<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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number 0-19024
-------
Symix Systems, Inc.
----------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1083175
---- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2800 Corporate Exchange Drive
Columbus, Ohio 43231
--------------------
(Address of principal executive offices)
(Zip Code)
(614) 523-7000
--------------
(Registrant's telephone number, including area code)
N/A
---
(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
--- ---
The number of common shares, without par value, of the registrant
outstanding as of May 10, 1999 was 6,730,769.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets
March 31, 1999 (unaudited) and
June 30, 1998 Filed herein
Consolidated Statements of Operations (unaudited)
Three Months and Nine Months
Ended March 31, 1999 and 1998 Filed herein
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended March 31, 1999 and 1998 Filed herein
Notes to Consolidated Financial Statements (unaudited) Filed herein
</TABLE>
2
<PAGE>
SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
----------- --------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,261 $ 6,115
Trade accounts receivable, less allowance for
doubtful accounts of $1,227 at March 31, 1999
and $1,063 at June 30, 1998 39,462 32,925
Inventories 718 489
Prepaid expenses 2,300 1,346
Other receivables 743 427
Deferred income taxes 118 573
------- -------
TOTAL CURRENT ASSETS 46,602 41,875
OTHER ASSETS
Purchased and developed software, net of accumulated
amortization of $10,080 at March 31, 1999
and $8,164 at June 30, 1998 12,128 11,012
Deferred income taxes 365 180
Intangibles, net 5,588 5,091
Deposits and other assets 2,015 1,725
------- -------
20,096 18,008
EQUIPMENT AND IMPROVEMENTS
Furniture and fixtures 3,144 2,880
Computer and other equipment 13,593 11,573
Leasehold improvements 1,446 1,262
------- -------
18,183 15,715
Less allowance for depreciation and amortization 11,535 9,216
------- -------
6,648 6,499
------- -------
TOTAL ASSETS $73,346 $66,382
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
----------- --------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 11,049 $ 13,276
Customer deposits 116 288
Deferred revenue 15,793 13,155
Income taxes payable 747 1,304
Current portion of long-term obligations 605 277
-------- --------
TOTAL CURRENT LIABILITIES 28,310 28,300
LONG-TERM OBLIGATIONS 300 305
BANK CREDIT AGREEMENT 3,204 2,000
DEFERRED INCOME TAXES 2,763 2,476
MINORITY INTEREST 2,020 2,000
SHAREHOLDERS' EQUITY
Common stock, authorized 20,000 shares; issued 7,020 shares at March 31,
1999, and 6,778 at June 30, 1998; at stated capital
amounts of $.01 per share 70 68
Convertible preferred stock of subsidiary - 1,031
Capital in excess of stated value 26,414 23,937
Retained earnings 13,467 9,497
Cumulative translation adjustment (1,882) (1,912)
-------- --------
38,069 32,621
Less: Cost of common shares in treasury,
304 shares at March 31, 1999
and June 30, 1998, at cost (1,320) (1,320)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 36,749 31,301
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 73,346 $ 66,382
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
License fees $ 14,137 $ 14,137 $ 47,635 $ 38,171
Service, maintenance and support 17,188 10,185 43,682 27,733
-------- -------- -------- --------
Net revenue 31,325 24,322 91,317 65,904
License fees 4,274 3,688 12,828 10,079
Service, maintenance and support 8,975 5,463 23,337 14,500
-------- -------- -------- --------
Cost of revenue 13,249 9,151 36,165 24,579
-------- -------- -------- --------
Gross Margin 18,076 15,171 55,152 41,325
-------- -------- -------- --------
Selling, general and administrative 14,180 12,204 41,603 31,078
Research and product development 2,617 1,870 7,063 5,614
Acquisition research and development write-off - - - 6,503
-------- -------- -------- --------
Total operating expenses 16,797 14,074 48,666 43,195
-------- -------- -------- --------
Operating income (loss) 1,279 1,097 6,486 (1,870)
Interest and other income (expense), net 26 (67) 117 (132)
-------- -------- -------- --------
