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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
[ ] 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 (IRS 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: (734) 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 statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of August 31, 1998 based on $2.88 per share, the last sale price
for the Common Stock on such date as reported on the NASDAQ Stock Market
National Market System, was approximately $27,956,000.
As of August 31, 1998 the Registrant had 10,075,547 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K Report
-------- into which it is incorporated
Portions of Proxy Statement for the -----------------------------
1998 Annual Meeting of Shareholders III
("The 1998 Proxy Statement")
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PART I
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 Related to
Forward Looking Statements."
GENERAL
Comshare, Incorporated and its subsidiaries (collectively referred to as
"Comshare" or the "Company") develop, market and support client/server financial
analytic applications software for management planning and control. The Company
targets its products and services to the chief financial officer's ("CFO")
organization across a broad range of industries, offering software for
budgeting, consolidation, management reporting and performance measurement.
Comshare's software is differentiated by its robust multidimensional guided
analysis capabilities which allow end-users to quickly identify and analyze
problem areas particularly in very large databases. The Company's software
products enable the enterprise-wide integration of data from multiple data
sources, complementing underlying transaction systems. The Company delivers
complete software solutions by providing implementation, consulting, training
and support services in addition to the software sales.
On June 4, 1998, Comshare sold certain software products, accounts receivable,
customer contracts, intellectual property, intangibles, permits and business
records related to its Arthur (TM) strategic merchandise management applications
for the retail industry and its Boost Sales and Margin Planning software product
for the consumer packaged goods industry (together, the "Retail Business") to
JDA Software, Inc. for $44 million in cash and the assumption of certain
liabilities related to the Retail Business. The sale of the Retail Business
resulted in a pre-tax gain of $35,386,000 and an after-tax gain of $19,986,000.
BUSINESS STRATEGY
The Company's objective is to be a leading provider of financial analytic
applications. The key elements of the Company's strategy include the following:
1. Focus on financial analytic applications for budgeting, consolidation,
management reporting and performance measurement. These applications
provide analytical capability to end-users not available in underlying
transaction systems which are geared toward efficient transaction
processing rather than analysis and reporting. The Company's early efforts
emphasize budgeting applications, because it believes that this market
offers the greatest immediate potential.
2. Complement multiple transaction vendors. Comshare's applications can
integrate data from multiple transaction systems into a single application
for reporting and analysis, offering customers the flexibility of dealing
with multiple underlying transaction systems which their business needs
often require.
3. Provide easy enterprise-wide deployment of the software. Comshare's
applications are designed to support enterprise-wide budgeting,
consolidation, management reporting and performance analysis for large and
complex businesses. The software can be easily customized to meet the
unique needs of a customer, yet readily deployed. The typical
implementation can be accomplished in 60 to 90 days.
4. Differentiate with guided analysis and financial functionality. Drawing on
years of experience in the business intelligence market, Comshare
differentiates its products by giving end-users adhoc query and reporting
capability which is driven by guided analysis. This analytical capability
allows an end-user to identify problem areas quickly and drill down for
more information. Guided analysis is particularly critical for
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applications involving large databases which in turn make it difficult and
time consuming for the end-user to identify problems buried in the
databases.
5. Support relational and OLAP multidimensional database technologies. Many
of today's businesses are best understood in a multidimensional context,
for example, across time periods, across geographies and across products.
Comshare's applications have historically supported OLAP database
technology which was developed specifically for multidimensional business
problems. However, relational database technology is increasingly able to
handle such analysis and is considered mainstream technology by many
companies. To broaden the market appeal of its applications, Comshare is
in the process of developing applications to support both relational and
OLAP databases for certain of its main applications.
6. Use a common technology platform, the Comshare Application Architecture,
based on Microsoft Corporation ("Microsoft") standards. The Comshare
Application Architecture allows the Company to offer an integrated suite
of applications to its customers and permits new technology features to
become quickly available to all products developed using this
architecture. Microsoft standard technologies enable the Company to focus
its resources on the application functionality of the products and avoid
the time and cost of developing proprietary technologies. The Microsoft
technologies allow the Company to support the products of other software
vendors more easily.
PRODUCTS
The Company offers financial analytic applications designed for use by customers
in a broad range of industries, primarily targeted at the finance organizations
of corporations.
Comshare's software products are generally licensed to end-use customers under
non-exclusive 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 the Company's products 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
percent of the license fee.
The Company offers three main products: Comshare BudgetPLUS ("BudgetPLUS") ,
Comshare Decision ("Decision") and its web-version, Comshare DecisionWeb
("DecisionWeb"), and Comshare FDC ("FDC"). In addition, the Company supports a
number of legacy products.
1. BUDGETPLUS
Comshare's lead application is BudgetPLUS, a client/server based application
offering enterprise-wide budgeting functionality. It is designed to improve
productivity, shorten budget cycles and enhance the quality of an enterprise's
budget process.
BudgetPLUS offers the flexibility of a spreadsheet combined with the control and
accounting intelligence of a general ledger package. Data collection is through
the use of the popular Excel spreadsheet in a secure environment, enabling the
business manager to develop their budgets within a system, which can be
centrally administered for easy consolidation and review. BudgetPLUS provides
the ability to build custom data entry screens, load data, track budget
versions, translate currencies, perform consolidations and handle
reorganizations. It is designed to handle enterprise-wide budgeting and to be
implemented quickly and easily. Limited ongoing support by the customer's
information technology organization is required.
BudgetPLUS is integrated with Decision to provide a single financial database to
enhance the integrity and usability of the data, including all budget versions,
forecasts and actual results. This provides end-users access for adhoc analysis
and reporting across the enterprise.
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Comshare currently offers BudgetPLUS using Hyperion Solutions Corporation's
("Hyperion") Essbase database. Under development is a version of BudgetPLUS
which uses Oracle Corporation's ("Oracle") relational database and plans have
been announced to support Microsoft's SQL Server relational database.
The analysis and reporting capability of DecisionWeb is also available with
BudgetPLUS.
2. DECISION
Decision and DecisionWeb are the latest generation decision support products
offered by Comshare and follow a long line of executive information system
("EIS") products offered by the Company. Comshare was among the first software
companies to successfully introduce EIS products to the market.
Decision and DecisionWeb are applications designed to provide information to a
wide range of business users for planning, analysis and reporting. These
applications are customized by the Company's consultants, third parties or the
customers themselves to meet specific customer requirements. While these
products can be used to develop a wide range of applications, Comshare is
focusing its sales and development efforts primarily on financial performance
measurement applications. These applications can be developed on a stand-alone
basis or in connection with Comshare's BudgetPLUS product. Typical applications
include balanced scorecards, sales analysis applications, product and customer
profitability analysis applications and key performance indicator applications.
Decision and DecisionWeb capitalize 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, across time periods, across geographies and across products. Decision
and DecisionWeb facilitate these and other multidimensional analyses by
permitting end-users to structure business data across multiple dimensions of
importance to these users.
Decision includes a full suite of client/server software necessary to deliver an
enterprise-wide application, including software which 1) gathers and
consolidates data from multiple, disparate data sources, 2) server-based
technology to facilitate computer-intensive functions such as sorting and adhoc
calculations, and 3) an analysis and presentation front end for end-users.
Decision provides for automated data acquisition, cleansing, integration and
consolidation of data from diverse sources. This summarized information is
stored in a multidimensional database, which is currently Hyperion's Essbase
database. The current version of Decision also supports Microsoft's Plato in its
current beta form, which is expected to be commercially released by Microsoft by
the end of the calendar year 1998. At that time, Decision will also support all
third party OLAP databases which conform to Microsoft's OLE DB for OLAP
standard. The front-end software gives end-users access to business information
in an understandable way plus the power of adhoc analysis.
For companies with very large databases, the only practical way of identifying
areas requiring further analysis is the use of guided analysis techniques.
Comshare offers several different guided analysis capabilities. Overview, a
guided analysis technique, is particularly adaptable to very large databases
because it allows entire hierarchies to be viewed on a screen at one time, color
coded for exceptions. This gives the end-users the ability to find problems
easily as well as to see problems in context with other items in the hierarchy.
Detect and Alert technology, another guided analysis technique, give users
private and public monitors. End-users can define the data to be monitored and
the acceptable data ranges on their desktops. The desktop receives alerts when
values are found outside the acceptable ranges, which relieves end-users from
the task of searching for problems. Intelligent Component Expansion, a third
guided analysis technique, alerts users to problems hidden at lower levels of a
business hierarchy that they are not currently viewing. A quick scan of company
results will reveal trouble spots. Comshare's Question & Answer interface guides
users through a series of questions, leading them through a standard analysis
process specifically developed for sales analysis applications.
DecisionWeb is a Web server-based component of Decision which allows end-users
with Internet browsers to access and analyze the same applications that other
end-users can on client/server platforms. Decision and DecisionWeb are both
based on Comshare's Application Architecture so organizations can deliver the
same application enterprise-wide available on Decision, by using a combination
of Decision client desktops and Internet browsers with DecisionWeb. Businesses
benefit from web-based applications because they reduce the cost of deploying
and maintaining applications to multiple end-users in multiple locations.
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DecisionWeb delivers Java-based web applications with generally the same
functionality found in Decision, including exception reporting, personal
calculations, sorting, the ability to write data back to the central database,
drill down, charting and customizable points of entry for individual users.
3. FDC
FDC is a statutory consolidation and management reporting application which
collects and consolidates financial data from different general ledgers and
other sources within a multidivisional or multilocation organization. It
produces consolidated financial reports for management, public and statutory
reporting. With FDC, a customer can cut their closing time and provide financial
results more quickly to end-users.
FDC offers the financial intelligence and control found in general ledgers.
Information can be integrated from multiple general ledger systems without
rekeying data. FDC performs currency translations, handles intercompany
eliminations and account reclassifications.
FDC is a client/server application which uses a Btrieve database to store data,
which can include historical and budgeted data.
FDC is offered with Execu-View Finance, which allows users point and click
access to interactively browse, report, graph and analyze information gathered
in FDC, similar to Decision.
4. LEGACY PRODUCTS
Comshare continues to support Commander OLAP, the client/server predecessor to
Decision and earlier EIS-based 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
developed with Decision, 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 business
have declined significantly in recent years. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SERVICES AND SUPPORT
The Company offers implementation, consulting, training, presales and postsales
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 distributor
network.
IMPLEMENTATION AND CONSULTING SERVICES
Implementation and consulting services are offered for all of the Company's
software products, and 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, given to recognize
consultants qualified in the use of Comshare applications. 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, among others, Legacy Technology,
Technium and Pinnacle Solutions 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.S.,
U.K. and Germany.
SOFTWARE MAINTENANCE AND SUPPORT
The Company provides customer telephone helpline support staffed with
experienced professionals. Customers under maintenance receive product
enhancements and updates, bug fixes and access to Comshare's telephone helpline
and helpline web pages. 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.
