<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19024
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Symix Systems, Inc.
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(Exact name of registrant as specified in its charter)
Ohio 31-1083175
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2800 Corporate Exchange Drive
Columbus, Ohio 43231
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(Address of principal executive offices)
(Zip Code)
(614) 523-7000
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
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The number of common shares, without par value, of the registrant
outstanding as of February 8, 1999 was 6,710,869.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX
<TABLE>
<S> <C>
Consolidated Balance Sheets
December 31, 1998 (unaudited)
June 30, 1998 Filed herein
Consolidated Statements of Operations (unaudited)
Three Months and Six Months
Ended December 31, 1998 and 1997 Filed herein
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended December 31, 1998 and 1997 Filed herein
Notes to Consolidated Financial Statements (unaudited) Filed herein
</TABLE>
2
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SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
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(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,024 $ 6,115
Trade accounts receivable, less allowance for
doubtful accounts of $1,193 at December 31, 1998
and $1,063 at June 30, 1998 39,980 32,925
Inventories 672 489
Prepaid expenses 2,205 1,346
Other receivables 641 427
Deferred income taxes 477 573
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TOTAL CURRENT ASSETS 46,999 41,875
OTHER ASSETS
Purchased and developed software, net of accumulated
amortization of $9,292 at December 31, 1998
and $8,164 at June 30, 1998 12,104 11,012
Deferred income taxes 361 180
Intangibles, net 6,020 5,091
Deposits and other assets 1,678 1,725
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20,163 18,008
EQUIPMENT AND IMPROVEMENTS
Furniture and fixtures 3,047 2,880
Computer and other equipment 13,041 11,573
Leasehold improvements 1,433 1,262
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17,521 15,715
Less allowance for depreciation and amortization 10,760 9,216
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6,761 6,499
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TOTAL ASSETS $73,923 $66,382
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</TABLE>
See notes to consolidated financial statements
3
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SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
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(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $10,711 $13,276
Customer deposits 148 288
Deferred revenue 16,997 13,155
Income taxes payable 1,577 1,304
Current portion of long term obligations 630 277
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TOTAL CURRENT LIABILITIES 30,063 28,300
LONG-TERM OBLIGATIONS 300 305
BANK CREDIT AGREEMENT 3,851 2,000
DEFERRED INCOME TAXES 2,323 2,476
MINORITY INTEREST 2,020 2,000
SHAREHOLDERS' EQUITY
Common stock, authorized 20,000 shares; issued 6,876
shares at December 31, 1998, and 6,778
at June 30, 1998; at stated capital
amounts of $.01 per share 68 68
Convertible preferred stock of subsidiary 783 1,031
Capital in excess of stated value 24,840 23,937
Retained earnings 12,684 9,497
Cumulative translation adjustment (1,689) (1,912)
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36,686 32,621
Less: Cost of common shares in treasury,
304 shares at December 31, 1998
and June 30, 1998, at cost (1,320) (1,320)
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TOTAL SHAREHOLDERS' EQUITY 35,366 31,301
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $73,923 $66,382
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</TABLE>
See notes to consolidated financial statements
4
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SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
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1998 1997 1998 1997
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
License fees $19,018 $14,485 $33,498 $24,033
Service, maintenance and support 14,083 9,532 26,494 17,549
--------- ---------- --------- ----------
Net revenue 33,101 24,017 59,992 41,582
License fees 4,689 3,679 8,554 6,391
Service, maintenance and support 8,030 4,858 14,362 9,037
--------- ---------- --------- ----------
Cost of revenue 12,719 8,537 22,916 15,428
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Gross Margin 20,382 15,480 37,076 26,154
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Selling, general and administrative 14,331 11,133 27,423 18,874
Research and product development 2,249 1,709 4,446 3,744
Acquisition research and development write-off - 6,503 - 6,503
--------- ---------- --------- ----------
Total operating expenses 16,580 19,345 31,869 29,121
--------- ---------- --------- ----------
Operating income (loss) 3,802 (3,865) 5,207 (2,967)
Interest and other income (expense), net 80 (16) 92 (65)
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Income (loss) before income taxes 3,882 (3,881) 5,299 (3,032)
Provision for income taxes 1,553 1,004 2,112 1,321
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Net income (loss) $2,329 ($4,885) $3,187 ($4,353)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Basic EPS:
Net income (loss) per share $0.35 ($0.79) $0.48 ($0.72)
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Diluted EPS:
Net income (loss) per share $0.32 ($0.79) $0.44 ($0.72)
--------- ---------- --------- ----------
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Weighted average number of common
shares outstanding 6,648 6,185 6,635 6,084
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Weighted average number of common
shares outstanding assuming dilution 7,281 6,185 7,270 6,084
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
See notes to consolidated financial statements
5
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SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------
1998 1997
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Increase (decrease) in cash
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $3,187 ($4,353)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Acquisition research and development write-off - 6,503
Depreciation and amortization 3,752 2,833
Provision for losses on accounts receivable 130 211
Provision for deferred income taxes 542 1,171
Changes in operating assets and liabilities:
