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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, 1996
[ ] 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
Rights to Purchase Preferred Shares
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 30, 1996 based on $14.75 per share, the last sale price
for the Common Stock on such date as reported on the NASDAQ National Market
System, was approximately $132,413,000.
As of August 30, 1996 the Registrant had 9,704,621 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K Report
Portions of Proxy Statement for the into which it is incorporated
1996 Annual Meeting of Shareholders III
("The 1996 Proxy Statement")
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PART 1
ITEM 1. BUSINESS
This Business section contains forward looking statements that involve
uncertainties. Actual results could differ materially from those in the
forward looking statements due to a number of uncertainties, including, but not
limited to those discussed below, particularly in "Business - Uncertainties
Relating to Forward Looking Statements."
GENERAL
Comshare, Incorporated and its subsidiaries (collectively referred to as
"Comshare" or the "Company") develop, market and support client/server decision
support applications software designed to improve business analysis, planning,
reporting and decision making. The Company's software products enable the
enterprise-wide integration and transformation of data into business-critical
information and provide customers with robust multidimensional analysis
capabilities. More specifically, the Company focuses on delivering complete
decision support solutions by targeting specific industry markets and by
providing implementation, consulting, training and support services in these
markets. Such complete decision support solutions permit the implementation
and adoption of the Company's software applications throughout an enterprise,
thus enabling end-users to make better and faster decisions. Comshare offers
several decision support applications designed for use by customers in any
industry, as well as decision support applications targeted to meet the
specific needs of the retail and consumer packaged goods ("CPG") industries.
BUSINESS STRATEGY
The Company's objective is to be the leading provider of client/server decision
support applications software in its target markets. The Company's strategy
includes the following key elements:
1. A product strategy of offering complete decision support solutions, either
through customizable or packaged applications, targeted at specific
industry needs. The Company's software products address the full range of
a customer's information access and analysis needs from data extraction
to end-user desktop access. Packaged applications are designed to satisfy
the specific decision support needs of an industry, such as retail or CPG,
or the functional needs of a number of industries. The Company intends to
expand the range of packaged applications within its targeted vertical
markets and to add new vertical markets in the future.
2. A product development strategy which uses a common technology platform,
Comshare Application Architecture, developed in fiscal 1996, for new
products. Commander Decision is the Comshare Application Architecture
currently in use. Through the use of this common technology platform, the
Company expects to be able to develop new packaged applications more
quickly, leveraging the underlying technology capabilities of Commander
Decision. In addition, the use of a common technology platform permits
the addition of new software tools and technological advances to all
products developed using the Comshare Application Architecture at the same
time.
3. A product design strategy which capitalizes on innovative
internally-developed technology and third-party software tools offering
the latest technological advances. The Company believes the use of
third-party tools allows it to focus product development efforts on
differentiating applications and developing innovative technology, while
offering products which include the latest technological advances and
reducing product development risk and time to market.
4. A marketing strategy designed to leverage the Company's current customer
base through sales of additional or new products to existing clients and
the extension into other departments or functional areas of existing
clients, and to leverage the Company's established direct and indirect
international sales distribution network in 40 countries. By utilizing
its extensive worldwide sales network, the Company can address the
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global needs of its international customers for decision support
applications software and provide the implementation, consulting, training
and support services required.
5. A service and support strategy of offering superior implementation,
consulting, training and support to the Company's customers.
The foregoing statements regarding the Company's product expansion, design,
development and market strategy contain "forward looking statements" within the
meaning of the Securities Exchange Act of 1934. Actual results could differ
materially from those in the forward looking statements due to a number of
uncertainties, including, but not limited to, those described below and under
"Business - Uncertainties Relating to Forward Looking Statements".
PRODUCTS
The Company offers several decision support applications designed for use by
customers in any industry, as well as decision support applications targeted to
meet the specific needs of the retail and consumer packaged goods industries.
In line with the Company's strategy of focusing on vertical industries, the
sales force and implementation services group are organized by vertical market
within each major geographic market.
Comshare's software products are generally licensed to end-user customers under
non-exclusive, non-transferable perpetual license agreements. Software license
fees for the Company's decision support software applications vary widely
depending upon the product, platform and number of users supported. Add-on
features and products are available for additional fees. The initial amount
paid by customers purchasing decision support applications typically covers the
software license fee and product maintenance for the first year of the
license. Customers may continue product maintenance thereafter for an annual
fee normally ranging from 15% to 20% of the software license fee.
GENERAL INDUSTRY APPLICATIONS
The general industry sales force services all customers outside of the retail
and CPG industries and sells the Company's products designed for use by
customers in any industry. These products include Commander Decision and
budgeting and financial reporting applications.
Customizable DSS Applications
Comshare's flagship product is Commander Decision, the latest generation
customizable decision support product for client/server systems, which follows
a long line of Executive Information Systems ("EIS") products offered by the
Company. Comshare was among the first software companies to successfully
introduce EIS products to the market. Today, Comshare is the industry leader
in the EIS market, based upon reports prepared by International Data
Corporation, an independent market research company, which ranks EIS software
companies by revenues.
Commander Decision is a customizable decision support ("DSS") application
designed to provide information to a wide range of business users for planning,
analysis, reporting and decision-making. Typical applications include customer
and product profitability analysis, sales reporting and analysis, business unit
profitability analysis, critical success factor reporting and key performance
indicator monitoring. The Company designed Commander Decision so that it can
be customized by the Company's consultants, third parties or the customers
themselves to meet specific customer requirements.
Commander Decision capitalizes on the increased use of multidimensional
analysis by business professionals to solve business problems. Using
multidimensional analysis, business professionals view information in a manner
which is consistent with their perception of the underlying business. For
example, for a business organized along
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geographic lines and product lines, a business professional is able to view
this data across multiple time periods. Commander Decision facilitates these
and other multidimensional analyses by permitting end-users to structure
business data across the multiple dimensions of importance to these users.
Commander Decision includes a full suite of client/server software necessary to
deliver enterprise-wide decision support applications. Commander Decision is
designed using the latest 32-bit Microsoft technology, and supports NT and O/S2
on the server and Windows 95 and Windows NT on the client/desktop.
The Commander Decision server software includes:
Data Integrator. A powerful back-end which gathers, consolidates,
interprets, cleanses and reshapes data from multiple, disparate data
sources, including spreadsheets, relational database management systems
("RDBMS"), data warehouses, legacy systems and other data repositories.
Essbase. A multidimensional database software developed by Arbor Software
Corporation ("Arbor"), which provides a comprehensive on-line analytical
processing ("OLAP") solution that stores and summarizes data, and
supports concurrent multi-user read-write for multidimensional analysis.
Decision Access Module ("DecAM"). Comshare's internally-developed
technology which is the backbone of Commander Decision. DecAM
facilitates fast-response sorting of large volumes of data by reducing
the size of the Essbase database and increasing the speed of
computation-intensive functions, such as sorting and ad hoc calculations,
by processing the calculations on the server.
Commander Decision provides information to the end-user through Decision
Desktop, a front-end which presents business information in five ways:
graphically, with charts; geographically, with an integrated mapping system;
visually, with color-coded exception reporting; analytically, with ad hoc
queries and calculations; and with Comshare's data mining capabilities. By
pointing and clicking, end-users are able to easily and quickly query the
information, drill down for more detail, change dimensions and extract data for
further analysis. End-users alternatively may select Microsoft Excel or Lotus
1-2-3 front-ends which provide spreadsheet capability.
Budgeting and Financial Reporting Applications
Comshare offers two packaged applications for budgeting: Commander BudgetPlus
and Commander Budget. Commander BudgetPlus, commercially available at the end
of fiscal 1996, is a client/server based application offering full
multi-dimensional budgeting functionality. By using the Comshare Application
Architecture, Commander BudgetPlus offers all the functionality available in
Commander Decision, in addition to specific budgeting capabilities.
As an integrated budgeting, analysis, and reporting application, Commander
BudgetPlus is designed to improve productivity, shorten budget cycles and
enhance the quality and usability of an enterprise's budgeting information.
Commander BudgetPlus has built in data collection mechanisms that integrate
with Lotus and Excel spreadsheets, and load enterprise data from other systems.
Commander BudgetPlus also offers salary planning and asset planning
capabilities. Commander BudgetPlus's OLAP database and processing engine,
Essbase, allows the end-users to define enterprise wide calculations,
allocations and adjustments to the budget data. The use of the Comshare
Application Architecture provides a powerful information delivery and analysis
mechanism for data mining, exception reporting and enterprise-wide information
distribution.
Commander Budget, an earlier packaged budgeting application, is a distributed
application which allows managers throughout an organization to prepare budgets
using Microsoft Excel or Lotus 1-2-3 front-ends and enables an organization's
central financial group to easily consolidate the budgets. Commander Budget is
fully integrated with Comshare's consolidation and financial reporting
application, Commander FDC.
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Commander FDC is a packaged statutory consolidation and financial reporting
application which collects and consolidates financial data from different
general ledgers, spreadsheets, and other sources within a multi-division or
multi-location company and produces consolidated financial reports for
management, public and statutory reporting. Commander FDC performs currency
translation, handles intercompany eliminations and account reclassifications
and is readily adaptable to the changing reporting needs of the end-user.
Commander FDC and Commander Budget consist of data extraction tools, a central
database and a choice of front ends. Their data extraction tools collect,
integrate, summarize and filter data from multiple, disparate data sources.
Commander FDC and Commander Budget, when used together, share a Btrieve
database that permits the integration of consolidated historical and budgetary
financial data, giving the end-user the option of a fully-integrated financial
management system. Commander FDC and Commander Budget are offered with
Microsoft Excel or Lotus 1-2-3. Customers may separately purchase Execu-View
Finance, which allows users point-and-click access to interactively browse,
report, graph and analyze information generated by Commander FDC and Commander
Budget.
Other
Comshare continues to support Commander OLAP, the client/server predecessor to
Commander Decision, and earlier LAN-based EIS products. The Company also sells
and supports System W and IFPS decision support products for use on mainframe
and UNIX-based computers. Customers use System W and IFPS for applications
similar to those performed with Commander Decision and Commander OLAP, although
the multidimensional database resides on the mainframe, rather than on the
server. Because market demand has shifted towards client/server technology,
the mainframe-related portions of Comshare's general industry business have
declined significantly in recent years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RETAIL DECISION SUPPORT APPLICATIONS
The Company offers retailers a suite of decision support software, sold under
the ARTHUR brand name, specifically tailored to their merchandise planning
needs, as well as the general industry products described above.
