companies, difficulty in integrating the operations of the combined
companies, disruption of the company's ongoing business, expenses
associated with completing the transaction and amortizing acquired
intangible assets, and dilution of existing equity holders. There can
be no assurance that such transactions will not materially adversely
affect Indus' business, financial condition or operating results.
Operating Results
The following table sets forth for the periods indicated the percentage of total
revenues represented by certain line items in the Company's statements of
operations:
<TABLE>
<CAPTION>
Percentages of Total Revenues
Years Ended December 31,
--------------------------------
Statement of Operations Data: 1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licensing fees ................... 30.1% 31.6% 28.4%
Services, and maintenance and other ....... 69.9% 68.4% 71.6%
---------- ---------- ----------
Total revenues .......................... 100.0% 100.0% 100.0%
Cost of revenues ............................. 44.6% 44.4% 53.0%
---------- ---------- ----------
Gross margin ................................. 55.4% 55.6% 47.0%
---------- ---------- ----------
Operating expenses:
Research and development .................. 16.3% 15.6% 15.5%
Sales and marketing ....................... 18.5% 19.0% 16.1%
General and administrative ................ 10.4% 8.5% 7.8%
Merger and restructuring expenses ......... -- 6.8% --
---------- ---------- ----------
Total operating expenses ................ 45.2% 49.9% 39.4%
---------- ---------- ----------
Income (loss) from operations ................ 10.2% 5.7% 7.6%
Other income (expense) net ................... -1.3% -1.1% -0.5%
---------- ---------- ----------
Income (loss) before income taxes ............ 8.9% 4.6% 7.1%
Provision for income taxes ................... 4.8% 3.6% 0.2%
Cumulative effect of deferred income taxes
provided upon conversion by The Indus Group,
Inc. to a C Corporation ...................... 4.7% -- --
---------- ---------- ----------
Income (loss) before extraordinary item ...... -0.6% 1.0% 6.9%
Extraordinary item ........................... -- -0.4% --
---------- ---------- ----------
Net income (loss) ............................ -0.6% 0.6% 6.9%
========== ========== ==========
Pro forma statement of operations as adjusted:
Income (loss) before income taxes ......... 8.9%
Provision for income taxes (federal, state
and foreign) .............................. 4.8%
----------
Pro forma net income (loss) ............... 4.1%
==========
</TABLE>
Revenues. The Company's revenues are derived from software licensing
fees and from services, which include implementation and training
services coupled with maintenance fees. Total revenues increased 23.8%
from $143.0 million in 1996 to $177.0 million in 1997, and 10.4% to
$195.5 million in 1998. The increase in total revenue is largely
attributable to the growth in services revenue, which was partially
offset by a decrease in license fees, due to lower than anticipated
licensing agreements with new and existing customers in 1998. The
overall annual growth in services and maintenance revenue results from
the high level of services required to fulfill the implementation needs
of the customers. Revenue from international customers (from sales
outside the United States, Canada and Mexico) accounted for 20%, 14% and
13% of revenues for the years ending December 31, 1996, 1997, and 1998,
respectively. As most of the Company's existing contracts are
denominated in U.S. dollars, foreign currency fluctuations have not
significantly impacted the results of operations.
Effective in the three months ended September 30, 1997, The Indus Group,
Inc. began to report applicable new license fees on standard software
products not requiring substantial modification or customization as
earned revenue upon shipment to customers. Previously, because
substantial modification and customization of software products was
expected by customers, The Indus Group, Inc. had deferred the applicable
license fees initially and recognized those fees as earned over the
period of modification, customization and other installation services.
TSW International, Inc., which had not been required to perform
substantial customization services, continued to recognize the
applicable portion of license fees as earned upon shipment of standard
software products to customers.
The Company does not believe that the revenue growth experienced in 1998
is necessarily indicative of any revenue growth that may occur in future
periods.
Cost of Revenues. Cost of revenues consists primarily of: (i) personnel
and related costs for implementation (including account executive
personnel), (ii) training and customer support services and (iii)
sublicense fees to third parties upon the sale of the Company's product
containing such third-party software. Gross margin on license fees is
substantially higher than gross margin on service revenue, reflecting
the low packaging and production costs of software products and third
party software costs compared with the relatively high personnel costs
associated with providing implementation, maintenance, consulting and
training services.
Cost of revenues increased 23.3% from $63.7 million in 1996 to $78.6
million in 1997 and 31.7% to $103.5 million in 1998. The 1996 increase
resulted from the cost of increased services associated with major new
license agreements as well as the cost of additional services associated
with the expansion of existing projects. The 1997 and 1998 increase in
absolute dollars in cost of revenues was due principally to the need for
additional personnel to service the Company's customers.
Research and Development (R&D). Research and development expenses
consist primarily of: (i) personnel and related costs and, (ii) third
party consultant fees directly attributable to the development of new
software application products, enhancements to existing products and the
porting of Indus' products to different platforms.
Research and development expenses increased 18.9% from $23.3 million in
1996 to $27.7 million in 1997 and 9.8% to $30.4 million in 1998, and
represented 16.3%, 15.6%, and 15.5%, respectively, of total revenues in
those years. While R&D expenses continue to increase year over year in
absolute dollars, they declined slightly as a percentage of total
revenue due to the overall increase in revenues. During 1998, the
Company invested resources in developing PASSPORT Release 6.1 which was
completed by April 1998 and EMPAC Releases 7.6.16, 7.6.17 and 7.7 which
were completed by January 1998, April 1998 and August 1998,
respectively. The Company believes that a significant level of
investment in R&D is essential to remain competitive. Research and
development in absolute dollars for a particular period may vary
depending on the projects in progress.
Sales and Marketing. Sales and marketing expenses include personnel
costs, which include sales commissions involved in the sales and
marketing of the Company's products and services and the costs of
advertising, public relations and participation in industry conferences
and trade shows. Sales and marketing expenses increased 26.6% from $26.5
million in 1996 to $33.6 million in 1997 and decreased 6.1% to $31.5
million in 1998. As a percent of total revenue, sales and marketing
expenses were 18.5%, 19.0%, and 16.1% for 1996, 1997, and 1998,
respectively. The decrease in sales and marketing expenses in absolute
dollars is primarily due to (i) restructuring of the sales force, and
(ii) changes in the mix of the revenue base on which commission expense
is generated.
General and Administrative. General and administrative expenses include
the costs of finance, human resources and administrative operations.
General and administrative expenses were level at $15.0 million in 1996
and 1997, with a 1.9% increase to $15.3 million in 1998. These expenses
represented 10.5%, 8.5%, and 7.8% of total revenues in those years.
General and administrative expenses in absolute dollars declined as a
percentage of total revenues due to the growth in revenue and the
relatively fixed nature of some portions of general and administrative
expenses. General and administrative expenses are expected to increase
in absolute dollars in future years.
Merger and Restructuring. The Company recorded $9.98 million in merger
related costs in 1997. This included approximately $6.7 million for
transaction fees and professional services, $1.7 million for consulting
services incurred by a significant shareholder and $1.6 million for
other costs incident to the merger. In addition to the merger-related
costs, the Company provided for costs and losses as a result of the
restructuring of the Company totaling $2.1 million during 1997. Of the
total cost, $0.9 million resulted from excess facilities and $1.2
million from termination costs of excess or redundant employees.
Provision for Income Taxes. Income tax expense of $0.45 million
represented federal and state corporate income taxes for the Company,
for the year ended December 31, 1998 and reflects a $5.0 million tax
benefit for utilization of net operating loss carryovers and other tax
credits. As a result of the Merger, Indus International, Inc. has
domestic net operating loss carryforwards in excess of $10.2 million
which will expire in years 2010 through 2012 if not utilized; domestic
research and experimental tax credits of approximately $0.72 million
which expire in years 2010 to 2012 if not utilized; domestic and foreign
tax credits of approximately $0.84 million which expire in years 1998
through 2002 if not utilized; and foreign net operating loss
carryforwards of approximately $2.9 million which can be carried forward
indefinitely.
Effective upon its incorporation in 1990, The Indus Group, Inc. elected
to have its United States income taxed under Subchapter S of the Code.
Accordingly, income tax provisions prior to 1996 were principally
attributable to state taxes and taxes imposed by foreign governments on
The Indus Group, Inc.'s foreign operations. The Indus Group, Inc.'s S
Corporation status terminated effective January 1, 1996, and The Indus
Group, Inc. was subject to federal income taxation at the corporate
level thereafter. In relation to the termination of S Corporation
status as of January 1, 1996, a one-time charge representing a
cumulative net federal and state deferred income tax liability of $6.7
million was recorded.
Net Income (Loss) The Company's net income was $13.4 million in 1998
compared with net income of $0.99 million recorded in 1997, due
primarily to increased revenues in the current year and merger and
restructuring expenses incurred in 1997. In 1996 the Company incurred a
net loss of $0.875 million due to the effect of the one-time income tax
charge associated with the company's conversion to C Corporation status.
Pro Forma Net Income (Loss). For purposes of presenting comparative
earnings and calculating per share data, pro forma net income for the
year ended December 31, 1996 reflects the elimination of the $6.7
million nonrecurring cumulative deferred income tax charge upon
converting from an S Corporation to a C Corporation.
Liquidity and Capital Resources
Indus International, Inc. finances its activities primarily through cash
provided by operations and borrowings under its line of credit.
Historically, The Indus Group, Inc. has financed its activities
primarily through cash provided by operations and borrowings under its
line of credit and a public offering of Common Stock. In March 1996,
The Indus Group, Inc. received $33.9 million, representing the proceeds
(net of underwriting commissions and offering costs) from an initial
public offering of 2,500,000 shares of its Common Stock. These proceeds
were used to purchase marketable securities (comprised of municipal and
U.S. government obligations) and certain cash equivalent instruments.
TSW International, Inc. financed its activities prior to the Merger
largely through approximately $38.0 million provided by its principal
shareholder in exchange for subordinated notes and preferred stock.
Cash provided by (used in) operations was $8.3 million, ($10.6) million
and $24.0 million in 1996, 1997 and 1998, respectively. Unbilled
accounts receivable decreased substantially in 1998 due to the increased
effort and efficiency in the Company's billing process. Investing
activities, consisting primarily of the purchase and sale of marketable
securities, the acquisitions of investments and intangible assets, and
the acquisition of property and equipment, used cash of $35.7 million,
$5.2 million, and $5.8 million, in 1996, 1997 and 1998, respectively.
Financing activities in 1996 generated cash of $40.9 million primarily
from the issuance of redeemable preferred and common stock. Financing
activities provided cash of $13.1 million, in 1997 primarily from the
drawdown from the Company's lines of credit. Financing activities in
1998 used $5.7 million primarily due to repayments under the Company's
lines of credit.
As of December 31, 1998, the Company's principal sources of liquidity
consisted of approximately $39.2 million in cash, cash equivalents and
marketable securities, and a revolving bank line of credit of $35.0
million, which is secured by all of the Company's accounts receivables.
The revolving credit facility expires July 31, 1999. The revolving
credit facility bears an interest rate of the one month LIBOR rate plus
1.25% (6.74% as of December 31, 1998). Approximately $19.7 million had
been drawn down under this line of credit at December 31, 1998.
Cash requirements are expected to continue to increase in order to fund:
(i) personnel and salary costs, (ii) research and development costs,
(iii) investment in additional technical equipment, and (iv) working
capital requirements. The Company presently anticipates additional
capital expenditures of approximately $12 million in 1999, primarily for
equipment and furniture.
In addition to its line of credit, the Company's principal commitments
at December 31, 1998 consisted of obligations under operating and
capital leases for facilities and computer equipment.
The Company believes that its existing cash and marketable securities,
together with anticipated cash flow from operations and available bank
borrowings, will be sufficient to meet its cash requirements during the
next 12 months. The foregoing statement regarding the Company's
expectations for continued liquidity is a forward-looking statement, and
actual results may differ materially depending on a variety of factors,
including variable operating results or presently unexpected uses of
cash, such as for acquisitions.
