UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
--------------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER 0-4096
--------------------------------
COMSHARE, INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 994-4800
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of OCTOBER 31, 2002.
OUTSTANDING AT
CLASS OF COMMON STOCK OCTOBER 31, 2002
--------------------- ----------------
$1.00 PAR VALUE 10,488,964 SHARES
1
COMSHARE, INCORPORATED
INDEX
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 2002 and 2001.............3
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2002 and 2001.............4
Condensed Consolidated Balance Sheets as of
September 30, 2002 and June 30, 2002...............................5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2002 and 2001.....................7
Notes to Condensed Consolidated Financial Statements...................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........19
ITEM 4. CONTROLS AND PROCEDURES...........................................19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 19
SIGNATURE................................................................ 20
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER.....21
INDEX TO EXHIBITS.........................................................23
2
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
---- ----
REVENUE
Software licenses $ 3,783 $ 4,093
Software maintenance 5,530 5,750
Implementation, consulting
and other services 4,865 5,173
-------- --------
TOTAL REVENUE 14,178 15,016
COSTS AND EXPENSES
Selling and marketing 4,832 5,417
Cost of revenue and support 5,639 6,461
Internal research and product development 2,333 2,351
General and administrative 1,409 1,494
Tax settlement (1,208) --
-------- --------
TOTAL COSTS AND EXPENSES 13,005 15,723
-------- --------
INCOME (LOSS) FROM OPERATIONS 1,173 (707)
OTHER INCOME (EXPENSE)
Interest income 88 192
Interest expense (7) (1)
Exchange gain (loss) 1 (14)
-------- --------
TOTAL OTHER INCOME 82 177
INCOME (LOSS) BEFORE TAXES 1,255 (530)
Provision for income taxes 436 8,196
NET INCOME (LOSS) $ 819 $ (8,726)
======== ========
SHARES USED IN BASIC EPS COMPUTATION 10,478 10,111
======== ========
SHARES USED IN DILUTED EPS COMPUTATION 10,478 10,111
======== ========
NET INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED EPS $ 0.08 $ (0.86)
======== ========
See accompanying notes to condensed consolidated financial statements.
3
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
------- -------
Net income (loss) $ 819 $(8,726)
Other comprehensive loss:
Currency translation adjustment (26) (66)
------- -------
COMPREHENSIVE INCOME (LOSS) $ 793 $(8,792)
======= =======
See accompanying notes to condensed consolidated financial statements.
4
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 30, June 30,
2002 2002
---- ----
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents $18,090 $19,280
Accounts receivable, net 16,820 17,683
Prepaid expenses and other current assets 3,187 2,949
------- -------
TOTAL CURRENT ASSETS 38,097 39,912
Property and equipment, at cost
Computers & other equipment 6,462 6,357
Leasehold improvements 2,915 2,856
------- -------
9,377 9,213
Less - Accumulated depreciation 8,038 7,862
------- -------
Property and equipment, net 1,339 1,351
Goodwill, net 907 907
Pension asset 2,853 2,853
Other assets 623 670
------- -------
TOTAL ASSETS $43,819 $45,693
======= =======
See accompanying notes to condensed consolidated financial statements.
5
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30, June 30,
2002 2002
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES
Accounts payable $ 2,274 $ 2,819
Accrued liabilities:
Payroll 1,432 1,985
Taxes 278 454
Other 2,454 3,299
-------- --------
Total accrued liabilities 4,164 5,738
Deferred revenue 10,781 11,327
-------- --------
TOTAL CURRENT LIABILITIES 17,219 19,884
Accrued pension liability 8,174 8,174
Other liabilities 28 73
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares; none issued -- --
Common stock, $1.00 par value;
authorized 20,000,000 shares; outstanding
10,488,964 shares as of September 30, 2002
and 10,469,409 shares as of June 30, 2002 10,489 10,469
Capital contributed in excess of par value 39,710 39,686
Retained deficit (19,390) (20,208)
Accumulated other comprehensive income:
Pension liability, net of tax (6,318) (6,318)
Cumulative translation adjustment (6,093) (6,067)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 18,398 17,562
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,819 $ 45,693
======== ========
See accompanying notes to condensed consolidated financial statements.
