1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
/ / 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 (I.R.S. 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: (313) 994-4800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock $1.00
Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of August 31, 1995 based on $27.125 per share, the last sale price
for the Common Stock on such date as reported on the NASDAQ National Market
System, was approximately $112,618,000.
As of August 31, 1995 the Registrant had 5,493,515 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
--------
Portions of Proxy Statement for the Part of Form 10-K Report
1995 Annual Meeting of Shareholders into which it is incorporated
("The 1995 Proxy Statement") III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PART 1
ITEM 1. BUSINESS
GENERAL
Comshare, Incorporated and its subsidiaries (collectively referred to as
"Comshare" or the "Company") develop, license and support decision support
software products and related services that enable business professionals to
more effectively use data in decision making. Comshare's decision support
software applications are designed to provide these customers with planning,
analysis and reporting capabilities to assist them in improving their
productivity, decision making, and competitiveness. Comshare's decision support
software applications allow customers to access a variety of incompatible data
sources and, through the application of data manipulation, analysis and modeling
features, generate more meaningful information for use by business
professionals.
Comshare's decision support software products are complemented by Comshare's
product maintenance, implementation and consulting services. Product
maintenance, for which a fee is charged, includes telephone helpline support,
product enhancements and updates, bug fixing, and other services.
Comshare's strategy is to offer its customers whole product solutions by
providing core technologies, application software for specific markets or needs,
innovative technology which differentiates Comshare's products, consulting
services, customer training and ongoing product maintenance.
The Company's product offerings focus on client/server decision support software
applications with value-added capabilities designed to improve customer
productivity and decision making. Comshare, focused on providing value-added
applications, incorporates third party software tools into its products to
reduce product development risk and accelerate time to market. The Company
differentiates its products from competitive offerings through innovative
proprietary technology, such as the recently released Detect and Alert software
technology for exception monitoring and reporting.
Market trends such as company downsizing, decentralized decision making,
increased volumes of available data and faster-paced decision making are driving
the demand for decision support applications.
PRODUCTS
Comshare's decision support applications transform business data from an
organization's underlying transaction systems or data warehouses into critical
business information used for planning and decision making. Comshare focuses on
three decision support markets: Executive Information Systems, Financial
Reporting Systems and Retail Decision Support Systems.
EXECUTIVE INFORMATION SYSTEMS (EIS)
Within the EIS market, Comshare offers decision support software applications
designed to provide information to a wide range of business users. Typical
applications include customer and product profitability, sales analysis,
business unit profitability analysis, and critical success factor and key
performance indicator reporting. These applications may be customized either by
Comshare and/or the customer to meet specific customer requirements.
Comshare's flagship EIS product is Commander OLAP (On-Line Analytical
Processing), which is a suite of client/server software designed to provide a
complete decision support solution to the customer. Commander OLAP includes
software which extracts data from multiple, disparate data sources, and
summarizes and filters the data. The summarized data is then stored in a
multidimensional database, for which the Company uses Arbor Software
Corporation's ("Arbor Software") Essbase. The information is available to the
end user either through Comshare's proprietary information visualizer,
Execu-View, a briefing book series of pre-formatted reports, or Microsoft
Corporation's Excel.
The Company believes that most business analytical problems are best solved
through the use of multidimensional analysis. In a multidimensional approach,
business professionals are able to view information in a manner which parallels
their perception of the underlying business. For example, businesses are
frequently organized along
2
3
geographic lines and product lines, and information is required across multiple
time periods. Commander OLAP facilitates multidimensional analysis by
structuring the underlying business data across multiple dimensions and, through
Execu-View, permitting the end user to easily and quickly query the information,
drill down for more detail, change dimensions and extract data for further
analysis.
Commander OLAP is enhanced by the Company's Detect and Alert software which
automates personalized surveillance of internal databases and external news
sources such as Dow Jones and Reuters. Detect and Alert reduces the amount of
data which the user must gather and review by automatically monitoring trends,
exceptions, variances and other critical business factors. The software then
delivers alerts to the user's desktop, along with tools that enable the user to
explore and select data that triggered the alert.
Comshare also markets System W and IFPS decision support software for use on
mainframe computers. System W and IFPS applications are similar to those
available under Commander OLAP, with the multidimensional engine residing on the
mainframe, rather than on the server. Because market demand has shifted towards
the newer client/server technology, the mainframe related portion of Comshare's
EIS business has declined. Although, EIS desktop and client/server software
license fee revenue grew 69% to $26.8 million in fiscal 1995 from $15.8 million
in fiscal 1994, total revenue in Comshare's EIS market remained relatively flat
in fiscal 1995 at $70.5 million, compared with $69.8 million in fiscal 1994.
Total EIS revenue in fiscal 1994 declined 17% from $84.1 million in fiscal 1993.
FINANCIAL REPORTING APPLICATIONS
Comshare offers a suite of decision support financial reporting, consolidation
and budgeting applications designed for use by financial departments, primarily
in medium to large-sized corporations.
Commander FDC and Commander Budget are complementary products which share a
single database to facilitate the integration of historic and budgetary
financial data for management reporting. Commander FDC collects and consolidates
financial data from different general ledgers within a multidivision or
multilocation company and produces financial reports for management and
statutory consolidations. Commander Budget provides an easy to use front end
format for developing budgets and provides the same consolidation and reporting
capabilities as Commander FDC. Other products offered by Comshare include
Execu-View/Finance and a multidimensional desktop modeler which provides further
analytical, query and reporting capabilities.
Total revenue in Comshare's Financial Reporting Applications market grew 43% to
$19.1 million in fiscal 1995 from $13.4 million in fiscal 1994. Total revenue in
this market grew 9% in fiscal 1994 from $12.3 million in fiscal 1993.
RETAIL DECISION SUPPORT APPLICATIONS
Comshare's decision support applications for the retail industry are offered
under the brand name ARTHURTM and focus on merchandise planning and sales
reporting. ARTHUR Merchandise Planning facilitates the development of
merchandise plans at various levels of detail. Through the manipulation of
financial and merchandising variables, this software permits the retailer to
test the impact of various merchandising and pricing strategies on operating
results.
Comshare also offers ARTHUR Plan Monitor, which is server based, and ARTHUR
Performance Tracking, which is mainframe based. Both of these products report
weekly sales information across the retailer's product lines and geographic
regions in various levels of detail. They provide up-to-date merchandise
performance information, giving retailers the opportunity to change merchandise
plans in response to consumer preferences and market trends. Comshare's Detect
and Alert software is also offered in connection with ARTHUR Plan Monitor, so
variances and trends can automatically and more easily be identified.
Total revenue in Comshare's Retail Decision Support Applications market grew 48%
to $18.6 million in fiscal 1995 from $12.6 million in fiscal 1994. Total revenue
in this market grew 56% in fiscal 1994 from $8.1 million in fiscal 1993.
3
4
SALES
Comshare products and services are sold by a direct sales operation, and by
agents and distributors. Both of these complementary distribution channels
utilize Comshare's extensive industry and/or application knowledge and
experience, and offer pre-sales and post-sales technical customer support.
COMSHARE DIRECT SALES. Comshare employs direct sales, marketing, consulting and
customer support organizations in the United States, Canada, United Kingdom,
France, Germany and Australia. The direct sales operations are organized
geographically emphasizing industry and/or applications expertise.
AGENTS AND DISTRIBUTORS. The Company has an extensive agency/distributor network
covering 34 countries not directly served by the Company. The Company has
selected established software application vendors or systems integration firms
to act as agents/distributors to market, implement and support Comshare products
in their respective geographic areas. Key agents and distributors are supported
by experienced Comshare management. Comshare derived 17% of total revenue in
fiscal 1995 from the Company's agency/distributor network.
CUSTOMERS
Comshare has a strong customer base with more than 3,000 corporate and public
sector customers in 40 countries. Comshare's diversified customer base includes
many of the Fortune 1000 and Financial Times 1000 industrial companies, as well
as large and mid-sized companies in the financial services, retail, health care,
communications, insurance, transportation industries, as well as many
governmental and public sector organizations.
SUPPORT AND SERVICES
Comshare and its agents and distributors offer implementation and consulting
services throughout the world. Implementation and consulting services are
offered in all three of the decision support software markets. These services
focus on Comshare products and include application design, consulting,
installation assistance, implementation and troubleshooting support. Comshare
also offers training at customer sites, at the Company's sales offices and
central training centers in Ann Arbor, Michigan and London, England.
Customers who pay an annual maintenance fee receive product enhancements and
updates, bug fixing, customer telephone helpline support and access to
Comshare's CompuServe forum. CompuServe provides a worldwide communications
channel for Comshare and its customers. This forum allows a customer to download
technical tips and obtain application samples from other users and Comshare
experts; send messages directly to Comshare's worldwide product experts and
forum administrators; receive information about new software releases; and
request new versions of products on-line.
RESEARCH AND PRODUCT DEVELOPMENT
The computer software industry is characterized by rapid technological
advancements, evolving industry standards and frequent new product and platform
introductions, requiring a continuing commitment to enhancing and adapting
existing product offerings and to introducing new products. In the past, the
Company has accomplished several technological and product transitions. Most
recently, the Company has adapted its products from the mainframe to the
client/server environment and has modified its products to run on the Windows
operating system.
The Company's product development strategy is to focus on decision support
software applications for the client/server platform. Comshare development teams
located in Ann Arbor, Michigan and Leicester, England meet with customers to
identify customer needs, product enhancements and new applications. Based upon
these efforts, the development teams enhance existing applications and develop
new applications, always with a focus on applications with value-added
capabilities.
Value-added capabilities are principally developed in two ways. The Company
develops applications software and adds innovative proprietary technology.
Execu-View, which is offered with all major products, is an example of such
technology and allows users to query, browse and analyze databases. Detect and
Alert, which was released in May 1995 with Commander OLAP, is another example of
the Company's innovative technology. Because the Company is focused on
value-added capabilities, it actively seeks out third party software tools which
can be included in the
4
5
Company's product offerings. Use of third party software tools reduces
development risk and time to market. Examples of such third party software tools
are Arbor Software's Essbase, Btrieve database, Microsoft's Excel and Strategic
Mapping, Inc.'s Atlas View SDK.
