SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
[ ] 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 0-4096
COMSHARE, INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1804887
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (734) 994-4800
Securities registered pursuant to Section 12(b) of the Act: None
<Table>
Securities registered pursuant to Section 12(g) of the Act: Common Stock $1.00 Par Value
Rights to Purchase Preferred Shares
</Table>
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 a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of August 31, 2002 based on $2.03 per share, the last sale price
for the Common Stock on such date as reported on the Nasdaq National Market(R),
was approximately $21,285,000.
As of August 31, 2002 the Registrant had 10,485,083 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K Report
-------- into which it is incorporated
Portions of Proxy Statement for the -----------------------------
2002 Annual Meeting of Shareholders III
(The "2002 Proxy Statement")
UNDERTAKING
The Company will furnish any exhibit to this report on Form 10-K to a
shareholder upon payment of 10 cents per page for photo copying,
postage and handling expenses and upon written request made to:
Investor Relations
Comshare, Incorporated
555 Briarwood Circle
Ann Arbor, MI 48108
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PART I
ITEM 1. BUSINESS
This Business section contains forward-looking statements that involve
uncertainties. Actual results could differ materially from those in the forward
looking statements due to a number of uncertainties, including, but not limited
to those discussed below, particularly in "Business - Uncertainties Related to
Forward Looking Statements."
GENERAL
Comshare, Incorporated and its subsidiaries (collectively referred to as
"Comshare" or the "Company") develop, market and support management planning and
control application software. Management planning and control is the process
that encompasses planning, budgeting, forecasting, financial consolidation,
management reporting and analysis. The Company's management planning and control
applications are designed to help management effectively implement its strategy.
The Company targets its products and services primarily for chief financial
officers and the finance function across a broad range of industries, offering
them software solutions that will help them add value to their organizations and
increase their effectiveness and efficiency.
The Company is focused on serving the emerging corporate performance
management market, a market in which integrated software systems are used to
monitor the business performance of an organization. To date, the market for
planning, budgeting, forecasting, financial consolidation and reporting
applications has been served principally by point solutions that the Company
believes do not effectively support a management process that should be highly
integrated and is frequently iterative. Many companies do not integrate their
strategic planning with their budgeting and operating planning processes and
find strategies are not effectively implemented. Many companies use spreadsheets
for budgeting, and face the difficult task of maintaining complicated
spreadsheet applications and the accompanying data integrity problems. Despite
the investments made in data warehouse solutions and Enterprise Resource
Planning ("ERP") systems, many companies still have not fulfilled the need to
provide broadly-deployed financial and performance information to managers.
Comshare's software is differentiated by its web-based architecture, its
breadth of enterprise management planning and reporting function, its use of
mainstream database technology, and its robust multi-dimensional analysis
capabilities. The Company's software products enable the enterprise-wide
integration of data from multiple data sources, complementing underlying ERP
systems. The Company delivers complete software solutions by providing
implementation, consulting, training and support services, in addition to its
software products.
BUSINESS STRATEGY
The Company's objective is to be a leading software provider of corporate
performance management applications. The key elements of the Company's strategy
include the following:
ESTABLISH COMSHARE AS A LEADER IN THE CORPORATE PERFORMANCE MANAGEMENT MARKET.
1. Offer an integrated software solution for management planning and control
processes, replacing the disparate systems for planning, budgeting,
forecasting, financial consolidation, management reporting and analysis. An
integrated software solution eliminates the wasted time spent re-keying
data, reconciling separate systems and the accompanying data integrity
problems, freeing up finance staff time to focus on value-added activities.
An integrated software solution also enables management to more quickly
respond to changes in the business environment, to adjust plans, change
tactics and reallocate resources.
2. Provide web-architected software that has been designed to support
enterprise-wide deployments. While the Company also offers client/server
based software solutions, increasingly customers are adopting web-based
solutions. The Company built an underlying architecture that fully supports
web deployments on an enterprise basis. The advantages to the customer
include lower cost of maintenance and deployment, because no software
beyond a browser is required on the desktop. Historically, the Company has
focused on mid to large-sized, complex organizations, so the underlying
architecture was designed to be scaleable for enterprise-wide deployments.
3. Offer customers their choice of mainstream business intelligence ("BI")
platforms underlying the applications. Increasingly, customers have
standardized on a strategic BI technology platform and prefer to purchase
applications that utilize that technology. Comshare provides
multidimensional software solutions on both Microsoft and Oracle business
intelligence platforms.
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4. Differentiate Comshare products with best-of-breed financial functionality
and analytical capability. Drawing upon years of experience in the business
intelligence market, Comshare products offer rich product function and
advanced visualization features that enable managers to easily identify
exceptions in large amounts of information. This allows management to plan
and budget more effectively, analyze performance and improve
decision-making.
5. Distribute worldwide to a range of customers from medium-sized to the
largest companies, through multiple channels. Customers in over 30
countries have purchased Comshare products, and Comshare supports worldwide
deployment by global companies through a network of direct and indirect
channels.
PRODUCTS
The Company offers management planning and control software applications
("MPC") designed for use by customers in a broad range of industries, primarily
targeting the finance organizations of large to medium-sized corporations.
Comshare's software products are generally licensed to end-use customers
under non-exclusive perpetual license agreements. Software license fees for the
Company's software applications vary widely depending upon the product, platform
and number of users supported. In addition to the sale of the software license,
customers typically purchase product maintenance for the first year of the
license. Customers may continue product maintenance thereafter for an annual
fee, normally ranging from 15 to 20 percent of the license fee. In addition,
customers frequently purchase additional software to expand the number of users
for an application or to add additional application components.
The Company currently offers MPC applications for planning, budgeting,
forecasting, financial consolidation and management reporting and analysis:
Comshare MPC (formerly BudgetPLUS), Comshare Decision ("Decision"), and Comshare
FDC ("FDC"). Customers can buy some or all of these applications, depending on
their needs. In addition, the Company supports a number of legacy products.
1. COMSHARE MPC
Comshare's flagship application is Comshare MPC, a web-architected
planning, budgeting, forecasting, management reporting and analysis application.
Comshare MPC is designed to improve the effectiveness of strategic planning and
top-down target setting, shorten budget cycles, reduce the time and cost of
budgeting, deliver financial information and improve management decision-making.
Comshare MPC provides an integrated financial data repository that combines
budgeted, actual and forecasted financial information to enhance the integrity
and usability of the data. Easy ad-hoc analysis and reporting across the
enterprise is available to business managers and analysts, either through the
use of a web-browser or on a client/server basis.
Data collection for budgeting and forecasting occurs in a secure
environment either through a web-browser or the use of Microsoft Excel
spreadsheets, enabling the budget process to be distributed out to business
managers, yet with a centrally administered database for easy consolidation and
reporting. Comshare MPC provides the ability to customize data entry screens;
load bulk transaction data; track multiple versions of budgeted, actual and
forecasted financial information; translate currencies; eliminate intercompany
transactions; perform consolidations; and quickly handle reorganizations.
Comshare MPC also offers management reporting and analysis capabilities
that allow enterprise-wide reporting of actual, budget and forecasted
information. Because Comshare MPC is built using the Comshare Application
Architecture, end-users have the same robust advanced visualization and
proactive alerting features available to users of the Decision product,
described below.
Customers have their choice of databases when licensing Comshare MPC, which
allows them to select the database that fits their technology standards.
Comshare MPC supports both relational and OLAP database technology platforms,
including Microsoft SQL Server, Microsoft Analysis Services, Oracle, IBM DB2
OLAP Server, and Hyperion Solution Corporation's Essbase.
Comshare MPC is available in both web-based and client/server versions, and
customers may implement a mixed environment of both web and client/server.
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2. COMSHARE DECISION
Decision is the latest generation in a long line of the Company's business
intelligence products that allow customers to develop customized reporting and
analysis applications.
Decision provides advanced development and analytical features for creating
customized OLAP reporting and analysis applications such as product and customer
profitability analysis, sales analysis, balanced scorecards and other
performance measurement applications.
Decision capitalizes on the increased use of multi-dimensional analysis by
business professionals to solve business problems. Using multi-dimensional
analysis, business professionals view information in a way that is consistent
with their perspective on the underlying business (e.g., across time periods,
business measures, geographies, products and markets). Decision includes
software necessary to deliver an enterprise-wide reporting and analysis
application, including software that 1) gathers and consolidates data from
multiple, disparate data sources, 2) uses server-based technology to facilitate
computer-intensive functions such as sorting and ad-hoc calculations and 3)
provides analysis capabilities and front end presentation for end-users.
Decision offers advanced visualization and proactive alerting capabilities
to help end-users focus on important exceptions in large amounts of information.
End-users can use this exception alerting capability to define the data to be
monitored and the acceptable data ranges that they want to be alerted on.
The Company views the web as an important technology platform for the types
of applications that Decision supports, and Decision is available on both web
and client/server platforms. Decision supports Essbase, Microsoft SQL Server,
Microsoft Analysis Services, IBM DB2 OLAP Server databases, as well as other
OLAP databases that support the Microsoft OLE DB for OLAP standard.
3. COMSHARE FDC
FDC is a statutory consolidation and management reporting application that
collects and consolidates financial data from different general ledgers and
other sources within a multi-divisional or multi-location organization. It
produces consolidated financial reports for management, public and statutory
reporting. With FDC, customers can reduce their financial closing time and
provide financial results more quickly, thus freeing up time for improved
financial analysis.
FDC offers the financial intelligence and control found in general ledgers.
Information can be integrated from multiple general ledger systems without
re-entering data. FDC handles currency translations, intercompany eliminations
and account reclassifications.
A major strength of FDC is its ability to be distributed across multiple
geographically dispersed operations. This allows distributed operations to
collect, report and analyze their data, while making sure that information for
corporate financial consolidations is timely and accurate.
A management reporting and analysis module for FDC provides both
client/server and web-enabled management reporting and analysis. This allows key
financial performance reporting and analysis to be broadly deployed to
management and business analysts, thus eliminating time-consuming custom
reports.
FDC is designed to address the requirements of an organization wanting to
implement a distributed statutory consolidation application. The Company has
selected the Pervasive Btrieve database and engine to allow the customer to
install FDC in a central server location, as well as distributing the
application to remote server workstation locations.
4. LEGACY PRODUCTS
Because Comshare has been in business for over thirty-five years, the
Company has a number of older products that it continues to support. Comshare
continues to support Commander OLAP, the predecessor to Decision, older desktop
EIS and modeling products, third party databases, and System W and IFPS products
for use on mainframe computers. Customers use System W and IFPS for applications
similar to those developed with Decision, although the multi-dimensional
database resides on the mainframe rather than on the server. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5
IMPLEMENTATION AND CONSULTING SERVICES
Implementation and consulting services are offered for all of the Company's
software products and include application design and modification, installation
assistance, implementation and troubleshooting support.
Comshare complements its services through partnership arrangements with
value added consultants and has a certification process to recognize consultants
qualified in the use of Comshare applications. The certification process is also
designed to help Comshare's customers receive quality service, support, training
and project oversight and to help Comshare monitor the services provided by its
certified consultants.
In addition, distributors and resellers of the Company offer implementation
and consulting services for their direct customers, similar to the services
offered by the Company.
SOFTWARE MAINTENANCE AND SUPPORT
The Company provides customer telephone helpline support staffed with
experienced professionals. Customers under maintenance agreements receive
product enhancements and updates, bug fixes and access to Comshare's telephone
helpline and helpline web site. Maintenance customers pay an annual maintenance
fee, which is typically 15 to 20 percent of the software license fee.
CUSTOMER TRAINING
Comshare offers a training program to customers and third party
consultants. Training classes are provided by the Company at customer sites and
at its local sales offices. The Company's training program is designed for
end-users and system support staff and includes a variety of training classes
covering software application use, application building and system
administration.
CUSTOMERS
Comshare and its distributors are currently providing maintenance at over
2,180 corporate and public sector customer sites in 34 countries. Comshare's
diversified customer base includes many Fortune 1000 and Financial Times 1000
industrial companies as well as large and mid-sized companies in the
manufacturing, financial services, utility, and services industries, and many
governmental and other public sector organizations.
SALES AND MARKETING
Comshare's products and services are sold on a worldwide basis by direct
sales operations, an extensive worldwide distributor network and a reseller
channel that targets mid-sized companies or specific vertical markets. Comshare
distributors and resellers leverage the Company's software and application
expertise and offer presale and postsale implementation, consulting, customer
support and services.
The Company sells and markets its software products and services in the
U.S., Canada and the U.K. through its direct sales organizations. Direct sales
operations are organized geographically.
The Company has an extensive distributor network covering 35 countries not
directly served by the Company. The Company has selected established software
application vendors to act as distributors to market, implement and support
Comshare's products in their respective geographic areas. Revenue from the
Company's distributors was $14.2 million, or approximately 24% of total revenue,
in fiscal 2002 as compared to $14.8 million, or approximately 24% of total
revenue in fiscal 2001.
The Company has a group of 7 resellers that focus on sales in the middle
market enterprises in the US, UK and Canada as compared to 10 resellers in the
fiscal year ended June 30, 2001. The Company is in the process of changing its
reseller program to more industry specific resellers resulting in the current
reduced number of relationships in these countries.
To generate sales, the Company conducts comprehensive marketing programs
that include direct mail, a corporate Web site, public relations, advertising,
seminars, trade shows, web marketing, and ongoing customer communication
programs. The sales cycle begins with the generation of a sales lead or request
for proposal from a prospect. After a lead is qualified, the Company's sales
force analyzes the prospect's needs and makes one or more presentations. After
obtaining a preliminary commitment, the Company often develops customized
demonstrations to illustrate how the Company's products will satisfy a
customer's specific needs. The sales cycle varies in length from customer to
customer, but typically ranges from six to nine months.
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The Company has worked with Microsoft Corporation to produce an
offering of Comshare MPC and Microsoft SQL Server 2000 which delivers a complete
corporate performance management system to assist organizations in implementing
and executing corporate strategies, and which takes advantage of the Microsoft
BI platform. In July 2002, Microsoft launched a marketing campaign to increase
the awareness and educate the market on this offering and corporate performance
management in general. Dubbed "The Power of 2: Microsoft & Comshare," the
campaign targets senior finance and information technology professionals from
medium to large enterprises.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategies are to: (1) provide a suite of
integrated applications for management planning and control; (2) deliver the
integrated suite on a common application architecture; (3) deploy the
applications on industry standard databases; (4) employ Microsoft standards and
(5) differentiate Comshare products by their ease of implementation, deployment
and use.
Management planning and control applications encompass a closed-loop set of
processes that enable an enterprise to plan, budget, execute, report, evaluate,
analyze and respond to strategic initiatives. Towards this end, Comshare is
currently developing and delivering a set of integrated budgeting and planning,
financial consolidation, and management reporting and analysis applications in
support of these closed-loop processes.
Comshare MPC is developed on the Comshare Application Architecture ("CAA").
This architecture is a multi-tiered design with a back-end database tier, an
application server tier consisting of an innovative set of application objects
and components and a client-side presentation tier. The CAA enables Comshare's
software to run on a variety of back-end databases and supports both
client/server and web desktops. Comshare MPC and Decision are fully web-enabled.
During fiscal 2002, FDC also was web-enabled for much of its data entry,
reporting and analysis functions.
To broaden the market potential for Comshare MPC, the Company developed
relational technology versions that run on mainstream relational databases,
including Essbase, Microsoft SQL Server, Microsoft Analysis Services, IBM DB2
OLAP Server databases, as well as other OLAP databases that support the
Microsoft OLE DB for OLAP standard.
