Back to GetFilings.com
1
Page 1 of 53
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 0-11527
MPSI SYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1064024
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8282 SOUTH MEMORIAL DRIVE, TULSA, OKLAHOMA 74133
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 250-9611
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 5, 1995 was approximately $4,484,000.
The number of shares outstanding of the registrant's common stock was
2,751,595 shares of $0.05 Par Value Common Stock as of December 5, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders presently anticipated to be held on February 1, 1996, are
incorporated by reference into Part III. The Registrant's Annual Report to
Stockholders for fiscal year ended September 30, 1995 is incorporated by
reference into Parts I, II and IV.
2
MPSI SYSTEMS INC.
FORM 10-K
CONTENTS
PAGE
----
PART I
- ------
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. Legal proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 4. Submission of matters to a vote of security holders . . . . . . . . . 11
PART II
- -------
ITEM 5. Market for the registrant's common equity and related
stockholder matters . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. Selected financial data . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 7. Management's discussion and analysis of financial
condition and results of operation . . . . . . . . . . . . . . . . . . 12
ITEM 8. Financial statements and supplementary data . . . . . . . . . . . . . 12
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART III
- --------
ITEM 10. Directors and excecutive officers of the registrant . . . . . . . . . 12
ITEM 11. Executive compensation . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 12. Security ownership of certain beneficial owners and management . . . . 13
ITEM 13. Certain relationships and related transactions . . . . . . . . . . . . 13
PART IV
- -------
ITEM 14. Exhibits, financial statement schedules, and
reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2
3
PART I
ITEM 1. BUSINESS
GENERAL
The operations of MPSI are confined to one business segment wherein it
provides decision support products and services in the form of (1) proprietary
computer software, (2) geographically specific information data bases (market
studies), and (3) consulting services. These products and services are designed
to meet retail business planning requirements of its clients.
From its inception in 1970 until it became a publicly-held company in 1983,
the Company's decision support services were directed primarily at planning
requirements for petroleum companies and other multi-outlet retailers who were
concerned with retail site selection and retail network optimization. MPSI
products provided computerized models of specified retail markets which enabled
its clients to predict sales volumes at proposed new retail sites, while at the
same time indicating the effects of each new outlet on sales volumes at both
the client's and competitors' existing outlets. During this period, the
Company's operations were characterized by limited geographic diversification,
centralized management, centralized market study production and significant
dependence on the petroleum industry.
With the 1983 capital infusion from its initial public offering, the
operating plan of the Company expanded. In order to diversify and maintain
growth, management initiated programs intended to expand the Company's
geographic presence and its client mix. Such programs sought to reduce MPSI's
exposure to economic factors in a particular country and to lessen the
percentage of its total revenues which were attributable to the petroleum
industry (while maintaining steady growth in that core business). Accordingly,
during the period from 1983 to 1987, MPSI expanded its European operations and
opened new offices in Singapore, Japan and Brazil. This expansion lead to
decentralization of management and the market study production operations. In
1986, the Company acquired Retail Systems, Inc. ("RSI"), a company
headquartered in Minneapolis, Minnesota, which offered products to retail food
clients that were similar to those offered by MPSI to the petroleum industry.
This acquisition combined with expanded retail planning software for banks,
restaurants and governmental clients, enabled MPSI to diversify its revenue
portfolio such that revenues from the petroleum industry, as a percent of total
revenues, dropped from 90% in 1985 to 75% in 1988. During this period, MPSI's
products continued to be directed toward site selection, although enhancements
such as artificial intelligence technology moved the Company's products toward
operational decision support capabilities.
In 1988 MPSI undertook significant changes aimed at accelerating the
Company's revenue growth, product expansion and diversification of its customer
base. MPSI reorganized its existing business unit and acquired Execucom Systems
Corporation ("ESC"). The ESC acquisition resulted in (1) a more diverse family
of products including financial planning and executive information systems, (2)
a greater number of client industries, and (3) an expanded international
presence. Although revenues from petroleum clients continued to be important to
the Company, they accounted for approximately 53% of consolidated revenues in
1990 because of the dilutive effect of ESC's non- petroleum revenues. The
concurrent restructuring of the MPSI business unit resulted in the realignment
of managerial responsibilities to correspond with the distinct client
industries it served. This realignment centralized management responsibilities
such that functional units were again controlled from the United States,
regardless of where the personnel might be located. Although not brought about
directly as the result of the changes noted above, in 1989 management also
decided that the computer workstation should replace the mainframe computer as
the Company's principal product delivery and product development hardware. This
action was taken in order to reduce internal operating costs associated with
the mainframe, facilitate product development and communications using
workstation networks and enhance product distribution.
The period from 1988 to 1991 was characterized by significant product
development. The development activities were driven by two principal needs. The
MPSI unit needed new products and services which went beyond site selection to
operational decision support. The ESC unit, being in a highly competitive
environment, needed to
3
4
regularly upgrade existing products incorporating new technology in order to
retain its maintenance revenue stream. These requirements coupled with
additional marketing personnel and programs contributed to a substantial
increase in the Company's debt through early 1991.
In March 1991, effective for accounting purposes at February 28, 1991, the
Company sold substantially all of the net operating assets of ESC to Comshare,
Incorporated. This action was necessitated because of poor performance by the
ESC unit, the weakening U.S. economy, declines in MPSI revenues due to the
effects of the Persian Gulf conflict and limitations on the Company's cash
resources. The sale resulted in a substantial loss on disposition, but
generated approximately $4.5 million of cash which was used to reduce debt.