The Company's major client/server products run on Windows 3.1 for the client and
on Windows NT, OS/2, and HPUX operating systems for the server.
Reductions in internal research and product development expenses in fiscal 1995
reflect the cost savings as a result of staff reductions made at the end of
fiscal 1994. These reductions are primarily attributable to the Company's
increased utilization of technology developed by third parties. During the last
three years, worldwide internal research and product development expenses were
(in thousands):
1995 1994 1993
------- ------- -------
Internal research and product development $16,180 $19,293 $22,989
As a % of revenue 14.9% 20.0% 21.9%
PATENTS AND LICENSES
Comshare distributes its software products under software license agreements
which generally grant customers a non-exclusive, non-transferable 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
by generally restricting usage to internal operations, and prohibiting the
unauthorized reproduction or transfer to third parties. The Company also
believes that the nature of its customers and the provision of continuing
maintenance and support services reduce the risk of unauthorized reproduction.
In addition, the Company relies on copyright protection and trade secret laws to
protect proprietary information. 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 or transfer of software products may be
unenforceable under the laws of certain foreign countries. Despite the
precautions taken by the Company, it may be possible for unauthorized parties to
copy or reverse-engineer portions of the Company's software products. The
Company is not aware of any significant unauthorized use of its proprietary
software.
The Company seeks to protect some of its trademarks and copyrights with
registrations. The Company is the owner of various trademarks, including
ARTHURTM, CommanderTM Budget, CommanderTM EIS, CommanderTM Execu-View Server,
CommanderTM FDC and CommanderTM NewsAlert. The Company's software bears
appropriate copyright notices. The Company has been issued a utility patent on
one of its inventions which expires on February 14, 2012. The patent is not
considered material to the Company's operations.
LICENSED TECHNOLOGY
The Company licenses certain software programs from third parties and
incorporates them into the Company's products. Generally, these licenses are
non-exclusive worldwide licenses providing for varying royalty payments and
expiration dates. The Company believes that it will be able to renew
non-perpetual licenses or will be able to obtain alternative technologies, if
required.
Essbase software, which is licensed from Arbor Software, is an integral part of
the Company's Commander OLAP and ARTHUR Plan Monitor product offerings. The
Company's worldwide license for Essbase expires December 31, 2001. The license
may be terminated by either party upon the occurrence of a material uncured
breach of the agreement.
COMPETITION
The markets for Comshare's software products are highly competitive and
characterized by continual change and rapid technological advancements. In
general, the Company competes principally on the basis of: (1) product
differentiation, which includes value-added software solutions to meet end user
needs; (2) functionality, which includes the breadth and depth of features,
functions and ease of use; (3) service and support, which includes the range and
quality of technical support, training and consulting services; (4) vendor
reputation and (5) product
5
6
pricing in relation to performance. The Company believes it competes favorably
with respect to these factors due to the quality of its product offerings, and
its strategy of offering customers whole product solutions to their decision
support needs.
The Company has different competitors in each of the decision support
applications software markets addressed by the Company's product offerings. The
Company believes it is the market leader in the EIS market, based upon
International Data Corporation ("IDC") reports which ranked industry competitors
by revenues. Pilot Software, which was purchased by The Dun & Bradstreet
Corporation, Information Resources, Inc., and Oracle Corporation, who purchased
Express software from Information Resources, Inc., are the Company's main
competitors. The Company also competes with in-house information systems
departments, whose managers may decide to develop their own customized EIS using
data access and query tools in conjunction with SQL databases, as well as
smaller applications software vendors.
Hyperion Software Corporation (formerly IMRS) is believed to be the current
market leader for financial consolidation applications and the Company's major
competitor in the financial reporting applications market. The Company also
experiences competition in this market from general ledger software vendors and
in-house solutions.
The Company believes it is the market leader in the soft goods retail
applications planning market. The Company's retail decision support applications
have established strong brand name recognition in the soft goods retail
industry. The Company competes in this market with smaller applications software
vendors and traditional EIS providers that do not have specific merchandise
planning applications. The Company believes that its strong brand name
recognition and superior functionality have been significant factors in the
competitive success of the Company's retail applications.
While the Company believes that its products have competed effectively to date,
competition in providing decision support software and services is likely to
intensify as current competitors expand their product lines and new companies
enter the market. To remain successful in the future, the Company must respond
promptly and effectively to the challenges of technological change, evolving
standards and its competitors' innovations by continually enhancing its own
product and support offerings. There can be no assurance that the Company will
continue to be able to compete as successfully in the future.
INTERNATIONAL OPERATIONS
Approximately 55% of the Company's 1995 revenue is derived from foreign
operations. (For information regarding revenues, operating profits and
identifiable assets attributable to Comshare's foreign operations, see Note 10
of the Notes to Consolidated Financial Statements.) As a result, Comshare's
operations are subject to certain risks inherent in conducting international
business operations. In particular, currency exchange rate fluctuations can
impact Comshare's reported revenue, expenses and shareholders' equity and can
result in gains and losses from foreign currency exchange transactions. As
currency rates are constantly changing, the impact of such changes on Comshare
can, at times, fluctuate greatly. For a discussion of Comshare's current hedging
practices, see Note 1 of the Notes to Consolidated Financial Statements. See
Management's Discussion and Analysis of Results of Operations and Financial
Condition for a discussion of the impact of currency fluctuations on revenue and
expenses.
It is possible that Comshare's foreign operations could also be impacted by
laws, regulations, rules or policies of local foreign governments, such as those
relating to currency controls, import restrictions or the protection of
proprietary rights. To date, Comshare does not believe that these factors have
had a material impact on its operations.
6
7
EMPLOYEES
Comshare employed 686 full-time employees as of June 30, 1995; including 262 in
sales and marketing, 146 in research and product development, 145 in consulting
and implementation services and 133 in customer support and administration. None
of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its relations with employees are
good.
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 and competitive
position of Comshare.
7
8
ITEM 2. PROPERTIES
REAL ESTATE
Comshare leases sales offices and general office space in 25 major cities
throughout the United States, Canada, Europe and Australia. Administrative
activities are carried out at leased locations identified in the following
table:
APPROXIMATE
AREA IN LEASE EXPIRATION
LOCATION SQUARE FEET PRINCIPAL ACTIVITY DATE
- --------------------- ----------- --------------------------------------------- ----------------
Ann Arbor, Michigan 61,200 Headquarters, Administration, Sales, February 2005(1)
Marketing, Research and Product Development
and Customer Support
London, England 52,100 Administration, Sales, Marketing and December 2007(2)
Implementation Services
- -------------------------
(1) Option to cancel February 2000.
(2) Comshare's London subsidiary consolidated its London Administration, Sales
and Marketing facility with its former Computer Center at the latter's
location in fiscal 1993. The Company's Consolidated Financial Statements
include a provision for estimated costs until the lease obligations of the
vacated premises are assumed by a new tenant. See Note 9 of the Notes to
Consolidated Financial Statements for further information. The Company is
actively seeking a new tenant.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that, in management's opinion,
could reasonably be expected to have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
9
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 under the
symbol "CSRE". The following table sets forth the range of high and low closing
sales prices for the Company's Common Stock during the periods indicated.
MARKET
PRICES
FISCAL YEAR ------------
ENDING JUNE 30 HIGH LOW
--------------------------- ---- ---
1993 First Quarter 11 1/4 6 3/4
Second Quarter 14 3/4 7 1/4
Third Quarter 14 1/4 7
Fourth Quarter 7 3/4 5 3/4
1994 First Quarter 11 5 3/4
Second Quarter 11 3/4 9 1/2
Third Quarter 12 3/4 9
Fourth Quarter 14 9 1/4
1995 First Quarter 12 3/4 9
Second Quarter 14 3/4 10 3/4
Third Quarter 17 1/4 13 1/4
Fourth Quarter 21 1/2 15
1996 First Quarter 32 3/8 20 1/4
(through August 31, 1995)
At August 31, 1995, there were approximately 1,217 registered holders 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. See Note 3 of the Notes to Consolidated
Financial Statements regarding restrictions on the payment of dividends.
9
10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected financial data for the five fiscal years ended June 30, 1995 are
derived from the audited Consolidated Financial Statements of the Company. This
information should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Consolidated
Financial Statements and related Notes included elsewhere in this annual report
on Form 10-K.
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue $108,358 $96,626 $105,194 $119,174 $124,166
Income from operations before unusual and
restructuring charges 8,850 3,991 218 2,180 9,284
Income (loss) from operations 2,485 1,648 (1,271) (13,122) 9,284
Net income (loss) 5,328 222 (1,763) (11,133) 6,322
Per share .95 .04 (.33) (2.10) 1.16
Average shares (thousands) 5,599 5,489 5,319 5,310 5,464
Internal research and product development 16,180 19,293 22,989 24,318 20,934
As a % of revenue 14.9% 20.0% 21.9% 20.4% 16.9%
BALANCE SHEET DATA AT END OF PERIOD:
Total assets 79,310 88,944 92,582 107,963 106,574
Long-term debt 5,436 15,354 16,058 17,146 4,067
Total shareholders' equity 32,548 26,506 26,161 29,953 40,180
Number of employees at year-end 686 729 862 999 1,125
NOTES: (1) The income (loss) from operations for the years ended June 30, 1995,
1994, 1993, and 1992 includes restructuring and unusual charges of
$6,365, $2,343, $1,489 and $15,302, respectively. See Note 2 of the
Notes to Consolidated Financial Statements for information regarding
restructuring and unusual charges.
(2) The fourth quarter ended June 30, 1995 included a $4,100 tax benefit
related to the recognition of prior years net operating losses and
tax credits, as well as tax reserves released.
(3) During the first quarter ended September 30, 1993, the Company
entered into an agreement to sell undeveloped land that it owned in
an Ann Arbor technology park to The University of Michigan. The sale
was concluded on October 25, 1993 with the property being sold for
$3,376 in cash.
(4) Comshare acquired the assets of Execucom Systems Corporation,
effective March 1, 1991.
10
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The Company's revenue consists of software license revenue, maintenance fees and
implementation and consulting services fees from products sold in three decision
support application market areas: Executive Information Systems (EIS), Financial
Reporting and Retail Decision Support. Comshare licenses its products worldwide.
In certain territories outside North America, products are licensed through
distributors, where revenue is reported net of distributor fees.
