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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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COMMISSION FILE NUMBER 0-4096
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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.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 994-4800
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of DECEMBER 31, 2000.
OUTSTANDING AT
CLASS OF COMMON STOCK DECEMBER 31, 2000
--------------------- -----------------
$1.00 PAR VALUE 9,934,541 SHARES
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COMSHARE, INCORPORATED
INDEX
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 2000 and 1999...............................3
Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended December 31, 2000 and 1999...............................4
Condensed Consolidated Balance Sheets as of
December 31, 2000 and June 30, 2000.........................................................5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2000 and 1999.................................................7
Notes to Condensed Consolidated Financial Statements............................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................17
SIGNATURE..........................................................................................18
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
---- ---- ---- ----
REVENUE
Software licenses $ 5,308 $ 5,566 $ 10,011 $10,868
Software maintenance 5,899 6,006 11,740 11,754
Implementation, consulting
and other services 3,618 3,451 8,517 6,907
---------- ----------- ------------ -----------
TOTAL REVENUE 14,825 15,023 30,268 29,529
COSTS AND EXPENSES
Selling and marketing 5,803 5,932 11,264 11,749
Cost of revenue and support 5,951 5,733 12,732 10,971
Internal research and product development 2,085 2,136 4,141 4,286
General and administrative 1,290 1,472 2,722 2,951
---------- ----------- ------------ -----------
TOTAL COSTS AND EXPENSES 15,129 15,273 30,859 29,957
---------- ----------- ------------ -----------
LOSS FROM OPERATIONS (304) (250) (591) (428)
OTHER INCOME (EXPENSE)
Interest income 375 352 802 738
Interest expense (2) (22) (4) (44)
Exchange gain (loss) (61) 10 (76) (94)
---------- ----------- ------------ -----------
TOTAL OTHER INCOME 312 340 722 600
INCOME BEFORE TAXES 8 90 131 172
Provision for income taxes 3 31 48 61
---------- ----------- ------------ -----------
NET INCOME $ 5 $ 59 $ 83 $ 111
========== =========== ============ ===========
SHARES USED IN BASIC EPS COMPUTATION 9,790 9,604 9,785 9,623
========== =========== ============ ===========
SHARES USED IN DILUTED EPS COMPUTATION 9,833 9,735 9,926 9,685
========== =========== ============ ===========
NET INCOME PER COMMON SHARE - BASIC EPS $ 0.00 $ 0.01 $ 0.01 $ 0.01
========== =========== ============ ===========
NET INCOME PER COMMON SHARE - DILUTED EPS $ 0.00 $ 0.01 $ 0.01 $ 0.01
========== =========== ============ ===========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
--------- --------- --------- ---------
Net income $ 5 $ 59 $ 83 $ 111
Other comprehensive income (loss):
Currency translation adjustment 276 (41) (154) (73)
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $281 $ 18 $ (71) $ 38
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 31, June 30,
2000 2000
---- ----
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 22,163 $ 29,506
Accounts receivable, net 19,578 17,328
Deferred income taxes 759 759
Prepaid expenses and other current assets 2,616 2,297
------------ ------------
TOTAL CURRENT ASSETS 45,116 49,890
Property and equipment, at cost
Computers & other equipment 8,195 8,508
Leasehold improvements 2,775 2,774
------------ ------------
10,970 11,282
Less - Accumulated depreciation 9,325 9,397
------------ ------------
Property and equipment, net 1,645 1,885
Goodwill, net 1,012 1,047
Deferred income taxes 6,392 5,845
Other assets 1,422 1,479
------------ ------------
TOTAL ASSETS $ 55,587 $ 60,146
============ ============
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31, June 30,
2000 2000
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) (audited)
CURRENT LIABILITIES
Accounts payable $ 2,213 $ 2,252
Accrued liabilities:
Payroll 709 2,240
Taxes 1,207 1,154
Other 4,775 6,583
-------------- --------------
Total accrued liabilities 6,691 9,977
Deferred revenue 11,183 12,178
-------------- --------------
TOTAL CURRENT LIABILITIES 20,087 24,407
Long-term debt 114 599
Other liabilities 4,170 4,249
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares; none issued - -
Common stock, $1.00 par value;
authorized 20,000,000 shares; outstanding
9,934,541 shares as of December 31, 2000
and 9,771,962 shares as of June 30, 2000 9,935 9,772
Capital contributed in excess of par value 39,024 38,790
Retained deficit (7,724) (7,807)
Accumulated other comprehensive income: -
Pension liability, net of tax (4,282) (4,282)
Cumulative translation adjustment (5,737) (5,582)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 31,216 30,891
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 55,587 $ 60,146
============== ==============
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