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CUSTOMER TRAINING
Comshare offers a 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, applications building and system
administration.
CUSTOMERS
Comshare and its distributors are currently providing maintenance at over 2,100
corporate and public sector customer sites in 42 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 distributor network. Both of these
complementary distribution channels leverage the Company's industry and
application expertise and offer presales and postsales implementation,
consulting, and customer support and services.
The Company sells and markets its software products and services in the U.S.,
Canada, U.K., France and Germany through direct sales organizations. Direct
sales operations are organized geographically, and within a geographic region
are generally organized by industry.
The Company has an extensive distributor network covering 37 countries not
directly served by the Company. The Company has selected established software
application vendors or systems integration firms to act as distributors to
market, implement and support Comshare products in their respective geographic
areas. Revenue from the Company's distributors was $19.4 million, or
approximately 22% of total revenue, in fiscal 1998.
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 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 ranges
from three to nine months.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategies are to: (1) provide financial
analytic applications on both the client/server and web-based platforms; (2)
differentiate Comshare products with guided analysis capabilities for very large
databases; (3) provide applications using relational and OLAP database
technologies; (4) follow Microsoft standards; and (5) leverage the Comshare
Application Architecture.
Web-based applications are increasingly popular among major corporations because
they are easier to deploy and support in a multilocation environment. Comshare
offers DecisionWeb, a web-based alternative to Decision, and plans to develop
web-based versions of its other products in the future.
Many of Comshare's customers have large enterprise-wide applications which
result in very large databases. The Company has developed guided analysis
technologies to help end-users quickly and easily determine problem areas for
further analysis. These guided analysis capabilities include Overview, which was
developed based on technology licensed from Inxight Software, Inc., a Xerox New
Enterprise Company ("Inxight"), Detect and Alert,
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Intelligent Component Expansion and the Question & Answer interface. Comshare is
pursuing extensions to these guided analysis capabilities, particularly in
partnership with Inxight.
Relational database technology is increasingly capable of handling
multidimensional business problems which proprietary OLAP database technologies
were developed to solve. Because relational technology is considered mainstream
and is supported by most major corporations, Comshare is developing relational
versions of certain of its applications and plans to support both the OLAP and
relational versions. Prior to the sale of its Retail Business, the Company
developed relational versions of its retail applications, and it is now applying
this knowledge and certain technology to developing a relational version of
BudgetPLUS.
Microsoft is viewed as setting the standard for client/server technology. All of
Comshare's products run on NT on the server and NT and Windows '98 on the
desktop. The Company plans to continue to support Microsoft's platforms and to
replace proprietary middleware technology over time with Microsoft technology.
Specifically, the Company's current version of Decision supports the beta
version of Microsoft's OLAP database, Plato, and the OLAP connectivity standard
developed by Microsoft, called OLE DB for OLAP. This means that Decision will
support any OLAP database that adheres to the OLE DB for OLAP standard when it
is commercially released. Commercial release by Microsoft is expected by
calendar year-end.
To support its application strategy, the Company developed a common
architectural platform 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, CAA will
allow the Company to integrate its products for the benefit of customers who buy
multiple Comshare applications. Second, new applications can be developed using
the CAA allowing the Company to leverage existing technology. Third, CAA will
enable the Company to implement innovative, differentiating features in the
application server tier, which will benefit all applications developed based on
CAA.
During the fiscal years ended June 30, 1998, 1997, and 1996 worldwide internal
research and development expenses were (in thousands):
1998 1997 1996
Internal research and product development $12,355 $15,556 $15,977
As a % of total revenue 13.8% 16.8% 13.4%
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 needs of the marketplace and achieve market acceptance or
that developments by others will not render the Company's products obsolete or
noncompetitive.
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".
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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 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 Comshare BudgetPLUS, Comshare
Decision, Detect and Alert(R), Comshare EIS, Comshare Execu-View, Guided
Analysis, Comshare FDC, Comshare NewsAlert, The Decision Support Company(R),
Comshare DecisionWeb, Comshare Sales Analysis, Overview and Comshare Application
Architecture. 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, Hyperion's Essbase, Inxight's Hyperbolic Tree, Btrieve
Technology, Inc.'s Btrieve database, Microsoft's Excel, Oracle's Express,
Applix's TM1 and Strategic Mapping, Inc.'s Atlas View SDK. During fiscal 1998,
the Company was substantially dependent upon Hyperion's Essbase, to provide the
critical multidimensional functionality for Decision and BudgetPLUS. The
Company's worldwide license for Essbase was extended in September, 1998 and
expires December 31, 2002. The license agreegment may be terminated earlier in
the event of an uncured material breach. The Company may extend the license if
certain minimum revenues are achieved. In addition, the Company may continue to
maintain and support its customer base after termination of the license
agreement with Hyperion.
The Company also has license agreements with Oracle and Applix, and Decision
supports three different databases: Essbase, Express and TM1. The Company has
under development a relational version of BudgetPLUS and has developed a version
of Decision which supports Microsoft's Plato database currently in beta test and
expected to be completed by the end of calendar 1998. The Company's strategy is
to support multiple databases through the use of Comshare Application
Architecture.
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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, although it may be at a competitive disadvantage against its principal
competitors because of their significantly larger market share and greater
financial, technical, marketing and other resources.
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. The Company changed its
strategy in fiscal 1998 to focus on financial analytic applications, rather than
the broader decision support market. As a result, the number of competitors are
fewer, but also more focused. The Company now competes primarily with Oracle's
product Oracle Financial Analyzer and Hyperion which is the survivor of the
merger of Hyperion Software Corporation and Arbor Software Corporation.
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 financial
analytic applications. Among The Company's current and potential competitors are
a number of large software companies, including developers of spreadsheets,
database query and reporting tools, transaction processing-based applications
and database technologies, that may elect to increase the financial analytic
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 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 54.1%, 47.6% and 53.1% of its total revenue from outside
North America in fiscal 1998, 1997, and 1996, 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 currencies has the effect of
reducing the Company's reported revenue and profits from international sales
denominated in such currencies. Conversely, a weakening in the value of the U.S.
dollar relative to foreign currencies has the effect of increasing 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 "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of the Notes to
Consolidated Financial Statements.
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For a description of certain financial information regarding the Company by
geographic area, see Note 10 of the Notes to Consolidated Financial Statements.
EMPLOYEES
Comshare employed 405 full-time employees as of June 30, 1998; including 137 in
sales and marketing, 92 in consulting and implementation services, 65 in
research and product development, and 111 in customer support and
administration. None of the Company's employees are 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 "Research and Product Development",
"Intellectual Property and Proprietary Rights", "Licensed Technologies",
"Competition" and "International Operations" above and in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
2000" and "Market Sensitivity Analysis."
The Company's future 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, particularly in markets not previously served by the
Company; 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, including the impact on
the Company's revenues of the proposed release by Microsoft of an OLAP database
(see "Item 1. Business-Products"), the impact of recent transitional changes in
North American and international management and sales personnel; 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; the impact of undetected
errors or defects associated with year 2000 date functions on the Company's
current products and internal systems; the ability of the Company to generate
sufficient future taxable income or to execute available tax strategies required
to realize deferred tax assets; economic conditions generally or in specific
industry segments; risks inherent in seeking and consummating acquisitions,
including the diversion of management attention to the assimilation of the
operations and personnel of acquired businesses, the ability of the Company to
successfully integrate acquired businesses and the impact on the Company's
results and financial condition from debt issued, liabilities acquired and
additional expenses incurred in connection with such acquisitions. 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 14 major cities
throughout the United States, Canada and Europe. 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 70,000 and Customer Support February 2005*
Administration, Sales,
London, Marketing and
England 34,000 Implementation Services January 2008
* 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, 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.
The Court consolidated the four suits into one class action, In Re Comshare,
Incorporated Securities Litigation, and the plaintiffs 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 alleged 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 complaint
sought unspecified damages and costs. On September 18, 1997, the Court dismissed
all of the claims. The plaintiffs have appealed the dismissal of the action to
the U.S. Court of Appeals for the Sixth Circuit.
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, Inc. - National
Market System 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, Inc. - National Market System. 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
------------- ---- ----
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 31.63 11.63
Second Quarter 17.50 13.00
Third Quarter 18.75 13.00
Fourth Quarter 14.38 11.25
1998 First Quarter 12.38 8.00
Second Quarter 8.19 4.81
Third Quarter 9.81 6.13
Fourth Quarter 8.88 7.00
1999 First Quarter $ 7.88 2.88
(through August 31, 1998)
At August 31, 1998, there were approximately 1,100 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. The Company's credit agreement contains
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 are derived
from the audited Consolidated Financial Statements of the Company. This
information should be read in conjunction with "Item 7. 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,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue $ 89,753 $ 92,831 $ 118,984 $ 108,358 $ 96,626
Income (loss) from operations
before restructuring and
unusual charges (4,034) (19,727) 6,375 8,850 3,991
Income (loss) from operations (14,724) (25,972) (16,792) 2,485 1,648
Net income (loss) 5,266 (17,117) (9,891) 5,328 222
Per common share
- basic EPS $ 0.53 $ (1.75) $ (1.09) $ 0.63 $ 0.03
Average shares
(thousands) 9,903 9,770 9,048 8,398 8,234
JUNE 30,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash & cash equivalents $49,102 $11,651 $27,468 $ 1,398 $ 1,774
Total assets 88,692 80,751 98,238 79,310 88,944
Long-term debt 1,434 343 1,913 5,436 15,354
Total shareholders' equity $38,405 $31,959 $48,664 $32,548 $26,506
ADDITIONAL DATA:
Number of employees at year-end 405 579 695 686 729
NOTES: (1) The income (loss) from operations for the fiscal years ended
June 30, 1998, 1997, 1996, 1995 and 1994 include restructuring
and unusual charges of $10,690,000, $6,245,000, $23,167,000,
$6,365,000 and $2,343,000, respectively. See Note 2 of the Notes
to Consolidated Financial Statements for information regarding
restructuring and unusual charges.
(2) Net income for the fiscal year ended June 30, 1998, includes an
after-tax gain of $19,986,000 from the sale of the Company's
Retail Business. The Retail Business accounted for approximately
$17,800,000 of the Company's 1998 revenue. See Note 13 of the
Notes to Consolidated Financial Statements for information
regarding the sale of the Company's Retail Business.
(3) 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.
(4) 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.
