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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER 0-4096
COMSHARE, INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 994-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (SEPTEMBER 30, 1995).
OUTSTANDING AT
CLASS OF COMMON STOCK SEPTEMBER 30, 1995
--------------------- ------------------
$1.00 PAR VALUE 5,493,515 SHARES
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COMSHARE, INCORPORATED
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Condensed Consolidated Balance Sheet as of
June 30, 1995 and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3, 4
Condensed Consolidated Statement of Income for the
Three months ended September 30, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statement of Cash Flows for the
Three months ended September 30, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7, 8
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 9-12
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 12
--------------------------------
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
June 30, September 30,
1995 1995
---- ----
ASSETS (audited) (unaudited)
CURRENT ASSETS
Cash $ 1,398 $ 2,023
Accounts receivable, less allowance for doubtful
accounts of $887 as of June 30, 1995
and $910 as of September 30, 1995 29,531 30,995
Deferred income taxes 783 783
Prepaid expenses 4,098 4,140
----------------- -----------------
Total current assets 35,810 37,941
PROPERTY AND EQUIPMENT, AT COST
Computers and other equipment 24,023 23,839
Leasehold improvements 3,053 3,535
----------------- -----------------
27,076 27,374
Less - accumulated depreciation 23,663 23,867
----------------- -----------------
Property and equipment, net 3,413 3,507
COMPUTER SOFTWARE, net of accumulated amortization
of $70,308 as of June 30, 1995
and $72,800 as of September 30, 1995 32,676 32,410
GOODWILL, net of accumulated amortization
of $1,751 as of June 30, 1995
and $1,730 as of September 30, 1995 2,246 2,162
OTHER ASSETS 5,165 5,356
----------------- -----------------
$ 79,310 $ 81,376
================= =================
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
June 30, September 30,
1995 1995
---- ----
(audited) (unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,342 $ 12,564
Accrued liabilities
Payroll 3,467 2,872
Taxes, other than income taxes 1,486 1,441
Other 1,465 1,008
----------------- -----------------
Total accrued liabilities 6,418 5,321
Income taxes 1,602 2,010
Deferred revenue 18,599 18,725
----------------- -----------------
Total current liabilities 37,961 38,620
LONG-TERM DEBT 5,436 4,662
DEFERRED INCOME TAXES 275 274
OTHER LIABILITIES 3,090 3,466
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares;
none issued ----- -----
Common stock, $1.00 par value;
authorized 10,000,000 shares;
outstanding 5,480,823 shares
as of June 30, 1995 and
5,493,515 shares as of
September 30, 1995 5,481 5,494
Capital contributed in excess of par 15,939 16,024
Retained earnings 15,500 16,987
Currency translation adjustments (3,239) (3,217)
----------------- -----------------
33,681 35,288
Less - Notes receivable 1,133 934
----------------- -----------------
Total shareholders' equity 32,548 34,354
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$ 79,310 $ 81,376
================= =================
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited; in thousands, except per share data)
Three Months Ended
September 30,
---------------------
1994 1995
---- ----
REVENUE
Software licenses $ 10,006 $ 13,920
Software maintenance 8,972 9,015
Implementation, consulting and other services 5,180 5,718
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TOTAL REVENUE 24,158 28,653
COSTS AND EXPENSES
Selling and marketing 10,232 12,038
Cost of revenue and support 5,382 6,690
Internal research and product development 4,070 3,998
Internally capitalized software (3,079) (2,358)
Software amortization 3,385 2,616
General and administrative 2,750 3,041
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TOTAL COSTS AND EXPENSES 22,740 26,025
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INCOME FROM OPERATIONS 1,418 2,628
OTHER INCOME (EXPENSE)
Interest income 21 15
Interest expense (187) (156)
Exchange gain (loss) (37) (89)
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TOTAL OTHER INCOME (EXPENSE) (203) (230)
