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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER 0-4096
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COMSHARE, INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 994-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of MARCH 31, 1997.
OUTSTANDING AT
CLASS OF COMMON STOCK MARCH 31, 1997
--------------------- ----------------
$1.00 PAR VALUE 9,816,310 SHARES
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COMSHARE, INCORPORATED
INDEX
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of
March 31, 1997 and June 30, 1996...............................3
Condensed Consolidated Statement of Operations for the
Three and Nine Months Ended March 31, 1997 and 1996............5
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996......................6
Notes to Condensed Consolidated Financial Statements..............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK ...........................................14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...........................................14
ITEM 2. CHANGES IN SECURITIES.......................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................14
SIGNATURE............................................................15
INDEX TO EXHIBITS....................................................16
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
March 31, June 30,
1997 1996
---- ----
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 12,030 $ 27,468
Accounts receivable, net 28,721 34,853
Prepaid expenses and other current assets 6,986 6,491
-------- --------
Total current assets 47,737 68,812
PROPERTY AND EQUIPMENT, at cost 21,536 27,945
Less - accumulated depreciation 16,341 23,426
-------- --------
Property and equipment, net 5,195 4,519
COMPUTER SOFTWARE, net 9,176 9,064
GOODWILL, net 1,700 1,947
DEFERRED INCOME TAXES 13,740 7,940
OTHER ASSETS 5,882 5,956
-------- --------
$ 83,430 $ 98,238
======== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
March 31, June 30,
1997 1996
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) (audited)
CURRENT LIABILITIES
Accounts payable $ 14,896 $ 17,934
Accrued liabilities 8,223 7,956
Current portion of long-term debt 2,574 -
Deferred revenue 19,660 18,364
-------- --------
Total current liabilities 45,353 44,254
LONG-TERM DEBT - 1,913
OTHER LIABILITIES 3,381 3,407
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
9,816,310 shares as of March 31, 1997
and 9,691,443 shares as of June 30, 1996 9,816 9,691
Capital contributed in excess of par 39,048 38,132
Retained earnings (deficit) (9,804) 5,239
Currency translation adjustments (3,519) (3,586)
-------- --------
35,541 49,476
Less - Notes receivable 845 812
-------- --------
Total shareholders' equity 34,696 48,664
-------- --------
$ 83,430 $ 98,238
======== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited; in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUE
Software licenses $ 9,596 $ 15,586 $ 27,868 $ 46,740
Software maintenance 9,178 9,232 27,285 27,494
Implementation, consulting
and other services 5,271 6,716 15,071 18,136
-------- -------- -------- --------
TOTAL REVENUE 24,045 31,534 70,224 92,370
COSTS AND EXPENSES
Selling and marketing 13,221 13,144 41,363 38,205
Cost of revenue and support 8,140 8,045 23,138 22,533
Internal research and product development 3,385 4,302 12,084 12,388
Internally capitalized software (1,818) (1,130) (5,018) (4,564)
Software amortization 1,848 1,191 5,156 4,934
General and administrative 3,222 3,223 9,337 9,299
Unusual charge - - - 23,167
Restructuring related costs 6,245 - 6,245 -
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 34,243 28,775 92,305 105,962
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (10,198) 2,759 (22,081) (13,592)
OTHER INCOME (EXPENSE)
Interest income 64 265 377 178
Exchange gain (loss) (77) 31 (321) (81)
-------- ------- -------- --------
TOTAL OTHER INCOME (EXPENSE) (13) 296 56 97
INCOME (LOSS) BEFORE TAXES (10,211) 3,055 (22,025) (13,495)
Provision (benefit) for income taxes (3,288) 1,017 (7,409) (4,179)
-------- -------- -------- --------
NET INCOME (LOSS) $ (6,923) $ 2,038 $(14,616) $ (9,316)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
AND DILUTIVE COMMON EQUIVALENT SHARES 9,796 10,109 9,747 8,843
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE $ (0.71) $ 0.20 $ (1.50) $ (1.05)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
Nine Months Ended
March 31,
--------------------
1997 1996
--------- ---------
OPERATING ACTIVITIES
Net loss $ (14,616) $ (9,316)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 6,964 6,406