All of Comshare's products run on Windows NT/2000 on the server and Windows
2000, Windows NT, and Windows 98 on the desktop. Comshare's web-based offerings
utilize Microsoft's Internet Information Server (IIS) and support both
Microsoft's Internet Server Application Programming Interface (ISAPI) and Active
Server Page (ASP) technologies. The Company plans to continue to focus on
Microsoft's platforms and to replace proprietary components over time with
Microsoft technologies.
Comshare's applications are distinguished by their innovative guided
analysis capabilities that enable customers to quickly and easily identify
problem areas hidden within very large multi-dimensional databases.
During the fiscal years ended June 30, 2002, 2001 and 2000, worldwide
internal research and product development expenses were (in thousands):
2002 2001 2000
Internal research and product development $ 9,353 $ 8,838 $ 9,070
As a % of total revenue 16.0% 14.1% 14.8%
Internal research and product development was consistent as a percentage of
revenue over the fiscal years 2000 and 2001. The increased spending on internal
research and product development from fiscal 2001 to 2002 was primarily due to
increased employee costs attributable to additional staffing to support
increased product development activity.
The markets for the Company's products are characterized by rapid
technological advances, evolving industry standards, changes in customer
requirements and frequent introductions and enhancements of competitive
products. The Company's success and future financial performance will depend on
its ability to keep pace with these changes and to anticipate these changes as
they occur and to enhance its existing products and develop new products in a
timely and cost-effective manner. There can be no assurance that the Company
will be able to successfully accomplish future technological or product
transitions, that the Company will not experience significant delays in
developing new products or enhancements required to accomplish such transitions
or that the Company will have sufficient financial resources available to
finance such efforts. There can be no assurance as to the impact that any such
transition would have on the Company's revenue or profitability. In addition,
there can be no assurance that the Company's new products and enhancements will
adequately address the changing needs of the marketplace and achieve market
acceptance or that developments by others will not render the Company's products
obsolete or non-competitive.
7
The foregoing statements regarding the Company's product development
efforts contain "forward looking statements" within the meaning of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those in the forward looking statements due to a number of
uncertainties, including, but not limited to, those described above and under
"Business - Uncertainties Relating to Forward Looking Statements."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is dependent on its proprietary technology. The
Company does not hold any material patents and seeks to protect its technology
primarily through trademarks, copyrights, employee and third party
non-disclosure agreements and trade secret laws, which afford only limited
protection.
Comshare distributes its software products under software license
agreements that generally grant customers a non-exclusive license to use the
Company's products. The Company considers its software products to be valuable
and unique assets and actively attempts to protect them contractually, generally
by restricting usage to internal operations and prohibiting the unauthorized
reproduction or transfer to third parties. The Company also believes that the
provision of continuing maintenance and support services and the contractual
right to audit its customers' use of the Company's products reduce the risk of
unauthorized reproduction.
The Company has registered certain of its trademarks and copyrights. The
Company is the owner of various trademarks, including Comshare(R), Comshare MPC,
Comshare Decision, Comshare EIS, Comshare FDC, The Decision Support Company(R),
Overview and Comshare Application Architecture, as well as various other
trademarks associated with its legacy products. The Company's software contains
the statutory copyright notices.
The laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. In addition,
certain provisions of the Company's contracts prohibiting unauthorized
reproduction may be unenforceable under the laws of certain foreign countries.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or development by others of similar or superior technology. Although
the Company believes that its products and technology do not infringe on any
existing proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims in the future or that any such
claims will not require the Company to enter into license arrangements or result
in litigation, regardless of the merits of such claims. No assurance can be
given that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms. Should litigation
with respect to any such claims commence, such litigation could be extremely
expensive and time consuming.
LICENSED TECHNOLOGIES
The Company licenses certain software programs and tools from third parties
and incorporates them into the Company's products. These licenses are
non-exclusive and provide for varying royalty payments and expiration dates. In
addition, the Company resells certain third party databases. The Company
believes that the inclusion of third party software programs and tools in its
products reduces product development risk and time to market.
Examples of third party software tools that are either incorporated into or
used with Comshare's products include Hyperion Solutions Corporation's
("Hyperion") Essbase, Inxight's Hyperbolic Tree, Pervasive Software, Inc.'s
("Pervasive") Pervasive.SQL 2000 database, Strategic Mapping, Inc.'s Atlas View
SDK, Tidestone Technologies, Inc.'s Formula One, and Quadbase Systems, Inc.'s
EspressChart.
Comshare resells Hyperion's Essbase database in connection with Comshare's
Decision and Comshare MPC products. While Essbase sales do not represent a
significant percentage of the Company's license revenue, a significant
percentage of the Company's maintenance revenues involve products using Essbase.
Comshare's worldwide license to resell Essbase expires December 31, 2002, at
which time Comshare will no longer sell Essbase. The license may be terminated
earlier in the event of an uncured material breach. The license agreement
provides that Comshare and its distributors can continue to maintain and support
its customer base after termination of the license agreement, which will include
the ability to continue selling Essbase maintenance services to customers. For a
discussion of the impact of the termination of the license for Hyperion's
Essbase database, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Comparison of fiscal year ended June 30,
2002 to fiscal year ended June 30, 2001.
COMPETITION
The markets for Comshare's software products are highly competitive and
characterized by continued change and rapid technological advancements. In
general, the Company competes principally on the basis of: (1) software
application utility, which includes the extent to which its product offerings
meet specific end-user needs; (2) functionality, which
8
includes the breadth and depth of features and functions, ease-of-use and
deployment; (3) service and support, which includes the range and quality of
technical support, training and consulting services; (4) vendor reputation; (5)
product architecture, which includes database platform, distributed/network
architecture (such as web support) and ease of integration with other
applications; and (6) product pricing in relation to perceived value. The
Company believes it competes favorably with respect to these factors, although
it may be at a competitive disadvantage against certain of its competitors
because of their significantly larger market presence and greater financial,
technical, marketing and other resources.
The analytical applications software market is highly competitive, highly
fragmented and subject to rapid change and evolving industry standards. The
Company competes primarily with Adaytum Software, Inc. and Hyperion Solutions
Corporation.
The Company also competes with a variety of additional software companies,
third party professional service organizations that develop custom software and
with internal information technology departments, which develop financial
analytic applications. Among the Company's current and potential competitors are
a number of large software companies, including ERP software developers,
developers of spreadsheets, database query and reporting tools, transaction
processing-based applications and database technologies, that may elect to
increase the financial analytic capabilities of their current products or that
may develop or acquire products that compete with the Company's products.
Increased competition could result in price reductions, reduced operating
margins and loss of market share. In addition, many of the Company's current and
potential competitors have significantly greater financial, technical, marketing
and other resources than the Company. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of products than the Company. There can be no assurance that the Company
will be able to compete successfully against current and future competitors.
INTERNATIONAL OPERATIONS
The Company derived 41.2%, 42.8% and 47.9% of its total revenue from
outside North America in fiscal 2002, 2001, and 2000, respectively, and expects
that revenue generated outside North America will continue to represent a
significant portion of the Company's total revenue. This international business
is subject to various risks inherent in international activities, including the
impact on the Company's operations of, and the burdens of complying with, a wide
variety of laws, regulations, rules and policies of local foreign governments,
such as those relating to currency controls, hiring and termination of
employees, import restrictions and the protection of proprietary rights.
The Company's international operations also expose the Company to
constantly fluctuating currency rates. Currency fluctuations have in the past
adversely affected, and may in the future adversely affect, the Company's
reported revenue, expenses and shareholders' equity. The Company's international
sales are primarily denominated in foreign currencies. As a result, an increase
in the value of the U.S. dollar relative to foreign currencies has the effect of
reducing the Company's reported revenue and profits from international sales
denominated in such currencies. Conversely, a weakening in the value of the U.S.
dollar relative to foreign currencies has the effect of increasing the Company's
reported revenue and profits from international sales denominated in such
currencies. Currency exchange rate fluctuations can also result in gains and
losses from foreign currency exchange transactions. The Company, at various
times, has entered into forward exchange contracts to hedge exposures related to
foreign currency exchange transactions. Because the Company only selectively
hedges against certain large transactions that present the most exposure to
exchange rate fluctuations, the Company's results of operations will continue to
be impacted by fluctuations in foreign currency exchange rates, which at times
could be material. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of the Notes to
Consolidated Financial Statements.
For a description of certain financial information regarding the Company by
geographic area, see Note 10 of the Notes to Consolidated Financial Statements.
EMPLOYEES
Comshare employed 331 full-time employees as of June 30, 2002 including:
108 in sales and marketing, 55 in consulting and implementation services, 78 in
research and product development and 90 in customer support and administration.
None of the Company's employees are represented by a collective bargaining
agreement, nor has the Company experienced any work stoppages. The Company
considers its relations with its employees to be good.
9
MISCELLANEOUS
Compliance with federal, state and local laws and ordinances that regulate
the discharge of materials into the environment has not had, and is not expected
to have, a material effect upon the capital expenditures, earnings or
competitive position of Comshare.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 1. Business" and other parts of this Form 10-K Report contain
"forward-looking statements" within the meaning of the Securities Exchange Act
of 1934, as amended. Actual results could differ materially from those in the
forward looking statements due to a number of uncertainties, including, but not
limited to, those discussed in this section and in "Research and Product
Development," "Intellectual Property and Proprietary Rights," "Licensed
Technologies," "Competition" and "International Operations" above and in "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Sensitivity Analysis." 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; the impact that cost reductions may have on the Company's
revenues and operating results; 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;
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 or otherwise. 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.
10
ITEM 2. PROPERTIES
Comshare leases sales offices and general office space in 10 major cities
throughout the United States, Canada and the United Kingdom. Comshare's primary
leased locations are identified in the following table:
APPROXIMATE LEASE
AREA IN EXPIRATION
LOCATION SQUARE FEET PRINCIPAL ACTIVITY DATE
- -------- ----------- ------------------ ----------
Ann Arbor, Michigan 70,000 Headquarters, Administration, Sales, February 2005
Marketing, Research and Product
Development and Customer Support
London, England 34,000 Sales, Marketing and Implementation January 2008
Services
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the Nasdaq National Market(R) under
the symbol "CSRE."
The following table sets forth, for the periods indicated, the high and low
per share closing sales prices for the Company's common stock as reported on the
Nasdaq National Market(R).
FISCAL YEAR MARKET PRICES
-------------
ENDING JUNE 30 HIGH LOW
-------------- ---- ---
2001 First Quarter 5.75 4.13
Second Quarter 4.25 2.63
Third Quarter 4.00 2.53
Fourth Quarter 3.70 2.70
2002 First Quarter 2.95 2.85
Second Quarter 2.92 2.87
Third Quarter 2.66 2.30
Fourth Quarter 2.26 2.20
2003 First Quarter 2.11 2.00
(through August 31, 2002)
At August 31, 2002, there were approximately 754 holders of record of the
Company's common stock.
DIVIDEND POLICY
The Company has not paid dividends on its common stock since incorporation.
It is the Company's present policy to retain earnings for use in the Company's
business. Accordingly, the Company does not anticipate that cash dividends will
be paid in the foreseeable future. The Company's credit agreement contains
covenants which prohibit the payment of cash dividends on the common stock. See
Note 3 of the Notes to Consolidated Financial Statements regarding restrictions
on the payment of dividends.
The information pertaining to the securities the Company has authorized
for issuance under equity compensation plans is hereby incorporated by reference
to Item 12 on Form 10-K.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data for the five fiscal years ended June 30 are
derived from the audited Consolidated Financial Statements of the Company. This
information should be read in conjunction with "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related Notes included elsewhere in this
annual report on Form 10-K.
FISCAL YEARS ENDED JUNE 30,
------------------------------------------------------------------
2002 2001 2000 1999 1998
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue $ 58,458 $ 62,841 $ 61,323 $ 63,972 $ 87,203
Loss from operations
before restructuring and
unusual charges (4,630) (224) (363) (2,985) (4,034)
Loss from operations (5,910) (1,116) (363) (3,952) (14,724)
Net income (loss) (12,484) 83 679 (1,136) 5,266
Per common share -
Diluted EPS $ (1.22) $ 0.01 $ 0.07 $ (0.12) $ 0.50
Average shares 10,197 9,865 9,664 9,700 9,903
JUNE 30,
------------------------------------------------------------------
2002 2001 2000 1999 1998
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash & cash equivalents $ 19,280 $ 24,106 $ 29,506 $ 32,212 $ 49,311
Total assets 45,693 59,277 62,424 63,455 88,692
Long-term debt - 164 599 1,198 1,434
Total shareholders' equity $ 17,562 $ 31,664 $ 30,891 $ 31,266 $ 38,405
Working capital $ 20,028 $ 24,326 $ 24,883 $ 24,454 $ 29,531
ADDITIONAL DATA:
Number of employees at year end 331 340 334 353 405
NOTES: (1) The loss from operations for the fiscal years ended June 30,
2002, 2001, 1999 and 1998 includes restructuring and unusual
charges of $1,280,000, $892,000, $967,000, and $10,690,000,
respectively. See Note 2 of the Notes to Consolidated Financial
Statements for information regarding restructuring and unusual
charges for the years ended June 30, 2002 and 2001.
(2) Net loss for the fiscal year ended June 30, 2002, includes the
$9.2 million valuation allowance provided against the Company's
deferred tax asset.
(3) Net loss for the fiscal year ended June 30, 1999 includes a
$1,102,000 income tax benefit, recognizing the availability of
an income tax refund.
(4) Net income for the fiscal year ended June 30, 1998, includes an
after-tax gain of $19,986,000 from the sale of the Company's
Retail Business. The Retail Business accounted for approximately
$17,800,000 of the Company's 1998 revenue.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial data
as a percentage of total revenue:
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
--------- --------- ---------
REVENUE
Software licenses 29.8 % 35.3 % 38.2 %
Software maintenance 39.5 37.5 38.0
Implementation, consulting and other services 30.7 27.2 23.8
--------- --------- ---------
TOTAL REVENUE 100.0 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 41.4 37.9 39.4
Cost of revenue and support 41.0 38.9 35.7
Internal research and product development 16.0 14.1 14.8
General and administrative 9.5 9.5 10.7
Restructuring and unusual charges 2.2 1.4 -
--------- --------- ---------
TOTAL COSTS AND EXPENSES 110.1 101.8 100.6
--------- --------- ---------
LOSS FROM OPERATIONS (10.1) (1.8) (0.6)
OTHER INCOME (EXPENSE)
Interest income 1.1 2.2 2.5
Interest expense - - (0.1)
Exchange loss (0.1) (0.2) (0.1)
--------- --------- ---------
TOTAL OTHER INCOME 1.0 2.0 2.3
INCOME (LOSS) BEFORE TAXES (9.1) 0.2 1.7
--------- --------- ---------
Provision for income taxes 12.2 0.1 0.6
--------- --------- ---------
NET INCOME (LOSS) (21.3) % 0.1 % 1.1 %
========= ========= =========
14
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2002 TO FISCAL YEAR ENDED JUNE 30, 2001
Revenues
TWELVE MONTHS ENDED PERCENT
JUNE 30, CHANGE
----------------------- -------
2002 2001
(in thousands)
MPC REVENUE
Software licenses $ 15,594 $ 17,347 (10.1)%
Software maintenance 13,723 12,188 12.6
Implementation, consulting and
other services 17,197 15,870 8.4
---------- ----------
TOTAL MPC REVENUE $ 46,514 $ 45,405 2.4 %
========== ==========
LEGACY REVENUE
Software licenses $ 1,855 $ 4,837 (61.6)%
Software maintenance 9,347 11,386 (17.9)
Implementation, consulting and
other services 742 1,213 (38.8)
---------- ----------
TOTAL LEGACY REVENUE $ 11,944 $ 17,436 (31.5)%
========== ==========
TOTAL REVENUE
Software licenses $ 17,449 $ 22,184 (21.3)%
Software maintenance 23,070 23,574 (2.1)
Implementation, consulting and
other services 17,939 17,083 5.0
---------- ----------
TOTAL REVENUE $ 58,458 $ 62,841 (7.0)%
========== ==========
Comshare's MPC suite of products is comprised of Comshare MPC (formerly
BudgetPLUS), FDC and Decision. See Note 1 of the Notes to Consolidated Financial
Statements for a discussion of the Company's revenue recognition accounting
policies.