(5) 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,
--------
1998 1997 1996
------------ ----------- ----------
REVENUE
Software licenses 36.3% 39.2% 48.5%
Software maintenance 39.0 38.8 31.2
Implementation, consulting and other services 24.7 22.0 20.3
------------ ----------- ----------
TOTAL REVENUE 100.0 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 46.5 57.7 43.2
Cost of revenue and support 32.2 32.9 26.7
Internal research and product development 13.8 16.8 13.4
Internally capitalized software (7.1) (7.5) (5.2)
Software amortization 7.2 7.7 5.5
General and administrative 11.9 13.7 11.0
Restructuring and unusual charges 11.9 6.7 19.5
------------ ----------- -----------
TOTAL COSTS AND EXPENSES 116.4 128.0 114.1
------------ ----------- -----------
LOSS FROM OPERATIONS (16.4) (28.0) (14.1)
Gain on sale of Retail Business 39.4 - -
Interest and other income (expense) 0.1 0.2 0.4
------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 23.1 (27.8) (13.7)
------------ ----------- -----------
Provision (benefit) for income taxes 17.2 (9.4) (5.4)
------------ ----------- -----------
NET INCOME (LOSS) 5.9% (18.4)% (8.3)%
============ =========== ===========
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REVENUE
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, PERCENT JUNE 30, PERCENT JUNE 30,
1998 CHANGE 1997 CHANGE 1996
-------- ------ -------- ------ ------
REVENUE
Software licenses $ 32,610 (10.5)% $ 36,455 (36.8)% $ 57,715
Software maintenance 34,972 (2.8) 35,983 (3.0) 37,095
Implementation & consulting svcs. 22,171 8.7 20,393 (15.6) 24,174
--------- --------- ---------
TOTAL REVENUE $ 89,753 (3.3)% $ 92,831 (22.0)% $ 118,984
========= ========= =========
Total revenue decreased 3.3% in fiscal 1998 compared with fiscal 1997 primarily
due to sale of the Company's Retail Business on June 4, 1998. Total revenue
decreased 22% in fiscal 1997 compared with fiscal 1996 primarily due to the
decline in software license revenue. The Retail Business accounted for
approximately $17,800,000 of the Company's 1998 revenue.
SOFTWARE LICENSE REVENUE
Software license revenue decreased 10.5% in fiscal 1998 compared with fiscal
1997. The decrease in software license fee revenue reflects the sale of the
Company's Retail Business during the fourth quarter of fiscal 1998, and the
effect of staff turnover in the domestic sales force, particularly in the first
half of the year.
Software license revenue decreased 36.8% in fiscal 1997 compared with fiscal
1996. The decline in software license fee revenue was mainly due to a loss of
sales momentum from turnover in the Company's international sales force, as a
result of the Company's investigation into violations of the Company's revenue
recognition policies, and turnover in the Company's domestic sales force as a
result of transitional changes in the sales organization.
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 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 loss before taxes
from orders requiring non-recognition or reversal was approximately $6.9
million, which included amounts for prior quarters and years. These prior period
adjustments are not material to the quarters or year to which they relate, and
prior period results were not restated.
SOFTWARE MAINTENANCE REVENUE
Software maintenance revenue decreased 2.8% in fiscal 1998 compared with fiscal
1997. The decrease in fiscal 1998 was primarily due to the decline in software
maintenance revenue from mainframe products and to a lesser extent by the sale
of the Company's Retail Business. Mainframe software maintenance revenue
decreased 25.3% in fiscal 1998 and 26.7% in fiscal 1997 primarily due to
mainframe maintenance cancellations and continued customer migration to
client/server platforms. The decline in mainframe software maintenance revenue
in fiscal 1998 was partially offset by a 4% increase in client/server
maintenance revenue. Client/server software maintenance revenue represented 82%,
or $28.6 million, of total software maintenance revenue in fiscal 1998, compared
to 76%, or $27.4 million, in fiscal 1997 and 68%, or $25.4 million, in fiscal
1996.
Software maintenance revenue decreased 3.0% in fiscal 1997 compared to fiscal
1996, principally due to the 26.7% decline in mainframe maintenance revenue,
partially offset by an 8% increase in client/server maintenance revenue.
Mainframe software maintenance revenue is expected to continue to decline.
IMPLEMENTATION AND CONSULTING SERVICES REVENUE
Implementation, consulting and other service revenue increased 8.7% in fiscal
1998 compared with fiscal 1997 principally due to increased billable hours of
the consulting organization.
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17
Implementation, consulting and other service revenue decreased 15.6% in fiscal
1997 compared to fiscal 1996 primarily due to a lower number of billable
consultants as a result of the lower level of software license revenue, and to
the sale of the Company's Australian business to a distributor in June 1996.
COSTS AND EXPENSES
YEAR YEAR YEAR
ENDED ENDED ENDED
JUNE 30, PERCENT JUNE 30, PERCENT JUNE 30,
1998 CHANGE 1997 CHANGE 1996
------------- -------- ------------ --------- -------------
COST AND EXPENSES
Selling and marketing $ 41,767 (22.0)% $ 53,552 4.3 % $ 51,354
Cost of revenue and support 28,883 (5.6) 30,594 (3.8) 31,814
Internal research and product development 12,355 (20.6) 15,556 (2.6) 15,977
Internally capitalized software (6,403) (8.1) (6,966) 13.2 (6,153)
Software amortization 6,446 (9.6) 7,129 9.1 6,535
General and administrative 10,739 (15.4) 12,693 (3.0) 13,082
----------- ------------ ------------
Total costs and expenses before
restructuring and
unusual charges 93,787 (16.7) 112,558 - 112,609
Restructuring and unusual charges 10,690 71.2 6,245 (73.0) 23,167
=========== ============ ============
TOTAL COSTS AND EXPENSES $ 104,477 (12.1)% $ 118,803 (12.5)% $ 135,776
=========== ============ ============
Total costs and expenses before restructuring and unusual charges decreased
16.7% from fiscal 1997 to fiscal 1998 as a result of broad-based actions to
reduce costs in light of the revenue decline in fiscal 1997 and fiscal 1998. In
addition, the sale of the Company's Retail Business in early June 1998
contributed to the cost reduction. Total costs and expenses before restructuring
and unusual charges were flat in fiscal 1997 compared to fiscal 1996, reflecting
increased spending on marketing offset by lower expenses elsewhere.
Selling and marketing expense decreased 22.0% in fiscal 1998 compared to fiscal
1997. This decline was primarily due to staff reductions resulting from a
streamlining of the sales management structure and reductions in marketing
expenditures resulting from targeting of direct lead generating activities. The
decline also was due to a lesser extent, by a reduction in the number of staff
as a result of the June 4, 1998 sale of the Company's Retail Business. Selling
and marketing expense increased 4.3% in fiscal 1997 compared to fiscal 1996
primarily due to increased spending on marketing activities to promote the
Company's new applications. The increase was partially offset by the cost
reduction actions taken in the third quarter of fiscal 1997 and decreased
commissions on lower software license revenue.
Cost of revenue and support expense decreased 5.6% in fiscal 1998 compared with
fiscal 1997 principally due to lower royalties on reduced license fees, and
reduced production and distribution costs arising from the move to delivery of
products on compact discs. Cost of revenue and support expense decreased 3.8% in
fiscal 1997 compared with fiscal 1996 primarily due to the decrease in
implementation services costs with lower service revenue.
Internal research and product development expense decreased 20.6% in fiscal 1998
compared to fiscal 1997. The decrease represents the full effect of the cost
reduction actions taken in fiscal 1997, and staff reductions as part of the
Company's sale of its Retail Business. Internal research and product development
expense in fiscal 1997 decreased 2.6% compared with fiscal 1996 mainly due to
the cost reduction actions taken early in the third quarter of fiscal 1997 in
connection with the consolidation of the Company's product development
activities in Ann Arbor, Michigan and closing of the Leicester, England product
development facility, partially offset by increased spending for ongoing
enhancements to existing software products.
Internally capitalized software decreased 8.1% in fiscal 1998 compared to fiscal
1997 due to decreased levels of development costs that were capitalized and
amortized. Software amortization expense decreased in fiscal 1998 compared to
fiscal 1997 due to the decreased levels of capitalized software. Internally
capitalized software increased 13.2% in fiscal 1997 compared to fiscal 1996
mainly due to the increased levels of development costs that were capitalizable.
Software amortization expense increased in fiscal 1997 compared to fiscal 1996
due to the increased levels of capitalized software.
17
18
General and administrative expense, decreased 15.4% in fiscal 1998 compared to
fiscal 1997. The decrease in fiscal 1998 was primarily due to cost reductions
actions taken to lower administrative costs and reduced legal fees as a result
of the resolution of a number of legal matters, including the settlement of the
Arbor Software Corporation litigation. Expenses decreased 3.0% in fiscal 1997
compared to fiscal 1996. General and administrative expense excluding the fiscal
1996 provisions for $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 vacant
office facility in London, England and $600,000 gain on sale of the Company's
Australian business, increased 5.6% in fiscal 1997 compared to fiscal 1996. The
increase in 1997 was primarily due to increased legal fees.
In fiscal 1998, the Company recorded a $10.7 million pretax charge for
restructuring and unusual charges related to the write off of capitalized
software, termination costs for certain executives, staff reduction and facility
costs related to the consolidation of the Company's helpline activities and
planned actions to reduce facility and other costs. The restructuring charges
included total staff reductions of approximately 27 people.
In fiscal 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. This $6.2 million pre-tax charge was
composed of $2.4 million for personnel reductions, $2.6 million in space and
office costs and $1.2 million for non-compete and consulting agreement. The
restructuring charge included staff reductions of approximately 70 employees.
See Note 2 of the Notes to Consolidated Financial Statements.
During the year ended June 30, 1996, the Company recorded a $23,167,000 charge
to write off certain capitalized software.
OTHER INCOME (EXPENSE)
YEAR ENDED JUNE 30,
-------------------
1998 1997 1996
--------- --------- ---------
OTHER INCOME (EXPENSE)
Net interest income $ 144 $ 494 $ 492
Gain on sale of Retail Business 35,386 - -
Exchange loss (71) (310) (50)
--------- --------- --------
TOTAL OTHER INCOME $ 35,459 $ 184 $ 442
========= ========= =========
Lower average cash balances for most of the 1998 fiscal year resulted in a
decrease in net interest income in fiscal 1998 compared to fiscal 1997. Net
interest income increased in fiscal 1997 compared to fiscal 1996. The increase
was due to a decline in interest expense and bank related charges, offset by a
decrease in interest income during fiscal 1997, as compared to fiscal 1996.
On June 4, 1998, the Company sold certain software products, accounts
receivable, customer contracts, intellectual property, intangibles, permits and
business records related to its Arthur (TM) strategic merchandise management
applications for the retail industry and its Boost Sales and Margin Planning
software product for the consumer packaged goods industry to JDA Software, Inc.
for $44 million in cash and the assumption of certain liabilities related to the
Retail Business. The Company also received $1 million of prepaid royalties. The
sale of the Retail Business resulted in a pre-tax gain of $35,386,000 and an
after-tax gain of $19,986,000.
