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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<CAPTION>
(MARK ONE)
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-19024
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SYMIX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 31-1083175
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2800 CORPORATE EXCHANGE DRIVE 43231
COLUMBUS, OHIO (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (614) 523-7000
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Securities registered pursuant to section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES NO-PAR VALUE
Title of Class
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant at September 19, 2000 was $42,183,986.
The number of common shares outstanding at September 19, 2000 was
7,505,157.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) The Registrant's Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on November 8, 2000 is incorporated by
reference into Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
Symix Systems, Inc. ("Symix" or the "Company") is a leading global provider
of integrated enterprise software solutions for mid-sized manufacturing and
distribution companies and business units of larger companies. These software
solutions include a comprehensive suite of integrated business to business
("b2b") e-business offerings that support customer relationship management
("CRM"), web based procurement and supply chain management activities. The Symix
enterprise software solution also delivers extensive traditional "back office"
requirements for manufacturing, distribution and financial management. Through
workflow automation and open architecture integration tools, Symix provides a
comprehensive end to end business system solution that encompasses both
e-business and traditional enterprise solutions. As the primary business system
provider for its customers, Symix also offers implementation and e-business
consulting services to support customer requirements.
The e-business suite of software can be sold and deployed independently of
Symix's traditional "back office" enterprise solution and can be integrated with
third party enterprise software packages. Recognizing the opportunity to expand
into new markets and channels through its extensive e-business offerings, Symix
established a new subsidiary, Frontstep, Inc., in January 2000 to focus on the
Company's e-business initiatives. In its transition to a leading b2b e-business
provider, Symix plans to change its name from Symix Systems, Inc. to Frontstep,
Inc., subject to shareholder approval at the annual meeting of shareholders to
be held on November 8, 2000.
Following its change of name to Frontstep, Inc., the Company plans to
continue selling its total business system solution to manufacturers, including
both the e-business front-end and the traditional enterprise solution, under the
Symix brand name. Additional channels selling the e-business suite of products
have been established under the Frontstep brand name and will target
distribution companies and third party partners such as consulting firms,
resellers, application service providers and trading exchanges.
In addition to providing traditional implementation and training services,
the Company established a new subsidiary, brightwhite solutions, inc., in
February 2000, to deliver e-business consulting services. Through these
services, brightwhite rapidly designs and deploys an e-business web site, then
builds market, channel and customer intelligence through this site.
The Company has more than 4,000 customer sites, which it services and
supports through a worldwide network of 27 offices in 13 countries. Symix was
incorporated under the laws of the State of Ohio in 1984. The Company's
principal executive offices are located at 2800 Corporate Exchange Drive,
Columbus, Ohio 43231, and its telephone number is (614) 523-7000.
INDUSTRY BACKGROUND
An extremely competitive environment and the rapid growth of e-business
(the exchange of goods and services electronically) are dramatically impacting
the business system requirements of manufacturers and distributors. The Company
believes that managing customer relationships, maximizing productivity of
distribution channels, procuring goods and services over the web and improving
performance of supply chains are essential requirements for the new world
economy. The Company further believes that web based technology represents both
a requirement and a significant opportunity for continued productivity gains,
customer satisfaction and revenue growth.
The expanded connectivity and collaboration over the Internet between
buyers and suppliers has changed the way that business is being conducted. A
growing percentage of business transactions is being handled over the web where
promises are being made. The Company believes that the ultimate success of
e-business will turn on the ability of enterprises to keep those promises by
ensuring that customer orders are properly planned, scheduled and fulfilled. The
Company further believes that supporting the Internet world of "make a promise"
with the "keep a promise" physical world will require the integration of
e-business solutions with traditional back office enterprise offerings. In the
view of the Company, traditional back office enterprise resource planning
("ERP")
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solutions are still required today to enhance operational efficiencies of
production and distribution and to manage resources across the enterprise.
The Internet is also bringing significant opportunities for improving the
performance of the supply chain. In its simplest form, a supply chain is a
network of companies or enterprises that work together to deliver value to a
customer. The rationale for a supply chain is that a network of companies
working together can outperform other groups that do not work together.
Effective supply chain management can provide improved customer services,
improved asset management such as reduced inventories and receivables and lower
transaction costs. Web based technology and the network infrastructure has
enabled supply chains to improve real-time communication and collaboration
between and within enterprises.
The Company has seen another significant trend in the increasing number of
manufacturers and distributors that are seeking ways to use CRM software to
improve both customer interaction and the effectiveness of the direct sales
channel and third party channel partners. These solutions include managing CRM
from lead generation, to sales quoting and configuration and to after-market
customer service.
The Company believes that requirements for the mid-market include an
enterprise software solution that integrates e-business, supply chain, CRM and
traditional ERP and that the solution must be rapidly deployable, scalable and
flexible, resulting in a low total cost of ownership and rapid return on
investment.
According to AMR, a software market analysis firm, the worldwide software
marketplace for each of the major markets and projected annual growth rates are
as follows:
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<CAPTION>
WORLDWIDE
SOFTWARE REVENUE IN 2000 PROJECTED ANNUAL
MARKET (IN BILLIONS) GROWTH THROUGH 2004
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<S> <C> <C>
e-commerce......................................... $ 3.9 56%
supply chain....................................... $ 5.4 40%
CRM................................................ $ 6.8 36%
ERP................................................ $19.1 7%
</TABLE>
THE SYMIX SOLUTION
The Symix solution includes a comprehensive suite of e-business and
enterprise software products that are intended to be rapidly deployable,
scalable, flexible and reliable, resulting in a low total cost of ownership and
a rapid return on investment. Although integrated to the traditional Symix core
enterprise systems, SyteLine and SyteCentre, the e-business product suite can be
sold as stand alone modules that can be integrated to third party enterprise
solutions. Therefore, customers interested in rapidly deploying an e-business
strategy can implement e-business products and integrate to existing enterprise
software solutions using workflow automation and open architecture integration
tools provided by Symix without having to implement SyteLine and SyteCentre.
The Company combines its core enterprise systems with complementary
e-business products, in order to deliver a complete end to end business system
that integrates customer needs and requirements, CRM with channel management,
supplier sourcing, and enterprise supply chain management with the business
planning and execution systems. The Company believes its approach results in
enhanced customer relationships, increased productivity, improved operating
efficiency, including maximizing supply chain performance and lower total cost
of ownership. The goal of the Symix solution is to provide the following
benefits to its customers:
Improved customer relationships. The Company's e-business product offerings
and core enterprise systems integrate customer requirements with sales,
marketing, engineering, manufacturing and customer service information, in order
to achieve more accurate planning and scheduling decisions, rapid response
times, better on-time deliveries, improved order fulfillment, improved field
service delivery and overall customer satisfaction.
Improved supplier relationships. The Company's web based procurement
software and access to trading exchanges are intended to enable manufacturers
and distributors to better control procurement activities, negotiate volume
discounts and develop preferred vendor relationships resulting in improved
efficiency of purchasing efforts, improved vendor service levels and reduced
cost of materials.
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Improved supply chain performance. The Company's digital supply chain
approach utilizes Internet technology in a distributed environment to provide
real-time collaborative planning, workflow automation and committed delivery
dates that are geared to the largest components of supply chains, mid-market
suppliers and customers. The digital supply chain approach enables orders to be
taken via the web, via other supply chain systems and via trade exchanges. An
improved supply chain results in enhanced customer service, improved asset
management such as lower inventories and receivables and lower transaction
costs.
Reduced total cost of ownership. The Company's solutions are designed to
minimize the total cost of implementing, operating and maintaining enterprise
systems and to maximize operating efficiency. Symix's software runs on standard
hardware platforms, providing users with the flexibility to leverage existing
technology systems and to optimize system configurations. The modular design of
the Company's software allows manufacturers and distributors to implement
systems quickly and easily and provides the flexibility to add additional
functionality or change business process models as customer needs and business
requirements change.
Reduced time to benefit. The Company believes its ability to implement its
software solution rapidly and to reduce manufacturers' and distributors' time to
benefit is a key competitive advantage. The Company attempts to reduce
implementation time in three ways. First, Symix employs a structured
implementation methodology that separates the solution implementation process
into distinct and manageable phases, in order to ensure coordination throughout
the implementation process. Second, the Company's proprietary business process
modeling tool enables customers to map the appropriate systems and procedures
necessary to increase the speed of the deployment process. Third, Symix
maintains strategic relationships with numerous business partners, which enable
the Company to provide a solution that addresses enterprise system needs in an
integrated fashion with minimal customer disruption.
STRATEGY
Based on the vision that "the network is the business," the Company's
mission is to provide a complete source of integrated b2b e-business solutions
for manufacturers and distributors. The key components of the Company's strategy
include:
Capitalize on new opportunities and new markets through e-business
software, connections to web services and consulting services. The Company's
objective is to serve as a "one-stop source" for e-business products,
partnerships expertise, connection to web services and integration with ERP
systems by delivering the following b2b e-business products and services:
- e-business software that enables and enhances both selling and buying,
CRM with channel management and supply chain management over the web;
- software that automates the exchange of information and data between
trading partners, between suppliers and customers and between external
and internal business systems;
- e-business consulting services through the Company's subsidiary,
brightwhite solutions, inc., to support the design, development and
technical resources required to rapidly deploy e-business solutions; and
- access and integration with industry-specific marketplaces, trading
exchanges and buying and selling communities.
As the primary business system provider for its traditional manufacturing
customers, the Company's goal is to deliver a complete end to end solution
through the integration of its core enterprise systems, SyteLine and SyteCentre,
with its e-business suite of products. The Company believes that the success of
deploying e-business offerings will ultimately be dependent on the successful
integration with traditional enterprise systems that can ensure the execution
and fulfillment of transactions conducted over the Internet.
Strengthen mid-market leadership position. The Company believes that it is
a leading provider of enterprise system solutions to mid-market manufacturers.
The Company has more than 4,000 customer sites, which it services and supports
through a worldwide network of 27 offices in 13 countries. The Company intends
to leverage its technology and customer base to enhance its leadership position
in its targeted vertical markets and to pursue new vertical markets in which it
has expertise.
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Embrace simple and easy to use technology. The Company's business system
approach emphasizes the commitment to a simple but powerful technology solution
through Microsoft and Progress software. The Company uses technology tools from
Microsoft and Progress in an effort to standardize and simplify integration
efforts and to avoid the costly maintenance of internally supported proprietary
development tools. The Company plans to continue to concentrate its development
resources on these technology platforms.
Pursue strategic partnerships. The Company also plans to continue to
provide the tools, techniques, methodologies and other elements required to
simplify the task of implementing and supporting software solutions. Symix
intends to pursue this strategy through alliances with industry leading partners
and/or acquisitions of new technology. Key strategic partners currently include:
- Commerce One -- procurement software and access to market exchange;
- Agilera -- hosting services for hosted software applications such as
procurement and CRM software;
- Trilogy -- configuration software;
- Cognos -- business intelligence; and
- Microsoft -- technology and infrastructure.
PRODUCTS
Symix products are comprised of the following:
- SyteLine. SyteLine is the Company's heavy manufacturing oriented product
that was re-architected and developed from earlier versions of Symix
enterprise system solutions. SyteLine targets make-to-order, high
configuration manufacturers of industrial products in five key vertical
markets:
- industrial equipment;
- fabricated metals;
- furniture and fixtures;
- containers and packaging; and
- industrial electronics.
- SyteCentre. SyteCentre was released in February 1999 and targets light
manufacturers of discrete products with heavy distribution requirements
in three key vertical markets:
- consumer electronics;
- consumer durable and packaged goods; and
- computer and related peripherals.
- Frontstep E-business Suite. The Company offers a full suite of web based
products, either as stand-alone or complementary to both SyteLine and
SyteCentre. These e-business products include:
- Customer Center provides a user-friendly and intuitive storefront to
sell products and services. Customer Center offers complex order
management and fulfillment capabilities, including sophisticated
product catalog features, product configuration and
available-to-promise capabilities.
- Channel Center (including eCRM) provides Internet channel support
for sales representatives and dealers. Through multiple customer
views from the Customer Center, the Channel Center provides the
sales organization with order management, product configuration and
available-to-promise capabilities. Channel Center also is a robust
web-centric customer relationship management solution providing
marketing automation and sales and services management.
- Procurement Center provides Internet procurement for company-wide
purchasing. Through its relationship with Commerce One, a leader in
global trading exchanges, the Company delivers
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Commerce One's eProcurement software, BuySite, and access to Commerce
One's MarketSite, the largest trading network of buyers and sellers in
the world. The Procurement Center also can provide access to other
trading communities such as E-Steel and works.com.
- Supply Chain Center provides real-time, Internet-based
synchronization of manufacturing, distribution and external supply
to customer demand. The system streamlines the planning process by
providing real-time order promising, dynamic synchronization,
real-time intelligent messaging and analysis in both single-site and
multi-site, multi-ERP environments.
- Active Link provides intelligent messaging and workflow through
e-mail to effectively support a collaborative environment within the
enterprise and outside the enterprise with customers and suppliers.
By leveraging advanced workflow and data transfer technology, XML
technology and Microsoft's BizTalk Framework, the Company's Active
Link connects, automates and streamlines work processes between the
Frontstep E-business Suite and the transaction enterprise business
system. The Frontstep E-business Suite is independent of the
transaction enterprise system and therefore can be integrated with
non-Symix enterprise systems through its messaging capabilities.
The Frontstep E-business Suite, SyteCentre, and various supporting modules
for both SyteLine and SyteCentre such as advanced planning and scheduling and
sales and order configuration, are written in C++ programming language, operate
in a Microsoft Windows NT operating environment and use SQL as a database.
The core enterprise system, SyteLine, operates in either a Windows NT or
UNIX operating environment and is written in PROGRESS, a proprietary programming
language licensed by Symix from Progress Software Corporation. Symix depends
upon the license of PROGRESS to its customers and the acceptance of PROGRESS by
its customers. Symix markets and distributes PROGRESS in connection with the
sale of its product under a non-exclusive agreement with Progress. The agreement
may be terminated by either party upon 90 days written notice to the other
party. In addition, the agreement may be terminated immediately by either party
if a material breach of the agreement by the other party continues after 30
days' written notice. Symix's relationship with Progress involves other risks
which could have a material adverse effect on Symix's business, operating
results or financial condition, including the following:
- the failure of Progress to continue its relationship with Symix;
- the failure of Progress to develop, support or enhance PROGRESS in a
manner which is competitive with enhancements of other programming
languages;
- the loss of market acceptance of PROGRESS and its relational database
management system; and
- the inability of Symix to migrate its software products to other
programming languages on a timely basis if PROGRESS is no longer
available.