Trade accounts receivable (6,948) (6,463)
Prepaid expenses and other receivables (1,046) 102
Inventory (182) (175)
Deposits 71 (480)
Accounts payable and accrued expenses (2,947) (648)
Customer deposits (140) (137)
Deferred revenue 3,816 908
Income taxes payable/refundable (646) (203)
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NET CASH USED BY
OPERATING ACTIVITIES (411) (731)
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------
1998 1997
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Increase (decrease) in cash
<S> <C> <C>
INVESTING ACTIVITIES
Purchase of equipment and improvements (1,806) (1,160)
Additions to purchased and developed software (2,415) (2,390)
Purchase of subsidiaries, net of cash acquired (638) (148)
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NET CASH USED BY
INVESTING ACTIVITIES (4,859) (3,698)
FINANCING ACTIVITIES
Proceeds from issuance of common
stock and exercise of stock options 395 105
Additions to long-term obligations, net of payments 1,573 3,556
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NET CASH PROVIDED
BY FINANCING ACTIVITIES 1,968 3,661
Effect of exchange rate changes on cash 211 (114)
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Net change in cash (3,091) (882)
Cash at beginning of period 6,115 2,332
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CASH AT END OF PERIOD $3,024 $1,450
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</TABLE>
See notes to consolidated financial statements
7
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SYMIX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Accounting Policies and Presentation
The accompanying consolidated financial statements are unaudited;
however, the information contained therein reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of the
results of operations for the interim periods. All adjustments made were of a
normal recurring nature. These interim results of operations are not
necessarily indicative of the results to be expected for a full year.
The notes to the consolidated financial statements contained in the
Symix Systems, Inc. and Subsidiaries' (the "Company") June 30, 1998
Annual Report to Shareholders should be read in conjunction with these
financial statements. Certain reclassifications have been made to conform
prior quarter amounts to the current quarter presentation.
In the first quarter of fiscal 1999, the Company adopted Statement of
Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP
98-4, which provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions. The adoption of
the SOPs, in certain circumstances, has resulted and may in the future result
in the deferral of software license revenues that would have been recognized
upon delivery of the related software under the preceding accounting
standard, SOP 91-1.
In December 1998, SOP 98-9 was issued which modifies SOP 97-2 with
respect to certain transactions. The Company will be required to adopt SOP
98-9 beginning in fiscal 2000. The Company has not yet determined the effect,
if any, that SOP 98-9 will have on it's revenue recognition policies.
Note B - Acquisitions
On November 24, 1997, the Company acquired Pritsker Corporation
("Pritsker"), for $737,000 in cash and 485,000 common shares of the
Company. Pursuant to the acquisition agreement, (i) Pritsker was merged
with and into a wholly-owned subsidiary of the Company incorporated in Ohio,
(ii) each share of Pritsker common stock was converted into the right to
receive 0.170108 common shares of the Company and (iii) each share of
Pritsker preferred stock was converted into the right to receive $5.23 in
cash plus accrued and unpaid dividends. Each unexercised employee stock
option and outstanding warrant for Pritsker common stock was assumed by Symix
and converted into the right to acquire that number of common shares of the
Company to which the holder would have been entitled if such holder exercised
the option or warrant immediately prior to the merger. Pritsker markets
advanced planning and scheduling and simulation software to mid-market
manufacturers. The transaction was accounted for as a purchase and resulted
in a one-time, non-recurring charge of approximately $6.5 million relating
to the write-off of acquired in-process technology of Pritsker.
The following proforma information (in $000's) displays revenue and net
income assuming the Company and Pritsker had been combined at the beginning
of the period presented. The one time, non-recurring charge of approximately
$6.5 million is excluded from proforma net income.
8
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<TABLE>
<CAPTION>
Six Months
Ended December 31,
---------------------
1998 1997
-------- ---------
<S> <C> <C>
Revenue $59,992 $42,746
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Net Income $3,187 $1,489
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</TABLE>
Note C - Earnings per Share
The Company adopted the provisions of Statement of Financial Accounting
Standard ("SFAS") No. 128, "Earnings Per Share" during the fiscal quarter
ended December 31, 1997. The following table sets forth the computation of
basic and diluted earnings per share (in $000's except per share data):
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) for both basic and diluted
earnings (loss) per share $2,329 ($4,885) $3,187 ($4,353)
---------- --------- --------- ----------
---------- --------- --------- ----------
DENOMINATOR:
Weighted-average shares outstanding 6,551 6,060 6,524 5,959
Contingently issuable shares 97 125 111 125
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Denominator for basic earnings (loss)
per share 6,648 6,185 6,635 6,084
Effect of dilutive securities:
Employee stock options 633 - 635 -
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Denominator for diluted earnings (loss)
per share 7,281 6,185 7,270 6,084
---------- --------- --------- ----------
---------- --------- --------- ----------
Basic earnings (loss) per share $0.35 ($0.79) $0.48 ($0.72)
---------- --------- --------- ----------
---------- --------- --------- ----------
Diluted earnings (loss) per share $0.32 ($0.79) $0.44 ($0.72)
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
During fiscal 1998, if the effect of the non-recurring charge of $6.5
million were excluded from the financial results, the effect of the dilutive
securities should be factored into the denominator for the diluted earnings
per share calculation. The effect of those dilutive securities for the three
month period ended December 31, 1997 would be 604 and for the six month
period 594.