FOREIGN CURRENCY
In fiscal 1998, 1997, and 1996, 54.1%, 47.6%, and 53.1% 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 $71,000 foreign exchange loss in fiscal 1998 principally reflected the
weakening of certain foreign currencies against the British pound during the
twelve months ended June 30, 1998. The Company had exchange losses of $310,000
and $50,000 in fiscal 1997 and 1996, respectively, principally due to the
weakening of certain foreign currencies against the British pound.
18
19
Foreign currency fluctuations in fiscal 1998, 1997 and 1996 impacted operating
income as currency fluctuations on revenue denominated in a foreign currency
were partially offset by currency fluctuations on expenses denominated in a
foreign currency. In fiscal 1998, the increase in total revenue, at actual
exchange rates, was $0.6 million less than at comparable exchange rates. The
decrease in total expenses in fiscal 1998, at actual exchange rates, was $1.4
million greater than at comparable exchange rates. As a result of the changes in
the foreign currency exchange rates, the increase in the net income before taxes
in fiscal 1998, at actual exchange rates, was $0.8 million greater than at
comparable exchange rates. In fiscal 1997, the decrease in total revenue at
actual exchange rates, was $1.1 million less than at comparable exchange rates.
The decrease in total expense in fiscal 1997, at actual exchange rates, was $0.9
million less than at comparable exchange rates. As a result of the changes in
foreign currency exchange rates, the increase in net loss before taxes in fiscal
1997, at actual exchange rates, was $0.2 million less than at comparable
exchange rates.
Inflation did not have a material impact on the Company's revenue or income from
operations in fiscal 1998, 1997 or 1996.
INCOME TAXES
The income tax provision in fiscal 1998 of $15.5 million was related to the
Company's sale of its Retail Business. No tax benefit was recognized on the
Company's operating loss or restructuring and unusual charges in fiscal 1998.
The benefit from income taxes in fiscal 1997 was $8.7 million which related to
the Company's operating loss for the year. The benefit from income taxes in
fiscal 1996 was $6.5 million which included the tax benefits related to the
Company's operating loss, 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.
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. 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.
The foregoing statements regarding the realization of deferred tax assets are
"forward looking statements" within the meaning of the Securities Exchange Act
of 1934. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Safe Harbor Statement" for discussion of uncertainties
relating to such statements.
A comparative analysis of the factors influencing the effective income tax rate
is presented in Note 8 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, cash and cash equivalents were $49.1 million, compared with
cash and cash equivalents of $11.7 million at June 30, 1997. The increase in
cash and cash equivalents was principally due to the proceeds from the Company's
sale of its Retail Business.
Net cash used in operating activities was $0.8 million in fiscal 1998, compared
with $8.4 million in fiscal 1997. The reduction in net cash used in operating
activities was primarily due to the significantly lower loss before
restructuring and unusual costs in fiscal 1998 compared to fiscal 1997.
Net cash provided by investing activities was $39.0 million in fiscal 1998,
compared to $10.7 million net cash used in investing activities in fiscal 1997.
The increase in cash related to investing activities, was principally due to the
proceeds from sale of Retail Business and prepaid royalties related to a value
added reseller agreement with JDA Software Group. At June 30, 1998, the Company
did not have material capital expenditure commitments. In fiscal 1999, property
and equipment purchases are expected to be comparable to fiscal 1998. There are
expected to be no additions to internally developed software in fiscal 1999.
Net cash used in financing activities was $0.6 million in fiscal 1998, compared
with $3.5 million net cash provided by investing activities in fiscal 1997. The
decrease in cash related to investing activities was primarily due to lower bank
borrowings as of June 30, 1998, compared to the prior year.
19
20
Working capital as of June 30, 1998 was $29.5 million, compared with negative $1
million as of June 30, 1997. The increase in working capital was primarily due
to the increase in cash and cash equivalents from the proceeds of the sale of
the Retail Business, offset by the increase in accrued liabilities related to
the Retail sale and restructuring cost reserves. Total assets were $88.7 million
at June 30, 1998, compared with total assets of $80.8 million at June 30, 1997.
The increase in total assets was primarily due to the increase in cash and cash
equivalents offset by decreases in capitalized computer software and deferred
tax assets.
The Company has a $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 June 30, 1998 under this credit agreement were $10 million, of
which $823,000 was outstanding. Borrowings available at any time are based on
the lower of $10 million or a percentage of worldwide eligible accounts
receivable. At June 30, 1998, the interest rate, which was based on LIBOR plus
applicable margin, varied between 2.5 % and 4.2 %.
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 $868,000 at June 30, 1998.
The interest rate was 12.5 % at June 30, 1998.
In September 1998, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the Company's outstanding Common Stock. Pursuant to this
repurchase program, the Company has repurchased 78,500 shares of the Company's
Common Stock for a total cost of approximately $387,000, as of September 18,
1998. The Company may buy shares of its Common Stock on the open market or in
privately negotiated transactions from time to time, based on market prices.
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."
MARKET SENSITIVITY ANALYSIS
The Company is exposed to market risk from changes in foreign exchange and
interest rates. To reduce the risk from changes in foreign exchange rates, the
Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
FOREIGN CURRENCY
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 uses forward exchange contracts to hedge against large selective
transactions that present the most exposure to exchange rate fluctuations. At
June 30, 1998 and June 30, 1997, the Company had forward contracts of
approximately $3.1 million and $1.8 million (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at June 30, 1998
mature through July 31, 1998 and are intended to hedge various foreign currency
commitment due from foreign subsidiaries and the Company's 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,
1998 and 1997.
Gains and losses on the forward contracts are largely offset by gains and losses
on the underlying exposure. The Company conducts business in approximately 15
foreign currencies, predominately British pounds, French francs and Japanese
yen. A hypothetical 10 percent appreciation of the U.S. Dollar from June 30,
1998 market rates would increase the unrealized value of the Company's forward
contracts by an immaterial amount. Conversely, a hypothetical 10 percent
depreciation of the U.S. Dollar from June 30, 1998 market rates would decrease
the unrealized value of the Company's forward contracts by an immaterial amount.
In either scenario, the gains or losses on the forward contracts are largely
offset by the gains or losses on the underlying transactions.
20
21
INTEREST RATES
The Company maintains its cash and cash equivalents in highly liquid investments
with maturities of ninety days or less. The Company has the ability to hold its
fixed income investments until maturity, and therefore the Company would not
expect its operating results or cash flows to be affected to any significant
degree by the effect of a hypothetical 10 percent change in market interest
rates on its cash and cash equivalents.
YEAR 2000
Many existing computer programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a year that begins
with "20" instead of the familiar "19". If not corrected, many computer
applications could fail or create erroneous results. Programs that will operate
in the Year 2000 unaffected by the change in year from 1999 to 2000 are referred
to herein as "Year 2000 compliant". Certain portions of the discussion set forth
below contain "forward looking statements" within the meaning of the Securities
Exchange Act of 1934, as amended, including, but not limited to, those relating
to the Year 2000 compliance of the Company's products and systems, future costs
to remediate Year 2000 issues, the timetable in which such remediation is to
occur, the alternatives available to the Company to become fully Year 2000
compliant, the Company's mission critical requirements and the impact on the
Company of an inability of it or its key suppliers to become fully Year 2000
compliant. Actual results could differ materially from those in the forward
looking statement due to a number of uncertainties set forth below.
The Company has tested and modified the most current versions of its products to
be Year 2000 compliant. The Company believes that all of its current
client/server products are Year 2000 compliant (including BudgetPLUS, Decision,
DecisionWeb and FDC). The Company expects to release new versions of its
principal mainframe products that will be Year 2000 compliant prior to the end
of calendar year 1998. The Company has no plans to make earlier versions of its
products Year 2000 compliant and will attempt to contact customers informing
them of their decision.
Not all the Company's customers are running product versions that are Year 2000
compliant. The Company will continue to encourage these customers to migrate to
its current product versions. Some of these customers may not be willing to
migrate to current product versions because of the cost and time required to do
so, including the need to rewrite custom applications which are not Year 2000
compliant. The Company may decide not to renew maintenance contracts with these
customers for periods after fiscal year 1999. A significant portion of the
Company's maintenance revenue in fiscal year 1998 was derived from customers
running versions of the Company's products which are not Year 2000 compliant;
however, customers paying maintenance are entitled to obtain Year 2000 compliant
versions of licensed products at no additional cost.
The Company incorporates a number of software tools into its products. (See
"Item 1. Business - Licensed Technologies"). The Company has performed limited
testing of the current versions of these software tools as part of the testing
of its products and believes they are Year 2000 compliant. In addition, with
respect to certain of these software tools, the Company has also received
written representations or warranties from the vendor that these products are
Year 2000 compliant. Nevertheless, if one of the databases supported by the
Company is not fully Year 2000 compliant, sales of the Company's products could
be impacted.
If any of the Company's customers are unable to make their information
technology systems Year 2000 compliant in a timely fashion, they may suspend
further product purchases from the Company and renewal of maintenance contracts
until their systems are Year 2000 compliant. Because the Company's customers are
generally large and medium sized businesses and the Company has received
numerous communications from customers about their Year 2000 compliance efforts,
the Company expects most of its customers will become Year 2000 compliant in a
timely fashion, although the Company is not in a position to monitor their
progress.
The Company is currently developing a plan to determine whether its vendors,
distributors and leased facilities (all of which are referred to as "Third Party
Suppliers") are Year 2000 compliant. The plan will include the identification of
principal Third Party Suppliers, including those which are mission critical,
contact with those Third Party Suppliers to determine their level of Year 2000
compliance, review of materials provided or published by Third Party Suppliers
regarding their Year 2000 compliance efforts and, with respect to mission
critical Third Party Suppliers, some form of additional verification of
compliance. The Company expects to initiate this process before the end of
calendar year 1998. Alternative Third Party Suppliers will be identified for
those not expected to be Year 2000 compliant by the middle of calendar 1999. The
Company believes it has a limited number of mission critical Third Party
Suppliers and believes that there are multiple alternatives for its mission
critical requirements, including handling certain of these functions internally.
21
22
The Company has completed the assessment of its principal internal information
technology systems for Year 2000 compliance. With respect to these eight
principal systems, the Company has upgraded four of these systems with Year 2000
compliant versions. The Company plans to replace one of the remaining four
systems with new third party software, and is currently reviewing alternative
vendors. The Company has determined that the system to be replaced could be made
Year 2000 compliant in the event a replacement system cannot be implemented in a
timely fashion. Using internal personnel the Company plans to modify the three
remaining internal systems to make these Year 2000 compliant. The Company has
started the modification process and has scheduled completion by middle of
calendar year 1999. The Company intends to actively monitor progress on this
project. In the event that the systems cannot be modified in a timely fashion,
the Company will concentrate its efforts on mission critical revisions. The
Company also believes that certain of these systems could be replaced with new
third party systems which are Year 2000 compliant, although the time required to
implement a new system or the additional costs could be significant.