Concurrent with the ESC sale, management scaled back the MPSI business unit
to refocus on the core petroleum industry products and clients in order to
begin liquidating the remaining debt. Additionally, the Company wrote down
certain capitalized software development costs previously carried in the
consolidated balance sheet which related to products developed for industries
that had not met profit goals. As explained more fully in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in Note 13 to the Consolidated Financial Statements, the corporate
restructuring initiated in 1991 eventually encompassed further restructuring
throughout the three-year period ended September 30, 1993.
The initial 1991 restructuring involved a 30% reduction of the work force
in England, closure of the Singapore production center with termination of
virtually all employees in that facility, and reduction of management personnel
in the United States. Aggregate costs related to these measures were
approximately $976,000. Substantially all market study production and software
development activities were consolidated back into the United States. Portions
of these activities had been previously performed in the Company's Singapore
and England offices, in addition to the U.S. corporate headquarters.
In spite of the cost reductions and production streamlining achieved as the
result of 1991 actions discussed above, consolidated revenues continued to
decline during fiscal year 1992 forcing the Company to further reduce its work
force in the United States and in England at an aggregate cost of $154,000.
Additionally, the Company abandoned excess office space in the U.S. at a cost
of $168,000.
Economic conditions continued to worsen for MPSI during fiscal year 1993.
The Company again reduced its work force and overhead expenses throughout the
fiscal year. Approximately 106 employees (30% of work force) were terminated
(at a cost of $370,000) or resigned, and the Company negotiated a reduction in
the space occupied by its corporate headquarters (which although it cost
$88,000 to renovate retained space and restore abandoned space, resulted in
future annual rental savings of more than $500,000). Further, the Company
closed certain foreign sales offices and moved to less expensive office space
in several satellite offices at a cost of $30,000.
During the fourth quarter of fiscal year 1993, the Company completed a
significant recapitalization transaction and eliminated its corporate debt
(other than trade payables and accrued liabilities). See "Recapitalization
Transaction." Among other benefits, the recapitalization allowed the Company to
redirect funding from debt service to product development. During fiscal year
1994, the Company experienced increased stability in its regional petroleum
industry markets as clients generally completed restructuring and focused on
the retail aspects of their businesses. Although European operations continue
to be sluggish, revenues in North America, South America and Pacific Rim grew
approximately 35%, 31% and 15%, respectively, in fiscal year 1995. Several U.S.
oil companies who have been recently inactive with MPSI placed significant
market study orders in 1994 and 1995 indicating interest in MPSI's new software
products which target operational and pricing decision support. Beginning in
1994 and in response to client input, MPSI committed substantial funding and
development efforts toward release of a new generation of MPSI decision support
products. Early versions of these products were completed for commercial
release in fiscal year 1995 (see discussion of CAPS(TM), OPS(TM) and PVO(TM)
software under "Product Development").
Although the petroleum industry utilization of MPSI's products has been
somewhat revitalized, the Company's retail food line of business, which was
serviced by RSI, continued to sustain losses. As a result, on September 1,
1994, RSI sold all of its noncash assets to Dakota Worldwide Corporation
("Dakota"), an unaffiliated third party, and the Company discontinued its
services and products to that class of customer. Dakota assumed all performance
4
5
obligations related to contracts in force with RSI's customers. Concurrent with
this transaction, RSI and MPSI executed an agreement not to compete with
Dakota. RSI terminated all its employees, subject to temporary retention of
certain administrative staff, and RSI was responsible for all severance costs
related thereto. The RSI assets sold included accounts receivable, work in
process, office furnishings, personal computer hardware and software,
intangible assets including software held for resale, copyrights, trademarks,
service marks, fictitious names and goodwill. The assumed lease obligations
included RSI's office facility in Minneapolis, Minnesota and office equipment
and personal computers. MPSI remains contingently liable under those leases in
the event Dakota fails to perform until December 31, 1997.
PRODUCTS AND SERVICES
The Company markets its services in the United States, Europe, Africa,
Canada, South America, Central America, the Caribbean Basin and the Pacific
Rim. See Note 8 to the Consolidated Financial Statements for financial
information addressing foreign and domestic operations and export sales.
Generally, the Company's marketing activities center on personal presentations
to existing and prospective clients, client referrals, proposal submissions,
selective mailings, limited print advertising, seminars and trade show
participation. Most of the Company's clients are identified by the Company's
direct sales force.
The Company's operating cycle and cash flow are driven principally by the
timing of client orders for market studies. Many North American petroleum
clients budget on a calendar year basis, while most European and Pacific Rim
clients operate on March 31 fiscal periods. Consequently, MPSI generally
receives a concentration of orders in December through February and May through
June. The timing of market study production and the resulting revenues are
subject to a degree of fluctuation. Quarterly revenues can also be impacted by
the timing of software license agreements. Accordingly, management believes
that quarterly results may not be indicative of results for full fiscal years.
Economic conditions throughout the world have varying degrees of impact on
the Company's products. The Company anticipates growth in Southeast Asia during
fiscal 1996 and increased retail petroleum activity in the U.S. and South
American markets. However, volatile oil prices, unsettled economic conditions
and retail consolidation, coupled with significant expenditures by clients in
order to address environmental issues, affected the Company's volume of new
business in fiscal 1995. The Company is unable to predict the extent to which
these conditions will continue to affect its business during 1996. At present,
however, the Company is realigning its products and services to increase
profitability, either by evaluating alternative methods for gathering market
information in order to contain future expenses or by development of ancillary
products and services which will allow the Company to leverage market
information through sales to companies who cannot afford a commitment to MPSI's
expensive main line products.