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Note D - Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" as
of July 1, 1998. SFAS No. 130 requires disclosure of total non-stockholder
changes in equity in interim periods and additional disclosures of the
components of non-stockholder changes in equity on an annual basis. Total
non-stockholder changes in equity include all changes in equity during a
period except those resulting from investments by and distributions to
stockholders. The Company has restated information for the prior period
reported below to conform to this standard.
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $2,329 ($4,885) $3,187 ($4,353)
Foreign currency translation adjustment (188) (614) 223 (943)
---------- --------- --------- ----------
Total comprehensive income (loss) $2,141 ($5,499) $3,410 ($5,296)
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Symix is a global provider of open, client/server manufacturing software
for mid-range discrete manufacturers. Symix designs, develops, markets and
supports a fully integrated manufacturing, planning and financial software
system that addresses the ERP requirements of manufacturers.
REVENUE
The Company's net revenue is derived primarily from (1) licensing
Symix software and providing custom programming services; (2) providing
installation, implementation, training, consulting and systems integration
services; and (3) providing maintenance and support on a subscription basis.
Revenue for fiscal 1998 is accounted for in accordance with AICPA Statement
of Position 91-1 on Software Revenue Recognition. Revenue for fiscal 1999 is
accounted for in accordance with SOP 97-2, as amended by SOP 98-4.
Net revenue was $33.1 million for the three months ended December
31, 1998, an increase of 38% from the same quarter of the previous year. Both
license fee and service, maintenance and support revenues contributed to the
net revenue increase, with 31% and 48% increases respectively. For the six
months ended December 31, 1998, net revenue was $60.0 million, an
increase of 44% from the same period of the previous year. Consistent with
the quarter, both license fee and service, maintenance and support revenues
contributed to the six month net revenue increase, with 39% and 51%
increases, respectively.
The license fee component of net revenue of $19.0 million increased 31%
from the same three-month period last year. All three major geographic
channels (North America, Europe and Asia Pacific) contributed to the revenue
growth. A combination of factors attributed to the increase in license fee
revenue. An increased number of sales representatives and overall market
acceptance of the Company's product line resulted in more software sales. The
Company also targeted selling into its existing customer base. As a result,
sales into the existing customer base increased this past quarter to
approximately 25% of total license fees compared to 20% in prior quarters.
International license fee revenue was in line with expectations and increased
slightly to 25% of revenue compared to 21% of license fee revenue for the
same period last year.
Service, maintenance and support revenue of $14.1 million increased
48% from the quarter-to-quarter comparison and to $26.5 million, a 51%
increase for the six month comparison. The significant increases in the
service, maintenance and support revenues for both the three and six month
periods is attributable to the growth of the Company's service organization
to support the increase of new licenses sold during the past few quarters.
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COST OF REVENUE
Total cost of revenue as a percentage of net revenue was 38% for the
quarter ended December 31, 1998, compared to 36% for the quarter ended
December 31, 1997. The six month comparison was similar to the three month,
with cost of revenue as a percentage of net revenue increasing slightly to
38% at December 31, 1998 compared to 37% at December 31, 1997.
Cost of license fees includes royalties, amortization of capitalized
software development costs and software delivery expenses. Cost of license
fees stated as a percentage of license fee revenue was 25% for each three
month period ended December 31, 1998 and 1997, respectively. The six month
period percentages were fairly consistent as well, 26% for the six month
period ended December 31, 1998, and 27% for the six month period ended
December 31, 1997. The slight improvement in the six month period percentage
is attributable to the increase in the license fee revenue relative to the
rate of amortization on capitalized software.
Cost of service, maintenance and support includes the personnel and
related overhead costs for implementation, training, and customer support
services, together with fees paid to third parties for subcontracted
services. Cost of service, maintenance and support increased to 57% of
service, maintenance and support revenue for the three month period ended
December 31, 1998 from 51% for the same period last year. The percentage also
increased slightly from 51% for the six month period ended December 31, 1997
to 54% for the six month period ended December 31, 1998. The increase in this
cost for both the three and six month periods is primarily attributable to
the increase in the amount of third party subcontracted services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense consists of personnel and
related overhead costs including commissions for the sales, marketing,
general and administrative activities of the Company, together with
advertising and promotional costs. Selling, general and administrative
expense increased 29% for the quarter ended December 31, 1998, and as a
percentage of revenue decreased from 46% for the quarter ended December 31,
1997 to 43% for the quarter ended December 31, 1998. Improved productivity in
the international distribution channels, particularly in Asia, contributed to
the lower expense ratio. For the six month periods ended December 31, 1998
and 1997, respectively, selling, general and administrative expense increased
45% and as a percentage of net revenue increased from 45% in 1997 to 46% in
1998. The slight increase in selling, general and administrative expense
ratio for the six month period is related to the increase in staffing, the
spending in infrastructure to support growth and emerging technologies, and
expanding operations.