The Company has engaged a third party to assess the Company's personal computer
and network hardware and software for Year 2000 compliance and to help develop a
plan to make necessary modifications. The assessment will begin in the fourth
quarter of calendar year 1998. Completion of this project is scheduled for the
first half of calendar year 1999. Since the Company continuously upgrades its
hardware and software as part of its normal business, much of the older hardware
and software is likely to be eliminated prior to 2000. The Company has
contingency plans in the event that these systems cannot be remediated in a
timely fashion through the replacement of older equipment.
A failure of one or more of these internal systems to become Year 2000
compliant, particularly the Company's principal internal information technology
systems, could require the Company to manually process information or could
prevent or limit access to mission critical information.
The Company's non-information technology systems consist principally of
telephone and data communication systems. The Company has completed the initial
assessment of these systems for Year 2000 compliance. Remediation has begun and
is scheduled for completion in the first half of calendar year 1999. If the
Company's telephone and data communications systems cannot be remediated to
become compliant, the Company will be required to replace those systems before
the end of calendar year 1999. The Company believes that there are alternative
providers of these systems which are Year 2000 compliant, but to date it has not
explored the time required to implement a new system or the additional cost to
the Company.
Most of the costs incurred by the Company to date on Year 2000 compliance issues
have been internal staff costs and costs relating to normal product upgrades,
which the Company has not separately tracked. As a result, the Company is not
able to reasonably estimate the amount of such expenditures. The Company
presently expects that its future costs relating to Year 2000 compliance,
including replacement systems, will be between $1.3 million and $2.5 million.
The Company would have incurred many of the costs for these efforts in any event
because of the normal process of product and equipment upgrades. These cost
estimates are subject to a number of uncertainties, which could result in actual
costs exceeding the estimated amounts including, but not limited to, undetected
errors or defects discovered in connection with the remediation process or
unanticipated difficulties in completing the remediation in a timely fashion,
resulting in the need either to replace more of the systems than originally
expected and/or hire more personnel or third party firms to assist in the
remediation process.
Some commentators have stated that a significant amount of litigation will arise
out of Year 2000 compliance issues. While the Company believes that its efforts
to address Year 2000 issues for which it is responsible should be successful, a
description of its most reasonably likely worst case Year 2000 scenarios have
been described above. In addition, it is possible that there will be undetected
errors or defects associated with Year 2000 date functions in the Company's
current products and internal systems or those of its key vendors. If any of the
foregoing scenarios should occur, it is possible that the Company could be
involved in litigation. Further, although the Company does not believe that it
has any obligation to continue to support prior versions of its products after
the termination of maintenance contracts covering those products, nor any
obligation to make prior versions of its products, including custom applications
written by the Company, Year 2000 compliant, it is possible that its customers
may take a contrary position and initiate litigation. Because of the
unprecedented nature of litigation in this area, it is uncertain how the Company
may be affected by it. In the event of such litigation or the occurrence of one
or more of the most reasonably likely worst case Year 2000 scenarios, the
Company's revenues, net income or financial condition could be materially
adversely affected.
22
23
SAFE HARBOR STATEMENT
Certain information in this Form 10-K 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, including the impact on the Company's revenues of the
proposed release by Microsoft of an OLAP database; the impact of recent
transitional changes in North American and international management and sales
personnel; 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; the
impact of undetected errors or defects associated with the Year 2000 date
functions on the Company's current products and internal systems; the ability of
the Company to generate sufficient future taxable income or to execute available
tax strategies, required to realize deferred tax assets; economic conditions
generally or in specific industry segments; risks inherent in seeking and
consummating acquisitions, including the diversion of management attention to
the assimilation of the operations and personnel of acquired businesses, the
ability of the Company to successfully integrate acquired businesses and the
impact on the Company's results and financial condition from debt issued,
liabilities acquired, and additional expenses incurred in connection with such
acquisitions. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See "Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations - Market Sensitivity Analysis".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule filed herewith are set forth on the Index
to Consolidated Financial Statements and Schedule on page 27 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 1998 Proxy Statement under the captions "Election of Directors" and
"Further Information-Executive Officers."
23
24
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Company's 1998 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 1998 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 1998 Proxy Statement under the captions "Certain Relationships and
Related Transactions."
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 27.
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 27.
3. The exhibits filed with this report are listed in the Index to
Exhibits which appears on page 49. 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 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.
10.05 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.
24
25
10.06 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.
10.07 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).
10.08 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.
10.09 Description of Incentive Arrangements for certain executive officers
for fiscal years 1994 and 1995-1997.
10.10 Stock Option Agreement, effective as of March 10, 1997, between
Comshare, Incorporated and Daniel T. Carroll - incorporated by
reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 1997.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 Letter agreement between Comshare, Incorporated and Geoffrey R. Cluett
dated April 29, 1997 regarding terms of employment and non-compete
agreement - incorporated by reference to Exhibit 10.20 to the
Registrant's Form 10-K Report for the fiscal year ended June 30, 1997.
10.17 Agreement between Comshare, Incorporated and T. Wallace Wrathall dated
October 24, 1997 - incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q Report for the quarter ended September 30, 1997.
10.18 Executive Bonus Program, effective October 1, 1997 - incorporated
by reference to Exhibit 10.1 to the Registrant's Form 10-Q Report for
the quarter ended December 31, 1997.
10.19 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Dennis G. Ganster.
10.20 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Kathryn A. Jehle.
10.21 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and David King.
10.22 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Stanley Starkey.
10.23 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Norman Neuman.
25
26
10.24 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Geoffrey Cluett.
10.25 Comshare, Incorporated 1998 Global Employee Stock Option Plan.
10.26 Summary of 1998 Senior Executive Incentive Plan.
10.27 Summary of 1999 Senior Executive Incentive Plan.
(b) Reports on Form 8-K.
Since the end of its most recent fiscal quarter on March 31, 1998, the
Registrant has filed the following reports on Form 8K.
Date of Report Items Reported
- -------------- ---------------
6/9/98 Item 5. Comshare, Incorporated announces sale of
certain software products for the retail industry to
JDA Software Group, Inc.
6/19/98 Item 2. Comshare, Incorporated reports sale of
certain software products, accounts receivable,
customer contracts, intellectual property,
intangibles, permits and businesses records related
to its Arthur(TM) strategic merchandise management
applications for the retail industry and its software
products for the consumer packaged goods industry to
JDA Software, Inc.
26
27
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Report of Independent Public Accountants 28
Consolidated Statement of Operations for
the Fiscal Years Ended June 30, 1998, 1997 and 1996 29
Consolidated Balance Sheet as of June 30, 1998 and 1997 30-31
Consolidated Statement of Cash Flows for the
Fiscal Years Ended June 30, 1998, 1997 and 1996 32
Consolidated Statement of Shareholders' Equity
for the Fiscal Years Ended June 30, 1998, 1997 and 1996 33
Notes to Consolidated Financial Statements 34-46
SCHEDULE
II. Consolidated Schedule of Valuation & Qualifying Accounts 47
27
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comshare, Incorporated:
We have audited the accompanying consolidated balance sheets of COMSHARE,
INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998 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,
September 18, 1998.
28
29
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED JUNE 30,
---------------------------
1998 1997 1996
------------- ------------- -------------
REVENUE
Software licenses $ 32,610 $ 36,455 $ 57,715
Software maintenance 34,972 35,983 37,095
Implementation, consulting and other services 22,171 20,393 24,174
------------- ------------- -------------
TOTAL REVENUE 89,753 92,831 118,984
COSTS AND EXPENSES
Selling and marketing 41,767 53,552 51,354
Cost of revenue and support 28,883 30,594 31,814
Internal research and product development 12,355 15,556 15,977
Internally capitalized software (6,403) (6,966) (6,153)
Software amortization 6,446 7,129 6,535
General and administrative 10,739 12,693 13,082
Restructuring and unusual charges 10,690 6,245 23,167
------------- ------------- -------------
TOTAL COSTS AND EXPENSES 104,477 118,803 135,776
------------- ------------- -------------
LOSS FROM OPERATIONS (14,724) (25,972) (16,792)
OTHER INCOME (EXPENSE)
Net interest income 144 494 492
Gain on sale of Retail Business 35,386 - -
Exchange loss (71) (310) (50)
------------- ------------- -------------
TOTAL OTHER INCOME 35,459 184 442
INCOME (LOSS) BEFORE TAXES 20,735 (25,788) (16,350)
Provision (benefit) for income taxes 15,469 (8,671) (6,459)
------------- ------------- -------------
NET INCOME (LOSS) $ 5,266 $ (17,117) $ (9,891)
============= ============= =============
SHARES USED IN BASIC EPS COMPUTATION 9,903 9,770 9,048
============= ============= =============
SHARES USED IN DILUTED EPS COMPUTATION 10,074 9,770 9,048
============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE-BASIC EPS $ 0.53 $ (1.75) $ (1.09)
============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE-DILUTED EPS $ 0.50 $ (1.75) $ (1.09)
============= ============= =============
The accompanying notes are an integral part of this statement.
29
30
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
AS OF JUNE 30,
--------------
1998 1997
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 49,102 $ 11,651
Accounts receivable, less allowance for
doubtful accounts of $1,830 and $1,053 as of
June 30, 1998 and 1997, respectively 21,354 24,675
Deferred income taxes 1,256 1,953
Prepaid expenses and other current assets 3,322 5,298
------------ ------------
Total current assets 75,034 43,577
Property and equipment, at cost
Computers and other equipment 16,781 18,678
Leasehold improvements 2,293 2,708
------------ ------------
19,074 21,386
Less - Accumulated depreciation 15,792 16,432
------------ ------------
Property and equipment, net 3,282 4,954
Computer software, net of accumulated
amortization of $10,685 as of June 30, 1997 - 9,075
Goodwill, net of accumulated
amortization of $1,525 and $1,551 as of
June 30, 1998 and 1997, respectively 1,500 1,609
Deferred income taxes 5,377 15,580
Other assets 3,499 5,956
------------ ------------
$ 88,692 $ 80,751
============ ============
The accompanying notes are an integral part of this statement.
30
31
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET - (CONTINUED)
(DOLLARS IN THOUSANDS)
AS OF JUNE 30,
--------------
1998 1997
---------- ----------
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 1,238 $ 4,332
Accounts payable 14,398 12,597
Accrued liabilities -
Payroll 2,964 3,191
Taxes 5,035 1,953
Other 7,034 2,601
---------- ----------
Total accrued liabilities 15,033 7,745
Deferred revenue 14,834 19,868
---------- ----------
Total current liabilities 45,503 44,542
Long-term debt 1,434 343
Other liabilities 3,350 3,907
Commitments and contingencies
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
10,003,167 shares as of June 30, 1998
and 9,871,260 shares as of June 30, 1997 10,003 9,871
Capital contributed in excess of par 40,335 39,528
Retained earnings (deficit) (7,350) (12,363)
Currency translation adjustments (4,032) (4,021)
---------- ----------
38,956 33,015
Less - Notes receivable 551 1,056
---------- ----------
Total shareholders' equity 38,405 31,959
---------- ----------
$ 88,692 $ 80,751
========== ==========
The accompanying notes are an integral part of this statement.