Year 2000 Risk Disclosure
The Year 2000 Issue and the Nature and Effects of the Year 2000 on
Information Technology (IT) and Non-IT Systems:
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company's plan to resolve the Year 2000 Issue involves the
continuing effort in the following four phases: assessment, remediation,
testing, and implementation. To date, the Company has made progress in
identifying of all systems that could be significantly affected by the
Year 2000 and have identified areas that require Y2K testing services.
The completed assessment could indicate that most of the Company's
significant information technology systems will be affected,
particularly the general ledger, project accounting and billing systems.
In addition, the Company is in the process of gathering information
about the Year 2000 compliance status of its significant suppliers and
subcontractors and will continue to monitor their compliance.
Status of Progress in Becoming Year 2000 Compatible: The Company has a
formal Year 2000 Program focusing on four key areas: 1) Information
Technology, addressing internal software and business systems; 2) the
Company's Products; 3) Third Party, addressing the preparedness of non-
IT suppliers; 4) the Company's Facilities. For each readiness area,
based on a phased approach, the Company is performing a worldwide risk
assessment, remediating and conducting testing, implementing solutions,
and communicating with employees, suppliers and customers to raise
awareness of the Year 2000 problem. The Year 2000 Program is managed by
full time Y2K project personnel. The Company has inventoried key
suppliers of goods and services to the Company and has mailed surveys to
many of these suppliers. It is the process of evaluating responses and
following-up. The Company intends to disqualify potentially non-
compliant sources and re-qualify alternative sources to help mitigate
potential business disruptions.
Information Technology Program: The Company is continuing it's
assessment of internal applications and computer hardware. The program
is addressing not only the supplier's year 2000 product integrity but
also assesses the supplier's ability to provide product and services.
Hardware assessment includes workstations, servers, telecommunication
equipment and other items. The assessment of major applications, servers
and networks is 75% complete and is due for completion at the end of
March 1999. Presently, 80% of the major applications have been verified
compatible, 20% require upgrade or testing. Furthermore 20% of the
servers and networks that required action have been addressed. These
phases run concurrently for different systems. Completion of the testing
phase for all significant systems is expected by June 30, 1999, with all
remediated systems fully tested and implemented by September 30, 1999.
Product Readiness Program: This program focuses on identifying and
resolving the Year 2000 issues existing in the Company's currently
supported products. It encompasses a number of activities including
product testing, evaluation, product engineering and quality assurance.
The program began in 1998 and work will continue through 1999.
Third Party Program: The Company is querying its significant suppliers
and subcontractors that do not share information systems with the
Company (external agents Testing and implementation are scheduled for
June 1999 completion. To date, the Company is not aware of any external
agent with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that external agents will be Year 2000
ready. There may be certain third parties, such as utilities,
telecommunication companies or material vendors where alternate
arrangements or sources are limited or unavailable. The inability of
external agents to complete their Year 2000 resolution process in a
timely fashion could materially impact the Company. The effect of non-
compliance by external agents is not determinable.
Indus Facilities Program: The Company is conducting an assessment of all
the Indus facilities and facility suppliers worldwide. The assessment is
approximately 25% complete as of February 1999. The expected completion
date for surveying the facilities and facility suppliers is March 1999.
Remediation is approximately 15% complete as of February 1999. Testing
and implementation of affected equipment is expected to be 90% complete
by July 1999.
Contingency Plans: The Company currently has no contingency plans in
place in the event it does not complete all phases of the Year 2000
program. The Company is currently evaluating the status of completion to
determine whether such a plan is necessary. There can be no assurance
that the Company will be able to develop a contingency plan that will
adequately address issues that may arise in the year 2000. Failure by
the Company to develop and implement, if necessary, an appropriate
contingency plan could have a material impact on the operations of the
Company.
Costs: The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and operating
equipment for Year 2000 modifications. The total cost of the Year 2000
project is currently estimated at an amount up to $3.0 million and will
be funded through operating cash flows. To date, the Company has
incurred approximately $1 million, related to all phases of the Year
2000 project. The majority of the total costs will be incurred during
the next four quarters. The Company is continuing its assessment and
refining its cost estimates. There can be no assurance, however that
there will not be a delay in, or increased costs associated with the
programs described in this section.
Summary: Management of the Company believes it has an effective program
in place to resolve the Year 2000 issue in a timely manner. As noted
above, the Company has not yet completed all necessary phases of the
Year 2000 program. In the event that the Company does not complete any
additional phases, the Company may have difficulty in processing
customer invoices or payments. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation
for computer systems product failure, for example, equipment shutdown or
failure to properly date business records. The amount of potential
liability and lost revenue cannot be reasonably estimated at this time.
ITEM 7A. MARKET RISKS
The Company's cash flow can be exposed to market risks primarily in the
form of changes in interest rates in its short term borrowings under its
revolving bank line of credit as well as its investments in certain
available-for-sale securities. The revolving bank line of credit bears
an interest rate of the one month LIBOR rate plus 1.25% and can
fluctuate with changes in the monthly LIBOR rate. If the LIBOR rate
adversely increased by 100 basis points, the Company's interest expense
would increase by approximately $146,000 per annum. The Company's cash
management and investment policies restrict investments to highly
liquid, low risk debt instruments. The Company currently does not use
interest rate derivative instruments to manage exposure to interest rate
changes. A hypothetical 100 basis point adverse move (decrease in)
interest rates along the entire interest rate yield curve would
adversely affect the net fair value of all interest sensitive financial
instruments by approximately $251,000 at December 31, 1998. The
Company's earnings or cash flow is currently not subject to material
fluctuations due to changes in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDUS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND 1997
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1998
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Directors and Stockholders
Indus International, Inc.
We have audited the accompanying consolidated balance sheets of
Indus International, Inc. as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule listed
in the Index at Item 14(a). 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Indus International, Inc. as of December 31, 1998
and 1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998,
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 therein.
/s/ ERNST & YOUNG
Palo Alto, California
January 26, 1999
<PAGE>
INDUS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $11,052 $23,554
Marketable securities ............................... 11,880 15,596
Billed accounts receivable, less allowance for
doubtful accounts of $1,974 and $3,578 on
December 31, 1997 and 1998, respectively ............ 43,574 56,921
Unbilled accounts receivable ........................ 30,349 21,474
Other current assets ................................ 5,773 5,517
---------- ----------
Total current assets .............................. 102,628 123,062
Marketable securities - noncurrent ..................... 4,818 --
Property and equipment, net ............................ 16,570 15,906
Investments and intangible assets, net ................. 12,119 11,364
Employee notes receivable .............................. 416 322
Other assets ........................................... 174 131
---------- ----------
$136,725 $150,785
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under lines of credit ..................... $26,650 $19,650
Accounts payable .................................... 8,430 9,482
Deferred income taxes ............................... 419 --
Other accrued liabilities ........................... 14,068 16,721
Current portion of obligations under capital leases . 2,404 1,355
Deferred revenue .................................... 13,419 17,245
---------- ----------
Total current liabilities ......................... 65,390 64,453
---------- ----------
Obligations under capital leases and term loans ........ 1,105 257
Commitments and contingencies ..........................
Stockholders' equity:
Preferred stock ..................................... -- --
Common stock ........................................ 29 32
Additional paid-in capital .......................... 98,608 102,622
Deferred compensation and other...................... (262) (740)
Accumulated deficit ................................. (26,688) (13,273)
Accumulated other comprehensive income .............. (1,457) (2,566)
---------- ----------
Total stockholders' equity ............................. 70,230 86,075
---------- ----------
$136,725 $150,785
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
INDUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licensing fees ................... $43,060 $55,958 $55,546
Services and maintenance .................. 97,515 119,382 138,956
Other revenue ............................. 2,463 1,694 975
---------- ---------- ----------
Total revenues .......................... 143,038 177,034 195,477
Cost of revenues ............................. 63,738 78,575 103,517
---------- ---------- ----------
Gross margin ................................. 79,300 98,459 91,960
---------- ---------- ----------
Operating expenses:
Research and development .................. 23,265 27,664 30,372
Sales and marketing ....................... 26,523 33,568 31,517
General and administrative ................ 14,951 14,991 15,270
Merger and restructuring expenses ......... -- 12,083 --
---------- ---------- ----------
Total operating expenses ................ 64,739 88,306 77,159
---------- ---------- ----------
Income (loss) from operations ................ 14,561 10,153 14,801
Interest and other income .................... 1,391 1,590 1,118
Interest expense ............................. (3,278) (3,558) (2,054)
---------- ---------- ----------
Income (loss) before income taxes ............ 12,674 8,185 13,865
Provision for income taxes ................... 6,849 6,408 450
Cumulative effect of deferred income taxes
provided upon conversion by The Indus Group,
Inc. to a C Corporation ...................... 6,700 -- --
---------- ---------- ----------
Income (loss) before extraordinary item ...... (875) 1,777 13,415
Extraordinary item ........................... -- (787) --
---------- ---------- ----------
Net income (loss) ............................ ($875) $990 $13,415
========== ========== ==========
Pro forma statement of operations as adjusted:
Income (loss) before income taxes ......... 12,674
Provision for income taxes (federal, state
and foreign) .............................. 6,849
----------
Pro forma net income (loss) ............... $5,825
==========
Income (loss) per share (computed on pro
forma net income (loss) in 1996):
Basic
Income (loss) before extraordinary item ... $0.22 $0.06 $0.44
Extraordinary item ........................ -- ($0.03) --
---------- ---------- ----------
Net income (loss) ......................... $0.22 $0.03 $0.44
========== ========== ==========
Diluted
Income (loss) before extraordinary item ... $0.20 $0.05 $0.38
Extraordinary item ........................ -- ($0.02) --
---------- ---------- ----------
Net income (loss) ......................... $0.20 $0.03 $0.38
========== ========== ==========
Shares used in computing per share data
Basic ..................................... 25,976 28,574 30,717
Diluted ................................... 28,821 33,448 35,263
</TABLE>
See accompanying notes.
<PAGE>
INDUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION> Accumulated
Common Common Additional Deferred Other Total
Stock Stock Paid-In CompensationAccumulated ComprehensiveStockholders'
Shares Amount Capital and Other Deficit Income Equity
-------- --------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ................. 723 $612 $21,013 ($432) ($41,450) ($216) ($20,473)
Conversion of The Indus Group, Inc. to
a C Corporation effective January 1, 1996 .. -- (8,223) -- 8,223 -- --
Reincorporation ............................ (494) 494 -- -- -- --
Issuance of common stock (1) ............... 18,678 4 35,399 -- -- -- 35,403
Tax benefit from exercise of stock options . -- 6,669 -- -- -- 6,669
Purchase of Indus International, Inc. net
assets .................................. (100) (3) -- -- -- (103)
Other ...................................... -- -- 96 -- -- 96
Net loss ................................... -- (6,700) -- 5,825 -- (875)
Unrealized loss on marketable securities ...
Foreign currency translation ............... -- -- -- -- ($42) (42)
-- -- -- -- ($9) (9)
------------
Comprehensive loss.......................... (926)
-------- --------- ---------- ----------- ----------- ------------ ------------
Balance at December 31, 1996 ................. 19,401 22 48,649 (336) (27,402) (267) 20,666
Capital contribution by a TSW shareholder .. -- 1,717 -- -- -- 1,717
Reincorporation as Indus International, Inc. (4) 4 -- -- -- --
Issuance of common stock (2) ............... 1,196 -- 6,725 -- -- -- 6,725
Tax benefit from exercise of stock options . -- 3,479 -- -- -- 3,479
Redemption of TSW subordinated notes (3) ... 1,290 8 19,937 -- -- -- 19,945
Exchange of common stock for TSW
redeemable preferred stock (4) .......... 8,049 3 18,097 -- -- -- 18,100
Elimination of TSW's net income for the
three months ended March 31, 1997 (5) ... -- -- -- (276) -- (276)
Other ...................................... -- -- 74 -- -- 74
Net income ................................. 990 990
Unrealized loss on marketable securities ... 56 56
Foreign currency translation ............... (1,246) (1,246)
------------
Comprehensive loss ......................... (200)
-------- --------- ---------- ----------- ----------- ------------ ------------
Balance at December 31, 1997 ................. 29,936 29 98,608 (262) (26,688) (1,457) 70,230
Exercise of stock options ............... 1,507 2 2,750 -- -- -- 2,752
Tax benefit from exercise of stock options . -- 294 -- -- -- 294
Sale of common stock under ESPP ............ 174 1 970 -- -- -- 971
Note receivable from stockholder ........... -- (492) -- -- (492)
Other ...................................... -- -- 14 -- -- 14
Net income ................................. -- -- -- 13,415 -- 13,415
Unrealized loss on marketable securities ... -- -- -- -- (6) (6)
Foreign currency translation ............... (1,103) (1,103)
------------
Comprehensive income ....................... 12,306
-------- --------- ---------- ----------- ----------- ------------ ------------
Balance at December 31, 1998 ................. 31,617 $32 $102,622 ($740) ($13,273) ($2,566) $86,075
======== ========= ========== =========== =========== ============ ============
</TABLE>
See accompanying notes.
INDUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--(Continued)
(1) Includes $33,864 received from February 29, 1996 initial public offering of
The Indus Group, Inc. (2,500,000 common shares offered at $15.00 per share
less underwriting commission and expenses).
(2) Includes $4,750 (339,285 shares of common stock at $14.00 per share) issued
with $250 in cash to acquire a management consulting firm.
(3) Redemption of TSW International, Inc. subordinated notes and accumulated
interest in exchange for 1,235,879 common shares of Indus International,
Inc.
(4) Exchange of 8,049,025 common shares of Indus International, Inc. for
redeemable preferred stock of TSW International, Inc. and 53,937 common
shares for accumulated dividends.
(5) Net income of TSW International, Inc. for the three months ended March 31,
1997, $276, included in both 1996 and 1997 combined operating results, as a
result of change in TSW International, Inc.'s fiscal year end.
See accompanying notes.
<PAGE>
INDUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................... ($875) $990 $13,415
Elimination of TSW's net income for the three
months ended March 31, 1997 ..................... -- (276) --
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization ................ 3,440 5,969 7,922
Provision for doubtful accounts .............. 370 891 1,604
Amortization of deferred compensation ........ 555 74 14
Loss on sale of fixed assets ................. -- 332 (24)
Write-off goodwill ........................... 688 -- --
Cumulative effect of deferred income taxes
provided January 1, 1996 ................... 6,700 -- --
Tax benefit from exercise of stock options ... -- 3,479 294
Merger expense resulting from equity
transaction ................................ -- 2,009 --
Extraordinary charge to net income from debt
extinguishment ............................. -- 787 --
Changes in operating assets and liabilities:
Billed accounts receivable ................. (6,536) (8,604) (14,951)
Unbilled accounts receivable ............... (3,946) (10,952) 8,875
Other current assets ....................... (1,403) 592 256
Other assets ............................... (3,415) 798 (43)
Employee notes receivable .................. (61) 121 94
Accounts payable ........................... (328) 1,424 1,052
Deferred income taxes ...................... (3,189) (3,418) (419)
Income taxes payable ....................... 6,451 -- --
Other accrued liabilities .................. 5,889 4,336 2,653
Deferred revenue ........................... 3,444 (7,953) 3,826
Cumulative currency translation ............ (9) (1,246) (1,103)
Other ...................................... 481 20 547
--------- --------- ---------
Net cash (used in)/provided by in operating
activities ............................... 8,256 (10,627) 24,012
--------- --------- ---------
Cash flows from investing activities:
Purchase of marketable securities ............... (39,010) (3,104) (8,612)
Sale of marketable securities ................... 10,314 15,100 9,796
Investments and intangible assets ............... -- (8,288) (628)
Acquisition of property and equipment ........... (6,982) (8,901) (6,418)
Other -- -- 18
--------- --------- ---------
Net cash (used in)/provided by investing
activities .................................... (35,678) (5,193) (5,844)
--------- --------- ---------
Cash flows from financing activities:
Net drawdown/(repayment) of line of credit ...... (81) 10,659 (7,000)
Net drawdown/repayment of capital
leases/notes payable .......................... 725 423 (1,897)
Net proceeds from issuance of redeemable
preferred stock ............................... 5,000 -- --
Net proceeds from issuance of common stock ...... 35,399 1,975 3,231
Purchase of Indus International, Inc.
net assets .................................... (103) -- --
--------- --------- ---------
Net cash used in/provided by financing 40,940 13,057 (5,666)
activities ....................................
--------- --------- ---------
Net increase/(decrease) in cash and cash
equivalents ................................... 13,518 (2,763) 12,502
Cash and cash equivalents at beginning of
period ........................................ 297 13,815 11,052
--------- --------- ---------
Cash and cash equivalents at end of period ...... $13,815 $11,052 $23,554
========= ========= =========
Supplemental disclosures of cash flow
information:
Interest paid ................................... $1,464 $2,004 $1,245
========= ========= =========
Income taxes paid ............................... $5,712 $4,775 $735
========= ========= =========
Supplemental schedule of noncash, investing
and financing activities:
Issuance of common stock in exchange for TSW
subordinated notes and redeemable preferred
stock ........................................... $ -- $38,045 $ --
========= ========= =========
Issuance of common stock in exchange for
stockholder note receivable...................... $ -- $ -- $492
========= ========= =========
Issuance of common stock in exchange for
investment ...................................... $ -- $4,750 $ --
========= ========= =========
</TABLE>
See accompanying notes
<PAGE>
INDUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies
Organization and Business
Business
Indus International, Inc. develops, markets and supports a
proprietary line of enterprise asset management software and
implementation services. The Company serves as an agent of change for
its customers, who seek to improve their return on investment and
efficiencies in core business functions in the utilities and energy
industry, process, discreet and consumer packaged goods companies, as
well as educational, municipal and transportation authorities worldwide.
Merger
The Indus Group, Inc. entered into an agreement and plan of merger
and reorganization on June 5, 1997 with TSW International, Inc., a
Georgia corporation (the "Merger"), pursuant to which The Indus Group,
Inc. and TSW International, Inc. each became subsidiaries of a new
Delaware corporation named Indus International, Inc. (the "Company")
which was formed for the purpose of the transactions contemplated under
the Merger. On December 31, 1997, the Company's subsidiaries, The Indus
Group, Inc. and TSW International, Inc., each merged with and into the
Company (the "Roll-up Merger"). The Company, as the surviving
corporation, assumed all obligations of the two subsidiaries, in
connection with the Roll-up Merger. The Merger was consummated on
August 25, 1997, as a tax-free reorganization pursuant to the provisions
of Section 368 of the Internal Revenue Code of 1986, and has been
accounted for as a pooling of interests. In connection with the Merger,
(a) each share of outstanding common stock of The Indus Group, Inc. was
converted into one share of Common Stock of the Company ("Common
Stock") and (b) each outstanding share of common stock of TSW ("TSW
Common Stock"), and each outstanding share of preferred stock of TSW
("TSW Preferred Stock"), was converted into approximately 2.73 shares
of the Company's Common Stock; (c) the outstanding subordinated floating
rate notes of TSW (including accrued interest thereon) were exchanged
for an aggregate of 1,235,879 shares of the Company's Common Stock; (d)
all rights to receive any unpaid dividends on TSW Preferred Stock were
converted into an aggregate of 53,937 shares of the Company's Common
Stock and (e) each outstanding option or warrant to purchase TSW Common
Stock was converted into an option or warrant, respectively, to purchase
that number of shares of the Company's Common Stock determined by
multiplying the number of shares of TSW Common Stock subject to such
option or warrant by approximately 2.73, at an exercise price per share
of the Company's Common Stock equal to the exercise price per share of
TSW Common Stock pursuant to such option or warrant divided by
approximately 2.73. Based on the capitalization of TSW International,
Inc. as of August 25, 1997, approximately 10.2 million shares of the
Company's Common Stock were issued in the transaction and the Company
reserved approximately 7.9 million shares of its Common Stock for
issuance pursuant to the assumption of outstanding options and warrants
to purchase TSW Common Stock.
As a result of the transaction, the Company incurred charges to
operations of $9.98 million of merger related costs during 1997 that
related primarily to approximately $6.7 million for transaction fees and
professional services, $1.7 million for consulting services incurred by
a significant stockholder and $1.6 million for other costs incident to
the Merger. Of the total charge, cash outflow through December 31, 1998
is $8.28 million and $1.7 million represented a noncash transaction. In
addition to the merger-related costs, the Company accrued costs and
losses for the restructuring of the Company totaling $2.1 million. Of
the total cost, $916,000 resulted from excess facilities that have been
vacated and $1.2 million from termination costs of excess or redundant
employees. Of the total charge, cash outflow through December 31, 1998
is $1.4 million and $0.7 million are future outflows as of December 31,
1998. The future outflows are expected to be paid in the first 6 months
of 1999.
Prior to the Merger, TSW International, Inc. reported on a fiscal
year ending on March 31. Accordingly, the 1996 financial statements
combine the March 31, 1997 financial statements of TSW International,
Inc. with the December 31, 1996 financial statements of The Indus Group,
Inc., respectively. Revenues and the net income of TSW International,
Inc. for the three-month period ended March 31, 1997 were $21.4 million
and $0.3 million respectively, with the net income reflected as an
adjustment to retained earnings effective January 1, 1997.
Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of
Indus International, Inc. and its subsidiaries (collectively, the
Company). All significant intercompany balances and transactions have
been eliminated. All periods prior to the Merger include the combined
results of The Indus Group, Inc. and TSW International, Inc. on a
pooling of interests basis. The functional currencies of the Company's
foreign subsidiaries are their respective local currencies.
Accordingly, gains and losses from the translation of the financial
statements of the foreign subsidiaries are included in stockholder's
equity and other comprehensive income.
Revenue Recognition
The Company provides its software to customers under contracts,
which provide for both software license fees and system implementation
services. Revenues from system implementation services, which generally
are time and material-based, are recognized as direct contract costs are
incurred. The revenues from software license fees are recognized as
earned revenue in accordance with AICPA Statement of Position 97-2,
Software Revenue Recognition, when persuasive evidence of arrangement
exists, delivery has occurred and the license fee is fixed and
determinable. Effective in the quarter ended September 30, 1997, Indus
International, Inc. began to report applicable new license fees on
standard software products not requiring substantial modification or
customization as earned revenue upon shipment to customers. Previously,
because substantial modification and customization of software products
was expected by customers, The Indus Group, Inc. had deferred the
applicable license fees initially and recognized those fees as earned
over the period of modification, customization and other installation
services. TSW International, Inc. which had not been required to
perform substantial customization services, continued to recognize the
applicable portion of license fees as earned upon shipment of standard
software products to customers.
Maintenance and support services are subject to separate contracts
for which revenue is recognized ratably over the contract period.
Unbilled accounts receivable represent amounts related to revenue
which has been recorded either as deferred revenue or earned revenue but
which has not been billed. Generally, unbilled amounts are billed
within 60 to 90 days.
Deferred revenue represents primarily unearned maintenance and
support fees and unearned license fees, which have been billed but for
which future obligations remain.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been
translated into U.S. dollars. All balance sheet accounts have been
translated using the exchange rates in effect at the balance sheet date.
Income statement amounts have been translated using the average exchange
rate for the year. The gains and losses resulting from the changes in
exchange rates from year to year have been reported in other
comprehensive income.
Concentration of Credit Risk
The Company's customers are generally large companies in the
utilities and energy industries, process, discreet and consumer packaged
goods companies, as well as industrial manufacturing and the public
sector. The Company performs ongoing credit evaluations of its
customers and does not require collateral. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations. No individual customers represented greater
than 10% of revenues in 1996, 1997 or 1998.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid, low risk debt instruments
with a maturity of three months or less from the date of purchase to be
cash equivalents. The Company generally invests its cash and cash
equivalents in money markets, mutual funds, commercial paper and
corporate notes.
The Company presently classifies all marketable securities as
available-for-sale investments and carries them at fair market value.
Unrealized holding gains and losses, net of taxes, are included in
accumulated other comprehensive income (loss) within stockholders'
equity.