The decrease in revenue in the fiscal year ended June 30, 2002 from the
year ended June 30, 2001 was primarily due to a 31.5% decrease in legacy
revenue, offset by an increase of 2.4% in MPC revenue. MPC revenue was $46.5
million for the year ended June 30, 2002, representing 79.6% of total revenue.
The 21.3% decline in total software license fees reflects the decline
in legacy revenues. MPC license fees, which declined 10.1% from the year ended
June 30, 2001, represented 89.4% of total license fees for the year ended June
30, 2002. The decrease in MPC license fees for the fiscal year ended June 30,
2002 was in addition to a decline in legacy product license fees of 61.6% from
the year ended June 30, 2001 to the year ended June 30, 2002. MPC license fees
were $15.6 million and $17.3 million for the fiscal years ended June 30, 2002
and 2001, respectively. License fees in the Company's direct operations, which
include North America and the United Kingdom, decreased 20.9% to $10.9 million
for the year ended June 30, 2002, primarily due to the continuing decline in
legacy license fees. Distributor license fees decreased 12.5% to $6.0 million
for the same time period, primarily due to a further decline of sales of the
Company's legacy products, which are concentrated in the distributor operations.
The decrease in license fee revenue reflects a continuation of the general
economic weakness and reduced capital spending in the software industry, which
have not improved as anticipated in the first quarter fiscal year 2003.
Software maintenance revenues decreased 2.1% in the year ended June 30,
2002 due to the impact of the decline in license fees. During the year ended
June 30, 2002, the Company experienced 12.6% growth in maintenance revenues for
the Company's MPC products to $13.7 million, or 59.5% of total maintenance.
Maintenance revenues for the Company's MPC products for the year ended June 30,
2001 were $12.2 million. The growth in MPC product maintenance reflected the
license fee growth of the MPC applications in the year ended June 30, 2001, as
well as high retention rates associated with the MPC products. The increase in
MPC maintenance revenues was offset by a decline in the maintenance revenues
from the Company's older legacy products, which declined 17.9%, primarily due to
mainframe and desktop maintenance cancellations and continued customer migration
to other platforms.
15
Implementation, consulting and other services revenues grew 5.0% for
the year ended June 30, 2002, compared to the year ended June 30, 2001,
primarily due to the impact of increased MPC license fee revenue in fiscal 2001,
which was augmented by a large number of customized applications. Implementation
services revenue from direct operations grew 18.0% for the year ended June 30,
2002. During the year ended June 30, 2002, 95.9% of total implementation
services revenue was related to the MPC products. The Company experienced an
increase of 8.4% from revenue associated with implementation, consulting and
other services related to the Company's MPC products. Implementation, consulting
and other services revenues for MPC products were $17.2 million and $15.9
million for the fiscal years ended June 30, 2002 and 2001, respectively.
The Company does not expect the termination of its license for
Hyperion's Essbase database at December 31, 2002 to have a material adverse
input on the Company's software license fees since license fees relating to
Essbase represented less than 10% of the Company's total license fees for the
fiscal year ended June 30, 2002. The impact of the termination on the Company's
software maintenance revenues is not currently known and will depend upon the
number of the Company's customers who decide to purchase Essbase maintenance
services directly from Hyperion. The Company's maintenance revenues related to
Essbase represented approximately 30% of the Company's total maintenance fees
for the fiscal year ended June 30, 2002. The Company's expectations as to the
impact of the termination of the license agreement with Hyperion are "forward
looking statements" within the meaning of the Securities Exchange Act of 1934,
as amended. Such expectations are subject to a number of uncertainties described
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Safe Harbor Statement."
Expenses/Interest Income
Total costs and expenses increased to $64.4 million from $64.0 million
for the fiscal years ended June 30, 2002 and 2001, respectively.
Selling and marketing expenses increased 1.7% to $24.2 million from
$23.8 million for the fiscal years ended June 30, 2002 and 2001, respectively.
The increase was primarily a result of bad debt expense. During the 2002 fiscal
year, the Company took a charge of $0.9 million to reserve for receivables
related to foreign territories, primarily Latin America. The increase was
partially offset by a decline in employee expenses due to a lower number of
employees for the fiscal year ended June 30, 2002 compared to the prior year.
Cost of revenue and support expenses decreased 2.0% to $24.0 million
from $24.5 million for the fiscal years ended June 30, 2002 and 2001,
respectively. The decrease was primarily attributable to a reduction in database
royalty expenses resulting from lower sales of Essbase, offset by increased
costs associated with third party implementations due to the increased level of
services provided during the period.
Internal research and product development expenses increased 5.7%
to $9.3 million from $8.8 million for the fiscal years ended June 30, 2002 and
2001, respectively. The increase was primarily due to increased employee costs
attributable to additional staffing necessary to support increased product
development activity.
General and administrative expenses decreased 8.3% to $5.5 million from
$6.0 million for the fiscal years ended June 30, 2002 and 2001, respectively.
The decrease is attributable to cost reduction actions taken in the second
quarter of the fiscal year to lower administration costs.
In October 2001, the Company implemented a restructuring plan to reduce
personnel costs, to bring costs more in line with revenues and improve the
financial performance of the Company. The restructuring plan was undertaken in
response to the slowdown in the economy, which resulted in a decline in the
Company's revenue in the first quarter of the 2002 fiscal year. Restructuring
and related charges of $1.3 million were expensed in the quarter ended December
31, 2001. The restructuring charge consisted entirely of employee severance
costs. The amounts reserved, amounts charged against the reserve as of June 30,
2002 and the balance of the reserve as of June 30, 2002 are as follows:
-------------------------- ------------------- -------------------- ----------------
RESTRUCTURING COMPONENTS BEGINNING RESERVE CHARGES TO RESERVES BALANCE AT
(IN THOUSANDS) (IN THOUSANDS) JUNE 30, 2002
(IN THOUSANDS)
-------------------------- ------------------- -------------------- ----------------
Employee severance $1,280 $(826) $454
-------------------------- ------------------- -------------------- ----------------
16
Employee groups impacted by the restructuring include the finance and
administration, product development, marketing, and field operations,
principally in the Company's offices in the United States and also in the
Company's United Kingdom office. A total of 32 people or 9% of the Company's
worldwide headcount were eliminated by this restructuring plan. All separations
were completed prior to December 31, 2001.
Total cash expenditures relating to the restructuring charge are
expected to be $1.3 million, funded from the Company's available cash. Cash
expenditures are expected to be paid through the second quarter of the 2003
fiscal year. As of June 30, 2002, remaining cash expenditures are expected to be
approximately $0.5 million.
The Company substantially completed the initiatives in its October 2001
restructuring plan during the second quarter of fiscal year 2002 and began to
partially realize the benefits of this plan in the second quarter, with the full
benefit of the plan realized in the third quarter of fiscal 2002. The
restructuring charge has reduced employee related costs and third party
expenses, and is part of cost reduction actions aimed at reducing annual
operating costs by $2.5 million, primarily through personnel reductions,
attrition and selected third party cost cuts. The Company does not believe
personnel reductions have had a material negative effect on its operations
because they were made in areas where the Company believes fewer employees are
required to support the Company's current level of revenues. The Company's
expectation as to the impact of its cost reduction actions and the impact of
those actions on its operations are "forward looking statements" within the
meaning of the Securities Exchange Act of 1934, as amended. Such expectations
are subject to a number of uncertainties described in "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Safe
Harbor Statement."
Interest income decreased 57.1% to $0.6 million from $1.4 million for
the fiscal years ended June 30, 2002 and 2001, respectively. Lower average cash
balances during fiscal 2002, combined with drastically reduced interest rates,
resulted in this decrease in interest income for the year ended June 30, 2002.
Pension Liability
The Company's United Kingdom subsidiary maintains a defined benefit
plan, which covered substantially all of its employees hired prior to January 1,
1994. This plan was frozen on April 1, 1997, with no further benefits accruing
under the plan. The accrued pension liability at June 30, 2002 was $8.2 million
compared to $5.3 million at the end of the previous year, resulting in other
comprehensive loss, net of tax, for the fiscal year ending June 30, 2002 of $2.2
million. The increase was principally due to a deterioration in plan returns.
The pension liability and funding requirements of the Company's defined
benefit plan for its United Kingdom subsidiary are based on a number of
assumptions including the assumption that the assets in the plans will have
annual returns of 7.5%. To the extent these assumptions are not realized, the
Company's pension expense and cash funding could increase. For further
information on pension matters, see Note 7 of the Notes to Consolidated
Financial Statements.
Currency Translation Adjustment
At June 30, 2002 and 2001, the "Currency translation adjustment"
balance included in the Company's balance sheet was $6.1 million and $5.9
million respectively. This balance primarily represents the foreign currency
translation on the net assets related to the Company's operations in the United
Kingdom. In accordance with Financial Accounting Standards Board No. 52 "Foreign
Currency Translation," upon "sale or complete or substantially complete
liquidation" of the business in the United Kingdom, the Company will reverse the
currency translation adjustment into the statement of operations. At June 30,
2002, the revenue generated by the United Kingdom business represented
approximately 17% of total revenue. The Company considers the business in the
United Kingdom significant to their operations and as of June 30, 2002 had no
plans to sell or liquidate this portion of the business. Therefore, the Company
had not adjusted the balance at June 30, 2002 related to currency translation
adjustment.
17
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2001 TO FISCAL YEAR ENDED JUNE 30, 2000
Revenues
TWELVE MONTHS ENDED PERCENT
JUNE 30, CHANGE
----------------------- -------
2001 2000
(in thousands)
MPC REVENUE
Software licenses $ 17,347 $ 14,430 20.2 %
Software maintenance 12,188 7,740 57.5
Implementation, consulting and
other services 15,870 12,977 22.3
---------- ----------
TOTAL MPC REVENUE $ 45,405 $ 35,147 29.2 %
========== ==========
LEGACY REVENUE
Software licenses $ 4,837 $ 9,016 (46.4)%
Software maintenance 11,386 15,521 (26.6)
Implementation, consulting and
other services 1,213 1,639 (26.0)
---------- ----------
TOTAL LEGACY REVENUE $ 17,436 $ 26,176 (33.4)%
========== ==========
TOTAL REVENUE
Software licenses $ 22,184 $ 23,446 (5.4)%
Software maintenance 23,574 23,261 1.3
Implementation, consulting and
other services 17,083 14,616 16.9
---------- ----------
TOTAL REVENUE $ 62,841 $ 61,323 2.5 %
========== ==========
The increase in revenue from the year ended June 30, 2000 was primarily
due to a 29.2% growth in MPC revenue, offset by a decline of 33.4% in legacy
revenue. MPC revenue was $45.4 million for the year ended June 30, 2001,
representing 72.3% of total revenue.
The 5.4% decline in license fees reflects the decline in legacy
revenues. MPC license fees, which grew 20.2% from the year ended June 30, 2000,
represented 78.2% of total license fees for the year ended June 30, 2001. The
increase in MPC license fees was largely offset by a decline in legacy product
license fees of 46.4% from the year ended June 30, 2000 to the year ended June
30, 2001. MPC license fees were $17.3 million and $14.4 million for the fiscal
years ended June 30, 2001 and 2000, respectively. License fees in the Company's
direct operations, which include North America and the United Kingdom, grew 3.6%
to $15.2 million for the fiscal year ended June 30, 2001, primarily due to the
growth in MPC license fees. Direct license fee growth was offset by the decline
in distributor license fees of 17.4% to $6.9 million for the same time period,
reflecting a decline in the Company's legacy products, which are concentrated in
the distributor operations.
Software maintenance revenues increased 1.3% in the year ended June 30,
2001 due to the impact of the growth in MPC license fees. During the year ended
June 30, 2001, the Company experienced 57.5% growth in maintenance revenues for
the Company's MPC products to $12.2 million, or 51.7% of total maintenance.
Maintenance revenues for the Company's MPC products for the year ended June 30,
2000 were $7.7 million. The growth in MPC product maintenance reflected the
license fee growth of the MPC applications in the years ended June 30, 2001 and
2000. The increase in MPC maintenance revenues was offset by a decline in the
Company's older legacy products, which declined 26.6%, primarily due to
mainframe and desktop maintenance cancellations and continued customer migration
to other platforms.
Implementation, consulting and other services revenues grew 16.9% for
the year ended June 30, 2001, compared to the year ended June 30, 2000,
primarily due to the growth in license fees in the Company's direct operations.
18
Implementation services revenue from direct operations grew 17.1% for the year
ended June 30, 2001. This growth was slightly offset by a decline in distributor
implementation services revenue. In addition, there were a number of extensive
custom applications which contributed to the growth in implementation services
revenue. During the year ended June 30, 2001, 92.9% of total implementation
services revenue was related to the MPC products. The Company experienced an
increase of 22.3% of revenue associated with implementation, consulting and
other services related to the Company's MPC products. Implementation, consulting
and other services revenues for MPC products were $15.9 million and $13.0
million for the fiscal years ended June 30, 2001 and 2000, respectively.
Expenses/Interest Income
Total costs and expenses increased to $64.0 million from $61.7 million
for the fiscal years ended June 30, 2001 and 2000, respectively. The increase of
$2.3 million is primarily due to increased cost of revenue and support expenses,
and a restructuring charge of $0.9 million taken in the third quarter of fiscal
2001,which was related to a reduction in personnel costs and other expenses.
Selling and marketing expenses decreased 1.7% to $23.8 million from
$24.2 million for the fiscal years ended June 30, 2001 and 2000, respectively.
The decrease was primarily a result of a reorganization of sales operations,
partially offset by an increase in promotional marketing costs.
Cost of revenue and support expenses increased 11.9% to $24.5 million
from $21.9 million for the fiscal years ended June 30, 2001 and 2000,
respectively. The increase was attributable to increased costs associated with
third party implementations due to the increased level of services provided
during the period, offset by a 30% reduction in royalties paid to third parties,
primarily database royalty expenses resulting from lower sales of Essbase.
Internal research and product development expenses decreased 3.3% to
$8.8 million from $9.1 million for the fiscal years ended June 30, 2001 and
2000, respectively. Internal research and product development expenses, as a
percentage of total revenue, decreased to 14.1% from 14.8% for the same periods,
respectively, reflecting no significant change in the Company's product
development spending for financial applications.
General and administrative expenses decreased 7.7% to $6.0 million from
$6.5 million for the fiscal years ended June 30, 2001 and 2000, respectively.
The decrease is attributable to continued cost reduction actions taken to lower
administration costs, combined with a reduction in the costs of third party
services.
