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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
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 SEPTEMBER 30, 1997.
OUTSTANDING AT
CLASS OF COMMON STOCK SEPTEMBER 30, 1997
--------------------- ------------------
$1.00 PAR VALUE 9,871,773 SHARES
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COMSHARE, INCORPORATED
INDEX
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of
September 30, 1997 and June 30, 1997 3
Condensed Consolidated Statement of Operations for the
Three Months Ended September 30, 1997 and 1996 5
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 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 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 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)
September 30, June 30,
1997 1997
---- ----
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 10,552 $ 11,651
Accounts receivable, net 25,145 24,675
Deferred income taxes 1,953 1,953
Prepaid expenses and other current assets 3,997 5,298
----------- ----------
Total current assets 41,647 43,577
PROPERTY AND EQUIPMENT, at cost 19,228 21,386
Less - accumulated depreciation 14,778 16,432
----------- ----------
Property and equipment, net 4,450 4,954
COMPUTER SOFTWARE, net 9,223 9,175
GOODWILL, net 1,565 1,609
DEFERRED INCOME TAXES 15,580 15,580
OTHER ASSETS 4,599 5,856
----------- ----------
$ 77,064 $ 80,751
=========== ==========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
September 30, June 30,
1997 1997
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,271 $ 4,332
Accounts payable 11,327 12,597
Accrued liabilities 8,769 7,745
Deferred revenue 18,331 19,868
-------- --------
Total current liabilities 39,698 44,542
LONG-TERM DEBT 4,282 343
OTHER LIABILITIES 4,378 3,907
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
9,871,773 shares as of September 30, 1997
and 9,871,260 shares as of June 30, 1997 9,872 9,871
Capital contributed in excess of par 39,529 39,528
Retained earnings (deficit) (15,901) (12,363)
Currency translation adjustments (3,812) (4,021)
-------- --------
29,688 33,015
Less - Notes receivable 982 1,056
-------- --------
Total shareholders' equity 28,706 31,959
-------- --------
$ 77,064 $ 80,751
======== ========
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
September 30,
----------------------------------------
1997 1996
---- ----
REVENUE
Software licenses $ 7,758 $ 6,568
Software maintenance 8,651 8,777
Implementation, consulting
and other services 5,387 4,639
----------- ----------
TOTAL REVENUE 21,796 19,984
COSTS AND EXPENSES
Selling and marketing 10,795 13,436
Cost of revenue and support 6,767 6,917
Internal research and product development 3,090 4,389
Internally capitalized software (1,865) (1,499)
Software amortization 1,866 1,526
General and administrative 2,967 2,924
Unusual charge 1,614 -
----------- ----------
TOTAL COSTS AND EXPENSES 25,234 27,693
----------- ----------
LOSS FROM OPERATIONS (3,438) (7,709)
OTHER INCOME (EXPENSE)
Interest income (expense) 38 211
Exchange gain (loss) (105) (96)
----------- ----------
TOTAL OTHER INCOME (EXPENSE) (67) 115
LOSS BEFORE TAXES (3,505) (7,594)
Benefit for income taxes - (2,663)
----------- ----------
NET LOSS $ (3,505) $ (4,931)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
AND DILUTIVE COMMON EQUIVALENT SHARES 9,874 9,704
=========== ==========
NET LOSS PER COMMON SHARE $ (0.36) $ (0.51)
=========== ==========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended
September 30,
----------------------------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net loss $ (3,505) $ (4,931)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,432 2,087
Changes in operating assets and liabilities:
Accounts receivable (790) 3,660
Prepaid expenses and other assets 1,188 (506)
Accounts payable (1,024) (4,818)
Accrued liabilities 1,138 (1,806)
Deferred revenue (1,331) (1,116)
Other liabilities 491 (11)
----------- -----------
Net cash used in operating activities (1,401) (7,441)
INVESTING ACTIVITIES
Additions to computer software (1,965) (1,490)
Payments for property and equipment (62) (1,160)
Other 1,148 (457)
----------- -----------
Net cash used in investing activities (879) (3,107)
FINANCING ACTIVITIES
Repayments under notes payable (3,334) -
Net borrowings under debt agreements and capital lease
obligations 4,356 873
Stock options exercised 25 21
Other 19 25
----------- -----------
Net cash provided by financing activities 1,066 919
EFFECT OF EXCHANGE RATE CHANGES 115 45
----------- -----------
NET DECREASE IN CASH (1,099) (9,584)
BALANCE AT BEGINNING OF PERIOD 11,651 27,468
----------- -----------
BALANCE AT END OF PERIOD $ 10,552 $ 17,884
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 79 $ 39
=========== ===========
Cash paid for income taxes $ 89 $ 243
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, required to present fairly its consolidated balance
sheet as of September 30, 1997, the consolidated statement of operations for
the three months ended September 30, 1997 and 1996 and the consolidated
statement of cash flows for the three months ended September 30, 1997 and 1996.