SyteLine handles multi-national and multi-site requirements and is
available currently in nineteen languages. Currently, SyteCentre is available in
North America only, with multi-site functionality scheduled to be delivered in
late calendar year 2000. Various components of the Frontstep E-business Suite of
products have been or are in the process of being translated and localized for
the major commercial markets throughout the world.
SERVICES AND SUPPORT
The Company offers a full range of services that allows its customers to
maximize the benefits of the Company's software products, including:
- project management;
- implementation;
- product education;
- technical consulting;
- programming and system integration services; and
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- maintenance and support.
The Company's services are priced separately, and fees for its services
generally are not included in the price for its software products. Fees for
maintenance and support services generally are billed 12 months in advance while
all remaining consulting, education and programming services generally are
billed as incurred.
The Company considers its ability to implement its software solution
rapidly a key competitive factor. The Company's professional services
organization, which employs approximately 200 consultants and managers, uses a
structured implementation methodology. That methodology divides a customer's
implementation into the following distinct phases:
- planning and installation;
- education and business system simulations;
- development of operating procedures;
- conversion planning;
- end-user training; and
- cut-over and post-implementation evaluation.
The Company offers both on-site and classroom training.
In addition to the consultants employed directly by the Company, customers
can receive consulting services from the Company's approximately 50 business
partners. The Company also has actively established relationships with
consulting firms to provide additional support in project management,
implementation and system integration services for customers. The Company views
these relationships as an important source of future leads for prospective
customers.
Although the Company attempts to minimize customization of its software
products, the Company does provide professional programming services to modify
its software products to address specific customer requirements. These
modifications may include designing and programming complete applications or
integrating the Company's software products with legacy systems.
Maintenance and support services are available to all customers using an
active release of the Company's software products. Maintenance and support
services include product enhancements and updates, free upgrades to new
versions, telephone support during extended business hours, full-time emergency
support and access to the Company's customer support module on the Company's
Internet home page. The price for maintenance and support services is based
primarily on a percentage of the list price of the Company's software product at
the time a license is granted. Fees for maintenance and support services are
billed 12 months in advance, and maintenance and service revenue is deferred and
recognized ratably over the term of the maintenance and support agreement.
SERVICES -- BRIGHTWHITE SOLUTIONS, INC.
brightwhite solutions, inc., a new subsidiary of the Company established in
February 2000, was created to deliver e-business consulting services that
support the Company's mission to provide a complete source of rapid and easy to
employ integrated b2b e-business solutions. Not to be confused with traditional
software implementation services, brightwhite focuses on marketing, technology
and business consulting with the goal of ensuring the ultimate success of a
company pursuing an Internet strategy.
For many companies, new business models, skills, knowledge, tools and
technologies can become barriers that keep Internet opportunities out of reach.
According to Gartner Group, an independent provider of research and analysis on
the computer hardware, software, communication and related technology
industries, e-business deployment often proves difficult and costly since a
great deal of effort is spent tying front-end systems to the back-end, causing
timeframes for implementation to run up to a year. The goal of brightwhite is to
combat these deployment challenges by utilizing a "roadmap" that deploys
fast-paced services and the Frontstep E-business Suite. The roadmap establishes
clear objectives, verifying a scalable technical infrastructure, applying the
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functionality of the Frontstep E-business Suite and executing a market launch to
promote the site to customers and channel representatives. The services include:
- e-business planning and education;
- web site design and development;
- Internet technology and ERP integration;
- marketing communications; and
- results measurement and redevelopment.
SALES AND DISTRIBUTION
The Company currently licenses its software to customers primarily based on
a license fee for each concurrent session or concurrent execution of its
software products. The Company receives additional license fees whenever a
customer increases the number of concurrent sessions, usually as a result of the
growth of the customer's business or expansion to other sites. Both SyteLine and
SyteCentre use an encrypted key that allows the customer to use only the number
of concurrent sessions for which the customer has received a license.
The Company's product offerings are being sold through three primary
channels:
- The traditional sales channel, which is comprised of direct sales
representatives and business partners selling to manufacturers, focuses
on selling the total business system under the Symix brand name including
the e-business front-end and the traditional enterprise solutions. This
channel targets the Company's traditional manufacturing market.
- A second direct sales channel focuses on selling the Frontstep E-business
Suite of products to distribution companies. The Company created this
sales channel, referred to as "Frontstep e-distribution" through its
acquisitions of Distribution Architects International, Inc. in June 1999
and Profit Solutions, Inc. in February 2000.
- A third channel targets third party partners that resell the Company's
e-business suite of products. These partners will include consulting
firms, resellers of third party enterprise software solutions requiring
an e-business front-end, application service providers and trading
exchanges. This indirect channel, referred to as "Frontstep Channels,"
was established in May 2000.
Sales leads are generated through a combination of in-house telemarketing,
leads from consulting partners, advertising, trade shows and direct calls by
sales staff. The Company sells its products and services through both a direct
sales force and approximately 50 business partners worldwide. The Company
currently maintains 27 sales and support offices worldwide: thirteen in North
America, nine in Asia Pacific and five in Europe. Symix's traditional business
partners in North America target the lower end of the mid-market manufacturing
sector while its business partners in Asia Pacific and Europe primarily sell
independently to companies within a geographic region or country. New business
partners from the Frontstep Channels group will deliver e-business suites to
end-users, application service providers and trading exchanges.
The Company believes that it will need to maintain and expand its
relationships with its existing business partners and enter into relationships
with additional business partners in order to expand the distribution of its
products. There can be no assurance that current or future business partners
will provide the level of expertise and quality of service required to license
the Company's products successfully, that the Company will be able to maintain
effective, long-term relationships with such business partners or that selected
business partners will continue to meet the Company's sales needs. Further,
there can be no assurance that these business partners will not market software
products in competition with the Company in the future or will not otherwise
reduce or discontinue their relationships with, or support of, the Company and
its products. If the Company fails to maintain successfully its existing
business partner relationships or to establish new relationships in the future,
or if any such business partner exclusively adopts a product other than the
Company's products, materially reduces its sales efforts relating to the
Company's products or materially increases its support for competitive products,
the Company's business, operating results and financial condition could be
materially and adversely affected.
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Mitsui & Co., Ltd. ("Mitsui") owns 13.3% of Symix Computer Systems
(Singapore) Pte Ltd., which comprises the Company's Asia operations. Management
believes that Mitsui's investment in the Company's Asia operations along with
Mitsui's sponsorship with Japanese companies throughout Asia further legitimizes
the Company as a leading enterprise systems vendor in the Asia Pacific region.
The Company derived approximately 20% of its fiscal 2000, 22% of its fiscal
1999, and 21% of its fiscal 1998 net revenues from sales outside of North
America. The amount of net revenue, operating income before amortization of
intangibles, operating income and identifiable assets attributable to each of
the Company's geographic market areas for fiscal 2000, fiscal 1999 and fiscal
1998 were as follows:
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<CAPTION>
NORTH AMERICA ASIA/PACIFIC EUROPE
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(IN THOUSANDS)
<S> <C> <C> <C>
2000
Net Revenue........................................ $103,065 $11,902 $13,941
Operating income (loss) before amortization of
intangibles from acquisitions.................... 899* (1,077) (3,376)
Operating income (loss)............................ (2,088)* (1,155) (3,904)
Identifiable assets................................ 77,661 7,862 8,845
1999
Net Revenue........................................ $100,950 $11,722 $16,400
Operating income (loss) before amortization of
intangibles from acquisitions.................... 10,038* 797 (806)
Operating income (loss)............................ 8,563* 709 (1,383)
Identifiable assets................................ 70,920 8,321 11,359
1998
Net Revenue........................................ $ 77,225 $ 8,665 $11,707
Operating income (loss) before amortization of
intangibles from acquisitions.................... 9,813* (584) 771
Operating income (loss)............................ 8,773* (694) 442
Identifiable assets................................ 47,778 9,392 9,212
</TABLE>
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* Exclusive of acquisition research and development write-offs and non-recurring
charges of $3,649 in fiscal 2000, $835 in fiscal 1999 and $6,503 in fiscal
1998.
A significant portion of the Company's international revenue is received in
currencies other than U. S. dollars and, in the past, the Company has not
engaged in hedging activities. As a result, the Company is subject to risks
associated with foreign exchange rate fluctuations. Due to the substantial
volatility of foreign exchange rates, there can be no assurance that foreign
exchange rate fluctuations will not have a material adverse effect on the
Company's business, operating results or financial condition.
The Company's international operations are subject to other risks inherent
in international business activities, such as:
- the impact of a recessionary environment in economies outside the United
States;
- cultural and language difficulties associated with servicing customers;
- localization and translation of products for foreign countries;
- difficulties in staffing and managing international operations;
- difficulties in collecting accounts receivable and longer collection
periods;
- reduced protection for intellectual property rights in some countries;
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- exchange controls;
- restrictions on the repatriation of foreign earnings;
- political instability; and
- the impact of local economic conditions and practices.
The Company's success in expanding its international business will be
dependent, in part, on its ability to anticipate and effectively manage these
and other risks. There can be no assurance that these and other factors will not
have a material adverse effect on the Company's business, operating results or
financial condition.
PRODUCT DEVELOPMENT
Symix devotes a significant percentage of its resources to identifying
manufacturers' and distributors' needs, developing new features and enhancements
to existing products and designing and developing new products. New products,
updates and enhancements are developed by the Company's internal development
staff. The Company's practice is to release updates and major enhancements on a
regular basis. Symix works closely with manufacturers, distributors and business
partners to improve and enhance its products.
The market for the Company's products is characterized by rapid
technological change, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards can cause customers to
delay their purchasing decisions and render existing products obsolete and
unmarketable. The life cycles of the Company's software products are difficult
to estimate. As a result, the Company's future success will depend, in part,
upon its ability to continue to enhance existing products and to develop and
introduce in a timely manner new products with technological developments that
satisfy customer requirements and achieve market acceptance. There can be no
assurance that the Company will successfully identify new product opportunities
and develop and bring new products to market in a timely and cost-effective
manner or that products, capabilities or technologies developed by others will
not render the Company's products or technologies obsolete or noncompetitive or
shorten the life cycles of the Company's products. See "Item 1.
Business -- Competition." If the Company is unable to develop on a timely and
cost-effective basis new software products or enhancements to existing products,
or if such new products or enhancements do not achieve market acceptance, the
Company's business, operating results or financial condition may be materially
adversely affected.
As a result of the complexities inherent in software development, in
particular development for multi-platform environments, and the broad
functionality and performance demanded by customers for enterprise system
products, major new product enhancements and new products can require long
development and testing periods before they are commercially released. The
Company has on occasion experienced delays in the scheduled introduction of new
and enhanced products, and future delays could have a material adverse effect on
the Company's business, operating results or financial condition.
Research and product development expenses, including amounts capitalized,
were $21,279,000, $14,600,000, and $12,200,000 for the fiscal years ended June
30, 2000, 1999, and 1998, respectively. Capitalized software expenditures were
$5,595,000, $4,400,000, and $4,300,000 for the same respective periods and were
capitalized in accordance with Statement of Financial Accounting Standards No.
86. Amortization of capitalized software costs is included in cost of revenue.
The Company generally retains the right to remarket specific modifications
developed by its programming services group in or with future product releases.
COMPETITION
The market for enterprise solutions is intensely competitive, rapidly
changing, increasingly fragmented with the arrival of e-business and
significantly affected by new product offerings and other market activities. The
Company has a large number of competitors that vary in size, computing
environments and overall product scope. Within its market, the primary
competition comes from independent software vendors in three distinct groups:
(i) traditional enterprise software developers, including J.D. Edwards &
Company, QAD, Oracle Corporation and
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<PAGE> 11
SAP Aktiengellschaft; (ii) large software developers focusing on more
specialized point solutions such as CRM software (e.g., Siebel Systems and
SalesLogix) or supply chain management (e.g., i2); and (iii) recently
established software and/or service providers specializing in b2b e-business
solutions including store front integration (e.g., Ironside and webMethods) and
procurement (e.g., Ariba).
A number of companies offer products which are similar to the Company's
products and are directed at the market for enterprise software and b2b
e-business solutions. Many of the Company's existing competitors, as well as a
number of potential new competitors, have more established and larger marketing
and sales organizations, significantly greater financial, technical and other
resources and a larger installed base of customers than the Company. Other
competitors leverage vertical market expertise, reputation and price as
competitive advantages. There can be no assurance that competitors will not
offer or develop products that are superior to the Company's products or that
achieve greater market acceptance.
As the market for enterprise software and b2b e-business solutions expands,
other companies may enter the Company's market or increase their market presence
by acquiring or entering into alliances with competitors of the Company. As a
result of all these factors, competition is likely to increase substantially,
which may result in price competition, loss of market share or delayed
purchasing decisions. There can be no assurance that the Company will be able to
compete successfully against its competitors or that the competitive pressures
faced by the Company will not adversely affect its financial performance.
The Company believes that it competes favorably in the following areas,
which it deems to be the most important considerations for potential customers
for its software products:
- integration of b2b e-business solutions with traditional enterprise
systems;
- product functionality;
- collaboration and workflow automation across the enterprise and supply
chain;
- rapid installations and ease of use;
- competitive pricing;
- corporate reputation; and
- size of installed user base.
PROPRIETARY TECHNOLOGY
The Company's ability to compete is dependent in part upon its internally
developed, proprietary intellectual property. The Company regards its products
as proprietary trade secrets and confidential information. The Company relies
largely upon its license agreements with customers, distribution agreements with
distributors, and its own security systems, confidentiality procedures and
employee agreements to maintain the trade secrecy of its products. In certain
cases, the Company may seek to protect its programs, documentation and other
written materials under copyright law. In addition, SYMIX and SyteLine are
registered trademarks, and SyteCentre and Frontstep are trademarks of the
Company. None of the Company's products is patented.
There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technology. In addition, the
laws of some foreign countries do not protect the Company's proprietary rights
as fully as do the laws of the United States. Preventing or detecting
unauthorized use of the Company's products is difficult. The Company also relies
on certain other technology which it licenses from third parties, including
software that is integrated with internally developed software and used in the
Company's products to perform key functions. No assurance can be given that the
steps taken by the Company will prevent misappropriation of its technology or
that its license agreements will be enforceable. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement or
invalidity. Any such litigation could result in substantial costs and diversion
of resources and could have a material adverse effect on the Company's business,
operating results or financial condition.
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<PAGE> 12
Although the Company does not believe that its products infringe the
proprietary rights of third parties, there can be no assurance that infringement
or invalidity claims (or claims for indemnification resulting from infringement
claims) will not be asserted or prosecuted against the Company or that any such
assertions or prosecutions will not materially adversely affect the Company's
business, operating results or financial condition. Regardless of the validity
or the successful assertion of such claims, defending against such claims could
result in significant costs and diversion of resources which could have a
material adverse effect on the Company's business, operating results or
financial condition. In addition, the assertion of such infringement claims
could result in injunctions preventing the Company from distributing certain
products, which would have a material adverse effect on the Company's business,
operating results and financial condition. If any claims or actions are asserted
against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.