Income (loss) before income taxes 1,305 1,030 6,603 (2,002)
Provision for income taxes 522 389 2,634 1,710
-------- -------- -------- --------
Net income (loss) $ 783 $ 641 $ 3,969 ($ 3,712)
-------- -------- -------- --------
-------- -------- -------- --------
Basic EPS:
Net income (loss) per share $ 0.12 $ 0.10 $ 0.60 ($ 0.60)
-------- -------- -------- --------
-------- -------- -------- --------
Diluted EPS:
Net income (loss) per share $ 0.11 $ 0.09 $ 0.54 ($ 0.60)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common
shares outstanding 6,700 6,519 6,657 6,229
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common
shares outstanding assuming dilution 7,309 7,115 7,283 6,229
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
SYMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------
1999 1998
-------- --------
Increase (decrease) in cash
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,969 ($3,712)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Acquisition research and development write-off - 6,503
Depreciation and amortization 5,722 4,250
Provision for losses on accounts receivable 164 323
Provision for deferred income taxes 193 625
Changes in operating assets and liabilities:
Trade accounts receivable (6,880) (7,973)
Prepaid expenses and other receivables (1,282) (62)
Inventory (228) (169)
Deposits (220) (462)
Accounts payable and accrued expenses (2,192) (223)
Customer deposits (171) (340)
Deferred revenue 2,652 959
Income taxes payable/refundable (196) 373
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,531 92
</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>
Nine Months Ended
March 31,
---------------------------
1999 1998
--------- --------
Increase (decrease) in cash
<S> <C> <C>
INVESTING ACTIVITIES
Purchase of equipment and improvements (2,516) (2,144)
Additions to purchased and developed software (3,490) (3,393)
Purchase of subsidiaries, net of cash acquired (638) (149)
------- -------
NET CASH USED BY
INVESTING ACTIVITIES (6,644) (5,686)
FINANCING ACTIVITIES
Proceeds from issuance of common
stock and exercise of stock options 1,118 566
Additions to long-term obligations, net of payments 926 3,824
------- -------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 2,044 4,390
Effect of exchange rate changes on cash 215 51
------- -------
Net change in cash (2,854) (1,153)
Cash at beginning of period 6,115 2,332
------- -------
CASH AT END OF PERIOD $ 3,261 $ 1,179
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
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" or "Symix") 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 its 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 the Company 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.
8
<PAGE>
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.
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
------------------------
1999 1998
------- -------
<S> <C> <C>
Revenue $91,317 $67,069
------- -------
------- -------
Net Income $ 3,969 $ 2,163
------- -------
------- -------
</TABLE>
On February 24, 1999, the Company entered into a merger agreement
with Distribution Architects International ("DAI"), a supply chain management
application vendor. Due to market conditions, the merger agreement was
amended on April 8, 1999. The Company will issue up to 625,000 of its common
shares to acquire 100% of the outstanding shares of DAI. Pursuant to the
acquisition agreement, (i) DAI will be merged with and into a wholly-owned
subsidiary of the Company incorporated in Ohio, (ii) each share of DAI common
stock will be converted into the right to receive 0.1313 common shares of the
Company and (iii) each DAI stock option outstanding will be converted into
the right to receive that number of common shares of the Company equal to
$2.17, which is the per share value of DAI stock as agreed to by DAI and the
Company, less $1.242, which is the stock option exercise price, multiplied by
the number of shares of DAI covered by the stock option, and divided by
$18.50. The transaction will be accounted for using purchase accounting. The
merger is scheduled to be completed in June, 1999 and is subject to the
approval of DAI shareholders.