Loss on sales of property and equipment 99 -
Write-off of capitalized software - 23,167
Restructuring related costs 1,317 -
Changes in operating assets and liabilities:
Accounts receivable 6,225 (9,723)
Prepaid expenses and other assets 921 (812)
Accounts payable (3,424) 4,313
Accrued liabilities 370 1,423
Deferred revenue 1,175 687
Deferred income taxes (7,255) (6,613)
Other liabilities (90) 459
---------- --------
Net cash provided by (used in)
operating activities (8,314) 9,991
INVESTING ACTIVITIES
Additions to computer software (5,120) (4,756)
Payments for property and equipment (2,591) (2,075)
Other (773) (751)
---------- --------
Net cash used in investing activities (8,484) (7,582)
FINANCING ACTIVITIES
Net borrowings under notes payable 2,485 428
Repayments under long-term debt (1,911) (3,180)
Stock options exercised 559 414
Issuance of common stock - 25,196
Other 23 340
---------- --------
Net cash provided by financing activities 1,156 23,198
EFFECT OF EXCHANGE RATE CHANGES 204 14
---------- --------
NET INCREASE (DECREASE) IN CASH (15,438) 25,621
BALANCE AT BEGINNING OF PERIOD 27,468 1,398
---------- --------
BALANCE AT END OF PERIOD $12,030 $27,019
========== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 133 $ 340
========== ========
Cash paid for income taxes $ 549 $ 1,295
========== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, required to present fairly its consolidated balance
sheet as of March 31, 1997, the consolidated statement of operations for the
three and nine months ended March 31, 1997 and 1996 and the consolidated
statement of cash flows for the nine months ended March 31, 1997 and 1996.
The results of operations for the three and nine months ended March 31,
1997 and 1996 are not necessarily indicative of the results to be expected in
future quarters or the full fiscal year. The software industry is generally
characterized by seasonal trends.
NOTE B - COMPUTER SOFTWARE
The costs of developing and purchasing new software products and
enhancements to existing software products are capitalized after technological
feasibility and realizability are 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 gross product
revenue, estimated economic product lives and changes in software and hardware
technology. Capitalized development costs are currently amortized using the
straight-line method over a two-year service life. 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.
NOTE C - BORROWINGS
The Company's $10 million domestic unsecured credit agreement as amended
has permitted borrowings based on a percentage of worldwide eligible accounts
receivable and cash balances in excess of $2.5 million above outstanding debt.
At March 31, 1997, the permitted borrowings available under this credit
agreement were $7.0 million, of which no borrowings were outstanding.
NOTE D - 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 March 31, 1997 and
June 30, 1996, the Company had forward foreign currency exchange contracts of
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
approximately $9.3 million and $5.7 million (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at March 31, 1997
mature at various dates through May 16, 1997, 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 March 31, 1997 and June 30, 1996.
NOTE E - RESTRUCTURING CHARGE
During the quarter ended March 31, 1997, the Company recorded a $6.2
million pre-tax restructuring charge for management actions or plans in
connection with the consolidation of the Company's product development
activities in Ann Arbor, Michigan and reductions in staff and non-revenue
generating costs. The restructuring charge includes staff reductions of
approximately 70 employees. These cost reduction actions are expected to save
approximately $7.0 million annually. At March 31, 1997, $2.7 million remains
to be paid for termination of employment and contractual obligations related to
these restructuring actions taken during this quarter.
The foregoing statements regarding the Company's expected cost savings
from cost reduction actions 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 under Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Safe Harbor Statement".
NOTE F - LITIGATION
The Company and Arbor Software Corporation ("Arbor") disagree about
certain definitions in the license agreement between the two parties related to
the calculation of royalties. Comshare and Arbor were in the process of
defining the procedure and legal and accounting issues to be resolved through
arbitration, when on September 27, 1996, Arbor filed a lawsuit against Comshare
alleging breach of contract and fraud relating to royalty calculations.