The Company has in the past and may in the future resell certain software
that it licenses from third parties and jointly develop software in which it
will have co-ownership or cross-licensing rights. See "Item 1. Business-
Products."
EMPLOYEES
As of June 30, 2000, the Company employed 867 persons, including 247 in
North America sales and service operations, 281 in development and support, 240
in international operations outside of North America and 99 in marketing and
administration. None of the Company's employees is represented by a labor union.
The Company has never experienced a work stoppage and believes that its employee
relations are good.
The Company's success depends to a significant extent upon senior
management and other key employees. The loss of one or more key employees could
have a material adverse effect on the Company. The Company does not have
employment agreements with its executive officers, except Stephen A. Sasser,
President and Chief Executive Officer. In addition, the Company believes that
its future success will depend in part on its ability to attract and retain
highly skilled technical, managerial, sales, marketing, service and support
personnel. Competition for such personnel in the computer software industry is
intense. There can be no assurance that the Company will be successful in
attracting and retaining such personnel, and the failure to do so could have a
material adverse effect on the Company's business, operating results or
financial condition.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Lawrence J. Fox.......................... 44 Chairman of the Board
Stephen A. Sasser........................ 51 President, Chief Executive Officer and
Director
Lawrence W. DeLeon....................... 45 Executive Vice President Symix Worldwide
Field Operations
Stephen A. Yount......................... 45 Executive Vice President Business
Development and Channel Operations
Daryll Wartluft.......................... 59 Executive Vice President Frontstep
Product Group
Robert D. Williams....................... 45 Vice President, Human Resources
Jorge L. Lopez........................... 45 Vice President Strategic Planning
Daniel P. Buettin........................ 47 Vice President of Finance, Chief
Financial Officer and Secretary
</TABLE>
Lawrence J. Fox founded Symix in 1979 as a sole proprietorship. He has held
his present office as Chairman of the Board since Symix was incorporated in
1984. From 1984 to 1998 Mr. Fox also served as Chief Executive Officer of the
Company.
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<PAGE> 13
Stephen A. Sasser has held the positions of President and Chief Executive
Officer of the Company since January 1999. Mr. Sasser previously served the
Company, from the time that he joined the Company in July 1995 until January
1999, as President and Chief Operating Officer. Mr. Sasser also has served as a
director of the Company since July 1995. From October 1994 to June 1995, Mr.
Sasser served as Vice President of International Operations for Trilogy
Software, a provider of sales and marketing software. From August 1992 to
October 1994, Mr. Sasser was Group Vice President of the Systems Management
Division and Pacific Rim Operations of Legent Corporation, a provider of systems
management software products and services ("Legent"). From April 1987 through
its acquisition by Legent in 1992, Mr. Sasser served as President of the Data
Center Management Division of Goal Systems International, Inc. ("Goal Systems"),
which designed, developed, and marketed systems management software products.
Lawrence W. DeLeon has held the position of Executive Vice President Symix
Worldwide Field Operations since August 2000. Mr. DeLeon previously served the
Company as Vice President, Chief Financial Officer and Secretary from the time
that he joined the Company in 1995 to July 2000. From 1991 to August 1995, Mr.
DeLeon served in various capacities at Legent, including Treasurer for Goal
Systems, Europe, Vice President-Finance and Administration and Vice
President-Central Europe. From 1988 to 1991, Mr. DeLeon was Chief Financial
Officer for Thunderbird Products Corporation, a boat manufacturer.
Stephen A. Yount has held the position of Executive Vice President Business
Development and Channel Operations since August 2000. Mr. Yount served the
Company from August 1998 to July 2000, as Vice President America's Field
Operations, and from the time that he joined the Company in May 1996 until
August 1998, as Vice President of America's Sales and Services. From 1995 to May
1996, he was Vice President of Sales at Tyecin Systems, a provider of
client-server manufacturing software for the semi-contractor market. From 1993
to 1995, Mr. Yount served as Vice President of Sales and Services at Neuron
Data, a client-server application development software company. From 1987 to
1993, he served in various senior sales positions at Legent, including Regional
Vice President of Sales, Vice President of Sales and Director of Sales, Western
Region.
Daryll Wartluft has held the position of Executive Vice President Frontstep
Product Group since August 2000. Mr. Wartluft previously served as Vice
President and General Manager, SyteLine Division from the time that he joined
the Company in May 1998 until July 2000. From 1995 to 1998, he was President and
Chief Executive Officer and a director of Pivotpoint Inc., an ERP software and
services provider. From 1994 to 1995, he served as Group Vice President of
Applications Management Division of Legent. Prior to that time, he held various
management positions with Group Bull Worldwide Information Systems, a provider
of systems management software products and services, and International Business
Machines Corporation, a provider of advanced information technology and
services.
Robert D. Williams joined the Company in September 1995 as Vice
President-Human Resources. Prior to that time, he served as Director, Human
Resources/Associate Relations of Legent from August 1992 to August 1995. From
March 1990 to August 1992 he was Executive Director of Human Resources and
Administrative Services of Goal Systems.
Jorge L. Lopez joined the Company in November 1996 as Vice President of
Corporate Development/ Strategic Planning. From 1995 to November 1996, Mr. Lopez
served as Vice President of Marketing for Salesoft Inc., a provider of automated
sales and marketing software. From 1989 to 1995, Mr. Lopez served as Vice
President of Strategic Alliances for Avalon Software, Inc. an enterprise
resource planning software and services company. Prior to that time, Mr. Lopez
held various marketing and technical positions with International Business
Machines Corporation, a provider of advanced information technology and
services.
Daniel P. Buettin joined the Company in August 2000 as Vice President
Finance, Chief Financial Officer and Secretary. Mr. Buettin possesses 25 years
of experience in financial leadership and management of complex business
environments. Mr. Buettin served from September 1995 to August 2000 as Vice
President and Chief Financial Officer of MPW Industrial Services Group, Inc., a
services company headquartered in Hebron, Ohio. Prior to joining MPW, Mr.
Buettin served as an executive with OHM Corporation, a services company, in
Findlay, Ohio, for nine years. Mr. Buettin was previously with Arthur Anderson
LLP.
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<PAGE> 14
The executive officers of the Company are appointed by and serve at the
pleasure of the Symix Board of Directors. There are no arrangements or
understandings between any officer and any other person pursuant to which the
officer was so appointed.
ITEM 2. PROPERTIES.
The Company's corporate headquarters and principal administrative, product
development, and sales and marketing operations are located in approximately
85,000 square feet of leased office and storage space in Columbus, Ohio. The
lease agreement commenced in July 1991 and will expire on June 30, 2002. The
lease agreement provides for an annual base rent and operating expenses of
approximately $1.5 million. Additionally, the Company has 26 leased sales and
support offices throughout the United States and elsewhere.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common shares are traded in the over-the-counter market and
are quoted on the Nasdaq National Market under the symbol "SYMX." The following
table sets forth the high and low sale prices for the common shares for fiscal
1999 and 2000, as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal year ended June 30, 2000
First Quarter............................................. $12.38 $ 7.88
Second Quarter............................................ 18.50 9.50
Third Quarter............................................. 32.75 15.25
Fourth Quarter............................................ 20.25 8.13
Fiscal year ended June 30, 1999
First Quarter............................................. $26.38 $15.63
Second Quarter............................................ 22.63 15.25
Third Quarter............................................. 24.88 15.13
Fourth Quarter............................................ 15.88 6.50
</TABLE>
The closing price on September 19, 2000 was $7.75. As of that date, there
were approximately 208 holders of record of the common shares.
The Company has never paid cash dividends on its shares. The Company
expects that all future earnings will be retained to finance the Company's
operations and for the growth and development of its business. Accordingly, the
Company does not currently anticipate paying cash dividends on its shares in the
foreseeable future. The payment of any future dividends will be subject to the
discretion of the Board of Directors of the Company and will depend on the
Company's results of operations, financial position and capital requirements,
general business conditions, restrictions imposed by financing arrangements, if
any, legal restrictions on the payment of dividends and other factors the Board
of Directors deems relevant. In addition, holders of the Company's outstanding
preferred shares may be entitled to receive dividends on the preferred shares
prior to the
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<PAGE> 15
payment of dividends on the common shares, in certain cases, under the Company's
Amended Articles of Incorporation, as amended. See also "Sale of Unregistered
Securities" immediately below.
SALE OF UNREGISTERED SECURITIES
On May 10, 2000, the Company sold 566,933 Series A Convertible
Participating Preferred Shares, each without par value (the "Series A Preferred
Shares"), to a group of unaffiliated accredited investors, which included Fallen
Angel Equity Fund, L.P. and various investors controlled by Morgan Stanley Dean
Witter & Co., for $24.00 per share, or an aggregate of approximately $13.6
million in cash. The Series A Preferred Shares were not registered under the
Securities Act of 1933, as amended (the "Act") in reliance upon an exemption
from registration under Section 4(2) of the Act and Rule 506 promulgated by the
Securities and Exchange Commission (the "Commission") under the Act.
Each Series A Preferred Share is convertible by the holder, in whole or in
part, at any time into two (2) common shares, subject to adjustment, at the
conversion price of $12.00 per share, subject to adjustment. Each holder of the
Series A Preferred Shares is entitled to one (1) vote per share held on all
matters submitted to shareholders for their vote, provided that the Company has
agreed to use its reasonable best efforts to cause its articles of incorporation
to be amended to allow each holder of the Series A Preferred Shares to exercise
the number of votes to which such holder would be entitled, as a holder of
common shares, upon the conversion of the Series A Preferred Shares into such
common shares. The Company intends to submit such an amendment to its
shareholders for approval at its annual meeting of shareholders to be held on
November 8, 2000. The Series A Preferred Shares rank prior to the common shares
with respect to dividend and liquidation rights, and, in certain instances, may
be entitled to receive dividends payable on the Series A Preferred Shares prior
to the payment of dividends on the common shares.
In connection with the sale of the Series A Preferred Shares, the Company
issued to the accredited investors on May 10, 2000 warrants to purchase 453,546
common shares at an exercise price of $15.00 per share (the "Warrants"). The
Warrants were issued in reliance upon an exemption from registration under
Section 4(2) of the Act and Rule 506 promulgated by the Commission under the
Act. The Warrants expire on May 10, 2005 and are exercisable at any time prior
to their expiration.
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<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain consolidated financial data for each
of the five years presented. The selected financial data presented below has
been derived from, and should be read in conjunction with, the Company's audited
financial statements, and the notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2000 1999 1998 1997 1996
------------------- -------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net revenue............................ $128,908 $129,072 $97,597 $65,772 $45,759
Cost of revenue........................ 59,988 52,025 35,701 23,690 16,496
-------- -------- ------- ------- -------
Gross margin......................... 68,920 77,047 61,896 42,082 29,263
Operating expenses:
Selling, general and
administrative.................... 56,790 56,801 43,995 30,741 21,593
Research and product development..... 15,684 10,217 7,901 5,659 3,673
Amortization of intangibles from
acquisitions...................... 3,593 2,140 1,479 610 --
Acquisition research and development
write-off......................... 638 835 6,503 -- --
Non-recurring charges related to
divested operations and
restructurings.................... 3,011 -- -- -- 506
-------- -------- ------- ------- -------
Total operating expenses..... 79,716 69,993 59,878 37,010 25,772
-------- -------- ------- ------- -------
Operating income (loss)................ (10,796) 7,054 2,018 5,072 3,491
Other income (expense), net............ (966) 151 (178) 107 221
-------- -------- ------- ------- -------
Income (loss) before income taxes...... (11,762) 7,205 1,840 5,179 3,712
Provision (benefit) for income taxes... (1,557) 3,206 3,196 1,916 1,404
-------- -------- ------- ------- -------
Net income (loss).................... $(10,205) $ 3,999 $(1,356) $ 3,263 $ 2,308
======== ======== ======= ======= =======
Earnings (loss) per share.............. $ (1.38) $ 0.55 $ (0.21) $ 0.54 $ 0.41
Weighted average common and common
share equivalents outstanding........ 7,411 7,264 6,317 6,079 5,582
BALANCE SHEET DATA:
Working capital........................ $ 19,348 $ 21,926 $13,575 $ 7,897 $ 7,538
Total assets........................... 94,368 90,600 66,382 44,252 30,463
Total long-term debt and lease
obligations.......................... 3,169 5,759 2,305 530 --
Total shareholders' equity............. 36,709 42,401 31,301 23,361 17,102
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Symix is a leading global provider of integrated enterprise software
solutions for mid-sized manufacturing and distribution companies and business
units of larger companies. These software solutions include a comprehensive
suite of integrated b2b e-business offerings that support CRM, web based
procurement and supply chain management activities.
The Company's financial performance for fiscal year 2000 reflects the
general market conditions as customers emerged from the Year 2000 slowdown and
began evaluating e-business strategies. Although realizing an average annual
revenue growth of more than 40% for the three previous fiscal years, total
Company revenue for the 2000 fiscal year was flat at $129 million compared with
the prior year. The Company also significantly increased its development
spending as it transitioned itself from a traditional ERP vendor to an
enterprise
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<PAGE> 17
software vendor incorporating an extensive b2b e-business product suite as part
of its total business system solution. Development spending for fiscal 2000,
including amounts capitalized, increased 46% over the prior fiscal year.
In its transition to a leading b2b e-business provider, the parent company
intends to change its name subject to shareholder approval, from Symix Systems,
Inc. to Frontstep, Inc., effective shortly after the 2000 annual meeting of
shareholders to be held on November 8, 2000. Frontstep's vision, "the network is
the business," is based on the premise that the expanding connectivity and
collaboration over the Internet between buyers and suppliers is changing how
business is being conducted. The Company, under the name Frontstep, plans to
focus on pursuing new markets and partners and delivering the software
infrastructure to enable customers to compete in this new e-commerce world.
During the past three years, the Company has expanded its product offerings
through internal development, partnerships with third party software vendors and
acquisitions. These acquisitions included Pritsker Corporation (advanced
planning and scheduling solution) in fiscal 1998, Distribution Architects
International, Inc. (supply chain management and e-commerce products) in fiscal
1999, and Profit Solutions, Inc (customer relationship management software) in
fiscal 2000. The Company today sells an integrated e-business suite of products
including storefronts, CRM with channel management, procurement and supply chain
management. Through Active Link, the Company's workflow automation and open
architecture integration tool, this e-business suite of products can be offered
as part of the Company's traditional core enterprise systems, SyteLine and
SyteCentre, or can be integrated with third party enterprise software solutions.