9
<PAGE>
Note C - Earnings per Share
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 Nine Months
Ended March 31, Ended March 31,
------------------------ -------------------------
1999 1998 1999 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) for both basic and diluted
earnings (loss) per share $ 783 $ 641 $ 3,969 ($3,712)
------- ------- ------- --------
------- ------- ------- --------
DENOMINATOR:
Weighted-average shares outstanding 6,696 6,394 6,581 6,104
Contingently issuable shares 4 125 76 125
------- ------- ------- --------
Denominator for basic earnings (loss)
per share 6,700 6,519 6,657 6,229
Effect of dilutive securities:
Employee stock options 609 596 626 -
------- ------- ------- --------
Denominator for diluted earnings (loss)
per share 7,309 7,115 7,283 6,229
------- ------- ------- --------
------- ------- ------- --------
Basic earnings (loss) per share $ 0.12 $ 0.10 $ 0.60 ($ 0.60)
------- ------- ------- --------
------- ------- ------- --------
Diluted earnings (loss) per share $ 0.11 $ 0.09 $ 0.54 ($ 0.60)
------- ------- ------- --------
------- ------- ------- --------
</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 nine month period ended March 31, 1998 would be 595 shares.
10
<PAGE>
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 Nine Months
Ended March 31, Ended March 31,
------------------------- ------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 783 $ 641 $ 3,969 ($3,712)
Foreign currency translation adjustment (193) 193 31 (749)
------- ------- ------- -------
Total comprehensive income (loss) $ 590 $ 834 $ 4,000 ($4,461)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SYMIX SYSTEMS INC.
Symix Systems, Inc. ("Symix" or the "Company") is a global provider
of open, client/server manufacturing software for mid-range manufacturers.
Symix designs, develops, markets and supports a fully integrated manufacturing,
planning and financial software system that addresses the Enterprise Resource
Planning requirements of manufacturers.
REVENUE
Symix'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 ("SOP") 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 $31.3 million for the three months ended March 31,
1999, an increase of 29% from the same quarter of 1998. Service, maintenance
and support revenue contributed to the net revenue increase with a 69%
increase from the same quarter of 1998. License fee revenue for the three
months ended March 31, 1999 was comparable to license fee revenue for the
same quarter of 1998. For the nine months ended March 31, 1999, net revenue
was $91.3 million, an increase of 39% from the same period of 1998. License
fee revenue increased by 25%, while service, maintenance and support revenue
increased by 58%, compared with the nine months ended March 31, 1998. In
total, international revenue represented approximately 20% of total Symix net
revenue during the three months ended March 31, 1999, down slightly from the
22%-25% realized by the Company in recent preceding quarters.
During the three months ended March 31, 1999, Symix was adversely
impacted by the industry-wide trend of delays in new business system purchases
due to the Year 2000 market dynamics, as manufacturers delayed major business
system purchases. As a result, the license fee component of net revenue of
$14.1 million approximated license fee revenue for the same quarter of 1998.
For the nine months ended March 31, 1999, however, license fee revenue
increased 25%, compared to the same period of 1998, from $38.2 million at
March 31, 1998 to $47.6 million at March 31, 1999. The effect of an increased
number of sales representatives and overall market acceptance of Symix's
product line offset the adverse impact of the Year 2000 issue on license fee
revenue during the nine months ended March 31, 1999.
Service, maintenance and support revenue increased 69% during the
three months ended March 31, 1999 to $17.2 million compared to $10.2 million
during the same quarter of 1998. For the nine months ended March 31, 1999,
service, maintenance and support revenue increased 58% to $43.7 million
compared to the same period of 1998. The significant increase in the service,
maintenance and support revenue for both the three and nine month periods is
attributable to the
12
<PAGE>
growth of Symix's service organization to support the increase of new
licenses sold during the past few quarters and to support the expanding
product line.
COST OF REVENUE
Total cost of revenue as a percentage of net revenue was 42% for the
three months ended March 31, 1999, compared to 38% for the same quarter of
1998. The nine month comparison was similar to the three month comparison,
with cost of revenue as a percentage of net revenue increasing to 40% at
March 31, 1999, compared to 37% at March 31, 1998.