Arbor's suit principally seeks monetary damages. On October 21, 1996, Comshare
filed a denial of all of Arbor's claims and filed a counterclaim against Arbor
for defamation, unfair competition, interference with economic relationships
and breach of contract. The litigation is in its early stages, therefore the
Company does not possess sufficient information to reasonably estimate the
potential liability, if any. Management is contesting the Arbor suit
vigorously.
NOTE G - FINANCIAL ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earning per
Share", which changes the calculation of earnings per share to be more
consistent with countries outside of United States. In general, the statement
requires two calculations of earnings per share to be disclosed, basic EPS and
diluted EPS. Basic EPS is to be computed using only weighted average shares
outstanding. Diluted EPS is to be computed using the average share price for
the period when calculating the dilution of options and warrants. This
statement must be adopted by the Company in its December 31, 1997 consolidated
financial statements and early adoption is not permitted. There would have
been no material impact on the periods presented if this statement had been
adopted for the current reporting period.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis sets forth information for the three
and nine months ended March 31, 1997 compared to the three and nine months
ended March 31, 1996. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial
data as a percentage of total revenue.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------------------------
1997 1996 1997 1996
----- -------- ------------- -------------
REVENUE
Software licenses 39.9 % 49.4 % 39.7 % 50.6 %
Software maintenance 38.2 29.3 38.9 29.8
Implementation and consulting services 21.9 21.3 21.4 19.6
--------- -------- ---------- ----------
Total revenue 100.0 100.0 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 55.0 41.7 58.9 41.3
Cost of revenue and support 33.8 25.5 32.9 24.4
Internal research and product development 14.1 13.6 17.2 13.4
Internally capitalized software (7.6) (3.6) (7.1) (4.9)
Software amortization 7.7 3.8 7.3 5.3
General and administrative 13.4 10.2 13.3 10.1
Unusual charge - - - 25.1
Restructuring related costs 26.0 - 8.9 -
--------- -------- ---------- ----------
Total costs and expenses 142.4 91.2 131.4 114.7
INCOME (LOSS) FROM OPERATIONS (42.4) 8.8 (31.4) (14.7)
OTHER INCOME (EXPENSE)
Interest income 0.3 0.8 0.5 0.2
Exchange gain (loss) (0.3) 0.1 (0.4) (0.1)
--------- -------- ---------- ----------
Total other income (expense) 0.0 0.9 0.1 0.1
INCOME (LOSS) BEFORE INCOME TAXES (42.4) 9.7 (31.3) (14.6)
Provision (benefit) for income taxes (13.7) 3.2 (10.6) (4.5)
--------- -------- ---------- ----------
NET INCOME (LOSS) (28.7) % 6.5 % (20.7) % (10.1) %
========= ======== ========== ==========
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REVENUE
Three Months Ended Percent Nine Months Ended Percent
March 31, Change March 31, Change
---------------------- ------------ ------------------------ ------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
REVENUE
Software licenses $9,596 $15,586 (38.4) % $27,868 $ 46,740 (40.4) %
Software maintenance 9,178 9,232 (0.6) 27,285 27,494 (0.8)
Implementation and consulting services 5,271 6,716 (21.5) 15,071 18,136 (16.9)
---------- ---------- -------- --------
TOTAL REVENUE $24,045 $31,534 (23.7) % $ 70,224 $ 92,370 (24.0) %
========== ========== ========= ========
Total revenue decreased 23.7% and 24.0% in the three and nine months ended
March 31, 1997 compared to the prior year primarily due to the decrease in
software licenses revenue. The decline in license fee revenue in the three and
nine months ended March 31, 1997 was primarily due to transitional changes in
the Company's sales organization, and the loss of sales momentum and turnover in
the European sales force mainly as a result of the Company's investigation into
violations of the Company's revenue recognition policies.