6
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2002 2001
---- ----
OPERATING ACTIVITIES
Net income (loss) $ 819 $ (8,726)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 96 188
Changes in operating assets and liabilities:
Accounts receivable 903 433
Prepaid expenses and other assets (183) 319
Accounts payable (529) (531)
Accrued liabilities (1,561) (1,878)
Deferred revenue (486) (774)
Deferred income taxes -- 8,122
Other liabilities (45) (84)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (986) (2,931)
INVESTING ACTIVITIES
Payments for property and equipment (23) (29)
Other (43) (38)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (66) (67)
FINANCING ACTIVITIES
Net repayments under debt agreements,
capital lease agreements and notes payable -- (94)
Other 45 41
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 45 (53)
Effect of exchange rate changes (183) (397)
-------- --------
NET DECREASE IN CASH (1,190) (3,448)
CASH AT BEGINNING OF PERIOD 19,280 24,106
-------- --------
CASH AT END OF PERIOD $ 18,090 $ 20,658
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 7 $ 1
======== ========
Cash paid for income taxes $ 93 $ 215
======== ========
See accompanying notes to condensed consolidated financial statements.
7
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The unaudited condensed consolidated financial statements included herein
have been prepared by Comshare, Incorporated (the "Company"), in accordance with
accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
most recent Annual Report on Form 10-K. Certain amounts in the fiscal 2002
financial statements have been reclassified to conform to fiscal 2003
presentations.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, required to present fairly its consolidated statements
of operations, the consolidated statements of comprehensive income and the
consolidated statements of cash flows for the three months ended September 30,
2002 and 2001, and the consolidated balance sheet as of September 30, 2002.
The results of operations for the three months ended September 30, 2002
are not necessarily indicative of the results to be expected in future quarters
or the full fiscal year. The software industry is generally characterized by
seasonal trends.
NOTE B - COMPUTER SOFTWARE
Product upgrades for the Company's products have been released
regularly with an almost continuous product development cycle. Based on these
continuous product life cycles, the time between establishing technological
feasibility and general release to the public is very short. As a result,
software costs qualifying for capitalization are not significant. Accordingly,
the Company does not capitalize software development costs and does not
anticipate capitalization of software costs in future periods.
NOTE C -- RESTRUCTURING
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. Restructuring and related charges of $1.3
million were expensed in the quarter ended December 31, 2001. Employee groups
impacted by the restructuring include 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 BALANCE AT
(IN THOUSANDS) RESERVES SEPTEMBER 30, 2002
(IN THOUSANDS) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------
Employee severance $1,280 $(890) $390
- ---------------------------------------------------------------------------------------------------------
Total cash expenditures relating to the restructuring charge are
expected to be $1.3 million. 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 2004 fiscal year. The remaining reserve
related to the October 2001 charge at September 30, 2002 and June 30, 2002 was
$390,000 and $454,000, respectively. The change of $64,000 was a result of
payments during the first quarter.
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 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 eliminated by this restructuring plan.
8
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ---------------------------------------------------------------------------------------------------------
RESTRUCTURING COMPONENTS BEGINNING RESERVE CHARGES TO BALANCE AT
(IN THOUSANDS) RESERVES SEPTEMBER 30, 2002
(IN THOUSANDS) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------
Employee severance $892 $(591) $301
- ---------------------------------------------------------------------------------------------------------
Total cash expenditures relating to the restructuring charge are
expected to be $0.9 million. 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 remaining reserve related to the
March 2001 charge at September 30, 2002 and June 30, 2002 was $301,000 and
$428,000, respectively. The change of $127,000 was due to payments of $45,000
and an accrual reversal of $82,000 due to changes in estimates of restructuring
expenses.
As of September 30, 2002, the Company had $0.7 million of accruals
remaining from restructuring charges, payable through the fourth quarter of the
2004 fiscal year. The entire amount is related to employee severance agreements.