31
32
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Fiscal Years Ended June 30,
---------------------------
1998 1997 1996
------------ ------------- ------------
Operating activities
Net income (loss) $ 5,266 $ (17,117) $ (9,891)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 9,023 9,582 8,330
Gain on sale of Retail Business (35,386) - -
Noncash restructuring and unusual charges 10,176 1,317 23,167
Changes in operating assets and liabilities:
Accounts receivable 2,848 10,226 (5,679)
Prepaid expenses and other assets (112) 537 (928)
Accounts payable 1,864 (5,728) 6,686
Accrued liabilities (3,539) (160) 58
Deferred revenue (4,928) 1,314 (19)
Deferred income taxes 14,550 (8,829) (8,238)
Other liabilities (556) 427 338
------------ ------------- ------------
Net cash provided by (used in) operating activities (794) (8,431) 13,824
Investing activities
Additions to computer software (6,546) (6,966) (6,207)
Payments for property and equipment (601) (2,835) (3,220)
Proceeds from sale of Retail Business & prepaid royalties 45,000 - -
Other 1,103 (883) (1,272)
------------ ------------- ------------
Net cash provided by (used in) investing activities 38,956 (10,684) (10,699)
Financing activities
Net borrowings (repayments) under notes payable (3,277) 4,053 -
Net borrowings (repayments) under debt agreements and capital
leases obligations 1,254 (1,403) (3,394)
Stock options exercised 753 878 474
Issuance of common stock - - 25,148
Other 691 (31) 730
------------ ------------- ------------
Net cash provided by (used in) financing activities (579) 3,497 22,958
Effect of exchange rate changes (132) (199) (13)
------------ ------------- ------------
Net increase (decrease) in cash 37,451 (15,817) 26,070
Balance at beginning of period 11,651 27,468 1,398
------------ ------------- ------------
Balance at end of period $ 49,102 $ 11,651 $ 27,468
============ ============= ============
Supplemental disclosures:
Cash paid for interest $ 215 $ 169 $ 371
============ ============= ============
Cash paid for income taxes $ 862 $ 740 $ 1,869
============ ============= ============
The accompanying notes are an integral part of this statement.
32
33
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Fiscal Years Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
Common stock
Balance beginning of year $ 9,871 $ 9,691 $ 8,221
Employee Stock Purchase Plan 61 18 26
1994 Executive Stock Purchase Program - 21 -
Retirement of shares (9) (39) (16)
Sale of common stock in a public offering - - 1,294
Stock options exercised 80 180 166
---------- ----------- -----------
Balance end of year 10,003 9,871 9,691
---------- ----------- -----------
Capital contributed in excess of par
Balance beginning of year 39,528 38,132 13,199
Employee Stock Purchase Plan 362 333 384
1994 Executive Stock Purchase Program - 392 -
Retirement of shares (240) (160) (62)
Sale of common stock in a public offering - - 23,854
Stock options exercised 685 831 757
---------- ----------- -----------
Balance end of year 40,335 39,528 38,132
---------- ----------- -----------
Retained earnings (deficit)
Balance beginning of year (12,363) 5,239 15,500
Net income (loss) 5,266 (17,117) (9,891)
Retirement of shares (253) (485) (370)
---------- ----------- -----------
Balance end of year (7,350) (12,363) 5,239
---------- ----------- -----------
Currency translation adjustments
Balance beginning of year (4,021) (3,586) (3,239)
Translation adjustments (11) (435) (347)
---------- ----------- -----------
Balance end of year (4,032) (4,021) (3,586)
---------- ----------- -----------
Less - Notes receivable
Balance beginning of year 1,056 812 1,133
1994 Executive Stock Purchase Program - 244 (122)
Employee Stock Ownership Plan (505) - (199)
---------- ----------- -----------
Balance end of year 551 1,056 812
---------- ----------- -----------
Total shareholders' equity $ 38,405 $ 31,959 $ 48,664
========== =========== ===========
The accompanying notes are an integral part of this statement.
33
34
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Comshare, Incorporated (the "Company") develops, markets and
supports client/server financial analytic applications software for management
planning and control. The Company also provides services such as maintenance,
training, consulting and support services. Comshare is currently providing
maintenance at over 2,100 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
distributor network in 37 other countries. The Company was incorporated in
Michigan in February 1966 and commenced operations at that time.
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 is recognized when a customer contract is fully executed and the
software has been shipped. Software maintenance revenue, whether bundled with a
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 expense 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, 1998 and 1997, the
Company had forward foreign currency exchange contracts of $3.1 million and $1.8
million (notional amounts), respectively. The contracts outstanding at June 30,
1998 mature through July 31, 1998 and are intended to hedge various foreign
currency commitments due from foreign subsidiaries and the Company's
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, 1998 and 1997.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes investments in
highly liquid investments with maturities of ninety days or less.
COMPUTER SOFTWARE. The costs of developing and purchasing new software products
and enhancements to existing software products are capitalized after
technological feasibility is established. Capitalized development costs are
amortized using the straight-line method over a two-year service life. 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. In the last several years, product upgrades
are being released on a more rapid basis. The rapid increase in product version
updates has led to an almost continuous product development cycle and has
reduced the time between establishing technological feasibility and general
release to the public. With these rapid changes expected, the Company believes
that the useful lives of these products will be reduced to a year or less. In
future years, based on the continuous product life cycles noted, the period
between establishing technological feasibility and the general availability of
such software will be short, and software costs qualifying for capitalization
will be insignificant. Accordingly, the Company will not capitalize any future
software development costs.
34
35
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCiAL STATEMENTS - (CONTINUED)
DEPRECIATION. The cost of depreciable assets is charged to operations on a
straight-line basis. Principal service lives for computers and other equipment
are three to five years. Leasehold improvements are amortized over the expected
life of the asset or term of the lease, whichever is shorter.
GOODWILL. Goodwill represents the unamortized cost in excess of fair value of
net assets acquired and is amortized on a straight-line basis over forty years.
On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company considers the value of future cash
flows attributable to the acquired operations in evaluating potential impairment
of goodwill.
OTHER ASSETS. In fiscal 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
an evaluation of long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. There was no adjustment to the Company's financial statements in
fiscal 1998 as a result of this evaluation.
INCOME TAXES. The Company accounts for estimated income taxes under the
provisions SFAS 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. In fiscal 1998,
the Company adopted SFAS No. 128, "Earnings per Share."
STOCK PLANS. The Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion (APB)
No. 25 "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the stock at grant date over the amount an
employee must pay to acquire the stock. As supplemental information, the Company
has provided pro forma disclosure of the fair value of stock options granted
during fiscal 1998 and 1997 in accordance with the requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation." See Note 5 of Notes to Consolidated
Financial Statements.
COMPREHENSIVE INCOME. The Financial Accounting Standards Board has issued SFAS
No. 130 "Reporting Comprehensive Income" which establishes standards for
reporting comprehensive income and its components in a full set of financial
statements. Comprehensive income is defined as the total of net income and all
other nonowner changes in equity. The Company has not yet adopted this statement
but is required to adopt this statement for the fiscal year ending June 30,
1999.
SEGMENTS OF AN ENTERPRISE. The Financial Accounting Standards Board has issued
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information" which establishes standards for disclosures of certain segment
information based on the "management approach" which organizes segments within a
company the way the chief operating decision maker of that company organizes the
segments. The Company has not yet adopted this statement but is required to
adopt this statement for the fiscal year ending June 30, 1999.
ACCOUNTING FOR DERIVATIVES AND HEDGING. The Financial Accounting Standards Board
has issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company has not yet adopted this
statement but is required to adopt the statement for the fiscal year ending June
30, 2000.
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.
35
36
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCiAL STATEMENTS - (CONTINUED)
RECLASSIFICATIONS. Certain amounts in the 1996 and 1997 financial statements
have been reclassified to conform with 1998 presentations.
2. RESTRUCTURING AND UNUSUAL CHARGES
In fiscal 1998, the Company recorded a $10.7 million pretax charge for
restructuring and unusual charges related to the write off of capitalized
software, termination costs for certain executives, staff reduction and facility
costs related to the consolidation of the Company's helpline activities; and
planned actions to reduce facility and other costs. The restructuring charges
included total staff reductions of approximately 27 people.
In fiscal 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. This $6.2 million pre-tax
charge was composed of $2.4 million for personnel reductions, $2.6 million in
space and office costs and $1.2 million for non-compete and consulting
agreement. The restructuring charge includes staff reductions of approximately
70 employees.
During the year ended June 30, 1996, the Company recorded a $23,167,000 charge
to write off certain capitalized software.
3. BORROWINGS
(DOLLARS IN THOUSANDS)
1998 1997
Line of credit and overdraft facilities $ 1,470 $ 4,161
Capital lease obligations 1,202 514
--------- ---------
Total debt outstanding 2,672 4,675
Less: current portion 1,238 4,332
--------- ---------
Long-term debt $ 1,434 $ 343
========= =========
The Company has a $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 June 30, 1998 under the credit agreement were $10 million, of
which $823,000 was outstanding. Borrowings available at any time are based on
the lower of $10 million or a percentage of worldwide eligible accounts
receivable. At June 30, 1998, the interest rate, which was based on LIBOR plus
applicable margin, varied between 2.5% and 4.2%.
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
has outstanding borrowings under this agreement of $868,000 at June 30, 1998.
The interest rate was 12.5% at June 30, 1998.
See Note 9 of Notes to Consolidated Financial Statements regarding capital lease
obligations.
4. SHAREHOLDERS' EQUITY
PREFERRED STOCK
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.
36
37
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In September 1996, the Company's Board of Directors 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.
COMMON STOCK
Effective November 20, 1995, 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 shareholders approved the 1994 Executive Stock Purchase Program which
enables certain executives to purchase the Company common stock at then current
market prices directly from the Company via a promissory note. The program was
amended in fiscal 1998 to eliminate any future loans. The promissory note is
secured by the related common stock issued by the Company, and 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, 1997, a total of 30,813
shares at prices ranging from $11.50 to $16 were issued in exchange for notes
totaling $411,000. No shares were purchased under this program during fiscal
1998 and 1996. The aggregate principal balance of these promissory notes
outstanding and due to the Company was $551,000 and $1,056,000 at June 30, 1998
and 1997, respectively.
5. STOCK OPTIONS
The Company has three stock option plans: The 1988 Stock Option Plan (the "1988
Plan"), the 1994 Directors Stock Option Plan (the "Directors Plan") and the 1997
Global Employees Stock Option Plan (the "1997 Plan"). On March 10, 1997, the
Company granted an option for 10,000 shares to the Company's Chairman at an
exercise price of $15.75 per share which was the closing price of the common
stock on that date. The option vests on the date the current Chairman ceases
to be Chairman of the Board of the Company. The option vests immediately in the
event of a change in control of the Company. The option expires thirty months
from the grant date or six months after which the Chairman ceases to be Chairman
of the Board of the Company, whichever occurs earlier.