The results of operations for the three months ended September 30, 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
Effective September 23, 1997 the Company entered into a new $10 million
credit agreement which matures on October 1, 2000. Borrowings are secured by
accounts receivable and the credit agreement contains covenants regarding among
other things, earnings, leverage, net worth and payment of dividends. Under
the terms of the agreement, the Company is not permitted to pay cash dividends
on its common stock. Permitted borrowings available as of September 30, 1997
under this credit agreement were $10 million, of which $3.2 million was
outstanding. Borrowings available at any time are based on the lower of $10
million or a percentage of worldwide eligible accounts receivable. At
September 30, 1997, the interest rate was based on LIBOR, plus applicable
margin, which varied between 1.0% and 1.75%.
Separately, in August 1997, one of the Company's European subsidiaries
entered into a $1.2 million loan agreement which matures on June 30, 2000. The
Company had outstanding borrowings under this agreement of $1,120,000 at
September 30, 1997, with interest rates varying with bank's base rate. At
September 30, 1997, the interest rate was 10.4%.
In addition, certain of the Company's European subsidiaries have local
currency overdraft facilities under which $1.1 million was available at
September 30, 1997. The Company had outstanding borrowings of $796,000 at
September 30, 1997 under these facilities which are payable upon demand. The
interest rates generally vary with the banks' base rate. Most of such
borrowings are guaranteed by the Company.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 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 September
30, 1997 and June 30, 1997, the Company had forward foreign currency exchange
contracts of approximately $1.4 million and $1.8 million (notional amounts),
respectively, denominated in foreign currencies. The contracts outstanding at
September 30, 1997 mature at various dates through October 31, 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 September 30, 1997 and June
30, 1997.
NOTE E - UNUSUAL CHARGE
The Company recorded a $1.6 million pre-tax unusual charge for the cost of
termination of certain executives and others in the first quarter ended
September 30, 1997. The unusual charge includes staff reductions of
approximately 12 employees. At September 30, 1997, $1.4 million remains to be
paid for termination of employment and related contractual obligations.
NOTE F - LITIGATION
The Company and certain of its officers and directors were defendants in a
shareholder class action suit, In Re Comshare, Incorporated Securities
Litigation, filed in the United States District Court for the Eastern District
of Michigan. This suit is described in Item 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1997. On September 18, 1997
the Court dismissed all of the claims. The plaintiffs have filed an appeal of
the dismissal with the U.S. Court of Appeals for the Sixth Circuit. The
Company will vigorously oppose the appeal.