NOTE D -- NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." This pronouncement addresses
financial accounting and reporting for costs associated with an exit activity
(including restructuring) or with the disposal of long-lived assets and
nullifies Emerging Issues Task Force Issue No. 94-3. Under SFAS No. 146, a
liability is recorded for a cost associated with an exit activity when that
liability is incurred and can be measured at fair value. SFAS No. 146 requires
disclosure of information about exit and disposal activities, the related costs,
and changes in those costs in the notes to the interim and annual financial
statements that include the period in which an exit activity is initiated and in
any subsequent period until the activity is completed. SFAS No. 146 is effective
prospectively for exit and disposal activities initiated after December 31, 2002
with earlier adoption encouraged. SFAS No. 146 does not allow for the
restatement of previously issued financial statements and grandfathers the
accounting for liabilities previously recorded under Emerging Issues Task Force
Issue No. 94-3. The Company does not expect the adoption of SFAS No. 146 to have
a material impact.
NOTE E -- 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. 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. Effective July 1, 2002 the Company adopted SFAS No. 142. The Company
performed an impairment test of the goodwill as required and determined that no
impairment of the goodwill existed at the effective date of adoption. In
addition, the Company has ceased recognizing approximately $17,500 of quarterly
goodwill amortization during the first quarter of fiscal year 2003.
9
COMSHARE, INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - CREDIT FACILITY
The Company has a $7 million credit agreement which matures on September
30, 2003. The credit agreement contains covenants regarding among other things,
earnings, leverage, net worth and payment of dividends. The Company is required
to maintain $7.4 million in deposits in U.S. Dollars with the bank 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 September 30, 2002 under the credit agreement were $7 million,
of which none were outstanding. At June 30, 2002, none of the permitted
borrowings available were outstanding.
At June 30, 2002, the Company was in violation of certain covenants relating to
the line of credit. During the first quarter of fiscal 2003, the Company
negotiated a waiver and an amendment to its line of credit agreement to revise
the financial covenants for future periods and to reduce the line of credit to
$7 million. The Company was in compliance of all financial covenants as of
September 30, 2002.
NOTE G -- RELATED PARTY TRANSACTIONS
Codec Systems Limited ("Codec"), a corporation organized under the laws
of Ireland, is a principal shareholder of and distributor for Comshare. The
Chief Executive Office of Codec, Anthony Stafford, is on the Company's Board of
Directors.
Software revenue, which is defined as license fee and maintenance
revenue, of $0.4 million and $0.2 million was recognized from Codec in the
quarters ended September 30, 2002 and 2001, respectively. Codec's contractual
terms and conditions are not materially different from those of the Company's
other distributors.
NOTE H - 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 (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 September 30, 2002 and June 30, 2002, the Company had forward foreign
currency exchange contracts outstanding of approximately $2.0 million and $2.5
million (notional amounts), respectively, denominated in foreign currencies. The
contracts outstanding at September 30, 2002 mature at various dates through
December 18, 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 September 30, 2002 and June 30, 2002.
NOTE I -- PROVISION FOR INCOME TAXES
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.
The Company recognized a tax provision of $436,000 in the first quarter
of fiscal 2003. This provision represents taxes paid on revenue from sales in
foreign countries.
NOTE J - TAX SETTLEMENT
Total costs and expenses include a non-recurring $1.2 million credit
for a tax settlement. This tax settlement agreement is associated with a claim
the Company made for non-income based taxes, known as the Single Business Tax,
paid to the state of Michigan relating to the years 1982-1985. The amount
recorded relates to the return of monies previously paid by the Company for
taxes, penalties and interest during that period. The Company accounts for
Michigan Single Business taxes, which are based on certain non-income related
factors, within the operating expenses of the Company, consistent with customary
practice. The final tax settlement may include additional statutory interest
receivable from the date the tax was paid to the date of receipt of the
settlement, which is not included in the accrual.
10
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE K -- 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 Company evaluates and records its pension expense and
liability on an annual basis. Accordingly, there was no change in the pension
liability at September 30, 2002 as compared to June 30, 2002.
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 annual pension expense and cash funding requirements could increase.
NOTE L -- CURRENCY TRANSLATION ADJUSTMENT
At September 30, 2002 and June 30, 2002 the "Currency translation
adjustment" balance included in the Company's balance sheet was $6.1 million.