After adjustment to remove the effects of RSI, which business was
discontinued in September 1994 as set forth above, approximately 96%, 99%, and
97% of revenues were derived from the petroleum industry during the fiscal
years ended September 30, 1995, 1994, and 1993, respectively. In each of the
fiscal years 1995, 1994 and 1993, MPSI derived revenues exceeding 10% of
consolidated revenues from certain clients, together with their affiliates, as
set forth below (in millions of dollars):
1995 1994 1993
------------- ------------- ------------
AMOOUT % AMOUNT % AMOUNT %
------ -- ------ -- ------ --
Exxon/Esso/Imperial . . . . . . . . . . . $4.4 19 $3.8 19 $3.2 16
Texaco . . . . . . . . . . . . . . . . $ .6 3 $2.2 11 $2.4 13
Shell . . . . . . . . . . . . . . . . $2.8 12 $2.1 11 $2.1 11
Amoco . . . . . . . . . . . . . . . . $2.5 11 $1.4 7 $ .2 1
5
6
The Company could be adversely affected if several petroleum industry
clients curtailed their long-term usage of MPSI products.
The following table shows the percentage of total revenue from
continuing operations that the Company derived from various sources during each
of the last three fiscal years.
REVENUE DERIVED FROM KEY PRODUCTS AND SERVICES (%)
1995 1994 1993
---- ---- ----
Data base construction (market studies) . . . . . . . . . . . . . . . . 70 65 68
Software licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 12 4
Software maintenance agreements . . . . . . . . . . . . . . . . . . . . 5 7 9
Consulting, educational, and other services . . . . . . . . . . . . . . 20 16 19
Described below are the computer applications software, information data
bases and other services currently provided by the Company.
Retail Planning
The Company's primary retail planning applications software has
historically been the Retail Planning System(R) ("RPS"). See "Product
Development" for discussion of three major enhancements of RPS scheduled for
commercial release in fiscal year 1996. This country-specific software
interacts with an information data base (market study) to construct a
mathematical model of a retail market. The enhanced systems support client
needs in three areas:
Short-term pricing issues are addressed by assisting the client with
daily pricing decisions at retail outlets that optimize profit while
maintaining target sales volumes. The system also aids with the
establishment of supply/demand-balanced trade zones to reduce rapid
geographic deterioration in pricing.
Medium-term operational issues are addressed by systematic forecasting
of retail sales volume changes resulting from operational changes (such
as hours of operation and merchandising practices), by counselling
dealers as to pricing, merchandising and operational practices and by
providing territory-wide planning for anticipated retail sales volumes,
pricing and operations.
Long-term capital investment issues are addressed in the areas of (1)
new retail site location where the system provides an objective measure
for comparing available sites based on competition and convenience to
demand, (2) identification of outlets to divest where the system
isolates and evaluates client locations that have poor performance, (3)
identification of outlets to be rebuilt by identifying sales potential
to be realized by remodeling or reformatting specified outlets and (4)
assessing multiple profit centers by forecasting the potential benefits
of retailing complementary products and services.
Software licensing agreements for the RPS (including ancillary products)
generally have multi-year noncancellable terms. These agreements offer the
client an installment payment option requiring a payment upon execution and
annual payments on the succeeding anniversary dates of the agreement. The
software can be used by the client for a particular industry (such as
petroleum) and a particular geographic market (such as Japan). Also, the
agreement contains broad restrictions on the use and disclosure of the software
by the client. See "Trademarks, Copyrights, and Licenses" below. Modifying the
software typically involves changes in the weighting of various supply and
demand factors or the addition of a new factor as the result of changes in the
marketplace.
MPSI provides full maintenance (postcontract customer support) services
for the RPS and, where necessary, training of and consultation with client
staff. Software licenses, maintenance and optional consulting services are set
out separately in each multi-year license agreement. The agreement states that
any company-sponsored modification to the software during the postcontract
customer support period will be provided to the client at no additional cost.
6
7
Prices for the RPS in the United States are based upon formulas which address
geographical boundaries, population, number of automobiles and other factors.
Prices for the RPS applicable to foreign countries are based on a percentage of
the United States pricing.
Information Data Bases
The Company also constructs the market study data bases that are the
primary informational sources used by the retail planning software. Separate
contracts govern each data base order by a client and generally require advance
payments ranging from 35 percent to 70 percent of the total sales value. The
amount of the required prepayment is determined principally by the client's
delivery requirements. There is no retainage provision relative to these
production-type contracts. These data bases are arranged and presented in six
types of studies.
Constantly Current Market Studies ("CCMS"). These studies are used by
clients who possess a large number of retail sites and who wish to
analyze market conditions and evaluate site locations in metropolitan
areas on a regular basis. The supply and demand data used in this type
of study is collected by the Company. This type of study provides
clients with a series of consecutive data base updates over a specific
time period, generally five years. Clients agree to pay for the CCMS in
periodic installments. It is tailored to individual client needs, and
pricing is determined in part by the number of subscribers to a
particular market during the commitment period and offers clients
discounts for their multi-year commitments.
Quality Partnership Studies ("QP"). These study programs, like the CCMS
studies, offer clients the opportunity to regularly update market study
information on an annual basis. However, in the QP program, all clients
participate in the updating process by providing regular information
about changes (new outlets, new brands, rebuilt outlets, etc.) in the
market. MPSI gathers information relative to these changes and updates
the data base which otherwise remains unchanged. The lower update costs
are passed on to the client participants in the form of lower annual
update prices. Although the updates are not as extensive as full CCMS
updates, clients are able to track the effects of major market changes
using QP's.