RESEARCH AND DEVELOPMENT
Research and product development expenditures, including amounts
capitalized for the three months ended December 31, 1998, were $3.4
million compared to $2.8 million for the same period last year. For the
six months ended December 31, 1998, research and development expenses,
including capitalized costs, were $6.8 million compared to $6.1 million
for the same
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period last year. Capitalization of software development costs was $1.2
million for the quarter ended December 31, 1998, compared to $1.1 million for
the comparable period last year. For the six month period ended December 31,
1998, $2.3 million of research and development expense was capitalized
compared to $2.4 million for the same period last year. For the three month
period comparison, as a percentage of net revenue net of software
capitalized, research and development expense remained constant at 7%. In
terms of absolute dollars, research and development expense increased 32%.
For the six month comparison, as a percentage of net revenue net of software
capitalized, research and development expense decreased from 9% for the
period ended December 31, 1997 to 7% for the period ended December 31, 1998.
In terms of absolute dollars, research and development expense increased 19%.
The increase in research and development expenditures is the result of
investments in the expanding product offerings as well as a new release of
the Company's core product - SyteLine version 4.0. Additionally, the new
Electronics, Computers and Consumer product initiative will be launched in
early calendar year 1999.
PROVISION FOR INCOME TAXES
The effective tax rates for the quarters ended December 31, 1998 and
1997 were 40% and 38% (excluding the non-deductible charge of $6.5 million
for acquired research and development) respectively. The increased effective
tax rate is primarily due to, (i) the amount of foreign taxable earnings in
countries with higher effective tax rates and (ii) the non-deductibility of
the amortization of goodwill thereby increasing the Company's overall tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $0.4 million during the
six month period ended December 31, 1998, compared to $0.7 million used in
the same period in 1997. In both periods, cash provided by operating
activities was due principally to earnings and increases in deferred revenues
and non-cash charges. Cash provided by operations was more than offset by the
increase in trade accounts receivable and the decrease in trade payables. The
accounts receivable average days sales outstanding was 106 days at December
31, 1997 compared to 110 days at December 31, 1998. The increase in average
days sales outstanding is primarily attributable to the increase in the
international business. For both periods presented, cash provided by
financing activities was used to fund software development costs and to
purchase computer equipment.
As of December 31, 1998, the Company had $16.9 million in working
capital, including $3.0 million in cash and cash equivalents. The Company
has accessed its $15.0 million unsecured revolving line of credit for
$3.9 million as of December 31, 1998. It is expected that the Company's
continued expansion of its operations and products will result in additional
requirements for cash in the future, which will be met through operations and
the line of credit.
POSSIBLE ADVERSE IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT
In October 1997 the Accounting Standards Executive committee issued
SOP 97-2 "Software Revenue Recognition". SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15,
1997. Accordingly, the Company adopted SOP 97-2 beginning this fiscal year.
The Company believes its current revenue recognition policies and practices
are materially consistent with SOP 97-2. Implementation guidelines for this
standard,
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however, have not yet been issued and a wide range of potential
interpretations is being discussed with the accounting profession. Once
available, such implementation guidance could lead to unanticipated changes
in the Company's current revenue accounting practices, and such changes could
materially adversely affect the Company's future revenue and net income.
In addition, such implementation guidance may necessitate substantial
changes in the Company's business practices in order for the Company to
continue to recognize a substantial portion of its license fee revenue upon
delivery of its software products. Such changes may reduce demand, extend
sales cycles, increase administrative costs and otherwise adversely affect
operations. In addition, the Company could become competitively disadvantaged
relative to foreign-based competitors not subject to U.S. generally accepted
accounting principles.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The Company faces "Year 2000 compliance" issues similar to those faced
by other companies in the information technology industry. Year 2000
compliance issues typically arise with respect to computer software systems
and programs that use only two digits, rather than four digits, to represent
a particular year. Consequently, these systems and programs may not process
dates beyond the year 1999 and may result in miscalculations or system
failures. Year 2000 compliance problems also may arise in embedded systems,
such as environmental system controls, elevators and other products that use
microprocessors or computer chips.