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 30% for the three
months ended March 31, 1999 and 26% for the three months ended March 31,
1998. For the nine months ended March 31, 1999 the percentage was 27%
compared to 26% for the nine months ended March 31, 1998. For both the three
and nine month periods the percentage increase in cost of license fees is
attributable to the increase in the rate of amortization on capitalized
software relative to license fee revenue. During the quarter ended March 31,
1999, Symix began amortizing the software capitalized related to its new
product initiative SyteCentre that was released during that quarter.
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 stated as a percentage of
service, maintenance and support revenue, decreased from 54% for the three
month period ended March 31, 1998 to 52% for the three months ended March 31,
1999. The service, maintenance and support margin improved as a result of
enhanced use of Symix's service personnel as well as new pricing implemented
at the beginning of the fiscal year. For the nine months ended March 31,
1999, the percentage increased slightly to 53% from 52% for the same period
of 1998. The costs of the subcontracted services for the nine month period
accounts for the slight increase.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense consists of personnel and
related overhead costs, including commissions for the sales, marketing,
general and administrative activities of Symix, together with advertising and
promotional costs. Selling, general and administrative expense was
$14.2 million for the three months ended March 31, 1999 compared to
$12.2 million for the same quarter of 1998, a 16% increase. As a percentage
of net revenue, selling, general and administrative expense was 45% compared
to 50% for the same quarter of 1998. On a year-to-date comparison basis the
trend is also favorable. Selling, general and administrative expense
increased 34% for the nine months ended March 31, 1999, and as a percentage
of net revenue dropped from 47% in 1998 to 45% in 1999. The improvement in
these percentages is related to the increase in percentage of service,
maintenance and support revenue versus license fees revenue in the net
revenue mix.
13
<PAGE>
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses include personnel and
related overhead costs for product development, enhancement, upgrades,
quality assurance and testing. Research and product development expenditures,
including amounts capitalized for the three months ended March 31, 1999 were
$3.6 million compared to $2.9 million for the same quarter of 1998. For the
nine months ended March 31, 1999, research and product development
expenditures, including amounts capitalized were $10.4 million compared to
$9.0 million for the same period of 1998. Symix capitalized research and
product development costs of $1.0 million for both the three months ended
March 31, 1999 and 1998. For both the nine month periods ended March 31, 1999
and 1998, Symix capitalized $3.3 million of research and product development
costs. For the three month period comparison, as a percentage of net revenue
net of software capitalized, research and product development expense
remained constant at 8%. In terms of absolute dollars, research and product
development expense increased 40%. For the nine month comparison, as a
percentage of net revenue net of software capitalized, research and product
development expense decreased from 9% for the period ended March 31, 1998 to
8% for the period ended March 31, 1999. In terms of absolute dollars,
research and product development expense increased 26%. The increase in
research and product development expenses is the result of investments in the
expanding product offerings of Symix, as well as Symix's new product
initiative SyteCentre that was released during the quarter.
PROVISION FOR INCOME TAXES
The effective tax rates for the three months ended March 31, 1999
and 1998 were 40% and 38%, 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 Symix's overall tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Symix's operating activities provided cash of $1.5 million during the
nine months ended March 31, 1999, compared to $92 thousand provided in the
same period in 1998. In both periods, cash provided by operating activities
was due principally to earnings (after adding back the $6.5 million
non-recurring charge in 1998) and increases in deferred revenues. The
accounts receivable average days sales outstanding was 103 days at March 31,
1998 compared to 106 days at March 31, 1999. 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 and to purchase
computer equipment.
As of March 31, 1999, Symix had $18.3 million in working capital,
including $3.3 million in cash and cash equivalents. Symix has accessed its
$15.0 million unsecured revolving line of credit for $3.2 million as of
March 31, 1999. It is expected that Symix's continued expansion of its
operations and products will result in additional requirements for cash in
the future, which will be met through cash from operations and the existing
line of credit.