RESULTS OF OPERATIONS
The following table summarizes the percentage relationships of income and
expense items included in the Company's Consolidated Statement of Operations.
PERCENT INCREASE
AS A PERCENT INCOME AND (DECREASE)
OF REVENUE EXPENSE ITEMS FROM PRIOR YEAR
- --------------------------------- ------------------------------- ---------------------
1995 1994 1993 1995 1994
- ----- ----- ----- ------ ------
Revenue:
45.5% 39.2% 38.4% Software licenses 30.2% (6.3)%
33.8 43.1 41.0 Software maintenance (12.0) (3.3)
Implementation, consulting
20.7 17.7 20.6 and other services 30.9 (21.2)
- ----- ----- ----- ------ ------
100.0 100.0 100.0 Total revenue 12.1 (8.1)
Costs and expenses:
41.8 48.1 51.4 Selling and marketing (2.5) (14.1)
Cost of revenue and
22.9 18.3 19.5 support 40.3 (13.9)
Internal research and
14.9 20.0 21.9 product development (16.1) (16.1)
Internally capitalized
(10.8) (13.7) (14.3) software (11.6) (12.3)
12.2 13.0 10.2 Software amortization 5.9 16.3
General and
10.8 10.2 11.1 administrative 17.9 (15.2)
5.9 -- -- Unusual charge * --
-- 2.4 1.4 Restructuring related costs (100.0) 57.4
- ----- ----- ----- ------ ------
Income (loss) from
2.3 1.7 (1.2) operations 50.8 229.7
(0.2) (0.5) 0.2 Other income, net (60.1) (408.0)
- ----- ----- ----- ------ ------
Income (loss)
2.1 1.2 (1.0) before taxes 101.1 202.7
Provision (benefit) for
(2.8) 1.0 0.6 income taxes (434.2) (38.4)
- ----- ----- ----- ------ ------
4.9% .2% (1.6)% Net income (loss) 2300.0% 112.6%
===== ===== ===== ====== ======
*Percent not meaningful.
11
12
1995 COMPARED WITH 1994
Revenue for the fiscal year ended June 30, 1995 increased 12% to $108.4 million
from $96.6 million in fiscal 1994. The primary cause of this revenue growth was
the increase in desktop and client/server license fees, reflecting the release
of the Company's new products during the past 18 months.
Total software license fee revenue in fiscal 1995 grew 30% to $49.3 million from
$37.9 million in fiscal 1994. License fees from desktop and client/server
products in fiscal 1995 grew 61% to $45.5 million from $28.3 million in fiscal
1994 and represented 92% of total software license fee revenue in fiscal 1995,
compared with 75% in fiscal 1994. License fees from the Company's mainframe
products declined 60% in fiscal 1995 to $3.8 million from $9.4 million in fiscal
1994. Mainframe license fees are expected to continue to decline as the Company
continues to emphasize its newer client/server products which were introduced in
response to the market's shift from mainframe to client/server systems. Most of
the mainframe license fee decline was in the older Executive Information Systems
(EIS) products.
Software license fee growth was strong in all three decision support market
areas. In the EIS market, license fees grew 26% to $29.8 million in fiscal 1995
from $23.7 million in fiscal 1994. License fees for the Company's desktop and
client/server EIS products grew 69% to $26.8 million in fiscal 1995, compared
with $15.8 million in the prior year, principally due to the March 1994 release
of Commander OLAP. This increase in EIS desktop and client/server license fees
was partially offset by declines in EIS mainframe license fees.
License fees from financial reporting applications grew 40% to $10.2 million in
fiscal 1995 from $7.3 million in fiscal 1994, principally due to the release of
Windows versions of Commander FDC and Commander Budget.
In the retail decision support applications market area, license fees increased
41% to $9.1 million in fiscal 1995 from $6.5 million in fiscal 1994, principally
as a result of new releases of ARTHUR Merchandise Planning and ARTHUR Plan
Monitor.
Maintenance revenue in fiscal 1995 declined 12% to $36.6 million from $41.6
million in fiscal 1994. The decrease is primarily due to the decline in
maintenance revenue from mainframe products. Mainframe maintenance revenue in
fiscal 1995 declined 25% to $16.9 million from $22.6 million in fiscal 1994. The
decrease was principally due to the impact of cancellations, price discounts on
multi-year agreements and conversion of certain agents to distributors. Desktop
and client/server maintenance revenue in fiscal 1995 grew 6% to $19.6 million
from $18.5 million in fiscal 1994. The increase is due to the growth in license
fees, partially offset by the conversion of certain agents to distributors, as
described below. The comparability of maintenance revenue was impacted by the
conversion of certain agents to distributors in fiscal 1994. When an agent
converts to a distributor, sales are made directly to the distributor rather
than the end customer, and the distributor assumes the obligation of providing
maintenance. In addition, the revenue from distributors is recognized net of
fees (which fees are approximately the same as agency fees which are recorded as
selling expenses), and revenue from agents is recognized before their fees.
Therefore, the conversion of agents to distributors reduced reported maintenance
revenue in fiscal 1995, without a material impact on operating profits. In
addition, in fiscal 1994, maintenance revenue benefited from the nonrecurring
release of approximately $1.6 million of deferred revenue related to the
conversion of the Company's Belgium and Holland offices to an independent agency
and to the conversion of certain of the Company's agents to distributors.
Included in fiscal 1994 operating expenses was approximately $.9 million of
costs associated with the recording of the maintenance revenue.
Implementation, consulting and other services revenue in fiscal 1995 increased
31% to $22.4 million from $17.1 million in fiscal 1994. The increased number of
desktop and client/server licenses sold during the fiscal period, in all three
decision support market areas, created increased demand for implementation and
consulting services.
Operating expenses, excluding restructuring and unusual charges, were $99.5
million, with an operating profit margin of 8%, in fiscal 1995, compared with
operating expenses of $92.6 million and an operating profit margin of 4% in
fiscal 1994.
Selling and marketing expense in fiscal 1995 was $45.3 million, or 42% of
revenue, compared with $46.5 million, or 48% of revenue in fiscal 1994. The
decrease was principally due to a $5.4 million reduction in agency fees as a
result
12
13
of the conversion of certain agents to distributors, as described above.
Partially offsetting this decline was a $3.8 million increase in direct selling
and marketing expenses during fiscal 1995 in support of increased revenue.
Cost of revenue and support in fiscal 1995 was $24.8 million, or 23% of revenue,
compared with $17.7 million, or 18% of revenue in fiscal 1994. The increase is
primarily attributed to both royalty fees related to the use of Arbor Software
Corporation's database engine, Essbase, in certain Comshare products and
personnel and outside contract costs associated with the growth in
implementation and consulting services.
Internal research and product development expense in fiscal 1995 was $16.2
million, or 15% of revenue, compared with $19.3 million, or 20% of revenue in
fiscal 1994. The decrease was primarily attributable to staff reductions made at
the end of fiscal 1994. These reductions principally reflect the Company's
development strategy which includes the increased utilization of technology
developed by third parties to shorten development cycles, minimize investment in
software tools and accelerate time to market. The decrease in research and
product development costs resulted in lower capitalization of internally
developed software in fiscal 1995 of $11.7 million, or 11% of revenue, compared
with $13.2 million, or 14% of revenue in fiscal 1994. Software amortization
expense was $13.2 million in the current fiscal year, or 12% of revenue,
compared with $12.5 million, or 13% of revenue in fiscal 1994. The increase in
amortization expense was a result of new client/server products released during
the last year. The Company does not expect amortization expenses related to
internally developed software to change materially in fiscal 1996.
General and administrative expense in fiscal 1995 was $11.7 million, or 11% of
revenue, compared to $9.9 million, or 10% of revenue in fiscal 1994. General and
administrative expense increased only 6% in fiscal 1995, as compared with the
prior year, after excluding the $1.1 million gain on the sale of undeveloped
land which was included in general and administrative expense in fiscal 1994.
General and administrative employee expenses relating to relocation, travel and
incentives contributed to the increase.
An unusual charge of $6.4 million was recorded in fiscal 1995, due to the
write-off of capitalized software associated with the Company's mainframe
products. The write-off was the result of the Company's fiscal 1996 product
plans to focus primarily on desktop and client/server software and the decreased
industry emphasis on mainframe decision support software products. In addition,
the Company recently implemented a marketing strategy to migrate its existing
clients using mature mainframe products to its new client/server products. The
above factors will reduce the future revenue from mainframe software, and as a
result the Company wrote-off the remaining capitalized mainframe software.
Interest expense in fiscal 1995 was $.7 million, compared with $.6 million is
fiscal 1994. The increase is primarily due to the loan origination fees
associated with amending and restating the domestic credit agreement.
The benefit from income taxes was $3.0 million in fiscal 1995, as compared with
an income tax provision of $.9 million for fiscal 1994. The income tax benefit
included the release of tax valuation reserves of $2.5 million related to tax
credits, this is attributable to the significant improvement in the Company's
profitability in fiscal 1995, which allowed the realization of a significant
portion of these credits. In addition, settlements with tax authorities
regarding certain outstanding issues allowed the Company to release tax reserves
of $1.6 million previously established against these exposures. The net tax
assets remaining are projected by the Company to be utilized by fiscal 1997,
well before expiration. A comparative analysis of the factors influencing the
effective income tax rate is presented in Note 8 of the Notes to Consolidated
Financial Statements.
Approximately 55% of Comshare's fiscal 1995 revenue and expenses were from
outside North America and most of the Company's international revenue is
denominated in foreign currencies. Foreign currency fluctuations in fiscal 1995
had minimal impact on operating income as currency fluctuations on revenue
denominated in a foreign currency were offset by expenses denominated in foreign
currency. Overall, revenue and expenses would have been approximately $3.6
million and $3.3 million lower, respectively, with an estimated $.3 million
negative impact on pre-tax profit for fiscal 1995, at comparable exchange rates.
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 had an exchange gain of $.3
million in fiscal 1995, attributable to the strengthening of the Deutsche mark
and French franc against the British pound. 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
13
14
other types of derivatives to hedge such exposures nor does it speculate in
foreign currency. In general, the Company only uses forward exchange contracts
to hedge against large selective transactions that present the most exposure to
exchange rate fluctuations. The Company had two forward contracts totaling $2.2
million outstanding at June 30, 1995.