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 September 30, 2002 and June 30, 2002, the
revenue generated by the United Kingdom business represented approximately 18%
and 17% of total revenue, respectively. The Company considers the business in
the United Kingdom significant to their operations and as of September 30, 2002
had no plans to sell or liquidate this portion of the business. Therefore, the
Company had not adjusted the balance at September 30, 2002 related to currency
translation adjustment.
NOTE M - 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
which are not recorded within the financial statements, under all non-cancelable
operating leases are as follows (in thousands):
FISCAL YEARS ENDING JUNE 30,
- --------------------------------------------------------------
2003 $ 3,912
2004 4,024
2005 2,979
2006 1,380
2007 1,114
2008 and thereafter 317
--------
Total minimum payments $ 13,726
--------
Minimum payments under non-cancelable operating leases have not been
reduced by minimum sublease rentals of $4.5 million due in the future under
non-cancelable subleases.
NOTE N -- SEGMENT REPORTING
The Company has only one reportable segment -- the development,
marketing and support of financial analytic applications software for management
planning and control. Revenue is derived from the licensing of software and the
provision of related services that include product implementation, consulting,
training and support.
No single customer accounted for more than 10% of the Company's total
revenue in the three months ended September 30, 2002 and 2001. In addition, the
Company is not dependent on any single customer or group of customers.
Geographic segment information is as follows:
11
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
-------- --------
(In thousands)
REVENUE FROM EXTERNAL CUSTOMERS:
North America $ 8,268 $ 9,101
United Kingdom 2,612 2,571
Other countries 3,298 3,344
-------- --------
TOTAL REVENUE $ 14,178 $ 15,016
======== ========
OPERATING INCOME (LOSS):
North America $ 4,662 $ (1,339)
United Kingdom (1,552) 1,169
Other countries 2,164 2,195
-------- --------
TOTAL OPERATING INCOME 5,274 2,025
Unallocated expenses (4,019) (2,555)
-------- --------
INCOME (LOSS) BEFORE TAXES $ 1,255 $ (530)
======== ========
IDENTIFIABLE ASSETS:
North America $ 35,266 $ 36,532
United Kingdom and other countries 8,553 10,471
-------- --------
TOTAL IDENTIFIABLE ASSETS $ 43,819 $ 47,003
======== ========
Unallocated expenses consist of general corporate expenses, internal
research and product development expenses, tax settlement, interest expense
and interest income.
12
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis sets forth information for the
three months ended September 30, 2002 compared to the three months ended
September 30, 2001. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2002.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial data
as a percentage of total revenue.
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2002 2001
---- ----
REVENUE
Software licenses 26.7 % 27.3 %
Software maintenance 39.0 38.3
Implementation, consulting and other services 34.3 34.4
----- -----
TOTAL REVENUE 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 34.1 36.1
Cost of revenue and support 39.8 43.0
Internal research and product development 16.4 15.7
General and administrative 9.9 9.9
Tax settlement (8.5) --
----- -----
TOTAL COSTS AND EXPENSES 91.7 104.7
INCOME (LOSS) FROM OPERATIONS 8.3 (4.7)
OTHER INCOME (EXPENSE)
Interest income 0.6 1.3
Exchange loss -- (0.1)
----- -----
TOTAL OTHER INCOME 0.6 1.2
INCOME (LOSS) BEFORE TAXES 8.9 (3.5)
Provision for income taxes 3.1 54.6
----- -----
NET INCOME (LOSS) 5.8 % (58.1)%
===== =====
13
REVENUE
The following table shows revenue for the Company during the quarters
ended September 30, 2002 and 2001:
THREE MONTHS ENDED PERCENT
SEPTEMBER 30, CHANGE
----------------------- ---------
2002 2001
---- ----
(in thousands)
MPC REVENUE
Software licenses $ 3,319 $ 3,548 (6.5)
Software maintenance 3,754 3,317 13.2
Implementation, consulting and
other services 4,773 4,906 (2.7)
------- -------
TOTAL MPC REVENUE $11,846 $11,771 0.6 %
======= =======
LEGACY REVENUE
Software licenses $ 464 $ 545 (14.9)
Software maintenance 1,776 2,433 (27.0)
Implementation, consulting and
other services 92 267 (65.5)
------- -------