Property and Equipment
Property and equipment is stated at cost. Equipment under capital
leases is stated at lower of fair market value or the present value of
the minimum lease payments at the inception of the lease.
Depreciation on office and computer equipment and furniture is
computed using the straight-line method over estimated useful lives of
four to seven years. Leasehold improvements are amortized using the
straight-line method over the shorter of the related lease term or their
estimated useful lives.
Software Development Costs
Software development costs are expensed as incurred until
technological feasibility of the software is established, after which
any additional costs are capitalized. To date, the Company has expensed
all software development costs because development costs incurred
subsequent to the establishment of technological feasibility have not
been material. Purchased software costs included in other assets
resulted principally from the acquisition by TSW International, Inc. of
SQL Systems International plc. These costs have been amortized over
three years, the estimated life of the related product. Amortization
expense recorded in 1996, 1997, and 1998 was approximately $459,000,
$294,000, and $424,810 respectively.
Investments and Intangibles, net
In 1997, The Indus Group, Inc. acquired convertible preferred
stock in Tenfold Corporation, a privately held software company in the
development stage, for approximately $8 million in cash. This
investment, which if converted would result in a 10% interest, is
carried at cost. Also in 1997, The Indus Group, Inc. acquired a
management consulting firm for $4.75 million in common stock (339,285
shares of The Indus Group, Inc. valued at $14 per share) and $250,000 in
cash. The $5 million acquisition cost is being amortized over a four-
year period, which is consistent with the related employment,
confidentiality and non-competition agreements. In 1998, the Company
purchased the rights; title and interest to the intellectual property
related to radiological recording and tracking software called Total
Exposure for $469,000. The $469,000 acquisition cost is being amortized
over a two and one-half year period, which is the expected period of
benefit.
Advertising Costs
Advertising costs are charged to expense in the period the costs
are incurred. Advertising expense was approximately $486,000, $472,000,
and $222,330 in 1996, 1997 and 1998, respectively.
Income Taxes
Effective January 1, 1996, The Indus Group, Inc. elected C
Corporation status for income tax purposes. Prior to 1996, The Indus
Group, Inc. was an S Corporation and, as a result, income determined on
the cash basis for income tax purposes was taxable to the shareholders,
and not The Indus Group, Inc., for federal and certain state income tax
purposes. In connection with the termination of S Corporation status on
January 1, 1996, a $6.7 million cumulative effect charge was recorded.
The majority of the cumulative effect charge is due to changing from the
cash basis of accounting as an S Corporation to the accrual basis of
accounting as a C Corporation. The related deferred tax liability is
payable over four years.
The provision for income taxes included in the accompanying
financial statements represents state and foreign taxes in all years and
federal income taxes of The Indus Group, Inc. and Indus International,
Inc. for 1996 and 1997, without any current benefit for the operating
losses or operating loss carryovers of TSW International, Inc. As a
result of the merger of TSW International, Inc., Indus International,
Inc. inherited net operating loss carryovers of approximately $18.7
million, or approximately $7.5 million in potential tax benefits. In
1998, benefits of approximately $4.7 million were recognized, reducing
the provision for federal income taxes in that period.
Pro Forma Statement of Operations Data
Pro forma net income data in 1996 excludes the $6.7 million
cumulative effect charge due to the termination of S Corporation status
by The Indus Group, Inc. on January 1, 1996. The majority of the
cumulative effect charge is due to changing from the cash basis of
accounting as an S Corporation to the accrual basis of accounting as a C
Corporation.
Per Share Data
Basic and diluted earnings per share have been calculated using
the weighted average common shares outstanding during the periods. The
average outstanding share numbers used prior to the Merger reflect the
average outstanding shares of each of the merged companies, as adjusted
for the effective exchange rates, and also the equivalent common shares
required for the redemption of the preferred stock of TSW International,
Inc.
Common equivalent shares from stock options and warrants are
included in the diluted per share calculations unless their inclusion
would be antidilutive.
The components of basic and diluted earnings per share were as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income (*) $5,825 $990 $13,415
--------- --------- ---------
Weighted average shares of common stock
outstanding ............................... 25,976 28,574 30,717
--------- --------- ---------
Shares used in computing basic net income per
share ..................................... 25,976 28,574 30,717
--------- --------- ---------
Basic net income per share (*) 0.22 0.03 0.44
--------- --------- ---------
Calculation of shares outstanding for
computing diluted net income per share:
Shares used in computing basic net income
per share 25,976 28,574 30,717
Shares to reflect the effect of the assumed
conversion of:
Employee stock options .................. 1,500 3,353 2,091
Warrants ................................ 1,345 1,521 2,455
--------- --------- ---------
Shares used in computing full-diluted net
income per share ............................ 28,821 33,448 35,263
--------- --------- ---------
Diluted net income per share (*) 0.20 0.03 0.38
--------- --------- ---------
</TABLE>
(*) Proforma per share data for 1996 is based on proforma net
income, which is exclusive of the $6.7 million cumulative deferred
income tax provision made upon conversion of The Indus Group, Inc.
to a C Corporation status.
Use of Estimates
The preparation of the 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.
Stock Based Compensation
Compensation costs for stock options granted to employees is
measured by the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. Note 10 to the Consolidated Financial
Statements contains a summary of the pro forma effects to reported net
earnings (loss) and per share data for 1996, 1997 and 1998 as if the
Company had elected to recognize compensation cost based upon fair value
of options granted at grant date.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") in 1998.
Other comprehensive income (primarily foreign currency translation
effects) and comprehensive income are shown in the Statement of
Stockholders' Equity.
The Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") in 1998. SFAS 131
establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. The Company's operations are
treated as one operating segment.
AICPA Accounting Standards Executive Committee Statement of
Position 97-2, Software Revenue Recognition, ("SOP 97-2") and
Statement of Position 98-4 ("SOP 98-4"), Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition or SOP 98-
4, which contain new rules for timing of recognition of software company
revenues, particularly as to license fee revenues where there are
multiple elements to be delivered under a contract or arrangement with a
customer, became effective for transactions beginning in 1998.
Management believes the Company's current policy and its practices
conform to the rules in these new accounting pronouncements. Under the
Company's current policy, license fees on standard software products not
requiring substantial modification and customization are recognized as
revenue upon shipment to customers
In December 1998, the American Institute of Certified Public
Accountants or AICPA issued Statement of Position 98-9, Modification of
SOP 97-2, Software Revenue Recognition, With Respect Certain
Transactions, or SOP 98-9. SOP 98-9 amends SOP 98-4 to extend the
deferral of the application of certain passages of SOP 97-2 provided by
SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. The Company has
not yet determined the effect of the final adoption of SOP 98-9 on its
future revenues and results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Financial Instruments and for Hedging
Activities", which provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities.
SFAS No. 133 is effective for years beginning after June 15, 1999 and is
not anticipated to have a significant impact on the Company's results of
operations or financial condition when adopted.
2. Marketable Securities
The following is a summary of marketable securities, all of which are
available for sale (in thousands):
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
- -------------------
Municipal Obligations ............... $ 23,649 $ 24 $ -- $ 23,673
---------- ----------- ----------- ----------
$ 23,649 $ 24 $ -- $ 23,673
========== =========== =========== ==========
Included in:
Cash and cash equivalents ......... $6,975 $ -- $ -- $6,975
Marketable securities-current ..... 11,874 6 -- 11,880
Marketable securities-non current . 4,800 18 -- 4,818
---------- ----------- ----------- ----------
$23,649 $24 $ -- $23,673
========== =========== =========== ==========
December 31, 1998
- -------------------
Marketable securities - current ..... $6,100 $ -- $ -- $6,100
Certificates of deposit ............. 4,000 -- -- 4,000
Commercial Paper and corporate notes 8,983 8 -- 8,991
Municipal Obligations ............... -- -- -- --
---------- ----------- ----------- ----------
$19,083 $ -- $ -- $19,091
========== =========== =========== ==========
Included in:
Cash and cash equivalents ......... $3,495 -- -- $3,495
Marketable securities-current ..... 15,588 -- -- 15,596
Marketable securities-non current . -- -- -- --
---------- ----------- ----------- ----------
$19,083 $ -- $ -- $19,091
========== =========== =========== ==========
</TABLE>
There have been no significant realized gains or losses on sales
of marketable securities.
3. Property and Equipment
Property and equipment is recorded at cost and consists of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Furniture and fixtures ....................... $4,615 $4,895
Office equipment ............................. 23,193 26,260
Leasehold improvements ....................... 2,617 2,795
Internally used capitalized software ......... 2,763 3,382
----------- -----------
33,188 37,332
Less accumulated depreciation and
amortization ................................. 16,618 21,426
----------- -----------
$16,570 $15,906
=========== ===========
</TABLE>
Equipment leased under capital leases is included in property and
equipment. At December 31, 1998 and 1997, equipment under capital
leases was $3,940,000 and $4,104,000, respectively, with accumulated
depreciation of $2,328,000 and $1,586,000, respectively.
4. Other Accrued Liabilities
Other accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Accrued merger and restructuring ............. $1,898 --
Accrued commissions .......................... 3,089 2,527
Accrued payroll and related expenses ......... 2,674 5,513
Accrued taxes payable ........................ 600 1,489
Other accrued liabilities .................... 5,807 7,192
----------- -----------
$14,068 $16,721
=========== ===========
</TABLE>
5. Lines of Credit
The Company has a revolving bank line of credit in the amount of
$35.0 million, which is secured by all of the Company's accounts
receivable. The revolving credit facility expires on July 31, 1999 and
bears an interest rate of the one month LIBOR rate plus 1.5% (6.74% as
of December 31, 1998). This facility replaced and eliminated The Indus
Group, Inc. and TSW International, Inc., revolving lines of credit,
which bore higher interest rates. Borrowings outstanding under this
line of credit were $19.7 million at December 31, 1998 and $26.7 million
at December 31, 1997. Stand-by letters of credit outstanding on this
line of credit were $0.6 million at both December 31, 1997 and 1998,
respectively. The line of credit agreement contains certain affirmative
and negative covenants. The Company was in compliance with these
financial covenants at December 31, 1998 and 1997.
6. Related Party Transactions
Immediately prior to the Merger, TSW International, Inc. had
subordinated long-term notes of $15,706,000 and accrued interest of
$4,075,000 that were payable to its principal stockholder. The notes
bore an interest rate of prime plus 1.5% with varying maturity dates
from July 31, 1999 to October 13, 2000. Pursuant to the Merger, the
outstanding subordinated floating rate notes of TSW International, Inc.
and accrued interest were exchanged for an aggregate of 1,235,879 common
shares of the Company. Deferred issuance costs in connection with the
notes were written off as an extraordinary item in 1997.
In 1997, TSW International, Inc. forgave two notes receivable from
two officers/stockholders totaling $457,000. TSW International, Inc.
lent an additional $161,850 to the individuals for payment of taxes in
conjunction with the note forgiveness.
7. Commitments
The Company leases its office facilities under various operating
lease agreements. The leases require monthly rental payments in varying
amounts through 2011. These leases also require the Company to pay all
property taxes, normal maintenance, and insurance on the leased
facilities.
Total rental expense under these leases (in thousands) was
approximately $6,683, $5,215, and $6,831 for 1996, 1997 and 1998, respectively.
Future minimum lease payments under all non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Years Ending December 31, Leases Leases
- ------------------------------------ ----------- -----------
<S> <C> <C>
1999 ................................... $5,607 $1,425
2000 ................................... 5,102 237
2001 ................................... 3,175 19
2002 ................................... 2,419 4
2003 ................................... 2,366 --
Thereafter ............................. 4,270 --
----------- -----------
Total minimum payments required ............. $22,939 $1,685
===========
Less amounts representing interest .......... 73
-----------
Present value of future lease payments ...... $1,612
Less current portion ........................ 1,355
-----------
Long term portion ........................... $257
===========
</TABLE>
8. Stockholders' Equity
The following is a summary of the authorized and issued preferred and common
Stock of Indus International, Inc:.