The ARTHUR products enable retailers to plan merchandise purchases to control
inventory levels, tailor their purchases to consumer preferences and market
trends, and track and analyze actual sales performance. Comshare designs its
ARTHUR products to improve the productivity and profitability of its retail
customers and to serve as a strategic planning tool for retailers by allowing
them to test merchandise plans and identify market opportunities, changing
sales trends or problems.
ARTHUR Planning is a suite of software offering retailers a packaged
application which enables them to create detailed merchandise plans, analyze
information and test merchandise strategies before placing orders and
committing resources. The product also helps buyers match merchandise
assortments to their customers' requirements and the characteristics of their
stores. ARTHUR Planning can be used by smaller retailers on a desktop platform
or by larger retailers using ARTHUR Plan Monitor as the data repository.
ARTHUR Plan Monitor is server-based and has Arbor's Essbase as its core. It
may be used in conjunction with ARTHUR Planning for larger retail applications,
as described above, or as the database for multidimensional sales reporting and
tracking.
ARTHUR Performance Tracking is offered on both UNIX and mainframe platforms.
ARTHUR Performance Tracking and ARTHUR Plan Monitor 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.
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These products deliver information to the end-user through ARTHURView, which
allows users point-and-click access to interactively browse, report, graph and
analyze information generated by the ARTHUR products.
CONSUMER PACKAGED GOODS APPLICATIONS
The Company introduced in fiscal 1996 two packaged applications, sold under the
BOOST brand name, targeted at the specific planning needs of the CPG industry:
BOOST Sales and Margin Planning and BOOST Sales Analysis. The Company's
CPG-focused sales and consulting organizations offer these two new applications
to the CPG industry, as well as the general industry products described above.
BOOST Sales and Margin Planning ("BOOST SMP"), commercially available in
December 1995, is a cross functional planning application designed for use
primarily by finance, marketing and sales managers in the CPG industry. BOOST
SMP is a brand and customer planning system which integrates brand plans with
sales forecasts and company margin goals, to shorten plan cycle times and
improve the quality of planning. BOOST SMP uses neural nets to build strategic
business plans which take into account promotional and advertising resources,
new product introductions and pricing. The effects of alternative plan
scenarios on product, customer, market and margins can be quickly determined.
BOOST Sales Analysis ("BOOST SA"), commercially available in June 1996, is a
packaged sales tracking and analysis application. BOOST SA is designed for use
by sales representatives, key account managers, business unit managers and
sales executives to track sales and profits, compare actual results against
planned targets, and monitor growth trends and product contributions. BOOST SA
leads end-users through an intuitive interface comprised of a series of
questions and answers to easily navigate through the database for the most
relevant information. The question and answer interface reflects the best
thinking of CPG industry consultants, manufacturers, and academics. BOOST SA is
also "data independent", unlike applications from data information providers,
which means that BOOST SA can integrate and analyze a company's internal and
external data.
SERVICES AND SUPPORT
The Company offers implementation, consulting, training, pre-sales and
post-sales technical support and maintenance to complement its software product
offerings. Comshare supports its product offerings with customer support from
its teams of industry and product decision support specialists and its
worldwide agent/distributor network.
IMPLEMENTATION AND CONSULTING SERVICES
Implementation and consulting services are offered in all of the Company's
decision support software markets, and are organized by industry and/or product
decision support expertise. These services include application design and
modification, installation assistance, implementation and troubleshooting
support. Comshare complements its services through partnership arrangements
with value added consultants who complete a certification process.
Certification is a distinction given to recognize consultants qualified in the
use of Comshare applications and products. The certification process is also
designed to help Comshare's customers receive quality service and support,
training, project oversight and service monitoring. Comshare certified value
added consultants include Andersen Consulting, Legacy Technology and Technium
in the U.S.; A.G. Solutions, Ltd. in the U.K.; Cap Gemini Sogeti and Valoris in
France and Kurt Salmon Associates in the U.K. and Germany.
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SOFTWARE MAINTENANCE AND SUPPORT
The Company provides customer telephone helpline support staffed with
experienced professionals. Customers under maintenance receive product
enhancements and updates, bug fixing and access to Comshare's CompuServe forum.
Initial product license fees typically include the first year of maintenance
support. Thereafter, maintenance customers pay an annual maintenance fee,
which is typically 15 to 20 percent of the software license fee.
CUSTOMER EDUCATION AND TRAINING
Comshare offers an education and training program to customers and third party
consultants. Training classes are provided by the Company at customer sites,
at its local sales offices and at its central training centers in Ann Arbor,
Michigan and London, England. The Company's training program is designed for
end-users and system support staff and includes a variety of training classes
covering software applications functional use, system administration and tools.
CUSTOMERS
Comshare has implemented its client/server and mainframe decision support
applications software, and is currently providing maintenance, at more than
3,000 corporate and public sector customer sites in over 40 countries.
Comshare's diversified customer base includes many Fortune 1000 and Financial
Times 1000 industrial companies as well as large and mid-sized companies in the
communications, financial services, health care, retail and transportation
industries, and many governmental and other public sector organizations.
SALES AND MARKETING
Comshare products and services are sold on a worldwide basis by a direct sales
operation and by an extensive worldwide agent/distributor network. Both of
these complementary distribution channels leverage the Company's industry and
application expertise and offer pre-sales and post-sales implementation,
consulting, and customer support and services.
The Company sells and markets its software products and services in the United
States, Canada, United Kingdom, France and Germany through a direct sales
organization. Direct sales operations are organized geographically, and within
a geographic region, are organized by industry.
The Company has an extensive agent/distributor network covering 36 countries
not directly served by the Company. The Company has selected established
software application vendors or systems integration firms to act as agents and
distributors to market, implement and support Comshare products in their
respective geographic areas. Comshare derived 19% of its total revenue in
fiscal 1996 from the Company's agent/distributor network.
To generate sales, the Company conducts comprehensive marketing programs which
include direct mail, public relations, advertising, seminars, trade shows and
on-going customer communication programs. The sales cycle begins with the
generation of a sales lead or request for proposal from a prospect. After a
lead is qualified, the Company's sales force analyzes the potential customer's
decision support needs and makes one or more presentations to the potential
customer. After obtaining a preliminary commitment, the Company often develops
customized demonstrations to illustrate how the Company's products will satisfy
a customer's specific needs. The sales cycle varies in length from customer to
customer, but typically requires three to six months or more.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategies are: (1) to expand the range of
its application-specific products by repackaging these products into unique
versions for specific vertical industries; (2) to develop new application-
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specific products for specific vertical industries; (3) to differentiate its
applications with innovative technology; and (4) to incorporate into its
applications tools offering the latest technology which have either been
acquired from third-parties or developed internally.
To support its application strategy, the Company developed a common
architectural platform during fiscal year 1996, known as Comshare Application
Architecture ("CAA"). This architecture is a three-tiered design that includes
a database tier, an application server tier, and a client-side presentation
tier with standard interfaces which allow changes in one tier without affecting
the other tiers. The CAA offers several benefits for future product
development. First, new applications can be developed using the CAA allowing
the Company to leverage existing technology. Second, the CAA gives the
Company the ability to support multiple platforms in its database and client
tiers. Third, CAA will also enable the Company to implement innovative,
differentiating features in the application server tier, which will benefit all
applications developed based on CAA. Fourth, CAA will allow the Company to
integrate its application products for the benefit of customers who buy
multiple Comshare applications.
The Company has increasingly incorporated third-party tools into its products
in order to focus its internal product development efforts on applications, and
reduce product development risk and time to market. Commander Decision, which
is the Comshare Application Architecture, employs third-party OLAP technology
in its database tier and multiple third-party objects in its presentation tier,
e.g., a third-party charting object, a third-party data grid object, a
third-party geographic mapping object, and a third party Visual Basic scripting
language.
At June 30, 1996 the Company had 147 product development specialists located in
Ann Arbor, Michigan and Leicester, England. These development specialists are
organized to support the development strategy previously described, including
teams of developers specifically focused on developing and supplying the
technologies for building applications across existing and future vertical
markets. These specialists develop new products and product enhancements based
upon ongoing surveillance of customer needs, competitive threats, technology
trends, opportunities for innovation, and the guidance of the Company's
strategic plan.
During the fiscal years ended June 30, 1996, 1995 and 1994 worldwide internal
research and development expenses were (in thousands):
1996 1995 1994
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Internal research and product development $15,977 $16,180 $19,293
As a % of total revenue 13.4% 14.9% 20.0%
Internal research and product development expenses in fiscal 1996 were flat
compared with fiscal 1995 primarily due to the Company's increased utilization
of software tools developed by third parties, the royalty fees for which are
classified as cost of revenue and support. The reduction in internal
development expenses in fiscal 1995 compared with the prior year reflected cost
savings as a result of staff reductions made at the end of fiscal 1994.
The foregoing statements regarding the Company's product development efforts
contain "forward looking statements" within the meaning of the Securities
Exchange Act of 1934. Actual results could differ materially from those in the
forward looking statements due to a number of uncertainties, including, but not
limited to, those described below and under "Business - Uncertainties Relating
to Forward Looking Statements".
The markets for the Company's products are characterized by rapid technological
advances, evolving industry standards, changes in customer requirements and
frequent introductions and enhancements of competitive products. The Company's
success and future financial performance will depend on its ability to
anticipate these changes as they occur and to enhance its existing products and
develop new products in a timely and cost-effective manner which keeps pace
with these changes. There can be no assurance that the Company will be able to
successfully accomplish future technological or product transitions, that the
Company will not experience significant delays in developing new products or
enhancements required to accomplish such transitions, or that the Company will
have sufficient financial resources available to it to finance such efforts.
There can be no assurance as to the impact that any such transition would have
on the Company's revenue or profitability. In addition, there can be no
assurance that the Company's new products and enhancements will adequately
address the changing
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needs of the marketplace and achieve market acceptance or that developments by
others will not render the Company's products obsolete or noncompetitive.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is dependent on its proprietary technology. The Company
does not hold any material patents and seeks to protect its technology
primarily through trademarks, copyrights, employee and third-party
non-disclosure agreements and trade secret laws, which afford only limited
protection.
Comshare distributes its software products under software license agreements
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.
The Company has registered certain of its trademarks and copyrights. The
Company is the owner of various trademarks, including ARTHUR(TM), BOOST(TM),
Commander(TM) Budget, Commander(TM) BudgetPlus, Commander(TM) Decision,
Commander(TM) EIS, Commander(TM) Execu-View Server, Commander(TM) FDC and
Commander(TM) NewsAlert. The Company's software bears appropriate copyright
notices.
The laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. In addition,
certain provisions of the Company's contracts prohibiting unauthorized
reproduction may be unenforceable under the laws of certain foreign countries.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or development by others of similar or superior technology.
