1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number 0-4096
Comshare, Incorporated
(Exact name of registrant as specified in its charter)
Michigan 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3001 South State Street, Ann Arbor, Michigan 48108
(Address of principal executive offices) (Zip Code)
(313) 994-4800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (January 31, 1995).
Outstanding at
Class of Common Stock January 31, 1995
$1.00 par value 5,443,328 shares
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PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
Comshare, Incorporated
Condensed Consolidated Balance Sheet
December 31, June 30,
1994 1994
Assets
Current Assets
Cash $ 533,500 $ 1,773,900
Accounts receivable, net 32,088,400 30,846,600
Other current assets 4,719,800 5,498,800
------------ ------------
Total current assets 37,341,700 38,119,300
Property and equipment, net 3,536,600 4,197,600
Computer software, net 39,787,100 40,235,600
Goodwill, net 2,047,300 2,033,000
Other assets 4,809,100 4,358,200
------------ ------------
$ 87,521,800 $ 88,943,700
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 201,100 $ 28,700
Accounts payable 10,759,600 10,607,900
Accrued liabilities 5,979,700 7,672,900
Income taxes 1,262,600 641,700
Deferred revenue 18,670,900 19,616,800
------------ ------------
Total current liabilities 36,873,900 38,568,000
Long-term debt 12,663,000 15,354,400
Deferred income taxes 5,725,800 5,510,500
Other liabilities 2,954,700 3,005,000
Shareholders' equity 29,304,400 26,505,800
------------ ------------
$ 87,521,800 $ 88,943,700
============ ============
See accompanying notes to condensed consolidated financial statements.
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Comshare, Incorporated
Condensed Consolidated Statement of Income
Three Months Ended
December 31,
1994 1993
Revenue
Software licenses $ 13,017,600 $ 9,793,200
Software maintenance 9,237,400 9,915,400
Implementation and consulting services 5,259,300 3,903,800
Remote processing and other 141,400 166,700
------------ ------------
27,655,700 23,779,100
Costs and expenses
Selling and marketing 11,513,700 11,860,400
Cost of revenue and support 5,979,400 4,159,400
Internal research and product development 4,030,800 4,676,400
Internally capitalized software (2,940,300) (3,284,500)
Software amortization 3,261,600 2,911,700
General and administrative 2,964,100 1,755,000
------------ ------------
24,809,300 22,078,400
------------ ------------
Income from operations 2,846,400 1,700,700
Other income (expense)
Interest income 34,900 16,600
Interest expense (210,400) (131,400)
Exchange loss (6,000) (180,200)
------------ ------------
(181,500) (295,000)
Income before income taxes 2,664,900 1,405,700
Provision for income taxes 984,300 354,100
------------ ------------
Net income $ 1,680,600 $ 1,051,600
============ ============
Weighted average number of common
and dilutive common equivalent shares 5,549,600 5,475,300
============ ============
Net income per common share $.30 $.19
==== ====
See accompanying notes to condensed consolidated financial statements.
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Six Months Ended
December 31,
1994 1993
Revenue
Software licenses $ 23,023,900 $ 17,625,900
Software maintenance 18,208,600 20,967,300
Implementation and consulting services 10,321,100 8,353,200
Remote processing and other 259,800 562,600
------------ ------------
51,813,400 47,509,000
Costs and expenses
Selling and marketing 21,745,200 22,892,900
Cost of revenue and support 11,361,100 8,421,200
Internal research and product development 8,100,800 9,899,500
Internally capitalized software (6,019,100) (6,796,800)
Software amortization 6,647,000 5,919,900
General and administrative 5,714,400 4,474,600
------------ ------------
47,549,400 44,811,300
------------ ------------
Income from operations 4,264,000 2,697,700
Other income (expense)
Interest income 56,000 44,900
Interest expense (397,800) (271,300)
Exchange loss (42,900) (138,600)
------------ ------------
(384,700) (365,000)
Income before income taxes 3,879,300 2,332,700
Provision for income taxes 1,447,900 624,000
------------ ------------
Net income $ 2,431,400 $ 1,708,700
============ ============
Weighted average number of common
and dilutive common equivalent shares 5,522,300 5,446,700
=========== ============
Net income per common share $.44 $.31
==== ====
See accompanying notes to condensed consolidated financial statements.