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Preferred Stock
Authorized shares, $.001 par value per share .. 10,000,000 10,000,000
Issued and outstanding ........................ -- --
Amount ........................................ -- --
Common Stock
Authorized shares, $.001 par value per share .. 100,000,000 100,000,000
Issued and outstanding ........................ 29,935,980 31,617,126
Amount ........................................ 29,936 31,617
</TABLE>
The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of shares of
preferred stock in one or more series, to establish from time to time
the number of shares to be included in each such series, to fix the
powers, preferences and rights of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon, and
to increase or decrease the number of shares of any such series (but
not below the number of shares of such series then outstanding),
without any further vote or action by the stockholders. The Board of
Directors may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power of other
rights of the holders of common stock. Thus, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change
in control of the Company. The Company has no current plan to issue
any shares of preferred stock.
In June 1995, The Indus Group, Inc. issued 162,622 shares of
common stock to several employees in exchange for notes aggregating
$109,626. The notes will be forgiven over a five-year period provided
the note holders continue their employment with the Company.
Additional deferred compensation of $370,000 was recorded for the
difference between the notes and the deemed fair value of the shares at
the date of issuance. The $479,626 total deferred compensation is
being amortized over the five-year period.
In 1998, the Company loaned a then officer/stockholder $491,770 in
conjunction with the exercise of stock options. The note is secured by
a pledge of 100,000 shares of the Company's stock.
9. Stock Plans
Stock Option and Benefit Plans
Upon consummation of the Merger, the stock option plans of The
Indus Group, Inc. and TSW International, Inc. terminated and each
outstanding option under the plans as well as any individual non-plan
options of TSW International, Inc. were assumed and converted into
options to purchase Indus International, Inc. common stock, at the
respective exchange rates in the Merger.
The Company has three stock option plans under which employees,
directors and consultants may be granted rights to purchase common
stock.
1997 Stock Plan
The 1997 Stock Plan and Indus International Company Share
Option Plan (the "Stock Plan") provide for the grant of incentive or
nonstatutory stock options to employees, including officers and
directors, and nonstatutory options only to consultants of the Company.
A total of 7,000,000 shares have been reserved for issuance under the
Stock Plan. The incentive stock options will be granted at not less
than fair market value of the stock on the date of grant. The options
will generally vest over one to four years and have a maximum term of
ten years.
1997 Director's Option Plan
Each director who is not an employee of the Company is
automatically granted a nonstatutory stock option to purchase 10,000
shares of common stock of the Company (the "First Option") on the date
such person becomes a director or, if later, on the effective date of
the 1997 Director's Option Plan (the "Director Option Plan").
Thereafter, each such person will automatically be granted an option to
acquire 5,000 shares of the Company's Common Stock (the "Subsequent
Option") upon such outside director's re-election at each Annual Meeting
of Stockholders, provided that on such date such person has served on
the Board of Directors for at least six months. A total of 200,000
shares has been reserved for issuance under the Director Option Plan.
Each option granted under the Director Option Plan will become
exercisable as to 25% of the Shares subject to such option on each
anniversary of its date of grant.
The 1998 Indus International, Inc. Company Share Option Plan (the
"UK Stock Plan") provides for the grant of stock options to employees
of Indus International, Ltd. (a UK foreign subsidiary of the Company).
A total of 500,000 shares have been reserved for issuance under the
Stock Plan. The stock options will be granted at not less than fair
market value of the stock on the date of grant. The options will
generally vest over one to three years and have a maximum term of three
years.
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares --------------------------------
Available Number
for of
Grant Shares Price Per Share
- ------------------------------- ----------- ------------ -------------------
<S> <C> <C> <C>
Balances at December 31, 1995. 6,469,556 3,319,604 $0.28 - $4.20
Shares reserved ........... 1,600,000 --
Options granted ........... (2,925,942) 2,925,942 $3.38 - $22.75
Options forfeited ......... 7,350 (7,350) $0.28 - $16.50
Options exercised ......... -- (916,845) $0.28 - $0.69
----------- ------------
Balances at December 31, 1996. 5,150,964 5,321,351 $0.28 - $22.75
Shares reserved ........... 8,400,000 --
Options granted ........... (4,396,604) 4,396,604 $3.94 - $25.75
Options forfeited ......... 577,466 (577,466) $0.28 - $25.00
Options exercised ......... -- (784,481) $0.28 - $15.00
Plan shares expired ....... (8,027,326) --
----------- ------------
Balances at December 31, 1997. 1,704,500 8,356,008 $0.28 - $25.75
Shares reserved ........... 2,500,000 --
Options granted ........... (7,744,071) 7,744,071 $3.69 - $10.38
Options forfeited ......... 5,511,630 (5,511,630) $0.67 - $25.75
Options exercised ......... -- (1,506,678) $0.28 - $5.34
Plan shares expired ....... (548,870) --
----------- ------------
Balances at December 31, 1998. 1,423,189 9,081,771 $0.28 - $18.15
=========== ============
</TABLE>
On December 11, 1998, the Company offered its employees a stock
option repricing program that allowed the employees to exchange on a one
for one share basis any options priced above the December 14, 1998
closing price of Indus International, Inc. stock, which was $4.56. As a
result, approximately 4,051,696 options on 4,051,696 shares were
surrendered by eligible employees and exchanged for substitute options.
The repriced options are not exercisable before June 14, 1999.
1997 Employee Stock Purchase Plan
The Company has an employee stock purchase plan under which
1,000,000 shares of common stock have been reserved for issuance. The
plan allows for eligible employees to purchase stock at 85% of the lower
of the fair market value of the Company's common stock as of the first
day of each six-month offering period or the fair market value of the
stock at the end of the offering period. The initial offering period
began November 1997. Purchases are limited to 10% of each employee's
compensation. Under the plan the Company issued 174,468 shares in 1998,
at prices ranging from $4.54 to $6.97 per share.
Under a prior employee stock purchase plan of The Indus Group,
Inc. 71,309 and 39,101 shares were issued in 1996 and 1997,
respectively, at prices ranging from $12.75 to $17.21 per share.
10. Alternative Method of Valuing Stock Options
For employee stock options granted with exercise prices at or
above the existing market price and without any contingent feature as to
the optionee's ability to exercise (other than the passage of time as a
continuing employee), the Company records no compensation expense.
The following pro forma data is based on an alternative in which
employee stock options granted after 1994 are valued at grant date
based on the Black-Scholes option pricing model, a model that was
developed to value options subject to an active trading market.
Although employee stock options are not subject to a trading market,
active or inactive, the pro forma disclosures that follow are required
by applicable accounting pronouncements.
The Indus Group, Inc. estimated the fair value for these options
at the date of grant using the Black-Scholes option pricing model for
1996 and 1997 with the following weighted-average assumptions for 1996
and 1997, respectively: risk-free interest rates of 5.75% and 6.43%,
dividend yields of 0%; volatility factors of the expected market price
of the company's stock of 0.75 and 0.60, and an expected life of the
options of four and six years. TSW International, Inc. estimated the
fair value for these options at the date of grant using the minimum
value option pricing model for 1996 and the Black-Scholes option pricing
model for 1997, with the following weighted-average assumptions for 1996
and 1997, respectively: risk-free interest rates of 6.15% and 6.43%,
dividend yields of 0%; volatility factors of the expected market price
of the company's stock of 0.0 and 0.60, and an expected life of the
options of five years for 1996 and 1997. Indus International, Inc. has
estimated the fair value for the options at the date of grant using the
Black-Scholes option pricing model, with the following weighted-average
assumptions for 1997 and 1998, respectively: risk-free interest rate of
6.43% and 5.14%, dividend yields of 0%, volatility factor of the
expected market price of the company's stock of 0.60 and 0.70, and an
expected life of the options of six years for options granted under the
1997 Stock Plan and the 1997 Director's Option Plan and three years for
options granted under the 1998 Indus International, Inc. Company Share
Option Plan.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information net income (loss) including pro forma compensation
expense, net of tax for the years ended December 31, 1996, 1997 and 1998,
respectively, is as follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (loss)............ $5,740 ($1,546) ($6,122)
Pro forma net income (loss) per share.. $0.22 ($0.05) ($0.20)
Pro forma diluted net income (loss)
per share $0.20 ($0.05) ($0.17)
</TABLE>
The following table summarizes information about stock options
outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
Options Vested and
Exercisable
Options Outstanding
-------------------------------- --------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of OutstandingContractual Exercise ExercisableExercise
Exercise Prices in shares Life Price in shares Price
- ---------------- ---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$0.28 - $0.67 463,305 4.54 $0.41 463,305 $0.41
$1.00 - $2.20 261,579 4.81 1.64 256,929 1.64
$3.38 - $4.50 1,416,158 7.98 3.53 804,987 3.46
$4.56 - $4.56 4,753,370 9.01 4.56 27,875 4.56
$4.88 - $8.50 1,855,672 9.39 8.24 223,070 8.12
$13.75 - $18.50 331,687 7.43 15.55 137,655 15.57
---------- ----------- --------- ---------- ---------
Total 9,081,771 8.52 5.26 1,913,821 3.91
========== =========== ========= ========== =========
</TABLE>
The weighted average fair value of options granted in 1996 and
1997 was $8.57 and $8.20, respectively. In 1998, the weighted average
fair value of options granted under the UK Stock Plan was $3.58 and
under the remaining plans is $2.70, using these alternative methods of
valuation.
11. Employee Benefit and Profit-Sharing Plans
The Company has a defined contribution 401(K) plan. All employees
over the age of 21 who have completed at least one-half year of service
are eligible to participate. Each participant may elect to have
amounts deducted from his or her compensation and contributed to the
plan up to 15% of his or her base salary. All contributions are fully
vested at the time the employee becomes an active participant. The
Company did not contribute any matching funds in 1996 or 1997; in 1998,
the matching contribution was $847,281.
The Company also has a profit sharing plan. All employees over the
age of 21 who have completed at least one-half year of service are
eligible to participate. Contributions to the plan are at the
discretion of the board of directors and are made to eligible
employees' individual accounts in proportion to their base salary.
Contribution expense related to the profit sharing plan for 1996 and
1997 was approximately $250,000 in each year. The Company did not
contribute to the profit sharing plan in 1998.
12. Geographic Information
Geographic information is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net sales (based on destination)
United States ............................ $101,691 $135,763 $149,282
International (including United States
exports shown below):
Europe ................................. 16,891 14,668 19,491
Asia ................................... 7,987 7,070 233
Canada ................................. 12,252 15,422 20,491
Other .................................. 4,217 4,111 5,980
--------- --------- ---------
Total International ......................... 41,347 41,271 46,195
--------- --------- ---------
Total consolidated net sales ............. $143,038 $177,034 $195,477
========= ========= =========
Income from operations
United States ............................ $56,377 $75,506 $78,105
International:
Europe ................................. 9,364 8,158 10,179
Asia ................................... 4,428 3,932 (392)
Canada ................................. 6,792 8,577 (3,109)
Other .................................. 2,338 2,286 7,177
Corporate administrative and other expenses . (64,738) (88,306) (77,159)
Interest and other expenses, net ............ (1,887) (1,968) (936)
--------- --------- ---------
Total consolidated income (loss)
before income taxes ....................... $12,674 $8,185 $13,865
========= ========= =========
Identifiable assets
United States ............................ $100,105 $118,918 $124,373
International:
Europe ................................. 8,834 5,490 13,261
Asia ................................... 3,951 3,225 242
Canada ................................. 3,228 5,895 9,407
Other .................................. 1,737 3,197 3,502
--------- --------- ---------
Total consolidated identifiable assets ...... $117,855 $136,725 $150,785
========= ========= =========
United States export sales (reported
in international sales above)
Europe ................................. $7,337 $3,201 --
Asia ................................... 2,326 871 --
Canada ................................. 12,252 15,422 --
Other .................................. 4,217 4,069 1,703
--------- --------- ---------
Total consolidated export sales ............. $26,132 $23,563 $1,703
========= ========= =========
</TABLE>
Due to the Merger, the Company has an increased international
presence and supports the majority of international sales through
foreign subsidiaries.