In 1996, Arbor Software Corporation ("Arbor"), following an audit of the
Company's records, demanded that the Company submit certain issues involving
interpretation of royalty provisions of the license agreement between the
Company and Arbor to binding arbitration. Arbor and the Company were in the
process of working out a procedure for and definition of all legal and
accounting issues to be resolved by such arbitration when, on September 27,
1996, Arbor filed a lawsuit against Comshare in the United States District
Court for the Northern District of California alleging breach of contract and
fraud relating to royalty calculations. The Company filed a denial of all of
Arbor's claims and filed a counterclaim against Arbor for fraud, defamation,
unfair competition, interference with economic relationships and breach of
contract. The parties are in the process of conducting discovery, and trial
is currently scheduled for May 1998. The Company is contesting Arbor's claims
and pursuing its own counterclaims vigorously.
NOTE G - FINANCIAL ACCOUNTING STANDARDS
In 1997, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information". The
Company is required to adopt SFAS 128 with its interim period ending December
31, 1997. There would have been no material impact on the periods presented if
this statement had been adopted for the current reporting period. The
disclosure prescribed by SFAS No. 130 and 131 must be made beginning with the
fiscal year ending June 30, 1999.
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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
months ended September 30, 1997 compared to the three months ended September
30, 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, 1997.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial
data as a percentage of total revenue.
Three Months Ended
September 30,
--------------------------------------
1997 1996
----- ----
REVENUE
Software licenses 35.6% 32.9%
Software maintenance 39.7 43.9
Implementation and consulting services 24.7 23.2
----- -----
Total revenue 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 49.5 67.2
Cost of revenue and support 31.0 34.6
Internal research and product development 14.2 22.0
Internally capitalized software (8.6) (7.5)
Software amortization 8.6 7.6
General and administrative 13.6 14.6
Unusual charge 7.4 -
----- -----
Total costs and expenses 115.7 138.5
LOSS FROM OPERATIONS (15.7) (38.5)
OTHER INCOME (EXPENSE)
Interest income (expense) 0.2 1.0
Exchange gain (loss) (0.5) (0.5)
----- -----
Total other income (expense) (0.3) 0.5
LOSS BEFORE INCOME TAXES (16.0) (38.0)
Benefit for income taxes 0.0 (13.3)
----- -----
NET LOSS (16.0)% (24.7)%
===== =====
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REVENUE
Three Months Ended Percent
September 30, Change
-------------------- ----------
1997 1996
---- ----
REVENUE
Software licenses $ 7,758 $ 6,568 18.1%
Software maintenance 8,651 8,777 (1.4)
Implementation and consulting services 5,387 4,639 16.1
-------- ---------
TOTAL REVENUE $ 21,796 $ 19,984 9.1%
======== =========
Total revenue increased 9.1% in the three months ended September 30, 1997
compared to the prior year primarily due to the increase in software licenses
revenue and implementation and consulting services revenue. The increase in
software licenses revenue in the current quarter was primarily attributable to
the growth in the Company's Commander Decision application and certain value
added applications, including Arthur and BudgetPLUS.
Software maintenance revenue was relatively flat in the three months ended
September 30, 1997 compared to the same period last year. Client/server
software maintenance revenue in the three months ended September 30, 1997
represented 80.3% of total software maintenance revenue and grew 6.3% compared
with the prior year. Mainframe software maintenance revenue decreased 24.1% in
the three months ended September 30, 1997 compared to last year primarily due
to mainframe maintenance cancellations and continued customer migration to
client/server platforms. Mainframe software maintenance revenue is expected to
continue to decline.
Implementation, consulting and other service revenue increased 16.1% in
the three months ended September 30, 1997 compared to last year primarily due
to the increased demand for such services from the existing client base.
COSTS AND EXPENSES
Three Months Ended Percent
September 30, Change
----------------------------------- --------------
1997 1996
------------------ ---------------
COST AND EXPENSES
Selling and marketing $ 10,795 $ 13,436 (19.7)%
Cost of revenue and support 6,767 6,917 (2.2)
Internal research and product development 3,090 4,389 (29.6)
Internally capitalized software (1,865) (1,499) 24.4
Software amortization 1,866 1,526 22.3
General and administrative 2,967 2,924 1.5
--------- ---------
Total costs and expenses before
unusual charge 23,620 27,693 (14.7)
Unusual charge 1,614 - *
--------- ---------
TOTAL COSTS AND EXPENSES $ 25,234 $ 27,693 (8.9)%
========= =========
* % not meaningful.