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Comshare, Incorporated
Condensed Consolidated Statement of Cash Flows
Six Months Ended
December 31,
1994 1993
Cash flows from operating activities
Cash received from customers $ 49,934,500 $ 43,931,500
Cash paid to suppliers and employees (41,443,600) (38,701,400)
Interest received 56,100 45,400
Interest paid (270,300) (268,400)
Income tax refunds/(paid), net 15,300 (231,000)
------------ ------------
Net cash provided by operating activities 8,292,000 4,776,100
Cash flows from investing activities
Additions to computer software (6,019,200) (6,801,000)
Payments for equipment (433,100) (654,000)
Proceeds from sale of undeveloped land 0 3,376,100
Other (651,800) (853,300)
------------ ------------
Net cash used in investing activities (7,104,100) (4,932,200)
Cash flows from financing activities
Net borrowings under notes payable 159,200 205,800
Repayments under long-term debt (2,747,900) (2,206,900)
Other 172,900 0
------------ ------------
Net cash used in financing activities (2,415,800) (2,001,100)
Effect of exchange rate changes (12,500) (23,200)
Net decrease (1,240,400) (2,180,400)
Balance at beginning of period 1,773,900 2,592,500
------------ ------------
Balance at end of period $ 533,500 $ 412,100
============ ============
See accompanying notes to condensed consolidated financial statements.
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Comshare, Incorporated
Condensed Consolidated Statement of Cash Flows
Six Months Ended
December 31,
1994 1993
Net income $ 2,431,400 $ 1,708,700
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 8,041,700 7,708,400
Gain on sale of undeveloped land 0 (1,101,900)
Other (61,000) 95,200
Change in operating assets and liabilities:
Accounts receivable (696,000) (1,083,600)
Other current assets 190,000 740,100
Other assets 0 189,000
Accounts payable (173,100) 882,300
Accrued liabilities (1,062,800) (2,262,900)
Deferred revenue (1,265,100) (2,587,400)
Deferred credits 804,400 478,300
Other liabilities 82,500 9,900
------------ ------------
Total adjustments 5,860,600 3,067,400
------------ ------------
Net cash provided by operating activities $ 8,292,000 $ 4,776,100
============ ============
See accompanying notes to condensed consolidated financial statements.
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Comshare, Incorporated
Notes to Condensed Consolidated Financial Statements
December 31, 1994
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's latest annual report on Form 10-K. There
have been no significant changes in such information since the date of such
financial statements except as noted below.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting
only of normal recurring items, required to present fairly its consolidated
financial position as of December 31, 1994 and June 30, 1994, the results of
operations for the three and six months ended December 31, 1994 and 1993 and
cash flows for the six months ended December 31, 1994 and 1993.
Certain amounts in the prior years condensed consolidated financial
statements have been reclassified to conform with the current presentation.
The results of operations for the second quarter ended December 31, 1994
are not necessarily indicative of the results to be expected in the future.
NOTE B - BORROWINGS
On October 31, 1994 the Company entered into a $14,000,000 amended and
restated, secured domestic credit agreement with certain of its banks which
matures on October 31, 1997. This agreement replaces the former $13,000,000
domestic line of credit. The amended and restated credit agreement contains
covenants regarding among other things, working capital, current ratio and
net worth. Permitted borrowings under the credit agreement are based on a
percentage of worldwide eligible accounts receivable and worldwide borrowings.
Interest is at the bank's prime rate plus 1% and reduces, upon the Company's
meeting certain financial criteria, to the Eurodollar rate plus applicable
margin, which varies between 1-1/2% and 2-1/2%.
NOTE C - FINANCIAL INSTRUMENTS
The Company at various times has entered into forward exchange contracts
to hedge exposures related to foreign currency transactions. The Company
does not use any other types of financial instruments to hedge such exposures
nor does it engage in speculation. In general the Company only hedges
against large selective transactions that present the most exposure to
exchange rate fluctuations. The foreign exchange contracts vary in maturity
dates but most do not exceed 12 months.
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NOTE D - FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The net change in shareholders' equity during the six months ended
December 31, 1994 resulting from translation adjustments was an increase of
$194,300.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS (dollars in thousands)
Revenue for the second quarter ended December 31, 1994 was $27,656, an
increase of $3,877 or 16% compared with the corresponding quarter a year ago.
For the six month period ending December 31, 1994, revenue was $51,813, an
increase of $4,304 or 9% compared with the corresponding period a year ago.
Software license fees grew 33% for the second quarter and 31% for the six
month period ended December 31, 1994 compared with the corresponding periods
a year ago. All three application areas showed solid license fee growth for
the second quarter and six month period ended December 31, 1994 compared with
the corresponding periods a year ago: EIS/DSS (Commander OLAP and tools) -
32% for the second quarter and 23% for the six month period ended December
31, 1994, financial applications (Commander FDC and Budget) - 35% and 42%,
respectively, and retail applications (ARTHUR) - 38% and 52%, respectively.