In fiscal 2000, the Company experienced the negative effects of the general
market slowdown in industry software revenue growth as customers began
postponing new technology spending and focusing on year 2000 readiness on
existing systems. The Company's license fee revenue declined 14% for the fiscal
year and services revenue increased 15% for the same period. The increased mix
in services revenue adversely impacted gross margins which declined from 60% in
fiscal 1999 to 53% in fiscal 2000. Despite the decline in revenue and lower
gross margins, the Company's net research and development expenses increased 54%
over fiscal 1999 levels reflecting the Company's increased investments in
delivering new b2b e-business offerings to the market. The decline in gross
margins and increased research and development expenses caused pre-tax operating
margins, exclusive of acquired research and development write-offs and
non-recurring charges, to decrease from 6% in fiscal 1999 to a negative 6% in
fiscal 2000.
Also in fiscal 2000, the Company generated revenues of $128.9 million and a
net loss of $9.6 million, exclusive of acquired research and development
write-offs. This compares to revenues of $129.0 million in fiscal 1999 and $97.6
million in fiscal 1998 and net income, exclusive of acquired research and
development write-offs, of $4.8 million in fiscal 1999 and $5.1 million in
fiscal 1997.
NET REVENUE
The Company's net revenue is derived primarily from (1) licensing Symix
software and providing custom programming services; (2) providing installation,
implementation, training, consulting and systems integration services; and (3)
providing maintenance and support on a subscription basis. Revenue for fiscal
periods 2000 and 1999 is accounted for in accordance with Statement of Position
("SOP") 97-2 on Software Revenue Recognition. Revenue for fiscal 1998 is
accounted for in accordance with SOP 91-1.
Net revenue decreased slightly in fiscal 2000 to $128.9 million from $129.1
million in fiscal 1999, compared to percentage increases of 32% and 48% for the
years ended June 30, 1999 and 1998, respectively. The Company believes that the
decline in net revenue in fiscal 2000 is due to the industry-wide trend of
delays in new business system purchases caused initially by the Year 2000 market
dynamics and subsequently by the shift of the ERP market to e-business
solutions. The growth in fiscal 1999 and 1998 net revenue compared to previous
years was the result of purchases of new software product offerings of the
Company and the growth of the Company's distribution channels. Both software
license fee revenue and service, maintenance and support revenue
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<PAGE> 18
contributed significantly to the net revenue increase in fiscal years 1999 and
1998. The net revenue mix since 1998 is shown in the table below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
2000 1999 1998
--------------- --------------- --------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Software license fees..... $ 57,858 45% $ 67,423 52% $58,498 60%
Service, maintenance and
support................. 71,050 55% 61,649 48% 39,099 40%
-------- --- -------- --- ------- ---
Total........... $128,908 100% $129,072 100% $97,597 100%
</TABLE>
Software license fee revenue decreased 14% in fiscal 2000 from fiscal 1999
compared to a 15% increase in software license fee revenue growth in fiscal 1999
from fiscal 1998. The decrease in fiscal 2000 is due to the industry-wide trend
of delays in new business system purchases. The Company believes that the
purchase delays were caused initially by the Year 2000 market dynamics and that
the purchase delays have continued as a result of the ERP market's
transformation to e-business solutions. The increase in software license fee
revenue in fiscal 1999 resulted from an increased number of sales
representatives and overall market acceptance of the Company's product line. The
increase in software license fee revenue in fiscal 1998 was primarily the result
of (i) the expanding number of products that complement the Company's core ERP
software product, SyteLine, and (ii) the acquisition of Pritsker Corporation in
November 1997.
Service, maintenance and support revenue is derived from installation,
implementation, training, consulting, systems integration and software product
maintenance and support services. Service, maintenance and support revenue
increased 15%, from $61.6 million in fiscal 1999 to $71.1 million in fiscal
2000, and 58%, from $39.1 million in fiscal 1998 to $61.6 million in fiscal
1999. The slower service, maintenance and support revenue growth in fiscal 2000,
when compared to fiscal 1999, was primarily the result of the decrease in
license activity during the year. The increase in service, maintenance and
support revenue during fiscal 1999 was attributable to growth in licensed Symix
software installations worldwide and the expanding product line of the Company.
Service, maintenance and support revenue made up 55% of total revenue in fiscal
2000, compared to 48% and 40% in fiscal 1999 and fiscal 1998, respectively.
Service, maintenance and support revenue as a percentage of total revenue
increased from fiscal 1998 to fiscal 2000 due to the change in revenue mix
resulting from the decrease in license fee revenue and the increase in service,
maintenance and support revenue. Generally, service, maintenance and support
contracts are billed annually and revenue is recognized ratably over the
contract period, which is typically twelve months. Deferred revenue on the
Company's balance sheet relating primarily to service, maintenance and support
contracts increased from $17.2 million at June 30, 1999 to $18.2 million at June
30, 2000.
Cost of Revenue
Total cost of net revenue as a percentage of net revenue was 47% for the
fiscal year ended June 30, 2000 compared to 40% and 37% for the fiscal years
ended June 30, 1999 and 1998, respectively.
Cost of software license fees includes royalties, amortization of
capitalized software development costs and software delivery expenses. Cost of
software license fees increased to 34% of software license fee revenue in fiscal
2000 from 27% in fiscal 1999 and 25% in fiscal 1998. The percentage increase is
attributable to the increase in the rate of amortization on capitalized software
expenses relative to license fee revenue. Symix began amortizing capitalized
software costs related to its product initiative, SyteCentre, during the end of
the 1999 fiscal year.
Cost of service, maintenance and support includes the personnel and related
overhead costs for implementation, training and customer support services,
together with fees paid to third parties for subcontracted services. Cost of
service, maintenance and support was 57% of service, maintenance and support
revenue in fiscal 2000 compared to 55% in fiscal 1999 and 54% in fiscal 1998.
The increase in cost of service, maintenance and support is due to the continued
use of subcontractors to supplement the work performed by Company employees. In
general, the use of subcontractors results in lower margins than the use of
employees, but provides the Company increased flexibility in meeting customer
demands.
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<PAGE> 19
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel and
related overhead costs, including commissions for the sales, marketing, general
and administrative activities of the Company, together with advertising and
promotional costs. Selling, general and administrative expenses increased from
$44.0 million in fiscal 1998 to $56.8 million in both fiscal years 1999 and
2000. Selling, general and administrative expenses as a percent of net revenue
has remained consistent during the three year period, 45%, 44%, and 44% for the
years ended June 30, 1998, 1999 and 2000, respectively. The increase in selling,
general and administrative expenses during the past two years is largely
attributable to the Company's expansion of its sales and marketing force, both
domestically and internationally. Additionally, the Company's commission expense
increased as a result of higher revenue. Selling, general and administrative
expenses as a percentage of total revenues has declined slightly the past two
years due to the relatively lower expense levels associated with service,
maintenance and support revenue, which have grown as a percentage of total
revenues during the last two years.
Research and Development
Research and development expenses include personnel and related overhead
costs for product development, enhancement, upgrades, quality assurance and
testing. Total research and development expenses, including amounts capitalized,
were $21.3 million or 17% of net revenue for the year ended June 30, 2000,
compared to $14.6 million or 11% of net revenue in fiscal 1999 and $12.2 million
or 13% of net revenue in fiscal 1998. During fiscal 2000, research and
development expenses increased in dollar amount and as a percentage of total
revenues as the Company continued to invest heavily in its e-business
applications and Internet technologies. Additionally, the increase in research
and development expense is due to staff expansion relating to the Company's
development of future releases of SyteLine and SyteCentre and increased
development focus on interfacing with third-party software products. The Company
capitalized research and development costs of $5.6 million, $4.4 million and
$4.3 million for the years ended June 30, 2000, 1999 and 1998, respectively.
Software development costs capitalized in a given period are dependent upon the
nature and state of the development process and are recorded in accordance with
Statement of Financial Accounting Standards No. 86. Upon general release of a
product, related capitalized costs are amortized over three years and recorded
as license fee cost of revenue.
The Company incurred nonrecurring charges of approximately $638,000 in
fiscal 2000, $835,000 in fiscal 1999 and $6.5 million in fiscal 1998, relating
to the write-off of acquired in-process technology in conjunction with the
Pritsker Corporation, Distribution Architects International, Inc. and Profit
Solutions, Inc. acquisitions, respectively.
Non-recurring Charges Related to Divested Operations
On July 17, 2000, the Company announced that it is terminating the
operations of its e-Mongoose, Inc. subsidiary. In connection with this
announcement, the Company has determined that capitalized software costs
associated with e-Mongoose, Inc. are not recoverable and, accordingly, at June
30, 2000, the Company has recognized an impairment charge of $1.8 million
related to these unrecoverable costs. The Company has also determined that
certain accounts receivable of e-Mongoose, Inc. are not collectible and,
accordingly, at June 30, 2000, the Company has reserved $714,000 of
uncollectible accounts receivable. In addition, effective June 21, 2000, the
Company sold certain assets of its Visual Applications Software, Inc.
subsidiary. The Company has recognized a $429,000 net loss in connection with
the sale. The impairment charge, reserve for uncollectible accounts receivable
and the loss associated with the sale of assets are included in "non-recurring
charges related to divested operations."
Provision for Income Taxes
The effective tax rates for the years ended June 30, 2000, 1999, and 1998
were (13%), 44% and 174% respectively. The effective tax rate in fiscal 2000
differs from the expected corporate tax rate primarily due to a gain on the sale
of foreign operations and a valuation allowance offset to net operating losses
of certain foreign subsidiaries. In addition, the effective tax rates for fiscal
years 2000, 1999 and 1998 were impacted by:
19
<PAGE> 20
(i) acquisition research and development write-offs of $638,000, $835,000, and
$6.5 million respectively, which are not deductible for income tax purposes;
(ii) the amount of foreign taxable earnings in countries with higher effective
tax rates; and (iii) the non-deductibility of the amortization of goodwill.
QUARTERLY RESULTS
The following table sets forth certain unaudited operating results for each
of the eight quarters in the two year period ended June 30, 2000. This
information has been prepared by the Company on the same basis as its audited,
consolidated financial statements, and includes all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly this information
when read in conjunction with the Company's audited, consolidated financial
statements and the notes thereto.
The Company's results of operations have fluctuated on a quarterly basis.
The Company's expenses, with the principal exception of sales commissions and
certain components of cost of revenue, are generally fixed and do not vary with
revenue. As a result, any shortfall of actual revenue in a given quarter would
adversely affect net earnings for that quarter by a significant portion of the
shortfall.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30
2000 2000 1999 1999 1999 1999 1998 1998
-------- -------- -------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue....................... $30,989 $31,468 $34,380 $32,071 $37,755 $31,325 $33,101 $26,891
Cost of revenue................... 15,839 14,128 15,654 14,367 15,861 13,249 12,719 10,196
------- ------- ------- ------- ------- ------- ------- -------
Gross margin.................... 15,150 17,340 18,726 17,704 21,894 18,076 20,382 16,695
Operating expenses:
Selling, general and
administrative................ 17,729 14,203 13,268 11,590 16,773 13,647 13,774 12,607
Research and product
development................... 4,103 3,944 4,026 3,611 3,155 2,617 2,249 2,196
Amortization of intangibles from
acquisitions.................. 1,130 934 764 765 564 533 557 486
Acquired research and
development write-off......... -- 638 -- -- 835 -- -- --
Non-recurring charges related to
divested operations........... 3,011 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 25,973 19,719 18,058 15,966 21,327 16,797 16,580 15,289
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)........... (10,823) (2,379) 668 1,738 567 1,279 3,802 1,406
Other income (expense), net....... (247) (252) (196) (271) 34 26 80 11
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes........................... (11,070) (2,631) 472 1,467 601 1,305 3,882 1,417
Provision (benefit) for income
taxes........................... (1,536) (777) 184 572 571 522 1,553 560
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)................. $(9,534) $(1,854) $ 288 $ 895 $ 30 $ 783 $ 2,329 $ 857
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings (loss) per share... $ (1.27) $ (0.25) $ 0.04 $ 0.12 $ 0.00 $ 0.12 $ 0.35 $ 0.13
======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings (loss) per
share........................... $ (1.27) $ (0.25) $ 0.04 $ 0.12 $ 0.00 $ 0.11 $ 0.32 $ 0.12
======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings (loss) per share
exclusive of acquired research &
development write-off........... $ (1.27) $ (0.16) $ 0.04 $ 0.12 $ 0.12 $ 0.11 $ 0.32 $ 0.12
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of common
shares outstanding.............. 7,503 7,428 7,357 7,354 6,874 6,700 6,648 6,622
Weighted average number of common
shares outstanding assuming
dilution........................ 7,503 7,428 7,836 7,720 7,207 7,309 7,281 7,260
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased from $5.5 million in fiscal
1999 to $5.9 million in fiscal 2000. During fiscal 1999, cash provided by
operating activities were primarily provided by earnings of $4.0 million
adjusted for non-cash items of $10.1 million plus an increase in deferred
revenue of $4.0 million, the
20
<PAGE> 21
sum of which, were partially offset by an increase in accounts receivable of
$11.8 million. In fiscal 2000, cash provided by operating activities were
primarily provided by the adjustment for non-cash items of $13.5 million plus a
decrease in accounts receivable of $6.1 million, the sum of which, were
partially offset by a net loss of $10.2 million plus a decrease in accounts
payable and accrued expenses of $3.3 million.
The Company calculates accounts receivable days sales outstanding as the
ratio of the year-end accounts receivable to the sum of quarterly revenues,
multiplied by the number of days in the period. Trade accounts receivable days
sales outstanding were 104 days at June 30, 2000 in comparison to 110 days at
June 30, 1999. The decrease in the days sales outstanding since June 30, 1999
was primarily due to strong collection efforts during the second half of fiscal
2000.
For fiscal years 2000 and 1999, cash provided by operations was used
primarily to fund software development costs, to purchase computer equipment and
to fund acquisitions. In fiscal 2000, additional sources of cash included
proceeds from the sale of Visual Applications Software, Inc. and the issuance of
convertible preferred stock and warrants to purchase common stock, the sum of
which, were partially offset by a pay down on the Company's line of credit. Cash
at June 30, 2000 increased to $11.9 million from $5.2 million at June 30, 1999.
Working capital was $19.3 million at June 30, 2000 compared to $21.9
million at June 30, 1999. The decrease in working capital during fiscal 2000 is
primarily attributable to the decrease in trade accounts receivable resulting
from the decline in revenue growth compounded by the increase in deferred
revenue due to the increased Symix customer base and renewed service contracts.