14
<PAGE>
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, Symix adopted SOP 97-2 beginning this fiscal year. Symix
believes its current revenue recognition policies and practices are
materially consistent with SOP 97-2. Implementation guidelines for this
standard, 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 Symix's current revenue accounting practices, and such changes could
materially adversely affect Symix's future revenue and net income.
In addition, such implementation guidance may necessitate
substantial changes in Symix's business practices in order for Symix 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, Symix could become competitively disadvantaged
relative to foreign-based competitors not subject to U.S. generally accepted
accounting principles.
In December 1998, SOP 98-9 was issued which modifies SOP 97-2 with
respect to certain transactions. Symix will be required to adopt SOP 98-9
beginning in fiscal 2000. Symix has not yet determined the effect, if any,
that SOP 98-9 will have on its revenue recognition policies.
RECENT DEVELOPMENTS
Symix has entered into a definitive agreement to acquire
Distribution Architects International, Inc. ("DAI"), a Texas corporation,
which designs, develops, markets and supports software products that address
the distribution requirements of its customers. Pursuant to the agreement,
(i) DAI will be merged with and into a wholly-owned subsidiary of Symix and
(ii) each share of DAI common stock will be converted into the right to
receive 0.1313 of a common share of Symix. Each unexercised option for DAI
common stock will be converted into the right to receive that number of
common shares of Symix equal to $2.17, less the stock option exercise price
of $1.242, multiplied by the number of shares of DAI common stock covered by
the option, and divided by $18.50. If approved by DAI shareholders, it is
expected that the merger will be consummated on June 9, 1999. In connection
with the merger, it is currently estimated that Symix will incur a
non-recurring charge of approximately $1.1 million relating to the write-off
of acquired in-process technology of DAI, which will occur in the quarter in
which the merger is completed. A Registration Statement on Form S-4 covering
the Symix common shares to be issued in the merger has been filed with the
Securities and Exchange Commission and became effective on May 5, 1999.
The DAI transaction was publicly announced in a press release issued
by Symix on March 8, 1999 and copies of Symix's press releases relating to
the DAI transaction are included as an exhibit to this report.
15
<PAGE>
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 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. The
Company's review of its internal computer information system and non-computer
systems has been largely completed. 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
16
<PAGE>
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; THE RECEIPT OF REQUIRED DAI
SHAREHOLDERS' APPROVAL OF THE MERGER AGREEMENT WITH DAI, INTEGRATION OF DAI'S
BUSINESS WITH THE COMPANY'S BUSINESS AND THE ABILITY OF THE COMPANY TO RETAIN
KEY DAI 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.
17
<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.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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.
18
<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.