Scheduled Market Area Studies ("SMAS"). These studies are similar to
the CCMS except that the clients do not commit to a series of
consecutive data base updates over a specific time period. These studies
are usually scheduled by one client and offered to additional clients on
a subscription basis. While each study uses a single demand-side data
base, the final data base provided to each client is unique.
Market Area Studies ("MAS"). These studies are similar to the SMAS
except they are sold to a single client. Portions of the demographic
data can generally be used as a major part of other studies in the same
market for clients in the same or comparable retail industries.
Mini-Market Area Studies. These studies are similar to the MAS except
the area studied does not contain more than 75 outlets. Likewise, the
accompanying study deliverables are scaled down.
Single Site Studies. These studies are used to evaluate market
conditions or the effects of various operating decisions at a specific
location within a specified geographic area.
Other Products and Services
Licensed software clients may utilize the retail planning software and
information data bases on their own computer facilities, may dial in to MPSI's
computers and use the software interactively (subject to certain usage
restrictions), or may elect to have MPSI run tactics (that is, pose "what if"
questions) on MPSI's computers. In cases where software is installed on client
computers, the Company charges for installation of the software and training
the client's personnel. A client may then run unlimited tactics on its own
equipment. If tactics are run on the Company's computers, the client pays a fee
per tactic. Clients who have entered into long-term user agreements are
entitled to discounts on data bases and on tactics.
7
8
MPSI introduced two new "data" products during fiscal year 1995 which
were designed to leverage market information already in MPSI's inventory or
allow clients to contract for customized data collection by MPSI. The Quest
product allows MPSI clients to obtain point-in-time retail outlet information
either relative to MPSI's standard market study boundaries in a given
geographic market or to establish specialized market boundaries or specialized
data requirements for an additional fee. MPSI's PriceTracker(TM) product
allows clients to obtain high quality, timely retail pricing information on a
recurring basis in order to track trends in the marketplace.
Other products and services provided by the Company include litigation
support; determination of petroleum price zones and key competitors; regular
tracking of petroleum prices using geographic information systems for user
analyses; retail consulting; consumer research; and customized retail outlet
surveys. Certain services are complementary to retail planning services. For
example, the data bases provided as part of the retail planning services may be
linked with other data supplied by the client. This data could then be
processed interactively through geographic information system software which
manages and displays information in a variety of graphic and map formats.
COMPETITION
Since its inception in 1970 the Company has provided comprehensive
applications software and data base systems, primarily to the retail petroleum
industry, and currently has more than 175 multinational clients in 73
countries. There has recently been a worldwide trend toward competitive product
development of this type due to the availability of computer resources and
acceptance of retail modeling theory. The Company believes its competition lies
in two areas: first, in the market research staffs of petroleum companies or
potential customers who develop and manage their own software and data; and
second, in consulting and research companies which compete for portions of the
Company's business.
The Company has found that the market research staffs of some large
petroleum companies continue to concentrate on in-house data gathering and site
selection methods, while other companies with more limited resources must
consider low cost alternatives for obtaining market information. It has been
MPSI's experience that clients often encounter substantial cost barriers
relative to internally developed systems. Without the economies of scale, data
gathering expertise and modelling sophistication that MPSI has obtained during
its 25-year existence, clients often find that systems developed in house are
expensive to develop, expensive to maintain given changing market conditions,
require market information with an inherent degree of accuracy which is
difficult to obtain, and that the results of such systems do not justify the
associated costs and effort. Additionally, as clients or potential clients
struggle to manage operating costs and consider outsourcing certain activities
where economically feasible, the capabilities of companies like MPSI offer an
attractive alternative to internal systems. Because of the trend in large
companies to out source certain functions and because of the growth in business
consulting generally, independent consulting and research companies have
challenged certain products the Company offers such as demographic data
collection, geographic data bases, retail outlet surveys, retail consulting,
pricing applications, and single site studies. Occasionally, such consultants
are engaged to develop a proprietary internal model for their clients. Often
competitive services of this type are offered by independent consultants as
part of a larger consulting project wherein pricing for the retail planning
segment can be very competitive with MPSI's pricing. Certain of such companies
are offering computerized tools and services which, the Company believes are
not as sophisticated as MPSI products, but may be attractive to customers
willing to sacrifice accuracy for a lower cost solution to their business
needs.
The Company believes it competes within these various market alternatives
by providing high-quality, sophisticated software and reliable, accurate data
bases at a reasonable cost. MPSI further believes its historical expertise and
success in the areas of volume projections and retail network planning provide
a substantial barrier to entry for competitors. Further, MPSI's maintenance
programs and its commitment to more than one client in a given market results
in regular updates of existing software in line with changes in a given market.
The Company attributes its ability to provide these quality products and
services to the expertise and experience of its personnel.
By focusing on PC oriented products and services, the Company believes it
is better equipped to challenge "lower cost competitors". New data collection
techniques will allow more timely and regular updating of market
8
9
data using hand-held data collection technology and PC-based data transmission
and delivery technology. These processes are expected to reduce MPSI's data
collection costs relative to market studies and thereby allow the Company to
leverage data already collected or to collect custom data for clients who may
not require full market study information. The Company believes it can thereby
be competitive with potential competitors who have targeted customers with
limited retail market resources.