In addition to its present working capital, the Company has a $15.0 million
secured revolving bank line of credit that expires in fiscal 2002. The line of
credit is secured primarily by the Company's trade accounts receivable and
certain other assets. As of June 30, 2000, $3.0 million was drawn under the line
of credit to fund the Company's working capital needs. Also as of June 30, 2000,
the Company was not in compliance with certain covenants under this agreement as
a result of its reported losses for the quarter ended as of that date. The
Company's bank has proposed certain amendments to the current credit facility
and has provided a waiver relating to noncompliance upon execution of the
amended credit facility. The noncompliance does not relate to any payment due
under the credit facility. The waiver is for the period from June 30, 2000 to
the date of execution of the amendment. Execution of the waiver is solely within
the discretion of the Company. The Company intends to execute the waiver by
November 15, 2000 if the Company is unable to obtain alternative financing that
is more favorable.
Over the last several months, the Company has been exploring alternative
credit arrangements with its current bank and with other banks and credit
institutions and has received several proposals that are similar to the proposal
made by the Company's current bank. Generally, these proposed credit
arrangements would provide lines of credit ranging from $15 million to $20
million for up to three years. Availability under these proposed credit
arrangements would be based on qualifying accounts receivable under various
formulas and will be secured by the Company's trade accounts receivable and
certain other assets similar to the current credit facility. The proposals have
differing financial covenants, but the Company believes that any final
arrangement would have a limited number of such covenants, generally relating to
maintenance of net worth. The Company's accounts receivable would be secured
under all or any of the proposed arrangements.
The Company expects to complete the execution of a new credit arrangement
during the second quarter of the current fiscal year. Under any of the proposed
arrangements, the Company anticipates that cash on hand, cash flow from
operations and the bank line of credit will be sufficient to satisfy expected
cash needs for the next 12 months.
INFLATION AND INTEREST RATES
The Company has not been significantly affected by inflation in recent
years and anticipates that it will not be significantly affected by inflation in
fiscal 2001. A material change in interest rates could have an impact on the
Company's financial results, as the Company is presently paying a variable
interest rate on its outstanding debt.
21
<PAGE> 22
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K AND OTHER
WRITTEN AND ORAL STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ARE
"FORWARD-LOOKING" STATEMENTS, INCLUDING STATEMENTS REGARDING FUTURE ECONOMIC
PERFORMANCE OF THE COMPANY AND THE PLANS, OBJECTIVES AND EXPECTATIONS OF THE
COMPANY'S MANAGEMENT. THE WORDS "EXPECT," "ANTICIPATE," "INTEND," "PLAN,"
"BELIEVE," "ESTIMATE" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS PROVIDE CURRENT EXPECTATIONS AND FORECASTS OF
FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, KNOWN AND
UNKNOWN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
REFLECTED IN THE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT
THE PLANS, OBJECTIVES AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY THE
FORWARD-LOOKING STATEMENTS ARE BASED UPON REASONABLE ASSUMPTIONS, NO ASSURANCE
CAN BE GIVEN THAT SUCH PLANS, OBJECTIVES OR EXPECTATIONS WILL BE ACHIEVED. IN
SOME CASES, INFORMATION REGARDING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM A FORWARD-LOOKING STATEMENT APPEAR
TOGETHER WITH SUCH STATEMENT. OTHER UNCERTAINTIES AND RISKS INCLUDE, BUT ARE NOT
LIMITED TO, THE COMPANY'S TRANSITION TO E-BUSINESS; THE DEMAND FOR AND MARKET
ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES; THE IMPACT OF COMPETITIVE
PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN EFFICIENT MARKETING AND DISTRIBUTION
OPERATIONS DOMESTICALLY AND INTERNATIONALLY; FUTURE WORLDWIDE POLITICAL,
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS; THE COMPANY'S ABILITY TO ATTRACT
AND RETAIN HIGHLY SKILLED TECHNICAL, MANAGERIAL, SALES, MARKETING, SERVICE AND
SUPPORT STAFF AND TO RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL; TIMING OF
PRODUCT DEVELOPMENT AND GENERAL RELEASE; EXCHANGE RATE FLUCTUATIONS; THE
COMPANY'S ABILITY TO PROTECT ITS PROPRIETARY TECHNOLOGY; RISKS GENERALLY
ASSOCIATED WITH NEW PRODUCT INTRODUCTION; PRODUCT PRICING; AND OTHER FACTORS
DETAILED IN THIS ANNUAL REPORT ON FORM 10-K AND IN OTHER FILINGS MADE BY THE
COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. IT IS NOT POSSIBLE TO
IDENTIFY OR FORESEE ALL SUCH RISKS OR UNCERTAINTIES. CONSEQUENTLY, THE FOREGOING
SHOULD NOT BE CONSIDERED AN EXHAUSTIVE STATEMENT OF ALL RISKS, UNCERTAINTIES OR
POTENTIALLY INACCURATE ASSUMPTIONS RELATING TO SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE FORWARD-LOOKING
STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
FOREIGN EXCHANGE
Symix's revenue originating outside the United States was 20% and 22% of
total revenues in fiscal 2000 and fiscal 1999, respectively. In fiscal 2000,
international revenues from each geographic region were: Europe 11% of total
revenues and Asia Pacific 9% of total revenues. In fiscal 1999, the percentages
were Europe 13% and Asia Pacific 9%. International sales are made mostly from
the Company's foreign sales subsidiaries in the local countries and are
typically denominated in the local currency of each country. These subsidiaries
also incur most of their expenses in the local currency. Accordingly, all
foreign subsidiaries use the local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business, including, but not limited to:
- differing economic conditions;
- changes in political climate;
- differing tax structures;
- other regulations and restrictions; and
- foreign exchange rate volatility.
Accordingly, the Company's future results could be materially adversely impacted
by changes in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which cost of software, including certain
development costs, incurred in the United States is charged to the
22
<PAGE> 23
Company's foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
The Company is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall profitability.
To date, the Company has not realized material fluctuations due to foreign
exchange rates. Due to the growth of the international business, however,
management is reviewing the possibility of a foreign exchange hedge program in
order to minimize this particular exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. 26
Consolidated Statements of Operations -- Years ended June
30, 2000, 1999 and 1998................................... 27
Consolidated Balance Sheets -- June 30, 2000 and 1999....... 28
Consolidated Statements of Cash Flows -- Years ended June
30, 2000, 1999, and 1998.................................. 30
Consolidated Statements of Shareholders' Equity -- Years
ended June 30, 2000, 1999, and 1998....................... 31
Notes to Consolidated Financial Statements -- June 30,
2000...................................................... 32
Financial statement schedule:
Schedule II -- Valuation and Qualifying Accounts............ 44
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In accordance with general instruction G(3) of this Form 10-K, the
information required by this Item and contained under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
Symix's definitive proxy statement for its annual meeting of shareholders, to be
held on November 8, 2000, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934
within 120 days after the end of Symix's fiscal year, is incorporated herein by
this reference, except that certain information required by Item 10 with respect
to executive officers of Symix is set forth in Part I hereof under "Item 1.
Business -- Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with general instruction G(3) of this Form 10-K, the
information required by this Item and contained under the captions
"Compensation, Meetings and Committees of Directors" and "Executive
Compensation" in Symix's definitive proxy statement for its annual meeting of
shareholders, to be held on November 8, 2000, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days after the end of Symix's fiscal year, is
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with general instruction G(3) of this Form 10-K, the
information required by this Item and contained under the caption "Principal
Holders of Securities" in Symix's definitive proxy statement for its annual
meeting of shareholders, to be held on November 8, 2000, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of Symix's fiscal year, is
incorporated herein by this reference.
ITEM 13. CERTAIN BENEFICIAL RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with general instruction G(3) of this Form 10-K, the
information required by this Item and contained under the caption "Executive
Compensation -- Certain Transaction and Relationships" in Symix's definitive
proxy statement for its annual meeting of shareholders, to be held on November
8, 2000, to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the
end of Symix's fiscal year covered by this report, is incorporated herein by
this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of This Report:
<TABLE>
<S> <C>
1 Financial Statements
See Item 8. -- Index to Financial Statements and Financial
Statement Schedules
2 Financial Statement Schedules
See Item 8. -- Index to Financial Statements and Financial
Statement Schedules
3 Exhibits:
See Exhibit Index in this Report.
</TABLE>
(b) Reports on Form 8-K:
None.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
September, 2000.
SYMIX SYSTEMS, INC.
By /s/ Stephen A. Sasser
----------------------------------
Stephen A. Sasser
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 26th day of September, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Lawrence J. Fox* Chairman of the Board and Director
------------------------------------------------
Lawrence J. Fox
/s/ Stephen A. Sasser President, Chief Executive Officer and Director
------------------------------------------------
Stephen A. Sasser
/s/ Lawrence W. DeLeon Executive Vice President, Symix Worldwide Field
------------------------------------------------ Operations, Acting Principal Financial Officer and
Lawrence W. DeLeon Acting Principal Accounting Officer
John T. Tait* Director
------------------------------------------------
John T. Tait
Duke W. Thomas* Director
------------------------------------------------
Duke W. Thomas
Larry L. Liebert* Director
------------------------------------------------
Larry L. Liebert
James A. Rutherford* Director
------------------------------------------------
James A. Rutherford
Roger D. Blackwell* Director
------------------------------------------------
Roger D. Blackwell
Guy de Chazal* Director
------------------------------------------------
Guy de Chazal
Barry Goldsmith* Director
------------------------------------------------
Barry Goldsmith
* By Power of Attorney
/s/ Lawrence W. DeLeon
------------------------------------------------
Lawrence W. DeLeon (Attorney-in-Fact)
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Symix Systems, Inc.
We have audited the accompanying consolidated balance sheets of Symix
Systems, Inc. and Subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 8. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Symix Systems,
Inc. and Subsidiaries at June 30, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
herein.
/s/ Ernst & Young LLP
Columbus, Ohio
July 27, 2000
26
<PAGE> 27
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
2000 1999 1998
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
License fees................................................ $ 57,858 $ 67,423 $58,498
Service, maintenance and support............................ 71,050 61,649 39,099
-------- -------- -------
Net revenue............................................... 128,908 129,072 97,597
Cost of revenue:
License fees................................................ 19,636 18,317 14,746
Service, maintenance and support............................ 40,352 33,708 20,955
-------- -------- -------
Cost of revenue........................................... 59,988 52,025 35,701
-------- -------- -------
Gross margin.............................................. 68,920 77,047 61,896
Selling, general and administrative......................... 56,790 56,801 43,995
Research and development.................................... 15,684 10,217 7,901
Amortization of intangibles from acquisitions............... 3,593 2,140 1,479
Acquisition research and development write-off.............. 638 835 6,503
Non-recurring charges related to divested operations........ 3,011 -- --
-------- -------- -------
Total operating expenses.......................... 79,716 69,993 59,878
-------- -------- -------
Operating income (loss)................................... (10,796) 7,054 2,018
Other income (expense), net................................. (966) 151 (178)
-------- -------- -------
Income (loss) before income taxes......................... (11,762) 7,205 1,840
Provision (benefit) for income taxes -- Note F.............. (1,557) 3,206 3,196
-------- -------- -------
Net income (loss)......................................... $(10,205) $ 3,999 $(1,356)
======== ======== =======
Basic EPS:
Net income (loss) per share............................... $ (1.38) $ 0.60 $ (0.21)
======== ======== =======
Diluted EPS:
Net income (loss) per share............................... $ (1.38) $ 0.55 $ (0.21)
======== ======== =======
Weighted average number of common shares outstanding........ 7,411 6,711 6,317
Weighted average number of common shares outstanding
assuming dilution......................................... 7,411 7,264 6,317
</TABLE>
See notes to consolidated financial statements
27
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $11,868 $ 5,236
Trade accounts receivable, less allowance for doubtful
accounts of $2,075 at June 30, 2000 and $1,500 at June
30, 1999............................................... 36,956 46,251
Inventories............................................... 861 767
Prepaid expenses.......................................... 2,610 2,518
Other receivables......................................... 988 1,346
Income tax benefit........................................ 1,867 --
Deferred income taxes -- Note F........................... 1,510 811
------- -------
Total current assets.............................. 56,660 56,929
Other assets:
Capitalized software, net of accumulated amortization of
$13,687 at June 30, 2000 and $10,833 at June 30,
1999................................................... 18,329 16,250
Intangibles, net.......................................... 9,113 7,191
Deposits and other assets................................. 2,280 2,033
------- -------
29,722 25,474
Equipment and improvements:
Furniture and fixtures.................................... 3,568 3,101
Computer and other equipment.............................. 18,410 15,767
Leasehold improvements.................................... 1,535 1,472
------- -------
23,513 20,340
Less allowance for depreciation and amortization.......... 15,527 12,143
------- -------
7,986 8,197
------- -------
Total assets...................................... $94,368 $90,600
======= =======
</TABLE>
See notes to consolidated financial statements
28
<PAGE> 29
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses -- Note G........... $13,613 $16,200
Deferred revenue.......................................... 18,223 17,209
Income taxes payable...................................... -- 470
Current portion of long-term obligations -- Note I........ 5,476 1,124
------- -------
Total current liabilities......................... 37,312 35,003
Long-term obligations -- Note I............................. 169 392
Bank credit agreement -- Note E............................. 3,000 5,367
Deferred income taxes -- Note F............................. 4,167 5,417
Minority interest -- Note K................................. 2,146 2,020
Series A Convertible Participating Preferred Stock, no par
value, 1,000,000 shares authorized, 566,933 shares issued
and outstanding, liquidation preference $24 per
share -- Note L........................................... 10,865 --
Shareholders' equity -- Note C
Common stock, authorized 20,000 shares; issued 7,807
shares at June 30, 2000 and 7,654 shares at June 30,
1999; at stated capital amounts of $.01 per share...... 78 76
Capital in excess of stated value......................... 37,216 32,363
Retained earnings......................................... 3,292 13,496
Accumulated other comprehensive loss...................... (2,557) (2,214)
------- -------
38,029 43,721
Less: Common stock in treasury:
304 shares, at cost....................................... (1,320) (1,320)
------- -------
Total shareholders' equity........................ 36,709 42,401
------- -------
Total liabilities and shareholders' equity........ $94,368 $90,600
======= =======
</TABLE>
See notes to consolidated financial statements
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in cash
Operating activities:
Net income (loss)........................................... $(10,205) $ 3,999 $ (1,356)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Acquisition research and development write-off............ 638 835 6,503
Depreciation and amortization............................. 11,429 8,510 6,220
Net loss on disposal of assets............................ 162 -- --
Write-off of goodwill associated with sale of Visual
Applications Software, Inc.............................. 1,219 -- --
Capitalized software impairment charge.................... 1,825 -- --
Provision for losses on accounts receivable............... 575 437 353
Provision for deferred income taxes....................... (2,333) 362 572
Changes in operating assets and liabilities:
Trade accounts receivable............................ 6,114 (11,829) (11,942)
Prepaid expenses and other receivables............... 368 (1,344) (181)
Inventory............................................ (95) (277) (133)
Deposits and other assets............................ (295) (343) (1,084)
Accounts payable and accrued expenses................ (3,354) 1,688 5,285
Customer deposits.................................... (88) (153) (14)
Deferred revenue..................................... 1,267 3,996 2,831
Income taxes payable/refundable...................... (1,331) (407) 1,721
-------- -------- --------
Net cash provided by operating activities............ 5,896 5,474 8,775
-------- -------- --------
Investing activities:
Purchase of equipment and improvements...................... (4,496) (3,624) (3,273)
Additions to purchased and developed software............... (7,009) (4,871) (4,667)
Proceeds from sale of subsidiary............................ 2,585 -- --
Purchase of subsidiaries, net of cash acquired.............. (2,116) (1,069) (699)
-------- -------- --------
Net cash used by investing activities................ (11,036) (9,564) (8,639)
-------- -------- --------
Financing activities:
Proceeds from issuance of convertible preferred stock..... 10,865 -- --
Proceeds from issuance of common stock warrants........... 2,510 -- --
Proceeds from issuance of common stock and exercise of
stock options........................................... 1,408 1,004 815
Additions to long-term obligations, net of payments......... (3,112) 2,204 1,152
Additions to paid in capital................................ -- -- 2,000
-------- -------- --------
Net cash provided by financing activities............ 11,671 3,208 3,967
-------- -------- --------
Effect of exchange rate changes on cash..................... 101 3 (320)
-------- -------- --------
Net increase (decrease) in cash............................. 6,632 (879) 3,783
Cash at beginning of period................................. 5,236 6,115 2,332
-------- -------- --------
Cash at end of period....................................... $ 11,868 $ 5,236 $ 6,115
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 782 $ 320 $ 374
-------- -------- --------
Income taxes (net of refunds)........................... 1,756 2,381 78
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CONVERTIBLE CAPITAL OTHER
COMMON SHARES PREFERRED SHARES IN EXCESS OF RETAINED COMPREHENSIVE
STOCK AMOUNT STOCK AMOUNT STATED VALUE EARNINGS INCOME
------ ------ ----------- ------- ------------ -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997.... 6,160 $62 125 $ 1,031 $13,291 $ 10,853 $ (556)
Issuance of shares on
exercise of stock
options.................... 97 1 617
Tax benefit on stock options
exercised.................. 459
Issuance of shares for
employee stock purchase
plan....................... 36 257
Compensatory portion of stock
options granted............ 150
Issuance of shares and
options related to
acquisition................ 485 5 9,163
Net loss..................... (1,356)
Foreign currency translation
adjustments................ (1,356)
Comprehensive loss...........