Selling and marketing expense decreased 19.7% in the three months ended
September 30, 1997 compared to the prior year mainly due to decreased spending
on marketing activities resulting from cost reduction actions taken during the
last half of fiscal 1997 and the first quarter of fiscal 1998.
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Cost of revenue and support was relatively flat in the three months ended
September 30, 1997 compared to the prior year. The slight decrease was
principally due to the decline in facility costs and reductions in customer
service technicians.
Internal research and product development expense decreased 29.6% in the
three months ended September 30, 1997 compared to last year mainly due to the
reduction in the product development staff as a result of the consolidation of
the Company's product development activities in Ann Arbor, Michigan and closing
of the Leicester, England product development facility in the third quarter of
fiscal 1997.
Internally capitalized software increased in the three months ended
September 30, 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 months ended September 30, 1997 primarily due to
the increased levels of capitalized software.
During the first quarter ended September 30, 1997, the Company recorded a
$1.6 million unusual charge which represented the cost of termination of
certain executives and other staff. The unusual charge includes staff
reductions of approximately 12 employees. At September 30, 1997, $1.4 million
remains to be paid for termination of employment and related contractual
obligations.
NON-OPERATING INCOME AND EXPENSE
Three Months Ended
September 30,
-------------------------------
1997 1996
----------- ------------------
OTHER INCOME (EXPENSE)
Interest income (expense) $ 38 $ 211
Exchange gain (loss) (105) (96)
------ ---------
TOTAL OTHER INCOME (EXPENSE) $ (67) $ 115
====== =========
Interest income declined in the three months ended September 30, 1997
primarily due to lower cash levels as a result of cash used in operating and
investment activities.
FOREIGN CURRENCY
For the three months ended September 30, 1997, 56% of the Company's total
revenue was from outside North America compared with 52% for the three months
ended September 30, 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 first quarter of fiscal 1998, the overall strengthening of the
dollar against European currencies had a slight negative impact on the Company's
foreign revenues, as compared to the same period of fiscal 1997. If foreign
exchange rates in the first quarter of fiscal 1997 had been the same as they
were in the same period of fiscal 1998, international revenues during the first
quarter of fiscal 1998 would have increased $1.9 million instead of $1.8
million, as reported. However, the impact on revenue was offset by the
exchange rate impact on foreign expenses. The $1.2 million decrease in
foreign expenses over the first quarter of fiscal 1997 would have been $1.0
million, if foreign exchange rates in the first quarter of fiscal 1997 had been
the same as they were in the same period of fiscal 1998. In general, the
Company's future operating results may be adversely impacted by the overall
strengthening of the U.S. dollar against foreign currencies of countries where
the Company conducts business; conversely, future operating results may be
favorably impacted by an overall weakening of the U.S. dollar against foreign
currencies.
The Company had several forward exchange contracts totaling $1.4 million
outstanding at September 30, 1997. See Note D of Notes to Condensed
Consolidated Financial Statements.
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PROVISION (BENEFIT) FOR INCOME TAXES
The effective income tax rate in the three months ended September 30, 1997
was 0%, compared with 35% for the same period a year ago, as the Company did
not recognize any benefit for income taxes on its operating loss in the first
quarter of fiscal 1998.
Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable income or by using a tax
strategy currently available to the Company. The foregoing statement is a
"forward looking statement" within the meaning of the Securities Exchange Act
of 1934. The extent to which existing deferred tax assets will be realized is
subject to a number of uncertainties including the ability of the Company's
operations to generate future taxable income, and other uncertainties described
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Safe Habor Statement."