In addition to addressing low-cost competitors, MPSI began a program in
fiscal year 1994 whereby it will seek to establish strategic alliances with
certain independent consulting firms. The target consulting firms will be those
who service industries in which MPSI has historical expertise (e.g., petroleum,
government/postal, and banking). Such alliances can provide MPSI the
opportunity to sub-contract portions of larger consulting projects thereby
establishing MPSI's credibility with the client and allowing interface with
customer personnel who are potentially valuable sales contacts for future
business.
BACKLOG
The Company's September 30, 1995 and 1994 backlog consisted principally
of orders for market information data bases (1995 -- $14,669,000, 1994 --
$18,799,000) and multi-year commitments by customers for software maintenance
and support services (1995 - $3,014,000, 1994 -- $2,258,000). The Company
expects that the market information data bases in backlog at September 30, 1995
will be recognized in fiscal year revenues as follows: 1996 -- $7,634,000; 1997
- -- $3,333,000; 1998 -- $2,321,000 and 1999 -- $1,381,000. Maintenance and
support services in backlog are the result of client contractual obligations to
purchase support services generally over periods of three to five years. Such
revenues will be recognized, and backlog accordingly reduced, on a ratable
basis over the life of each underlying agreement. Of the aggregate maintenance
and support backlog at September 30, 1995, future fiscal year revenues are
expected to be recognized as follows: 1996 -- $1,114,000; 1997 -- $690,000;
1998 -- $542,000; 1999 -- $402,000, 2000 -- $193,000 and 2001 -- $73,000.
EMPLOYEES
As of September 30, 1995, the Company employed 240 people, including 88
in sales and marketing, 48 in research and development, 75 in data base
analysis, consulting, and production and 29 in management, administration, and
finance. Of these, 190 are employed in the United States and 50 are employed in
foreign countries.
PRODUCT DEVELOPMENT
Since 1970, the foundation of the Company's business has been its
developed software which helps retailers select sites, improve operations and
make product pricing decisions. Over the last five years, the major development
efforts of the Company have been directed toward (1) enhancement of this core
RPS product in order to extend its petroleum utilization around the world, (2)
portation of the software from mainframe to workstation/PC platforms, and (3)
incorporation of third party software in order to enhance the user interface,
speed and efficiency of this software. Currently, the Company has several
development efforts underway that address the aforesaid areas.
MPSI's product development cycle consists of four primary stages. During
the PRODUCT SPECIFICATION PHASE the Company identifies the initial requirements
of the software, determines the functional requirements and begins the initial
design. During this stage, the Company sets forth the data base requirements as
well as the hardware, operating systems, third-party imbedded software and
general functional requirements. From this information a business plan,
conceptual prototype and a project plan are developed. The prototypes developed
during this stage are not fully functional prototypes, but are designed to
present the "look and feel" of the end product. Upon completion of this phase,
the Company has generally completed a detailed program design and, accordingly,
established the technological feasibility of the project. Following the product
specification phase, the project enters the BUILD PHASE where actual software
programming takes place. Once coding is complete the project enters the QUALITY
ASSURANCE PHASE which encompasses various internal systems testing and user
acceptance testing. Once testing is completed the project enters the
IMPLEMENTATION PHASE where hardware and software installation procedures and
user documentation are finalized.
9
10
Software development costs incurred prior to completion of the detailed
program design are expensed as research and development costs. Costs incurred
during the build, quality assurance and implementation phases are generally
capitalized. At the point where the software product is ready for general
release to the customers, capitalization of costs ceases.
Beginning in fiscal year 1993 and extending through December 1994, MPSI
undertook a major internally funded rewrite of the retail planning software for
petroleum retailers. The new RPS was designed to meet the three primary
operational requirements of clients through PC-based products including the
Capital Performance System ("CAPS")(TM) for site selection and capital
planning, the Operational Performance System(TM) ("OPS")(R) for use in the
field by retail managers in order to optimize outlet and territory performance
and the Price Volume Optimizer ("PVO")(TM) for retail fuel pricing decisions.
The initial versions of OPS(R) and PVO(TM) software were available to customers
in fiscal year 1994 but are presently undergoing further enhancement. The
CAPS(TM) software for North America was released in January 1995. Third-party
geographic information system software is being incorporated into the RPS as
part of rewrite enhancements. The RPS rewrite should not only provide client
requested enhancements but is also expected to reduce costs associated with
(market study) data base production and efficiencies in future product
programming and model revisions. Regional CAPS(TM) software for Europe, South
America and the Pacific Rim is scheduled for release in 1996.
Development of the initial PVO(TM) product was the result of a contract
that was signed with a North American client during 1993 for the nonexclusive
development of a volume prediction model for a petroleum related product and
service facility. Several market data bases were also part of the contract. The
commercial version of PVO(TM) was completed in August of 1995 and is presently
undergoing implementation testing by clients in England, Argentina, and the
United States. It is anticipated this product, if successful, will not only
result in contracts for additional client data bases in 1996, but also will
lead to further business with other clients through the adaptation of the model
to other petroleum client ancillary product/service needs. Utilizing
information from Company produced RPS data bases or from other MPSI studies,
PVO(TM) is designed to give retailers an easy to use decision tool for
optimizing petroleum outlet profits through price or volume level
determinations.
The PC-based OPS(R) software utilizing RPS data base information is
currently being installed with clients in the United States, Europe and the
Pacific Rim. During fiscal year 1996, the Company intends to continue making
the model available to existing clients at a nominal cost for the purpose of
increasing Company-produced data bases, MPSI's principal revenue source. A
stand-alone OPS(R) product is scheduled for development and release late in
fiscal year 1996.
MPSI continues to pursue postal business in the United States and Europe.