/s/ Lawrence W. DeLeon
Date: May 14, 1999 ------------------------------------
Lawrence W. DeLeon,
Duly Authorized Officer and
Principal Financial Officer
19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
2(a) Agreement of Merger, dated as of Incorporated herein by
February 24, 1999, among reference to Appendix A to the
Distribution Architects Proxy Statement/Prospectus in
International, Inc., Symix Part I of the Registration
Systems, Inc. and Symix Statement on Form S-4 of
Acquisition Corp. Registrant filed on May 3,
1999 (Registration No. 333-
76567)
2(b) Amendment No. 1 to Agreement of Incorporated herein by
Merger, dated as of April 8, reference to Appendix A to the
1999, among Distribution Proxy Statement/Prospectus in
Architects International, Inc., Part I of the Registration
Symix Systems, Inc. and Symix Statement on Form S-4 of
Acquisition Corp. Registrant filed on May 3,
1999 (Registration No. 333-
76567)
3(a)(1) Amended Articles of Incorporation Incorporated herein by
of Symix Systems, Inc. (as filed reference to Exhibit 3(a)(1)
with the Ohio Secretary of State to the Annual Report on Form
on February 8, 1991) 10-K for the fiscal year ended
June 30, 1997
3(a)(2) Certificate of Amendment to the Incorporated herein by
Amended Articles of Incorporation reference to Exhibit 3(a)(2)
of Symix Systems, Inc. (as filed to the Annual Report on Form
with the Ohio Secretary of State 10-K for the fiscal year ended
on July 16, 1996) June 30, 1997
3(a)(3) Amended Articles of Incorporation Incorporated herein by
of Symix Systems, Inc. reference to Exhibit 3(a)(3)
(reflecting amendments through to the Annual Report on Form
July 16, 1996, for purposes of 10-K for the fiscal year ended
SEC reporting compliance only) June 30, 1997
3(b) Amended Regulations of Symix Incorporated herein by
Systems, Inc. reference to Exhibit 3(b) to
the Registration Statement on
Form S-1 of Registrant filed
on February 12, 1991
(Registration No. 33-38878)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
4(a)(1) Amended Articles of Incorporation Incorporated herein by
of Symix Systems, Inc. (as filed reference to Exhibit 3(a)(1)
with the Ohio Secretary of State to the Annual Report on Form
on February 8, 1991) 10-K for the fiscal year ended
June 30, 1997
4(a)(2) Certificate of Amendment to the Incorporated herein by
Amended Articles of Incorporation reference to Exhibit 3(a)(2)
of Symix Systems, Inc. (as filed to the Annual Report on Form
with the Ohio Secretary of State 10-K for the fiscal year ended
on July 16, 1996) June 30, 1997
4(a)(3) Amended Articles of Incorporation Incorporated herein by
of Symix Systems, Inc. reference to Exhibit 3(a)(3)
(reflecting amendments through to the Annual Report on Form
July 16, 1996, for purposes of 10-K for the fiscal year ended
SEC reporting compliance only) June 30, 1997
4(b) Amended Regulations of Symix Incorporated herein by
Systems, Inc. reference to Exhibit 3(b) to
the Registration Statement on
Form S-1 of Registrant filed
February 12, 1991
(Registration No. 33-38878)
4(c) Share Exchange Agreement dated Incorporated herein by
January 9, 1997 reference to Exhibit 99 to
Registrant's Current Report on
Form 8-K, dated January 9,
1997
27 Financial Data Schedule Filed herein
99 Press Releases Related to the Filed herein
Acquisition of Distribution
Architects International, Inc.
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS IN THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 FOR SYMIX
SYSTEMS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,261
<SECURITIES> 0
<RECEIVABLES> 40,689
<ALLOWANCES> 1,227
<INVENTORY> 718
<CURRENT-ASSETS> 46,602
<PP&E> 18,183
<DEPRECIATION> 11,535
<TOTAL-ASSETS> 73,346
<CURRENT-LIABILITIES> 28,310
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> 36,679
<TOTAL-LIABILITY-AND-EQUITY> 73,346
<SALES> 47,635
<TOTAL-REVENUES> 91,317
<CGS> 12,828
<TOTAL-COSTS> 36,165
<OTHER-EXPENSES> 48,666
<LOSS-PROVISION> 164
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> 6,603
<INCOME-TAX> 2,634
<INCOME-CONTINUING> 3,969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,969
<EPS-PRIMARY> .60
<EPS-DILUTED> .54
</TABLE>
<PAGE>
EXHIBIT 99
PRESS RELEASES RELATED TO THE ACQUISITION OF
DISTRIBUTION ARCHITECTS INTERNATIONAL, INC.