SIX MONTHS ENDED
DECEMBER 31,
-----------------------------
2000 1999
---- ----
OPERATING ACTIVITIES
Net income $ 83 $ 111
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 495 711
Changes in operating assets and liabilities:
Accounts receivable (2,346) (1,996)
Prepaid expenses and other assets (278) (113)
Accounts payable (24) (2,223)
Accrued liabilities (3,204) (1,044)
Deferred revenue (944) (676)
Deferred income taxes (547) 1,861
Other liabilities (79) (182)
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NET CASH USED IN OPERATING ACTIVITIES (6,844) (3,551)
INVESTING ACTIVITIES
Payments for property and equipment (104) (295)
Other (138) 7
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NET CASH USED IN INVESTING ACTIVITIES (242) (288)
FINANCING ACTIVITIES
Net repayments under debt agreements,
capital lease agreements and notes payable (473) (985)
Other 397 189
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NET CASH USED IN FINANCING ACTIVITIES (76) (796)
Effect of exchange rate changes (181) (109)
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NET DECREASE IN CASH (7,343) (4,744)
CASH AT BEGINNING OF PERIOD 29,506 32,212
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CASH AT END OF PERIOD $ 22,163 $ 27,468
============= ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 4 $ 25
============= ============
Cash paid for income taxes $ 609 $ 297
============= ============
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have
been prepared by Comshare, Incorporated (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 accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. 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 most recent Annual Report on Form 10-K.
Certain amounts in the fiscal 2000 financial statements have been reclassified
to conform with fiscal 2001 presentations.
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 statements
of operations and the consolidated statements of comprehensive income for the
three and six months ended December 31, 2000 and 1999, the consolidated balance
sheets as of December 31, 2000 and the consolidated statements of cash flows for
the six months ended December 31, 2000 and 1999.
The results of operations for the three and six months ended December
31, 2000 and 1999 are not necessarily indicative of the results to be expected
in future quarters or the full fiscal year. The software industry is generally
characterized by seasonal trends.
NOTE B - COMPUTER SOFTWARE
Product upgrades for the Company's products have been released
regularly with an almost continuous product development cycle. Based on these
continuous product life cycles, the time between establishing technological
feasibility and general release to the public is very short. As a result,
software costs qualifying for capitalization are not significant. Accordingly,
the Company does not capitalize software development costs and does not
anticipate capitalization of software costs in future periods.
NOTE C - BORROWINGS
The Company has a $10 million credit agreement which expires on
September 30, 2002. Borrowings are secured by accounts receivable and the credit
agreement contains covenants regarding, among other things, earnings leverage,
net worth and payment of dividends. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Borrowings
under this credit agreement were approximately $0.1 million and total available
borrowings were $10 million at December 31, 2000. Borrowings available at any
time are based on the lower of $10 million or a percentage of worldwide eligible
accounts receivable and cash. At December 31, 2000, the interest rate on
borrowings denominated in Japanese yen, which was used to hedge receivables, was
2.53%.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE D - FINANCIAL INSTRUMENTS
The Company, at various times, enters into forward exchange contracts
to hedge certain exposures related to identifiable foreign currency transactions
that are relatively certain as to both timing and amount. Gains and losses on
the forward contracts are recognized concurrently with the gains and losses from
the underlying transactions. The forward exchange contracts used are classified
as "held for purposes other than trading." The Company does not use any other
types of derivative financial instruments to hedge such exposures, nor does it
use derivatives for speculative purposes. At December 31, 2000 and June 30,
2000, the Company had forward foreign currency exchange contracts outstanding of
approximately $3.9 million and $5.6 million (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at December 31,
2000 mature at various dates through April 12, 2001 and are intended to hedge
various foreign currency commitments due from the Company's distributors. Due to
the short-term nature of these financial instruments, the fair value of these
contracts is not materially different than their notional amounts at December
31, 2000 and June 30, 2000. The Financial Accounting Standards Board has issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. As of December 31, 2000, the Company has adopted this
statement and quantified the impact, determining that there was no material
effect on the financial statements.