Should MPSI be awarded a U.S. postal contract for market studies, additional
development efforts would be expended during fiscal 1996 to enhance certain
features of an existing prototype model and to incorporate new technology which
has become available since the prototype was developed.
During the years ended September 30, 1995, 1994 and 1993, the Company
spent $2,789,000, $3,257,000, and $2,546,000, respectively, on research and
development or enhancement of new products and the maintenance of existing
products. The amounts spent on research and development were primarily Company
sponsored, meaning there is no direct recoupment of expenses from clients.
TRADEMARKS, COPYRIGHTS, AND LICENSES
The Company holds a number of trademarks, some of which are registered at
the U.S. Patent and Trademark Office. To date, registration has been sought
only in the United States. During fiscal year 1996 and in connection with
global introduction of new products, the Company will evaluate trademark
registration in certain foreign countries where the volume of present and/or
potential business warrants registration. Set forth below are the Company's
trademarks and related registration expiration dates.
10
11
PRODUCT TYPE OF MARK STATUS/EXPIRATION
- ------- ------------ -----------------
MPSI's Site Evaluation System . . . . . . . . . . Registered 2001
MPSI and Design . . . . . . . . . . . . . . . . . Registered 2002
MPSI . . . . . . . . . . . . . . . . . . . . . . Registered 2004
MPSI's OPS . . . . . . . . . . . . . . . . . . . Registered 2002
Retail Planning System . . . . . . . . . . . . . Registered 2005
MPSI's CAPS . . . . . . . . . . . . . . . . . . . Trademark Filed
Price Volume Optimizer . . . . . . . . . . . . . Trademark Filed
PVO . . . . . . . . . . . . . . . . . . . . . . . Trademark Filed
Location Volume . . . . . . . . . . . . . . . . . Trademark Filed
Facility/Location Volume . . . . . . . . . . . . Trademark Filed
Quest Systems International Inc . . . . . . . . . Trademark Filed
MPSI's Market Monitor . . . . . . . . . . . . . . Trademark Registration Pending
PriceTracker . . . . . . . . . . . . . . . . . . Trademark Registration Pending
The Intelligent Approach to Retail Marketing . . Trademark Registration Pending
The Company does not hold any patents or copyrights. The Company's
long-term software license agreements require customer acknowledgment of the
proprietary nature of the Company's software. The Company relies on these
agreements, together with trade secret laws and internal nondisclosure
safeguards, to protect its products. To date, the Company has had no indication
of any material breach in the security of its products. Should a material
breach in the security of the Company's software products occur, it might have
the impact of reducing the current barriers to entry for competitors and thus
materially adversely effect long-term results of Company operations. The
Company's modeling methodology, mathematical modeling algorithms and data
gathering processes have been developed over an extensive period of time and
would, in the absence of a material breach in the security, require potential
competitors a substantial period of time to duplicate. Even in the event that a
material breach did occur, such as a reverse engineering of an MPSI software
product, the Company believes that because of the rapid annual change in
technology and the regular software upgrades required thereby, such breach
would not result in a material adverse effect on the Company's short-term
business because new versions of its products would likely reduce the
competitive value of older versions breached by potential competitors.
ITEM 2. PROPERTIES
The Company's principal facility and corporate headquarters in Tulsa,
Oklahoma (42,500 square feet) is the primary location for software development
and market study production. The Bristol, England facility encompasses 10,000
square feet, and the Rio de Janeiro, Brazil office encompasses 3,000 square
feet. Both foreign offices do single site and special project work in addition
to their primary marketing role. Regional sales offices in Singapore;
Melbourne, Australia; and Tokyo, Japan remained the Company's principal client
liaison facilities in those areas at September 30, 1995. Management believes
that the various facilities are now properly sized to meet anticipated business
levels. Additional space may be required to accommodate business expansion. All
office facilities are leased.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings at September 30, 1995
which meet the criteria for disclosure under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended September 30, 1995.
11
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this ITEM is incorporated by reference to
page 25 of the Company's 1995 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this ITEM is incorporated by reference to
page 1 of the Company's 1995 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this ITEM is incorporated by reference to
pages 3 through 6 of the Company's 1995 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement information required by this ITEM is
incorporated by reference to pages 7 through 24 of the Company's 1995 Annual
Report to Stockholders. Supplementary financial statement schedules are
presented under ITEM 14 of this Form 10-K beginning on page 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants
on matters related to accounting or financial disclosure during the fiscal
years ended September 30, 1995 and 1994.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information appearing under the caption
"Directors and Executive Officers" in the Company's Proxy Statement which will
be filed pursuant to Regulation 14A not later than 120 days after the end of
the Company's fiscal year ended September 30, 1995 and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the caption
"Compensation of Directors and Officers" in the Company's Proxy Statement which
will be filed pursuant to Regulation 14A not later than 120 days after the end
of the Company's fiscal year ended September 30, 1995 and is incorporated
herein by reference.
12
13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information appearing under the caption "Stock
Ownership" in the Company's Proxy Statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year ended September 30, 1995 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information appearing under the caption
"Certain Transactions" in the Company's Proxy Statement which will be filed
pursuant to Regulation 14A not later than 120 days after the end of the
Company's fiscal year ended September 30, 1995 and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of ITEM 14 is submitted as a
separate section of this report under ITEM 8.
(2) The response to this portion of ITEM 14 is set forth in ITEM 14(d)
below.
(3) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
*3.1 -- Certificate of Incorporation of MPSI Systems Inc., as amended, filed as the same numbered exhibit
with the Company's Form 10-Q dated March 31, 1987, File No. 0-11527.