<PAGE>
SYMIX SIGNS AGREEMENT TO ACQUIRE DISTRIBUTION ARCHITECTS
INTERNATIONAL, INC., A SUPPLY CHAIN MANAGEMENT VENDOR
- SYMIX TO BROADEN MIDMARKET OFFERINGS WITH DAL PRODUCTS, EXPERTISE -
COLUMBUS, OHIO, March 8, 1999 -- Symix Systems, Inc. (Nasdaq: SYMX)
today announced that it has entered into a definitive agreement to acquire
Distribution Architects International, Inc. ("DAI"), a provider of supply
chain management applications for distribution organizations. Symix intends
to issue up to 610,000 common shares in exchange for all of the outstanding
common stock of DAI through a merger of DAI with a subsidiary of Symix. The
acquisition, anticipated to close within 90 days, is expected to be accounted
for through a pooling of interests and is expected to be earnings neutral in
the fourth quarter of fiscal 1999 and for the fiscal 2000. The acquisition
is subject to regulatory and DAI stockholders' approval and other conditions
of closing. Other terms of the agreement have not been disclosed.
By acquiring DAI, Symix will expand its market reach into distribution
markets. Symix will have proven applications and the midmarket expertise to
serve both midsize distribution and manufacturing companies.
DAI, headquartered in Tempe, Ariz., develops and markets supply chain
management applications to distributors, retailers and manufacturers, with
over 100 customers worldwide. Its extensive product suite, marketed under
the Visible Results -Registered Trademark- brand name, includes supply chain
planning, supply chain execution, inventory/warehouse management, financial
management, and a comprehensive e-business solution. The company reported
revenues of $13.5 million in calendar year 1998, and has 110 employees.
"We are rapidly entering a period where product delivery, speed and
reliability will increasingly become the major determinant to market
success," said Stephen A. Sasser, Symix President and Chief Executive
Officer. "Symix will continue its midmarket leadership role and aggressively
bring supply chain management and supply chain execution products and
expertise to the distribution and manufacturing midmarkets. Our acquisition
of DAI will enable Symix to leverage our midmarket skills and our CSRP vision
to distribution companies, and to deliver supply chain management
applications to our midmarket manufacturing customers."
"This acquisition will bring new expertise and new opportunities to DAI
and our customers," said Thomas E. Cain, DAI President and Chief Executive
Officer. "Symix's midmarket leadership position and its ability to rapidly
deploy new products and new technologies make it an ideal partner for DAI.
In our 20 years of experience with distribution markets, we are seeing the
line between manufacturing and distribution start to fade. Retail is
becoming less inventory intensive, and manufacturers and distributors are
under increasing pressure to deliver reliable, point-to-point distribution
services. Together, Symix and DAI will leverage our respective technologies
and expertise to address this new trading environment, and deliver
comprehensive solutions to both our manufacturing and distribution customers."
<PAGE>
DAI will maintain offices in Tempe and operate as an independent Symix
business unit, delivering its Visible Results application lines to
distributors. Symix will leverage the DAI applications into its midsize
manufacturing markets.
"DAI has assembled a talent pool of world-class distribution experts,"
said Sasser. "Symix will capitalize on the knowledge and talents of the DAI
teams as we continue their acceleration of product delivery and service."
Symix and DAI share a common customer-focused technology vision for the
midmarket. Both Symix and DAI products are architected using Microsoft
tools. DAI is a member of Microsoft's Value Chain Initiative (VCI), and its
e-business product suite is built with Microsoft Commerce platform
components. Symix launched its new enterprise management application suite
for consumer-oriented manufacturers, SyteCentre, at Microsoft's Windows for
Distributed interNet Applications architecture for Manufacturing (Windows DNA
for Manufacturing) in Seattle last week.
RB&W Logistics, an international logistics company supplying
hardware-type items to original equipment manufacturers, uses both DAI and
Symix applications to manage its distribution and manufacturing operations.
Lowell Andolsen, MIS Manager for RB&W, said, "Our two divisions have
picked the best to meet their needs and now the best have picked each other."
ABOUT DAI
Distribution Architects International, Inc. (DAI) is a leading provider
of integrated enterprise solutions consisting of supply chain management,
electronic business, and distribution applications for open systems markets.