Inflation did not have a material impact on the Company's revenue or income from
operations in fiscal 1995 or fiscal 1994.
1994 COMPARED WITH 1993
Revenue for the fiscal year ended June 30, 1994 declined by 8% to $96.6 million
from $105.2 million in fiscal 1993. The decrease was principally due to both the
decline in revenue from mainframe sources and the weakening of foreign
currencies against the U.S. dollar in fiscal 1994. Overall revenue for fiscal
1994 would have been approximately $5.5 million higher, compared with fiscal
1993 levels, at comparable exchange rates.
Total software license fees declined 6% to $37.9 million in fiscal 1994 from
$40.4 million in fiscal 1993. License fees from desktop and client/server
products grew 18% to $28.2 million in fiscal 1994 from $24.0 million in fiscal
1993. Desktop and client/server products license fees represented 75% of total
software license fee revenue in fiscal 1994, compared with 59% in fiscal 1993.
License fees from the Company's mainframe products declined 42% to $9.4 million
in fiscal 1994 from $16.3 million in fiscal 1993. The Company believes that this
decline was due to the industry slowdown in sales of mainframe computer software
as customers migrated to new generation client/server operating systems from
their traditional mainframe operating systems.
In the EIS market, license fees declined 18% to $23.7 million from $28.8 million
in fiscal 1993, primarily due to the decline in mainframe license fee revenue
offset by the revenue resulting from the March 1994 release of the Company's
Commander OLAP product. License fees from financial reporting applications
remained essentially unchanged in fiscal 1994 at $7.3 million, compared with the
prior year. Retail decision support license fees increased 54% to $6.5 million
in fiscal 1994 from $4.2 million in fiscal 1993, principally as a result of the
international release of a new Windows version of ARTHUR Merchandise Planning.
Total maintenance revenue declined by 3% to $41.6 million in fiscal 1994 from
$43.1 million in 1993. Mainframe maintenance revenue declined 13% to $22.6
million in fiscal 1994 from $25.9 million in fiscal 1993. Offsetting the decline
was the increase in maintenance revenue from desktop and client/server products
which increased 12% to $18.5 million in fiscal 1994 from $16.5 million in fiscal
1993.
During fiscal 1994 maintenance revenue benefited from the release of
approximately $1.6 million of deferred revenue related to the conversion of the
Company's Belgium and Holland offices to an independent agency and to the
conversion of certain of the Company's agents to distributors. Included in
operating expenses was approximately $.9 million of costs associated with the
recording of the maintenance revenue.
Implementation and consulting services revenue declined 21% to $17.1 million in
fiscal 1994 from $21.7 million in fiscal 1993. The decrease in implementation
and consulting services revenue was due partially to the decline in mainframe
software revenue and increased competition from small implementation and
consulting service companies, as well as to disruptions in France due to
management changes in the second quarter.
Operating expenses for fiscal 1994 and fiscal 1993 included $2.3 million and
$1.5 million, respectively, of restructuring charges. Excluding the
restructuring charges, operating expenses in fiscal 1994 decreased 12% to $92.6
million from $105.0 million in fiscal 1993. The weakening of foreign currencies
against the U.S. dollar in fiscal 1994 caused $4.8 million of the decline in
operating expenses from fiscal 1993 levels. The remaining $6.4 million of the
decline is primarily the result of cost containment actions taken by the Company
at the end of fiscal 1993, most of which related to personnel reductions
implemented in connection with the restructuring.
Selling and marketing expense in fiscal 1994 was $46.5 million, or 48% of
revenue, compared with $54.1 million, or 51% of revenue in fiscal 1993. The
decrease was principally due to cost containment actions taken by the Company at
the end of fiscal 1993.
Cost of revenue and support was $17.7 million, or 18% of revenue in fiscal 1994,
compared with $20.5 million or 20% of revenue in 1993. The decline was
principally caused by lower costs associated with the $4.4 million decline
14
15
in implementation and consulting services revenue. This was partially offset by
the inclusion of $1.0 million of royalty expense in fiscal 1994 for products
licensed from others for use in the Company's product offerings. The increase in
royalty expense is principally due to an increase in sales to customers
selecting a newly licensed database engine, Essbase, as part of their
information system solution beginning in March 1994.
Internal research and product development expense was $19.3 million, or 20% of
revenue in fiscal 1994, compared with $23.0 million, or 22% of revenue in fiscal
1993. The decrease was principally due to cost containment actions. The decrease
in research and product development costs resulted in lower capitalization of
internally developed software in fiscal 1994 of $13.2 million, or 14% of
revenue, compared with $15.0 million, or 14% of revenue in fiscal 1993. Software
amortization in fiscal 1994 was $12.5 million, or 13% of revenue, compared with
$10.8 million, or 10% of revenue in fiscal 1993. The increase is a result of
numerous products that were commercially released during the fourth quarter of
fiscal 1993 and the first quarter of fiscal 1994.
General and administrative expense was $9.9 million, or 10% of revenue in fiscal
1994, compared with $11.7 million, or 11% of revenue in fiscal 1993. The
decrease is primarily attributable to the $1.1 million gain on the sale of
undeveloped land in the second quarter of fiscal 1994 which was included in
general and administrative expense.
Restructuring and unusual charges were $2.3 million in fiscal 1994 and
represented provisions for management actions or plans in connection with
restructuring, primarily related to staff reductions. For the period ended June
30, 1994, the restructuring charges include staff reductions of approximately 50
employees. Restructuring charges for fiscal 1993 were $1.5 million and also
related to management actions or plans in connection with restructuring,
primarily related to staff reductions.
Interest expense was $.6 million in fiscal 1994, essentially unchanged from
fiscal 1993. Reduced loan balances were partly offset by higher interest rates
and a reduction in the amount of interest capitalized as part of capitalized
computer software. The banks with which the Company has its domestic credit
agreement reduced the interest rate on the Company's borrowings, effective
November 1, 1993, from prime plus 3% to prime plus 1%. Interest expense was
capitalized as required under accounting principles and included in capitalized
computer software.
The effective income tax rate for the year ended June 30, 1994 was 80%. The
provision for the year ended June 30, 1994 resulted from a combination of
factors including not tax benefiting certain losses and the reversal of taxes
previously provided, partially offset by ongoing tax planning. For the prior
year, there was a provision for income taxes on a loss, rather than a tax
benefit as would usually be expected, primarily caused by losses occurring in
certain countries where no tax benefit could be provided while profits occurred
in countries where a tax provision was required. A detailed comparative analysis
of the numerous factors influencing the effective income tax rate is presented
in Note 8 of the Notes to Consolidated Financial Statements.
Approximately 55% of the Company's fiscal 1994 revenue and expenses were from
outside North America. Most of the Company's international revenue is
denominated in foreign currencies. Foreign currency fluctuations in fiscal 1994
impacted operating income as currency fluctuations on revenue denominated in a
foreign currency were only partially offset by expenses denominated in a foreign
currency. Overall, revenue and expenses would have been $5.5 million and $4.8
million lower, respectively, with an estimated $.7 million positive impact on
pre-tax profit for fiscal 1994, at comparable exchange rates.
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. Exchange losses were $25,000 in fiscal 1994,
compared with exchange gains of $.5 million in fiscal 1993. The unusually high
currency gain in fiscal 1993 was principally due to Britain's withdrawal from
the European Exchange Rate Mechanism. At June 30, 1994, the Company did not have
any forward contracts.
Inflation did not have a material impact on the Company's revenue or income from
operations in fiscal 1994 or fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $23.3 million in fiscal 1995, up
$9.7 million over the prior year. Pretax profit excluding the non-cash write-off
of software was $8.6 million in fiscal 1995, contributing $7.5 million of the
15
16
increase. Due to prior year net operating losses and tax credits, only $.6
million of taxes were paid in fiscal 1995. As a result, most of the operating
profits in fiscal 1995 generated positive cash flow. The $2.7 million reduction
in accounts receivable balances during fiscal 1995, attributable to improved
collections, also contributed to the increased cash flow.
Net cash used in investing activities was $14.1 million in fiscal 1995, up $1.7
million over the prior year, primarily due to the one-time benefit in fiscal
1994 from the proceeds of the sale of undeveloped land. Additions to capitalized
computer software declined during fiscal 1995 due to the decrease in internal
product development spending.
The Company used the net cash from operating activities to fund its investing
activities and reduce long-term debt by approximately $10.0 million during
fiscal 1995.
At June 30, 1995, the Company did not have any material capital expenditure
commitments. In fiscal 1996, property and equipment purchases and additions to
internally developed software are expected to continue at levels similar to
those of fiscal 1995 and fiscal 1994.
Working capital as of June 30, 1995 was a negative $2.2 million, compared with a
negative $.5 million from the same period last year. The decrease of $1.7
million was primarily due to the $2.7 million reduction in accounts receivable,
mentioned above, offset by the $1.0 million reduction in deferred, revenue which
is included in current liabilities. Deferred revenue as of June 30, 1995 and
1994 was $18.6 million and $19.6 million, respectively. Deferred revenue
principally relates to maintenance and is essentially non-cash in nature.
Total assets were $79.3 million at June 30, 1995, as compared with total assets
of $88.9 million at June 30, 1994. The primary contributing factor to the
decrease was the write-off of $6.4 million of capitalized software associated
with the Company's mainframe products.
On October 31, 1994 the Company entered into a $14.0 million amended and
restated, domestic credit agreement with its banks which matures on October 31,
1997. The amended and restated credit agreement contains covenants regarding
among other things, working capital, leverage, net worth and payment of
dividends. Under the terms of the agreement, the Company is not permitted to pay
dividends. Permitted borrowings under the credit agreement are based on a
percentage of worldwide eligible accounts receivable. At June 30, 1995,
permitted borrowings under the agreement totaled $14.0 million, of which $3.5
million was outstanding. At June 30, 1995 interest was at the bank's prime rate
(8.75% at June 30, 1995) plus 1% until July 1, 1995, at which time it changed to
the Eurodollar rate plus applicable margin, which varies between 1 1/2% and
2 1/2%. Subsequent to year end, the banks agreed to release all security
interests in the assets of the Company previously granted to the banks.