13. Income Taxes
The provision for income taxes consists of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal ............................... $7,639 $7,993 $484
State and foreign ..................... 2,497 1,823 385
--------- --------- ---------
10,136 9,816 869
--------- --------- ---------
Deferred:
Federal ............................... (2,522) (3,057) --
State and foreign ..................... (765) (351) (419)
--------- --------- ---------
(3,287) (3,408) (419)
--------- --------- ---------
$6,849 $6,408 $450
========= ========= =========
</TABLE>
The effective rate of the provision for income taxes reconciles to the
amount computed by applying the federal statutory rate to income before
provision for income taxes as follows:
<TABLE>
<CAPTION>
Percentage
Year Ended December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate ................... 35.0 % 35.0 % 35.0 %
Merger expenses .......................... -- 41.1 --
State taxes, net of federal benefit ...... 6.5 9.3 0.4
Foreign taxes ............................ 2.3 3.7 --
FSC benefit .............................. (2.3) (1.5) (2.1)
R&D credit ............................... (1.1) (4.8) --
TSW net operating loss carryovers......... 8.6 (10.3) (33.6)
Other .................................... 5.0 5.8 3.5
--------- --------- ---------
54.0 % 78.3 % 3.2 %
========= ========= =========
</TABLE>
The 1996, 1997, and 1998 current federal and state tax
provisions do not reflect the tax savings of $6,669,000, $3,479,000,
and $294,000, respectively resulting from deductions associated with
the exercise of stock options by employees in 1996. This tax benefit has been
included in additional paid in capital.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable allowances ...................... $804 $966
Tax over book depreciation........................... (782) 341
Nondeductible accruals .............................. 2,100 2,362
Deferred licensing fee revenue ...................... 4,641 1,723
Net operating loss carryforwards .................... 4,901 3,963
Research and other credit carryforwards ............. 1,383 1,744
Foreign tax credits and losses ...................... 1,216 2,045
--------- ---------
14,263 13,144
Valuation allowance ................................. (9,140) (10,390)
--------- ---------
5,123 2,754
Deferred Tax Liabilities:
Conversion from cash to accrual basis of accounting . 5,542 2,754
--------- ---------
Net deferred tax liability .......................... $419 --
========= =========
</TABLE>
As of December 31, 1998, the Company had federal net operating
loss carryforwards of approximately $10.2 million. The net operating
loss carryforwards will expire beginning in 2010 through 2012, if not
utilized. The Company also has domestic research and experimental tax
credits of approximately $0.72 million which expire in years 2010 to
2012 if not utilized; domestic and foreign tax credits of approximately
$0.84 million which expire in years 1998 through 2002 if not utilized;
and foreign net operating loss carryforwards of approximately $2.9
million which can be carried forward indefinitely.
Due to the Company's limited earnings history, the net deferred
tax asset has been fully offset by a valuation allowance.
Approximately $2.95 million of the valuation allowance for deferred tax
assets relates to benefits of stock option deductions which, when
recognized, will be allocated directly to additional paid in capital.
14. Litigation
A customer of the Company has filed an American Arbitration
Association Demand for Arbitration that claims breach of contract
related to the purchase of the Company's software. The Company
disputes this claim and intends to defend the action vigorously. The
Company believes it has adequate legal defenses and that the ultimate
outcome of this action will not have a material effect on the Company's
financial position and results of operations. However, the ultimate
outcome of any litigation is uncertain, and therefore an unfavorable
outcome could have a material negative impact on the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report
in that the Registrant will file a definitive proxy statement pursuant
to Regulation 14(a) (the "Proxy Statement") not later that 120 days
after the end of the fiscal year covered by this Report and certain
information included therein is incorporated herein by reference. Only
those sections of the Proxy Statement that specifically address the
items set forth herein are incorporated by reference. Such
incorporation does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's Directors required by this
Item is incorporated by reference to the information contained under the
captions "Election of Director-Nominees" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement.
The information concerning the Company's officers required by this Item
is included in the Section in Part I hereof entitled "Executive
Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information concerning the Company's Executive Officers required
by this Item is incorporated by reference to the information contained
under the captions "Proposal One - Election of Directors - Director
Compensation and Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership required by this Item
is incorporated by reference to the information contained under the
caption "Security Ownership of Management; Principal Stockholders" in
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
to the information contained under the caption "Certain Relationships
and Related Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) (1) Financial Statements
The Financial Statements required by this item, together with the
report of independent auditors, are filed as part of this Form 10-
K. See Index to Consolidated Financial Statements under Item 8.
(2) Financial Statement Schedule
The following financial statement schedule of Indus International,
Inc. for the years ended December 31, 1998, 1997 and 1996 is filed
as part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Indus International, Inc.
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because
they are not applicable or are not required or the information
required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits
The following exhibits are filed herewith or incorporated by
reference.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ----------- -------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization dated as of June
5, 1997 ("Agreement of Merger"), by and among the Registrant, The
Indus Group, Inc. ("Indus") and TSW International, Inc. ("TSW")
(incorporated by reference to Appendix A-1 to the Joint Proxy
Statement/Prospectus filed as part of the Registration Statement
on Form S-4 (Reg. No. 333-33113) filed with the Securities and
Exchange Commission on August 7, 1997 (the "Proxy Statement"))
2.2 First Amendment to Agreement of Merger dated as of July 21, 1997
by and among the Registrant, Indus and TSW (incorporated by
reference to Exhibit 2.2 to the Proxy Statement)
2.3 Form of Agreement of Merger to be entered into by and among the
Registrant, Indus Sub, Inc. and Indus (incorporated by reference
to Appendix A-2 to the Proxy Statement)
2.4 Form of Agreement of Merger to be entered into by and among the
Registrant, TSW Sub, Inc. and TSW (incorporated by reference to
Appendix A-3 to the Proxy Statement)
3.1 Registrant's Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Proxy Statement)
3.2 Registrant's Bylaws (incorporated by reference to Exhibit 3.2 to
the Proxy Statement)
4.1 Form of Registration Rights Agreement entered into among the
Registrant, Warburg, Pincus Investors, LP ("Warburg"), Robert W.
Felton, Richard W. MacAlmon, John W. Blend, III and John R.
Oltman (incorporated by reference to Exhibit 4.1 to the Proxy
Statement)
4.2 Form of Indus Affiliate Agreement dated as of June 5, 1997
entered into by the Registrant, Indus, TSW and each of Robert W.
Felton, Richard W. MacAlmon, Michael E. Percy, Alan G. Merten,
Donald F. Robertson, Douglas R. Piper, Frank M. Siskowski and
Edward R. Koepfler (incorporated by reference to Exhibit 4.2 to
the Proxy Statement)
4.3 Form of TSW Affiliate Agreement dated as of June 5, 1997 entered
into by the Registrant, Indus, TSW and each of Warburg,
Christopher R. Lane, John F. Bartels, John W. Blend, III, Kenneth
C. Colby, Jr., David J. Loesch, Allen D. Vaughn, John R. Oltman,
George D. Busbee, William H. Janeway and Joseph P. Landy
(incorporated by reference to Exhibit 4.3 to the Proxy Statement)
4.4 Felton Affiliate Agreement dated as of June 5, 1997 entered into
among the Registrant, Indus, TSW and Robert W. Felton
(incorporated by reference to Exhibit 4.4 to the Proxy Statement)
4.5 Warburg Affiliate Agreement dated as of June 5, 1997 entered into
among the Registrant, Indus, TSW and Warburg (incorporated by
reference to Exhibit 4.5 to the Proxy Statement)
4.6 Nomination Agreement entered into among the Registrant, Warburg
and Robert W. Felton (incorporated by reference to Exhibit 4.6 to
the Proxy Statement)
4.7 Specimen certificate for Registrant's Common Stock (incorporated
by reference to Exhibit 4.7 to the Proxy Statement)
9.1 Indus Voting Agreement dated as of June 5, 1997 entered into
among TSW, Robert W. Felton, Richard W. MacAlmon, Michael E.
Percy and Douglas R. Piper (incorporated by reference to Exhibit
9.1 to the Proxy Statement)
9.2 TSW Voting Agreement dated as of June 5, 1997 entered into among
the Registrant, Indus, Warburg, John W. Blend, III and John R.
Oltman (incorporated by reference to Exhibit 9.2 to the Proxy
Statement)
10.1 * Indus International, Inc. 1997 Stock Plan (incorporated by
reference to Exhibit 10.1 to the Proxy Statement)
10.2 * Indus International, Inc. 1997 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.2 to the Proxy
Statement)
10.3 * Indus International, Inc. 1997 Director Option Plan (incorporated
by reference to Exhibit 10.3 to the Proxy Statement)
10.4 Form of Tax Indemnification Agreement of Indus (incorporated by
reference to Exhibit 10.6 to Indus' Registration Statement on
Form S-1 (File No. 33-80573) declared effective on February 26,
1996, as amended (the "Indus Form S-1"))
10.5 Software Master License Agreement between Indus and Felton
Enterprises, dated January 2, 1990, as amended to date
(incorporated herein by reference to Exhibit 10.7 to the Indus
Form S-1)
10.6 Conditional Assignment of Software Master License Agreement and
Underlying Software between Indus and Felton Enterprises dated
February 24, 1996 (incorporated herein by reference to Exhibit
10.8 to the Indus Form S-1)
10.7 Amended and Restated Commercial Loan Agreement dated June 30,
1995 between Indus and Sumitomo Bank of California, as amended
through December 19, 1995 (incorporated herein by reference to
Exhibit 10.9 to the Indus Form S-1)
10.8 Third Amendment to Commercial Loan Agreement dated May 29, 1996
between Indus and Sumitomo Bank of California (incorporated
herein by reference to Exhibit 10.1 to the Indus Quarterly Report
on Form 10-Q (File No. 0-27806) filed with the Securities and
Exchange Commission on August 13, 1996)
10.9 Fourth Amendment to Commercial Loan Agreement dated September 6,
1996 between Indus and Sumitomo Bank of California (incorporated
herein by reference to Exhibit 10.1 to the Indus Quarterly Report
on Form 10-Q (File No. 0-27806) filed with the Securities and
Exchange Commission on November 13, 1996)
10.10 Asset Acquisition Agreement between Indus and Indus
International, Inc. (incorporated herein by reference to Exhibit
10.10 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-80573) filed with the Securities and
Exchange Commission on February 28, 1996)
10.11 Lease for Indus' San Francisco, CA headquarters dated January 24,
1990, as amended (incorporated herein by reference to Exhibit
10.11 to the Indus Form S-1)
10.12 Lease for Indus' Pittsburgh, PA sales office (incorporated herein
by reference to Exhibit 10.12 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-80574) filed with
the Securities and Exchange Commission on January 31, 1996)
10.13 Loan and Security Agreement dated November 17, 1995 between TSW
and Greyrock Business Credit, a division of Greyrock Capital
Group Inc. ("Greyrock") (incorporated by reference to Exhibit
10.13 to the Proxy Statement)
10.14 Patent and Trademark Security Agreement dated November 17, 1995
between TSW and Greyrock (incorporated by reference to Exhibit
10.14 to the Proxy Statement)
10.15 Security Agreement in Copyrighted Works dated February 28, 1996
between TSW and Greyrock (incorporated by reference to Exhibit
10.15 to the Proxy Statement)
10.16 Amendment to Loan Documents, dated August 1, 1996, between TSW
and Greyrock (incorporated by reference to Exhibit 10.16 to the
Proxy Statement)
10.17 Secured Promissory Note dated August 1, 1996 between TSW and
Greyrock (incorporated by reference to Exhibit 10.17 to the Proxy
Statement)
10.18 Guarantee dated November 6, 1996 between TSW International
Limited and Greyrock (incorporated by reference to Exhibit 10.18
to the Proxy Statement)
10.19 Deed of Guarantee and Indemnity dated November 14, 1996 between
TSW and International Pty Ltd. and Greyrock (incorporated by
reference to Exhibit 10.19 to the Proxy Statement)
10.20 Second Amendment to Loan Documents dated April 3, 1997 between
TSW and Greyrock (incorporated by reference to Exhibit 10.20 to
the Proxy Statement)
10.21 Securities Purchase Agreement dated as of June 20, 1994, between
TSW and Warburg, Pincus Investors, LP ("Warburg") (incorporated
by reference to Exhibit 10.21 to the Proxy Statement)
10.22 Amended and Restated Stockholders Agreement dated June 20, 1994
between TSW, Warburg, John W. Blend, III ("Blend") and David P.