1988 STOCK OPTION PLAN
The 1988 Plan, which expired on June 26, 1998, provided for the grant of both
incentive stock options and non-qualified options to officers and key employees.
Options under the 1988 Plan were 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. No stock appreciation rights were
granted under the 1988 Plan.
The number of options outstanding and exercisable under the 1988 Plan was
744,634 and 144,385 at June 30, 1998, respectively, and no further grants can be
made under the 1988 Plan.
37
38
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCiAL STATEMENTS - (CONTINUED)
1994 DIRECTORS STOCK OPTION PLAN
The Directors Plan provides for the grant 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, 1998 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 70,500 and 37,875 at June 30, 1998,
respectively.
1997 GLOBAL EMPLOYEES STOCK OPTION PLAN
The 1997 Plan provides for the issuance of options to purchase 500,000 shares of
the Company's common stock to non-officer employees of the Company. Options
under the 1997 Plan are granted at 100% of the market price on the date of
grant, exercisable at a rate of 25% per year after one year from date of grant
and have a term of five years.
At June 30, 1998, the Company has reserved 500,000 shares of common stock for
the exercise of employee stock options. The number of options outstanding under
the 1997 Global Employee's Stock Option Plan was 151,100 at June 30, 1998, and
none as of June 30, 1997.
SUMMARY OF ACTIVITY
Stock option activity under all plans is summarized below:
1998 1997 1996
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------- ------------ ------------ -------------
Outstanding at beginning of year 675,384 $ 13.45 762,756 $ 10.70 818,025 $ 6.71
Granted 772,150 7.61 265,500 18.01 177,750 24.02
Exercised (79,625) 4.63 (179,501) 5.63 (167,394) 5.51
Canceled (391,675) 10.95 (173,371) 16.36 (65,625) 8.32
------------ ------------- -----------
Outstanding at end of year 976,234 10.51 675,384 13.45 762,756 10.70
Options exercisable at year end 182,260 247,511 215,443
Weighted average fair value of
options granted during the year $ 3.69 $ 7.91 $ 8.23
38
39
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of outstanding and exercisable stock options as of June 30, 1998 is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- --------- ------------ ----------
$6.19 to $7.67 203,150 4.35 $6.63 3,750 $7.67
7.75 to 7.75 205,750 4.99 7.75 - -
8.00 To 8.00 19,700 4.87 8.00 - -
8.25 to 8.25 151,000 4.12 8.25 - -
8.33 to 8.56 92,000 3.38 8.39 28,125 8.33
8.67 to 11.25 109,634 1.96 9.44 72,510 8.99
13.00 to 17.50 83,750 3.38 15.18 24,875 15.01
20.50 to 24.50 54,500 2.39 23.80 29,750 23.94
26.00 to 26.00 7,500 2.51 26.00 3,750 26.00
27.25 to 27.25 44,250 2.93 27.25 18,250 27.25
27.50 to 27.50 5,000 3.05 27.50 1,250 27.50
$6.19 to $27.50 976,234 3.82 $ 10.51 182,260 $14.40
======= =======
PRO FORMA DISCLOSURE UNDER SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
Using the intrinsic value method of accounting for the value of stock options
granted during fiscal 1998 and 1997, no compensation cost was recorded in the
accompanying consolidated statement of operations. Had compensation costs been
determined based on the fair value at the date of grant for awards in fiscal
1998 and 1997 consistent with the provisions of SFAS 123, net income and net
income per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share amounts):
1998 1997
---------- ----------
Net income (loss) - as reported $ 5,266 $ (17,117)
Net income (loss) - pro forma 4,774 (17,785)
Net income (loss) per share - as reported 0.53 (1.75)
Net income (loss) per share - pro forma 0.48 (1.82)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model. Because the SFAS 123 method of accounting
has not been applied to options granted prior to July 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years. The following weighted average assumptions were used in valuing
the option grants:
1998 1997
----------- -----------
STOCK OPTION PLANS:
Expected life (years) 3.32 3.26
Risk free interest rate 5.65% 6.10%
Expected stock price volatility 0.65 0.56
Expected dividend yield - -
39
40
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN:
Expected life (years) 0.50 0.50
Risk free interest rate 5.65% 6.10%
Expected stock price volatility 0.65 0.56
Expected dividend yield - -
The following table reconciles the net income and weighted average number of
shares used in the Basic EPS calculation to the net income and weighted average
number of shares used to compute Diluted EPS (in thousands, except per share
amounts).
1998
----
Net income used for Basic EPS $5,266
Net (loss) effect of assumed conversion of stock options (218)
------
Net income used for Dilutive EPS $5,048
======
Weighted average number of shares outstanding used for Basic EPS 9,903
Stock Options 171
------
Weighted average number of shares outstanding and common
equivalent shares used for Dilutive EPS 10,074
======
6. EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan (the "ESPP"), 300,000 shares of the
Company's common stock have been reserved for issuance. The ESPP allows
participating employees to purchase shares of the Company's common stock through
payroll deductions at 85% of the lower of fair market value at the beginning or
the end of the six month period beginning either July 1 or January 1.
Substantially all employees are eligible to participate in the ESPP. Under the
ESPP, 60,576 shares, 18,233 shares and 26,218 shares were issued in fiscal 1998,
1997 and 1996, 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 Company
contribution of 2% of an employee's qualified compensation and matching
contributions based on employee 401(k) contributions. The Company also has a
deferred compensation plan for United States officers for the payment of
benefits which would not otherwise be eligible under its tax-qualified
retirement plans. The Company's contributions, other than the above, are
discretionary and are determined by the Board of Directors. The total
contributions for both plans were $589,000, $826,000 and $1,183,000 in fiscal
1998, 1997 and 1996, respectively.
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 after January 1,
1994. Effective April 1, 1997, the defined benefit plan was frozen, with no
further contributions or benefits accruing under the plan. The resulting
curtailment loss was partially included in the restructuring related costs
during fiscal 1997. As of the same date, the defined contribution plan was
amended, providing a minimum annual company contribution of 2-1/2% of the
employee's compensation, and matching contributions up to an additional 2-1/2%
of compensation based on employee contributions. The defined contribution plan
now covers substantially all United Kingdom employees. Prior to April 1, 1997,
the defined contribution plan provided that participating employees contribute a
minimum of 5% of their pensionable salary with the Company contributing an equal
5%.
The components of pension expense for the fiscal years ended June 30 are as
follows (in thousands):
1998 1997 1996
---- ---- ----
Service cost for benefits earned during the year $ - $ 473 $ 429
Interest cost on projected benefit obligation 1,486 1,519 1,340
Actual return on assets (2,352) (3,468) (1,899)
Net amortization and deferral 601 1,913 722
---------- ----------- ------------
Net pension expense $ (265) $ 437 $ 592
========== =========== ============
40
41
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The funded status of the pension plan as of June 30 is as follows (in
thousands):
1998 1997
---- ----
Actuarial present value of benefit obligations
Vested benefits $21,099 $19,280
Non-vested benefits - -
------- -------
Accumulated benefit obligation 21,099 19,280
------- -------
Projected benefit obligation 21,099 19,280
Plan assets at fair value 21,167 20,730
------- -------
Plan assets over projected benefit obligation 68 1,450
Amounts not recognized in balance sheet:
Unamortized net loss 2,240 599
------- -------
Amount unamortized 2,240 599
------- -------
Net pension assets $ 2,308 $ 2,049
======= =======
The actuarial present value of the projected benefit obligation was determined
using a weighted average discount rate of 6.85% and 7.75% in 1998 and 1997,
respectively. No assumption was required regarding an annual increase in future
compensation for fiscal 1998 since no future benefit may be earned under the
plan. An assumption of 6.5% for annual increases in future compensation was used
for fiscal 1997 and 1996 calculations. The long-term weighted average rate of
return on assets used was 8.5% for fiscal 1998, 1997 and 1996.
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 $31,000 in fiscal 1998, $146,000 in fiscal 1997
and $228,000 in fiscal 1996.
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):
1998 1997 1996
---------- ---------- ----------
Income (loss) before provision (benefit) for income taxes:
Domestic $ 23,217 $ (8,650) $ (12,428)
Foreign (2,482) (17,138) (3,922)
----------- ---------- ----------
$ 20,735 (25,788) (16,350)
=========== ========== ==========
Domestic provision (benefit) for income taxes:
Current $ 3,650 $ - $ 731
Deferred 11,800 (2,907) (5,781)
Foreign provision (benefit) for income taxes:
Current - - 1,000
Deferred 19 (5,764) (2,409)
----------- ---------- ----------
Provision (benefit) for income taxes $ 15,469 $ (8,671) $ (6,459)
=========== ========== ==========
41
42
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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):
1998 1997 1996
----------- ----------- -----------
Federal statutory provision (benefit) $ 7,257 $ (8,768) $ (5,559)
Non-deductible meals and entertainment 119 181 256
State income taxes, net of federal tax benefit 33 22 146
Increase in valuation reserve 9,084 - 872
Recognition of tax credits - - (1,222)
Tax reserves released - (312) (1,200)
Tax rate difference (850) - -
Other, net (174) 206 248
----------- ----------- -----------
Actual income tax provision (benefit) $ 15,469 $ (8,671) $ (6,459)
=========== =========== ===========
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):
1998 1997
---- ----
Deferred income tax assets:
Research and development $ 2,774 $ 1,721
Tax credits 366 2,964
Depreciation and amortization 421 729
Net operating loss 7,492 11,305
Deferred revenue 128 429
Employee benefits 773 752
Accrued liabilities 856 856
Capitalized Software 3,453 -
Other 2,084 1,276
----------- -----------
18,347 20,032
Valuation allowance (10,678) (1,594)
----------- -----------
7,669 18,438
Deferred income tax liabilities:
Employee benefits (681) (790)
Other (355) (115)
----------- -----------
(1,036) (905)
----------- -----------
Net deferred income tax asset $ 6,633 $ 17,533
=========== ===========
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. 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.
42
43
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998, for income tax purposes, certain of the Company's foreign
subsidiaries had available net operating loss carryforwards of approximately $20
million, which do not expire. In addition, the Company has general business
credits, which will expire between 2007 and 2013.