Separately, certain of the Company's subsidiaries have local currency credit
agreements or overdraft facilities with banks totaling $3.7 million, of which
$1.9 million was outstanding at June 30, 1995. The credit agreements expire on
October 1, 1997. The interest rates generally vary with the banks' base rate.
Most of such borrowings are guaranteed by the Company.
The Company believes that the combination of present cash balances, future
operating cash flows and credit facilities are sufficient for near term
operating needs. The Company intends to fund ongoing internal software additions
and equipment purchases through cash provided by operating activities. The
Company believes it will renew or repay its long-term debt prior to its
expiration.
ITEM 8. FINANCIAL STATEMENTS
The financial statements and schedule filed herewith are set forth on the Index
to Consolidated Financial Statements and Schedule on page 16 and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
16
17
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 1995 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 1995 Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information required by this Item is incorporated herein by reference to the
Company's 1995 Proxy Statement under the captions "Further Information-Principal
Shareholders" and "Further Information-Stock Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated herein by reference to the
Company's 1995 Proxy Statement under the captions "Certain Relationships and
Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The Financial Statements filed with this report are listed in the Index
to Consolidated Financial Statements and Schedule which appears on page
19.
2. 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 19.
3. The exhibits filed with this report are listed in the Exhibit Index which
appears on page 37. 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:
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
10.01 Benefit Adjustment Plan of Comshare, Incorporated, effective June 1, 1986, as
amended -- incorporated by reference to Exhibit 10.20 to the Registrant's Form
10-K Report for the fiscal year ended June 30, 1993.
10.02 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.
10.03 Profit Sharing Plan of Comshare, Incorporated, effective July 1, 1974, as amended
-- incorporated by reference to Exhibit 10.05 to the Registrant's Form 10-K for
the fiscal year ended June 30, 1994.
10.04 Employee Stock Ownership Plan of Comshare, Incorporated, effective June 28, 1985,
as amended -- incorporated by reference to Exhibit 10.06 to the Registrant's Form
10-K for the fiscal year ended June 30, 1994.
17
18
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
10.05 Rules of the Comshare Retirement and Death Benefits Plan for employees of the
United Kingdom, effective January 1, 1991 -- as amended, incorporated by reference
to Exhibit 10.27 to the Registrant's Form 10-K Report for the fiscal year ended
June 30, 1993.
10.06 Interim Trust Deed establishing the Comshare Money Purchase Plan for employees of
the United Kingdom, effective March 1, 1994, incorporated by reference to Exhibit
10.08 to the Registrant's Form 10-K for the fiscal year ended June 30, 1994.
10.07 Employment and NonCompetition Agreement between Comshare, Incorporated and T.
Wallace Wrathall, effective as of April 1, 1994 -- incorporated by reference to
Exhibit 10.23 to the Registrant's Form 10-Q Report for the quarter ended December
31, 1994.
10.08 Amended and Restated Employee Agreement between Comshare, Incorporated and Richard
L. Crandall effective July 1, 1994, as amended -- incorporated by reference to
Exhibit 10.10 to the Registrant's Form 10-K for the fiscal year ended June 30,
1994.
10.09 Non-Competition Agreement between Comshare, Incorporated and Richard L. Crandall
incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-K for the
fiscal year ended June 30, 1994.
10.10 Letter Agreement from Comshare, Incorporated to Kathryn A. Jehle regarding terms
of employment dated April 18, 1994 -- incorporated by reference to Exhibit 10.12
to the Registrant's Form 10-K for the fiscal year ended June 30, 1994.
10.11 Description of Incentive Agreements for certain executive officers for fiscal
years 1993, 1994 and 1995-1997 -- incorporated by reference to Exhibit 10.13 to
the Registrant's Form 10-K for the fiscal year ended June 30, 1994.
10.12 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.
10.13 Trust Agreement between Comshare, Incorporated and Vanguard Fiduciary for
maintaining the Profit Sharing Plan of Comshare, Incorporated effective March 31,
1992, as amended -- incorporated by reference to Exhibit 10.15 to the Registrant's
Form 10-K for the fiscal year ended June 30, 1994.
10.14 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.
10.15 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.
10.16 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.
(b) The Company did not file any reports on Form 8-K for the quarter ended June
30, 1995.
18
19
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Public Accountants............................................. 20
Consolidated Statement of Operations for the Fiscal Years Ended
June 30, 1995, 1994 and 1993....................................................... 21
Consolidated Balance Sheet as of June 30, 1995 and 1994.............................. 22-23
Consolidated Statement of Cash Flows for the Fiscal Years Ended
June 30, 1995, 1994 and 1993....................................................... 24
Consolidated Statement of Shareholders' Equity for the Fiscal Years Ended
June 30, 1995, 1994 and 1993....................................................... 25
Notes to Consolidated Financial Statements........................................... 26-34
SCHEDULE
II. Consolidated Schedule of Valuation and Qualifying Accounts....................... 35
19
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comshare, Incorporated:
We have audited the accompanying consolidated balance sheet of COMSHARE,
INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. 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 generally accepted auditing
standards. 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, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles.
As explained in Note 8 to the financial statements, effective July 1, 1992, the
Company changed its method of accounting for income taxes.
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, 1995
20
21
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1995 1994 1993
-------- -------- --------
REVENUE
Software licenses...................................... $ 49,294 $ 37,871 $ 40,397
Software maintenance................................... 36,649 41,625 43,064
Implementation, consulting and other services.......... 22,415 17,130 21,733
-------- -------- --------
108,358 96,626 105,194
COSTS AND EXPENSES
Selling and marketing.................................. 45,283 46,457 54,065
Cost of revenue and support............................ 24,799 17,670 20,528
Internal research and product development.............. 16,180 19,293 22,989
Internally capitalized software........................ (11,667) (13,193) (15,035)
Software amortization.................................. 13,250 12,517 10,761
General and administrative............................. 11,663 9,891 11,668
Unusual charge......................................... 6,365 -- --
Restructuring related costs............................ -- 2,343 1,489
-------- -------- --------
105,873 94,978 106,465
-------- -------- --------
Income (loss) from operations............................ 2,485 1,648 (1,271)
Other income (expense)
Interest income........................................ 157 79 298
Interest expense....................................... (669) (568) (611)
Exchange gain (loss)................................... 307 (25) 480
-------- -------- --------
(205) (514) 167
-------- -------- --------
INCOME (LOSS) BEFORE TAXES............................... 2,280 1,134 (1,104)
Provision (benefit) for income taxes..................... (3,048) 912 659
-------- -------- --------
NET INCOME (LOSS)........................................ $ 5,328 $ 222 $ (1,763)
======== ======== ========
Weighted average number of common and dilutive
common equivalent shares............................... 5,599 5,489 5,319
======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE....................... $ .95 $ .04 $ (.33)
======== ======== ========
The accompanying notes are an integral part of this statement.
21
22
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
AS OF JUNE 30,
------------------
1995 1994
------- -------
ASSETS
CURRENT ASSETS
Cash.................................................................... $ 1,398 $ 1,774
Accounts receivable, less allowance for doubtful accounts
of $887 in 1995, and $1,161 in 1994.................................. 29,531 30,846
Deferred income taxes................................................... 783 1,487
Prepaid expenses........................................................ 4,098 4,012
------- -------
Total current assets................................................. 35,810 38,119
PROPERTY AND EQUIPMENT, at cost
Computers and other equipment........................................... 24,023 24,278
Leasehold improvements.................................................. 3,053 4,258
------- -------
27,076 28,536
Less -- Accumulated depreciation........................................ 23,663 24,338
------- -------
Property and equipment, net............................................. 3,413 4,198
COMPUTER SOFTWARE, net of accumulated amortization of
$70,308 in 1995 and $50,114 in 1994..................................... 32,676 40,236
GOODWILL, net of accumulated amortization of
$1,751 in 1995 and $1,437 in 1994....................................... 2,246 2,033
OTHER ASSETS.............................................................. 5,165 4,358
------- -------
$79,310 $88,944
======= =======
The accompanying notes are an integral part of this statement.
22
23
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
AS OF JUNE 30,
------------------
1995 1994
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable........................................................... $ -- $ 29
Accounts payable........................................................ 11,342 10,608
Accrued liabilities --
Payroll.............................................................. 3,467 4,910
Taxes, other than income taxes....................................... 1,486 1,399
Other................................................................ 1,465 1,364
------- -------
Total accrued liabilities.......................................... 6,418 7,673
Income taxes............................................................ 1,602 641
Deferred revenue........................................................ 18,599 19,617
------- -------
Total current liabilities.......................................... 37,961 38,568
LONG-TERM DEBT............................................................ 5,436 15,354
DEFERRED INCOME TAXES..................................................... 275 5,511
OTHER LIABILITIES......................................................... 3,090 3,005
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares;
none issued........................................................ -- --
Common stock, $1.00 par value;
authorized 10,000,000 shares;
outstanding 5,480,823 shares in
1995 and 5,357,811 shares in 1994.................................... 5,481 5,358
Capital contributed in excess of par.................................... 15,939 14,661
Retained earnings....................................................... 15,500 10,190
Currency translation adjustments........................................ (3,239) (3,504)
------- -------
33,681 26,705
Less -- Notes receivable................................................ 1,133 199
------- -------
Total shareholders' equity......................................... 32,548 26,506
------- -------
$79,310 $88,944
======= =======
The accompanying notes are an integral part of this statement.