Although the Company believes that its products and technology do not infringe
on any existing proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims in the future or that any
such claims will not require the Company to enter into license arrangements or
result in litigation, regardless of the merits of such claims. No assurance
can be given that any necessary licenses will be available or that, if
available, such licenses can be obtained on commercially reasonable terms.
Should litigation with respect to any such claims commence, such litigation
could be extremely expensive and time-consuming.
LICENSED TECHNOLOGIES
The Company licenses certain software programs and tools from third parties and
incorporates them into the Company's products. Generally, these licenses are
non-exclusive worldwide licenses providing for varying royalty payments and
expiration dates. The Company believes that the inclusion of third-party
software programs and tools in its products reduces product development risk
and time to market.
Examples of third-party software tools that the Company incorporates into its
products include Arbor's Essbase, Btrieve Technology, Inc.'s Btrieve database,
Microsoft Excel and Strategic Mapping, Inc.'s Atlas View SDK and Right
Information Systems. The Company is substantially dependent upon Essbase,
which is an integral part of the Comshare Application Architecture, and the
Company's Commander Decision, ARTHUR Planning and Plan Monitor, Commander
BudgetPlus, BOOST Sales and Margin Planning and BOOST Sales Analysis products
and certain planned new products. The Company's worldwide license for Essbase
expires December 31, 2001. The license may also be terminated in the event of
an uncured material breach. Arbor and the Company disagree about certain
definitions in the license agreement related to the calculation of royalties
and are currently in the process of defining the procedure and legal and
accounting issues that will be resolved through arbitration.
Essbase is the OLAP technology which provides the critical multidimensional
functionality for Commander Decision and is an integral component of certain of
the Company's applications. If there is any significant change
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in the competitiveness of Essbase, loss of the Company's rights to Essbase, or
any change impacting the availability of Essbase, the Company could be required
to undertake an expensive and time-consuming revision of its products to
operate on the competitive product or technology.
COMPETITION
The markets for Comshare's software products are highly competitive and
characterized by continued change and rapid technological advancements. In
general, the Company competes principally on the basis of: (1) software
application utility, which includes the extent to which its product offerings
meet specific end-user markets and needs; (2) functionality, which includes the
breadth and depth of features and 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; (5) product architecture, which
includes distributed computing capability, and ease of customization and
integration with other applications; and (6) product pricing in relation to
performance. The Company believes it competes favorably with respect to these
factors.
The client/server applications software market, including the market for
decision support software, is intensely competitive, highly fragmented and
subject to rapid change and evolving industry standards. Because the Company
offers multiple products, the Company competes with a variety of other
companies depending on the target market for their applications software
products. The Company competes primarily with Oracle Corporation, which
purchased Express software from Information Resources, Inc.; Information
Resources, Inc., which retained rights to Express software for certain
applications; Hyperion Software Corporation; Cognizant, a spin-off company of
the Dun and Bradstreet Corporation, which purchased Pilot Software; and certain
other smaller software vendors. In the retail and CPG decision support
applications markets, the Company also competes with a few software vendors who
have specific planning and sales tracking applications.
The Company also competes with a variety of additional software companies,
third-party professional service organizations that develop custom software and
with internal information technology departments which develop decision support
solutions. Among The Company's current and potential competitors are also a
number of large software companies, including developers of spreadsheets,
RDBMSs, data warehouses, database query and reporting tools, transaction
processing-based applications and OLAP technologies, that may elect to increase
the decision support capabilities of their current products or that may develop
or acquire products that compete with the Company's products. In addition,
recent acquisitions and adoptions of OLAP technologies by various software
vendors may result in increased competition in the Company's markets.
Increased competition could result in price reductions, reduced operating
margins and loss of market share. In addition, many of the Company's current
and potential competitors have significantly greater financial, technical,
marketing and other resources than the Company. As a result, they may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of products than can the Company. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors.
INTERNATIONAL OPERATIONS
The Company derived 53%, 55% and 55% of its total revenue from outside North
America in fiscal 1996, 1995 and 1994, respectively, and expects that revenue
generated outside North America will continue to represent a significant
portion of the Company's total revenue. This international business is subject
to various risks inherent in international activities, including the impact on
the Company's operations of, and the burdens of complying with, a wide variety
of laws, regulations, rules and policies of local foreign governments, such as
those relating to currency controls, hiring and termination of employees,
import restrictions and the protection of proprietary rights.
The Company's international operations also expose the Company to constantly
fluctuating currency rates. Currency fluctuations have in the past adversely
affected, and may in the future adversely affect, the Company's reported
revenue, expenses and shareholders' equity. The Company's international sales
are primarily denominated in foreign currencies. As a result, an increase in
the value of the U.S. dollar relative to foreign
11
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currencies may have the effect of reducing the Company's reported revenue and
profits from international sales denominated in such currencies. Currency
exchange rate fluctuations can also result in gains and losses from foreign
currency exchange transactions. The Company at various times has entered into
forward exchange contracts to hedge exposures related to foreign currency
exchange transactions. Because the Company only selectively hedges against
certain large transactions that present the most exposure to exchange rate
fluctuations, the Company's results of operations will continue to be impacted
by fluctuations in foreign currency exchange rates, which at times could be
material. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 of Notes to Consolidated Financial
Statements.
EMPLOYEES
Comshare employed 695 full-time employees as of June 30, 1996; including 254 in
sales and marketing, 151 in consulting and implementation services, 147 in
research and product development, and 143 in customer support and
administration. None of the Company's employees is represented by a collective
bargaining agreement, nor has the Company experienced any work stoppages. The
Company considers its relations with its employees to be good.
MISCELLANEOUS
Compliance with federal, state and local laws and ordinances that regulate the
discharge of materials into the environment has not had, and is not expected to
have, a material effect upon the capital expenditures, earnings or competitive
position of Comshare.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 1. Business" and other parts of this Form 10-K contain "forward-looking
statements" within the meaning of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those in the forward
looking statements due to a number of uncertainties, including, but not limited
to, those discussed in this section and in "Business Strategy", "Research and
Product Development", "Intellectual Property and Proprietary Rights", "Licensed
Technologies", "Competition" and "International Operations" above.
The Company's future results could be affected by the demand for Company's
products and services; the size, timing and recognition of revenue from
significant orders; increased competition; the Company's success in and expense
associated with developing, introducing and shipping new products, particularly
in markets not previously served by the Company; the ability of the Company to
successfully implement its business strategy of developing and licensing
client/server decision support applications software designed to address
specific industry markets; new product introductions and announcements by the
Company's competitors; changes in Company strategy; product life cycles; the
cost and continued availability of third party software and technology
incorporated into the Company's products; the impact of rapid technological
advances, evolving industry standards and changes in customer requirements; the
impact of recent transitional changes in North American and international
management and sales personnel; the impact of the investigation into violations
of the Company's revenue recognition policies on the Company's ongoing
operations; cancellations of maintenance and support agreements; software
defects; changes in operating expenses; fluctuations in foreign exchange rates;
and economic conditions generally or in specific industry segments. In
addition, a significant portion of the Company's revenue in any quarter is
typically derived from non-recurring license fees, a substantial portion of
which is booked in the last month of a quarter. Since the purchase of the
Company's products is relatively discretionary and generally involves a
significant commitment of capital, in the event of any downturn in any
potential customer's business or the economy in general, purchases of the
Company's products may be deferred or canceled. Further, the Company's expense
levels are based, in part, on its expectations as to future revenue and a
significant portion of the Company's expenses do not vary with revenue. As a
result, if revenue is below expectations, results of operations are likely to
be materially adversely affected.
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ITEM 2. PROPERTIES
Comshare leases sales offices and general office space in 20 major cities
throughout the United States, Canada, Europe and Australia. Comshare's primary
leased locations are identified in the following table:
Approximate Lease
Area in Principal Expiration
Location Square Feet Activity Date
- -------- ----------- -------- ----
Headquarters,
Administration, Sales,
Marketing, Research
Ann Arbor, and Product Development
Michigan 67,200 and Customer Support February 2005*
Administration, Sales,
London, Marketing and
England 52,115 Implementation Services December 2007
* Option to cancel February 2000.
ITEM 3. LEGAL PROCEEDINGS
Between August 9, 1996 and September 5, 1996, following the Company's
announcement of certain violations of the Company's revenue recognition
policies described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Revenue," four
separate shareholder class action suits were filed in the United States
District Court for the Eastern District of Michigan against the Company and
certain of its officers and directors on behalf of shareholders who had
purchased the Company's common stock between April 17, 1996 and August 6, 1996.
These actions, which contain substantially similar claims, allege that the
plaintiffs sustained losses as a result of the defendants' alleged untrue
statements of material facts and alleged omissions to state material facts
necessary in order to make the statements made not misleading. The complaints
seek unspecified damages and costs. The Company intends to vigorously contest
the plaintiffs' claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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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 Stock Market under the
symbol "CSRE".
The following table sets forth, for the periods indicated, the high and low per
share closing sales prices for the Company's common stock as reported on The
Nasdaq Stock Market. All amounts in the following table have been adjusted to
reflect the three-for-two stock split effective in the second quarter of fiscal
1996.
MARKET PRICES
FISCAL YEAR ----------------
ENDING JUNE 30 HIGH LOW
-------------- ------- -------
1994 First Quarter $ 7.33 $ 3.83
Second Quarter 7.83 6.33
Third Quarter 8.50 6.00
Fourth Quarter 9.33 6.17
1995 First Quarter 8.50 6.00
Second Quarter 9.83 7.17
Third Quarter 11.50 8.83
Fourth Quarter 14.33 10.00
1996 First Quarter 21.58 13.50
Second Quarter 25.67 17.33
Third Quarter 27.25 20.00
Fourth Quarter 31.50 20.25
1997 First Quarter $32.00 $10.75
(through August 31, 1996)
At August 30, 1996, there were approximately 1,200 holders of record of the
Company's common stock.
DIVIDEND POLICY
The Company has not paid dividends on its common stock since incorporation. It
is the Company's present policy to retain earnings for use in the Company's
business. Accordingly, the Company does not anticipate that cash dividends
will be paid in the foreseeable future. Certain of the Company's credit
agreements contain covenants which prohibit the payment of cash dividends on
the common stock. See Note 3 of the Notes to Consolidated Financial Statements
regarding restrictions on the payment of dividends.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected financial data for the five fiscal years ended June 30, 1996 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 Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related Notes included elsewhere in this
annual report on Form 10-K.