NOTE E - SEGMENT REPORTING
The Company has only one reportable segment - the development,
marketing and support of financial analytic applications software for management
planning and control. Revenue is derived from the licensing of software and the
provision of related services, that include product implementation, consulting,
training and support.
No single customer accounted for more than 10% of the Company's total
revenue in the three and six months ended December 31, 2000 and 1999. In
addition, the Company is not dependent on any single customer or group of
customers. Geographic segment information is as follows:
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
------------ ----------- -------------- ------------
REVENUE FROM EXTERNAL CUSTOMERS:
United States $ 8,025 $ 7,711 $ 16,886 $ 15,212
United Kingdom 3,082 3,058 6,001 6,251
Other countries 3,718 4,254 7,381 8,066
------------ ----------- -------------- ------------
TOTAL REVENUE $ 14,825 $ 15,023 $ 30,268 $ 29,529
============ =========== ============== ============
OPERATING INCOME (LOSS):
United States $ (1,806) $ (497) $ (1,558) $ (1,617)
United Kingdom 1,705 726 1,552 1,790
Other countries 2,390 2,489 4,651 5,100
------------ ----------- -------------- ------------
TOTAL OPERATING INCOME 2,289 2,718 4,645 5,273
Unallocated expenses (2,281) (2,628) (4,514) (5,101)
------------ ----------- -------------- ------------
INCOME BEFORE TAXES $ 8 $ 90 $ 131 $ 172
============ =========== ============== ============
December 31, June 30,
2000 2000
------------ -----------
IDENTIFIABLE ASSETS:
United States $ 47,020 $ 48,237
United Kingdom and other countries 8,567 11,909
------------ -----------
TOTAL IDENTIFIABLE ASSETS $ 55,587 $ 60,146
============ ===========
Unallocated expenses consist of general corporate expenses, internal
research and product development expenses, interest expense and interest
income.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis sets forth information for the
three and six months ended December 31, 2000 compared to the three and six
months ended December 31, 1999. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2000.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial data
as a percentage of total revenue.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUE
Software licenses 35.8 % 37.0 % 33.1 % 36.8 %
Software maintenance 39.8 40.0 38.8 39.8
Implementation, consulting and
other services 24.4 23.0 28.1 23.4
--------- -------- --------- ----------
TOTAL REVENUE 100.0 100.0 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 39.2 39.5 37.2 39.8
Cost of revenue and support 40.1 38.2 42.1 37.2
Internal research and product development 14.1 14.2 13.7 14.5
General and administrative 8.7 9.8 9.0 10.0
--------- -------- --------- ----------
TOTAL COSTS AND EXPENSES 102.1 101.7 102.0 101.5
LOSS FROM OPERATIONS (2.1) (1.7) (2.0) (1.5)
OTHER INCOME (EXPENSE)
Interest income 2.5 2.3 2.7 2.5
Interest expense - (0.1) - (0.1)
Exchange gain (loss) (0.4) 0.1 (0.2) (0.3)
--------- -------- --------- ----------
TOTAL OTHER INCOME 2.1 2.3 2.5 2.1
INCOME BEFORE TAXES (0.0) 0.6 0.5 0.6
Provision for income taxes 0.0 0.2 0.2 0.2
--------- -------- --------- ----------
NET INCOME (0.0) % 0.4 % 0.3 % 0.4 %
========= ======== ========= ==========
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REVENUE
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
DECEMBER 31, CHANGE DECEMBER 31, CHANGE
----------------------- ------ ----------------------- ------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands) (in thousands)
MPC REVENUE
Software licenses $ 3,740 $ 2,935 27.4 % $ 6,604 $ 6,020 9.7 %
Software maintenance 2,388 1,893 26.1 4,478 3,629 23.4
Implementation, consulting and
other services 3,395 3,015 12.6 7,795 6,104 27.7
---------- ---------- ---------- ----------
TOTAL MPC REVENUE $ 9,523 $ 7,843 21.4 % $ 18,877 $ 15,753 19.8 %