Software maintenance revenue was flat in the three and nine months ended
March 31, 1997 compared to the same period last year. Client/server software
maintenance revenue in the three and nine months ended March 31, 1997
represented 77% and 75% of total software maintenance revenue and grew 8.8% and
11.1% compared with the prior year. Mainframe software maintenance revenue
decreased 22.9% and 25% in the three and nine months ended March 31, 1997
compared to last year primarily due to mainframe maintenance cancellations and
continued migration to client/server platforms. Mainframe software maintenance
revenue is expected to continue to decline.
Implementation, consulting and other service revenue decreased 21.5% and
16.9% in the three and nine months ended March 31, 1997 compared to last year
primarily due to the decreased demand for such services resulting from the
decline in software license revenue and to the sale of the Company's Australian
business to an agent.
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COSTS AND EXPENSES
Three Months Ended Percent Nine Months Ended Percent
March 31, Change March 31, Change
--------------------- ---------- ---------------------- --------
1997 1996 1997 1996
-------- --------- -------- -----
COST AND EXPENSES
Selling and marketing $13,221 $13,144 0.6 % $41,363 $38,205 8.3 %
Cost of revenue and support 8,140 8,045 1.2 23,138 22,533 2.7
Internal research and product development 3,385 4,302 (21.3) 12,084 12,388 (2.5)
Internally capitalized software (1,818) (1,130) 60.9 (5,018) (4,564) 9.9
Software amortization 1,848 1,191 55.2 5,156 4,934 4.5
General and administrative 3,222 3,223 - 9,337 9,299 0.4
------- --------- -------- -------
Total costs and expenses before unusual
charge and restructuring related costs 27,998 28,775 (2.7) 86,060 82,795 3.9
Unusual charge - - * - 23,167 *
Restructuring related costs 6,245 - * 6,245 - *
------- --------- -------- --------
TOTAL COSTS AND EXPENSES $34,243 $28,775 19.0 % $92,305 $105,962 (12.9) %
======= ========= ======== ========
* % not meaningful.
Selling and marketing expense increased slightly in the three months ended
March 31, 1997 compared to the prior year mainly due to increased spending on
marketing activities to promote the Company's new applications, offset by the
cost reduction actions taken early in the current quarter and decreased
commissions on lower software license revenue. Selling and marketing expense
increased 8.3% in the nine months ended March 31, 1997 compared to the same
period last year primarily due to increased spending on marketing activities to
launch the Company's new applications.
Cost of revenue and support increased 1.2% and 2.7% in the three and nine
months ended March 31, 1997 compared to the prior year principally due to
increased third party royalties on client server maintenance revenue.
Internal research and product development expense decreased 21.3% and 2.5%
in the three and nine months ended March 31, 1997 compared to last year mainly
due to the cost reduction actions taken early in the current quarter in
connection with the consolidation of the Company's product development
activities in Ann Arbor, Michigan and reductions in staff.
Internally capitalized software increased in the three and nine months
ended March 31, 1997 compared to the prior year mainly due to the increased
levels of development costs that were capitalizable. Software amortization
expense increased in the three and nine months ended March 31, 1997 primarily
due to the increased levels of capitalized software.
During the third quarter ended March 31, 1997, the Company recorded a $6.2
million restructuring charge for management actions or plans in connection with
the consolidation of the Company's product development activities in Ann Arbor,
Michigan and reductions in staff and non-revenue generating costs. The
restructuring had a $4.2 million negative after tax impact on net income. The
restructuring charge includes staff reductions of approximately 70 employees.
These cost reduction actions are expected to save approximately $7.0 million
annually. At March 31, 1997, $2.7 million remains to be paid for termination
of employment and contractual obligations related to these restructuring
actions taken during this quarter.
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During the second quarter ended December 31, 1995, the Company recorded a
$23.2 million non-cash charge to write off certain capitalized software. The
write-off had a $15.5 negative after tax impact on net income. The write-off
was the result of strong customer interest in the Company's 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.