Current second quarter releases of EIS/DSS and financial applications
products, combined with continued acceptance of fiscal year 1994 product
releases, contributed to the growth in the quarter and six month period ended
December 31, 1994 compared with the corresponding periods a year ago. In the
current second quarter mainframe license fee revenue was $789 or 6% of total
license fee revenue, compared to $2,785 in the same quarter a year ago.
Mainframe license fee revenue is now at a low enough level that further
declines, which are expected to continue, will not significantly impact
results.
Maintenance revenue declined $678 or 7% for the second quarter and
$2,759 or 13% for the six month period ended December 31, 1994 compared with
the corresponding periods a year ago. A decline in maintenance revenue from
mainframe products was the primary reason for the decrease. Mainframe
maintenance revenue was $4,389 or 48% of total maintenance revenue compared to
$5,519 in the same quarter a year ago. Mainframe maintenance revenue is
expected to continue to decline although at a slower rate than the decline
in mainframe license fees. Maintenance revenue from desktop and
client/server products increased $587 or 14% for the second quarter and
$633 or 7% for the six month period ended December 31, 1994 compared with the
corresponding periods a year ago. Also impacting the comparability of
maintenance revenue (and license fee growth) was the conversion of selected
agencies to distributors in the third and fourth quarters of the 1994 fiscal
year. When an agent converts to a distributor, sales are to the distributor,
rather than directly to the customer, and revenue declines by approximately
the same amount as what previously would have been recorded as selling
expense for agency fees. Accordingly, both revenue and selling expenses are
reduced by approximately the same amount after agents are converted to
distributors.
10
Implementation and consulting services revenue grew $1,356 or 35% for
the second quarter and $1,968 or 24% for the six month period ended December
31, 1994 compared with the corresponding periods a year ago. Implementation
and consulting services revenue was favorably impacted as license fee revenue
continued to grow.
Operating expenses for the second quarter ended December 31, 1994 were
$24,809, an increase of $2,731 or 12% compared with the corresponding quarter
a year ago. Operating expenses increased $2,738 or 6% for the six months
ended December 31, 1994 compared with the corresponding period a year ago.
The decrease in selling and marketing expenses was principally attributable
to decreases in agency fees of $1,158 and $2,430 for the second quarter and
six month period ended December 31, 1994, compared with the corresponding
periods a year ago, due to the conversion of agents to distributors as
described above, offset by increases in other selling expenses required to
support increased revenue. The primary reason for the increase in cost of
revenue and support for the second quarter and six month period ended
December 31, 1994 was increased royalty expenses associated with certain
components of products released in the third quarter of last fiscal year.
Related royalty expenses were $1,415 and $2,297 for the second quarter and
six month period ended December 31, 1994. Internal research and product
development costs decreased $646 and $1,799 for the second quarter and six
month period ended December 31, 1994, compared with the corresponding periods
a year ago, primarily due to the effect of staff reductions. Lower product
development costs have resulted in lower capitalization of internally
developed software which declined $344 and $778 for the second quarter and
six month period ended December 31, 1994 compared with the corresponding
periods a year ago. For the second quarter and six month period ended
December 31, 1994, software amortization increased $350 and $727 compared
with the corresponding periods a year ago as a result of numerous products
that were commercially released during the last fiscal year. General and
administrative expenses were essentially unchanged for the second quarter and
six month period ended December 31, 1994 compared with the corresponding
periods a year ago, excluding the effect of the $1,102 gain on undeveloped
land which occurred in the second quarter ended December 31, 1993 and was
included in general and administrative expenses in that quarter.
For the second quarter and six month period ended December 31, 1994,
approximately 56% of the Company's revenue was from international sources and
denominated in foreign currencies. The dollar weakened against foreign
currencies for both the second quarter and six month period ended December 31,
1994 compared with the corresponding periods a year ago positively impacting
revenue. Total revenue on a currency adjusted basis for the second quarter
and six month period ended December 31, 1994 would have been approximately
$900 and $1,500 less. As related amounts of operating expenses were also
incurred in foreign currencies, the relative impact of foreign exchange rates
on net income was not material.
11
The Company recognizes transaction gains and losses in the period of
occurrence. As currency rates are constantly changing, these gains and
losses can, at times, fluctuate greatly. For the second quarter ended
December 31, 1994, there was a $6 exchange loss compared with a $180 loss in
the corresponding period a year ago. For the six month period ended December
31, 1994 there was a $43 exchange loss compared with a $139 loss for the
corresponding period a year ago. At December 31, 1994, the Company had three
forward contracts whose US dollar equivalent was $5.2 million with various
maturities through September 1995 to hedge currency exposures.