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INCOME BEFORE TAXES 1,215 2,398
Provision for income taxes 464 888
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NET INCOME $ 751 $ 1,510
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NET INCOME PER COMMON SHARE $0.14 $0.26
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
AND DILUTIVE COMMON EQUIVALENT SHARES 5,490 5,820
============= =============
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended
September 30,
----------------------------
1994 1995
---- ----
OPERATING ACTIVITIES
Net income $ 751 $ 1,510
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,096 3,198
Provision for losses on accounts receivable 27 19
Loss on sale of property and equipment 11 ---
Changes in operating assets and liabilities:
Accounts receivable (297) (1,415)
Prepaid expenses (56) (58)
Accounts payable 149 1,403
Accrued liabilities (1,579) (810)
Deferred revenue (1,044) 116
Deferred income taxes 387 2
Other liabilities 67 381
----------------- -----------------
Net cash provided by operating activities 2,512 4,346
INVESTING ACTIVITIES
Additions to computer software (3,079) (2,409)
Payments for property and equipment (165) (523)
Other (264) (332)
----------------- -----------------
Net cash used in investing activities (3,508) (3,264)
FINANCING ACTIVITIES
Net borrowings under notes payable 167 ---
Repayments under long-term debt (24) (737)
Stock options exercised 41 74
Other --- 187
----------------- -----------------
Net cash provided by (used in) financing activities 184 (476)
EFFECT OF EXCHANGE RATE CHANGES 45 19
----------------- -----------------
NET INCREASE (DECREASE) IN CASH (767) 625
BALANCE AT BEGINNING OF PERIOD 1,774 1,398
----------------- -----------------
BALANCE AT END OF PERIOD $ 1,007 $ 2,023
================= =================
SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR INTEREST $ 187 $ 118
================= =================
CASH PAID FOR INCOME TAXES $ 119 $ 537
================= =================
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, required to present fairly its consolidated balance
sheet as of September 30, 1995 and the consolidated statements of income and
cash flows for the three months ended September 30, 1994 and 1995.
The Company changed its presentation of cash flows from operating
activities from the direct method to the indirect method. The prior period
condensed consolidated financial statements have been reclassified to conform
with the current presentation.
The results of operations for the first quarter ended September 30,
1994 and 1995 are not necessarily indicative of the results to be expected in
future quarters or the full fiscal year. The software industry is generally
characterized by seasonal trends. Such trends may cause higher revenues in the
Company's last fiscal quarter as a result of efforts to exceed sales quotas,
and in the second fiscal quarter as many customers complete annual budgetary
cycles. In addition, lower revenues in the first fiscal quarter may be
principally due to the impact of slower sales during the summer months,
particularly in Europe.
NOTE B - BORROWINGS
At June 30, 1995 and September 30, 1995, the permitted borrowings
available under the Company's amended and restated domestic credit agreement
were $14,000,000, of which $3,500,000 and $2,100,000 were outstanding,
respectively.
Separately, certain of the Company's subsidiaries entered into local
currency credit agreements or overdraft facilities in various currencies with
banks totaling $4,441,000. At September 30, 1995, the Company had outstanding
borrowings of $1,901,000 in British pounds and $661,000 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.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE C - FINANCIAL INSTRUMENTS
The Company at various times has entered into forward exchange contracts
to hedge exposures related to foreign currency transactions. The Company does
not use any other types of 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 29, 1995 where it purchased $1,200,000 for British pounds
with a maturity date of December 29, 1995. The Company also entered into a
forward contract on August 31, 1995 where it sold $600,000 for Canadian dollars
with a maturity date of October 30, 1995. The carrying value of these
contracts approximates the fair market value.