NON-OPERATING INCOME AND EXPENSE
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
OTHER INCOME (EXPENSE)
Interest income $ 64 $ 265 $ 377 $ 178
Exchange gain (loss) (77) 31 (321) (81)
----- ----- ----- -----
TOTAL OTHER INCOME (EXPENSE) $ (13) $ 296 $ 56 $ 97
===== ===== ===== =====
Interest income declined in the three months ended March 31, 1997
primarily due to lower cash levels as a result of cash used in operating and
investment activities. Interest income increased in the nine months ended
March 31, 1997 principally due to investment of the net proceeds received from
the public offering of the Company's common stock in the quarter ended December
31, 1995. The foreign exchange loss principally reflects the strengthening of
the British pound against other foreign currencies during the nine months ended
March 31, 1997.
PROVISION (BENEFIT) FOR INCOME TAXES
The effective income tax rate in the three and nine months ended March 31,
1997 was 32% and 34%, compared with 33% and 31% for the same periods a year
ago. The lower effective tax rate for the current quarter was primarily the
result of not recognizing state tax benefits on the net loss from operations.
The lower tax rate on the net loss before taxes for the nine months ended March
31, 1996 was primarily due to the lower tax benefits from the software
write-off. The net tax assets remaining at March 31, 1997 are projected by the
Company to be utilized, primarily through income from future operations, before
expiration.
FOREIGN CURRENCY
In the three and nine months ended March 31, 1997, 44% and 48% of the
Company's total revenue was from outside North America compared with 54% in the
three and nine months ended March 31, 1996. Most of the Company's
international revenue is denominated in foreign currencies. The Company
recognizes currency transaction gains and losses in the period of occurrence.
As currency rates are constantly changing, these gains and losses can, at
times, fluctuate greatly.
During the three and nine months ended March 31, 1997 foreign currency
fluctuations on revenue denominated in a foreign currency were offset by
currency fluctuations on expenses denominated in a foreign currency. For the
three months ended March 31, 1997 the decrease in total revenue, at actual
exchange rates, was $460,000 less than at comparable exchange rates. The
increase in total expenses, at actual exchange rates, was $377,000 more than at
comparable exchange rates. As a result of the changes in the foreign currency
exchange rates, the increase in net loss before taxes, at actual exchange
rates, was $83,000 less than at comparable exchange rates. For the nine
months ended March 31, 1997 the decrease in total revenue, at actual exchange
rates, was $1,030,000 less than at comparable
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exchange rates. The decrease in total expenses, at actual exchange rates, was
$375,000 less 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,
at actual exchange rates, was $655,000 less than at comparable exchange rates.
The Company had several forward exchange contracts totaling $9.3 million
outstanding at March 31, 1997. See Note D of Notes to Condensed Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, cash and cash equivalents were $12 million, compared
with cash of $27.5 million at June 30, 1996. The decrease in cash and cash
equivalents is principally due to the net cash used for operating activities in
the nine months ended March 31, 1997.
Net cash used in operating activities was $8.3 million in the nine months
ended March 31, 1997, compared with net cash provided by operating activities
of $10 million in the nine months ended March 31, 1996. The decrease in net
cash provided by operating activities was primarily due to the net loss from
operations, and a $2.4 million payment to terminate the Company's lease
obligation on its vacated London office facility.
Net cash used in investing activities was $8.5 million in the nine months
ended March 31, 1997, compared with $7.6 million in the nine months ended March
31, 1996. The increase in net cash used in investing activities was primarily
due to the increase in capitalized computer software and property and equipment
purchases. At March 31, 1997, the Company did not have any material capital
expenditure commitments.
Net cash provided by financing activities was $1.2 million in the nine
months ended March 31, 1997 compared with $23.2 million in the nine months
ended March 31, 1996. The Company completed a public offering in which it
received net proceeds of $25.2 million in the second quarter ended December 31,
1995.
Total assets were $83.4 million at March 31, 1997, compared with total
assets of $98.2 million at June 30, 1996. Working capital as of March 31, 1997
was $2.4 million, compared with $24.6 million as of June 30, 1996. The
decrease in both total assets and working capital from June 30, 1996 to March
31, 1997 was primarily due to the decline in cash and cash equivalents and
accounts receivable.