TOTAL LEGACY REVENUE $ 2,332 $ 3,245 (28.1)%
======= =======
TOTAL REVENUE
Software licenses $ 3,783 $ 4,093 (7.6)
Software maintenance 5,530 5,750 (3.8)
Implementation, consulting and
other services 4,865 5,173 (6.0)
------- -------
TOTAL REVENUE $14,178 $15,016 (5.6)%
======= =======
The decline in total revenue in the quarter ended September 30, 2002 of
6% from the quarter ended September 30, 2001 was primarily due to a 28% decline
in revenue from the Company's older desktop ("legacy") products, slightly offset
by a 1% growth in revenue from the Company's management planning and control
software applications ("MPC"). The Company's MPC suite of software applications
is comprised of Comshare MPC (formerly BudgetPLUS), Comshare FDC and Comshare
Decision. MPC revenue was $11.8 million for the quarter ended September 30,
2002, representing 84% of total revenue. This compares with MPC revenue
representing 78% of total revenue for the three months ended September 30,
2001. The Company released a new version of Comshare MPC, version 5.0, in
October 2002. For the second quarter of fiscal year 2003, the Company expects
total revenue of between $14.0 million and $14.5 million, compared to total
revenue of $14.3 million in the second quarter of fiscal year 2002. The Company
expects license fee revenue for the second quarter of fiscal year 2003 to be
between $4.5 million and $5.0 million, compared to $4.1 million in the second
quarter of fiscal year 2002. The Company's expectation as to total revenue and
license fee revenue for the second quarter of fiscal year 2003 is a "forward
looking statement" 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."
The 8% decline in the Company's license fees for the first quarter of
fiscal year 2003 was primarily due to a decrease in legacy license fees of 15%
from the three months ended September 30, 2001, combined with a 6% reduction in
MPC license fees during the same period. MPC license fees represented 88% of
total license fees for the quarter ended September 30, 2002, versus 87% for the
same period in the prior year. License fees in the Company's direct operations,
which include North America and the United Kingdom, declined 16% to $2.3 million
for the quarter ended September 30, 2002. The decline in direct license fees was
slightly offset by the growth in distributor license fees of 6% to $1.5 million
for the same time period. The first quarter of the Company's fiscal year is
historically the slowest from a license fee perspective due to the reduced
demand for our financial budgeting and analytic applications in the third
quarter of the calendar year. The decrease in license fee revenue also reflects
a continuation of the general economic weakness and reduced capital spending in
the software industry, as well as
14
increased competition from an increasing number of entrants to the corporate
performance management, or CPM, market.
Software maintenance revenues decreased 4% for the quarter ended
September 30, 2002 primarily due to a 27% decrease in legacy product maintenance
attributable to mainframe and desktop maintenance cancellations and continued
customer migration to other platforms. During the quarter ended September 30,
2002, the Company experienced 13% growth in maintenance revenues of the
Company's MPC products to $3.8 million due to MPC license fee growth in fiscal
2002. MPC product maintenance accounted for 68% of total maintenance revenue for
the three months ended September 30, 2002, compared to 58% for the same period a
year ago. Legacy software maintenance represented 32% of total software
maintenance revenue for the quarter ended September 30, 2002 as compared to 42%
for the quarter ended September 30, 2001.
Implementation, consulting and other services revenues declined 6%
primarily due to a 66% decrease in legacy implementation services revenue. This
reflects the continuing decrease in legacy license fees in fiscal years 2003 and
2002 from the prior fiscal years. During the quarter ended September 30, 2002,
98% of total implementation services revenue was related to MPC products, which
declined 3% from the quarter ended September 30, 2001. Implementation,
consulting and other services revenues for MPC products were $4.8 million and
$4.9 million for the quarters ended September 30, 2002 and 2001, respectively.