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
- ------------------------------------------
Revenue $118,984 $108,358 $ 96,626 $105,194 $119,174
Income from operations
before unusual and
restructuring charges 6,375 8,850 3,991 218 2,180
Income (loss) from operations (16,792) 2,485 1,648 (1,271) (13,122)
Net income (loss) (9,891) 5,328 222 (1,763) (11,133)
Per share $ (1.09) $ 0.63 $ 0.03 $ (0.22) $ (1.40)
Average shares
(thousands) 9,048 8,398 8,234 7,978 7,965
JUNE 30,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
- --------------------------------
Cash & cash equivalents $ 27,468 $ 1,398 $ 1,774 $ 2,593 $ 3,810
Total assets 98,238 79,310 88,944 92,582 107,963
Long-term debt 1,913 5,436 15,354 16,058 17,146
Total shareholders' equity $ 48,664 $ 32,548 $ 26,506 $ 26,161 $ 29,953
ADDITIONAL DATA:
- -------------------------------
Number of employees at year-end 695 686 729 862 999
NOTES: (1) The income (loss) from operations for the fiscal years ended June
30, 1996, 1995, 1994, 1993 and 1992 includes restructuring and
unusual charges of $23,167,000, $6,365,000, $2,343,000, $1,489,000
and $15,302,000, respectively. See Note 2 of the Notes to
Consolidated Financial Statements for information regarding
restructuring and unusual charges.
(2) The fiscal year ended June 30, 1996 included a $1,200,000 tax
benefit which related to the settlement of certain tax issues and
the amendment of certain tax returns to claim credits which had
previously not been claimed.
(3) The fiscal year ended June 30, 1995 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.
(4) The fiscal year ended June 30, 1994 included a $1,100,000 gain from
the sale of undeveloped land.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial
data as a percentage of total revenue:
As a Percent of Total Revenue
Year Ended
June 30,
--------
1996 1995 1994
---- ---- ----
REVENUE
Software licenses 48.5% 45.5% 39.2%
Software maintenance 31.2 33.8 43.1
Implementation, consulting and
other services 20.3 20.7 17.7
----- ----- -----
TOTAL REVENUE 100.0 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 43.2 41.8 48.1
Cost of revenue and support 26.7 22.9 18.3
Internal research and product development 13.4 14.9 20.0
Internally capitalized software (5.2) (10.8) (13.7)
Software amortization 5.5 12.2 13.0
General and administrative 11.0 10.8 10.2
Unusual charge 19.5 5.9 -
Restructuring related costs - - 2.4
----- ----- -----
TOTAL COSTS AND EXPENSES 114.1 97.7 98.3
INCOME (LOSS) FROM OPERATIONS (14.1) 2.3 1.7
Interest and other income (expense) 0.4 (0.2) (0.5)
----- ----- ----
INCOME (LOSS) BEFORE INCOME TAXES (13.7) 2.1 1.2
Provision (benefit) for income taxes (5.4) (2.8) 1.0
----- ----- ----
NET INCOME (LOSS) (8.3)% 4.9% 0.2%
===== ===== ====
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REVENUE
PERCENT YEAR PERCENT
YEAR ENDED CHANGE ENDED CHANGE
JUNE 30, 1996 OVER JUNE 30, 1995 OVER
1996 1995 1995 1994 1994
-------- -------- ---------- -------- ---------
REVENUE
Software licenses $ 57,715 $ 49,294 17.1% $ 37,871 30.2%
Software maintenance 37,095 36,649 1.2 41,625 (12.0)
Implementation and consulting services 24,174 22,415 7.8 17,130 30.9
-------- -------- --------
TOTAL REVENUE $118,984 $108,358 9.8% $ 96,626 12.1%
======== ======== ========
Total revenue increased 9.8% in fiscal 1996 compared with fiscal 1995 primarily
due to the growth in client/server software license and maintenance revenue.
This growth in fiscal 1996 was negatively impacted due to violations of the
Company's revenue recognition policies that occurred in the Company's
international business as described below. Total revenue increased 12.1% in
fiscal 1995 compared with fiscal 1994 principally due to the increase in
client/server software license revenue, which reflected the release of the
Company's new products during fiscal 1995 and the last half of fiscal 1994.
SOFTWARE LICENSE REVENUE
Software license revenue increased 17.1% in fiscal 1996 compared with fiscal
1995. This growth in software license revenue primarily reflected the strong
demand for the Company's EIS products, which include Commander Decision and
Commander OLAP, its predecessor. In the EIS market, software license revenue
grew 27.5% in fiscal 1996 compared with the prior year. In fiscal 1996,
software license revenue was flat for the Company's financial reporting and
retail decision support products principally due to the transitional changes
experienced as a result of reorganizing the sales and marketing organizations
and aligning them by specific industry markets.
In connection with the Company's fiscal 1996 year end audit, the Company
discovered side letters setting forth conditions to certain foreign orders in
violation of the Company's revenue recognition policies. No violations were
found in U.S. orders. The growth in software license revenue in fiscal 1996
for all the Company's products was negatively impacted by these violations,
although it is difficult to estimate what license growth would have been in
fiscal 1996 without the violation of Company policies. The full impact on
fiscal 1996 income (loss) before taxes from orders requiring non-recognition or
reversal was approximately $6.9 million, which includes amounts for prior
quarters and years. These prior period adjustments are not material to the
quarter or year to which they relate, and prior period results have not been
restated. Corrective actions have been taken including management changes,
personnel terminations and other disciplinary actions and the establishment of
new order procedures.
In fiscal 1995, total software license revenue increased 30.2% as compared with
fiscal 1994. Software license revenue increased in all three decision support
market areas. In the EIS market, software license revenue grew 25.7% compared
with the prior year principally due to the March 1994 release of Commander
OLAP, the Company's client/server EIS product. In the financial reporting
applications market area software license revenue increased 39.5% compared with
fiscal 1994, principally due to the release of Windows versions of Commander
FDC and Commander Budget. In the retail decision support applications market
area, software license revenue in fiscal 1995 increased 40.9% compared with
fiscal 1994, primarily as a result of new client/server releases of ARTHUR
Planning and ARTHUR Plan Monitor.
SOFTWARE MAINTENANCE REVENUE
Software maintenance revenue increased 1.2% in fiscal 1996 compared to fiscal
1995 principally as a result of client/server maintenance revenue growth of
29.4%. Client/server software maintenance revenue in fiscal 1996 represented
72% of total software maintenance revenue. Mainframe software maintenance
revenue decreased 34.2% in fiscal 1996 compared to fiscal 1995, primarily due
to mainframe maintenance cancellations and continued 21 customer migration to
client/server platforms. Mainframe software maintenance revenue is expected to
continue to decline.
Software maintenance revenue decreased 12.0% in fiscal 1995 compared with
fiscal 1994, mainly due to the decline in software maintenance revenue from
mainframe products. Mainframe software maintenance revenue decreased 25.2% in
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fiscal 1995 compared with fiscal 1994, principally due to the conversion of
certain agents to distributors, the impact of maintenance cancellations and
price discounts on multi-year agreements. Client/server software maintenance
revenue increased 6.3% in fiscal 1995 compared with fiscal 1994 due to the
growth in client/server software licenses, partially offset by the conversion
of certain agents to distributors. The conversion of certain agents to
distributors impacted the comparability of software maintenance revenue in
fiscal 1995 and fiscal 1994. When an agent converts to a distributor, sales
are made directly to the distributor rather than the end-user, 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 agent fees, but unlike agent fees, are not recorded
as selling expenses), and revenue from agents is recognized before deducting
their fees. As a result, the conversion of agents to distributors reduced
reported software maintenance revenue in fiscal 1995, without a material impact
on operating profits. In addition, in fiscal 1994, software maintenance
revenue benefited from the nonrecurring release of approximately $1.6 million
of deferred software maintenance revenue related to the conversion of the
Company's Belgium and Holland sales operations 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 $0.9 million of costs
associated with the recording of this software maintenance revenue.
IMPLEMENTATION AND CONSULTING SERVICES REVENUE
Implementation, consulting and other service revenue increased in fiscal 1996
and fiscal 1995 due to increased demand for such services resulting from the
growth in client/server software license revenue, primarily in the EIS market
area.
COSTS AND EXPENSES
PERCENT PERCENT
YEAR ENDED CHANGE YEAR ENDED CHANGE
JUNE 30, 1996 OVER JUNE 30, 1995 OVER
1996 1995 1995 1994 1994
---- ---- ------- ---------- ---------
COSTS AND EXPENSES:
Selling and marketing $ 51,354 $ 45,283 13.4% $ 46,457 (2.5)%
Cost of revenue and support 31,814 24,799 28.3 17,670 40.3
Internal research and product development 15,977 16,180 (1.3) 19,293 (16.1)
Internally capitalized software (6,153) (11,667) (47.3) (13,193) (11.6)
Software amortization 6,535 13,250 (50.7) 12,517 5.9
General and administrative 13,082 11,663 12.2 9,891 17.9
-------- -------- --------
Total costs and expenses before 112,609 99,508 13.2 92,635 7.4
unusual charge and restructuring
charges
Unusual charge 23,167 6,365 * - *
Restructuring related charges - - - 2,343 *
------- -------- --------
TOTAL COSTS AND EXPENSES $135,776 $105,873 28.2% $ 94,978 11.5%
======== ======== ========
* % not meaningful.
Total operating expenses increased 28.2% in fiscal 1996 compared with the same
period last year, primarily as a result of the $23.2 million non-cash charge to
write off capitalized software. Excluding the software write-off charges,
total operating expenses increased 13.2% in fiscal 1996 compared with fiscal
1995, in support of total revenue growth of 9.8%. The operating profit margin,
excluding the software write-off charges, decreased to 5.4% in fiscal 1996
compared with 8.2% in fiscal 1995. The revenue recognition violations
negatively impacted expected revenue which was the basis for fiscal 1996
spending, and, as a result, the operating margin was affected. Total operating
expenses, excluding restructuring and unusual charges, in fiscal 1995 increased
7.4% compared with fiscal 1994 in support of total revenue growth of 12.1%.
The operating profit margin, excluding the restructuring and unusual charges,
for fiscal year ended June 30, 1995 was 8.2% compared with 4.1% for fiscal
1994.
Selling and marketing expense increased 13.4% in fiscal 1996 compared to fiscal
1995 primarily due to increased employee-related expenses, including travel and
compensation costs, and agency fees, incurred in support of the growth in total
software license revenue. Selling and marketing expense decreased 2.5% in
fiscal 1995 compared with fiscal 1994, principally due to a $5.4 million
reduction in agent fees as a result of the conversion of certain agents to
distributors. Partially offsetting this decline was a $3.8 million increase in
direct selling and marketing expenses during fiscal 1995 to support the
increased revenue base.
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19
Cost of revenue and support expense increased 28.3% in fiscal 1996 and 40.3% in
fiscal 1995 principally due to increased royalty fees payable to Arbor Software
Corporation as a result of increased software license revenue from certain
Comshare products which use Arbor's Essbase, and higher employee-related costs
and outside consulting fees related to the growth in implementation and
consulting services revenue.