The Company's current product and service offerings, including those
products developed and supported by third party software vendors, have been
designed to be Year 2000 compliant. New products also are being designed by
the Company to be Year 2000 compliant. The Company's existing contracts with
active customers (e.g., customers with effective maintenance and support
agreements with the Company) cover recent software products that are Year
2000 compliant or for which a Year 2000 ready upgrade is available, or do not
expressly obligate the Company to furnish an updated release that is Year
2000 compliant. The Company has communicated with its customers regarding
Year 2000 compliance, notifying them of the availability of upgraded or new
releases of the Company's products which are Year 2000 compliant for certain
older software products released by the Company which may still be in use by
them. In certain cases, the Company has warranted that the Company's current
software product offerings are Year 2000 ready when specifically requested by
the customer. Although the software products currently offered by the Company
have been tested for Year 2000 readiness, any failure of the Company's
software products to perform, including the failure to process dates beyond
the year 2000, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is in the process of assessing the Year 2000 readiness of
selected third parties, including key suppliers, subcontractors, business
partners and customers. To the extent that the Company uses third party
products or technology in its computer software products, the Company has
obtained confirmation of Year 2000 compliance from such third party
providers. A failure of one or more of such suppliers, subcontractors,
business partners or customers to
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sufficiently address their Year 2000 compliance issues could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company also is in the process of reviewing its internal computer
information system and non-computer systems, such as telecommunications
equipment, building elevators, etc., which contain embedded computer
technology, to determine whether such systems are Year 2000 compliant. Most
of the embedded systems on which the Company relies in its daily operations
are owned and managed by the lessors of the facilities in which the Company's
operations are located, or by agents of such lessors. Although the Company's
review of its internal computer information system and non-computer systems
is not expected to be completed until March, 1999, the Company presently
believes that such systems are Year 2000 compliant. The Company is less
certain of the Year 2000 readiness of third parties who provide external
services, such as public utilities, which could adversely impact the
Company's operations. For example, the failure or interruption of electrical
services would disrupt the Company's ability to communicate with its
customers, suppliers, business partners and others. The Company does not
anticipate any material costs associated with Year 2000 compliance relating
to its internal computer information system or non-computer systems.
All costs related to Year 2000 issues are being expensed by the Company.
The Company does not expect that the total costs of evaluation and compliance
with the Company's Year 2000 issues will be material.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM
10-Q CONTAINS "FORWARD-LOOKING STATEMENTS", INCLUDING INFORMATION REGARDING
FUTURE ECONOMIC PERFORMANCE AND PLANS AND OBJECTIVES OF MANAGEMENT, WHICH ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. IN
SOME CASES, INFORMATION REGARDING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM A FORWARD-LOOKING STATEMENT APPEAR
TOGETHER WITH SUCH STATEMENT. OTHER UNCERTAINTIES AND RISKS INCLUDE, BUT ARE
NOT LIMITED TO, DEMAND FOR AND MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS;
THE IMPACT OF COMPETITIVE PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN
EFFICIENT MARKETING AND DISTRIBUTION OPERATIONS DOMESTICALLY AND
INTERNATIONALLY; FUTURE WORLDWIDE ECONOMIC, COMPETITIVE AND MARKET
CONDITIONS; THE COMPANY'S ABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED
TECHNICAL, MANAGERIAL, SALES, MARKETING, SERVICE AND SUPPORT STAFF AND TO
RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL; TIMING OF PRODUCT DEVELOPMENT
AND GENERAL RELEASE; THE COMPANY'S ABILITY TO SUCCESSFULLY RESOLVE ANY YEAR
2000 ISSUES; PRODUCT PRICING AND OTHER FACTORS DETAILED IN THIS QUARTERLY
REPORT ON FORM 10-Q AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in
the normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with the acquisition of Visual Applications Software, Inc.
("VAS") in January, 1997, the Company entered into a Share Exchange
Agreement with the former stockholders of VAS. Under the Share Exchange
Agreement, the Company agreed to exchange Class A Preference Shares of
Symix Systems (Ontario) Inc., a subsidiary of the Company (the "Class A
Shares"), held by the former VAS stockholders for common shares of the
Company. On October 7, 1998, the Company issued 34,768 common shares to
the former VAS stockholders in exchange for 30,000 Class A Shares in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended, and based upon representations from each
former VAS stockholder that the shares were being acquired for his own
account for investment purposes only. The Company did not receive any other
consideration in connection with the issuance of the common shares. The
common shares were subsequently registered with the Securities and Exchange
Commission on Form S-3 (Registration No. 333-64677) at the request of the
former VAS stockholders pursuant to the terms of the Share Exchange Agreement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders of Registrant was held on
November 11, 1998 (the "Meeting").
(b) No response required.
(c) The only matters voted on at the Meeting were (i) the
uncontested election of Lawrence J. Fox, Stephen A. Sasser,
Duke W. Thomas, Larry L. Liebert, John T. Tait and
James A. Rutherford as directors of the Company; and
(ii) the approval of an amendment to Section 6 of the Symix
Systems, Inc. Employee Stock Purchase Plan (the "Plan")
in order to eliminate the exclusion of certain "highly
compensated employees" (as defined in the Plan) from
participation in the Plan. There were
16
<PAGE>
6,092,672 common shares of the Company represented in
person or by proxy at the Meeting.