*3.2 -- By-laws, as amended, filed as Exhibit 3.1 with the Company's Form 10-Q dated June 30, 1987, File No.
0-11527.
*3.3 -- Certificate of Designation dated September 23, 1993 establishing the rights conferred on $.10 Par
Value Convertible Preferred Stock, Series 1993, filed as the same numbered exhibit with the Company's
1993 Form 10-K, File No. 0-11527.
*3.4 -- Amendment to Certificate of Incorporation dated November 16, 1993 to reflect a one-for-ten reverse
stock split, filed as the same numbered exhibit with the Company's 1993 Form 10-K, File No. 0-11527.
*3.5 -- Certificate dated November 18, 1993 whereby the $.10 Par Value Preferred Stock, Series 1993, and the
rights previously set forth in the Certificate of Designation were eliminated, filed as the same
numbered exhibit with the Company's 1993 Form 10-K, File No. 0-11527.
*4.1 -- Stock Purchase Agreement dated September 3, 1993 between MPSI Systems Inc. and various private
investors (excluding exhibits thereto which are included herewith as Exhibits 4.2 and 4.3) which sets
forth the terms of an equity recapitalization of the registrant, filed as the same numbered exhibit
with the Company's 1993 Form 10-K, File No. 0-11527.
13
14
(3) Exhibits. (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
*4.2 -- Stockholder Agreement dated September 29, 1993 between MPSI Systems Inc. and certain private
investors which regulates certain stockholder relationships with respect to voting, ownership,
transfer or other disposition of MPSI stock, filed as the same numbered exhibit with the Company's
1993 Form 10-K, File No. 0-11527.
*4.3 -- Registration Rights Agreement dated September 29, 1993 between MPSI Systems Inc. and certain private
investors which sets forth the rights of the parties with respect to future registrations of stock of
the registrant, filed as the same numbered exhibit with the Company's 1993 Form 10-K, File No. 0-
11527.
*4.4 -- Supplemental Agreement dated October 7, 1993 which revised the requirements and procedures related to
the proposed reverse stock split and the conversion of preferred stock, filed as the same numbered
exhibit with the Company's 1993 Form 10-K, File No. 0-11527.
*4.5 -- Stock Purchase Agreement dated September 23, 1993 among MPSI Systems Inc. and Selling Stockholders
other than the Principal Investors, filed as the same numbered exhibit with the Company's 1994
Registration Statement on Form S-1, Registration No. 33-76286.
*4.6 -- Registration Agreement dated July 1, 1994 among MPSI Systems Inc. and the Selling Stockholders (final
form), filed as the same numbered exhibit with the Company's 1994 Registration Statement on Form S-1,
Registration No. 33-76286.
*10.3 -- MPSI Systems Inc. 1984 Stock Option Plan as amended effective January 1, 1987, filed as the same
numbered exhibit with the Company's 1987 Form 10-K, File No. 0-11527.
*10.4 -- Stock Option Agreement pursuant to MPSI Systems Inc. 1984 Stock Option Plan, filed as the same
numbered exhibit with the Company's 1984 Form 10-K, File No. 0-11527.
*10.7 -- Real property lease dated August 7, 1981, between MPSI Centre Joint Venture, as lessor, and the
Company, as lessee, relating to the Company's Tulsa, Oklahoma facility, filed as Exhibit 10.5 with
the Company's Registration Statement on Form S-1, File No. 2-81641, which became effective on March
2, 1983.
*10.14 -- Stipulation Providing For Settlement, Mutual Release and Transfer of Certain Assets of the Estate of
Comarc Systems, Inc. (Debtor), filed as the same numbered exhibit with the Company's 1986 Form 10-K,
File No. 0-11527.
*10.15 -- Indemnification Agreements with Directors and Officers of MPSI Systems Inc. filed as the same
numbered exhibit with the Company's 1986 Form 10-K, File No. 0-11527.
*10.16 -- MPSI Systems Inc. Amended and Restated 1988 Stock Option Plan, effective November 29, 1988, filed as
Exhibit 4.5 with the Company's 1994 Form S-8, File No. 0-11527.
*10.17 -- Stock Option Agreement pursuant to MPSI Systems Inc. Amended and Restated 1988 Stock Option Plan,
filed as Exhibit 4.6 with the Company's 1994 Form S-8, File No. 0-11527.
14
15
(3) Exhibits. (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
*10.20 -- MPSI Systems Inc. Matching Investment Plan, effective January 1, 1990, filed as Exhibit 4(c) with
Pre-effective Amendment No. 1 to the Company's Form S-8, filed on December 29, 1989, File No. 0-
11527.
*10.22 -- Asset Purchase Agreement dated March 11, 1991 between Comshare, Incorporated (Buyer), Execucom
Systems Corporation (Seller) and MPSI Systems Inc. (Seller's Parent); and Amendment to Asset Purchase
Agreement effective March 22, 1991, filed as Exhibit 2.1 to Form 8-K dated March 22, 1991, File No.
0-11527.
*10.23 -- Amendment dated March 19, 1991 to real property lease between MPSI Centre Joint Venture, as lessor,
and MPSI Systems Inc., as lessee, filed as the same numbered exhibit with the Company's 1991 Form 10-
K, File No. 0-11527.
*10.25 -- Amendment dated March 31, 1993 to real property lease between MPSI Centre Joint Venture, as lessor,
and MPSI Systems Inc., as lessee, filed as the same numbered exhibit with the Company's 1993 Form 10-
K, File No. 0-11527.