Internal research and product development expense in fiscal 1996 was relatively
flat compared with fiscal 1995 due to the size of the development staff
remaining relatively unchanged since July 1994 and the increased use of third
party software tools in Comshare products, the royalty fees for which are
classified as cost of revenue and support. Internal research and product
development expense in fiscal 1995 decreased 16.1% compared with fiscal 1994,
primarily due to staff reductions made at the end of fiscal 1994. These
reductions principally reflected the Company's development strategy which
included the increased utilization of technology developed by third parties to
shorten development cycles, minimize investment in software tools and
accelerate time to market.
General and administrative expense was flat in fiscal 1996 compared with the
same period last year, after excluding the provisions for approximately
$900,000 of professional service fees associated with the investigation into
violations of the Company's revenue recognition policies, $760,000 reserved in
connection with the termination of the Company's vacated office facility in
London, England and $600,000 gain on sale of the Company's Australian business.
In June 1996, the Company sold its Australian business for approximately
$798,000. At the same time, Comshare entered into a distribution agreement
with the purchaser of the Australian business to market, sell, implement and
provide maintenance and support of Comshare products in the Australian
territories. General and administrative expense increased 6.4% in fiscal 1995,
compared with fiscal 1994, 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 related to
relocation, travel and incentives contributed to the increase in fiscal 1995.
Total costs and expenses for the fiscal year ended June 30, 1996 included a
$23.2 million non-cash charge to write off certain capitalized software. The
write-off was a result of strong customer interest in the Company's newest
generation product, Commander Decision, for customizable decision support
applications, which substantially reduced the realizable value of the Company's
older desktop products. The write-off also reflected the reduction of the
estimated useful service life of the Company's products and the amortization
period of its capitalized software costs, prompted by the Company's
acceleration of its product development cycles in response to changes in the
technological environment in the decision support applications market. An
unusual charge of $6.4 million was recorded in fiscal 1995, due to the non-cash
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 implemented a marketing strategy to migrate its
existing clients using mature mainframe products to its new client/server
products. The above factors would reduce the future revenue from mainframe
software, and as a result the Company wrote-off the remaining capitalized
mainframe software. See Note 2 of Notes to Consolidated Financial Statements.
OTHER INCOME AND EXPENSE
YEAR ENDED JUNE 30,
---------------------------
1996 1995 1994
---- ---- ----
OTHER INCOME (EXPENSE)
Net interest income (expense) $492 $(512) $(489)
Exchange gain (loss) (50) 307 (25)
---- ----- ------
TOTAL OTHER INCOME (EXPENSE) $442 $(205) $(514)
==== ===== ======
Interest income net of interest expense increased in fiscal 1996 due to
investment of the net proceeds received from the public offering of the
Company's common stock closed in the second quarter ended December 31, 1995
(see Note 4 of Notes to Consolidated Financial Statements) and the reduced loan
balances outstanding following the closing of the offering (see Note 3 to
Consolidated Financial Statements). Interest expense in fiscal 1995 increased
primarily due to the loan origination fees associated with amending and
restating the domestic credit agreement with the Company's banks.
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INCOME TAXES
The benefit from income taxes in fiscal 1996 was $6.5 million which included
the tax benefits related to the Company's operating loss for the current year,
and $1.2 million related to the settlement of certain tax issues and the
amendment of certain tax returns to claim credits which had previously not been
claimed. The benefit from income taxes in fiscal 1995 was $3.0 million which
included the release of tax valuation reserves of $2.5 million related to tax
credits. This release was 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.
Net tax assets remaining are projected by the Company to be utilized 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.
FOREIGN CURRENCY
In fiscal 1996, 1995, and 1994, 53.1%, 55.3% and 55.3% of the Company's total
revenue was from outside North America. Most of the Company's international
revenue is denominated in foreign currencies. Comshare recognizes currency
transaction gains and losses in the period of occurrence. As currency rates
are constantly changing, these gains and losses can, at times, fluctuate
greatly. The Company had an exchange loss of $50,000 in fiscal 1996, compared
with an exchange gain of $307,000 in fiscal 1995. The exchange gain in fiscal
1995 was attributable to the strengthening of the Deutsche mark and French
franc against the British pound.
Foreign currency fluctuations in fiscal 1996 and 1995 impacted operating income
as currency fluctuations on revenue denominated in a foreign currency were
offset by currency fluctuations on expenses denominated in a foreign currency.
In fiscal 1996, the increase in total revenue, at actual exchange rates, was
$216,000 less than at comparable exchange rates. The increase in total
expenses in fiscal 1996, at actual exchange rates, was $34,000 more than at
comparable exchange rates. As a result of the changes in the foreign currency
exchange rates, the increase in the net loss before taxes in fiscal 1996, at
actual exchange rates, was $250,000 more than at comparable exchange rates. In
fiscal 1995, the increase in total revenue at actual exchange rates was $3.6
million more than at comparable exchange rates. The increase in total expenses
in fiscal 1995 at actual exchange rates was $3.3 million more than at
comparable exchange rates. As a result of the changes in the foreign currency
exchange rates, the increase in net income before taxes in fiscal 1995, at
actual exchange rates, was $300,000 more than at comparable exchange rates.
The Company at various times denominates borrowings in foreign currencies and
enters into forward exchange contracts to hedge exposures related to foreign
currency transactions. The Company does not use any other types of derivatives
to hedge such exposures nor does it speculate in foreign currency. In general,
the Company only uses forward exchange contracts to hedge against large
selective transactions that present the most exposure to exchange rate
fluctuations. At June 30, 1996 and June 30, 1995 the Company had forward
contracts totaling $5.7 million and $2.2 million, respectively.
Inflation did not have a material impact on the Company's revenue or income
from operations in fiscal 1996, 1995 or 1994.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, cash and cash equivalents were $27.5 million, compared with
cash of $1.4 million at June 30, 1995. The increase in cash and cash
equivalents was principally attributable to the $25.2 million in net proceeds
received from the public offering of the Company's common stock closed in the
second quarter ended December 31, 1995. The Company used approximately $5.0
million of the net proceeds from the public offering to reduce long term debt
during the second quarter ended December 31, 1995. The Company expects to use
the remaining net proceeds from the offering for working capital and general
corporate purposes. Pending such uses, the Company invested the net proceeds
from the public offering in investment grade, short-term, interest bearing
instruments.
Net cash provided by operating activities was $13.0 million in fiscal 1996,
compared with $23.3 million in fiscal 1995. The decrease in net cash provided
by operating activities was partially due to the lower amount of development
costs that were capitalized, and partially due to non-cash tax benefits and
higher working capital. The positive cash flow generated in fiscal 1996 was
principally due to net income, excluding the non-cash write-off of software.
Net cash used in investing activities was $9.9 million in fiscal 1996, compared
with $14.1 million in fiscal 1995. 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. At June 30, 1996, the Company
did not have any material capital expenditure commitments. In fiscal 1997,
property and equipment purchases and additions to internally developed software
are expected to continue at levels similar to those of fiscal 1996.
Working capital as of June 30, 1996 was $24.6 million, compared with a negative
$2.2 million as of June 30, 1995. The $26.8 million increase from June 30,
1995 to June 30, 1996 was primarily due to the increase in cash and cash
equivalents resulting from the public offering. Deferred revenue as of June
30, 1996 was $18.4 million, compared with $18.6 million as of June 30, 1995.
Deferred revenue principally relates to prepaid maintenance contracts.
Total assets were $98.2 million at June 30, 1996, compared with total assets of
$79.3 million at June 30, 1995. The primary contributing factors to the
increase from June 30, 1995 to June 30, 1996 were the increases in cash and
cash equivalents and accounts receivable offset by the decrease in computer
software (net of long-term deferred income taxes), which decreased as a result
of the write-off of capitalized software.
The Company has a $10.0 million amended and restated, domestic, unsecured
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 on its common
stock. Permitted borrowings under the credit agreement are based on a
percentage of worldwide eligible accounts receivable. At June 30, 1996,
permitted borrowings under the agreement totaled $10.0 million. There were no
borrowings outstanding under this agreement at June 30, 1996. In November
1995, the Company reduced permitted borrowings under the agreement from $14.0
million to $10.0 million. At June 30, 1996 interest was at the Eurodollar rate
(5-1/2% at June 30, 1996) plus applicable margin, which varies between 1-1/2%
and 2-1/2% (1-1/2% at June 30, 1996).
In addition, certain of the Company's European subsidiaries have local
currency credit agreements or overdraft facilities with banks totaling $4.3
million at June 30, 1996. The Company had outstanding borrowings of $1.9
million at June 30, 1996. 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 amounts available under credit facilities will be
sufficient to meet the Company's currently anticipated cash requirements for at
least the next twelve months.
21
22
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 25 and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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 1996 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 1996 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 1996 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 1996 Proxy Statement under the captions "Certain Relationships and
Related Transactions."
22
23
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements:
The Financial Statements filed with this report are listed in the Index
to Consolidated Financial Statements and Schedule which appears on page
25.
2. Consolidated Financial Statement Schedule:
The Financial Statement Schedule filed with this report is listed in
the Index to Consolidated Financial Statements and Schedule which
appears on page 25.
3. The exhibits filed with this report are listed in the Exhibit Index
which appears on page 45. The following are the Company's management
contracts and compensatory plans and arrangements which are required
to be filed as exhibits to this Form 10-K:
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 Amended and Restated Profit Sharing Plan of Comshare, Incorporated,
effective as of October 1, 1995 - incorporated by reference to Exhibit
4.1 to the Registrant's Form S-8 Registration Statement No. 33-65109.
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 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. (Portions of this
exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment
pursuant to Rule 24b-2).
23
24
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 Severance and Consulting Agreement, dated May 29, 1996, between Comshare,
Incorporated and Donald J. Walker.
10.12 Description of Incentive Arrangements for certain executive officers for
fiscal years 1994 and 1995 - 2000.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
June 30, 1996.
24
25
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants 26
Consolidated Statement of Operations for
the Fiscal Years Ended June 30, 1996, 1995 and 1994 27
Consolidated Balance Sheet as of June 30, 1996 and 1995 28-29
Consolidated Statement of Cash Flows for the
Fiscal Years Ended June 30, 1996, 1995 and 1994 30
Consolidated Statement of Shareholders' Equity
for the Fiscal Years Ended June 30, 1996, 1995 and 1994 31
Notes to Consolidated Financial Statements 32-42
SCHEDULE
II. Consolidated Schedule of Valuation and Qualifying Accounts 43
25
26
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, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996, in conformity with generally accepted accounting principles.