NOTE D - SHAREHOLDERS' EQUITY
On October 9, 1995, the Board of Directors declared a three-for-two stock
split of the Company's Common Stock. This stock split, to be effective
November 20, 1995, is subject to approval by the Company's shareholders of an
increase in the number of authorized shares of Common Stock to 20,000,000
shares. The shareholders will vote on the proposal at the Annual Shareholders
Meeting to be held November 18, 1995. The following unaudited pro forma
summary presents the charge to capital contributed in excess of par and the
credit to common stock, as well as the impact on net income per common share as
if the transaction had been approved (in thousands, except per share data):
June 30, September 30,
1995 1995
---- ----
Common stock $ 8,221 $ 8,240
Capital contributed in excess of par $ 13,199 $ 13,278
Three Months Ended
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September 30, September 30,
1994 1995
---- ----
Net income per common share $ 0.09 $ 0.17
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Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operation.
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1994
REVENUE
Total revenue for the three months ended September 30, 1995 increased
18.6% to $28.7 million, from $24.2 million in the three months ended September
30, 1994. The primary cause of this increase in revenue was the increase in
client/server software license and maintenance revenue.
Software License Revenue. Total software license revenue for the three
months ended September 30, 1995 increased 39.1% to $13.9 million, or 48.6% of
total revenue, from $10.0 million, or 41.4% of total revenue in the three
months ended September 30, 1994. Software license revenue from client/server
products for the three months ended September 30, 1995 increased 51.1% to $13.4
million, or 96.2% of total software license revenue, from $8.9 million, or
88.6% of total software license revenue in the three months ended September 30,
1994. Software license revenue from the Company's mainframe products for the
three months ended September 30, 1995 decreased 54.1% to $0.5 million, or 3.8%
of total software license revenue, from $1.1 million, or 11.4% of total
software license revenue in the three months ended September 30, 1994.
Software license revenue from mainframe products is expected to continue to
decline as the Company continues to emphasize its client/server products.
Software license revenue increased in all three decision support market
areas. In the EIS market, software license revenue in the three months ended
September 30, 1995 increased 45.1% to $8.0 million, or 57.3% of total software
license revenue, from $5.5 million, or 54.9% of total software license revenue
in the three months ended September 30, 1994. Software license revenue for the
Company's client/server EIS products in the three months ended September 30,
1995 increased 60.7% to $7.5 million, or 53.8% of total software license
revenue, from $4.7 million, or 46.6% of total software license revenue in the
three months ended September 30, 1994, principally due to the strong demand
experienced for Commander OLAP. This increase in EIS client/server software
license revenue was partially offset by declines in EIS mainframe software
license revenue. Software license revenue for the Company's client/server
financial reporting products in the three months ended September 30, 1995
increased 58.1% to $3.3 million, or 23.5% of total software license revenue,
from $2.1 million, or 20.7% of total software license revenue in the three
months ended September 30, 1994, principally due to sales of enhanced versions
of Commander FDC and Commander Budget products during the three months ended
September 30, 1995 that were not released in the three months ended September
30, 1994. In the retail decision support applications market area, software
license revenue in the three months ended September 30, 1995 increased 15.5% to
$2.6 million, or 18.8% of total software license revenue, from $2.3 million, or
22.6% of total software license revenue in the three months ended September 30,
1994. Software license revenue for the Company's client/server retail decision
support products in the three months ended September 30, 1995 increased 24.0%
to $2.6 million, or 18.5% of total software license revenue, from $2.1 million,
or 20.7% of total software license revenue in the three months ended September
30, 1994. The increase was principally attributable to sales of an enhanced
version of ARTHUR Plan Monitor, incorporating Arbor's Essbase, during the three
months ended September 30, 1995, that was not released in the three months ended
September 30, 1994.
Software Maintenance Revenue. Software maintenance revenue was $9.0
million in each of the three month periods ended September 30, 1995 and 1994,
or 31.4% and 37.1% of total revenue, respectively. Client/server software
maintenance revenue in the three months ended September 30, 1995 increased
28.2% to $5.7 million, or 63.4% of total software maintenance revenue, from
$4.5 million, or 49.7% of total software maintenance revenue in the three
months ended September 30, 1994. The increase was principally due to the
increase in client/server license revenue during the most recent twelve months
in all three decision support market areas. Mainframe software maintenance
revenue in the three months ended September 30, 1995 decreased 25.3% to $3.3
million, or 36.6% of total software maintenance revenue, from $4.4 million, or
49.2% of total software maintenance revenue in the three months ended September
30, 1994. The decrease was primarily due to mainframe maintenance
cancellations and customer migration to client/server platforms.