*10.26 -- Asset Purchase Agreement dated August 29, 1994 between the Registrant, its wholly-owned Subsidiary,
Retail Systems, Inc., and Dakota Worldwide Corporation filed as Exhibit 10.1 to Form 8-K filed
September 15, 1994.
11.1 -- Computation of Earnings Per Share.
13.1 -- MPSI Systems Inc. 1995 Annual Report to Stockholders.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP.
27.1 -- Financial Data Schedules.
- ----------
* Incorporated by reference.
(b) No report on Form 8-K was filed by the Company during or applicable to
the quarter ended September 30, 1995.
(c) Exhibits - The response to this ITEM is submitted as a separate section
of this report.
(d) Financial Statement Schedules - Set forth below are the required
financial statement schedules together with the Report of Independent
Auditors on Financial Statement Schedules. All other schedules are
omitted because they are not applicable or the information is shown in
the financial statements or notes thereto.
15
16
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
We have audited the consolidated financial statements of MPSI Systems Inc. as
of September 30, 1995 and 1994, and for each of the three years in the period
ended September 30, 1995, and have issued our report thereon dated November 13,
1995 (incorporated by reference in this Form 10-K). Our audits also included
the financial statement schedules included in this Form 10-K. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 13, 1995
16
17
SCHEDULE VIII
MPSI SYSTEMS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED SEPTEMBER 30, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- --------------------------- -------- --------
BALANCE ADDITIONS
AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND REDUCTION OF (DEDUCTIONS) AT END OF
DESCRIPTION OF PERIOD EXPENSES REVENUES ADDITIONS PERIOD
- ----------- --------- -------- -------- --------- ------
For the year ended September 30,
1993:
Accumulated depreciation . . . . $7,699,000 $593,000 $ -- $(1,180,000)(2) $7,112,000
Accumulated amortization . . . . 1,412,000 546,000 -- -- 1,958,000
Allowance for doubtful
receivables . . . . . . . . . . 37,000 26,000 -- (47,000) 16,000
Unamortized discount on software
license agreements . . . . . . 530,000 -- 86,000(1) (338,000)(1) 278,000
For the year ended September 30,
1994:
Accumulated depreciation . . . . $7,112,000 $433,000 $ -- $ (441,000)(3) $7,104,000
Accumulated amortization . . . . 1,958,000 246,000 -- -- 2,204,000
Allowance for doubtful
receivables (RSI) . . . . . . . 16,000 17,000 -- (33,000)(3) --
Unamortized discount on software
license agreements . . . . . . 278,000 -- 138,000(1) (228,000)(1) 188,000
For the year ended September 30,
1995:
Accumulated depreciation . . . $7,104,000 $405,000 $ -- $ (89,000)(2) $7,420,000
Accumulated amortization . . . 2,204,000 294,000 -- -- 2,498,000
Unamortized discount on software
license agreements . . . . 188,000 -- 304,000(1) (171,000)(1) 321,000
__________
(1) Reduction of unamortized discount on long-term receivables represents
current period interest income recognition (see Note 3 to Consolidated
Financial Statements). Increases to unamortized discount represent the
present-value-discount on new software license agreements net of
adjustment for any contract cancellations or revisions.
(2) Reduction is due to retirement of fully amortized assets and to assets sold
or otherwise disposed.
(3) Included in the reductions are $373,000 of accumulated depreciation and
$33,000 related to uncollectible accounts, all of which are attributable to
the sale of the RSI business unit.
17
18
SCHEDULE X
MPSI SYSTEMS INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
THREE YEARS ENDED SEPTEMBER 30, 1995
COLUMN A COLUMN B
-------- ---------------------------------------
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------
ITEM 1995 1994 1993
---- ---- ---- ----
Maintenance and repairs . . . . . . . . . . . . $155,000 $178,000 $393,000
Amortization of internally developed software . 294,000 246,000 546,000
Royalties . . . . . . . . . . . . . . . . . . . 28,000 -- 2,000
Advertising costs . . . . . . . . . . . . . . . 99,000 51,000 11,000
18
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, a corporation organized and existing
under the laws of the State of Delaware, has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tulsa, State of Oklahoma, on the 20th day of December, 1995.
MPSI SYSTEMS INC.
By /s/ Ronald G. Harper
--------------------
Ronald G. Harper
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant, in the
capacities and on the date indicated.
/s/ Ronald G. Harper Chairman of the Board, December 20, 1995
-------------------------------- President and Principal
Ronald G. Harper Executive Officer
/s/ James C. Auten Corporate Controller -- December 20, 1995
-------------------------------- (Principal Accounting and
James C. Auten Financial Officer)
s/ John C. Bumgarner, Jr. Director December 20, 1995
----------------------------------
John C. Bumgarner, Jr.
/s/ David L. Huff Director December 20, 1995
--------------------------------
David L. Huff
/s/ Joseph C. McNay Director December 20, 1995
--------------------------------
Joseph C. McNay
/s/ John J. McQueen Director December 20, 1995
--------------------------------
John J. McQueen
The Company's proxy statement for the Annual Meeting of Stockholders to be
held February 1, 1996 has not yet been sent to stockholders. Copies of such
materials will be furnished to the Commission at such time as they are sent to
stockholders.
19
20
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ----
11.1 -- Earnings Per Share Computation . . . . . . . . . . . . . . 21
13.1 -- MPSI Systems Inc. 1995 Annual Report to Stockholders . . . 22
21.1 -- List of Subsidiaries . . . . . . . . . . . . . . . . . . . 51
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP . . . 52
27.1 -- Financial Data Schedule . . . . . . . . . . . . . . . . . 53
20