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,
August 30, 1996
(except with respect to
the matters discussed in
Notes 4 and 12, as to
which the dates are
September 16 and 5, 1996,
respectively).
26
27
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
---- ---- ----
REVENUE
Software licenses $ 57,715 $ 49,294 $ 37,871
Software maintenance 37,095 36,649 41,625
Implementation, consulting and other services 24,174 22,415 17,130
-------- -------- --------
TOTAL REVENUE 118,984 108,358 96,626
COSTS AND EXPENSES
Selling and marketing 51,354 45,283 46,457
Cost of revenue and support 31,814 24,799 17,670
Internal research and product development 15,977 16,180 19,293
Internally capitalized software (6,153) (11,667) (13,193)
Software amortization 6,535 13,250 12,517
General and administrative 13,082 11,663 9,891
Unusual charge 23,167 6,365 -
Restructuring related costs - - 2,343
-------- -------- -------
TOTAL COSTS AND EXPENSES 135,776 105,873 94,978
-------- -------- -------
INCOME (LOSS) FROM OPERATIONS (16,792) 2,485 1,648
OTHER INCOME (EXPENSE)
Interest income (expense) 492 (512) (489)
Exchange gain (loss) (50) 307 (25)
-------- -------- -------
TOTAL OTHER INCOME (EXPENSE) 442 (205) (514)
-------- -------- -------
INCOME (LOSS) BEFORE TAXES (16,350) 2,280 1,134
PROVISION (BENEFIT) FOR INCOME TAXES (6,459) (3,048) 912
-------- -------- -------
NET INCOME (LOSS) $ (9,891) $ 5,328 $ 222
======== ======== =======
Weighted average number of common and
dilutive common equivalent shares 9,048 8,398 8,234
======== ======== =======
NET INCOME (LOSS) PER COMMON SHARE $ (1.09) $ 0.63 $ 0.03
======== ======== =======
The accompanying notes are an integral part of this statement.
27
28
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
AS OF JUNE 30,
-----------------
1996 1995
------ -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,468 $ 1,398
Accounts receivable, less allowance for
doubtful accounts of $1,411 as of June 30, 1996
and $887 as of June 30, 1995 34,853 29,531
Deferred income taxes 758 783
Prepaid expenses 5,733 4,098
-------- -------
Total current assets 68,812 35,810
PROPERTY AND EQUIPMENT, at cost
Computers and other equipment 24,946 24,023
Leasehold improvements 2,999 3,053
-------- -------
27,945 27,076
Less - Accumulated depreciation 23,426 23,663
-------- -------
Property and equipment, net 4,519 3,413
COMPUTER SOFTWARE, net of accumulated
amortization of $3,423 as of June 30, 1996
and $32,677 as of June 30, 1995 9,064 32,676
GOODWILL, net of accumulated
amortization of $1,684 as of June 30, 1996
and $1,751 as of June 30, 1995 1,947 2,246
DEFERRED INCOME TAXES 7,940 -
OTHER ASSETS 5,956 5,165
-------- -------
$ 98,238 $79,310
======== =======
The accompanying notes are an integral part of this statement.
28
29
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
AS OF JUNE 30,
--------------
1996 1995
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $17,934 $11,342
Accrued liabilities -
Payroll 3,394 3,467
Taxes, other than income taxes 1,971 1,486
Other 1,391 1,465
------- -------
Total accrued liabilities 6,756 6,418
Income taxes 1,200 1,602
Deferred revenue 18,364 18,599
------- -------
Total current liabilities 44,254 37,961
LONG-TERM DEBT 1,913 5,436
DEFERRED INCOME TAXES - 275
OTHER LIABILITIES 3,407 3,090
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares;
none issued - -
Common stock, $1.00 par value;
authorized 20,000,000 shares;
outstanding 9,691,443 shares as of June 30, 1996
and 8,221,234 shares as of June 30, 1995 9,691 8,221
Capital contributed in excess of par 38,132 13,199
Retained earnings 5,239 15,500
Currency translation adjustments (3,586) (3,239)
------- -------
49,476 33,681
Less - Notes receivable 812 1,133
------- -------
Total shareholders' equity 48,664 32,548
------- -------
$98,238 $79,310
======= =======
The accompanying notes are an integral part of this statement.
29
30
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1996 1995 1994
--------- --------- ---------
OPERATING ACTIVITIES
NET INCOME (LOSS) $ (9,891) $ 5,328 $ 222
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 8,904 15,873 15,893
Write-off of capitalized software 23,167 6,365 -
Gain on sale of business property (600) - (1,102)
Provision for losses on accounts receivable 578 (119) 140
Loss on sale of property and equipment 26 28 3
Changes in operating assets and liabilities:
Accounts receivable (6,257) 2,675 585
Prepaid expenses and other assets (1,726) 77 964
Accounts payable 6,686 (469) (1,083)
Accrued liabilities 58 (337) 853
Deferred revenue (19) (1,489) (3,875)
Deferred income taxes (8,238) (4,645) 732
Other liabilities 338 42 301
--------- -------- --------
Net cash provided by operating activities 13,026 23,329 13,633
INVESTING ACTIVITIES
Additions to computer software (6,207) (11,667) (13,187)
Payments for property and equipment (3,220) (1,207) (1,199)
Proceeds from sale of business property 798 - 3,376
Other (1,272) (1,227) (1,382)
--------- -------- --------
Net cash used in investing activities (9,901) (14,101) (12,392)
FINANCING ACTIVITIES
Net repayments under notes payable - (33) (40)
Net repayments under long-term debt (3,394) (10,044) (2,046)
Stock options exercised 474 248 74
Issuance of common stock 25,148 - -
Other 730 202 (42)
--------- -------- --------
Net cash provided by (used in) financing activities 22,958 (9,627) (2,054)
EFFECT OF EXCHANGE RATE CHANGES (13) 23 (6)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH 26,070 (376) (819)
BALANCE AT BEGINNING OF YEAR 1,398 1,774 2,593
--------- -------- --------
BALANCE AT END OF YEAR $ 27,468 $ 1,398 $ 1,774
========= ======== ========
SUPPLEMENTAL DISCLOSURES:
- --------------------------
Cash paid for interest $ 371 $ 690 $ 624
========= ======== ========
Cash paid for income taxes $ 1,869 $ 558 $ 481
========= ======== ========
The accompanying notes are an integral part of this statement.
30
31
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1996 1995 1994
--------- --------- ---------
COMMON STOCK
Balance beginning of year $ 8,221 $ 8,037 $ 8,019
Employee Stock Purchase Plan 26 22 -
1994 Executive Stock Purchase Program - 104 -
Retirement of shares (16) (2) -
Sale of common stock in a public offering 1,294 - -
Stock options exercised 166 60 18
--------- --------- ---------
Balance end of year 9,691 8,221 8,037
--------- --------- ---------
CAPITAL CONTRIBUTED IN EXCESS OF PAR
Balance beginning of year 13,199 11,982 11,926
Employee Stock Purchase Plan 384 155 -
1994 Executive Stock Purchase Program - 855 -
Retirement of shares (62) (3) -
Sale of common stock in a public offering 23,854 - -
Stock options exercised 757 210 54
Tax benefits related to stock options - - 2
--------- --------- ---------
Balance end of year 38,132 13,199 11,982
--------- --------- ---------
RETAINED EARNINGS
Balance beginning of year 15,500 10,190 9,968
Net income (loss) (9,891) 5,328 222
Retirement of shares (370) (18) -
--------- --------- ---------
Balance end of year 5,239 15,500 10,190
--------- --------- ---------
CURRENCY TRANSLATION ADJUSTMENTS
Balance beginning of year (3,239) (3,504) (3,553)
Translation adjustments (347) 265 49
--------- --------- ---------
Balance end of year (3,586) (3,239) (3,504)
--------- --------- ---------
LESS - NOTES RECEIVABLE
Balance beginning of year 1,133 199 199
1994 Executive Stock Purchase Program (122) 934 -
Employee Stock Ownership Plan (199) - -
--------- --------- ---------
Balance end of year 812 1,133 199
--------- --------- ---------
Total shareholders' equity $ 48,664 $ 32,548 $ 26,506
========= ========= =========
The accompanying notes are an integral part of this statement.
31
32
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Comshare, Incorporated (the "Company") develops, markets and
supports client/server decision support applications software designed for
business analysis, planning, reporting and decision making. The Company also
provides services such as maintenance, training, consulting and support
services. Comshare is currently providing maintenance at more than 3,000
corporate and public sector customer sites. The Company markets its products
through a direct sales force in the United States, Canada, United Kingdom,
France and Germany and has an extensive agent/distributor network in 36 other
countries. The Company was incorporated in Michigan in February 1966 and
commenced operations on that date.
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, software
maintenance and implementation, consulting and other service revenue. 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 primarily includes
employee costs, travel costs, facilities expenses, advertising and agency fees.
Cost of revenue and support includes personnel and other costs related to
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. Internal research and
product development includes all such expense before computer software
capitalization and amortization.
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.
FINANCIAL INSTRUMENTS. The Company at various times enters into forward
exchange contracts to hedge certain exposures related to identifiable foreign
currency transactions that are relatively certain as to both timing and amount.
Gains and losses on the forward contracts are recognized concurrently with the
gains and losses from the underlying transactions. The forward exchange
contracts used are classified as "held for purposes other than trading." The
Company does not use any other types of derivative financial instruments to
hedge such exposures, nor does it use derivatives for speculative purposes. At
June 30, 1996 and 1995, the Company has forward foreign currency exchange
contracts of approximately $5,746,000 and $2,250,000 (notional amounts),
respectively, denominated in European currencies. The contracts outstanding at
June 30, 1996 mature through July 19, 1996 and are intended to hedge various
foreign currency commitments due from foreign subsidiaries and the Company's
agents and distributors. Due to the short term nature of these financial
instruments, the fair value of these contracts is not materially different than
their notional amount at June 30, 1996 and 1995.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes investments in
highly liquid investments with maturities of ninety days or less at the time of
acquisition.
32
33
CONSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
COMPUTER SOFTWARE. The costs of developing and purchasing new software
products and enhancements to existing software products are capitalized after
technological feasibility is established. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenue, estimated economic product lives and changes in software and hardware
technology. Capitalized costs include capitalized interest of $0, $681,000,
and $814,000 in fiscal 1996, 1995 and 1994, respectively. Beginning October 1,
1995, capitalized development costs are amortized using the straight-line
method over a two-year service life (see Note 2). Previously, capitalized
development costs were amortized using a rolling three year method, effectively
a service life of approximately six years. 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.
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 ending 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, 1996.