----- --- ---- ------- ------- -------- -------
Balances at June 30, 1998.... 6,778 68 125 1,031 23,937 9,497 (1,912)
Issuance of shares on
exercise of stock
options.................... 75 1 516
Tax benefit on stock options
exercised.................. 330
Exercise of convertible
preferred shares........... 144 1 (125) (1,031) 1,341
Issuance of shares for
employee stock purchase
plan....................... 38 533
Compensatory portion of stock
options granted............ 140
Issuance of shares related to
acquisition................ 619 6 5,566
Net income................... 3,999
Foreign currency translation
adjustments................ (302)
Comprehensive income.........
----- --- ---- ------- ------- -------- -------
Balances at June 30, 1999.... 7,654 76 -- -- 32,363 13,496 (2,214)
Issuance of shares on
exercise of stock
options.................... 118 2 789
Tax benefit on stock options
exercised.................. 754
Issuance of shares for
employee stock purchase
plan....................... 35 577
Compensatory portion of stock
options granted............ 220
Issuance of shares related to
acquisition................ 3
Fair market value of common
stock warrants issued...... 2,510
Net loss..................... (10,204)
Foreign currency translation
adjustment................. (343)
Comprehensive loss...........
----- --- ---- ------- ------- -------- -------
Balances at June 30, 2000.... 7,807 $78 -- -- $37,216 $ 3,292 $(2,557)
<CAPTION>
TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
Balances at June 30, 1997.... $(1,320) $ 23,361
Issuance of shares on
exercise of stock
options.................... 618
Tax benefit on stock options
exercised.................. 459
Issuance of shares for
employee stock purchase
plan....................... 257
Compensatory portion of stock
options granted............ 150
Issuance of shares and
options related to
acquisition................ 9,168
Net loss..................... (1,356)
Foreign currency translation
adjustments................ (1,356)
--------
Comprehensive loss........... (2,712)
------- --------
Balances at June 30, 1998.... (1,320) 31,301
Issuance of shares on
exercise of stock
options.................... 517
Tax benefit on stock options
exercised.................. 330
Exercise of convertible
preferred shares........... 311
Issuance of shares for
employee stock purchase
plan....................... 533
Compensatory portion of stock
options granted............ 140
Issuance of shares related to
acquisition................ 5,572
Net income................... 3,999
Foreign currency translation
adjustments................ (302)
--------
Comprehensive income......... 3,697
------- --------
Balances at June 30, 1999.... (1,320) 42,401
Issuance of shares on
exercise of stock
options.................... 791
Tax benefit on stock options
exercised.................. 754
Issuance of shares for
employee stock purchase
plan....................... 577
Compensatory portion of stock
options granted............ 220
Issuance of shares related to
acquisition................ 3
Fair market value of common
stock warrants issued...... 2,510
Net loss..................... (10,204)
Foreign currency translation
adjustment................. (343)
--------
Comprehensive loss........... (10,547)
------- --------
Balances at June 30, 2000.... $(1,320) $ 36,709
</TABLE>
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying financial statements include
the accounts of Symix Systems, Inc. ("Symix" or the "Company"), and its wholly
owned subsidiaries after elimination of intercompany accounts and transactions.
Organization: Symix designs, develops, markets and supports integrated
enterprise software solutions for mid-market, discrete manufacturers,
distributors and business units of larger companies. The Company sells a
comprehensive suite of integrated business to business ("b2b") e-business
offerings that support customer relationship management, web based procurement
and supply chain management activities as well as the traditional "back office"
requirements for manufacturing, distribution and financial management. Founded
in 1979, Symix is headquartered in Columbus, Ohio, employing 867 people, with
direct sales and support offices in the Americas, Europe and Asia Pacific.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition: In October 1997, the American Institute of Certified
Public Accountants ("AICPA") issued Statement Of Position ("SOP") 97-2,
"Software Revenue Recognition," which provides guidance on recognizing revenue
on software transactions and supersedes SOP 91-1. Further guidance was published
during 1998 in SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions." The Company adopted the
provisions of SOP 97-2 effective July 1, 1998 and SOP 98-9 in the first quarter
of fiscal 2000.
Revenue is derived principally from the sale of internally produced
software products and maintenance and support agreements from software sales.
The Company licenses software generally under non-cancelable license agreements
and provides product support services and periodic updates including training,
installation, consulting and maintenance. License fee revenues are generally
recognized when a non-cancelable license agreement has been signed, the software
product has been shipped, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable and collection is considered
probable. For customer license agreements, which meet these recognition
criteria, the portion of the fees related to software licenses will generally be
recognized in the current period, while the portion of the fees related to
services is recognized as the services are performed. Revenue from maintenance
and support agreements is billed periodically, deferred and recognized ratably
over the life of the agreements. Revenue from consulting, education and other
services is recognized as the services are provided.
The Company establishes allowances to provide for uncollectible trade
receivables and anticipated adjustments to amounts previously billed.
Capitalized Software: Capitalized software is stated at the lower of cost
or net realizable value. The Company capitalizes the cost of purchased software
and the qualifying internal cost of developing its software products in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalized software costs are amortized by the straight-line method using
estimated useful lives of three to five years. Amortization expense was
$4,033,000, $2,980,000, and $2,115,000 for the years ended June 30, 2000, 1999
and 1998, respectively.
Inventories: Inventories consist primarily of software-related products
that are held for resale. The Company values inventory at the lower of cost or
market. Cost is determined using the specific identification method.
Equipment and Improvements: Equipment and improvements are stated on the
basis of cost. Provisions for depreciation and amortization are computed by the
straight-line method over the estimated lives of the related assets.
Depreciation expense was $3,618,000, $3,221,000 and $2,434,000 for the years
ended June 30, 2000, 1999 and 1998, respectively.
32
<PAGE> 33
Foreign Currency Translation: The Company has determined that the
functional currency of each foreign operation is the local currency. The effects
of translation rate changes related to assets and liabilities located outside
the United States are included as a component of other comprehensive income.
Foreign currency transaction gains and losses are included in Other Income, Net
on the Consolidated Statements of Operations.
Income Taxes: The Company accounts for income taxes under the liability
method pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under the liability method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Earnings Per Share: The Company computes earnings per share in accordance
with the requirements of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). Under SFAS 128, basic earnings per share
computations are based on the weighted-average number of common shares
outstanding during the period presented. Diluted earnings per share calculations
reflect the assumed exercise and conversion of employee stock options, warrants
and convertible preferred stock.
Comprehensive Income: The Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") as of July 1,
1998. SFAS 130 requires disclosure of the components of total non-stockholder
changes in equity as comprehensive income. The Company's only items that meet
the definition for adjustment to arrive at comprehensive income are changes in
cumulative translation adjustments.
Stock-based Compensation: The Company accounts for stock compensation
arrangements in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees." The pro forma information regarding net income and earnings per
share as required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") is disclosed in "Note
C -- Common Stock and Stock Options".
Preferred Stock: The Company's Amended Articles of Incorporation, as
amended, authorize 1,000,000 shares of preferred stock, no par value. The Board
of Directors is authorized to determine the rights and preferences of these
shares. See Note L.
Cash and Cash Equivalents: The Company considers all demand deposits and
highly liquid investments with a maturity of three months or less as cash
equivalents.
Intangible Assets: Intangible assets consist principally of goodwill and
other intangible assets resulting from acquisitions accounted for using the
purchase method of accounting. The intangible assets are amortized using the
straight-line method over a period of three to ten years. The amortization
expense of intangible assets relating to acquired businesses was $3,593,000,
$2,140,000, and $1,479,000 for the years ended June 30, 2000, 1999 and 1998,
respectively.
Long-lived Assets: The carrying values of long-lived assets are reviewed if
the facts and circumstances suggest that they may be impaired. If this review
indicates that the applicable long-lived asset will not be recoverable, as
determined based on the undiscounted cash flows of the asset, the carrying value
of the asset will be reduced to fair value.
Reclassification: Certain reclassifications have been made to prior year
amounts to conform to the 2000 presentation.
Effect of New Accounting Standards: The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, in 1998 and SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, in 1999.
The statements require that all derivatives be recorded as either assets or
liabilities in the balance sheet and be measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company has assessed the impact of these statements on the
consolidated financial statement and does not believe these statements will have
a significant impact at the present
33
<PAGE> 34
time. On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. The Interpretation
clarifies guidance for certain issues that arose in the application of APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
assessed the impact of this Interpretation on the Company's consolidated
financial statements and has determined that it will not have an impact at the
present time.
NOTE B -- LEASES
The Company has entered into certain operating lease agreements for the
rental of office facilities and computer equipment. The facility leases provide
for annual rentals which are subject to escalation for increased operating
costs.
Amounts expensed under all operating lease agreements were: $4,822,000,
$4,415,000 and $3,727,000 for the years ended June 30, 2000, 1999 and 1998,
respectively.
The following is a schedule of future minimum lease payments required under
capital and operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of June 30, 2000:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS LEASE LEASE
------------ ------- ---------
(IN THOUSANDS)
<S> <C> <C>
2001................................................... $178 $3,752
2002................................................... 87 2,493
2003................................................... 24 1,212
2004................................................... -- 835
2005 and thereafter.................................... -- 396
---- ------
Total minimum payments...................................... 289 $8,688
======
Less amount representing interest........................... 12
----
Present value of future minimum lease payments.............. $277
====
</TABLE>
NOTE C -- COMMON STOCK AND STOCK OPTIONS
The Company has a non-qualified stock option plan ("the Plan") that
provides for the granting of options to officers and other key employees for
common shares at purchase prices of not less than the fair market value on the
date of the grant as determined by the Stock Option Committee of the Board of
Directors. The maximum number of common shares which may be optioned under the
Plan was 2,653,070 as of June 30, 2000. Options under the Plan generally vest
over periods of up to four years and must be exercised within ten years of the
date of grant. In addition, shareholder approval was obtained on November 17,
1999 for a separate non-qualified stock option plan ("the 1999 Plan"). The 1999
Plan also provides for the granting of options to officers and key employees for
common shares at purchase prices of not less than the fair market value on the
date of the grant as determined by the Stock Option Committee of the Board of
Directors. The maximum number of common shares which may be optioned under the
1999 Plan was 600,000 as of June 30, 2000. Options under the 1999 Plan generally
vest over periods of up to four years and must be exercised within ten years of
the date of the grant.
The Company also has a non-qualified stock option plan for Key Executives
("Key Executives Plan"). A total of 400,000 common shares are designated for
issuance under the Key Executives Plan. The Stock Option Committee of the Board
of Directors is authorized to set the price and terms and conditions of the
options granted under the Key Executives Plan. Options under the Key Executives
Plan must be exercised within ten years of the date of the grant.
The Company also has a Stock Option Plan for Outside Directors ("Outside
Directors Plan"). The Outside Directors Plan provides for the issuance of
options for 20,000 shares of stock to each Outside Director upon his/her
election to the Board of Directors. A total of 200,000 common shares may be
issued under the Outside
34
<PAGE> 35
Directors Plan. Options under the Outside Directors Plan vest immediately and
must be exercised within ten years of the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2000,
1999 and 1998: risk-free interest rates of 6.5%, 6.0% and 6.5%, respectively; no
dividend yield; volatility factor of the Company's common shares of 0.9, 0.5 and
0.4, respectively; and a weighted-average expected life of each option of 7
years in 2000 and 6 years for 1999 and 1998.
If the Company had elected to recognize compensation cost based on the fair
value of options at the grant date (which includes shares issuable under the
Employee Stock Purchase Plan -- see Note D) as prescribed by SFAS 123, the
following table displays what reported net income (loss) and per share amounts
would have been:
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
-------- ------ -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)...................................... $(11,402) $2,955 $(2,047)
Net income (loss) per share............................ $ (1.54) $ 0.41 $ (0.32)
</TABLE>
The pro forma financial effects of applying SFAS 123 may not be
representative of the pro forma effects on reported results of operations for
future years.
Information with respect to options granted under the three Plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE PRICE
OF SHARES PER SHARE
--------- -------------
<S> <C> <C>
Outstanding at June 30, 1997................................ 1,477,750 $ 5.61
Granted..................................................... 256,630 15.29
Cancelled................................................... (18,638) 8.04
Exercised................................................... (96,207) 6.42
Outstanding at June 30, 1998................................ 1,619,535 7.17
Granted..................................................... 263,050 15.92
Cancelled................................................... (52,425) 11.81
Exercised................................................... (74,888) 6.90
Outstanding at June 30, 1999................................ 1,755,272 8.26
Granted..................................................... 377,100 9.69
Cancelled................................................... (79,150) 13.00
Exercised................................................... (117,300) 6.73
Outstanding at June 30, 2000................................ 1,935,922 $ 8.44
</TABLE>
35
<PAGE> 36
The following table summarizes information regarding stock options
outstanding as of June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------------
WEIGHTED-AVG.