Welden (incorporated by reference to Exhibit 10.22 to the Proxy
Statement)
10.23 Stockholder's Rights Agreement dated as of August 30, 1994
between TSW, Warburg and Alan Johnston (incorporated by reference
to Exhibit 10.23 to the Proxy Statement)
10.24 Form of Stock Purchase Warrant between TSW and Warburg and
schedule of substantially similar Agreements (incorporated by
reference to Exhibit 10.24 to the Proxy Statement)
10.25 Form of Subordinated Floating Rate Note payable by TSW to Warburg
and schedule of substantially similar agreements (incorporated by
reference to Exhibit 10.25 to the Proxy Statement)
10.26 * Employment Agreement dated July 19, 1994 between TSW and
Christopher R. Lane ("Lane") (incorporated by reference to
Exhibit 10.26 to the Proxy Statement)
10.27 Loan Agreement dated December 22, 1996 between TSW and Lane
(incorporated by reference to Exhibit 10.27 to the Proxy
Statement)
10.28 Supplemental Severance Agreement dated December 15, 1994 between
TSW and Lane (incorporated by reference to Exhibit 10.28 to the
Proxy Statement)
10.29 Promissory Note dated December 22, 1996 between TSW and Lane
(incorporated by reference to Exhibit 10.29 to the Proxy
Statement)
10.30 Collateral Assignment Agreement dated December 22, 1996 between
TSW and Lane (incorporated by reference to Exhibit 10.30 to the
Proxy Statement)
10.31 Nonrecourse Loan Agreement dated September 16, 1992 between TSW
and Blend (incorporated by reference to Exhibit 10.31 to the
Proxy Statement)
10.32 Stock Pledge Agreement dated September 16, 1992 between TSW and
Blend (incorporated by reference to Exhibit 10.32 to the Proxy
Statement)
10.33 Collateral Assignment and Agreement dated September 16, 1992
between TSW and Blend (incorporated by reference to Exhibit 10.33
to the Proxy Statement)
10.34 Nonrecourse Promissory Note dated September 16, 1992 between TSW
and Blend (incorporated by reference to Exhibit 10.34 to the
Proxy Statement)
10.35 Lease Agreement dated June 8, 1993 between TSW and Cousins
Properties Incorporated, as amended (incorporated by reference to
Exhibit 10.35 to the Proxy Statement)
10.36 Credit Agreement dated September 2, 1997 (as amended through
First Amendment dated September 16, 1997) with Sumitomo Bank of
California and Union Bank of California, N.A. (incorporated by
reference to Exhibit 10.01 to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-22993) filed with the Securities and
Exchange Commission on November 14, 1997)
10.37 Stock Purchase Agreement dated January 13, 1999 between Robert W.
Felton, Warburg Pincus Investors, L.P. and Indus International, Inc.
13.1 Portions of the Registrant's Annual Report
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney, filed on page 24 of this report.
27.1 Financial Data Schedule
</TABLE>
- -----------
* Designates management contract or compensatory plan or arrangement.
(b) Reports on Forms 8-K.
The following reports on Form 8-K were filed during the fourth
quarter of the fiscal year ended December 31, 1998.
Form 8K reporting Item 5 (dated October 16, 1998) was filed
November 2, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Indus International, Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INDUS INTERNATIONAL, INC.
/s/ William J. Grabske
--------------------
William J. Grabske
Chairman of the Board
of Directors, President
and Chief Executive Officer
Date: March 29, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints William J. Grabske and Albert J. Wood, jointly
and severally, his/her attorneys-in-fact, each with the power of substitution,
for him/her in any and all capacities, to sign any amendments to this Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his/her
substitute or substitutes may do or cause to be done by virtue hereof.
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 and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ William J. Grabske Chairman of the Board of Directors, March 29, 1999
- --------------------------- President and Chief Executive Officer
(William J. Grabske) Principal Executive Officer
/s/ Albert J. Wood Vice President of Finance and March 29, 1999
- --------------------------- Treasurer, Principal Financial and
(Albert J. Wood) Accounting Officer
/s/ Robert W. Felton Director March 29, 1999
- ---------------------------
(Robert W. Felton)
/s/ William H. Janeway Director March 29, 1999
- ---------------------------
(William H. Janeway)
/s/ Joseph P. Landy Director March 29, 1999
- ---------------------------
(Joseph P. Landy)
/s/ Jeanne D. Wohlers Director March 29, 1999
- ---------------------------
(Jeanne D. Wohlers)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ----------- -------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization dated as of June
5, 1997 ("Agreement of Merger"), by and among the Registrant, The
Indus Group, Inc. ("Indus") and TSW International, Inc. ("TSW")
(incorporated by reference to Appendix A-1 to the Joint Proxy
Statement/Prospectus filed as part of the Registration Statement
on Form S-4 (Reg. No. 333-33113) filed with the Securities and
Exchange Commission on August 7, 1997 (the "Proxy Statement"))
2.2 First Amendment to Agreement of Merger dated as of July 21, 1997
by and among the Registrant, Indus and TSW (incorporated by
reference to Exhibit 2.2 to the Proxy Statement)
2.3 Form of Agreement of Merger to be entered into by and among the
Registrant, Indus Sub, Inc. and Indus (incorporated by reference
to Appendix A-2 to the Proxy Statement)
2.4 Form of Agreement of Merger to be entered into by and among the
Registrant, TSW Sub, Inc. and TSW (incorporated by reference to
Appendix A-3 to the Proxy Statement)
3.1 Registrant's Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Proxy Statement)
3.2 Registrant's Bylaws (incorporated by reference to Exhibit 3.2 to
the Proxy Statement)
4.1 Form of Registration Rights Agreement entered into among the
Registrant, Warburg, Pincus Investors, LP ("Warburg"), Robert W.
Felton, Richard W. MacAlmon, John W. Blend, III and John R.
Oltman (incorporated by reference to Exhibit 4.1 to the Proxy
Statement)
4.2 Form of Indus Affiliate Agreement dated as of June 5, 1997
entered into by the Registrant, Indus, TSW and each of Robert W.
Felton, Richard W. MacAlmon, Michael E. Percy, Alan G. Merten,
Donald F. Robertson, Douglas R. Piper, Frank M. Siskowski and
Edward R. Koepfler (incorporated by reference to Exhibit 4.2 to
the Proxy Statement)
4.3 Form of TSW Affiliate Agreement dated as of June 5, 1997 entered
into by the Registrant, Indus, TSW and each of Warburg,
Christopher R. Lane, John F. Bartels, John W. Blend, III, Kenneth
C. Colby, Jr., David J. Loesch, Allen D. Vaughn, John R. Oltman,
George D. Busbee, William H. Janeway and Joseph P. Landy
(incorporated by reference to Exhibit 4.3 to the Proxy Statement)
4.4 Felton Affiliate Agreement dated as of June 5, 1997 entered into
among the Registrant, Indus, TSW and Robert W. Felton
(incorporated by reference to Exhibit 4.4 to the Proxy Statement)
4.5 Warburg Affiliate Agreement dated as of June 5, 1997 entered into
among the Registrant, Indus, TSW and Warburg (incorporated by
reference to Exhibit 4.5 to the Proxy Statement)
4.6 Nomination Agreement entered into among the Registrant, Warburg
and Robert W. Felton (incorporated by reference to Exhibit 4.6 to
the Proxy Statement)
4.7 Specimen certificate for Registrant's Common Stock (incorporated
by reference to Exhibit 4.7 to the Proxy Statement)
9.1 Indus Voting Agreement dated as of June 5, 1997 entered into
among TSW, Robert W. Felton, Richard W. MacAlmon, Michael E.
Percy and Douglas R. Piper (incorporated by reference to Exhibit
9.1 to the Proxy Statement)
9.2 TSW Voting Agreement dated as of June 5, 1997 entered into among
the Registrant, Indus, Warburg, John W. Blend, III and John R.
Oltman (incorporated by reference to Exhibit 9.2 to the Proxy
Statement)
10.1 * Indus International, Inc. 1997 Stock Plan (incorporated by
reference to Exhibit 10.1 to the Proxy Statement)
10.2 * Indus International, Inc. 1997 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.2 to the Proxy
Statement)
10.3 * Indus International, Inc. 1997 Director Option Plan (incorporated
by reference to Exhibit 10.3 to the Proxy Statement)
10.4 Form of Tax Indemnification Agreement of Indus (incorporated by
reference to Exhibit 10.6 to Indus' Registration Statement on
Form S-1 (File No. 33-80573) declared effective on February 26,
1996, as amended (the "Indus Form S-1"))
10.5 Software Master License Agreement between Indus and Felton
Enterprises, dated January 2, 1990, as amended to date
(incorporated herein by reference to Exhibit 10.7 to the Indus
Form S-1)
10.6 Conditional Assignment of Software Master License Agreement and
Underlying Software between Indus and Felton Enterprises dated
February 24, 1996 (incorporated herein by reference to Exhibit
10.8 to the Indus Form S-1)
10.7 Amended and Restated Commercial Loan Agreement dated June 30,
1995 between Indus and Sumitomo Bank of California, as amended
through December 19, 1995 (incorporated herein by reference to
Exhibit 10.9 to the Indus Form S-1)
10.8 Third Amendment to Commercial Loan Agreement dated May 29, 1996
between Indus and Sumitomo Bank of California (incorporated
herein by reference to Exhibit 10.1 to the Indus Quarterly Report
on Form 10-Q (File No. 0-27806) filed with the Securities and
Exchange Commission on August 13, 1996)
10.9 Fourth Amendment to Commercial Loan Agreement dated September 6,
1996 between Indus and Sumitomo Bank of California (incorporated
herein by reference to Exhibit 10.1 to the Indus Quarterly Report
on Form 10-Q (File No. 0-27806) filed with the Securities and
Exchange Commission on November 13, 1996)
10.10 Asset Acquisition Agreement between Indus and Indus
International, Inc. (incorporated herein by reference to Exhibit
10.10 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-80573) filed with the Securities and
Exchange Commission on February 28, 1996)
10.11 Lease for Indus' San Francisco, CA headquarters dated January 24,
1990, as amended (incorporated herein by reference to Exhibit
10.11 to the Indus Form S-1)
10.12 Lease for Indus' Pittsburgh, PA sales office (incorporated herein
by reference to Exhibit 10.12 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-80574) filed with
the Securities and Exchange Commission on January 31, 1996)
10.13 Loan and Security Agreement dated November 17, 1995 between TSW
and Greyrock Business Credit, a division of Greyrock Capital
Group Inc. ("Greyrock") (incorporated by reference to Exhibit
10.13 to the Proxy Statement)
10.14 Patent and Trademark Security Agreement dated November 17, 1995
between TSW and Greyrock (incorporated by reference to Exhibit
10.14 to the Proxy Statement)
10.15 Security Agreement in Copyrighted Works dated February 28, 1996
between TSW and Greyrock (incorporated by reference to Exhibit
10.15 to the Proxy Statement)
10.16 Amendment to Loan Documents, dated August 1, 1996, between TSW
and Greyrock (incorporated by reference to Exhibit 10.16 to the
Proxy Statement)
10.17 Secured Promissory Note dated August 1, 1996 between TSW and
Greyrock (incorporated by reference to Exhibit 10.17 to the Proxy
Statement)
10.18 Guarantee dated November 6, 1996 between TSW International
Limited and Greyrock (incorporated by reference to Exhibit 10.18
to the Proxy Statement)
10.19 Deed of Guarantee and Indemnity dated November 14, 1996 between
TSW and International Pty Ltd. and Greyrock (incorporated by
reference to Exhibit 10.19 to the Proxy Statement)
10.20 Second Amendment to Loan Documents dated April 3, 1997 between
TSW and Greyrock (incorporated by reference to Exhibit 10.20 to
the Proxy Statement)
10.21 Securities Purchase Agreement dated as of June 20, 1994, between
TSW and Warburg, Pincus Investors, LP ("Warburg") (incorporated
by reference to Exhibit 10.21 to the Proxy Statement)
10.22 Amended and Restated Stockholders Agreement dated June 20, 1994
between TSW, Warburg, John W. Blend, III ("Blend") and David P.