The Company's $10 million domestic unsecured credit agreement as
amended has permitted borrowings based on a percentage of worldwide eligible
accounts receivable and cash balances in excess of $2.5 million above
outstanding debt. At March 31, 1997, the permitted borrowings available under
this credit agreement were $7.0 million, of which no borrowings were
outstanding.
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.
SAFE HARBOR STATEMENT
Certain information in this Form 10-Q contains "forward looking
statements" within the meaning of the Securities Exchange Act of 1934,
including those concerning the Company's future results and expected cost
savings from cost reduction actions described in Item 1 "Financial Statements
- - Note E to Notes to Condensed Consolidated Financial Statements" and Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Costs and Expenses". Actual results could differ materially from
those in the forward looking statements due to a number of uncertainties,
including, but not limited to, the demand for the Company's products and
services; the size, timing and recognition of revenue from significant orders;
increased competition; the Company's success in and expense associated with
developing, introducing and shipping new products; new product introductions
and announcements by the Company's competitors; 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;
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cancellations of maintenance and support agreements; software defects;
variations in the amount and timing of cost savings anticipated to result from
cost reduction actions; the impact of off-setting increases in operating
expenses; the impact of cost reduction actions on the Company's operations;
fluctuations in foreign exchange rates; and economic conditions generally or in
specific industry segments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Four separate class action suits were filed against the Company and
certain of its officers and directors in the United States District Court for
the Eastern District of Michigan between August 9, 1996 and September 5, 1996,
as reported in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996. These suits were filed on behalf of shareholders who had
purchased the Company's common stock between April 17, 1996 and August 6, 1996,
following the Company's announcement of certain violations of Company's revenue
recognition policies. The court has since consolidated the four suits into one
class action, and the plaintiffs have amended their complaint to expand the
class to shareholders who had purchased the Company's common stock between
August 2, 1995 and August 6, 1996. The action alleges 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 not misleading, and seeks unspecified damages and
costs. The Company is vigorously contesting the plaintiffs' claims.
ITEM 2. CHANGES IN SECURITIES
On March 10, 1997, the Company granted an option to Mr. Daniel T. Carroll
to purchase 10,000 shares of the Company's common stock at an exercise price
of $15.75 per share, the closing price of the common stock on that date.
The option was granted in consideration for his increased responsibilities in
assuming the position of Chairman of the Board of the Company. The option will
vest on the later of March 10, 1998 or the date on which Mr. Carroll ceases to
be Chairman of the Board of the Company; provided that the option will vest
immediately in the event of a change in control of the Company. The option
expires 30 months from the grant date or the date six months after which Mr.
Carroll ceases to be Chairman of the Board of the Company, whichever occurs
earlier. The Company did not register, and does not plan to register, the
option or the common stock issuable upon the exercise of the option under the
Securities Act of 1933, as amended (the "Act"), based upon exemptions from
registration set forth in Section 4(2) of the Act and Regulation D. The
Company relied upon these exemptions based upon Mr. Carroll's agreement to
provide a signed investment representation at he time of the exercise of the
option, his position as Chairman of the Board of the Company and the negotiated
nature of the transaction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) The exhibits included herewith are set forth on the Index to Exhibits.
(b.) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
March 31, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: MAY 15, 1997 COMSHARE, INCORPORATED
(Registrant)
/s/ Kathryn A. Jehle
-----------------------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
4.08 Fourth Amendment to Comshare, Incorporated Amended and
Restated Credit Agreement between Comshare, Incorporated and NBD
Bank, formerly known as NBD Bank , N.A., Michigan dated March 31,
1997.
10.22 Stock Option Agreement, effective as of March 10, 1997, between
Comshare, Incorporated and Daniel T. Carroll.
11.1 Computation of Net Income (Loss) per Common Share.
27 Financial Data Schedule.
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