NUMBER OUTSTANDING REMAINING WEIGHTED-AVG. NUMBER EXERCISABLE WEIGHTED-AVG.
RANGE OF EXERCISE PRICES AT 6/30/2000 CONTRACTUAL LIFE EXERCISE PRICE AT 6/30/2000 EXERCISE PRICE
------------------------ ------------------ ---------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
$ 3.82-$ 3.82......... 400,000 5.00 $ 3.82 400,000 $ 3.82
3.83- 5.66......... 389,500 4.25 5.02 389,500 5.02
5.67- 8.06......... 387,375 6.32 7.59 296,374 7.53
8.07- 10.69......... 414,571 9.13 9.56 33,146 10.17
10.70- 14.81......... 129,426 7.15 13.17 84,376 12.73
14.82- 18.63......... 87,250 7.76 18.31 46,313 18.29
18.64- 20.50......... 115,800 8.03 20.50 27,320 20.50
20.51- 27.78......... 12,000 8.64 22.96 2,500 22.46
$ 3.82-$27.78......... 1,935,922 6.47 $ 8.44 1,279,529 $ 6.71
</TABLE>
The weighted-average fair value of options granted during the years ended
June 30, 2000, 1999 and 1998 was $5.92, $5.39 and $4.63, respectively. At June
30, 2000, options for 1,279,529 shares were exercisable and 515,679 shares
remained available for grant.
NOTE D -- EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan that covers substantially all employees over
21 years of age. The Company contributes to the plan based upon employee
contributions and may make additional contributions at the discretion of the
Board of Directors. The Company made contributions to this plan of approximately
$683,000 $608,000 and $496,000, for the years ended June 30, 2000, 1999 and
1998, respectively.
The Company has an employee stock purchase plan that is in accordance with
Section 423 of the Internal Revenue Code whereby participants are eligible to
purchase common shares of the Company during the plan year. The purchase price
for a common share is determined by the Compensation Committee of the Board of
Directors prior to the effective date. The purchase price may not be less than
90% of the per share fair market value of the Company's common shares on either
the effective date or the option date for the offering, whichever is the lesser.
Substantially, all employees are eligible to participate.
NOTE E -- LINE OF CREDIT
In June 1998, the Company entered into a revolving credit facility with a
bank (the "Credit Facility") which, as amended and restated in May 2000,
provides for a $15.0 million secured revolving line of credit that expires on
the earlier of a) July 1, 2001, or b) the date the amounts borrowed become due
and payable. The line of credit is secured primarily by the Company's trade
accounts receivable and certain other assets. Borrowings under the credit
facility bear interest at either the bank prime rate (prime rate at June 30,
2000 was 9.5%) or, at the Company's option, the LIBOR rate as adjusted for
performance based pricing (LIBOR rate at June 30, 2000 was 8.6475%). The Company
is required to pay a fee of .25% per year on the unused portion of the Credit
Facility. Borrowings on the line of credit were $3,000,000 at June 30, 2000 and
$5,367,000 at June 30, 1999.
The Credit Facility contains certain covenants, which, among other things,
require the Company to maintain specified financial ratios and to satisfy
certain tests, including minimum net worth, maximum leverage ratio, minimum
EBITDA, minimum current ratio, and limitations on future capital expenditures.
At June 30, 2000, the Company was not in compliance with certain of these debt
covenants. The Company's bank has proposed certain amendments to the current
Credit Facility and has provided a waiver relating to noncompliance upon
execution of the amended credit facility. The noncompliance does not relate to
any payment due under the Credit Facility. The waiver has been granted for the
period June 30, 2000 to the date of the execution of the amendment. Execution of
the waiver is solely within the discretion of the Company. The Company intends
to execute the waiver by November 15, 2000 if the Company is unable to obtain
alternative financing that is more favorable.
36
<PAGE> 37
NOTE F -- INCOME TAXES
SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
2000 1999 1998
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $ (516) $1,927 $1,949
State and local........................................ (17) 475 406
Foreign................................................ 541 582 356
------- ------ ------
8 2,984 2,711
Deferred:
Federal................................................ (1,399) 131 412
State and local........................................ (206) 43 73
Foreign................................................ 40 48 --
------- ------ ------
(1,565) 222 485
------- ------ ------
$(1,557) $3,206 $3,196
======= ====== ======
</TABLE>
During the years ended June 30, 2000, 1999 and 1998, the Company recorded a
tax benefit of approximately $754,000, $330,000 and $459,000, respectively, in
connection with the exercise of stock options. The benefit, which was due to the
difference in the fair market value and the exercise price of the options at the
date of exercise, was recorded as an increase in capital in excess of stated
value.
37
<PAGE> 38
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax asset:
Allowance for doubtful accounts........................... $1,105 $ 666
Accrued liabilities....................................... 405 145
------ ------
Total current deferred tax assets...................... $1,510 $ 811
------ ------
Long-term deferred tax liabilities:
Capitalized software...................................... $4,966 $5,683
Intangibles............................................... 1,313 917
Capitalized leases........................................ 422 433
Accrued liabilities....................................... 540 1,052
------ ------
Total long-term deferred tax liabilities............... 7,241 8,085
------ ------
Long-term deferred tax assets:
Book over tax depreciation................................ 702 435
Domestic losses........................................... 1,938 1,696
Foreign losses............................................ 682 226
Tax credits............................................... 434 311
------ ------
Total long-term deferred tax assets.................... 3,756 2,668
Less valuation allowance............................... (682) --
------ ------
Net long-term deferred tax assets......................... 3,074 2,668
------ ------
Net long-term deferred tax liabilities.................... $4,167 $5,417
====== ======
</TABLE>
The long-term deferred tax assets pertaining to foreign losses are net
operating loss carryforwards for certain foreign subsidiaries. The Company has
set a valuation allowance for the foreign net operating loss carryforwards.
The Company's effective tax rate differs from the statutory U.S. federal
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax statutory rate........................... (34)% 34% 34%
State and local income taxes net of federal tax benefit..... (3) 4 3
Foreign operations taxed at rates different from U.S.
federal statutory rate.................................... 7 6 13
Disposition of foreign operation............................ 5 -- --
Non-deductible acquisition research and development write
off....................................................... 2 4 134
General business credits.................................... -- (7) (14)
Non-deductible permanent differences........................ 4 3 4
Valuation allowance recorded against deferred tax assets.... 6 -- --
--- -- ---
(13)% 44% 174%
=== == ===
</TABLE>
The Company has domestic net operating losses for tax purposes of $490,000,
$347,000, $37,000, $752,000, $1,344,000 and $2,000,000 which expire in fiscal
years 2008, 2010, 2012, 2013, 2018 and 2019, respectively.
38
<PAGE> 39
NOTE G -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $ 5,134 $ 4,685
Accrued commissions & bonus................................. 1,642 3,087
Third party royalties....................................... 2,565 3,265
Other....................................................... 4,272 5,163
------- -------
$13,613 $16,200
======= =======
</TABLE>
NOTE H -- ACQUISITIONS
On November 24, 1997, the Company acquired Pritsker Corporation
("Pritsker"), for $737,000 in cash and 485,000 common shares of the Company.
Pritsker markets advanced planning and scheduling and simulation software to
mid-market manufacturers. Pursuant to the acquisition agreement, (i) Pritsker
was merged with and into a wholly-owned subsidiary of the Company incorporated
in Ohio, (ii) each share of Pritsker common stock was converted into the right
to receive 0.170108 common shares of the Company and (iii) each share of
Pritsker preferred stock was converted into the right to receive $5.23 in cash
plus accrued and unpaid dividends. Each unexercised employee stock option and
outstanding warrant for Pritsker common stock was assumed by Symix and converted
into the right to acquire that number of common shares of the Company to which
the holder would have been entitled if such holder had exercised the option or
warrant immediately prior to the merger. The transaction was accounted for as a
purchase and resulted in a one-time, non-recurring charge of approximately $6.5
million relating to the write-off of acquired in-process technology of Pritsker.
On June 10, 1999, the Company acquired Distribution Architects
International, Inc. ("DAI") for 619,000 common shares of the Company and
$813,000 in cash. DAI is a provider of supply chain management applications for
distribution organizations. Pursuant to the acquisition agreement, DAI was
merged with and into a wholly-owned subsidiary of the Company incorporated in
Ohio, and each share of DAI common stock was converted into the right to receive
.1313 common shares of the Company. Each DAI option outstanding immediately
prior to the merger was canceled and terminated. The holder of each option was
entitled to receive that number of Symix shares equal to $2.17 (the per share
value of DAI stock as agreed to by DAI and Symix) less $1.242 (the stock option
exercise price), multiplied by the number of shares of DAI covered by the
option, and divided by $18.50. The transaction was accounted for as a purchase
and resulted in a one-time, non-recurring charge of $835,000 relating to the
write-off of acquired in-process technology of DAI.
On February 9, 2000, the Company acquired Profit Solutions, Inc. ("PSI"), a
Minnesota corporation and provider of Web-centric customer relationship
management applications with sales, marketing, service and business intelligence
functionality, for approximately $2.1 million in cash paid at closing and $5.0
million in unsecured, subordinated promissory notes to be paid by January 2,
2001. The transaction was accounted for as a purchase and resulted in a
one-time, non-recurring charge of $638,000 relating to the write-off of acquired
in-process technology of PSI.
The following proforma information shows revenue, net income/(loss) and
earnings/(loss) per share assuming the Company, Pritsker, DAI and PSI had been
combined at the beginning of the period indicated. The non-recurring charges of
$6.5 million, $835,000 and $638,000 are excluded from proforma net
income/(loss).
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED JUNE 30,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue............................................ $129,333 $140,034 $112,217
Net income (loss).................................. $(10,888) $ 2,828 $ 4,458
Earnings/(loss) per share.......................... $ (1.47) $ 0.39 $ 0.58
</TABLE>
39
<PAGE> 40
NOTE I -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
PSI acquisition note payable................................ $5,000 $ --
Infomentum acquisition note payable......................... 264 --
Present value of minimum capital lease payments............. 277 263
Other....................................................... 104 --
GSI acquisition note payable................................ -- 305
ExperTeam GmbH acquisition note payable..................... -- 600
Mortgage loan payable....................................... -- 348
------ ------
5,645 1,516
Less current portion........................................ 5,476 1,124
------ ------
Long-term obligation........................................ $ 169 $ 392
====== ======
</TABLE>
$2.5 million of the PSI acquisition note payable at June 30, 2000 was paid on
July 15, 2000, the $2.5 million balance is due on January 2, 2001.
NOTE J -- EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128") during the fiscal year
1998. The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
2000 1999 1998
----------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss) for both basic and diluted earnings
(loss) per share....................................... $(10,205) $3,999 $(1,356)
Denominator:
Weighted-average shares outstanding....................... 7,411 6,654 6,192
Contingently issuable shares (Visual Applications
Software).............................................. n/a 57 125
Denominator for basic earnings (loss) per share........... 7,411 6,711 6,317
Effect of dilutive securities:
Employee stock options.................................... n/a 553 n/a
Denominator for diluted earnings (loss) per share......... 7,411 7,264 6,317
Basic earnings (loss) per share........................... $ (1.38) $ 0.60 $ (0.21)
Diluted earnings (loss) per share......................... $ (1.38) $ 0.55 $ (0.21)
</TABLE>
NOTE K-- MINORITY INTEREST
In June 1998, Symix Computer Systems (Singapore) Pte. Ltd., a wholly-owned
subsidiary of the Company, sold previously unissued shares of common stock
(representing a 13.3% interest in that subsidiary) for $2 million. No gain or
loss was recognized on the sale of the subsidiary stock. The proceeds from the
sale are recorded on the accompanying balance sheet as minority interest.
The Company and the minority interest investor also entered into a put
option agreement which provides that during a six month period commencing
September 1, 2001, the minority interest investor has the right to put its
shares in the subsidiary to the Company at a formula price as provided in the
put agreement. The minority interest in the subsidiary will be adjusted to its
expected redemption value each year as a credit or charge to income until the
put is exercised or the redemption period expires.
40
<PAGE> 41
In September 1999, the Company formed a new subsidiary, Symix Japan Ltd.,
of which 15% of the initial capitalization was contributed by a minority
interest investor. The investment is recorded on the accompanying balance sheet
as minority interest.
NOTE L -- PREFERRED STOCK
Effective May 10, 2000, the Company consummated a private placement of
566,933 shares of Series A Convertible Participating Preferred Stock and
warrants to purchase 453,546 common shares (the "transaction"). Net proceeds
realized from the transaction were $13,375,127.
The preferred shares are convertible to common shares at any time, in whole
or in part, at the holder's option at an initial conversion rate of two shares
of common for one share of preferred. The conversion rate is subject to
adjustment on the fourth anniversary of the transaction if the average daily
price of the Company's common shares, weighted by trading volume, for the forty
consecutive trading days immediately preceding the fourth anniversary ("Average
Weighted Price") is less than $12 per share. The adjusted conversion rate is
determined by dividing $24 by the Average Weighted Price. This potential
adjustment to the conversion rate represents a contingent beneficial conversion
feature. Assuming the Average Weighted Price on the fourth anniversary was equal
to the closing price of the Company's common shares on June 30, 2000 ($8.875),
the adjusted conversion rate would be 2.7 shares of common for one share of
preferred. This would result in a corresponding preferred dividend charge of
approximately $2.7 million. The conversion rate is also subject to adjustment
based on anti-dilution provisions. Mandatory conversion occurs if, at any time
after the second anniversary of the transaction, the daily price of the
Company's common shares exceeds $24 for each and every day of any period of
forty consecutive trading days.
The Company may, at its option, redeem all, but not less than all, of the
outstanding preferred shares within thirty days after the fourth anniversary of
the transaction for $30.72 per preferred share plus accumulated, but unpaid,
dividends, if any.
Holders of the preferred shares have a liquidation preference whereby upon
voluntary or involuntary liquidation/dissolution/winding-up of the Company the
preferred holders have a preference against the assets of the Company available
for distribution. The liquidation preference is equal to the greater of a) $24
per preferred share outstanding plus accumulated, but unpaid, dividends, if any,
or b) the amount that would be received by a holder of the number of common
shares underlying the preferred shares if all the preferred shares were
converted to common shares immediately prior to
liquidation/dissolution/winding-up.