========== ========== ========== ==========
LEGACY REVENUE
Software licenses $ 1,568 $ 2,631 (40.4) % $ 3,407 $ 4,848 (29.7)%
Software maintenance 3,511 4,113 (14.6) 7,262 $ 8,125 (10.6)
Implementation, consulting and
other services 223 436 (48.9) 722 803 (10.1)
---------- ---------- ---------- ----------
TOTAL LEGACY REVENUE $ 5,302 $ 7,180 (26.2) % $ 11,391 $ 13,776 (17.3)%
========== ========== ========== ==========
TOTAL REVENUE
Software licenses $ 5,308 $ 5,566 (4.6) % $ 10,011 $ 10,868 (7.9)%
Software maintenance 5,899 6,006 (1.8) 11,740 11,754 (0.1)
Implementation, consulting and
other services 3,618 3,451 4.8 8,517 6,907 23.3
---------- ---------- ---------- ----------
TOTAL REVENUE $ 14,825 $ 15,023 (1.3) % $ 30,268 $ 29,529 2.5 %
========== ========== ========== ==========
The decline in total revenue of 1.3% from the quarter ended December
31, 1999 was primarily due to a 26.2% decline in revenue from the Company's
older desktop ("legacy") products, offset by a 21.4% increase in revenue from
the Company's management planning and control software applications ("MPC").
Total revenue growth of 2.5% from the six months ended December 31, 2000 was
primarily due to a 19.8% increase in MPC revenue, offset by a decline of 17.3%
in the Company's legacy products. MPC revenue was $9.5 million for the quarter
ended December 31, 2000, representing 64.3% of total revenue, and $18.9 million
for the six months ended December 31, 2000, representing 62.4% of total revenue.
The 4.6% decline in software license fees from the quarter ended
December 31, 1999 was primarily due to a 40.4% decline in license fees from the
Company's legacy products. The decline was offset by growth in MPC license fees
of 27.4% primarily from an increase of 90.7% in license fees for the Company's
BudgetPLUS product, offset by a 55.1% decrease in FDC license fees, a legacy
application. License fees for the BudgetPLUS product were $2.7 million and $1.4
million for the three months ended December 31, 2000 and 1999, respectively. FDC
license fees decreased from $1.1 million for the quarter ended December 31, 1999
to $0.5 million for the same period ended December 31, 2000. FDC is a mature
product, which is being replaced with the Company's newly released next
generation financial consolidation product. As the Company continues to enhance
its new relational financial consolidation product, the Company expects FDC
sales to continue to decline. The 7.9% decline in license fees from the six
months ended December 31, 1999 was primarily due to a 58.4% decline in FDC
license fees and a 29.7% decline in legacy license fees offset by a 65.3%
increase in license fees from the Company's BudgetPLUS product. License fees for
BudgetPLUS were $4.7 million and $2.9 million for the six month periods ended
December 31, 2000 and 1999, respectively. FDC license fees were $1.0 million and
$2.5 million for the six month periods ended December 31, 2000 and 1999,
respectively. MPC license fees represented 70.5% and 65.9% of total license fees
for the three and six month periods ended December 31, 2000, respectively.
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Software maintenance revenues decreased 1.8% from the three months
ended December 31, 1999 as a result of an increase of 26.1% in MPC product
maintenance, offset by a decline of 14.6% in the legacy maintenance, due to
mainframe and desktop maintenance cancellations. MPC product maintenance
accounted for 40.5% of total maintenance versus 31.5% for the three months ended
December 31, 2000 and 1999, respectively. The growth in MPC product maintenance
reflects the license fee growth in BudgetPLUS in the prior fiscal year. Software
maintenance revenues are flat from the six-month period ended December 31, 1999
reflecting the growth in the Company's MPC products, offset by a decline in
maintenance revenues for legacy products.