The manner in which the votes were cast with respect to the
election of directors was as follows:
<TABLE>
<CAPTION>
SHARES
NOMINEE SHARES VOTED "FOR" WITHHELD
------- -------------------- --------
<S> <C> <C>
Lawrence J. Fox 6,015,547 74,125
Stephen A. Sasser 6,019,047 73,625
Duke W. Thomas 6,018,047 74,625
Larry L. Leibert 6,018,547 74,125
John T. Tait 6,016,947 75,725
James A. Rutherford 6,018,864 73,808
</TABLE>
The manner in which the votes were cast with respect to the
proposed amendment to Section 6 of the Plan was as follows:
<TABLE>
<CAPTION>
SHARES VOTED "FOR" SHARES VOTED "AGAINST" ABSTENTIONS BROKER NONVOTES
-------------------- ----------------------- ----------- ---------------
<S> <C> <C> <C>
5,803,179 275,472 6,665 7,356
</TABLE>
(d) Not applicable.
ITEM 5. OTHER INFORMATION.
Symix announced, on January 29, 1999, that its Board of Directors had
elected Stephen A. Sasser, 49, to the position of president and chief executive
officer. Sasser succeeded Larry J. Fox, 42, to the position of chief executive
officer. Fox will continue to serve Symix as chairman.
Sasser has been president and chief operating officer of Symix since July,
1995. Prior to joining Symix, he served as vice president of international
operations for Trilogy Development Group, a provider of client-server sales and
marketing software. From 1992 to 1994, he served as group vice president of the
Systems Management Division and Pacific Rim Operations for Legent Corporation, a
provider of systems management software products and services. Sasser also
served as president of the Data Center Management Division of Goal Systems
International, Inc., which was acquired by Legent in 1992. He holds a B.B.A.
and M.B.A. from Southern Methodist University and currently serves as a director
of Viaserv Corporation and Alkon Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) See Index to Exhibits filed with this Quarterly Report on Form
10-Q following the Signature Page.
b) Reports on Form 8-K: None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYMIX SYSTEMS, INC.
Date: February 16, 1999 /s/ Lawrence W. DeLeon
----------------------
Lawrence W. DeLeon,
Duly Authorized Officer and
Principal Financial Officer
18
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
3(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to
Symix Systems, Inc. (as filed with the Exhibit 3(a)(1) to the Annual Report on
Ohio Secretary of State on February 8, Form 10-K for the fiscal year ended June
1991) 30, 1997
3(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation of Symix Exhibit 3(a)(2) to the Annual Report on
Systems, Inc. (as filed with the Ohio Form 10-K for the fiscal year ended June
Secretary of State on July 16, 1996) 30, 1997
3(a)(3) Amended Articles of Incorporation of Incorporated herein by reference to
Symix Systems, Inc. (reflecting Exhibit 3(a)(3) to the Annual Report on
amendments through July 16, 1996, for Form 10-K for the fiscal year ended June
purposes of SEC reporting compliance 30, 1997
only)
3(b) Amended Regulations of Symix Systems, Incorporated herein by reference to
Inc. Exhibit 3(b) to the Registration Statement
on Form S-1 of Registrant filed on
February 12, 1991 (Registration No.
33-38878)
4(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to
Symix Systems, Inc. (as filed with the Exhibit 3(a)(1) to the Annual Report on
Ohio Secretary of State on February 8, Form 10-K for the fiscal year ended June
1991) 30, 1997
4(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation of Symix Exhibit 3(a)(2) to the Annual Report on
Systems, Inc. (as filed with the Ohio Form 10-K for the fiscal year ended June
Secretary of State on July 16, 1996) 30, 1997
4(a)(3) Amended Articles of Incorporation of Incorporated herein by reference to
Symix Systems, Inc. (reflecting Exhibit 3(a)(3) to the Annual Report on
amendments through July 16, 1996, for Form 10-K for the fiscal year ended June
purposes of SEC reporting compliance 30, 1997
only)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
4(b) Amended Regulations of Symix Systems, Incorporated herein by reference to
Inc. Exhibit 3(b) to the Registration Statement
on Form S-1 of Registrant filed
February 12, 1991 (Registration No.
33-38878)
10 Fourth Amendment to Loan Agreement Among Filed herein
Symix Systems, Inc. and Symix Computer
Systems, Inc. and Bank One, NA
27 Financial Data Schedule Filed herein
99 Press Release Announcing Election Filed herein
of Stephen A. Sasser as President
and Chief Executive Officer
</TABLE>
20
<PAGE>
EXHIBIT 10
FOURTH AMENDMENT TO LOAN AGREEMENT AMONG
SYMIX SYSTEMS, INC. and SYMIX COMPUTER SYSTEMS, INC.