23
24
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1995 1994 1993
-------- -------- --------
OPERATING ACTIVITIES
NET INCOME (LOSS)............................................. $ 5,328 $ 222 $ (1,763)
Adjustments to reconcile net income (loss) to
Net cash provided by operating activities:
Depreciation and amortization............................... 15,873 15,893 15,491
Write-off of capitalized software........................... 6,365 -- --
Gain on sale of undeveloped land............................ -- (1,102) --
Provision for losses on accounts receivable................. (119) 140 586
Loss on sale of property and equipment...................... 28 3 71
Changes in operating assets and liabilities:
Accounts receivable...................................... 2,675 585 4,601
Prepaid expenses......................................... 77 929 1,142
Other assets............................................. -- 35 1,122
Accounts payable......................................... (469) (1,083) (2,716)
Accrued liabilities...................................... (337) 853 (2,927)
Deferred revenue......................................... (1,489) (3,875) (396)
Deferred income taxes.................................... (4,645) 732 528
Other liabilities........................................ 42 301 607
-------- -------- --------
Net cash provided by operating activities................ 23,329 13,633 16,346
INVESTING ACTIVITIES
Additions to computer software.............................. (11,667) (13,187) (15,811)
Payments for property and equipment......................... (1,207) (1,199) (1,645)
Proceeds from sale of undeveloped land...................... -- 3,376 --
Other....................................................... (1,227) (1,382) (235)
-------- -------- --------
Net cash used in investing activities.................... (14,101) (12,392) (17,691)
FINANCING ACTIVITIES
Net repayments under notes payable.......................... (33) (40) (590)
Net borrowings (repayments) under long-term debt............ (10,044) (2,046) 768
Stock options exercised..................................... 248 74 358
Other....................................................... 202 (42) --
-------- -------- --------
Net cash provided by (used in) financing activities...... (9,627) (2,054) 536
EFFECT OF EXCHANGE RATE CHANGES............................... 23 (6) (408)
-------- -------- --------
NET DECREASE IN CASH.......................................... (376) (819) (1,217)
-------- -------- --------
BALANCE AT BEGINNING OF YEAR.................................. 1,774 2,593 3,810
-------- -------- --------
BALANCE AT END OF YEAR........................................ $ 1,398 $ 1,774 $ 2,593
======== ======== ========
Supplemental disclosures:
Cash paid for interest...................................... $ 690 $ 624 $ 540
======== ======== ========
Cash paid for income taxes.................................. $ 558 $ 481 $ 1,113
======== ======== ========
The accompanying notes are an integral part of this statement.
24
25
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1995 1994 1993
------- ------- -------
COMMON STOCK
Balance beginning of year...................................... $ 5,358 $ 5,346 $ 5,287
Employee Stock Purchase Plan................................... 15 -- --
1994 Executive Stock Purchase Program.......................... 69 -- --
Retirement of shares........................................... (1) -- (18)
Stock options exercised........................................ 40 12 77
------- ------- -------
Balance end of year............................................ 5,481 5,358 5,346
------- ------- -------
CAPITAL CONTRIBUTED IN EXCESS OF PAR
Balance beginning of year...................................... 14,661 14,599 14,200
Employee Stock Purchase Plan................................... 162 -- --
1994 Executive Stock Purchase Program.......................... 890 -- --
Retirement of shares........................................... (4) -- (50)
Stock options exercised........................................ 230 60 436
Tax benefits related to stock options.......................... -- 2 13
------- ------- -------
Balance end of year............................................ 15,939 14,661 14,599
------- ------- -------
RETAINED EARNINGS
Balance beginning of year...................................... 10,190 9,968 11,831
Net income (loss).............................................. 5,328 222 (1,763)
Retirement of shares........................................... (18) -- (100)
------- ------- -------
Balance end of year............................................ 15,500 10,190 9,968
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS
Balance beginning of year...................................... (3,504) (3,553) (1,165)
Translation adjustments........................................ 265 49 (2,388)
------- ------- -------
Balance end of year............................................ (3,239) (3,504) (3,553)
------- ------- -------
LESS -- NOTES RECEIVABLE
Balance beginning of year...................................... 199 199 199
1994 Executive Stock Purchase Program.......................... 934 -- --
------- ------- -------
Balance end of year............................................ 1,133 199 199
------- ------- -------
Total shareholders' equity.................................. $32,548 $26,506 $26,161
======= ======= =======
The accompanying notes are an integral part of this statement.
25
26
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
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 license fees, software
maintenance service fees and implementation, consulting and other service fees.
Software license revenue, including sales to distributors, is recognized when a
customer contract is fully executed and the software has been shipped. Software
maintenance revenue, whether bundled with product license or priced separately,
is recorded as deferred revenue on the balance sheet when invoiced and is
recognized over the term of the maintenance contract. Implementation, consulting
and other services revenue is recognized as the services are performed.
EXPENSE CLASSIFICATION. Selling and marketing expense includes advertising and
agency fees. Cost of revenue and support includes personnel and other costs
related to produce the implementation and consulting services revenue, customer
support costs, direct cost of producing software and royalty expense for
products licensed from others for use in the Company's product offerings.
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.
Foreign currency transaction gains and losses are included in net income.
The Company at various times has entered into forward exchange contracts to
hedge exposures related to foreign currency transactions. The Company does not
use any other types of derivatives to hedge such exposures nor does it speculate
in foreign currency. The Company only uses forward exchange contracts to hedge
against large selective transactions that present the most exposure to exchange
rate fluctuations. The Company entered into a forward contract on September 9,
1994 where it purchased $1,500,000 for British pounds with a maturity date of
September 29, 1995. The Company also entered into a forward contract on June 30,
1995 where it sold $750,000 for Canadian dollars with a maturity date of August
31, 1995. The carrying value of these contracts approximates the fair market
value.
Statement of Financial Accounting Standards No. 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" requires
additional disclosures regarding the nature of derivatives held. This statement
is required to be adopted by the Company during its fiscal year ended June 30,
1996.
CASH. Cash includes investments in highly liquid investments with maturities of
three months or less at the time of acquisition.
INTERNAL RESEARCH AND PRODUCT DEVELOPMENT. Internal research and product
development includes all such expense before computer software capitalization
and amortization.
COMPUTER SOFTWARE. The costs of developing and purchasing new software products
and enhancements to existing software products are capitalized after
technological feasibility is established. These costs include capitalized
interest of $681,000, $814,000, and $906,000 in fiscal 1995, 1994 and 1993,
respectively. The capitalized development costs are amortized over their
estimated service lives which are generally a rolling three years in 1993, 1994
and 1995. The policy is reevaluated and adjusted as necessary at the end of each
accounting period. On an ongoing basis, management reviews the valuation and
amortization of capitalized development costs. As part of this review, the
Company considers the value of future cash flows attributable to the capitalized
development costs in evaluating potential impairment of the asset. In addition
to the internally capitalized software, the Company expended $776,000 on
purchased software during the year ended June 30, 1993. There were no
expenditures for purchased software for the years ended June 30, 1994 and 1995.
26
27
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPRECIATION. 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.
GOODWILL. Goodwill represents the unamortized cost in excess of fair value of
net assets acquired and is 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.
OTHER ASSETS. Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. This statement is required to be adopted by the Company
during its fiscal year ended June 30, 1997. Although a detailed analysis has not
been performed, the Company believes there would be no material impact on its
financial statements, if this statement was adopted as of June 30, 1995.
EARNINGS PER SHARE. Earnings 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.
RECLASSIFICATIONS. For the year ended June 30, 1995, the Company changed its
presentation of cash flows from operating activities from the direct method to
the indirect method.
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform with 1995 presentation.
2. RESTRUCTURING AND UNUSUAL CHARGES
During the year ended June 30, 1995, the Company recorded an unusual charge of
$6,365,000. This charge related to the write-off of capitalized software
associated with its mature mainframe products. The write-off of capitalized
software associated with the Company's mainframe products is the result of
current industry trends and reflects the Company's strategic product plan to
focus on desktop and client/server software products.
During the years ended June 30, 1994 and 1993, the Company made provisions
totaling $2,343,000 and $1,489,000, respectively, for management actions or
plans in connection primarily with staff reductions related to its
restructuring. For the period ended June 30, 1994, the restructuring charges
include staff reductions of approximately 50 employees and estimated savings of
$4,000,000 was achieved in fiscal 1995. At June 30, 1995, $554,000 remains to be
paid for contractual obligations related to restructuring actions taken during
1994.
3. BORROWINGS
Borrowing components are as follows (in thousands):
1995 1994
------ -------
Lines of credit............................................. $5,436 $15,354
Notes payable............................................... -- 29
------ -------
Total outstanding...................................... 5,436 15,383
Less current portion........................................ -- 29
------ -------
$5,436 $15,354
====== =======
On October 31, 1994 the Company entered into a $14,000,000 amended and restated,
domestic credit agreement with its banks which matures on October 31, 1997. The
amended and restated credit agreement contains covenants regarding among other
things, working capital, leverage, net worth and payment of dividends. Under the
terms of the agreement, the Company is not permitted to pay dividends. Permitted
borrowings under the credit agreement are
27
28
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on a percentage of worldwide eligible accounts receivable and worldwide
borrowings. At June 30, 1995, the permitted borrowings available under the
agreement were $14,000,000, of which $3,500,000 was outstanding. Interest was at
the bank's prime rate (8.75% at June 30, 1995) plus 1% and has been reduced
effective July 1, 1995, upon the Company's meeting certain financial criteria,
to the Eurodollar rate plus applicable margin, which varies between 1 1/2% and
2 1/2%. Subsequent to year end, the banks agreed to release all security
interests in the assets of the Company previously granted to the banks.
Separately, certain of the Company's subsidiaries entered into local currency
credit agreements or overdraft facilities in various currencies with banks
totaling $3,664,000. At June 30, 1995, the Company has outstanding borrowings of
$1,256,000 in British pounds and $680,000 in German marks. The credit agreements
expire on October 1, 1997. The interest rates generally vary with the banks'
base rate. Most of such borrowings are guaranteed by the Company.
4. SHAREHOLDERS' EQUITY
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.
The Company's senior executives are encouraged to own Comshare common stock. To
facilitate such ownership, the shareholders approved the 1994 Executive Stock
Purchase Program which enables such executives to purchase Comshare common stock
at then current market prices directly from the Company via a promissory note.
The promissory note cannot exceed the executive's base annual salary and is
secured by the related common stock issued by the Company. The promissory note
matures four years from the date of issuance. Interest is at the prime rate plus
1% and may be deferred until the promissory note matures. A total of 200,000
shares of the Company's common stock has been reserved for issuance under the
1994 Executive Stock Purchase Program. For the year ended June 30, 1995, a total
of 69,363 shares at prices ranging from $13.00 to $18.50 were issued in exchange
for notes totaling $934,000.
5. STOCK OPTIONS
The Company has two stock option plans, the 1988 Stock Option Plan (the "1988
Plan") and the 1994 Directors Stock Option Plan (the "Directors Plan") which was
adopted in November, 1994.
The Company's 1988 Plan provides for the grant of both incentive stock options
and non-qualified options to officers and key employees. Options under the 1988
Plan are granted at 100% of market price on 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. The Board of Directors may, at its discretion, grant stock
appreciation rights in connection with the grant of options, but to date has not
elected to do so.