COSTS AND EXPENSES
- ------------------
SEPTEMBER 30, CHANGE
-------------------------- --------
2002 2001
---- ----
(in thousands)
COST AND EXPENSES
Selling and marketing $ 4,832 $ 5,417 (10.8) %
Cost of revenue and support 5,639 6,461 (12.7)
Internal research and product development 2,333 2,351 (0.8)
General and administrative 1,409 1,494 (5.7)
Tax settlement (1,208) -- --
-------- --------
TOTAL COSTS AND EXPENSES $ 13,005 $ 15,723 (17.3) %
======== ========
Total costs and expenses decreased 17% in the first quarter of fiscal
year 2003 from the first quarter of the prior year. Total costs and expenses
include a non-recurring $1.2 million credit for a tax settlement. This tax
settlement agreement is associated with a claim the Company made for non-income
based taxes, known as the Single Business Tax, paid to the state of Michigan
relating to the years 1982-1985. The amount recorded relates to the return of
monies previously paid by the Company for taxes, penalties and interest during
that period. The Company accounts for Michigan Single Business taxes, which are
based on certain non-income related factors, within the operating expenses of
the Company, consistent with customary practice. The final tax settlement may
include additional statutory interest receivable from the date the tax was
paid to the date of receipt of the settlement, which is not included in the
accrual. Without the non-recurring credit for a tax settlement, total costs and
expenses decreased 9.6% in the first quarter of fiscal year 2003 from the first
quarter of the prior year.
Selling and marketing expenses decreased 11% from the quarter ended
September 30, 2001. The decrease is attributable to a reduction of employee
costs of $0.4 million and a reduction in promotional spending of $0.2 million.
Cost of revenue and support expenses decreased 13% from the first
quarter of the prior year. The decrease was primarily due to a decrease of $0.3
million in royalty expenses resulting from lower sales of Hyperion Solutions
Corporation's Essbase database and a reduction in purchased professional
services associated with implementation services revenue.
The Company licenses the Essbase database from Hyperion under an
agreement that expires in December 2002, and resells it in connection with many
of its Comshare MPC products. The Company does not expect the termination of its
license for Hyperion's Essbase database at December 31, 2002 to have a material
adverse impact on the Company's software license fees since license fees
relating to Essbase represent less than 12% of the Company's total license fees
for the quarter ended September 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 25% of the Company's total
maintenance fees for the quarter ended September 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 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Safe Harbor Statement."
15
Internal research and product development costs remained relatively
flat for the quarters ended September 30, 2002 and 2001.
General and administrative expenses decreased 6% from the first quarter
of fiscal year 2002 to $1.4 million for the quarter ended September 30, 2002.
The decrease is primarily attributable to the impact of cost reduction actions
taken after the first quarter of fiscal 2002.
OTHER INCOME AND EXPENSE
- ------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------
2002 2001
---- ----
(in thousands)
OTHER INCOME (EXPENSE)
Interest income $ 88 $ 192
Interest expense (7) (1)
Exchange gain (loss) 1 (14)
----- -----
TOTAL OTHER INCOME $ 82 $ 177
===== =====
Lower interest rates on short-term investments and lower average cash
balances during the three months ended September 30, 2002 resulted in decreased
interest income for the quarter ended September 30, 2002, compared to the three
months ended September 30, 2001.
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 Company evaluates and records its pension expense
and liability on an annual basis. Accordingly, there was no change in the
pension liability at September 30, 2002 as compared to June 30, 2002.
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 annual pension expense and cash funding requirements could increase.
CURRENCY TRANSLATION ADJUSTMENT
At September 30, 2002 and June 30, 2002 the "Currency translation
adjustment" balance included in the Company's balance sheet was $6.1 million.
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 September 30, 2002 and June 30, 2002, the
revenue generated by the United Kingdom business represented approximately 18%
and 17% of total revenue, respectively. The Company considers the business in
the United Kingdom significant to their operations and as of September 30, 2002
had no plans to sell or liquidate this portion of the business. Therefore, the
Company had not adjusted the balance at September 30, 2002 related to currency
translation adjustment.