AND
BANK ONE, NA
THIS FOURTH AMENDMENT ("Fourth Amendment") is dated as of December
24, 1998, between SYMIX SYSTEMS, INC., an Ohio corporation ("SSI") and
SYMIX COMPUTER SYSTEMS, INC., an Ohio corporation ("SCSI" and, collectively
with SSI, the "Companies") and BANK ONE, NA, a national association ("Bank
One").
WITNESSETH:
WHEREAS, the Companies and Bank One, parties to that certain Loan
Agreement dated as of May 20, 1996, amended by First Amendment dated as of
August 13, 1997, Second Amendment dated as of March 4, 1998 and further
amended by Third Amendment dated as of June 1, 1998 (the "Agreement"),
have agreed to amend the Agreement on the terms and conditions hereinafter
set forth. Terms not otherwise defined herein are used as defined in the
Agreement as amended hereby.
NOW, THEREFORE, the Companies and Bank One hereby agree as follows:
Section 1. AMENDMENT OF THE AGREEMENT. The Agreement is, effective the
date hereof, hereby amended as follows:
1.1. In Section 1.1.5, the words "daily average unused portion"
shall be deleted and the words "daily unused portion" shall be inserted in
their place.
1.2. In Section 8, the definition of "Debt Service Coverage
Ratio" shall amended and restated in its entirety as follows:
"Debt Service Coverage Ratio" shall mean the
ratio of (a) net income after tax plus
depreciation and amortization plus interest
expense plus $6,503,000 for the non-recurring
charge related to the acquisition and research
and development write off appearing in the
June 30, 1998 financial statements minus
capitalized software minus capital expenditures
to (b) current maturities of long term debt plus
interest expense, all determined in accordance
with generally accepted accounting principles
applied on a consistent basis. The current
maturities of long term debt under the Revolving
Credit Note shall be determined on a pro forma
basis assuming that the then-current principal
<PAGE>
balance of the Revolving Credit Note would be
amortized, on a straight line basis, over 60 months.
1.3. Section 4.20 shall be amended and restated in its entirety as
follows:
4.20. PLEDGE OF INTERCOMPANY NOTE. The Companies
shall cause all the Non-Obligor Subsidiaries (except
Symix Computer Systems (Malaysia) Sdn Bhd.) to
execute an intercompany promissory note that
evidences all borrowings that such Non-Obligor
Subsidiaries make from the Companies of funds
borrowed under the $13,000,000 Revolving Credit
Note, and the Companies shall deliver such
intercompany promissory note to Bank One as
security for the amounts due hereunder and under
the Revolving Credit Notes.
1.4. Section 5.13 shall be amended and restated in its entirety as
follows:
5.13. FUNDING. The Companies shall not use the
proceeds of the Revolving Credit Notes to find
any Non-Obligor Subsidiary acquisitions or
non-operational purposes or obligations other than
operating cash flow of such Non-Obligor Subsidiary.
The Companies shall not (and shall not permit any
Subsidiary to) loan or otherwise advance funds to
Symix Computer Systems (Malaysia) Sdn Bhd. in an
amount to exceed $200,000 in the aggregate
outstanding at any time.
1.5. All references to Symix Italia S.p.A. shall be changed to
Symix Italia S.r.l.
SECTION 2. GOVERNING LAW. This Fourth Amendment shall be governed by and
construed in accordance with the laws of the State of Ohio.
SECTION 3. COSTS AND EXPENSES. All fees, costs or expenses, including
reasonable fees and expenses of outside legal counsel, incurred by Bank One
in connection with either the preparation, administration, amendment,
modification or enforcement of this Fourth Amendment shall be paid by the
Companies on request.
SECTION 4. COUNTERPARTS. This Fourth Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same agreement.
SECTION 5. CONFESSION OF JUDGMENT. Each Company hereby authorizes any
attorney at law to appear for the Company, in an action on this Fourth
Amendment, at any time after the
<PAGE>
same becomes due, as herein provided, in any court of record in or of the
State of Ohio, or elsewhere, to waive the issuing and service of process
against the Company and to confess judgment in favor of the holder of this
Fourth Amendment or the party entitled to the benefits of this Fourth
Amendment against the Company for the amount that may be due, with interest
at the rate herein mentioned and costs of suit, and to waive and release all
errors in said proceedings and judgment, and all petitions in error, and
right of appeal from the judgment rendered. No judgment against one Company
shall preclude Bank One from taking a confessed judgment against the other
Company.
SECTION 6. CONDITIONS PRECEDENT. Simultaneously with the execution
hereof, Bank One shall receive all of the following, each dated the date
hereof, in form and substance satisfactory to Bank One:
6.1. The Assignment of Intercompany Note, dated as of June 1,
1998.
6.2. Such other documents as Bank One may, in its reasonable
discretion, so require.
SECTION 7. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES; NO DEFAULTS.