Effective June 25, 1993, the Company offered current option holders except for
the Company's senior executive officers the opportunity to exchange outstanding
options, for an equal number of options of the Company's common stock, at the
current market price of $6.125. All eligible option holders accepted this offer
and the Company canceled the previous options and granted new options
representing 311,760 shares of common stock under the Company's 1988 Plan. The
new options vest over four years effective from the new date of grant.
Effective August 13, 1993 and September 23, 1993, the Company offered the senior
executives the opportunity to exchange certain outstanding options, for an equal
number of options of the Company's common stock, at the current market price of
$9.00 and $9.25, respectively. The executive option holders accepted this offer
and the Company canceled certain of the previous options and granted new options
representing 134,000 shares of common stock under the Company's 1988 Plan. The
new options vest over four years effective from the new date of grant.
The 1988 Stock Option Plan was amended in November, 1994 to increase the number
of shares of Common stock authorized for grant from 600,000 shares to 850,000.
28
29
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1995, the Company has reserved 795,285 shares of common stock for
the exercise of employee stock options.
Stock option activity for the 1988 Plan is summarized below:
NUMBER PRICE
OF SHARES PER SHARE
--------- ----------------
Outstanding at June 30, 1992........................ 870,510 $5.75 to $22.00
Granted............................................. 352,760 6.13 to 10.50
Exercised........................................... (77,000) 5.75 to 7.25
Canceled............................................ (355,510) 7.25 to 20.88
---------
Outstanding at June 30, 1993........................ 790,760 6.13 to 22.00
Granted............................................. 235,000 9.00 to 13.75
Exercised........................................... (11,750) 6.13 to 6.13
Canceled............................................ (475,498) 6.13 to 22.00
---------
Outstanding at June 30, 1994........................ 538,512 6.13 to 16.75
Granted............................................. 144,000 11.00 to 19.50
Exercised........................................... (40,465) 6.13 to 6.13
Canceled............................................ (131,697) 6.13 to 16.75
---------
Outstanding at June 30, 1995........................ 510,350 $6.13 to $19.50
========
Exercisable at June 30, 1995........................ 121,850
========
The 1994 Directors Stock Option plan was approved by the shareholders in
November, 1994. The Directors Plan provides for the issuance of options to
purchase up to 100,000 shares of the Company's common stock to nonemployee
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. In
November, 1994, a total of 35,000 options were granted, with each of the
Company's seven outside directors receiving 5,000 options at $12.50. None of the
options was exercisable as of June 30, 1995.
6. EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan was approved by the shareholders in November,
1994. A total of 200,000 shares of the Company's common stock have been reserved
for issuance under the Employee Stock Purchase Plan. The Employee Stock Purchase
Plan allows participating employees to purchase through payroll deductions
shares of the Company's common stock at 85% of the fair market value at July 1
and January 1. Substantially all full time employees are eligible to participate
in the Employee Stock Purchase Plan. During the year ended June 30, 1995, 14,556
shares were issued at $12.11 per share under the Employee Stock Purchase Plan.
7. BENEFIT PLANS
The Company has profit sharing and employee stock ownership plans covering
substantially all United States employees. The profit sharing plan provides for
a minimum annual contribution of 2% of an employee's salary, and both plans
require the Company to make matching contributions based on employee 401K
contributions. 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 contributions,
other than the above, are discretionary and are determined by the Board of
Directors. The total contributions were $1,224,000 in 1995, $1,007,000 in 1994,
$1,129,000 in 1993.
A subsidiary in the United Kingdom maintains, through a trustee, a defined
benefit pension plan for substantially all of its employees hired before January
1, 1994 and a defined contribution plan for employees hired January 1, 1994
29
30
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or later. The defined contribution plan provides that employees contribute a
minimum of 5% of their pensionable salary with the Company contributing 5%. The
benefits of the defined pension plan, which are pay related, are integrated with
and supplement the benefits called for under the applicable laws of the United
Kingdom.
The components of pension expense are as follows (in thousands):
1995 1994 1993
------- ------- -------
Service cost for benefits earned during the year................. $ 540 $ 501 $ 485
Interest cost on projected benefit obligation.................... 1,292 1,111 962
Actual return on assets.......................................... (1,347) (1,347) (4,916)
Net amortization and deferral.................................... 101 261 3,770
------- ------- -------
Net pension expense.............................................. $ 586 $ 526 $ 301
======= ======= =======
The funded status of the pension plan is as follows (in thousands):
1995 1994
------- -------
Actuarial present value of benefit obligations:
Vested benefits......................................................... $14,705 $11,801
Non-vested benefits..................................................... 29 41
------- -------
Accumulated benefit obligation....................................... 14,734 11,842
Effects of salary progression........................................... 1,664 1,241
------- -------
Projected benefit obligation......................................... 16,398 13,083
Plan assets at fair value................................................. 15,103 13,997
------- -------
Plan assets under (over) projected benefit obligation..................... $ 1,295 $ (914)
======= =======
Amounts not recognized in balance sheet:
Unamortized transition obligation....................................... $ 702 $ 748
Unamortized net (gain) loss............................................. 2,888 (81)
------- -------
$ 3,590 $ 667
======= =======
The actuarial present value of the projected benefit obligation was determined
using a weighted average discount rate of 8.5% and an annual increase in future
compensation of 6.5% for fiscal 1995 calculations; for the fiscal years 1994 and
1993 a weighted average discount rate of 9% and an annual rate of increase in
future compensation of 7% was used to project benefit obligations. The long term
weighted average rate of return on assets used was 8.5%, 10% and 12% for 1995,
1994 and 1993, respectively.
The Company provides defined retirement benefits to the employees of the other
foreign subsidiaries through various contribution plans. The amount charged to
expense for these benefits was $142,000 in fiscal 1995, $201,000 in fiscal 1994
and $269,000 in fiscal 1993.
8. INCOME TAXES
During 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The statement
requires a change in the method of financial accounting and reporting for income
taxes from the deferral method to an asset and liability approach. The adoption
of this standard had no
30
31
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
material effect on income. A summary of income (loss) before provision (benefit)
for income taxes and components of the provision (benefit) for income taxes for
the years ended June 30 is as follows (in thousands):
1995 1994 1993
------- ------- -------
Income (loss) before provision (benefit) for income taxes:
Domestic.................................................. $ 486 $(2,270) $(1,884)
Foreign................................................... 1,794 3,404 780
------- ------- -------
$ 2,280 $ 1,134 $(1,104)
======= ======= =======
Domestic provision (benefit) for income taxes:
Current................................................... $ (15) $ (230) $ 229
Deferred.................................................. (2,773) (205) (678)
Foreign provision (benefit) for income taxes:
Current................................................... 1,499 281 (99)
Deferred.................................................. (1,759) 1,066 1,207
------- ------- -------
Provision (benefit) for income taxes........................ $(3,048) $ 912 $ 659
======= ======= =======
The differences between the United States Federal statutory income tax provision
(benefit) and the consolidated income tax provision (benefit) for the years
ended June 30 are summarized as follows (in thousands):
1995 1994 1993
------- ------- -------
Federal statutory provision (benefit)....................... $ 775 $ 386 $ (375)
Non-deductible meals and entertainment...................... 109 83 44
State income taxes, net of federal tax benefit.............. 67 41 27
Increase in valuation reserve due to domestic and foreign
losses without tax benefit and tax credits................ 42 882 499
Recognition of tax credits.................................. (2,500) -- --
Tax reserves provided (released)............................ (1,600) 65 --
Tax rate differences........................................ (51) 189 343
FAS 109 adjustment.......................................... -- -- 131
Tax credits generated....................................... -- (665) --
Other, net.................................................. 110 (69) (10)
------- ------- -------
Actual income tax provision (benefit)....................... $(3,048) $ 912 $ 659
======= ======= =======
31
32
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 liability (asset) as of June 30 are summarized as
follows (in thousands):
1995 1994
------- -------
Deferred income tax liabilities:
Research and development............................................. $ 3,714 $ 7,005
Remittance of foreign earnings....................................... -- 1,151
Employee benefits.................................................... 727 535
Other................................................................ 190 208
------- -------
4,631 8,899
Deferred income tax assets:
Tax credits excluding foreign........................................ (1,534) (1,428)
Foreign tax credit................................................... (68) (1,160)
Depreciation and amortization........................................ (1,075) (1,196)
Net operating loss................................................... (493) (2,708)
Deferred revenue..................................................... (474) (997)
Employee benefits.................................................... (640) (680)
Other................................................................ (1,224) (1,044)
------- -------
(5,508) (9,213)
Valuation allowance.................................................... 369 4,338
------- -------
(5,139) (4,875)
------- -------
Net deferred income tax liability (asset).............................. $ (508) $ 4,024
======= =======
At June 30, 1995, for income tax purposes, the Company and certain of its
foreign subsidiaries had available net operating loss carryforwards of
approximately $493,000. If not used, these net operating loss carryforwards, as
well as the Company's general business tax credits, will expire between 1998 and
2009.
Income taxes have been provided on all undistributed earnings of foreign
subsidiaries which are expected to be remitted to the Company.
9. LEASES
The Company leases most of its office space and certain of its equipment.
Initial lease terms vary in length; several of the leases contain renewal
options. Future minimum lease payments under noncancellable operating leases are
as follows (in thousands):
Fiscal Year ending June 30,
1996...................................................... $ 5,130
1997...................................................... 4,309
1998...................................................... 3,513
1999...................................................... 2,722
2000...................................................... 2,642
After 2000................................................ 18,955
-------
$37,271
=======
During 1988, the Company purchased its London sales and administrative office
building; it was also sold in 1988 along with leasehold improvements and leased
back. The gain on the sale was deferred. During 1992, the Company consolidated
this facility with its former London computer center. The Company has thus
reduced the deferred gain
32
33
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the sale by $1,135,000 to provide for the estimated costs until the lease
obligations are assumed by a new tenant.
Total rental expense was $7,252,000 in fiscal 1995, $7,231,000 in fiscal 1994
and $8,451,000 in fiscal 1993.