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Implementation, Consulting and Other Service Revenue. Implementation,
consulting and other service revenue in the three months ended September 30,
1995 increased 10.4% to $5.7 million, or 20.0% of total revenue, from $5.2
million, or 21.5% of total revenue in the three months ended September 30,
1994. The increase in client/server software license revenue in all three
decision support markets led to increased demand for implementation and
consulting services.
COSTS AND EXPENSES
Total operating expenses in the three months ended September 30, 1995
increased 14.4% to $26.0 million, with an operating profit margin of 9.2%,
compared with total operating expenses of $22.7 million, with an operating
profit margin of 5.9% in the three months ended September 30, 1994.
Selling and Marketing Expense. Selling and marketing expense in the
three months ended September 30, 1995 increased 17.7% to $12.0 million, or
42.0% of total revenue, from $10.2 million, or 42.3% of total revenue in the
three months ended September 30, 1994. The dollar increase was principally due
to an increase in employee costs, including sales commissions, in support of
increased revenue in the three months ended September 30, 1995, compared with
the same fiscal quarter in the prior year.
Cost of Revenue and Support. Cost of revenue and support in the three
months ended September 30, 1995 increased 24.3% to $6.7 million, or 23.3% of
total revenue, from $5.4 million, or 22.3% of total revenue in the three
months ended September 30, 1994. The increase was primarily attributable to
increased royalty fees payable to Arbor as a result of increased software
license revenue from certain Comshare products which use Arbor's Essbase and to
the higher costs to support the growth in implementation, consulting and other
service revenue.
Internal Research and Product Development; Internally Capitalized
Software; Software Amortization Expense. Internal research and product
development expense in the three months ended September 30, 1995 remained
relatively constant at $4.0 million, or 14.0% of total revenue, compared with
$4.1 million, or 16.8% of total revenue in the three months ended September 30,
1994. Internally capitalized software in the three months ended September 30,
1995 decreased 23.4% to $2.4 million, or 8.2% of total revenue, from $3.1
million, or 12.7% of total revenue in the three months ended September 30,
1994. The decrease is primarily due to the increased levels of development
costs that were not capitalizable. Software amortization expense in the three
months ended September 30, 1995 decreased 22.7% to $2.6 million, or 9.1% of
total revenue, from $3.4 million, or 14.0% of total revenue in the three
months ended September 30, 1994. The decrease in amortization expense was
principally attributable to reduced levels of capitalized software following
the write-off of capitalized mainframe software in the fourth quarter of fiscal
1995. The Company expects software amortization expense to exceed internally
capitalized software in fiscal 1996, but does not expect the excess of software
amortization expense over internally capitalized software to be materially
different from that of fiscal 1995.
General and Administrative Expense. General and administrative expense
in the three months ended September 30, 1995 increased 10.6% to $3.0 million,
or 10.6% of total revenue, from $2.8 million, or 11.4% of total revenue in the
three months ended September 30, 1994. The increase in general and
administrative expense is primarily attributable to professional services and
employee-related costs.
INTEREST EXPENSE
Interest expense in the three months ended September 30, 1995 decreased
16.6% to $156,000, or 0.5% of total revenue, from $187,000, or 0.8% of total
revenue in the three months ended September 30, 1994. The decrease was
primarily due to reduced loan balances outstanding during the period.
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PROVISION FOR INCOME TAXES
The effective income tax rate in the three months ended September 30,
1995 was 37.0%, as compared with 38.2% for the same period a year ago.