On a quarterly basis, management will assess whether it remains more
likely than not that the deferred tax assets will be realized. This assessment
could be impacted by a combination of continuing operating losses and a
determination that the tax strategy is no longer sufficient to realize some or
all of the deferred tax assets. If management determines that it is no longer
more likely than not that the deferred tax assets will be realized, a valuation
allowance will be required against some or all of the deferred tax assets.
This would require a charge to the income tax provision, and such charge could
be material to the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and cash equivalents were $10.6 million,
compared with cash of $11.7 million at June 30, 1997. The decrease in cash and
cash equivalents is principally due to the net cash used for operating
activities in the three months ended September 30, 1997.
Net cash used in operating activities was $1.4 million in the three months
ended September 30, 1997, compared with $7.4 million in the three months ended
September 30, 1996. The decrease in net cash used in operating activities was
primarily due to the decrease in operating loss before income taxes from $7.6
million to $3.5 million, and a $2.4 million payment to terminate the Company's
lease obligation on its vacated London office facility in the first quarter of
fiscal 1997.
Net cash used in investing activities was $0.9 million in the three months
ended September 30, 1997, compared with $3.1 million in the three months ended
September 30, 1996. The decrease in net cash used in investing activities was
primarily due to the decreased purchases of property and equipment, and the
receipt of the net cash surrender value of certain life insurance policies as a
result of the cancellation of the policies held by the Company in the first
quarter of fiscal 1998. At September 30, 1997, the Company did not have any
material capital expenditure commitments.
Total assets were $77.1 million at September 30, 1997, compared with total
assets of $80.8 million at June 30, 1997. Working capital as of September 30,
1997 was $1.9 million, compared with a negative $1 million as of June 30, 1997.
The decrease in total assets from June 30, 1997 to September 30, 1997 was
primarily due to the decline in cash and cash equivalents as a result of the
operating loss during the first quarter of fiscal 1998. The increase in
working capital was primarily due to decrease in notes payable as a result of
the refinancing such notes under the Company's new credit agreement and a
decrease in deferred revenue, which relates to maintenance contracts and
represents a noncash obligation.
Effective September 23, 1997, the Company entered into a new $10 million
credit agreement with its bank which has permitted borrowings based on a
percentage of worldwide eligible accounts receivable. At September 30, 1997,
the permitted borrowings available under this credit agreement were $10
million, of which $3.2 million was outstanding.
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Separately, in August 1997, one of the Company's European subsidiaries
entered into a $1.2 million loan agreement which matures on June 30, 2000. The
Company had outstanding borrowings under this agreement of $1,120,000 at
September 30, 1997, with interest rates varying with bank's base rate. At
September 30, 1997, the interest rate was 10.4%.
The Company believes that the combination of present cash balances and
amounts available under credit facilities will be sufficient to meet the
Company's currently anticipated cash requirements for at least the next twelve
months. The foregoing statement is a "forward looking statement" within the
meaning of the Securities Exchange Act of 1934. The extent to which such
sources will be sufficient to meet the Company's anticipated cash requirements
is subject to a number of uncertainties including the ability of the Company's
operations to generate sufficient cash to support operations, and other
uncertainties described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement."
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 strategy. 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; cancellations
of maintenance and support agreements; software defects; changes in operating
expenses; variations in the amount of cost savings anticipated to result from
cost reduction actions; 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. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its officers and directors were defendants in a
shareholder class action suit, In Re Comshare, Incorporated Securities
Litigation, filed in the United States District Court for the Eastern District
of Michigan. This suit is described in Item 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1997. On September 18, 1997
the Court dismissed all of the claims. The plaintiffs have filed an appeal of
the dismissal with the U.S. Court of Appeals for the Sixth Circuit. The
Company will vigorously oppose the appeal.
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
September 30, 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: NOVEMBER 14, 1997 COMSHARE, INCORPORATED
(Registrant)
/s/ Kathryn A. Jehle
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Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Agreement between Comshare, Incorporated and T. Wallace
Wrathall dated October 24, 1997.
11.1 Computation of Net Income (Loss) per Common Share.
27 Financial Data Schedule.
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