<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K/A
(AMENDMENT NO. 2)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
/ / 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)
<TABLE>
<S> <C>
MICHIGAN 38-1804887
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 994-4800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock $1.00
Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of August 31, 1995 based on $27.125 per share, the last sale price
for the Common Stock on such date as reported on the NASDAQ National Market
System, was approximately $112,618,000.
As of August 31, 1995 the Registrant had 5,493,515 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT
-----------------------------------------
<S> <C>
Portions of Proxy Statement for the Part of Form 10-K Report
1995 Annual Meeting of Shareholders into which it is incorporated
("The 1995 Proxy Statement") III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The Company's revenue consists of software license revenue, maintenance fees and
implementation and consulting services fees from products sold in three decision
support application market areas: Executive Information Systems (EIS), Financial
Reporting and Retail Decision Support. Comshare licenses its products worldwide.
In certain territories outside North America, products are licensed through
distributors, where revenue is reported net of distributor fees.
RESULTS OF OPERATIONS
The following table summarizes the percentage relationships of income and
expense items included in the Company's Consolidated Statement of Operations.
<TABLE>
<CAPTION>
PERCENT INCREASE
AS A PERCENT INCOME AND (DECREASE)
OF REVENUE EXPENSE ITEMS FROM PRIOR YEAR
- --------------------------------- ------------------------------- ---------------------
1995 1994 1993 1995 1994
- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
45.5% 39.2% 38.4% Software licenses 30.2% (6.3)%
33.8 43.1 41.0 Software maintenance (12.0) (3.3)
Implementation, consulting
20.7 17.7 20.6 and other services 30.9 (21.2)
- ----- ----- ----- ------ ------
100.0 100.0 100.0 Total revenue 12.1 (8.1)
Costs and expenses:
41.8 48.1 51.4 Selling and marketing (2.5) (14.1)
Cost of revenue and
22.9 18.3 19.5 support 40.3 (13.9)
Internal research and
14.9 20.0 21.9 product development (16.1) (16.1)
Internally capitalized
(10.8) (13.7) (14.3) software (11.6) (12.3)
12.2 13.0 10.2 Software amortization 5.9 16.3
General and
10.8 10.2 11.1 administrative 17.9 (15.2)
5.9 -- -- Unusual charge * --
-- 2.4 1.4 Restructuring related costs (100.0) 57.4
- ----- ----- ----- ------ ------
Income (loss) from
2.3 1.7 (1.2) operations 50.8 229.7
(0.2) (0.5) 0.2 Other income, net (60.1) (408.0)
- ----- ----- ----- ------ ------
Income (loss)
2.1 1.2 (1.0) before taxes 101.1 202.7
Provision (benefit) for
(2.8) 1.0 0.6 income taxes (434.2) (38.4)
- ----- ----- ----- ------ ------
4.9% .2% (1.6)% Net income (loss) 2300.0% 112.6%
===== ===== ===== ====== ======
</TABLE>
*Percent not meaningful.
11
<PAGE> 3
1995 COMPARED WITH 1994
Revenue for the fiscal year ended June 30, 1995 increased 12% to $108.4 million
from $96.6 million in fiscal 1994. The primary cause of this revenue growth was
the increase in desktop and client/server license fees, reflecting the release
of the Company's new products during the past 18 months.
Total software license fee revenue in fiscal 1995 grew 30% to $49.3 million from
$37.9 million in fiscal 1994. License fees from desktop and client/server
products in fiscal 1995 grew 61% to $45.5 million from $28.3 million in fiscal
1994 and represented 92% of total software license fee revenue in fiscal 1995,
compared with 75% in fiscal 1994. License fees from the Company's mainframe
products declined 60% in fiscal 1995 to $3.8 million from $9.4 million in fiscal
1994. Mainframe license fees are expected to continue to decline as the Company
continues to emphasize its newer client/server products which were introduced in
response to the market's shift from mainframe to client/server systems. Most of
the mainframe license fee decline was in the older Executive Information Systems
(EIS) products.
Software license fee growth was strong in all three decision support market
areas. In the EIS market, license fees grew 26% to $29.8 million in fiscal 1995
from $23.7 million in fiscal 1994. License fees for the Company's desktop and
client/server EIS products grew 69% to $26.8 million in fiscal 1995, compared
with $15.8 million in the prior year, principally due to the March 1994 release
of Commander OLAP. This increase in EIS desktop and client/server license fees
was partially offset by declines in EIS mainframe license fees.