In March 2001, the Company implemented a restructuring plan to reduce
personnel costs, to bring costs more in line with revenues and improve the
financial performance of the Company. The restructuring plan was undertaken in
response to the slowdown in the economy, which resulted in the acceleration of
the decline in the Company's revenues from its legacy products, which negatively
affects the Company's ability to generate operating profits. Restructuring and
related charges of $0.9 million were expensed in the quarter ended March 31,
2001. The restructuring charge consisted entirely of employee severance costs.
The amounts reserved, amounts charged against the reserve as of June 30, 2002
and the balance of the reserve as of June 30, 2002 are as follows:
-------------------------- ------------------- --------------------- ----------------
RESTRUCTURING COMPONENTS BEGINNING RESERVE CHARGES TO BALANCE AT
(IN THOUSANDS) RESERVES JUNE 30, 2002
(IN THOUSANDS) (IN THOUSANDS)
-------------------------- ------------------- --------------------- ----------------
Employee severance $892 $(464) $428
-------------------------- ------------------- --------------------- ----------------
Employee groups impacted by the restructuring include marketing and
field operations in the Company's North American and United Kingdom offices. A
total of thirteen people or 4% of the worldwide headcount were affected by this
restructuring plan. All separations were completed prior to June 30, 2001. Total
cash expenditures relating to the restructuring charge are expected to be $0.9
million, funded from the Company's available cash. Cash expenditures are
expected to be paid over a 24-month period. As of June 30, 2002, remaining cash
expenditures are estimated to be approximately $0.4 million.
The Company substantially completed the initiatives in its March 2001
restructuring plan during the third and fourth quarters of fiscal 2001 and began
to realize the benefits of this plan in the third quarter, with the full benefit
of the plan realized in the first quarter of fiscal 2002. Because of investments
in MPC products, the personnel cost reduction actions did not reduce the
Company's total expenses. The Company does not believe that the personnel
reductions had or will have a material negative effect on its operations because
they were made in areas where the Company believes fewer employees were required
to support the Company's current level of revenues. The Company's expectations
as to the
19
impact of its cost reduction actions and the impact of those actions on its
operations are "forward-looking statements" within the meaning of the Securities
and Exchange Act of 1934, as amended. Such expectations are subject to a number
of uncertainties, including the risk that the personnel reductions may adversely
affect the Company's ability to effectively market its products and other
uncertainties described in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Safe Harbor Statement."
Interest income decreased 6.7% to $1.4 million from $1.5 million for
the fiscal years ended June 30, 2001 and 2000, respectively. Lower average cash
balances during fiscal 2001, combined with reduced interest rates, resulted in
this decrease in interest income for the year ended June 30, 2001.
FOREIGN CURRENCY
In fiscal 2002, 2001 and 2000, 41.2%, 42.8% and 47.9%, respectively, of
the Company's total revenue was from outside North America. Most of the
Company's international revenue is denominated in foreign currencies. Comshare
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 $31,000 foreign exchange loss in fiscal 2002
principally reflected the weakening of certain foreign currencies against the
British pound during the twelve months ended June 30, 2002. The Company had
exchange losses of $114,000 and $54,000 in fiscal 2001 and 2000, respectively,
principally due to the weakening of certain foreign currencies against the
British pound.
Foreign currency fluctuations in fiscal 2002, 2001 and 2000 impacted
operating income as currency fluctuations on revenue denominated in a foreign
currency were partially offset by currency fluctuations on expenses denominated
in a foreign currency. In fiscal 2002, the increase in total revenue, at actual
exchange rates, was $65,000 less than at comparable exchange rates. The increase
in total expenses in fiscal 2002, at actual exchange rates, was $23,000 less
than at comparable exchange rates. As a result of the changes in the foreign
currency exchange rates, the decrease in net income before taxes in fiscal 2002,
at actual exchange rates, was $42,000 more than at comparable exchange rates. In
fiscal 2001, the increase in total revenue, at actual exchange rates, was $1.6
million less than at comparable exchange rates. The increase in total expenses
in fiscal 2001, at actual exchange rates, was $1.4 million less than at
comparable exchange rates. As a result of the changes in the foreign currency
exchange rates, the decrease in net income before taxes in fiscal 2001, at
actual exchange rates, was $0.2 million more than at comparable exchange rates.
Inflation did not have a material impact on the Company's revenue or
income from operations in fiscal 2002, 2001 or 2000.
PROVISION FOR INCOME TAXES
The Company fully reserved its deferred tax asset during the quarter
ended September 30, 2001, resulting in a first quarter provision for income
taxes of $8.2 million. Realization of deferred tax assets associated with the
Company's future deductible temporary differences, net of operating loss
carryforwards and tax credit carryforwards, is dependent upon generating
sufficient taxable income prior to expiration.
Management assesses the realizability of its deferred tax assets on a
quarterly basis, using all available evidence, both positive and negative.
While, as of the end of fiscal 2001, the Company's pattern of historical
operating losses provided certain negative evidence of realizability, the
Company also considered available tax planning strategies, as required by
paragraphs 21 and 22 of Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" in determining the realizability of the Company's
deferred tax assets. The Company's decision to not provide a full valuation
allowance against the deferred tax assets at the end of fiscal 2001 was based on
management's determination that it was more likely than not that the deferred
tax asset could be realized based on a valid tax planning strategy described
below.
The Company's tax planning strategy involved the sale of the Company's
FDC and certain legacy products ("Non-core and Legacy" products) in a period
prior to expiration of the Company's deferred tax assets, which begin to expire
in 2008. In fiscal 2001 and prior periods, the Company considered the sale of
its Non-core and Legacy product lines a valid strategy - that is, while the
Company's Non-core and Legacy product lines would not be made available for sale
in the ordinary course of business, management intended to sell those product
lines if necessary to prevent the loss of the tax benefits associated with the
deferred tax assets. At that time, management believed that such sale would be
prudent and feasible if the Company's deferred tax asset could not be utilized
otherwise, such as through the generation of taxable income from operations.
20
At June 30, 2001, revenues from Non-core and Legacy products were still
at a level that the Company determined would support an adequate sales price for
those product lines, from a business standpoint, should the Company need to sell
them to fully realize the deferred tax assets and at a level that would have
generated taxable income in an amount in excess of the Company's deferred tax
assets. In assessing the viability of the sale of the Non-core and Legacy
product lines at June 30, 2001, management also considered the following:
- Quarterly revenues for Non-core and Legacy products had
remained fairly constant, from quarter to quarter, throughout
fiscal 2001. While quarterly revenues for Non-core and Legacy
software were considerably lower in fiscal 2001 than in fiscal
2000, the decline in legacy license fees slowed by the end of
fiscal 2001 and FDC license revenues grew during the last half
of the fiscal year.
- Based upon actual Non-core and Legacy software revenues for
fiscal 2001, the Company's operating budget for fiscal 2002
("2002 Budget"), approved by its Board of Directors, projected
fiscal 2002 Non-core and Legacy software revenues to decline
by only 25% as compared to fiscal 2001 levels, however still
comprise a significant portion of total revenues.
- Because size of the vendor is one factor used by the Company's
customers to evaluate the ability of the vendor to meet their
needs, the Company's management believes that one important
competitive factor in its markets is its size. Consequently,
maintaining total revenues over time at levels approximating
the Company's then current revenue levels was an important
factor in determining the prudence of selling the Company's
Non-core and Legacy product lines. Because of the strong
growth in the Company's software revenues from its core MPC
products ("Core" products) through the end of fiscal 2001, and
the Company's projected results in the 2002 Budget, the
Company believed that growth in its revenues from its Core
software could quickly replace revenues that would be lost
through the sale of the Non-core and Legacy products.
Accordingly, the Company believed it could sell the Non-core
and Legacy product lines, if necessary, without substantially
effecting the total revenues of the Company.
In the first quarter of fiscal 2002, the Company's actual operating
results fell significantly below the Company's 2002 Budget. As a result, after
the end of the first quarter of fiscal 2002, the Company undertook a fresh
review of its projections and operating budget for the remainder of fiscal 2002.
This rebudgeting process indicated that the declines experienced in the first
quarter were likely to continue throughout the remainder of the year and that
revenues would be significantly lower than the previous projections provided to
the Company's Board of Directors.
During the first quarter of fiscal 2002, the Company's license revenues
from its Non-core and Legacy products experienced a dramatic decline. In
particular, during the first quarter of fiscal 2002, FDC license fee growth
stalled and there was a renewed decline, at an accelerated rate, in legacy
license fees. The decline in Non-core and Legacy product license revenues during
the first quarter of fiscal 2002 was at a much faster rate than the Company had
projected. While the decline in maintenance revenues from Non-core and Legacy
products in the first quarter of fiscal 2002 was less dramatic, because of the
nature of those revenues, over time maintenance revenues would also likely
decline at a faster rate as a result of the accelerated decline in license fees.
In the first quarter of fiscal year 2002, Core license fees grew at a
much slower rate than in fiscal 2001. The slowed growth in Core license revenues
in the first quarter of 2002 was significantly below the Company's internal
projections for the quarter.
There was little indication at the end of the first quarter of fiscal
2002 that any improvement in economic conditions would reverse these revenue
trends or improve valuations in the near future. Consequently, in the first
quarter of fiscal 2002, the Company revised its 2002 Budget to reduce total
budgeted license fees for fiscal 2002, including those from Core, Non-Core and
Legacy products, by an additional 25% from the levels used in the original 2002
Budget.
Based upon these revised projections and budgets, as of the end of the
first quarter of fiscal 2002, the Company determined that:
(i) because of the decline in Non-core and Legacy products
revenues, the value which could be realized through the sale
of these product lines in the then current economic market was
not likely to be acceptable to the Company from a business
standpoint, and,
(ii) because of the declines in the Core license revenues, the
Company could not depend on the growth in its Core revenues to
offset the loss of revenues that would result from the sale of
its Non-core and Legacy product lines. As a result, a sale of
the Non-core and Legacy product lines could result in the
Company
21
becoming a substantially smaller company, potentially putting
the Company at a competitive disadvantage.
As of the end of the first quarter of fiscal 2002, the Company determined
that it would no longer be prudent to sell its Non-core and Legacy product
lines, even if anticipated future operating income was not sufficient to
allow the Company to fully realize its deferred tax asset. This determination
was discussed with the Company's Audit Committee and Board of Directors,
which concurred with the determination. Based on the weight of this
additional negative evidence and the absence of a prudent and feasible tax
planning strategy that management would implement to prevent the Company's
deferred tax assets from expiring unused, the Company determined that it
could no longer support the realizability of its deferred tax assets on a
"more likely than not" basis at the end of the first quarter of fiscal 2002.
Accordingly, the deferred tax asset was fully reserved in the first quarter
of fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, cash and cash equivalents were $19.3 million, compared
with cash and cash equivalents of $24.1 million at June 30, 2001. The decrease
in cash and cash equivalents was principally due to the Company's operating loss
(prior to its tax provision) and payment of fiscal 2002 and prior years'
restructuring related items. This decrease was partially offset by collections
in accounts receivable.
Net cash used in operating activities was $3.5 million in fiscal 2002
compared with $5.3 million in fiscal 2001. The cash used in operating activities
consisted primarily of a net loss of $12.5 million adjusted for non-cash items
of $7.8 million, primarily due to the valuation allowance provided against the
Company's deferred tax asset, along with a net $0.7 million used in working
capital and other activities. The increase of $0.8 million in prepaid expenses
and other assets is primarily due to a $1.0 million income tax receivable offset
by the write-down of the short term deferred tax asset. The decrease in accrued
liabilities is primarily due to payment of Value Added Tax related to increased
revenue in the United Kingdom during the fourth quarter of fiscal 2001, combined
with a reduced accrual for Value Added Tax at June 30, 2002 due to decreased
revenue in the United Kingdom for the fourth quarter of fiscal 2002. The
accounts receivable balance decreased primarily as a result of the decline in
license fee and maintenance revenue for the quarter, and was also affected by an
increase in cash collections.
Net cash used in investing activities was $0.3 million in fiscal 2002,
compared to $0.4 million in fiscal 2001. The slight increase related to
investing activities was due to increased capital expenditures in fiscal 2002
mainly attributed to leasehold improvements. At June 30, 2002, the Company did
not have material capital expenditure commitments. In fiscal 2003, property and
equipment purchases are expected to be comparable to fiscal 2002.
Net cash provided by financing activities was $0.6 million in fiscal 2002,
compared with net cash provided by financing activities of $0.4 million in
fiscal 2001. The increase in cash related to financing activities was
principally due to reduced repayments of debt as a result of lower bank
borrowings and capital lease obligations during the fiscal year ended June 30,
2002, compared to the prior year and increased stock purchases under the
Company's Employee Stock Purchase Plan.
Working capital as of June 30, 2002 was $20.0 million, compared with $24.3
million as of June 30, 2001. The decrease in working capital was primarily due
to the decline in cash and cash equivalents. Total assets were $45.7 million at
June 30, 2002, compared with $59.3 million at June 30, 2001. The decrease in
total assets was primarily due to the write-down of the deferred tax asset by
$8.2 million and the decline in cash and cash equivalents during the twelve
months ended June 30, 2002.
The Company has a $10 million credit agreement which matures on September
30, 2003. Borrowings are secured by accounts receivable and the credit agreement
contains covenants regarding, among other things, earnings, leverage, net worth
and payment of dividends. The Company is required to maintain $10 million in
deposits in U.S. Dollars with commercial banks located in the United States in
order to maintain this credit. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Permitted
borrowings available as of June 30, 2002 under this credit agreement were $10
million. There was no balance outstanding as of June 30, 2002. Borrowings
available at any time are based on the lower of $10 million or a percentage of
worldwide eligible accounts receivable and cash. As of June 30, 2002, the
Company was in violation of certain covenants relating to the line of credit.
The Company is negotiating to obtain a waiver for the violations at June 30,
2002 and for an amendment to its line of credit agreement to revise the
financial covenants for future periods, reduce the line of credit agreement to
$7 million and to extend the maturity date of the line of credit to September
30, 2004. There can be no assurance that management will be able to finalize the
negotiated waiver and amendment.
22
As of June 30, 2002, the Company had $0.9 million of accruals remaining for
cash restructuring expenses payable over the next 22 months.
The Company believes that the present cash balances 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 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 "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.
FOREIGN CURRENCY
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
June 30, 2002 and June 30, 2001, the Company had forward contracts of
approximately $2.5 million and $1.7 million (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at June 30, 2002
mature through October 16, 2002 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 June 30, 2002 and 2001.
Gains and losses on the forward contracts are largely offset by gains and
losses on the underlying exposure. The Company conducts business in
approximately six foreign currencies, predominately British pounds, the Euro and
Japanese yen. A hypothetical 10 percent appreciation of the U.S. dollar from
June 30, 2002 market rates would increase the unrealized value of the Company's
forward contracts by an immaterial amount and a hypothetical 10 percent
depreciation of the U.S. dollar from June 30, 2002 market rates would decrease
the unrealized value of the Company's forward contracts by an immaterial amount.
In either scenario, the gains or losses on the forward contracts are 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.
INTEREST RATES
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.
SAFE HARBOR STATEMENT
Certain information in this Form 10-K 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, prospects for
improved business conditions, 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; the impact that cost
reductions may have on the Company's revenues and operating results; 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 the 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
23
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;
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 the costs resulting
from such actions or otherwise. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Sensitivity Analysis."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule filed herewith are set forth on the
Index to Consolidated Financial Statements and Schedule on page 28 and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
See "Item 14(b). Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K - Reports on Form 8-K."
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to the Company's 2002 Proxy Statement under the captions "Election of Directors"
and "Further Information-Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's 2002 Proxy Statement under the caption "Executive
Compensation."