FOREIGN CURRENCY
For the three months ended September 30, 2002, 42% of the Company's
total revenue was from outside North America compared with 39% for the three
months ended September 30, 2001. Most of the Company's international revenue is
denominated in foreign currencies. The Company recognizes currency transaction
gains and losses in the period of occurrence. As currency rates are constantly
changing, these gains and losses can, at times, fluctuate greatly. The Company's
future operating results may be adversely impacted by the overall strengthening
of the U.S. dollar against foreign currencies of countries where the Company
conducts business; conversely, future operating results may be favorably
impacted by an overall weakening of the U.S. dollar against foreign currencies.
For the three months ended September 30, 2002, foreign currency fluctuations did
not have a material impact on the Company's revenues, operating expenses or net
income.
The Company had several forward exchange contracts totaling a notional
amount of $2.0 million, outstanding at September 30, 2002. See Note F of Notes
to Condensed Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
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. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Provision for Income Taxes" in the Company's Form 10-K for the
fiscal year ended June 30, 2002 for more information.
16
The Company recognized a tax provision of $436,000 in the first quarter
of fiscal 2003. This provision represents taxes paid on revenues from sales in
foreign countries.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, cash and cash equivalents were $18.1 million,
compared with cash and cash equivalents of $19.3 million at June 30, 2002. The
$1.2 million decrease resulted primarily from $1.0 million used in operating
activities.
Net cash of $1.0 million was used in operating activities in the three
months ended September 30, 2002. The cash used in operating activities included
$1.9 million used in working capital and other activities. Net cash used in
working capital and other activities resulted primarily from a decrease in
accrued payroll, accounts payable and deferred revenue, partially offset by a
decrease in accounts receivable. The decrease in accrued payroll is primarily
due to payment of incentive accruals related to sales in the fourth quarter of
fiscal 2002. The decrease in accounts payable is attributable to payments
relating to professional services incurred during the fourth quarter of fiscal
2002. Deferred revenue decreased primarily due to the seasonality of maintenance
renewals, which are higher in the Company's second and fourth quarters and lower
in the first and third quarters. Accounts receivable decreased primarily as a
result of the decline in license fee and maintenance revenue for the quarter.
The Company received a $1.0 million tax refund that was recognized during the
third quarter of fiscal year 2002, which was also included in working capital.
This refund resulted from the "Jobs Creation and Worker Assistance Act of 2002"
federal economic stimulus package, which was signed into law in March 2002.
Net cash of $0.1 million was used in investing activities for the three
months ended September 30, 2002. The Company purchases most of its computer
equipment under operating leases. At September 30, 2002, the Company did not
have any material capital expenditure commitments.
Total assets were $43.8 million at September 30, 2002, compared with
total assets of $45.7 million at June 30, 2002. Working capital as of September
30, 2002 was $20.9 million, compared with $20.0 million as of June 30, 2002. The
decrease in total assets from June 30, 2002 to September 30, 2002 was primarily
due the decline in cash and cash equivalents during the three months ended
September 30, 2002 and a decrease in accounts receivable. The increase in
working capital from June 30, 2002 to September 30, 2002 was primarily due to
the tax settlement of $1.2 million that the Company recognized in the first
quarter of fiscal 2003.
As of September 30, 2002, the Company had $0.7 million of accruals
remaining for cash restructuring expenses payable through the fourth quarter of
the 2004 fiscal year. See Note C of Notes to Condensed Consolidated Financial
Statements contained in this form 10-Q.
The Company has a $7 million credit agreement which matures on September
30, 2003. The credit agreement contains covenants regarding among other things,
earnings, leverage, net worth and payment of dividends. The Company is required
to maintain $7.4 million in deposits in U.S. Dollars with the bank 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 September 30, 2002 under the credit agreement were $7 million,
of which none were outstanding. At June 30, 2002, none of the permitted
borrowings available were outstanding. At June 30, 2002, the Company was in
violation of certain covenants relating to the line of credit. During the first
quarter of fiscal 2003, the Company negotiated a waiver and an amendment to its
line of credit agreement to revise the financial covenants for future periods
and to reduce the line of credit to $7 million. The Company was in compliance of
all financial covenants as of September 30, 2002.