Implementation, consulting and other services revenue was $3.6
million and $8.5 million for the three and six months ended December 31, 2000,
respectively. Implementation, consulting and other services revenue was $3.4
million and $6.9 million for the three and six months ended December 31, 1999,
respectively. During the quarter ended December 31, 2000, 93.8% of total
implementation services revenue was related to MPC products, primarily the
BudgetPLUS product. Implementation services revenue related to MPC products
were 91.5% of total implementation services revenue for the six months ended
December 31, 2000. The increase in implementation services revenue from the
six-month period ended December 31, 1999 was primarily due to the growth in
BudgetPLUS license fees in the Company's direct operations.
COSTS AND EXPENSES
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
DECEMBER 31, CHANGE DECEMBER 31, CHANGE
------------------------ --------- ---------------------- ---------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands) (in thousands)
COSTS AND EXPENSES
Selling and marketing $ 5,803 $ 5,932 (2.2) % $ 11,264 $ 11,749 (4.1)%
Cost of revenue and support 5,951 5,733 3.8 12,732 10,971 16.1
Internal research and product development 2,085 2,136 (2.4) 4,141 4,286 (3.4)
General and administrative 1,290 1,472 12.4) 2,722 2,951 (7.8)
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES $ 15,129 $ 15,273 (0.9) % $ 30,859 $ 29,957 3.0 %
========== ========== ========== ==========
Total costs and expenses decreased 0.9% and increased 3.0% for the
three and six months ended December 31, 2000, respectively, compared to the
prior year. The increase in the six month period was primarily due to additional
third party consulting costs associated with increased implementation services
revenue.
Selling and marketing expenses decreased 2.2% and 4.2% in the three and
six months ended December 31, 2000, respectively compared to the prior year. The
decrease was primarily a result of cost reductions associated with the
consolidation of the Company's worldwide sales organization, which occurred in
October 1999.
Cost of revenue and support expenses increased 3.8% and 16.1% for the
three and six months ended December 21, 2000, respectively. The increase was
primarily due to increased costs associated with third party consultants
involved in implementations.
Internal research and product development costs remained relatively
flat with the same periods of the prior year.
General and administrative costs have decreased 12.4% and 7.8% from the
three and six-month periods ended December 31, 1999, respectively, primarily due
to reduced third party computing costs and administrative expenses.
The Company anticipates that it will take an estimated $0.9 million
restructuring charge in the third quarter ending March 31, 2001. This charge
will reflect certain cost reductions actions by the Company, taken to trim
annual personnel and other expenses. Because of planned investments in MPC
products, the Company does not expect such cost reduction actions to reduce the
Company's total expenses.
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OTHER INCOME AND EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
2000 1999 2000 1999
(in thousands) (in thousands)
OTHER INCOME (EXPENSE)
Interest income $ 375 $ 352 $ 802 $ 738
Interest expense (2) (22) (4) (44)
Exchange gain (loss) (61) 10 (76) (94)
--------- ---------- ---------- ---------
TOTAL OTHER INCOME $ 312 $ 340 $ 722 $ 600
========= ========== ========== =========
Higher interest rates on short-term investments during the three and
six months ended December 31, 2000 resulted in increased interest income
compared to the three and six months ended December 31, 1999. This increase was
offset by foreign exchange losses during these periods.
FOREIGN CURRENCY
For the three and six months ended December 31, 2000, 45.9% and 44.2%,
respectively, of the Company's total revenue was from outside North America
compared with 48.7% and 48.5% for the three and six months ended December 31,
1999, respectively. Most of the Company's international revenue is denominated
in foreign currencies. The Company recognizes currency transaction gains and
losses in the period of occurrence. As currency rates are constantly changing,
these gains and losses can, at times, fluctuate greatly. The Company's future
operating results may be adversely impacted by the overall strengthening of the
U.S. dollar against foreign currencies of countries where the Company conducts
business; conversely, future operating results may be favorably impacted by an
overall weakening of the U.S. dollar against foreign currencies. For the three
and six months ended December 31, 2000, foreign currency fluctuations did not
have a material impact on the Company's revenues, operating expenses or net
income.