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item is incorporated herein by reference to
the Company's 2002 Proxy Statement under the captions "Further
Information-Principal Shareholders," "Further Information-Stock Ownership of
Management" and "Further Information-Equity Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated herein by reference to
the Company's 2002 Proxy Statement under the captions "Certain Relationships and
Related Transactions."
24
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Report:
1. Consolidated Financial Statements:
The Financial Statements filed with this report are listed in the
Index to Consolidated Financial Statements and Schedule, which
appears on page 28.
2. Consolidated Financial Statement Schedule:
The Financial Statement Schedule filed with this report is listed in
the Index to Consolidated Financial Statements and Schedule, which
appears on page 28.
3. The exhibits filed with this report are listed in the Index to
Exhibits which appears on page 52. The following are the Company's
management contracts and compensatory plans and arrangements, which
are required to be filed as exhibits to this Form 10-K Report.
25
EXHIBIT NO. DESCRIPTION
10.01 Benefit Adjustment Plan of Comshare, Incorporated, effective June 1,
1986, as amended and restated on November 6, 1997 - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 1999.
10.02 First Amendment to the Benefit Adjustment Plan of Comshare,
Incorporated - incorporated by reference to Exhibit 10.01 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 1999.
10.03 Second Amendment to the Benefit Adjustment Plan of Comshare,
Incorporated - incorporated by reference to Exhibit 10.05 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.04 Comshare, Incorporated 1988 Stock Option Plan, as amended -
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1990 and Exhibit 10.22
to the Registrant's Form 10-Q Report for the quarter ended September
30, 1994.
10.05 Third Amendment to the Comshare, Incorporated 1988 Stock Option Plan,
as amended - incorporated by reference to Exhibit 10.06 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.06 Stock Option Agreement, effective as of March 10, 1997, between
Comshare, Incorporated and Daniel T. Carroll - incorporated by
reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 1997.
10.07 Trust Agreement under the Benefit Adjustment Plan of Comshare,
Incorporated, effective April 25, 1988, as amended - incorporated by
reference to Exhibit 10.31 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 1993.
10.08 1994 Executive Stock Purchase Program of Comshare, Incorporated -
incorporated by reference to Exhibit 10.19 to the Registrant's Form
10-Q Report for the quarter ended September 30, 1994.
10.09 Employee Stock Purchase Plan of Comshare, Incorporated - incorporated
by reference to Exhibit 10.20 to the Registrant's Form 10-Q Report for
the quarter ended September 30, 1994.
10.10 First Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q for the
quarter ended September 30, 1999.
10.11 Second Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.02 to the Registrant's Form 10-Q for the
quarter ended September 30, 1999.
10.12 Third Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.03 to the Registrant's Form 10-Q for the
quarter ended September 30, 1999.
10.13 Fourth Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q for the
quarter ended December 31, 2001.
10.14 1994 Directors Stock Option Plan of Comshare, Incorporated -
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-Q Report for the quarter ended September 30, 1994.
10.15 First Amendment to Directors Stock Option Plan - incorporated by
reference to Exhibit 10.05 to the Registrant's Form 10-Q for the
quarter ended September 30, 1999.
10.16 Second Amendment to Directors Stock Option Plan - incorporated by
reference to Exhibit 10.07 to the Registrant's Form 10-Q for the
quarter ended March 31, 2001.
10.17 Third Amendment to Directors Stock Option Plan - incorporated by
reference to Exhibit 10.02 to the Registrant's Form 10-Q for the
quarter ended December 31. 2001.
10.18 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Dennis G. Ganster -
incorporated by reference to Exhibit 10.19 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1998.
26
10.19 First Amendment to Comshare, Incorporated Change in Control Severance
Agreement dated as of November 30, 1999, between Comshare, Incorporated
and Dennis G. Ganster - incorporated by reference to Exhibit 10.03 to
the Registrant's Form 10-Q Report for the quarter ended December 31,
1999.
10.20 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and David King -
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1998.
10.21 First Amendment to Comshare, Incorporated Change in Control Severance
Agreement dated as of November 30, 1999, between Comshare, Incorporated
and David King - incorporated by reference to Exhibit 10.02 to the
Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.22 Comshare, Incorporated Change in Control Severance Agreement dated as
of February 9, 2001, between Comshare, Incorporated and Brian Hartlen -
incorporated by reference to Exhibit 10.01 to the Registrant's Form
10-Q Report for the quarter ended March 31, 2001.
10.23 Comshare, Incorporated Change in Control Severance Agreement dated as
of February 16, 2001, between Comshare, Incorporated and Brian
Jarzynski - incorporated by reference to Exhibit 10.02 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.24 Comshare, Incorporated Change in Control Agreement dated as of January
7, 2002, between Comshare, Incorporated and Kenneth Kane.
10.25 Comshare, Incorporated 1998 Global Employee Stock Option Plan -
incorporated by reference to Exhibit 10.25 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1998.
10.26 First Amendment to 1998 Global Employee Stock Option Plan -
incorporated by reference to Exhibit 10.04 to the Registrant's Form
10-Q Report for the quarter ended September 30, 1999.
10.27 Second Amendment to 1998 Global Employee Stock Option Plan -
incorporated by reference to Exhibit 10.08 to the Registrant's Form
10-Q Report for the quarter ended March 31, 2001.
10.28 Letter of Understanding, dated February 8, 2001, between Comshare,
Incorporated and Norman Neuman, Jr., and Norman Neuman, Jr. Notices of
Grant of Stock Options and Option Agreements - incorporated by
reference to Exhibit 10.03 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 2001.
10.29 Kathryn A. Jehle Notices of Grant of Stock Options and Option
Agreements - incorporated by reference to Exhibit 10.04 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.30 Summary of 2000 Senior Executive Incentive Plan - incorporated by
reference to Exhibit 10.32 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 2000.
10.31 Summary of 2001 Senior Executive Incentive Plan - incorporated by
reference to Exhibit 10.33 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 2000.
10.32 Summary of 2002 Senior Executive Incentive Plan - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the
quarter ended September 30, 2001.
10.33 Summary of 2003 Senior Executive Incentive Plan.
(b) Reports on Form 8-K.
On June 13, 2002, the Company filed a Form 8-K, regarding changes in its
certifying accountant under Item 4.
27
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Report of Independent Auditors 29
Report of Independent Public Accountants 30
Consolidated Statements of Operations for
the Fiscal Years Ended June 30, 2002, 2001 and 2000 31
Consolidated Statements of Comprehensive Loss for
the Fiscal Years Ended June 30, 2002, 2001 and 2000 32
Consolidated Balance Sheets as of June 30, 2002 and 2001 33-34
Consolidated Statements of Cash Flows for the
Fiscal Years Ended June 30, 2002, 2001 and 2000 35
Consolidated Statements of Shareholders' Equity
for the Fiscal Years Ended June 30, 2002, 2001 and 2000 36
Notes to Consolidated Financial Statements 37-48
SCHEDULE
II. Consolidated Schedule of Valuation & Qualifying Accounts 49
28
REPORT OF INDEPENDENT AUDITORS
To Comshare, Incorporated:
We have audited the consolidated balance sheet of Comshare, Incorporated as of
June 30, 2002, and the related consolidated statements of operations,
comprehensive loss, cash flows and shareholders' equity for the year then ended.
Our audit also included the financial statement schedule at June 30, 2002 and
for the year then ended listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit. The financial statements and schedule of Comshare,
Incorporated as of June 30, 2001 and for the years ended June 30, 2001 and 2000,
were audited by other auditors, who have ceased operations and whose report
dated July 27, 2001 (except with respect to the information contained in Note 1
and Note 2, as to which the date is December 27, 2001), expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Comshare, Incorporated at June 30, 2002, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule at June 30, 2002 and for the
year then ended, when considered in relation to the basic financial statements,
taken as a whole, presents fairly in all material respects the information set
forth therein.
/S/ ERNST & YOUNG LLP
Detroit, Michigan
July 25, 2002
29
THIS REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY
ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH ITS INCLUSION IN THIS FORM 10-K
Report of Independent Public Accountants
To Comshare, Incorporated:
We have audited the accompanying consolidated balance sheets of COMSHARE,
INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 2001 and
2000, and the related consolidated statements of operations, comprehensive loss,
shareholders' equity and cash flows for each of the three years in the period
ended June 30, 2001. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Comshare, Incorporated and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2001 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
July 27, 2001
(except with respect to the information contained in Note 1 and Note 2, as to
which the date is December 27, 2001)
30
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
-------- -------- --------
REVENUE
Software licenses $ 17,449 $ 22,184 $ 23,446
Software maintenance 23,070 23,574 23,261
Implementation, consulting and other services 17,939 17,083 14,616
-------- -------- --------
TOTAL REVENUE 58,458 62,841 61,323
COSTS AND EXPENSES
Selling and marketing 24,204 23,750 24,169
Cost of revenue and support 23,994 24,476 21,911
Internal research and product development 9,353 8,838 9,070
General and administrative 5,537 6,001 6,536
Restructuring and unusual charges 1,280 892 -
-------- -------- --------
TOTAL COSTS AND EXPENSES 64,368 63,957 61,686
LOSS FROM OPERATIONS (5,910) (1,116) (363)
OTHER INCOME (EXPENSE)
Interest income 614 1,364 1,530
Interest expense (1) (6) (68)
Exchange loss (31) (114) (54)
-------- -------- --------
TOTAL OTHER INCOME 582 1,244 1,408
INCOME (LOSS) BEFORE TAXES (5,328) 128 1,045
Provision for income taxes 7,156 45 366
-------- -------- --------
NET INCOME (LOSS) $(12,484) $ 83 $ 679
======== ======== ========
SHARES USED IN BASIC EPS COMPUTATION 10,197 9,865 9,664
======== ======== ========
SHARES USED IN DILUTED EPS COMPUTATION 10,197 9,935 9,791
======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED EPS $ (1.22) $ 0.01 $ 0.07
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
31
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
-------- -------- --------
Net income (loss) $(12,484) $ 83 $ 679
Other comprehensive loss:
Currency translation adjustment, net of tax (190) (295) (702)
Decrease (increase) in minimum pension liability,
net of tax (2,234) 198 (1,020)
-------- -------- --------
Other comprehensive loss, net of tax (2,424) (97) (1,722)
-------- -------- --------
COMPREHENSIVE LOSS $(14,908) $ (14) $ (1,043)
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
32
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF JUNE 30,
2002 2001
------- -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $19,280 $24,106
Accounts receivable, less allowance for
doubtful accounts of $1,376 and $1,269
as of June 30, 2002 and 2001, respectively 17,683 19,541
Deferred income taxes - 767
Prepaid expenses and other current assets 2,949 1,411
------- -------
TOTAL CURRENT ASSETS 39,912 45,825
Computers and other equipment 6,357 6,716
Leasehold improvements 2,856 2,649
------- -------
Property and equipment, at cost 9,213 9,365
Less - Accumulated depreciation 7,862 7,955
------- -------
Property and equipment, net 1,351 1,410
Goodwill, net of accumulated
amortization of $1,993 and $1,923 as of
June 30, 2002 and 2001, respectively 907 977
Deferred income taxes - 7,355
Other assets 3,523 3,710
------- -------
TOTAL ASSETS $45,693 $59,277
======= =======
The accompanying notes are an integral part of these consolidated balance
sheets.
33
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
AS OF JUNE 30,
2002 2001
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,819 $ 3,047
Accrued liabilities -
Payroll 1,985 2,379
Taxes 454 1,370
Other 3,299 3,537
-------- --------
Total accrued liabilities 5,738 7,286
Deferred revenue 11,327 11,166
-------- --------
TOTAL CURRENT LIABILITIES 19,884 21,499
Long-term debt - 164
Accrued pension liability 8,174 5,331
Other liabilities 73 619
-------- --------
TOTAL LIABILITIES 28,131 27,613
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares; none issued - -
Common stock, $1 par value;
authorized 20,000,000 shares; issued and outstanding
10,469,409 shares as of June 30, 2002
and 10,104,626 as of June 30, 2001 10,469 10,105
Capital contributed in excess of par value 39,686 39,244
Retained deficit (20,208) (7,724)
Accumulated other comprehensive income:
Minimum pension liability, net of tax (6,318) (4,084)
Cumulative translation adjustment (6,067) (5,877)
-------- --------
Total shareholders' equity 17,562 31,664
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 45,693 $ 59,277
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
34
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
-------- -------- --------
OPERATING ACTIVITIES
Net income (loss) $(12,484) $ 83 $ 679
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 718 906 1,288
Changes in operating assets and liabilities:
Accounts receivable 2,014 (2,580) (2,929)
Prepaid expenses and other assets 754 305 3,040
Deferred income taxes 7,156 (918) (883)
Accounts payable (197) 829 (3,647)
Accrued liabilities (1,476) (2,541) 844
Deferred revenue 361 (813) 735
Other liabilities (305) (577) (41)
-------- -------- --------
Net cash used in operating activities (3,459) (5,306) (914)
INVESTING ACTIVITIES
Payments for property and equipment (406) (267) (505)
Other 120 (170) -
-------- -------- --------
Net cash used in investing activities (286) (437) (505)
FINANCING ACTIVITIES
Net repayments under debt agreements,
capital lease agreements and notes payable (164) (423) (1,462)
Employee stock purchases 806 787 270
Other - - 397
-------- -------- --------
Net cash provided by (used in) financing activities 642 364 (795)
EFFECT OF EXCHANGE RATE CHANGES (1,723) (21) (492)
-------- -------- --------
NET DECREASE IN CASH (4,826) (5,400) (2,706)
CASH AT BEGINNING OF PERIOD 24,106 29,506 32,212
-------- -------- --------
CASH AT END OF PERIOD $ 19,280 $ 24,106 $ 29,506
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1 $ 6 $ 49
======== ======== ========
Cash paid for taxes $ 681 $ 976 $ 819
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
35
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
-------- -------- --------
COMMON STOCK
Balance beginning of year $ 10,105 $ 9,772 $ 9,642
Employee Stock Purchases 364 333 130
-------- -------- --------
Balance end of year 10,469 10,105 9,772
-------- -------- --------
CAPITAL CONTRIBUTED IN EXCESS OF PAR VALUE
Balance beginning of year 39,244 38,790 38,650
Employee Stock Purchases 442 454 140
-------- -------- --------
Balance end of year 39,686 39,244 38,790
-------- -------- --------
RETAINED DEFICIT
Balance beginning of year (7,724) (7,807) (8,486)
Net income (loss) (12,484) 83 679
-------- -------- --------
Balance end of year (20,208) (7,724) (7,807)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance beginning of year (9,961) (9,864) (8,142)
Comprehensive loss (2,424) (97) (1,722)
-------- -------- --------
Balance end of year (12,385) (9,961) (9,864)
-------- -------- --------
LESS - NOTES RECEIVABLE
Balance beginning of year - - 398
Payments on executive loans - - (398)
-------- -------- --------
Balance end of year - - -
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY $ 17,562 $ 31,664 $ 30,891
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
36
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Comshare, Incorporated (the "Company") develops, markets and
supports management planning and control applications software. The Company also
provides maintenance, training, and consulting and support services. Comshare is
currently providing maintenance at over 2,180 corporate and public sector
customer sites. The Company markets its products through a direct sales force in
the United States, Canada and the United Kingdom and has an extensive
distributor network in 35 other countries. The Company was incorporated in
Michigan in February, 1966 and commenced operations at that time.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned. All
material intercompany accounts and transactions have been eliminated.