9. LEASES
The Company leases most of its office space, transportation and computer
equipment under noncancelable capital and operating leases. Initial lease terms
vary in length and several of the leases contain renewal options. The Company
leases certain equipment under long-term lease agreements that are classified as
capital leases, and the leased assets are included in "Property and equipment"
in the accompanying Consolidated Balance Sheet. These capital leases terminate
at various dates through fiscal 2000. Other leases are classified as operating
leases and are not capitalized. Future minimum lease payments under all
noncancelable capital and operating leases are as follows (in thousands):
Operating Capital
Fiscal Year ending June 30, Total Lease Lease
-------------------------- ----------- ------------ ------------
1999 $ 5,056 $ 4,339 $ 718
2000 4,627 3,968 658
2001 3,701 3,701 -
2002 3,147 3,147 -
2003 2,787 2,787 -
2004 and thereafter 8,373 8,373 -
========== =========== ===========
Total minimum payments $ 27,691 $ 26,315 $ 1,376
========== =========== ===========
Less: amount representing interest (174)
-----------
Present value of capital lease obligations 1,202
Less: current portion (591)
-----------
Long-term capital lease obligations $ 611
===========
Total rental expense was $9,162,600 in fiscal 1998, $7,818,000 in fiscal 1997
and $8,513,000 in fiscal 1996.
43
44
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,
--------------------------
1998 1997 1996
---- ---- ----
Revenue from customers:
North America $ 41,217 $ 48,684 $ 55,782
International 48,536 44,147 63,202
========== =========== ==========
Total revenue $ 89,753 $ 92,831 $ 118,984
========== =========== ==========
Operating income:
North America $ 18,368 $ 5,377 $ 15,720
International (693) (2,262) 12,438
---------- ----------- ----------
Total operating income 17,675 3,115 28,158
Unallocated expenses, net of gain
on sale of Retail Business 3,060 (28,903) (44,508)
---------- ----------- ----------
Income (loss) before taxes $ 20,735 $ (25,788) $ (16,350)
========== =========== ==========
Identifiable assets:
North America $ 59,242 $ 39,048 $ 53,635
International 29,450 32,628 35,539
---------- ----------- ----------
Total identifiable assets 88,692 71,676 89,174
Computer software - 9,075 9,064
========== =========== ==========
Total assets $ 88,692 $ 80,751 $ 98,238
========== =========== ==========
Unallocated expenses, net of gain on sale of Retail Business consist of general
corporate expenses, internal research and product development expenses, interest
expense, interest income and gain on sale of Retail Business. Unallocated
amounts in fiscal 1998 include a $35,386,000 gain on sale of Retail Business and
$10,690,000 of restructuring and unusual related expenses. Unallocated expenses
include $6,245,000 and $23,167,000 of restructuring and unusual charges in
fiscal 1997 and 1996, respectively.
The presentation of information on a geographical basis requires the use of
estimation techniques and does not take into account the extent to which the
Company's marketing and management skills are geographically located.
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, 1998, 1997 and 1996.
44
45
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
------- ---------- ------ ---------
1998
First Quarter $ 21,796 $ (3,438) $ (3,505) $ (0.36)
Second Quarter 24,081 74 83 0.01
Third Quarter 23,853 56 73 0.01
Fourth Quarter 20,023 (11,416) 8,615 0.87
--------- ---------- -------
Year ended June 30 $ 89,753 $ (14,724) $ 5,266 $ 0.53
========= ========== =======
1997
First Quarter $ 19,984 $ (7,709) $ (4,931) $ (0.51)
Second Quarter 26,195 (4,173) (2,762) (0.28)
Third Quarter 24,045 (10,198) (6,923) (0.71)
Fourth Quarter 22,607 (3,892) (2,501) (0.25)
--------- --------- -------
Year ended June 30 $ 92,831 $ (25,972) $(17,117) $ (1.75)
========= ========== ========
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)
========= ========== ========
During the quarter ended June 30, 1998, the Company realized an after-tax
gain of $19,986,000 from the sale of the Company's Retail Business. The
Company also recorded $9,076,000 restructuring and unusual charges. The
Retail Business accounted for approximately $17,800,000 of the Company's 1998
revenue.
During the quarter ended September 30, 1997, the Company recorded a
$1,614,000 pre-tax restructuring and unusual charges for the cost of
termination of certain executives and others.
During the quarter ended March 31, 1997, the Company recorded a $6,245,000
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.
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.
45
46
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSN - (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 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.
The Court consolidated the four suits into one class action, In Re Comshare,
Incorporated Securities Litigation, and the plaintiffs 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 alleged 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 complaint
sought unspecified damages and costs. On September 18, 1997, the Court dismissed
all of the claims. The plaintiffs have appealed the dismissal of the action to
the U.S. Court of Appeals for the Sixth Circuit.
13. SALE OF RETAIL BUSINESS
On June 4, 1998, the Company sold certain software products, accounts
receivable, customer contracts, intellectual property, intangibles, permits and
business records related to its Arthur (TM) strategic merchandise management
applications for the retail industry and its Boost Sales and Margin Planning
software product for the consumer packaged goods industry to JDA Software, Inc.
for $44 million in cash and the assumption of certain liabilities related to the
Retail Business. The Company also received $1 million of prepaid royalties. The
sale of the Retail Business resulted in a pre-tax gain of $35,386,000 and an
after-tax gain of $19,986,000.
14. REPURCHASE OF COMPANY STOCK
In September 1998, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the Company's outstanding Common Stock. Pursuant to this
repurchase program, the Company has repurchased 78,500 shares of the Company's
Common Stock for a total cost of approximately $387,000, as of September 18,
1998. The Company may buy shares of its Common Stock on the open market or in
privately negotiated transactions from time to time, based on market prices.
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47
COMSHARE, INCORPORATED
SCHEDULE II
CONSOLIDATED SCHEDULE
OF VALUATION & QUALIFYING ACCOUNTS
Additions/
Balance Charged to Deductions Balance
DESCRIPTION Beginning Costs and from Translation Other End of
---------- of Period Expenses Reserves Adjustments Related Period
--------- ---------- ----------- ------------ ------- -------
Allowance for doubtful accounts
for the years ended June 30:
1998 $ 1,053 $ 762 $ 29 $ (14) $ - $ 1,830
======= ====== ====== ======= ====== ======
1997 $ 1,411 $ 526 $ (916) $ 32 $ - $ 1,053
======= ====== ======= ======= ====== ======
1996 $ 887 $ 578 $ (52) $ (2) $ - $ 1,411
======= ====== ======= ======== ====== ======
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Comshare, Incorporated
Date: September 28, 1998 By: /s/ Kathryn A. Jehle
------------------ --------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer, Assistant Secretary
and a Director
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/ Dennis G. Ganster President, Chief Executive September 28, 1998
- --------------------- Officer and a Director ------------------
Dennis G. Ganster (Principal Executive Officer)
/s/ Kathryn A. Jehle Senior Vice President, September 28, 1998
- --------------------- Chief Financial Officer, ------------------
Kathryn A. Jehle Treasurer, Assistant Secretary
and a Director
(Principal Financial Officer)
/s/ Nicholas Bray Senior Director of Finance, September 28, 1998
- --------------------- Chief Accounting Officer, ------------------
Nicholas Bray (Principal Accounting Officer)
/s/ Daniel T. Carroll Chairman of the Board and a September 28, 1998
- --------------------- Director ------------------
Daniel T. Carroll
/s/ Geoffrey B. Bloom Director September 28, 1998
- --------------------- ------------------
Geoffrey B. Bloom
/s/ Richard L. Crandall Director September 28, 1998
- ----------------------- ------------------
Richard L. Crandall
/s/ Stanley R. Day Director September 28, 1998
- ------------------ ------------------
Stanley R. Day
/s/ W. John Driscoll Director September 28, 1998
- -------------------- ------------------
W. John Driscoll
/s/ Alan G. Merten Director September 28, 1998
- ------------------ ------------------
Alan G. Merten
/s/ John F. Rockart Director September 28, 1998
- ------------------- ------------------
John F. Rockart
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2.01 Asset Purchase Agreement by and among JDA Software Group, Inc., and JDA
Software, Inc., and Comshare, Incorporated, dated as of June 4, 1998 -
incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
Report filed June 19, 1998.
2.02 Software License Agreement by and between JDA Software, Inc., and
Comshare, Incorporated, dated as of June 4, 1998 - incorporated by
reference to Exhibit 2.2 to the Registrant's Form 8-K Report filed June
19, 1998.
3.01 Restated Articles of Incorporation of the Registrant, as amended.
3.02 Bylaws of the Registrant, as amended.
4.01 Specimen form of Common Stock Certificate - incorporated by reference
to Exhibit 4(c) to the Registrant's Form S-1 Registration Statement No.
2-29663.
4.02 Credit agreement dated September 23, 1997, among Comshare,
Incorporated, its Borrowing Subsidiary (as defined therein) and Harris
Trust and Savings Bank - incorporated by reference to Exhibit 4.02 to
the Registrant's Form 10-K Report for the fiscal year ended June 30,
1997.
4.03 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.
4.04 Form of certificate representing Rights (included as Exhibit B to the
form of Rights Agreement filed as Exhibit 4.03). 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.
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 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.
10.05 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.
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50
10.06 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.
10.07 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).
10.08 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.
10.09 Description of Incentive Arrangements for certain executive officers
for fiscal years 1994 and 1995-1997.
10.10 Stock Option Agreement, effective as of March 10, 1997, between
Comshare, Incorporated and Daniel T. Carroll - incorporated by
reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 1997.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 Letter agreement between Comshare, Incorporated and Geoffrey R. Cluett
dated April 29, 1997 regarding term of employment and non-compete
agreement - incorporated by reference to Exhibit 10.20 to the
Registrant's Form 10-K Report for the fiscal year ended June 30, 1997.
10.17 Agreement between Comshare, Incorporated and T. Wallace Wrathall dated
October 24, 1997 - incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q Report for the quarter ended September 30, 1997.
10.18 Executive Bonus Program, effective October 1, 1997 - incorporated
by reference to Exhibit 10.1 to the Registrant's Form 10-Q Report
for the quarter ended December 31, 1997.
10.19 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Dennis G. Ganster.
10.20 Comshare, Incorporated Change in Control Severance Agreement dated
as of June 1, 1998 between Comshare, Incorporated and Kathryn A.
Jehle.
10.21 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and David King.
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51
10.22 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Stanley Starkey.
10.23 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Norman Neuman.
10.24 Comshare, Incorporated Change in Control Severance Agreement dated as
of June 1, 1998, between Comshare, Incorporated and Geoffrey Cluett.
10.25 Comshare, Incorporated 1998 Global Employee Stock Option Plan.
10.26 Summary of 1998 Senior Executive Incentive Plan.
10.27 Summary of 1999 Senior Executive Incentive Plan.
10.28 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.
10.29 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.
10.30 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).
10.31 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).
10.32 Second Amendment to License Agreement by and between Arbor Software
Corporation and Comshare, Incorporated - incorporated by reference to
Exhibit 10 of the Registrant's Form 8-K Report filed on December 24,
1997. (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).
10.33 Third Amendment to License Agreement by and between Hyperion and
Comshare, Incorporated. (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,
1998.
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