The Company had several forward exchange contracts totaling a notional
amount of $3.9 million, outstanding at December 31, 2000. See Note D of Notes to
Condensed Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate in each of the three and six
months ended December 31, 2000 and 1999 was approximately 35%.
Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable income or by using a tax
strategy currently available to the Company. On a quarterly basis, management
will assess whether it remains more likely than not that the deferred tax assets
will be realized. The assessment could be impacted by a combination of
continuing operating losses and a determination that the tax strategy is no
longer sufficient to realize some or all of the deferred tax assets. The
foregoing statements regarding the realization of deferred tax assets are
"forward looking statements" within the meaning of the Securities Exchange Act
of 1934. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement" for discussion of
uncertainties relating to such statements.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000 cash and cash equivalents were $22.2 million,
compared with cash and cash equivalents of $29.5 million at June 30, 2000. The
decrease in cash and cash equivalents is principally due to increased days sales
outstanding in accounts receivable and payment of fiscal 1999 and earlier years'
restructuring costs and related items.
Net cash used in operating activities was $6.8 million in the three
months ended December 31, 2000, compared with $3.6 million in the three months
ended December 31, 1999, primarily due to increased accounts receivable and the
payment of restructuring costs, as described above. The prior year cash
benefited from a tax refund of $1.9 million. In addition the increase in cash
used was due to reduced accounts payable accruals associated with payroll.
Net cash used in investing activities was $0.2 million in the six
months ended December 31, 2000 and $0.3 in the six months ended December 31,
1999. The Company purchases most of its computer equipment under operating
leases. At December 31, 2000, the Company did not have any material capital
expenditure commitments.
Net cash used in financing activities was $0.1 million in the three
months ended December 31, 2000, compared with net cash used in financing
activities of $0.8 million in the same period one year ago. The net decrease in
cash used in financing activities was primarily due to the repayment of capital
leases, which was completed in fiscal 2000 and did not impact the quarter ended
December 31, 2000.
Total assets were $55.6 million at December 31, 2000, compared with
total assets of $60.1 million at June 30, 2000. Working capital as of December
31, 2000 was $25.0 million, compared with $25.5 million as of June 30, 2000. The
decrease in total assets and working capital from June 30, 2000 to December 31,
2000 was primarily due to the decline in cash and cash equivalents during the
six months ended December 31, 2000.
The Company has a $10 million credit agreement which expires on
September 30, 2002. Borrowings are secured by accounts receivable and the credit
agreement contains covenants regarding, among other things, earnings leverage,
net worth and payment of dividends. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Borrowings
under this credit agreement were approximately $0.1 million and total available
borrowings were $10 million at December 31, 2000. Borrowings available at any
time are based on the lower of $10 million or a percentage of worldwide eligible
accounts receivable and cash. At December 31, 2000, the interest rate on
borrowings denominated in Japanese yen, which were used to hedge receivables in
those currencies, was 2.53%.
The Company believes that the combination of present cash balances and
amounts available under credit facilities will be sufficient to meet the
Company's currently anticipated cash requirements for at least the next twelve
months. The foregoing statement is a "forward looking statement" within the
meaning of the Securities and Exchange Act of 1934, as amended. The extent to
which such sources will be sufficient to meet the Company's anticipated cash
requirements is subject to a number of uncertainties, including the ability of
the Company's operations to generate sufficient cash to support operations, and
other uncertainties described in "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Safe Harbor Statement."
MARKET SENSITIVITY ANALYSIS
The Company is exposed to market risk from changes in foreign exchange
and interest rates. To reduce the risk from changes in foreign exchange rates,
the Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
The Company, at various times, denominates borrowings in foreign
currencies and enters into forward exchange contracts to hedge exposures related
to foreign currency transactions. The Company does not use any other types of
derivatives to hedge such exposures nor does it speculate in foreign currency.