REVENUE. The Company's revenue consists of software licenses, software
maintenance and implementation services. The Company recognizes software license
revenue from licensing of software products to end users when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is
fixed or determinable and collectibility is probable, in accordance with the
American Institute of Certified Public Accountants' ("AICPA") Statement of
Position ("SOP") 97-2 "Software Revenue Recognition" and related
interpretations.
Software maintenance revenue, whether bundled with a product license or priced
separately, is recorded as deferred revenue on the balance sheet when invoiced
at the inception of the contract and is recognized on a straight-line basis over
the term of the maintenance contract, which is generally twelve months.
Implementation services revenue is recognized as the services are performed.
Implementation services are not considered essential to the functionality of the
software.
For contracts with multiple elements (e.g., delivered and undelivered products,
maintenance, and implementation services), the Company allocates revenue to the
delivered element of the contract using the residual method, in accordance with
SOP-98-9, "Modifications of SOP 97-2 with Respect to Certain Transactions."
Under this method, revenue is allocated to the undelivered elements based on
vendor specific objective evidence ("VSOE") and the remaining revenue is
allocated to the delivered element. VSOE of fair value for annual maintenance
contracts is established with the optional stated future renewal rates included
in the contracts. VSOE of fair value for the implementation services element is
based upon the standard hourly rates the Company charges for service when such
services are sold separately.
Revenue from the Company's distributors and resellers is recognized when they
report the sale of the product to the end user to the Company. The Company's
agreements with its customers, distributors and resellers customarily do not
contain product return rights.
EXPENSE CLASSIFICATION. Selling and marketing expenses primarily include
employee and travel costs, facilities expenses and advertising. Cost of revenue
and support includes personnel and other costs related to implementation service
revenue, customer support costs, direct cost of producing software and royalty
expenses for products licensed from others for use in the Company's product
offerings. The Company generally pays royalties only on licensed products it
sells, and does not have any minimum or other ongoing material royalty payment
commitments.
FOREIGN CURRENCY TRANSLATION. All assets and liabilities of the Company's
foreign operations are translated at current exchange rates and revenue and
expenses are translated at monthly exchange rates. Resulting translation
adjustments are reflected as a separate component of shareholders' equity and
comprehensive income. Foreign currency transaction gains and losses are included
in exchange loss within the statement of operations.
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.
On July 1, 2000, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 133, as amended by SFAS No. 137 and SFAS No. 138 and determined
that there was no material effect on the financial statements. The Company uses
derivative financial instruments to manage its exposures to fluctuations in
foreign exchange rates. The use of these financial instruments mitigates the
Company's exposure to these risks with the intent of reducing the risks and
variability of the Company's operating results. Initially, upon adoption of SFAS
No. 133, and prospectively, on the date a derivative contract is entered into,
the Company designates the derivative as a hedge. The ineffective portion of the
hedge is recorded in earnings and reflected in the consolidated statement of
operations as exchange gain or loss within other income
37
(expense). The Company utilizes fair value hedges and formally documents its
hedge relationships, including the identification of the hedging instruments and
the hedged items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. At June 30, 2002 and 2001, the Company had
forward foreign currency exchange contracts of $2.5 million and $1.7 million
(notional amounts), respectively. The contracts outstanding at June 30, 2002
mature through October 16, 2002 and are intended to hedge various foreign
currency commitments due from foreign subsidiaries and 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
amount at June 30, 2002 and 2001.
INTERNAL RESEARCH AND PRODUCT DEVELOPMENT. The Company expenses research and
development costs as they are incurred.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes highly liquid
investments with maturities of ninety days or less.
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.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. The cost of
depreciable assets is charged to operations on a straight-line basis. Principal
service lives for computers and other equipment are three to five years.
Leasehold improvements are amortized over the expected life of the asset or term
of the lease, whichever is shorter. Depreciation expense was $0.9 million, $0.6
million, and $0.5 million for fiscal years 2002, 2001 and 2000, respectively.
GOODWILL. Goodwill represents the unamortized cost in excess of fair value of
net assets acquired and through June 30, 2002 was amortized on a straight-line
basis over forty years. On an ongoing basis, management reviews the valuation
and amortization of goodwill. As part of this review, the Company considers the
value of future cash flows attributable to the acquired operations in evaluating
potential impairment of goodwill. There was no adjustment to the Company's
financial statements as a result of this evaluation. In June 2001, the Financial
Accounting Standards Board issued Statements of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS No. 141 requires all business combinations
initiated after June 2001 to be accounted for under the purchase method of
accounting. Under SFAS No. 142, goodwill is no longer subject to amortization
over its estimated useful life. Companies will, however, be required to perform
an annual fair-value-based analysis to determine whether the value of goodwill
has been impaired. The Company will adopt SFAS No. 142 for the Company's fiscal
year beginning July 1, 2002. Although management has not fully assessed the
impact of these pronouncements, the Company does not believe the effect of
adoption will be material. In addition, the Company will cease recognizing
approximately $17,500 of quarterly goodwill amortization beginning in the first
quarter of fiscal year 2003.
INCOME TAXES. The Company accounts for estimated income taxes under the
provisions of SFAS No. 109, "Accounting for Income Taxes." This statement
provides for an asset and liability approach under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods in
which the taxes become payable.
EARNINGS (LOSS) PER SHARE. Earnings (loss) per share of common stock is based on
the daily weighted average number of shares of common stock outstanding
considering the dilutive effect of outstanding stock options when appropriate.
STOCK PLANS. The Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion (APB)
No. 25 "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the stock at grant date over the amount an
employee must pay to acquire the stock. The Company has provided pro forma
disclosure of the fair value of stock options granted during fiscal 2002, 2001
and 2000 in accordance with the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation." See Note 5 of Notes to Consolidated Financial
Statements.
ADVERTISING COSTS. Costs associated with advertising and promotion are expensed
as incurred. Advertising and promotion expense was $2.2 million, $2.3 million
and $1.7 million for the years ended June 30, 2002, 2001 and 2000, respectively.
CURRENCY TRANSLATION ADJUSTMENT. At June 30, 2002 and 2001, the "Currency
translation adjustment" balance included in the Company's balance sheet was $6.1
million and $5.9 million respectively. This balance primarily represents the
foreign currency translation on the net assets related to the Company's
operations in the United Kingdom. In accordance with Financial Accounting
Standards Board No. 52 "Foreign Currency Translation," upon "sale or complete or
substantially complete liquidation" of the business in the United Kingdom, the
Company will reverse the currency translation adjustment into the statement of
operations. At June 30, 2002, the revenue generated by the United Kingdom
business represented approximately 17% of total revenue. The Company considers
the business in the United Kingdom significant to their operations and as of
June 30, 2002 had no plans to sell or liquidate this portion of the business.
Therefore, the Company had not adjusted the balance at June 30, 2002 related to
currency translation adjustment.
38
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results may differ from these estimates.
RECLASSIFICATIONS. Certain amounts in the 2000 and 2001 financial statements
have been reclassified to conform with 2002 presentations.
2. RELATED PARTY TRANSACTIONS
Codec Systems Limited ("Codec"), a corporation organized under the laws
of Ireland, is a principal shareholder and distributor of Comshare. The Chief
Executive Officer of Codec, Anthony Stafford, is on the Company's Board of
Directors.
Software revenue of $1.2 million and $1.0 million was received from Codec
in fiscal years 2002 and 2001, respectively. Codec's contractual terms and
conditions are not materially different from those of the Company's other
distributors.
3. RESTRUCTURING AND UNUSUAL CHARGES
In October 2001, the Company implemented a restructuring plan to reduce
personnel costs, to bring costs more in line with revenues and improve financial
performance of the Company. Restructuring and related charges of $1.3 million
were expensed in the quarter ended December 31, 2001. Employee groups impacted
by the restructuring included finance and administration, product development,
marketing, and field operations, principally in the Company's offices in the
United States and also in the Company's United Kingdom office. Approximately 32
people, or 9%, of the worldwide headcount were eliminated by this restructuring
plan. All separations were completed prior to December 31, 2001.
-------------------------- ------------------- --------------------- ----------------
RESTRUCTURING COMPONENTS BEGINNING RESERVE CHARGES TO RESERVES BALANCE AT
(IN THOUSANDS) (IN THOUSANDS) JUNE 30, 2002
(IN THOUSANDS)
-------------------------- ------------------- --------------------- ----------------
Employee severance $1,280 $(826) $454
-------------------------- ------------------- --------------------- ----------------
Total cash expenditures relating to the restructuring charge are
expected to be $1.3 million, with approximately $0.8 million paid prior to June
30, 2002. Such future cash expenditures are expected to be funded from the
Company's available cash with remaining payments expected to be paid through the
second quarter of the 2003 fiscal year.
In March 2001, the Company implemented a restructuring plan to reduce
personnel costs. Restructuring and related charges of $0.9 million were expensed
in the quarter ended March 31, 2001. Employee groups impacted by the
restructuring included marketing and field operations in the Company's North
American and United Kingdom offices. A total of 13 people, or 4%, of the
worldwide headcount were affected by this restructuring plan. All separations
were completed prior to June 30, 2001.
-------------------------- ------------------- --------------------- ----------------
RESTRUCTURING COMPONENTS BEGINNING RESERVE CHARGES TO RESERVES BALANCE AT
(IN THOUSANDS) (IN THOUSANDS) JUNE 30, 2002
(IN THOUSANDS)
-------------------------- ------------------- --------------------- ----------------
Employee severance $892 $(464) $428
-------------------------- ------------------- --------------------- ----------------
Total cash expenditures relating to the restructuring charge are expected
to be $0.9 million, with approximately $0.5 million paid prior to June 30, 2002.
Such future cash expenditures are expected to be funded from the Company's
available cash and remaining payments are expected to be paid through the fourth
quarter of fiscal 2004. The Company substantially completed the initiatives in
its restructuring plan during the third and fourth quarters of the fiscal year
2001.
As of June 30, 2002, the Company had $0.9 million of accruals remaining
from restructuring charges. All of this $0.9 million is related to employee
severance agreements.
At June 30, 2001, the Company had $1.4 million of accruals remaining that
related to restructuring charges. Of this, $0.4 million was related to
facilities and the remaining amounts were related to employee severance
agreements.
39
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. CREDIT FACILITY
The Company has a $10 million credit agreement which matures on September
30, 2003. Borrowings are secured by accounts receivable and the credit agreement
contains covenants regarding among other things, earnings, leverage, net worth
and payment of dividends. The Company is required to maintain $10 million in
deposits in U.S. Dollars with commercial banks located in the United States in
order to maintain this credit. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Permitted
borrowings available as of June 30, 2002 under the credit agreement were $10
million, of which none was outstanding. At June 30, 2001, $0.2 of the permitted
borrowings available was outstanding. Borrowings available at any time are based
on the lower of $10 million or a percentage of worldwide eligible accounts
receivable and cash. As of June 30, 2002, the Company was in violation of
certain covenants relating to the line of credit. The Company is negotiating to
obtain a waiver for the violations at June 30, 2002 and for an amendment to its
line of credit agreement to revise the financial covenants for future periods,
reduce the line of credit to $7 million and to extend the maturity date of the
line of credit to September 30, 2004. There can be no assurance that management
will be able to finalize the negotiated waiver and amendment.
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
no par value preferred stock. The shares can be issued in one or more series
with full, limited or no voting powers and with such special rights,
qualifications, limitations and restrictions as may be adopted by the Board of
Directors.
In September 1996, the Company's Board of Directors approved a Shareholder
Rights Plan ("Rights Plan"). Under the Rights Plan, the Company declared a
dividend of one preferred stock purchase right on each outstanding share of
common stock. Under certain conditions, each right may be exercised to purchase
one one-hundredth share of Series A Preferred Stock at an exercise price of
$110. Of the 5,000,000 preferred shares the Company is authorized to issue,
200,000 shares have been designated Series A Preferred. The Series A Preferred
has certain dividend, voting and liquidation preferences. No preferred shares
have been issued as of June 30, 2002. The rights may only be exercised beginning
ten business days following a public announcement that a person or group
acquires 15% or more of the Company's common stock (subject to certain
exceptions) or beginning ten business days (or under certain circumstances at a
later date) following the commencement or announcement of a tender or exchange
offer which would cause that result. In addition, under certain circumstances,
the rights will entitle shareholders (other than the acquirer) to purchase the
Company's common stock, or stock of the acquirer, at a discount to market
prices. The rights, which do not have voting rights, expire on September 30,
2006.
6. STOCK OPTIONS
The Company has four stock option plans: The 1988 Stock Option Plan (the
"1988 Plan"), the 1994 Directors Stock Option Plan (the "Directors Plan"), the
1997 Global Employee Stock Option Plan (the "1997 Plan") and the 1998 Global
Employee Stock Option Plan (the "1998 Plan").
1988 STOCK OPTION PLAN
The 1988 Plan, which expired on June 26, 1998, provided for the grant of
both incentive stock options and non-qualified options to officers and key
employees. Options under the 1988 Plan were granted at 100% of market price on
the date of grant, are exercisable at the rate of 25% per year after one year
from the date of grant and have a term of five years.
At June 30, 2002, the Company has reserved 287,688 shares of common stock
for the exercise of employee stock options under the 1988 Stock Option Plan. The
number of options outstanding and exercisable under the 1988 Plan was 287,688
and 384,500 at June 30, 2002 and 2001, respectively, and no further grants can
be made under the 1988 Plan.
1994 DIRECTORS STOCK OPTION PLAN
The Directors Plan provides for the grant of options to purchase up to
200,000 shares of the Company's common stock to non-employee directors of the
Company. Options under the Directors Plan are granted at 100% of the market
price on the date of grant, are exercisable at a rate of 25% per year after one
year from the date of grant and have a term of five years.
40
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 2002 the Company has reserved 196,250 shares of common stock
for the exercise of directors' stock options. The number of options outstanding
and exercisable under the Directors Plan was 39,250 and 28,625 at June 30, 2002
and 2001, respectively.
1997 GLOBAL EMPLOYEE STOCK OPTION PLAN
The 1997 Plan provides for the issuance of options to purchase 500,000
shares of the Company's common stock to non-officer employees of the Company.
Options under the 1997 Plan were granted at 100% of the market price on the date
of grant, exercisable at a rate of 25% per year after one year from the date of
grant and have a term of five years. With the adoption of the 1998 Global
Employee Stock Option Plan by shareholders on November 23, 1998, no future
grants under the 1997 Plan are permitted.
At June 30, 2002, the Company has reserved 131,950 shares of common stock
for the exercise of employee stock options under the 1997 Plan. The number of
options outstanding and exercisable under the 1997 Global Employee Stock Option
Plan was 114,092 and 88,944 at June 30, 2002 and 2001, respectively.
1998 GLOBAL EMPLOYEE STOCK OPTION PLAN
The 1998 Plan provides for the issuance of options to purchase 1,400,000
shares of the Company's common stock to all employees including officers, key
employees and non-officer employees of the Company. Options under the 1998 Plan
are granted at 100% of the market price on the date of grant and are exercisable
at a rate of 25% per year after one year from the date of grant and have a term
of 5 or 10 years.
At June 30, 2002, the Company has reserved 1,390,100 shares of common stock
for the exercise of employee stock options under the 1998 Plan. The number of
options outstanding and exercisable under the 1998 Plan was 452,900 and 291,269,
at June 30, 2002 and 2001, respectively.