INCOME TAXES. The Company accounts for estimated income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." This statement provides for an asset and liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which the taxes become payable.
EARNINGS 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. See Note 4 for
information regarding the stock split during the year ended June 30, 1996.
STOCK PLANS. The Company accounts for its stock option plans and Employee
Stock Purchase Plan in accordance with the provisions of Accounting Principles
Board Opinion No. 25 ("APB 25") "Accounting for Stock Issued To Employees."
Effective for the Company's fiscal year ending June 30, 1997, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" requires that companies electing to continue to use the intrinsic
value method under APB 25 make pro forma disclosure regarding the effect of the
fair-value-based method of accounting as if it had been applied. Pro forma
disclosure will be provided in the Company's fiscal 1997 financial statements.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results may differ from these estimates.
33
34
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RECLASSIFICATIONS. Certain amounts in the 1994 and 1995 financial statements
have been reclassified to conform with 1996 presentations.
2. RESTRUCTURING AND UNUSUAL CHARGES
During the year ended June 30, 1996, the Company recorded a $23,200,000
non-cash charge to write off certain capitalized software. The write-off
resulted from the strong customer interest in Commander Decision, the Company's
newest generation product for customizable decision support applications, which
substantially reduced the realizable value of the Company's older Commander
desktop products, and the Company's acceleration of its product development
cycles in response to changes in the technological environment in the decision
support application software market.
The write-off principally reflected the Company's decision to focus its sales
efforts on Commander Decision, which was released in December 1995. Commander
Decision was introduced at the Company's Users Conference held during the
second quarter of fiscal 1996 and generated greater interest than originally
anticipated by the Company. This strong customer interest, combined with the
Company's decision in fiscal 1996 to offer the new Commander Decision end-user
front-end to existing maintenance-paying Commander OLAP customers at no charge,
was expected to result in rapid migration from Commander OLAP front-ends to the
Commander Decision front-end.
The write-off also reflected the reduction of the estimated useful service life
of the Company's products and the amortization period for its capitalized
software costs, prompted by the Company's acceleration of its product
development cycle. The reduction of the software amortization period to two
years and a review of projected revenues over this two year service life
resulted in the write-off of unamortized capitalized software development
costs.
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 was the result of
industry trends and reflected the Company's strategic product plan to focus on
client/server software products.
During the year ended June 30, 1994, the Company made provisions totaling
$2,343,000 for management actions or plans in connection primarily with staff
reductions related to its restructuring. These restructuring charges included
staff reductions of approximately 50 employees and estimated savings of
$4,000,000 which were achieved in fiscal 1995. At June 30, 1996, $538,000
remains to be paid for contractual obligations related to restructuring actions
taken during 1994.
3. BORROWINGS
The Company has a $10,000,000 amended and restated, domestic unsecured credit
agreement with its bank 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 are based on a percentage of worldwide eligible accounts receivable
and worldwide borrowings. At June 30, 1996, the permitted borrowings available
under the agreement were $10,000,000. There were no borrowings outstanding
under this agreement at June 30, 1996. In November 1995, the Company reduced
permitted borrowings under the agreement from $14,000,000 to $10,000,000. At
June 30, 1996 interest was at the Eurodollar rate (5-1/2% at June 30, 1996)
plus applicable margin (1-1/2% at June 30, 1996), which varies between 1-1/2%
and 2-1/2%.
34
35
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Separately, certain of the Company's European subsidiaries entered into local
currency credit agreements or overdraft facilities in various currencies with
banks totaling $4,340,000. At June 30, 1996, the Company had outstanding
borrowings of $1,913,000. 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.
On September 16, 1996, the Company announced that its Board of Directors has
approved a Shareholder Rights Plan ("Rights Plan"). Under the Rights Plan, the
Company declared a dividend of one preferred stock purchase right on each
outstanding share of common stock. Under certain conditions, each right may be
exercised to purchase one one-hundredth share of Series A Preferred Stock at an
exercise price of $110. Of the 5,000,000 preferred shares the Company is
authorized to issue, 200,000 shares have been designated Series A Preferred.
The Series A Preferred has certain dividend, voting and liquidation
preferences. No preferred shares have been issued. The rights may only be
exercised beginning ten business days following a public announcement that a
person or group acquires 15% or more of the Company's common stock (subject to
certain exceptions) or beginning ten business days (or under certain
circumstances a later date) following the commencement or announcement of a
tender or exchange offer which would cause that result. In addition, under
certain circumstances, the rights will entitle shareholders (other than the
acquiror) to purchase the Company's common stock, or stock of the acquiror, at
a discount to market prices. The rights, which do not have voting rights,
expire on September 30, 2006. Distribution of these rights will be made to
shareholders of record on September 30, 1996.
Effective November 20, 1995, upon approval of the Company's Board of Directors,
Comshare declared a three-for-two stock split of the Company's common stock
distributable to shareholders of record as of November 13, 1995. All share and
per share data included in the consolidated financial statements and
accompanying notes have been adjusted to reflect this stock split.
In December 1995, the Company completed a public offering of its common stock
which involved the issuance and sale by the Company of 1,293,750 shares
resulting in net proceeds to the Company of approximately $25,150,000.
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 certain 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 300,000 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 104,044 shares at prices ranging from $8.67 to $12.33
were issued in exchange for notes totaling $934,000. The aggregate principal
balance of these promissory notes outstanding and due to the Company was
$812,000 at June 30, 1996. No shares were purchased under this program during
fiscal 1996.
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").
35
36
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - (CONTINUED)
1988 STOCK OPTION PLAN
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 the date of grant, are
exercisable at the rate of 25% per year after one year from the date of grant
and have a term of five years. 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.
The 1988 Stock Option Plan was amended in November, 1994 to increase the number
of shares of common stock authorized for grant from 900,000 shares to
1,275,000.
At June 30, 1996, the Company has reserved 1,029,284 shares of common stock for
the exercise of employee stock options. The number of options outstanding and
exercisable under the 1988 Plan was 702,756 and 206,068 at June 30, 1996,
respectively.
1994 DIRECTORS STOCK OPTION PLAN
The 1994 Directors Stock Option Plan, approved by the shareholders in November,
1994, provides for the issuance of options to purchase up to 150,000 shares of
the Company's common stock to non-employee directors of the Company. Options
under the Directors Plan are granted at 100% of the market price on the date of
grant, are exercisable at a rate of 25% per year after one year from the date
of grant and have a term of five years.
At June 30, 1996 the Company has reserved 146,250 shares of common stock for
the exercise of directors' stock options. The number of options outstanding and
exercisable under the Directors Plan was 60,000 and 9,375 at June 30, 1996,
respectively.
SUMMARY OF ACTIVITY
Stock option activity for the 1988 Plan and the Directors Plan is summarized
below:
Number Price
Of Shares Per Share
--------- ---------
Outstanding at June 30, 1993 1,186,140 $4.09 to $14.67
Granted 352,500 6.00 to 9.17
Exercised (17,625) 4.09 to 4.09
Canceled (713,247) 4.09 to 14.67
--------
Outstanding at June 30, 1994 807,768 4.09 to 11.17
Granted 268,500 7.33 to 13.00
Exercised (60,698) 4.09 to 4.09
Canceled (197,545) 4.09 to 11.17
--------
Outstanding at June 30, 1995 818,025 4.09 to 13.00
Granted 177,750 20.50 to 27.25
Exercised (167,394) 4.09 to 8.75
Canceled (65,625) 4.09 to 20.50
--------
Outstanding at June 30, 1996 762,756 $4.09 to $27.25
========
Exercisable at June 30, 1996 215,443
========
36
37
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the "ESPP") was approved by the shareholders
in November, 1994. A total of 300,000 shares of the Company's common stock
have been reserved for issuance under the ESPP. The ESPP 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 employees are eligible to participate in the ESPP. Under the ESPP 26,218
and 21,834 shares were issued in fiscal 1996 and 1995, respectively.
7. BENEFIT PLANS
The Company has a profit sharing plan covering substantially all United States
employees. The profit sharing plan provides for a minimum annual contribution
of 2% of an employee's salary, and matching contributions based on employee
401(K) contributions. Effective October 1, 1995, the Company merged its
employee stock ownership plan with the Company's profit sharing plan. 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 $1,183,000 in 1996, $1,224,000 in 1995, and $1,007,000
in 1994.
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 or later. The defined contribution plan provides that participating
employees contribute a minimum of 5% of their pensionable salary with the
Company contributing 5%. The benefits of the defined benefit 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):
1996 1995 1994
------- -------- -------
Service cost for benefits earned during the year $ 429 $ 540 $ 501
Interest cost on projected benefit obligation 1,340 1,292 1,111
Actual return on assets (1,899) (1,347) (1,347)
Net amortization and deferral 722 101 261
------- ------- -------
Net pension expense $ 592 $ 586 $ 526
======= ======== =======
The funded status of the pension plan is as follows
(in thousands):
1996 1995
------- --------
Actuarial present value of benefit obligations
Vested benefits $15,742 $ 14,705
Non-vested benefits - 29
------- --------
Accumulated benefit obligation 15,742 14,734
Effects of salary progression 1,583 1,664
------- --------
Projected benefit obligation 17,325 16,398
Plan assets at fair value 17,314 15,103
------- --------
Plan assets under projected benefit obligation $ 11 $ 1,295
======= ========
Amounts not recognized in balance sheet:
Unamortized transition obligation $ 650 $ 702
Unamortized net (gain) loss 1,796 2,888
------- --------
$ 2,446 $ 3,590
======= ========
37
38
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 1996 and fiscal 1995 calculations; for fiscal
1994 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% for 1996 and 1995
and 10% for 1994.
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 $228,000 in fiscal 1996, $142,000 in fiscal 1995
and $201,000 in fiscal 1994.