Welden (incorporated by reference to Exhibit 10.22 to the Proxy
Statement)
10.23 Stockholder's Rights Agreement dated as of August 30, 1994
between TSW, Warburg and Alan Johnston (incorporated by reference
to Exhibit 10.23 to the Proxy Statement)
10.24 Form of Stock Purchase Warrant between TSW and Warburg and
schedule of substantially similar Agreements (incorporated by
reference to Exhibit 10.24 to the Proxy Statement)
10.25 Form of Subordinated Floating Rate Note payable by TSW to Warburg
and schedule of substantially similar agreements (incorporated by
reference to Exhibit 10.25 to the Proxy Statement)
10.26 * Employment Agreement dated July 19, 1994 between TSW and
Christopher R. Lane ("Lane") (incorporated by reference to
Exhibit 10.26 to the Proxy Statement)
10.27 Loan Agreement dated December 22, 1996 between TSW and Lane
(incorporated by reference to Exhibit 10.27 to the Proxy
Statement)
10.28 Supplemental Severance Agreement dated December 15, 1994 between
TSW and Lane (incorporated by reference to Exhibit 10.28 to the
Proxy Statement)
10.29 Promissory Note dated December 22, 1996 between TSW and Lane
(incorporated by reference to Exhibit 10.29 to the Proxy
Statement)
10.30 Collateral Assignment Agreement dated December 22, 1996 between
TSW and Lane (incorporated by reference to Exhibit 10.30 to the
Proxy Statement)
10.31 Nonrecourse Loan Agreement dated September 16, 1992 between TSW
and Blend (incorporated by reference to Exhibit 10.31 to the
Proxy Statement)
10.32 Stock Pledge Agreement dated September 16, 1992 between TSW and
Blend (incorporated by reference to Exhibit 10.32 to the Proxy
Statement)
10.33 Collateral Assignment and Agreement dated September 16, 1992
between TSW and Blend (incorporated by reference to Exhibit 10.33
to the Proxy Statement)
10.34 Nonrecourse Promissory Note dated September 16, 1992 between TSW
and Blend (incorporated by reference to Exhibit 10.34 to the
Proxy Statement)
10.35 Lease Agreement dated June 8, 1993 between TSW and Cousins
Properties Incorporated, as amended (incorporated by reference to
Exhibit 10.35 to the Proxy Statement)
10.36 Credit Agreement dated September 2, 1997 (as amended through
First Amendment dated September 16, 1997) with Sumitomo Bank of
California and Union Bank of California, N.A. (incorporated by
reference to Exhibit 10.01 to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-22993) filed with the Securities and
Exchange Commission on November 14, 1997)
10.37 Stock Purchase Agreement dated January 13, 1999 between Robert W.
Felton, Warburg Pincus Investors, L.P. and Indus International, Inc.
13.1 Portions of the Registrant's Annual Report
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney, filed on page 24 of this report.
27.1 Financial Data Schedule
</TABLE>
- -----------
* Designates management contract or compensatory plan or arrangement.
INDUS INTERNATIONAL, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
Charged to
Balance at Charged to Other Charges- AddBalance at
Beginning Costs and Account- (Deduct)- Ending
Year Description of Period Expenses Describe Describe (1)of Period
- ----------- --------------- ---------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for
1998 doubtful amounts $1,974 $2,130 -- ($526) $3,578
1997 Allowance for
doubtful amounts 1,247 945 -- (218) 1,974
1996 Allowance for
doubtful amounts 1,238 573 -- (564) 1,247
</TABLE>
EXHIBIT 10.37
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made by and
among Robert Felton ("Seller"), Warburg, Pincus Investors, L.P.
("Buyer") and Indus International, Inc. (the "Company") as of January
13, 1999.
RECITALS
A. Seller desires to sell Five Million (5,000,000) shares of Common
Stock of the Company owned by him (the "Shares") to Buyer;
B. Buyer desires to buy the Shares from Seller; and
C. Company is willing to waive any rights it may have under its
corporate policies to prohibit the sale of the Shares from Buyer to
Seller provided that Buyer agrees to vote shares of Common Stock of the
Company held by it in the manner described herein;
Therefore, in consideration of the above recitals and the mutual
covenants herein contained, the Parties agree as follows:
1. The Shares Transaction.
1.1 Purchase and Sale of Shares. Subject to the terms and
conditions hereof and in reliance upon the representations,
warranties and agreements contained herein, Buyer agrees to
purchase from Seller and Seller agrees to sell to Buyer the
Shares at a price per Share of $5.00 for aggregate
consideration of $25,000,000 (the "Purchase Price").
1.2 Closing Date. The closing of the purchase and sale of the
Shares hereunder (the "Closing") shall be held at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304 on January15, 1999 or such other time
and place as the parties shall agree to (the"Closing Date").
1.3 Delivery. At Closing, Seller shall deliver to Buyer a
certificate representing the Shares duly endorsed to Buyer
against delivery to Seller of check or wire transfer payable to
the order of Seller in the amount of the Purchase Price.
1.4 Waiver by Company. The Company waives any rights it may have
under any of its corporate policies to restrict the
transactions described above in this Section 1.
2. Representation and Warranties of Buyer and Seller.
2.1 Title of Seller. Seller hereby represents that Seller has
full right, title and ownership in the Shares free of any liens
or encumbrances.
2.2 Buyer's Knowledge. Buyer hereby represents that it has such
knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the
transactions contemplated by this Agreement and that it has had
full access to all material information relating to the Company
necessary to evaluate such transactions.
2.3 Seller's Knowledge. Seller hereby represents that he has
such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the
transactions contemplated by this Agreement and that he has had
full access to all material information relating to the Company
necessary to evaluate such transactions.
2.4 Legend. Buyer understands that the Shares will be considered
"restricted securities" under the Securities Act of 1933, as
amended and will bear an appropriate legend reflecting that
status.
3. Voting Agreement.
3.1 Voting. With respect to any proposal (including proposals
relating to the election of directors) presented to the holders
of the capital stock of the Company whether at an annual or
special meeting of stockholders or pursuant to a written
consent, Buyer shall exercise its voting rights with respect to
any shares of capital stock of the Company owned by it such
that shares of capital stock of the Company owned by Buyer or
its affiliates (collectively "Warburg Shares") are voted as
follows:
(a)Buyer may vote in its sole and absolute discretion its
Warburg Shares such that the Warburg Shares voted by it
pursuant to this Clause 3.1(a) plus all other Warburg Shares
voted on such proposal represent 50% or less of the votes
eligible to be cast on such proposal.
(b) Buyer shall vote its Warburg Shares not voted pursuant to
clause (a) above, if any, in the same proportions as the other
stockholders of the Company vote their shares of capital stock
entitled to vote on such proposal.
3.2 Enforcement. Buyer and Company hereby agree that it is
impossible to measure in money the damages which will accrue to
Company as a result of a failure by Buyer to perform its
obligations under this Section 3 and agree that the terms of
this Section 3 shall be specifically enforceable. If the
Company institutes any action or proceeding to specifically
enforce the provisions hereof, Buyer hereby waives the claim or
defense therein that Company has an adequate remedy at law, and
Buyer shall not offer in any such action or proceeding the
claim or defense that such remedy at law exists.
3.3 Waiver. Buyer's obligations under this Section 3 may be
waived, terminated or modified only by the written agreement of
Buyer and Company.
4. Miscellaneous.
4.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Delaware, without regard
to any provisions thereof relating to conflicts of laws among
different jurisdictions. The parties hereby agree to submit to
the jurisdiction of the federal and state courts of the State
of California with respect to the breach or interpretation of
this Agreement or the enforcement of any and all rights,
duties, liabilities, obligations, powers, and other relations
between the parties arising under this Agreement.
4.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by
Buyer, Seller or the Company and the closing of the
transactions contemplated hereby.
4.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
4.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and
entire understanding and agreement among the parties with
regard to the subjects hereof and thereof. Except as provided
in Section 3, neither this Agreement nor any term hereof maybe
amended, waived, discharged or terminated other than by a
written instrument signed by Buyer, Seller and Company.
4.5 Notices, Etc. All notices and other communications required
or permitted hereunder, shall be in writing and shall be
personally delivered, sent by facsimile, mailed by registered
or certified mail, postage prepaid, return receipt requested,
or delivered by a nationally recognized overnight courier,
addressed:
If to Buyer: Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017
Attn: Joseph P. Landy
If to Seller: Robert Felton
91 Tiger Tail Court
Orinda, CA 94563
If to Company: Indus International, Inc.
60 Spear Street
San Francisco, CA 94105
Any such notice or communication shall be deemed to have been
received (A) in the case of personal delivery or delivery by
telecopier, on the date of such delivery, (B) in the case of a
commercial overnight courier, on the next business day after
the date when sent and (C) in the case of mailing, on the third
business day following that on which the piece of mail
containing such communication is posted.
4.6 Waiver of Conflict. Each party to this Agreement that has
been or continues to be represented by Wilson, Sonsini,
Goodrich & Rosati, counsel to the Company, hereby acknowledges
that Rule 3-310 of the Rules of Professional Conduct
promulgated by the State Bar of California requires an attorney
to avoid representations in which the attorney has or had a
relationship with another party interested in the
representation without the informed written consent of all
parties affected. By executing this Agreement, each such party
gives his or its informed written consent to the representation
of the Company by Wilson, Sonsini, Goodrich &Rosati in
connection with this Agreement and the transactions
contemplated hereby.
4.7 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this
Agreement to any party.
4.8 Counterparts. This Agreement may be executed in any number
of counterparts, all of which together shall constitute one
instrument.
In witness whereof, the parties have executed this Agreement
as of thefirst date set above.
SELLER BUYER
Warburg, Pincus Investors,
L.P.
By: Warburg, Pincus & Co.,
its General Partner
/s/ Robert W. Felton By: /s/ Joseph P. Landy
- ------------------------------- -------
- --------------
Robert W. Felton
COMPANY
/s/ William J. Grabske
- -------------------------------
William J. Grabske
EXHIBIT 21.1
INDUS INTERNATIONAL, INC.
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY (AND DOING BUSINESS AS) STATE OF INCORPORATION
------------------------------------------ ----------------------
Indus Group North America, Inc. California
Indus Foreign Sales Corporation U.S. Virgin Islands
Indus UK, Inc. California
Indus International, Ltd. United Kingdom
Indus International, S.A. France
Indus International Pty Ltd. Australia
Indus International Software Pte. Ltd. Singapore
Indus International Canada, Inc. Canada
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements (Form S-8 Nos. 333-36995 and 333-70475)
pertaining to the 1997 Director Option Plan, 1997 Employee
Stock Purchase Plan and 1997 Stock Plan of Indus International,
Inc. of our report dated January 26, 1999, with respect to the
consolidated financial statements and schedule of Indus
International, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Indus International, Inc.'s Annual Report on Form 10-K
ffor the year ended December 31, 1998 and is qualified in our
by reference to such Financial Statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 23,554
<SECURITIES> 15,596
<RECEIVABLES> 60,499
<ALLOWANCES> (3,578)
<INVENTORY> 0
<CURRENT-ASSETS> 123,062
<PP&E> 37,332
<DEPRECIATION> (21,426)
<TOTAL-ASSETS> 150,785
<CURRENT-LIABILITIES> 64,453
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 86,043
<TOTAL-LIABILITY-AND-EQUITY> 150,785
<SALES> 0
<TOTAL-REVENUES> 195,477
<CGS> 103,517
<TOTAL-COSTS> 103,517
<OTHER-EXPENSES> 77,159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,054
<INCOME-PRETAX> 13,865
<INCOME-TAX> 450
<INCOME-CONTINUING> 13,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,415
<EPS-PRIMARY> $0.44
<EPS-DILUTED> $0.38
</TABLE>