The warrants are exercisable at $15 per share and expire five years from
the date of the transaction. The exercise price is subject to adjustment on the
fourth anniversary of the transaction if the Average Weighted Price is less than
$15 per share. The adjusted exercise price is the greater of a) the Average
Weighted Price or b) 75% of the exercise price. The exercise price is also
subject to adjustment based on anti-dilution provisions. Mandatory exercise
occurs if, at any time after the second anniversary of the transaction, the
daily price of the Company's common shares exceeds $24 per share for each and
every day in any period of forty consecutive trading days. The Company has
determined that the fair value of the warrants on the date of the transaction,
net of issuance costs, was $2,510,000.
Under applicable securities exchange rules, the Company is required to
obtain shareholder approval prior to issuing common shares if the adjusted price
at the time of conversion of the preferred shares and/or exercise of the common
stock warrants is less than the market price of the Company's common shares on
the date of the transaction ($9.1875 per share). The Company will submit to its
shareholders at the Company's annual meeting on November 8, 2000, a proposal to
approve the issuance of common shares upon conversion of the preferred shares
and/or exercise of the warrants, at an adjusted conversion price per share if
required, which is less than the market price per common share on the date of
the transaction. Because the Company had not obtained shareholder approval as of
June 30, 2000, the proceeds from the issuance of the preferred shares have been
classified as temporary equity.
41
<PAGE> 42
NOTE M -- BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way that
companies report information about operating segments, geographic areas, and
major customers.
The Company designs, develops, markets and supports integrated enterprise
software solutions. The software was developed for mid-market, discrete
manufacturers and business units of larger companies. The Company operates
exclusively in this market therefore only reports on one primary segment.
The amount of net revenue, operating income (loss) before amortization of
intangibles and special charges, operating income (loss) and identifiable assets
attributable to each of the Company's geographic areas for fiscal 2000, 1999,
and 1998 were as follows:
<TABLE>
<CAPTION>
NORTH AMERICA ASIA/PACIFIC EUROPE
--------------- -------------- --------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
2000
Net revenue............................ $103,065 80% $11,902 9% $13,941 11%
Operating income (loss) before
amortization of intangibles and
special charges*..................... 899 225% (1,077) (30)% (3,376) (95%)
Operating income (loss)................ (5,737) 53% (1,155) 11% (3,904) 36%
Indentifiable assets................... 77,661 83% 7,862 8% 8,845 9%
1999
Net revenue............................ 100,950 78% 11,722 9% 16,400 13%
Operating income (loss) before
amortization of intangibles and
special charges*..................... 10,038 100% 797 8% (806) (8)%
Operating income (loss)................ 7,728 110% 709 10% (1,383) (20)%
Indentifiable assets................... 70,920 78% 8,321 9% 11,359 13%
1998
Net revenue............................ 77,225 79% 8,665 9% 11,707 12%
Operating income (loss) before
amortization of intangibles and
special charges*..................... 9,813 98% (584) (6)% 771 8%
Operating income (loss)................ 2,270 112% (694) (34)% 442 22%
Identifiable assets.................... 47,778 72% 9,392 14% 9,212 14%
</TABLE>
---------------
* Exclusive of acquisition research and development write-offs and non-recurring
charges of $3,649 in fiscal 2000, $835 in fiscal 1999 and $6,503 in fiscal
1998.
NOTE N -- COMMITMENT AND CONTINGENCIES
On June 6, 2000, the Company entered into an agreement with Internet
Commerce Express, Inc., an unaffiliated organization, whereby the Company agreed
to loan the organization up to $1.5 million in exchange for warrants to purchase
common stock of the organization. At June 30, 2000, the Company has a $500,000
note receivable from the organization carrying interest at prime rate plus one
percent. The Company has committed to loan, at the option of the organization,
an additional $500,000 after August 25, 2000 and an additional $500,000 after
November 24, 2000.
The Company is subject to claims and lawsuits in the ordinary course of its
business. It is the Company's policy to vigorously defend any action brought
against it, to the fullest extent, in the normal legal process. In the opinion
of management, the outcome of these actions, which is not clearly determinable
at the present time, are either adequately covered by insurance, or if not
insured, will not, in the aggregate, have a material adverse effect upon the
Company's financial position or its results of future operations.
42
<PAGE> 43
NOTE O -- SALE OF VISUAL APPLICATIONS SOFTWARE
Effective June 21, 2000, the Company sold certain assets of its Visual
Applications Software, Inc. subsidiary for $2,915,000. The Company has
recognized a $429,000 net loss in connection with the sale of which
approximately $1.2 million includes write-off of purchase goodwill. Certain
costs related to the disposition of Visual Applications Software, Inc. are
included in "non-recurring charges related to divested operations" in the
Consolidated Statements of Operations.
NOTE P -- SUBSEQUENT EVENTS
On July 17, 2000, the Company announced that it is terminating the
operations of its e-Mongoose, Inc. subsidiary. In connection with this
announcement, the Company has determined that capitalized software costs
associated with e-Mongoose, Inc. are not recoverable and, accordingly, at June
30, 2000 the Company has recognized an impairment charge of $1,825,000 related
to these unrecoverable costs. The Company has also determined that certain
accounts receivable of e-Mongoose, Inc. are not collectible and, accordingly, at
June 30, 2000 the Company has reserved $714,000 of uncollectible accounts
receivable. The impairment charge and reserve for uncollectible accounts
receivable are included in "non-recurring charges related to divested
operations" in the Consolidated Statements of Operations.
43
<PAGE> 44
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Year ended June 30, 2000
Deducted from asset accounts:
Allowance for doubtful accounts......... $1,500,000 $3,255,000 $2,680,000 $2,075,000
---------- ---------- ---------- ----------
Year ended June 30, 1999
Deducted from asset accounts:
Allowance for doubtful accounts......... 1,063,000 1,270,000 833,000 1,500,000
---------- ---------- ---------- ----------
Year ended June 30, 1998
Deducted from asset accounts:
Allowance for doubtful accounts......... 702,000 918,000 557,000 1,063,000
---------- ---------- ---------- ----------
</TABLE>
44
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
3(a)(1) Amended Articles of Incorporation of Symix Incorporated herein by reference to Exhibit
Systems, Inc. (as filed on February 8, 1991) 3(a)(1) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997
3(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Exhibit
Articles of Incorporation of Symix Systems, 3(a)(2) to Registrant's Annual Report on Form
Inc. (as filed on July 16, 1996) 10-K for the fiscal year ended June 30, 1997
3(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to Exhibit
Articles of Incorporation of Symix Systems, 3(a)(3) to Registrant's Quarterly Report on
Inc., as amended (as filed with the Ohio Form 10-Q for the fiscal quarter ended March
Secretary of State on May 10, 2000) 31, 2000
3(a)(4) Amended Articles of Incorporation of Symix Incorporated herein by reference to Exhibit
Systems, Inc., as amended (reflecting 3(a)(4) to Registrant's Quarterly report on
amendments through May 10, 2000, for purposes Form 10-Q for the fiscal quarter ended March
of Securities and Exchange Commission 31, 2000
reporting compliance only)
3(b) Amended Regulations of Symix Systems, Inc. Incorporated herein by reference to Exhibit
3(b) to the Registration Statement on Form
S-1 of Registrant, as filed with the
Securities and Exchange Commission on
February 12, 1991 (Registration No. 33-38878)
4(a)(1) Amended Articles of Incorporation of Symix Incorporated herein by reference to Exhibit
Systems, Inc. (as filed on February 8, 1991) 3(a)(1) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997
4(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Exhibit
Articles of Incorporation of Symix Systems, 3(a)(2) to Registrant's Annual Report on Form
Inc. (as filed on July 16, 1996) 10-K for the fiscal year ended June 30, 1997
4(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to Exhibit
Articles of Incorporation of Symix Systems, 3(a)(3) to Registrant's Quarterly Report on
Inc., as amended (as filed with the Ohio Form 10-Q for the fiscal quarter ended March
Secretary of State on May 10, 2000) 31, 2000
4(a)(4) Amended Articles of Incorporation of Symix Incorporated herein by reference to Exhibit
Systems, Inc., as amended (reflecting 3(a)(4) to Registrant's Quarterly Report on
amendments through May 10, 2000, for purposes Form 10-Q for the fiscal quarter ended March
of Securities and Exchange Commission 31, 2000
reporting compliance only)
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
4(b) Amended Regulations of Symix Systems, Inc. Incorporated herein by reference to Exhibit
3(b) to the Registration Statement on Form
S-1 of Registrant, as filed with the
Securities and Exchange Commission on
February 12, 1991 (Registration No. 33-38878)
4(c) Share Exchange Agreement, dated January 9, Incorporated herein by reference to Exhibit
1997 99 to Registrant's Current Report on Form
8-K, as filed with the Securities and
Exchange Commission on January 24, 1997
4(d) Investor Rights Agreement, dated as of May Incorporated herein by reference to Exhibit
10, 2000, among Symix Systems, Inc., the 4(c) to Registrant's Quarterly Report on Form
Investors identified therein and Lawrence J. 10-Q for the fiscal quarter ended March 31,
Fox 2000
4(e) Amendment to Investor Rights Agreement Incorporated herein by reference to Exhibit
4(c) to Registrant's Current Report on Form
8-K, as filed with the Securities and
Exchange Commission on August 30, 2000
4(f) Warrant for the Purchase of Shares of Common Incorporated herein by reference to Exhibit
Stock of Symix Systems, Inc. issued to Morgan 4(d) to Registrant's Quarterly Report on Form
Stanley Dean Witter Venture Partners IV, L.P. 10-Q for the fiscal quarter ended March 31,
and Exhibit A, identifying other identical 2000
warrants issued to the Investors identified
on Exhibit A, for the number of common shares
identified on Exhibit A
10(a) Lease Agreement dated April 3, 1991 for Incorporated herein by reference to Exhibit
corporate offices located at 2800 Corporate 10(c) to Registrant's Annual Report on Form
Exchange Drive, Columbus, Ohio 10-K for the fiscal year ended June 30, 1991
10(b) Amendment to corporate offices lease Incorporated herein by reference to Exhibit
10(b) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1998
10(c) Second Amendment to corporate offices lease Incorporated herein by reference to Exhibit
10(c) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1998
10(d) Third Amendment to corporate offices lease Incorporated herein by reference to Exhibit
10(c) to Registrants' Annual Report on Form
10-K for the fiscal year ended June 30, 1994
10(e) Fourth Amendment to corporate offices lease Incorporated herein by reference to Exhibit
10(e) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1998
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10(f) Fifth Amendment to corporate offices lease Incorporated herein by reference to Exhibit
10(f) to Registrants' Annual Report on Form
10-K for the fiscal year ended June 30, 1998
10(g) Sixth Amendment to corporate offices lease Filed herein
10(h) Eighth Amendment to corporate offices lease, Filed herein
with Seventh Amendment to corporate offices
lease attached as "Exhibit A"
10(i) Progress Software Application Partner Incorporated herein by reference to Exhibit
Agreement dated February 8, 1995 10(e) to Registrant's Quarterly Report on
Form 10-Q for fiscal quarter ended March 31,
1995
10(j) Amendment to Progress Software Application Incorporated herein by reference to Exhibit
Partner Agreement dated July 1, 1997 10(h) to Registrants' Annual Report on Form
10-K for the fiscal year ended June 30, 1998.
10(k) Second Amendment to Progress Software Incorporated herein by reference to Exhibit
Application Partner Agreement dated July 1, 10(i) to Registrants' Annual Report on Form
1998 10-K for the fiscal year ended June 30, 1998
10(l)* Summary of Bonus Plan Filed herein
10(m)* Symix Systems, Inc. Stock Option Plan for Incorporated herein by reference to Exhibit
Outside Directors 10(i) to Registrant's Annual Report on Form
10-K for fiscal year ended June 30, 1993
10(n)* Symix Systems, Inc. Non-Qualified Stock Incorporated herein by reference to Exhibit
Option Plan for Key Executives 10(a) to Registrant's Quarterly Report on
Form 10-Q for fiscal quarter ended March 31,
1996
10(o)* Symix Systems, Inc. Non-Qualified Stock Incorporated herein by reference to Exhibit
Option Plan for Key Employees, as amended 10(a) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993
10(p)* Symix Systems, Inc. 1999 Non-Qualified Stock Incorporated herein by reference to Exhibit
Option Plan for Key Employees 10(n) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999
10(q)* Sasser Employment Agreement Incorporated herein by reference to Exhibit
10(b) to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March
31, 1996
10(r)* Amendment to Sasser Employment Agreement Incorporated herein by reference to Exhibit
10(p) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10(s)* Second Amendment to Sasser Employment Incorporated herein by reference to Exhibit
Agreement 10(q) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999
10(t)* Stock Option Agreement between the Company Incorporated herein by reference to Exhibit
and Stephen A. Sasser dated January 17, 1996 10(c) to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March
31, 1996
10(u) Amended and Restated Loan Agreement, dated Filed herein
May 18, 2000, by and between Symix Systems,
Inc., Symix Computer Systems, Inc. and Bank
One, N.A.
10(v) First Amendment to Amended and Restated Loan Filed herein
Agreement
10(w) Securities Purchase Agreement, dated as of Incorporated herein by reference to Exhibit
May 10, 2000, between Symix Systems, Inc. and 10(a) to Registrant's Quarterly Report on
the Investors identified therein Form 10-Q for the fiscal quarter ended March
31, 2000
10(x) Investor Rights Agreement, dated as of May Incorporated herein by reference to Exhibit
10, 2000, among Symix Systems, Inc., the (4)(c) to Registrant's Quarterly Report on
Investors identified therein and Lawrence J. Form 10-Q for the fiscal quarter ended March
Fox 31, 2000
10(y) Amendment to Investor Rights Agreement Incorporated herein by reference to Exhibit
4(c) to Registrant's Current Report on Form
8-K, as filed with the Securities and
Exchange Commission on August 30, 2000
10(z) Warrant for the Purchase of Shares of Common Incorporated herein by reference to Exhibit
Stock of Symix Systems, Inc. issued to Morgan 4(d) to Registrant's Quarterly Report on Form
Stanley Dean Witter Venture Partners IV, L.P. 10-Q for the fiscal quarter ended March 31,
and Exhibit A identifying other identical 2000
warrants issued to the Investors identified
on Exhibit A, for the number of common shares
identified on Exhibit A
10(a)(a) Employee Stock Purchase Plan, as approved on Filed herein
July 8, 1996 and as amended on November 11,
1998
21 Subsidiaries of the Registrant Filed herein
23 Consent of Independent Auditors Filed herein
24 Powers of Attorney Filed herein
27 Financial Data Schedule Filed herein
</TABLE>
---------------
* Indicates management contracts or compensatory plans or arrangements that are
required to be filed as an exhibit to this Annual Report on Form 10-K for the
fiscal year ended June 30, 2000.
48