8. INCOME TAXES
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):
1996 1995 1994
--------- -------- --------
Income (loss) before provision (benefit)
for income taxes:
Domestic $ (12,428) $ 486 $ (2,270)
Foreign ( 3,922) 1,794 3,404
--------- -------- --------
$ (16,350) $ 2,280 $ 1,134
========= ======== ========
Domestic provision (benefit) for income taxes:
Current $ 731 $ (15) $ (230)
Deferred ( 5,781) (2,773) (205)
Foreign provision (benefit) for income taxes:
Current 1,000 1,499 281
Deferred (2,409) (1,759) 1,066
--------- ------- -------
Provision (benefit) for income taxes $ (6,459) $ (3,048) $ 912
========= ======== ========
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):
1996 1995 1994
-------- -------- -----
Federal statutory provision (benefit) $ (5,559) $ 775 $ 386
Non-deductible meals and entertainment 256 109 83
State income taxes, net of federal tax benefit 146 67 41
Increase in valuation reserve due to domestic
and foreign losses without tax benefit and tax credits 872 42 882
Recognition of tax credits (1,222) (2,500) -
Tax reserves provided (released) (1,200) (1,600) 65
Tax rate differences 76 (51) 189
Tax credits generated - - (665)
Other, net 172 110 (69)
------- -------- -----
Actual income tax provision (benefit) $ (6,459) $ (3,048) $ 912
======= ======== =====
38
39
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 asset as of June 30 are summarized as follows
(in thousands):
1996 1995
------- -------
Deferred income tax assets:
Research and development $2,810 $ -
Tax credits 3,097 1,602
Depreciation and amortization 975 1,075
Net operating loss 1,290 493
Deferred revenue 458 474
Employee benefits 901 875
Accrued liabilities 851 409
Other 495 580
------- -------
10,877 5,508
Valuation allowance (1,241) (369)
------- -------
9,636 5,139
Deferred income tax liabilities:
Research and development - (3,714)
Employee benefits (808) (727)
Other (130) (190)
------- -------
(938) (4,631)
------- -------
Net deferred income tax asset $ 8,698 $ 508
======= =======
At June 30, 1996, for income tax purposes, the Company and certain of its
foreign subsidiaries had available net operating loss carryforwards of
approximately $3,794,000. If not used, these net operating loss
carryforwards, as well as the Company's general business tax credits, will
expire between 1998 and 2011.
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,
1997 $ 4,966
1998 4,148
1999 3,164
2000 2,908
2001 1,952
After 2001 7,006
-------
$24,144
=======
Total rental expense was $8,513,000 in fiscal 1996, $7,252,000 in fiscal 1995
and $7,231,000 in fiscal 1994. In August 1996, Comshare surrendered its lease
of the Company's vacated London office facility to the facilities landlord.
The cost to terminate the lease, approximately $2,600,000, was fully reserved
for by the Company in accounts payable at June 30, 1996.
39
40
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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,
--------------------------
1996 1995 1994
---- ---- ----
Revenue from customers:
North America $ 55,782 $ 48,478 $ 43,222
International 63,202 59,880 53,404
-------- -------- --------
Total revenue $118,984 $108,358 $ 96,626
======== ======== ========
Operating income:
North America $ 15,720 $ 15,205 $ 10,082
International 12,438 15,392 13,938
-------- -------- --------
Total operating income 28,158 30,597 24,020
Unallocated expenses, net (44,508) (28,317) (22,886)
-------- -------- --------
Income (loss) before taxes $(16,350) $ 2,280 $ 1,134
======== ======== ========
Identifiable assets:
North America $ 53,635 $ 16,672 $ 21,356
International 35,539 29,962 27,352
-------- -------- --------
Total identifiable assets 89,174 46,634 48,708
Computer software 9,064 32,676 40,236
-------- -------- --------
Total assets $ 98,238 $ 79,310 $ 88,944
======== ======== ========
Unallocated expenses consist of general corporate expenses, internal research
and product development expenses, interest expense and interest income. In
fiscal 1996 and fiscal 1995, unallocated expenses include $23,167,000 and
$6,365,000 of unusual charges related to the write-off of capitalized software.
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, 1996, 1995 and 1994.
40
41
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited and in thousands
except per share data):
INCOME NET
(LOSS) NET INCOME
FROM INCOME (LOSS)
REVENUE OPERATIONS (LOSS) PER SHARE
------- ---------- ------ ---------
1996
First Quarter $ 28,653 $ 2,628 $ 1,510 $ 0.17
Second Quarter 32,183 (18,979) (12,864) (1.48)
Third Quarter 31,534 2,759 2,038 0.20
Fourth Quarter 26,614 (3,200) (575) (0.06)
-------- -------- --------
Year ended June 30 $118,984 $(16,792) $ (9,891) $ (1.09)
======== ======== ========
1995
First Quarter $ 24,158 $ 1,418 $ 751 $ 0.09
Second Quarter 27,656 2,846 1,681 0.20
Third Quarter 27,704 1,828 1,204 0.14
Fourth Quarter 28,840 (3,607) 1,692 0.20
-------- -------- --------
Year ended June 30 $108,358 $ 2,485 $ 5,328 $ 0.63
======== ======== ========
1994
First Quarter $ 23,730 $ 997 $ 657 $ 0.08
Second Quarter 23,779 1,701 1,052 0.13
Third Quarter 23,202 193 94 0.01
Fourth Quarter 25,915 (1,243) (1,581) (0.20)
-------- -------- --------
Year ended June 30 $ 96,626 $ 1,648 $ 222 $ 0.03
======== ======== ========
During the quarter ended June 30, 1996, the Company realized a $1,200,000 tax
benefit related to the settlement of certain tax issues and the amendment of
certain tax returns to claim credits which had previously not been claimed.
During the quarter ended December 31, 1995, the Company recorded a non-cash
charge of $23,167,000 to write off certain capitalized software.
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.
41
42
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. LITIGATION
Between August 9, 1996 and September 5, 1996, following the Company's
announcement of certain violations of the Company's revenue recognition
policies, four separate shareholder class action suits were filed against the
Company and certain of its officers and directors on behalf of shareholders who
had purchased the Company's common stock between April 17, 1996 and August 6,
1996. These actions, which contain substantially similar claims, allege that
the plaintiffs sustained losses as a result of the defendants' alleged untrue
statements of material facts and alleged omissions to state material facts
necessary in order to make the statements made not misleading. The complaints
seek unspecified damages and costs. The Company intends to vigorously contest
the plantiffs' claims.
42
43
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:
1996 $ 887 $ 578 $ (52) $ (2) $ - $ 1,411
======= ======= ======= ======= ===== =======
1995 $ 1,161 $ (119) $ (173) $ 18 $ - $ 887
======= ======= ======= ======= ===== =======
1994 $ 1,029 $ 140 $ (19) $ 11 $ - $ 1,161
======= ======= ======= ======= ===== =======
43
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Comshare, Incorporated
Date: September 30, 1996 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 30, 1996
T. Wallace Wrathall Officer, and a Director ------------------
(Principal Executive Officer)
/s/ Kathryn A. Jehle
- ----------------------- Senior Vice President, September 30, 1996
Kathryn A. Jehle Chief Financial Officer, ------------------
Treasurer and Assistant Secretary
(Principal Financial Officer)
/s/ R. Michael Mahoney
- ----------------------- Senior Director of Finance, September 30, 1996
R. Michael Mahoney Chief Accounting Officer, ------------------
(Principal Accounting Officer)
/s/ Richard L. Crandall
- ---------------------- Chairman of the Board September 30, 1996
Richard L. Crandall ------------------
/s/ Geoffrey B. Bloom
- ---------------------- Director September 30, 1996
Geoffrey B. Bloom ------------------
/s/ Daniel T. Carroll
- ---------------------- Director September 30, 1996
Daniel T. Carroll ------------------
/s/ Stanley R. Day
- ---------------------- Director September 30, 1996
Stanley R. Day ------------------
/s/ W. John Driscoll
- ---------------------- Director September 30, 1996
W. John Driscoll ------------------
/s/ Alan G. Merten
- ---------------------- Director September 30, 1996
Alan G. Merten ------------------
/s/ George R. Mrkonic
- ---------------------- Director September 30, 1996
George R. Mrkonic ------------------
/s/ John F. Rockart
- ---------------------- Director September 30, 1996
John F. Rockart ------------------
44
45
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 Restated Articles of Incorporation of the Registrant, as amended.
3.02 Bylaws of the Registrant, as amended - incorporated by reference to
Exhibit 3.02 to the Registrant's 10-K Report for the fiscal year ended
June 30, 1995.
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 of 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 - incorporated by reference to
Exhibit 4.03 to the Registrant's 10-K Report for the fiscal year ended
June 30, 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 - incorporated by
reference to Exhibit 4.04 to the Registrant's 10-K Report for the fiscal
year ended June 30, 1995.
4.05 Third Amendment to Comshare, Incorporated Amended and Restated Credit
Agreement between Comshare, Incorporated and NBD Bank, formerly known as
NBD Bank, N.A., Michigan dated November 19, 1995 - incorporated by
reference to Exhibit 4.05 to the Registrant's 10-Q Report for the quarter
ended December 31, 1995.
4.06 Rights Agreement, dated as of September 16, 1996, between Comshare,
Incorporated and KeyBank National Association, as Rights Agent -
incorporated by reference to Exhibit 2 to the Registrant's Registration
Statement on Form 8-A, filed on September 17, 1996.
4.07 Form of certificate representing Rights (included as Exhibit B to the form
of Rights Agreement filed as Exhibit 4.06). Pursuant to the Rights
Agreement, Rights Certificates will not be mailed until after the earlier
of (i) the tenth business day (or such later date as may be determined by
the Board of Directors, with the concurrence of a majority of the
Continuing Directors, prior to such time as any person becomes an
Acquiring Person) after the date of the commencement of, or first public
announcement of the intent to commence, a tender or exchange offer by any
person or group of affiliated or associated persons (other than the
Company or certain entities affiliated with or associated with the
Company), if, upon consummation thereof, such person or group of
affiliated or associated persons would be the beneficial owner of 15% or
more of such outstanding shares of common stock - incorporated by
reference to Exhibit 1 to the Registrant's Registration Statement on Form
8-A, filed on September 17, 1996.
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.
45
46
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 Amended and Restated Profit Sharing Plan of Comshare, Incorporated,
effective as of October 1, 1995 - incorporated by reference to Exhibit
4.1 to the Registrant's Form S-8 Registration Statement No. 33-65109.
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 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. (Portions of this
exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment
pursuant to Rule 24b-2).
10.10 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 Severance and Consulting Agreement, dated May 29, 1996, between Comshare,
Incorporated and Donald J. Walker.
10.12 Description of Incentive Arrangements for certain executive officers for
fiscal years 1994 and 1995 - 2000.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
46
47
10.17 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.
10.18 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 - incorporated by reference
to Exhibit 10.20 to Amendment Number 3 to the Registrant's Form 10-K
Report, filed November 8, 1995, for the fiscal year ended June 30, 1995.
(Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment pursuant to Rule 24b-2).
10.21 First Amendment to License Agreement by and between Arbor Software
Corporation and Comshare, Incorporated dated March 1, 1994 - incorporated
by reference to Exhibit 10.20 to the Registrant's Form 10-K Report for the
fiscal year ended June 30, 1995. (Portions of this exhibit have been
omitted and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment pursuant to Rule 24b-2).
11.1 Computation of per share earnings.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Independent Public Accountants.
27.00 Financial Data Schedule.
99.00 Amended and Restated Profit Sharing 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, 1996.
47