The Companies hereby expressly acknowledge and confirm that the
representations and warranties of the Company set forth in Section 3 of the
Agreement are true and accurate on this date with the same effect as if made
on and as of this date; that no financial condition or circumstance exists
which would inevitably result in the occurrence of an Event of Default under
Section 6 of the Agreement; and that no event has occurred or no condition
exists which constitutes, or with the running of time or the giving of notice
would constitute an Event of Default under Section 6 of the Agreement.
SECTION 8. REAFFIRMATION OF DOCUMENTS. Except as herein expressly
modified, the parties hereto ratify and confirm all of the terms, conditions,
warranties and covenants of the Agreement, and all security agreements,
pledge agreements, mortgage deeds, assignments, subordination agreements, or
other instruments or documents executed in connection with the Agreement,
including provisions for the payment of the Notes pursuant to the terms of
the Agreement. This Fourth Amendment does not constitute the extinguishment
of any obligation or indebtedness previously incurred, nor does it in any
manner affect or impair any security interest granted to Bank One, all of
such security interests to be continued in full force and effect until the
indebtedness described herein is fully satisfied.
<PAGE>
The Companies have executed this Fourth Amendment as of the date first
above written.
SYMIX SYSTEMS, INC. SYMIX COMPUTER SYSTEMS, INC.
By:/s/ Lawrence W. DeLeon By:/s/ Lawrence W. DeLeon
--------------------------------- ---------------------------------
name: Lawrence W. DeLeon Name: Lawrence W. DeLeon
Its: Vice President, Chief Financial Its: Vice President, Chief Financial
Officer and Secretary Officer and Secretary
WARNING - IN SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
BANK ONE, NA
By:/s/Kimberley C. Currie
---------------------------------
Name: Kimberley C. Currie
Its: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS IN THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998 FOR SYMIX
SYSTEMS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,024
<SECURITIES> 0
<RECEIVABLES> 41,173
<ALLOWANCES> 1,193
<INVENTORY> 672
<CURRENT-ASSETS> 46,999
<PP&E> 17,521
<DEPRECIATION> 10,760
<TOTAL-ASSETS> 73,923
<CURRENT-LIABILITIES> 30,063
<BONDS> 0
0
783
<COMMON> 68
<OTHER-SE> 34,515
<TOTAL-LIABILITY-AND-EQUITY> 73,923
<SALES> 33,498
<TOTAL-REVENUES> 59,992
<CGS> 8,554
<TOTAL-COSTS> 22,916
<OTHER-EXPENSES> 31,869
<LOSS-PROVISION> 130
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 5,299
<INCOME-TAX> 2,112
<INCOME-CONTINUING> 3,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,187
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.44
</TABLE>
<PAGE>
EXHIBIT 99
SYMIX NAMES STEPHEN A. SASSER PRESIDENT AND CEO
COLUMBUS, OHIO, January 29, 1999 - Symix Systems, Inc. (Nasdaq: SYMX)
today announced that its Board of Directors has elected Stephen A. Sasser, 49,
current Symix president and chief operating officer, to the position of
president and chief executive officer. Sasser succeeds Larry J. Fox, 42,
company founder and chairman. Fox will continue to maintain an active role as
chairman, focusing on strategic company initiatives.
"I am pleased to announce Steve's promotion to CEO," said Fox. "As
president of Symix for the past three and a half years, Steve has led the
company to a leadership position in the ERP midmarket. His insight, management
talents and absolute relentless pursuit of organizational excellence have led
Symix to record growth, strong profitability, and industry prominence. I
congratulate Steve and look forward to continuing to work with him as Symix
enters its twentieth year."
Sasser has been president and chief operating officer of Symix since
July 1995. Prior to joining Symix, he served as vice president of International
operations for Trilogy Development Group, a provider of client-server sales and
marketing software. From 1992 to 1994, he served as group vice president of the
Systems Management Division and Pacific Rim Operations for Legent Corporation, a
provider of systems management software products and services. Sasser also
served as president of the
<PAGE>
Data Center management Division of Goal Systems International, Inc., which
was acquired by Legent in 1992. He holds a B.B.A. and an M.B.A. from
Southern Methodist University, and currently serves as a director of Viaserv
Corporation and Alkon Corporation.
Symix Systems, Inc. develops, markets and supports integrated
enterprise management systems that meet the unique needs of midsize
manufacturers. Symix is the originator of Customer Synchronized Resource
Planning (CSRP), which extends Enterprise Resource Planning (ERP) to incorporate
customer needs into manufacturers' central planning processes. CSRP helps
manufacturers achieve a competitive advantage by providing value-added,
customized products and services to their customers. Every day, over 3,500
customers use Symix software, including its SyteLine enterprise software suite
for industrial products markets. Founded in 1979 and headquartered in Columbus,
Ohio, Symix markets its products through sales and service offices in Europe,
North America and the Pacific Rim, as well as through independent software and
support business partners worldwide. Symix company and product information is
available at http://www.symix.com.
###
SyteLine is a registered trademark of Symix Systems, Inc.