In general, the Company uses forward exchange contracts to hedge against large
selective transactions that present the most exposure to exchange rate
fluctuations. At December 31, 2000 and June 30, 2000, the Company had forward
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contracts of approximately $3.9 million and $5.6 million (notional amounts),
respectively, denominated in foreign currencies. The contracts outstanding at
December 31, 2000 mature through April 12, 2001 and are intended to hedge
various foreign currency commitments due from the Company's distributors. Due to
the short-term nature of these financial instruments, the fair value of these
contracts is not materially different than their notional amounts at December
31, 2000 and June 30, 2000.
Gains and losses on the forward contracts are largely offset by gains
and losses on the underlying exposure. The Company conducts business in
approximately 6 foreign currencies, predominately British pounds, the Euro and
Japanese yen. A hypothetical 10 percent appreciation of the U.S. dollar from
December 31, 2000 market rates would increase the unrealized value of the
Company's forward contracts and a hypothetical 10 percent depreciation of the
U.S. dollar from December 31, 2000 market rates would decrease the unrealized
value of the Company's forward contracts. In either scenario, the gains or
losses on the forward contracts would be largely offset by the gains or losses
on the underlying transactions, and so would have an immaterial impact on the
Company's results of operations.
The Company maintains its cash and cash equivalents in highly liquid
investments with maturities of ninety days or less. The Company has the ability
to hold its fixed income investments until maturity, and therefore the Company
would not expect its operating results or cash flows to be affected to any
significant degree by the effect of a hypothetical 10 percent change in market
interest rates on its cash and cash equivalents.
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SAFE HARBOR STATEMENT
Certain information in this Form 10-Q Report contains "forward looking
statements" within the meaning of the Securities Exchange Act of 1934, as
amended, including those concerning the Company's future results, new market and
business opportunities, strategy and product releases. Actual results could
differ materially from those in the forward looking statements due to a number
of uncertainties, including, but not limited to, the demand for the Company's
products and services; the size, timing and recognition of revenue from
significant orders; increased competition and pricing pressures from
competitors; the Company's success in and expense associated with developing,
introducing and shipping new products; new product introductions and
announcements by the Company's competitors; the level of interest and success of
the Company's distributors in marketing and selling the Company's products;
changes in Company strategy; product life cycles; the cost and continued
availability of third party software and technology incorporated into the
Company's products, including the impact of expiration of the license for
Essbase in December 2002; the impact of rapid technological advances, evolving
industry standards and changes in customer requirements, including the impact on
the Company's revenues of Microsoft's OLAP database; the overall competition for
key employees; cancellations of maintenance and support agreements; software
defects; changes in operating expenses; fluctuations in foreign exchange rates;
the ability of the Company to generate sufficient future taxable income or to
execute available tax strategies required to realize deferred tax assets; and
economic conditions generally or in specific industry segments. The level of
annual expense reductions resulting from cost reduction actions may vary due to
a number of factors, including unanticipated increases in costs resulting from
such actions. In addition, a significant portion of the Company's revenue in any
quarter is typically derived from non-recurring license fees, a substantial
portion of which is booked in the last month of a quarter. Since the purchase of
the Company's products is relatively discretionary and generally involves a
significant commitment of capital, in the event of any downturn in any potential
customer's business or the economy in general, purchases of the Company's
products may be deferred or cancelled. Further, the Company's expense levels are
based, in part, on its expectations as to future revenue and a significant
portion of the Company's expenses do not vary with revenue. As a result, if
revenue is below expectations, results of operations are likely to be
materially, adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on November 20,
2000. The only matter voted on at the meeting was the election of seven
directors. The following table sets forth the results of that vote. All
director nominees were elected.
Election of Director Nominees:
Votes For Votes Against Abstained Broker Non-Votes
--------- ------------- --------- ----------------
Geoffrey B. Bloom 8,438,533 - 319,289 -
Daniel T. Carroll 8,430,506 - 327,316 -
Richard L. Crandall 8,362,705 - 395,117 -
Dennis G. Ganster 7,822,597 - 935,225 -
Kathryn A. Jehle 8,441,409 - 316,413 -
Alan G. Merten 8,441,056 - 316,766 -
John F. Rockart 8,435,356 - 322,466 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended December
31, 2000.
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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 13, 2001 COMSHARE, INCORPORATED
(Registrant)
/s/ Kathryn A. Jehle
---------------------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
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