10. GEOGRAPHIC OPERATIONS AND SEGMENT INFORMATION
The following table summarizes selected financial information of the Company's
operations by geographic location (in thousands):
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1995 1994 1993
-------- -------- --------
Revenue from customers:
North America............................................... $ 48,478 $ 43,222 $ 45,596
International............................................... 59,880 53,404 59,598
-------- -------- --------
Total revenue............................................ $108,358 $ 96,626 $105,194
======== ======== ========
Operating income:
North America............................................... $ 15,205 $ 10,082 $ 10,118
International............................................... 15,392 13,938 12,163
-------- -------- --------
Total operating income................................... 30,597 24,020 22,281
Unallocated expenses, net..................................... (28,317) (22,886) (23,385)
-------- -------- --------
Income (loss) before taxes.................................... $ 2,280 $ 1,134 $ (1,104)
======== ======== ========
Identifiable assets:
North America............................................... $ 16,672 $ 21,356 $ 25,582
International............................................... 29,962 27,352 27,849
-------- -------- --------
Total identifiable assets................................ 46,634 48,708 53,431
Computer software............................................. 32,676 40,236 39,151
-------- -------- --------
Total assets.................................................. $ 79,310 $ 88,944 $ 92,582
======== ======== ========
Unallocated expenses consist of general corporate expenses, internal research
and product development expenses, interest expense and interest income. In
fiscal 1995, unallocated expenses include $6,365,000 of unusual charges related
to the write-off of capitalized software associated with the Company's mature
mainframe products.
The presentation of information on a geographical basis requires the use of
estimation techniques and does not take into account the extent to which
Comshare's marketing and management skills are inter-dependent.
The Company operates in one business segment: the development and marketing of
computer software and related services.
No customer accounted for more than 5% of total revenues in the fiscal years
ended June 30, 1995, 1994 and 1993.
33
34
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited) (in thousands
except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1995
Revenue................................................. $24,158 $27,656 $27,704 $28,840
Income (loss) from operations........................... 1,418 2,846 1,828 (3,607)
Net income.............................................. 751 1,680 1,205 1,692
Net income per share.................................... .14 .30 .21 .30
1994
Revenue................................................. $23,730 $23,779 $23,202 $25,915
Income (loss) from operations........................... 997 1,701 193 (1,243)
Net income (loss)....................................... 657 1,052 94 (1,581)
Net income (loss) per share............................. .12 .19 .02 (.30)
During the quarter ended June 30, 1995, the Company wrote-off $6,365,000 of
capitalized mainframe computer software.
The fourth quarter ended June 30, 1995 also included a $4,100,000 tax benefit
related to the recognition of prior years net operating losses and tax credits
as well as tax reserves released.
During the quarter ended June 30, 1994 the Company made provisions totaling
$2,343,000 for management actions or plans primarily in connection with staff
reductions related to restructuring.
During the quarter ended December 31, 1993, the Company concluded an agreement
to sell undeveloped land that it owned. This resulted in a gain of approximately
$1,100,000.
34
35
COMSHARE, INCORPORATED
SCHEDULE II
CONSOLIDATED SCHEDULE
OF VALUATION & QUALIFYING ACCOUNTS
BALANCE CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND FROM TRANSLATION END OF
DESCRIPTION OF PERIOD EXPENSES RESERVES ADJUSTMENTS OTHER PERIOD
- ---------------------------------- --------- ---------- ---------- ----------- ----- -------
Allowance for doubtful accounts
For the year ended June 30,:
1995......................... $ 1,161 $ (119) $ (173) $ 18 $ -- $ 887
====== ===== ===== ===== === ======
1994......................... $ 1,029 $ 140 $ (19) $ 11 $ -- $ 1,161
====== ===== ===== ===== === ======
1993......................... $ 1,366 $ 586 $ (802) $(121) $ -- $ 1,029
====== ===== ===== ===== === ======
35
36
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 28, 1995 By: /s/ KATHRYN A. JEHLE
---------------------------------------- ------------------------------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
Pursuant to the requirement of the Securities Exchange Act of 1934, 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/ T. WALLACE WRATHALL President, Chief Executive September 28, 1995
- ---------------------------------- Officer, and a Director -------------------
T. Wallace Wrathall (Principal Executive Officer)
/s/ KATHRYN A. JEHLE Senior Vice President, September 28, 1995
- ---------------------------------- Chief Financial Officer, -------------------
Kathryn A. Jehle Treasurer and Assistant Secretary
(Principal Financial Officer)
/s/ R. MICHAEL MAHONEY Director of Finance, September 28, 1995
- ---------------------------------- Chief Accounting Officer, -------------------
R. Michael Mahoney (Principal Accounting Officer)
/s/ RICHARD L. CRANDALL Chairman of the Board September 28, 1995
- ---------------------------------- -------------------
Richard L. Crandall
/s/ CLAUDE H. ALLARD Director September 28, 1995
- ---------------------------------- -------------------
Claude H. Allard
/s/ DANIEL T. CARROLL Director September 28, 1995
- ---------------------------------- -------------------
Daniel T. Carroll
/s/ STANLEY R. DAY Director September 28, 1995
- ---------------------------------- -------------------
Stanley R. Day
/s/ W. JOHN DRISCOLL Director September 28, 1995
- ---------------------------------- -------------------
W. John Driscoll
/s/ ALAN G. MERTEN Director September 28, 1995
- ---------------------------------- -------------------
Alan G. Merten
/s/ JOHN F. ROCKART Director September 28, 1995
- ---------------------------------- -------------------
John F. Rockart
/s/ BRIAN SULLIVAN Director September 28, 1995
- ---------------------------------- -------------------
Brian Sullivan
36
37
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
2.01 Asset Purchase Agreement dated March 11, 1991, and amendment to Asset Purchase
Agreement dated March 22, 1991, by and between Comshare, Incorporated and Execucom
Systems Corporation, and MPSI Systems Inc. relating to the sale of the operating
assets and business of Execucom Systems Corporation -- incorporated by reference to
Exhibit 2 to the Registrant's Form 8-K Report filed April 5, 1991.
3.01 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, 1988.
3.02 Bylaws of the Registrant, as amended.
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 Comshare, Incorporated $14,000,000 Amended and Restated Credit Agreement between
Comshare, Incorporated and NBD Bank, N.A., Society Bank, Michigan, dated October 31,
1994 -- incorporated by reference to Exhibit 4.09 to the Registrant's Form 10-Q
Report for the quarter ended September 30, 1994.
4.03 First Amendment to Comshare, Incorporated $14,000,000 Amended and Restated Credit
Agreement between Comshare, Incorporated and NBD Bank, N.A., Society Bank, Michigan
dated May 19, 1995.
4.04 Second Amendment to Comshare, Incorporated $14,000,000 Amended and Restated Credit
Agreement between Comshare, Incorporated and NBD Bank, N.A., Society Bank, Michigan
dated July 31, 1995.
10.01 Benefit Adjustment Plan of Comshare, Incorporated, effective June 1, 1986, as amended
-- incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-K Report
for the fiscal year ended June 30, 1993.
10.02 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.
10.03 Profit Sharing Plan of Comshare, Incorporated, effective July 1, 1974, as amended --
incorporated by reference to Exhibit 10.05 to the Registrant's Form 10-K for the
fiscal year ended June 30, 1994.
10.04 Employee Stock Ownership Plan of Comshare, Incorporated, effective June 28, 1985, as
amended -- incorporated by reference to Exhibit 10.06 to the Registrant's Form 10-K
for the fiscal year ended June 30, 1994.
10.05 Rules of the Comshare Retirement and Death Benefits Plan for employees of the United
Kingdom, effective January 1, 1991, as amended -- incorporated by reference to
Exhibit 10.27 of the Registrant's Form 10-K Report for the fiscal year ended June 30,
1993.
10.06 Interim Trust Deed establishing the Comshare Money Purchase Plan for employees of the
United Kingdom, effective March 1, 1994 -- incorporated by reference to Exhibit
10.08 to the Registrant's Form 10-K for the fiscal year ended June 30, 1994.
10.07 Employment and NonCompetition Agreement between Comshare, Incorporated and T. Wallace
Wrathall, effective as of April 1, 1994 -- incorporated by reference to Exhibit 10.23
to the Registrant's Form 10-Q Report for the quarter ended December 31, 1994.
10.08 Amended and Restated Employee Agreement between Comshare, Incorporated and Richard L.
Crandall effective July 1, 1994, as amended -- incorporated by reference to Exhibit
10.10 to the Registrant's Form 10-K for the fiscal year ended June 30, 1994.
10.09 Non-Competition Agreement between Comshare, Incorporated and Richard L. Crandall --
incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-K for the
fiscal year ended June 30, 1994.
10.10 Letter Agreement from Comshare, Incorporated to Kathryn A. Jehle regarding terms of
employment dated April 18, 1994 -- incorporated by reference to Exhibit 10.12 of the
Registrant's Form 10-K for the fiscal year ended June 30, 1994.
38
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
10.11 Description of Incentive Agreements for certain executive officers for fiscal years
1993, 1994, and 1995-1997 -- incorporated by reference to Exhibit 10.13 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1994.
10.12 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.
10.13 Trust Agreement between Comshare, Incorporated and Vanguard Fiduciary for maintaining
the Profit Sharing Plan of Comshare, Incorporated effective March 31, 1992, as
amended -- incorporated by reference to Exhibit 10.15 to the Registrant's Form 10-K
for the fiscal year ended June 30, 1994.
10.14 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.
10.15 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.
10.16 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.
10.17 Offer to purchase land by the University of Michigan from Comshare, Incorporated,
dated September 20, 1993 -- incorporated by reference to Exhibit 4.06 of the
Registrant's Form 10-Q Report for the quarter ended September 30, 1993.
10.18 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.
10.19 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.
10.20 Software License Agreement by and between Arbor Software Corporation and Comshare,
Incorporated dated December 23, 1993.
10.21 First Amendment to License Agreement by and between Arbor Software Corporation and
Comshare, Incorporated dated March 1, 1994.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Independent Public Accountants.
27.00 Financial Data Schedule.
28.00* Employee Stock Ownership Plan of Comshare Incorporated, Form 11-K Annual Report --
filed pursuant to Section 15(d) of the Securities Exchange Act of 1934 for the fiscal
year ended June 30, 1995.
_________________
*To be filed by amendment.