SUMMARY OF ACTIVITY
Stock option activity under all plans is summarized below:
2002 2001 2000
---------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- --------- --------- ---------
Outstanding at beginning of year 1,487,001 $ 5.24 1,456,476 $ 5.85 1,496,847 $ 6.20
Granted 449,150 2.81 256,900 3.69 212,900 4.18
Exercised - - (9,150) 3.32 (975) -
Cancelled (240,687) 7.37 (217,225) 7.57 (252,296) 6.53
---------- ---------- ---------
Outstanding at end of year 1,695,464 $ 5.25 1,487,001 $ 5.24 1,456,476 $ 5.85
========== ========== =========
Options exercisable at end of year 893,930 715,090 479,692
Weighted average fair value of
options granted during the year $ 1.58 $ 2.12 $ 2.48
41
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The common stock equivalent shares not included in earnings per share
because the Company incurred a loss are 29,261, 69,680 and 127,133 shares for
fiscal 2002, 2001 and 2000, respectively.
A summary of outstanding and exercisable stock options as of June 30, 2002 is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- -------------- ----------- --------- ---------- ---------
$ 2.37 to $ 3.06 392,350 4.82 $ 2.67 40,500 $ 2.98
3.06 to 3.15 392,875 6.52 3.10 251,968 3.09
3.29 to 4.44 397,288 4.88 3.71 148,993 3.73
4.63 to 7.75 368,651 1.32 6.39 308,169 6.63
8.00 to 8.56 144,300 0.26 8.26 144,300 8.26
- ------------- -------- -------------- ------------ --------- ---------- ---------
$ 2.37 to $ 8.56 1,695,464 4.08 $ 4.30 893,930 $ 5.25
============== ============ ========= ========== =========
PRO FORMA DISCLOSURE UNDER SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
Using the intrinsic value method of accounting for the value of stock
options and shares of the Company's stock under the Employee Stock Purchase Plan
(Note 6) granted during the fiscal years ended June 30, 2002, 2001 and 2000, no
compensation cost was recorded in the accompanying Consolidated Statements of
Operations. Had compensation costs been determined based on the fair value at
the date of grant for awards in fiscal years ended June 30, 2002, 2001 and 2000
consistent with the provisions of SFAS 123, net income (loss) and net income
(loss) per share would have been adjusted to the pro forma amounts indicated
below (in thousands, except per share amounts):
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
---------- -------- -------
Net income (loss) - as reported $ (12,484) $ 83 $ 679
Net loss - pro forma $ (12,991) $ (670) $ (250)
Net income (loss) per share - as reported $ (1.22) $ 0.01 $ 0.07
Net loss per share - pro forma $ (1.27) $ (0.07) $ (0.03)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model. Because the SFAS 123 method of
accounting has not been applied to options granted prior to July 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years. The following weighted average assumptions were used
in valuing the option grants:
42
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FISCAL YEARS ENDED JUNE 30,
2002 2001 2000
---- ---- ----
Stock Option Plans:
Expected life (years) 4.82 4.82 4.82
Risk free interest rate 4.11 % 4.95 % 6.25 %
Expected stock price volatility 0.81 0.83 0.85
Expected dividend yield 0.00 % 0.00 % 0.00 %
EMPLOYEE STOCK PURCHASE PLAN:
Expected life (years) 0.50 0.50 0.50
Risk free interest rate 4.11 % 4.95 % 6.25 %
Expected stock price volatility 0.81 0.83 0.85
Expected dividend yield 0.00 % 0.00 % 0.00 %
7. EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan (the "ESPP"), 447,736 shares of the
Company's common stock have been reserved for purchase as of June 30, 2002. The
ESPP allows participating employees to purchase shares of the Company's common
stock through payroll deductions at 85% of the lower of fair market value at the
beginning or the end of the six month period beginning either July 1 or January
1. Non-employee directors have the right to purchase the Company's common stock
in lieu of cash for directors' fees at a purchase price equal to 100% of fair
market value on the date of issuance, which shall be February 15 or August 15.
Substantially all employees are eligible to participate in the ESPP. Under the
ESPP, 354,783, 322,763, and 199,141 shares were purchased and issued in fiscal
2002, 2001 and 2000, respectively.
8. BENEFIT PLANS
The Company has a defined contribution plan covering substantially all
United States employees. Since the inception of the plan through June 30, 2002,
the defined contribution plan provided for Company matching of 100% of
contributions based on eligibility rules for employees making 401(k)
contributions, up to 6% of their compensation. Effective July 1, 2002, the
Company's matching rate was reduced from 100% to 50%. The Company also has a
deferred compensation plan for United States officers for the payment of
benefits which would not otherwise be eligible under its tax-qualified
retirement plans. The Company's contributions, other than the matching
contributions to the defined contribution plan, are discretionary and are
determined by the Board of Directors. The total contributions for both plans
were $974,523, $893,946 and $726,743 in fiscal 2002, 2001 and 2000,
respectively.
A subsidiary in the United Kingdom maintains a defined contribution plan
for substantially all United Kingdom employees. Since inception of the plan
through June 30, 2002, the plan provided a minimum annual Company contribution
of 2.5% of the employee's compensation and matching contributions up to an
additional 2.5% of compensation, based on employee contributions. Effective July
1, 2002 the Company contribution formula was reduced to provide Company matching
contributions of 50% of participant contributions up to the first 5% of their
compensation. The total contributions for the plan were $192,984, $182,773 and
$201,161 in fiscal 2002, 2001 and 2000, respectively.
The United Kingdom subsidiary also has a defined benefit plan, which
covered substantially all of its employees hired prior to January 1, 1994. This
plan was frozen on April 1, 1997, with no further benefits accruing under the
plan. The components of pension expense for the fiscal years ended June 30 are
as follows (in thousands):
43
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2002 2001
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 21,746 $ 25,277
Interest cost 1,514 1,401
Actuarial gain/(loss) (1,002) (2,777)
Currency translation adjustment 1,795 (1,699)
Benefits paid (474) (456)
-------- --------
Benefit obligation at end of year 23,579 21,746
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 18,693 21,870
Actual return on plan assets (1,967) (1,444)
Currency translation adjustment 1,543 (1,469)
Company contributions 463 192
Benefits paid (474) (456)
-------- --------
Fair value of plan assets at end of year 18,258 18,693
======== ========
Funded status (5,321) (3,053)
Unrecognized actuarial loss 8,174 5,381
-------- --------
Net amount recognized 2,853 2,328
======== ========
AMOUNTS RECOGNIZED IN THE ACCOMPANYING
CONSOLIDATED FINANCIAL STATEMENTS:
Prepaid benefit cost 2,853 2,328
Accrued pension liability (8,174) (5,381)
Accumulated other comprehensive income 8,174 5,381
-------- --------
Net amount recognized $ 2,853 $ 2,328
======== ========
WEIGHTED -AVERAGE ASSUMPTIONS AS OF JUNE 30: 2002 2001 2000
------- ------- -------
Discount rate 6.50 % 6.50 % 6.00 %
Expected return on plan assets 7.50 % 7.50 % 7.50 %
COMPONENTS OF NET PERIODIC BENEFIT COST:
Interest cost $ 1,514 $ 1,401 $ 1,408
Expected return on plan assets (1,517) (1,520) (1,528)
Recognized actuarial loss 133 109 76
------- ------- -------
Net periodic benefit cost $ 130 $ (10) $ (44)
======= ======= =======
44
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES
A summary of income (loss) before provision for income taxes and components
of the provision for income taxes for the fiscal years ended June 30 is as
follows (in thousands):
2002 2001 2000
------- ------- -------
Income (loss) before provision (benefit) for income taxes:
Domestic $(9,022) $(6,194) $(4,156)
Foreign 3,694 6,322 5,201
------- ------- -------
$(5,328) $ 128 $ 1,045
======= ======= =======
Domestic benefit for income taxes:
Current $(3,109) $ (976) $ (600)
Deferred - (918) (508)
Foreign provision (benefit) for income taxes:
Current 1,083 2,539 821
Deferred - (285) 988
Change in valuation reserve 9,182 (315) (335)
------- ------- -------
Provision for income taxes $ 7,156 $ 45 $ 366
======= ======= =======
The differences between the United States Federal statutory income tax
provision and the consolidated income tax provision for the fiscal years ended
June 30 are summarized as follows (in thousands):
Federal statutory provision (benefit) $(1,868) $ 45 $ 366
Non-deductible meals and entertainment 67 59 91
Change in valuation reserve 9,182 (315) (335)
Tax rate difference - (276) 268
Domestic tax credit carry forwards (1,040) - -
Foreign tax credit carry forwards 457 224 -
Settlement of prior year taxes - 310 -
Other, net 358 (2) (24)
------- ------- -------
Actual income tax provision $7,156 $ 45 $ 366
======= ======= =======
Deferred income taxes represent temporary differences in the recognition of
certain items for income tax and financial reporting purposes. The components of
the net deferred income tax asset as of June 30 are summarized as follows (in
thousands):
45
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2002 2001
-------- --------
Deferred income tax assets:
Research and development $ 4,247 $ 4,247
Tax credits 384 384
Depreciation and amortization 209 305
Net operating loss 7,945 6,487
Employee benefits 125 480
Accrued liabilities 397 472
Capitalized software 1,379 1,754
Pension liability 2,452 1,599
Other 1,141 1,320
-------- --------
$ 18,279 $ 17,048
Valuation allowance (17,097) (7,915)
-------- --------
$ 1,182 $ 9,133
Deferred income tax liabilities:
Employee benefits (856) (686)
Other (326) (325)
-------- --------
(1,182) (1,011)
-------- --------
Net deferred income tax asset $ - $ 8,122
======== ========
As of the end of the first quarter of the fiscal 2002, the Company
determined that it would no longer be prudent to sell its non-core and legacy
product lines, even if anticipated future operating income was not sufficient to
allow the Company to fully realize its deferred tax asset. Based on the weight
of this additional negative evidence and the absence of a prudent and feasible
tax planning strategy that management would implement to prevent the Company's
deferred tax assets from expiring unused, the Company determined that it could
no longer support the realizability of its deferred tax assets on a "more likely
than not" basis at the end of the first quarter of fiscal 2002. Accordingly, the
deferred tax asset was fully reserved in the first quarter of fiscal 2002.
At June 30, 2002, for income tax purposes, the Company had available gross
operating loss carryforwards of approximately $19.4 million in domestic
carryforwards expiring through 2022 and $3.3 million in foreign carryforwards
that do not expire. In addition, the Company has general business credits, which
will expire between 2003 and 2021.
10. LEASES
The Company leases office space, transportation and computer equipment
under non-cancelable operating leases. Initial lease terms vary in length and
several of the leases contain renewal options. Future minimum lease payments
under all non-cancelable operating leases are as follows (in thousands):
FISCAL YEARS ENDING JUNE 30,
- --------------------------------------------
2003 $ 4,538
2004 4,054
2005 3,004
2006 1,345
2007 1,080
2008 and thereafter 535
---------
Total minimum payments $ 14,556
=========
Minimum payments under non-cancelable operating leases have not been
reduced by minimum sublease rentals of $4.7 million due in the future under
non-cancelable subleases.
Total rental expense, net of sublease income, was $3.9 million, $4.2
million and $5.2 million for the fiscal years ended June 30, 2002, 2001, and
2000, respectively.
46
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. SEGMENT REPORTING
The Company has only one reportable segment - the development, marketing
and support of management planning and control applications software. Revenue is
derived from the licensing of software, software maintenance, and the provision
of product implementation and support services.
No single customer accounted for more than 10% of the Company's total
revenue in the fiscal years ended June 30, 2002, 2001 and 2000. In addition, the
Company is not dependent on any single customer or group of customers.
The accounting policies for the geographic information are the same as
those described in Note 1 of the Notes to Consolidated Financial Statements.
Segment information for revenue is disclosed based on the geographic location of
the customer. Geographic segment information is as follows:
FISCAL YEARS ENDED JUNE 30,
----------------------------------------
2002 2001 2000
-------- -------- --------
Revenue from external customers:
North America $ 34,346 $ 35,927 $ 31,928
United Kingdom 9,888 12,112 13,418
Other countries 14,224 14,802 15,977
-------- -------- --------
TOTAL REVENUE $ 58,458 $ 62,841 $ 61,323
======== ======== ========
Operating income (loss):
North America $ (4,114) $ (3,345) $ 333
United Kingdom 5,621 4,123 1,200
Other countries 9,056 9,644 10,197
-------- -------- --------
TOTAL OPERATING INCOME 10,563 10,422 11,730
Unallocated expenses (15,891) (10,294) (10,685)
-------- -------- --------
INCOME (LOSS) BEFORE TAXES $ (5,328) $ 128 $ 1,045
======== ======== ========
Identifiable assets:
North America $ 37,303 $ 50,511 $ 50,515
United Kingdom and other countries 8,390 8,766 11,909
-------- -------- --------
TOTAL IDENTIFIABLE ASSETS $ 45,693 $ 59,277 $ 62,424
======== ======== ========
Unallocated expenses consist of general corporate expenses, internal
research and product development expenses, interest expense and interest income.
Unallocated amounts in the fiscal years ended June 30, 2002 and 2001 include
approximately $1.3 million and $0.9 million of restructuring and unusual related
expenses, respectively.
47
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited and in
thousands except per share data):
INCOME NET
(LOSS) NET INCOME
FROM INCOME (LOSS)
REVENUE OPERATIONS (LOSS) PER SHARE
-------- ---------- -------- ---------
2002
First Quarter $ 15,016 $ (707) $ (8,726) $ (0.86)
Second Quarter 14,281 (2,427) (2,307) (0.23)
Third Quarter 13,508 (2,828) (1,640) (0.16)
Fourth Quarter 15,653 52 189 0.02
-------- -------- -------- --------
Year Ended June 30 $ 58,458 $ (5,910) $(12,484) $ (1.22)
======== ======== ======== ========
2001
First Quarter $ 15,443 $ (287) $ 78 $ 0.01
Second Quarter 14,825 (304) 5 -
Third Quarter 15,877 (868) (517) (0.05)
Fourth Quarter 16,696 343 517 0.05
-------- -------- -------- --------
Year Ended June 30 $ 62,841 $ (1,116) $ 83 $ 0.01
======== ======== ======== ========
2000
First Quarter $ 14,506 $ (178) $ 52 $ 0.01
Second Quarter 15,023 (250) 59 0.01
Third Quarter 15,028 (170) 161 0.02
Fourth Quarter 16,766 235 407 0.04
-------- -------- -------- --------
Year Ended June 30 $ 61,323 $ (363) $ 679 $ 0.07
======== ======== ======== ========
During the first quarter of fiscal 2002, the Company's deferred tax
asset was fully reserved.
During the quarter ended December 31, 2001, the Company recorded
approximately $1.3 million of restructuring charges. This restructuring plan was
implemented to reduce personnel costs, to bring costs more in line with revenues
and improve financial performance of the Company.
The Company recorded a $0.9 million restructuring charge in the third
quarter ending March 31, 2001. This charge reflected certain cost reduction
actions by the Company, taken to reduce personnel costs and other expenses.
13. LITIGATION
The Company is a party to various disputes and litigation in the normal
course of business. Management does not anticipate that the outcome of any such
disputes or litigation will have a materially adverse effect on the financial
position of the Company.