FOREIGN CURRENCY
In the three months ended September 30, 1995, 53.7% of the Company's
total revenue was from outside North America. Most of the Company's
international revenue is denominated in foreign currencies. The Company
recognizes currency transaction gains and losses in the period of occurrence.
As currency rates are constantly changing, these gains and losses can, at
times, fluctuate greatly. The Company had an exchange loss of $89,000 in the
three months ended September 30, 1995, as compared with a $37,000 exchange loss
in the three months ended September 30, 1994.
Foreign currency fluctuations in the three months ended September 30,
1995 impacted operating income as currency fluctuations on revenue denominated
in a foreign currency were offset by currency fluctuations on expenses
denominated in foreign currency. Overall, the increase in total revenue for
the three months ended September 30, 1995, compared with the three months ended
September 30, 1994, would have been approximately $0.5 million lower, offset by
a reduction in the increase in total expenses, resulting in an estimated net
$25,000 positive impact on the increase in pre-tax profit, at comparable
exchange rates.
The Company had two forward contracts totaling $1.8 million outstanding
at September 30, 1995. See Note C of Notes to Condensed Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, cash was $2.0 million and available borrowings
under the Company's lines of credit were $13.8 million, as compared with cash
of $1.4 million and available borrowings under the Company's lines of credit of
$12.2 million at June 30, 1995.
Net cash provided by operating activities was $4.3 million in the three
months ended September 30, 1995. The positive cash flow generated in the three
months ended September 30, 1995 was principally due to net income, plus
depreciation and amortization, of $4.7 million.
Net cash used in investing activities was $3.3 million in the three
months ended September 30, 1995, compared with $3.5 million in the three months
ended September 30, 1994. The decrease in net cash used in investing
activities was primarily due to a decrease in the amount of capitalized
internally developed software costs, discussed previously, partially offset by
an increase in property and equipment purchases.
The Company used the net cash from operating activities to fund its
investing activities and reduce long-term debt by approximately $0.7 million
during the three months ended September 30, 1995.
At September 30, 1995, the Company did not have any material capital
expenditure commitments.
Working capital as of September 30, 1995 was a negative $0.7 million,
compared with a negative $2.2 million as of June 30, 1995. The increase of
$1.5 million from June 30, 1995 to September 30, 1995 was primarily due to the
increase in accounts receivable.
Total assets were $81.4 million at September 30, 1995, as compared with
total assets of $79.3 million at June 30, 1995. The primary contributing
factors to the increase from June 30, 1995 to September 30, 1995 were the
increases in cash and accounts receivable balances.
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The Company recently filed a registration statement with the Securities
and Exchange Commission for a public offering of 750,000 newly issued shares
of Common Stock offered by the Company (1,125,000 shares, if the stock split
described under Item 1 Financial Statements - Notes to Condensed Consolidated
Financial Statements - Note D is consummated) and 696,666 shares of outstanding
Common Stock offered by certain selling shareholders (1,045,000 shares, if the
stock split is consummated). The Company and the selling shareholders will
also grant the managing underwriters of the offering the right to purchase up
to an additional 112,500 shares and 104,500 shares of Common Stock,
respectively, (168,750 shares and 156,750 shares, respectively, if the stock
split is consummated) exercisable during the 30-day period following the
commencement of the public offering, solely to cover over allotments, if any.
Upon completion of the public offering, the Company expects to use a portion of
the net proceeds from the public offering to pay outstanding bank borrowings
and to use the remaining net proceeds for working capital and general corporate
purposes. Pending such uses, the Company intends to invest the net proceeds
from the public offering in investment grade, short-term, interest bearing
instruments.
The Company believes that the combination of present cash balances,
future operating cash flows and credit facilities will be sufficient to meet
the Company's currently anticipated cash requirements for at least the next
twelve months.
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) The exhibit included herewith is set forth on the Index to Exhibits.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended September 30, 1995.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 24, 1995 COMSHARE, INCORPORATED
------------------ (Registrant)
/s/ Kathryn A. Jehle
--------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
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