The effective tax rate for the second quarter and six month period
ended December 31, 1994 was 37% compared with 25% and 27%, respectively, for
the corresponding periods a year ago. The lower tax rate for the second
quarter and six month period ended December 31, 1993 is attributed to the
reversal of taxes previously provided. Also, the tax provision in the first
quarter ended September 30, 1993 benefited from certain tax refunds.
FINANCIAL CONDITION (dollars in thousands)
Net cash provided by operating activities was $8,292 for the six month
period ended December 31, 1994 compared with $4,776 for the corresponding
period a year ago. Higher billing levels and improved collections resulted
in improved cash flows. Working capital was $468 as of December 31, 1994
compared with a deficiency of working capital of $449 as of June 30, 1994.
Included in current liabilities at December 31, 1994 is $18,671 of deferred
revenue, substantially all of which relates to maintenance and is essentially
non-cash in nature.
Net cash used in investing activities was $7,104 for the six month
period ended December 31, 1994 compared with $4,932 for the corresponding
period a year ago. Included in investing activities a year ago was $3,376 in
proceeds from the sale of undeveloped land. Net cash used in investing
activities decreased $1,204 in the six month period ended December 31, 1994
compared with the corresponding period a year ago after excluding the
benefits of the land sale. This decrease is a result of lower capitalization
of internally developed software and reduced acquisitions of property and
equipment.
Net cash from operating activities was used to reduce long-term debt
by $2,748 and fund additions to computer software.
On October 31, 1994 the Company entered into a $14,000 amended and
restated, secured domestic credit agreement with certain of its banks which
matures on October 31, 1997. This agreement replaced a former $13,000
domestic line of credit. The amended and restated credit agreement contains
covenants regarding among other things, working capital, current ratio and
net worth. Permitted borrowings under the credit agreement are based
on a percentage of worldwide eligible accounts receivable and worldwide
borrowings. At December 31, 1994 the total amount available, including
foreign lines of credit, was approximately $17,000. Interest is at the bank's
prime rate plus 1% and reduces, upon the Company's meeting certain financial
criteria, to the Eurodollar rate plus applicable margin, which varies between
1-1/2% and 2-1/2%.
12
The Company believes that the combination of present cash balances,
future operating cash flows, and credit facilities are sufficient for near
term operating needs. The Company intends to fund software additions and
equipment purchases primarily through cash flow from operations.
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Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Shareholders on November
17, 1994. There were five matters voted on: (1) the election of
nine directors; (2) a proposal to amend the Company's 1988 Stock
Option Plan; (3) a proposal to adopt the Employee Stock Purchase
Plan; (4) a proposal to adopt the 1994 Directors Stock Option Plan;
and (5) a proposal to adopt the 1994 Executive Stock Purchase
Program. The following table sets forth the results of the
matters voted on. All nominees for directors were elected and all
proposals were passed.
Votes Broker
Votes For Withheld Abstentions Non-votes
(1) Election of Directors (all nominees are incumbent)
Nominee
Claude H. Allard 4,311,566 211,451 0 0
Daniel T. Carroll 4,315,561 207,546 0 0
Richard L. Crandall 4,331,522 191,585 0 0
Stanley R. Day 4,321,908 201,199 0 0
W. John Driscoll 4,331,528 191,579 0 0
Alan G. Merten 4,324,905 198,202 0 0
John P. Rockart 4,324,797 198,310 0 0
Brian Sullivan 4,331,662 191,445 0 0
T. Wallace Wrathall 4,331,420 191,687 0 0
Votes Broker
Votes For Against Abstentions Non-votes
(2) Amend the 1988 Stock Option Plan
2,767,685 561,631 184,559 0
(3) Adopt the Employee Stock Purchase Plan
3,250,597 79,476 183,802 0
(4) Adopt the 1994 Directors Stock Option Plan
2,917,037 405,335 191,503 0
(5) Adopt the 1994 Executive Stock Purchase Program
2,983,654 343,732 186,489 0
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits included herewith are set forth on the Index to
Exhibits.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
December 31, 1994.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 1995 Comshare, Incorporated
(Registrant)
/s/ Kathryn A. Jehle
Kathryn A. Jehle
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit No. Description
4.01 Specimen form of Common Stock Certificate - incorporated by
reference to Exhibit 4(c) to the Company's Form S-1
Registration Statement No. 2-29663.
10.23 Employment and NonCompetition Agreement between T.
Wallace Wrathall and Comshare, Incorporated, effective
as of April 1, 1994.
27 Financial Data Schedule