48
COMSHARE, INCORPORATED
SCHEDULE II
CONSOLIDATED SCHEDULE
OF VALUATION & QUALIFYING ACCOUNTS
ADDITIONS TO
BALANCE CHARGED TO (DEDUCTIONS) BALANCE
DESCRIPTION BEGINNING COSTS AND FROM TRANSLATION OTHER END OF
OF PERIOD EXPENSES RESERVE ADJUSTMENTS RELATED PERIOD
------------ ------------ ------------ -------------- --------- ----------
Allowance for doubtful accounts
for the years ended June 30:
2002 $ 1,269 $ 922 $ (815) $ - $ - $ 1,376
============ ============ ============ ============== ========= ==========
2001 $ 1,230 $ - $ 36 $ 3 $ - $ 1,269
============ ============ ============ ============== ========= ==========
2000 $ 1,327 $ - $ (96) $ (1) $ - $ 1,230
============ ============ ============ ============== ========= ==========
BALANCE CHARGED TO DEDUCTIONS BALANCE
DESCRIPTION BEGINNING COSTS AND FROM TRANSLATION OTHER END OF
OF PERIOD EXPENSES RESERVE ADJUSTMENTS RELATED PERIOD
--------- ------------ ---------- ----------- --------- ------
Restructuring Reserves
for the years ended June 30:
2002 $ 1,412 $ 1,280 $(1,810) $ - $ - $ 882
======= ============ ======= ========= ======== =======
2001 $ 1,730 $ 892 $(1,210) $ - $ - $ 1,412
======= ============ ======= ========= ======== =======
2000 $ 4,288 $ - $(2,558) $ - $ - $ 1,730
======= ============ ======= ========= ======== =======
ADDITIONS TO
BALANCE CHARGED TO (DEDUCTIONS) BALANCE
DESCRIPTION BEGINNING COSTS AND FROM TRANSLATION OTHER END OF
OF PERIOD EXPENSES RESERVE ADJUSTMENTS RELATED PERIOD
--------- ---------- ------------ ----------- ------- -------
Valuation allowance
for the years ended
June 30:
2002 $7,915 $9,182 $ - $ - $ - $17,097
====== ====== ====== ===== ===== =======
2001 $8,231 $ - $ (316) $ - $ - $ 7,915
====== ====== ====== ===== ===== =======
2000 $8,566 $ - $ (335) $ - $ - $ 8,231
====== ====== ====== ===== ===== =======
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Comshare, Incorporated
DATE: SEPTEMBER 30, 2002 By: /s/ Brian Jarzynski
-------------------
Brian Jarzynski
Senior Vice President,
Chief Financial Officer and
Treasurer
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- ----------------------
/s/ Dennis G. Ganster Chairman of the Board, President, September 30, 2002
- --------------------- ----------------------
Dennis G. Ganster Chief Executive Officer and
a Director
(Principal Executive Officer)
/s/ Brian Jarzynski Senior Vice President, September 30, 2002
- ------------------- ----------------------
Brian Jarzynski Chief Financial Officer and
Treasurer
(Principal Financial Officer)
/s/ Kristin L.G. Marsh Corporate Controller and September 30, 2002
- ---------------------- ----------------------
Kristin L.G. Marsh Chief Accounting Officer
(Principal Accounting Officer)
/s/ Daniel T. Carroll Director September 30, 2002
- --------------------- ----------------------
Daniel T. Carroll
/s/ Geoffrey B. Bloom Director September 30, 2002
- --------------------- ----------------------
Geoffrey B. Bloom
/s/ Richard L. Crandall Director September 30, 2002
- ----------------------- ----------------------
Richard L. Crandall
/s/ Alan G. Merten Director September 30, 2002
- ------------------ ----------------------
Alan G. Merten
/s/ John F. Rockart Director September 30, 2002
- ------------------- ----------------------
John F. Rockart
/s/ Kathryn A. Jehle Director September 30, 2002
- -------------------- ----------------------
Kathryn A. Jehle
/s/ Anthony G. Stafford Director September 30, 2002
- ----------------------- ----------------------
Anthony G. Stafford
50
CERTIFICATION
I, Dennis G. Ganster, Chief Executive Officer of Comshare,
Incorporated, certify that:
1. I have reviewed this annual report on Form 10-K of Comshare,
Incorporated;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report.
Dated: September 30, 2002 /s/ Dennis G. Ganster
---------------------------
Dennis G. Ganster
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
I, Brian Jarzynski, Chief Financial Officer of Comshare, Incorporated,
certify that:
1. I have reviewed this annual report on Form 10-K of Comshare,
Incorporated;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report.
Dated: September 30, 2002 /s/ Brian Jarzynski
---------------------------
Brian Jarzynski
Chief Financial Officer
(Principal Financial Officer)
51
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.01 Restated Articles of Incorporation of the Registrant, as amended -
incorporated by reference to Exhibit 3.01 to the Registrant's Form 10-K
Report for the fiscal year ended June 30, 1998.
3.02 Restated Bylaws of the Registrant - incorporated by reference to
Exhibit 3.02 to the Registrant's Form 8-K Report filed March 9, 2001.
4.01 Specimen form of Common Stock Certificate - incorporated by reference
to Exhibit 4(c) to the Registrant's Form S-1 Registration Statement No.
2-29663.
4.02 Credit agreement dated September 23, 1997, among Comshare,
Incorporated, its Borrowing Subsidiary (as defined therein) and Harris
Trust and Savings Bank - incorporated by reference to Exhibit 4.02 to
the Registrant's Form 10-K Report for the fiscal year ended June 30,
1997.
4.03 First Amendment to Credit Agreement, dated September 23, 1998, between
the Registrant, Comshare, Limited and Harris Trust and Savings Bank -
incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-Q
Report for the quarter ended September 30, 1998.
4.04 Second Amendment and Waiver to Credit Agreement, dated October 10,
1999, between the Registrant, Comshare Limited and Harris Trust and
Savings Bank - incorporated by reference to Exhibit 4.01 to the
Registrant's Form 10-Q Report for the quarter ended September 30, 1999.
4.05 Third Amendment and Waiver to Credit Agreement, dated June 29, 2000,
between the Registrant, Comshare Limited and Harris Trust and Savings
Bank - incorporated by reference to Exhibit 4.01 to the Registrant's
Form 10-Q Report for the quarter ended September 30, 2000.
4.06 Fourth Amendment and Waiver to Credit Agreement, dated October 31,
2000, between the Registrant, Comshare Limited and Harris Trust and
Savings Bank - incorporated by reference to Exhibit 4.02 to the
Registrant's Form 10-Q Report for the quarter ended September 30, 2000.
4.07 Fifth Amendment to Credit Agreement, dated May 15, 2001, between the
Registrant, Comshare Limited and Harris Trust and Savings Bank -
incorporated by reference to Exhibit 4.07 to the Registrant's Form 10-K
Report for the fiscal year ended June 30, 2001.
4.08 Sixth Amendment to Credit Agreement, dated September 17, 2001, between
the Registrant, Comshare Limited and Harris Trust and Savings Bank -
incorporated by reference to exhibit 4.08 to the Registrant's Form 10-K
Report for fiscal year ended June 30, 2001.
4.09 Seventh Amendment to Credit Agreement, dated September 28, 2001,
between the Registrant, Comshare Limited and Harris Trust and Savings
Bank - incorporated by reference to Exhibit 4.01 to the Registrant's
Form 10-Q Report for the quarter ended September 30, 2001.
4.10 Eighth Amendment to Credit Agreement, dated May 8, 2002, between the
Registrant, Comshare Limited and Harris Trust and Savings Bank.
4.11 Rights Agreement, dated as of September 16, 1996, between Comshare,
Incorporated and Key Bank National Association, as Rights Agent -
incorporated by reference to Exhibit 2 to the Registrant's Registration
Statement on Form 8-A, filed on September 17, 1996.
4.12 Form of certificate representing Rights (included as Exhibit B to the
form of Rights Agreement filed as Exhibit 4.04). Pursuant to the Rights
Agreement, Rights Certificates will not be mailed until after the
earlier of (i) the tenth business day (or such later date as may be
determined by the Board of Directors, with the concurrence of a
majority of the Continuing Directors, prior to such time as any person
becomes an Acquiring Person) after the date of the commencement of, or
first public announcement of the intent to commence, a tender or
exchange offer by any person or group of affiliated or associated
persons (other than the Company or certain entities affiliated with or
associated with the Company), if, upon consummation thereof, such
person or group of affiliated or associated persons would be the
beneficial owner of 15% or
52
more of such outstanding shares of common stock - incorporated by
reference to Exhibit 1 to the Registrant's Registration Statement on
Form 8-A, filed on September 17, 1996.
4.13 Agreement among Computershare Investor Services, Inc., Harris Trust and
Savings Bank and the Registrant - incorporated by reference to Exhibit
4.11 to the Registrant's Form 10-K Report for the fiscal year ended
June 30, 2001.
10.01 Benefit Adjustment Plan of Comshare, Incorporated, effective June 1,
1986, as amended and restated on November 6, 1997 - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 1999.
10.02 First Amendment to the Benefit Adjustment Plan of Comshare,
Incorporated - incorporated by reference to Exhibit 10.01 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 1999.
10.03 Second Amendment to the Benefit Adjustment Plan of Comshare,
Incorporated - incorporated by reference to Exhibit 10.05 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.04 Comshare, Incorporated 1988 Stock Option Plan, as amended -
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1990 and Exhibit 10.22
to the Registrant's Form 10-Q Report for the quarter ended September
30, 1994.
10.05 Third Amendment to the Comshare, Incorporated 1988 Stock Option Plan,
as amended - incorporated by reference to Exhibit 10.06 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.06 Stock Option Agreement, effective as of March 10, 1997, between
Comshare, Incorporated and Daniel T. Carroll - incorporated by
reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 1997.
10.07 Trust Agreement under the Benefit Adjustment Plan of Comshare,
Incorporated, effective April 25, 1988, as amended - incorporated by
reference to Exhibit 10.31 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 1993.
10.08 1994 Executive Stock Purchase Program of Comshare, Incorporated -
incorporated by reference to Exhibit 10.19 to the Registrant's Form
10-Q Report for the quarter ended September 30, 1994.
10.09 Employee Stock Purchase Plan of Comshare, Incorporated - incorporated
by reference to Exhibit 10.20 to the Registrant's Form 10-Q Report for
the quarter ended September 30, 1994.
10.10 First Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.01 to Registrant's Form 10-Q for the quarter
ended September 30, 1999.
10.11 Second Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.02 to Registrant's Form 10-Q for the quarter
ended September 30, 1999
10.12 Third Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.03 to Registrant's Form 10-Q for the quarter
ended September 30, 1999.
10.13 Fourth Amendment to Employee Stock Purchase Plan - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q for the
quarter ended December 31, 2001.
10.14 1994 Directors Stock Option Plan of Comshare, Incorporated -
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-Q Report for the quarter ended September 30, 1994.
10.15 First Amendment to Directors Stock Option Plan - incorporated by
reference to Exhibit 10.05 to Registrant's Form 10-Q for the quarter
ended September 30, 1999.
10.16 Second Amendment to Directors Stock Option Plan - incorporated by
reference to Exhibit 10.07 to the Registrant's Form 10-Q for the
quarter ended March 31, 2001.
53
10.17 Third Amendment to Directors Stock Option Plan - incorporated by
reference to Exhibit 10.02 to the Registrant's Form 10-Q for the
quarter ended December 31, 2001.
10.18 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Dennis G. Ganster -
incorporated by reference to Exhibit 10.19 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1998.
10.19 First Amendment to Comshare, Incorporated Change in Control Severance
Agreement dated as of November 30, 1999, between Comshare, Incorporated
and Dennis G. Ganster - incorporated by reference to Exhibit 10.03 to
the Registrant's Form 10-Q Report for the quarter ended December 31,
1999.
10.20 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and David King -
incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1998.
10.21 First Amendment to Comshare, Incorporated Change in Control Severance
Agreement dated as of November 30, 1999, between Comshare, Incorporated
and David King - incorporated by reference to Exhibit 10.02 to the
Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.22 Comshare, Incorporated Change in Control Severance Agreement dated as
of February 9, 2001, between Comshare, Incorporated and Brian Hartlen -
incorporated by reference to Exhibit 10.01 to the Registrant's Form
10-Q Report for the quarter ended March 31, 2001.
10.23 Comshare, Incorporated Change in Control Severance Agreement dated as
of February 16, 2001, between Comshare, Incorporated and Brian
Jarzynski - incorporated by reference to Exhibit 10.02 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.24 Comshare, Incorporated Change in Control Severance Agreement dated
January 7, 2002, between Comshare, Incorporated and Kenneth Kane.
10.25 Comshare, Incorporated 1998 Global Employee Stock Option Plan -
incorporated by reference to Exhibit 10.25 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1998.
10.26 First Amendment to 1998 Global Employee Stock Option Plan -
incorporated by reference to Exhibit 10.04 to the Registrant's Form
10-Q Report for the quarter ended September 30, 1999.
10.27 Second Amendment to 1998 Global Employee Stock Option Plan -
incorporated by reference to Exhibit 10.08 to the Registrant's Form
10-Q Report for the quarter ended March 31, 2001.
10.28 Letter of Understanding, dated February 8, 2001, between Comshare,
Incorporated and Norman Neuman, Jr., and Norman Neuman, Jr. Notices of
Grant of Stock Options and Option Agreements - incorporated by
reference to Exhibit 10.03 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 2001.
10.29 Kathryn A. Jehle Notices of Grant of Stock Options and Option
Agreements - incorporated by reference to Exhibit 10.04 to the
Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.30 Summary of 2000 Senior Executive Incentive Plan - incorporated by
reference to Exhibit 10.32 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 2000.
10.31 Summary of 2001 Senior Executive Incentive Plan - incorporated by
reference to Exhibit 10.33 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 2000.
10.32 Summary of 2002 Senior Executive Incentive Plan - incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the
quarter ended September 30, 2001.
10.33 Summary of 2003 Senior Executive Plan.
10.34 Lease dated September, 1994, between Comshare, Incorporated, Tenant and
MGI Holding, Inc., Landlord for office space located at 555 Briarwood
Circle, Ann Arbor, Michigan 48108 - incorporated by reference to
Exhibit 10.18 to the Registrant's Form 10-Q Report for the quarter
ended September 30, 1994
54
10.35 Agreement between Taurusbuild Limited, Comshare and Svenska
Handelsbanken related to the lease of office space for the Company's
London office facility - incorporated by reference to Exhibit 10.17 of
the Registrant's Form 10-K Report for the fiscal year ended June 30,
1994.
10.36 Software License Agreement by and between Arbor Software Corporation
and Comshare, Incorporated dated December 23, 1993 - incorporated by
reference to Exhibit 10.20 to Amendment Number 3 to the Registrant's
Form 10-K Report, filed November 8, 1995, for the fiscal year ended
June 30, 1995. (Portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment pursuant to Rule 24b-2.)
10.37 First Amendment to License Agreement by and between Arbor Software
Corporation and Comshare, Incorporated dated March 1, 1994 -
incorporated by reference to Exhibit 10.20 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1995. (Portions of this
exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment
pursuant to Rule 24b-2.)
10.38 Second Amendment to License Agreement by and between Arbor Software
Corporation and Comshare, Incorporated - incorporated by reference to
Exhibit 10 to the Registrant's Form 8-K Report filed on December 24,
1997. (Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment pursuant to Rule 24b-02.)
10.39 Third Amendment to License Agreement by and between Hyperion and
Comshare, Incorporated- incorporated by reference to Exhibit 10.33 to
the Registrants Form 10-K Report for the fiscal year ended June 30,
1998. (Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment pursuant to Rule 24b-02.)
10.40 Standstill Agreement, dated August 15, 2002, by and between the
Registrant, on the one hand, and Codec Systems Limited and Anthony
Stafford, on the other - incorporated by reference to Exhibit 10.01 to
the Registrant's Form 8-K Report filed on August 19, 2002.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Ernst & Young LLP.
23.02 Notice regarding consent of Arthur Andersen LLP.
55