The company develops and markets products and services under the Visible
Results brand name. Products are marketed through regional offices in the
U.S. and Canada. For more information visit the DAI Web site at
http://www.distribution.com.
ABOUT SYMIX
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.
<PAGE>
###
THE STATEMENTS MADE IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL FACT ARE
"FORWARD LOOKING STATEMENTS" THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING,
BUT NOT LIMITED TO, THE RECEIPT OF REQUIRED DAI STOCKHOLDERS' AND REGULATORY
APPROVALS, THE SUCCESSFUL COMPLETION OF THE DAI ACQUISITION AND INTEGRATION
OF DAI'S BUSINESS WITH SYMIX, PRODUCT DEMAND AND MARKET ACCEPTANCE,
CUSTOMER-SPECIFIC ENTERPRISE SOFTWARE REQUIREMENTS, NEW PRODUCT DEVELOPMENTS,
THE ABILITY OF SYMIX TO RETAIN KEY DAL PERSONNEL, THE EFFECT OF ECONOMIC
CONDITIONS, THE IMPACT OF COMPETITIVE PRODUCTS, PRICING AND OTHER FACTORS
DETAILED IN SYMIX'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
SyteLine is a registered trademark and SyteCentre is a trademark of Symix
Systems, Inc. All other products mentioned are trademarks or registered
trademarks of their respective companies.
<PAGE>
SYMIX AMENDS AGREEMENT TO ACQUIRE DISTRIBUTION ARCHITECTS
INTERNATIONAL, INC.
COLUMBUS, OHIO, April 9, 1999 - Symix Systems, Inc. (Nasdaq: SYMX)
today announced that, due to recent changes in the market price for Symix
shares, Symix and Distribution Architects International, Inc. ("DAI"), a
provider of supply chain management applications for distribution
organizations, have amended their agreement for the acquisition of DAI by
Symix. Symix now intends to issue up to 625,000 common shares in exchange
for all of the outstanding common stock of DAI through a merger of DAI with a
subsidiary of Symix. In addition, the proposed terms of an employment
agreement to be entered into by Thomas B. Cain, President and principle
shareholder of DAI, and the surviving corporation in the merger will be
amended. The definitive agreement to acquire DAI was originally announced in
a press release issued on March 8, 1999.
The acquisition now is expected to be accounted for as a purchase
transaction. The transaction is expected not to be dilutive for the fourth
quarter of Symix's 1999 fiscal year or for its fiscal year 2000. The
acquisition is subject to regulatory and DAI stockholders' approval and other
conditions of closing. Other terms of the agreement have not been disclosed.
ABOUT DAI
Distribution Architects International, Inc. (DAI) is a leading provider
of integrated enterprise solutions consisting of supply chain management,
electronic business, and distribution applications for open systems markets.
The company develops and markets products and services under the Visible
Results brand name. Products are marketed through regional offices in the
U.S. and Canada. DAI reported revenues of $13.5 million in calendar year
1998, and has 110 employees. For more information, visit the DAI Web site at
http://www.distribution.com.
ABOUT SYMIX
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 and its SyteCentre suite for consumer
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.
###
<PAGE>
THE STATEMENTS MADE IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL FACT ARE
"FORWARD LOOKING STATEMENTS" THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING,
BUT NOT LIMITED TO, THE RECEIPT OF REQUIRED DAI STOCKHOLDERS' AND REGULATORY
APPROVALS, THE SUCCESSFUL COMPLETION OF THE DAI ACQUISITION AND INTEGRATION
OF DAI'S BUSINESS WITH SYMIX, THE EFFECT OF ECONOMIC CONDITIONS, AND OTHER
FACTORS DETAILED IN SYMIX'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
SyteLine is a registered trademark and SyteCentre is a trademark of Symix
Systems, Inc. All other products mentioned are trademarks or registered
trademarks of their respective companies.