The Company believes that the combination of present cash balances and
amounts available under credit facilities will be sufficient to meet the
Company's currently anticipated cash requirements for at least the next twelve
months. The foregoing statement is a "forward looking statement" within the
meaning of the Securities and Exchange Act of 1934, as amended. The extent to
which such sources will be sufficient to meet the Company's anticipated cash
requirements is subject to a number of uncertainties, including the ability of
the Company's operations to generate sufficient cash to support operations, and
other uncertainties described in "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Safe Harbor Statement."
17
MARKET SENSITIVITY ANALYSIS
The Company is exposed to market risk from changes in foreign exchange
and interest rates. To reduce the risk from changes in foreign exchange rates,
the Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
The Company, at various times, denominates borrowings in foreign
currencies and enters into forward exchange contracts to hedge exposures related
to foreign currency transactions. The Company does not use any other types of
derivatives to hedge such exposures nor does it speculate in foreign currency.
In general, the Company uses forward exchange contracts to hedge against large
selective transactions that present the most exposure to exchange rate
fluctuations. At September 30, 2002 and June 30, 2002 the Company had forward
contracts of approximately $2.0 million and $2.5 million (notional amounts),
respectively, denominated in foreign currencies. The contracts outstanding at
September 30, 2002 mature through December 18, 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 September
30, 2002 and June 30, 2002.
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
September 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 September 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 would be largely offset by the gains or losses on the underlying
transactions.
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-Q Report contains "forward looking
statements" within the meaning of the Securities Exchange Act of 1934, as
amended, including those concerning the Company's future results, new market and
business opportunities, strategy and product releases. Actual results could
differ materially from those in the forward looking statements due to a number
of uncertainties, including, but not limited to, the demand for the Company's
products and services; the size, timing and recognition of revenue from
significant orders; 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
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 the high degree of economic uncertainty at this time 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
18
significant commitment of capital, in the event of any downturn in any potential
customer's business or the economy in general, purchases of the Company's
products may be deferred or cancelled. Further, the Company's expense levels are
based, in part, on its expectations as to future revenue and a significant
portion of the Company's expenses do not vary with revenue. As a result, if
revenue is below expectations, results of operations are likely to be
materially, adversely affected.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in causing the material
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 to be recorded, processed,
summarized and reported, to the extent applicable, within the time periods
required for the Company to meet the Securities and Exchange Commission's
("Commission") filing deadlines for these reports specified in the Commission's
rules and forms. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its evaluation.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits included with this Form 10-Q are set forth on the Index to
Exhibits.
(b) Reports on Form 8-K.
On August 19, 2002, the Company filed a Form 8-K under Item 5,
disclosing a Standstill Agreement that the Company entered into with Codec
Systems Limited and Anthony Stafford.
On September 30, 2002, the Company filed a Form 8-K under Item 9,
disclosing that certifications from the Company's Chief Executive Officer and
Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. Section 1350) had accompanied the Company's Annual Report on
Form 10-K for the year ended June 30, 2002.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2002 Comshare, Incorporated
(Registrant)
/s/ Brian Jarzynski
--------------------
Brian Jarzynski
Senior Vice President,
Chief Financial Officer and
Treasurer
20
CERTIFICATION
I, Dennis G. Ganster, Chief Executive Officer of Comshare,
Incorporated, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Comshare, Incorporated;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: November 14, 2002 /s/ Dennis G. Ganster
---------------------
Dennis G. Ganster
Chief Executive Officer
(Principal Executive Officer)
21
CERTIFICATION
I, Brian Jarzynski, Chief Financial Officer of Comshare, Incorporated,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Comshare, Incorporated;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: November 14, 2002 /s/ Brian Jarzynski
--------------------
Brian Jarzynski
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
22
INDEX TO EXHIBITS
Exhibit No. Description
4.01 Ninth Amendment to Credit Agreement, dated
as of September 30, 2002, between the
Registrant, Comshare Limited and Harris
Trust and Savings Bank.
10.01 Agreement, dated October 16, 2002, by and
between the Registrant, Codec Systems
Limited and John H. MacKinnon.
10.02 Third Amendment to Comshare, Incorporated
1998 Global Employee Stock Option Plan.
10.03 Fourth Amendment to the Comshare,
Incorporated Directors' Stock Option Plan.
23