License fees from financial reporting applications grew 40% to $10.2 million in
fiscal 1995 from $7.3 million in fiscal 1994, principally due to the release of
Windows versions of Commander FDC and Commander Budget.
In the retail decision support applications market area, license fees increased
41% to $9.1 million in fiscal 1995 from $6.5 million in fiscal 1994, principally
as a result of new releases of ARTHUR Merchandise Planning and ARTHUR Plan
Monitor.
Maintenance revenue in fiscal 1995 declined 12% to $36.6 million from $41.6
million in fiscal 1994. The decrease is primarily due to the decline in
maintenance revenue from mainframe products. Mainframe maintenance revenue in
fiscal 1995 declined 25% to $16.9 million from $22.6 million in fiscal 1994. The
decrease was principally due to the impact of cancellations, price discounts on
multi-year agreements and conversion of certain agents to distributors. Desktop
and client/server maintenance revenue in fiscal 1995 grew 6% to $19.6 million
from $18.5 million in fiscal 1994. The increase is due to the growth in license
fees, partially offset by the conversion of certain agents to distributors, as
described below. The comparability of maintenance revenue was impacted by the
conversion of certain agents to distributors in fiscal 1994. When an agent
converts to a distributor, sales are made directly to the distributor rather
than the end customer, and the distributor assumes the obligation of providing
maintenance. In addition, the revenue from distributors is recognized net of
fees (which fees are approximately the same as agency fees which are recorded as
selling expenses), and revenue from agents is recognized before their fees.
Therefore, the conversion of agents to distributors reduced reported maintenance
revenue in fiscal 1995, without a material impact on operating profits. In
addition, in fiscal 1994, maintenance revenue benefited from the nonrecurring
release of approximately $1.6 million of deferred revenue related to the
conversion of the Company's Belgium and Holland offices to an independent agency
and to the conversion of certain of the Company's agents to distributors.
Included in fiscal 1994 operating expenses was approximately $.9 million of
costs associated with the recording of the maintenance revenue.
Implementation, consulting and other services revenue in fiscal 1995 increased
31% to $22.4 million from $17.1 million in fiscal 1994. The increased number of
desktop and client/server licenses sold during the fiscal period, in all three
decision support market areas, created increased demand for implementation and
consulting services.
Operating expenses, excluding restructuring and unusual charges, were $99.5
million, with an operating profit margin of 8%, in fiscal 1995, compared with
operating expenses of $92.6 million and an operating profit margin of 4% in
fiscal 1994.
Selling and marketing expense in fiscal 1995 was $45.3 million, or 42% of
revenue, compared with $46.5 million, or 48% of revenue in fiscal 1994. The
decrease was principally due to a $5.4 million reduction in agency fees as a
result
12
<PAGE> 4
of the conversion of certain agents to distributors, as described above.
Partially offsetting this decline was a $3.8 million increase in direct selling
and marketing expenses during fiscal 1995 in support of increased revenue.
Cost of revenue and support in fiscal 1995 was $24.8 million, or 23% of revenue,
compared with $17.7 million, or 18% of revenue in fiscal 1994. The increase is
primarily attributed to both royalty fees related to the use of Arbor Software
Corporation's database engine, Essbase, in certain Comshare products and
personnel and outside contract costs associated with the growth in
implementation and consulting services.
Internal research and product development expense in fiscal 1995 was $16.2
million, or 15% of revenue, compared with $19.3 million, or 20% of revenue in
fiscal 1994. The decrease was primarily attributable to staff reductions made at
the end of fiscal 1994. These reductions principally reflect the Company's
development strategy which includes the increased utilization of technology
developed by third parties to shorten development cycles, minimize investment in
software tools and accelerate time to market. The decrease in research and
product development costs resulted in lower capitalization of internally
developed software in fiscal 1995 of $11.7 million, or 11% of revenue, compared
with $13.2 million, or 14% of revenue in fiscal 1994. Software amortization
expense was $13.2 million in the current fiscal year, or 12% of revenue,
compared with $12.5 million, or 13% of revenue in fiscal 1994. The increase in
amortization expense was a result of new client/server products released during
the last year. The Company does not expect amortization expenses related to
internally developed software to change materially in fiscal 1996.
General and administrative expense in fiscal 1995 was $11.7 million, or 11% of
revenue, compared to $9.9 million, or 10% of revenue in fiscal 1994. General and
administrative expense increased only 6% in fiscal 1995, as compared with the
prior year, after excluding the $1.1 million gain on the sale of undeveloped
land which was included in general and administrative expense in fiscal 1994.
General and administrative employee expenses relating to relocation, travel and
incentives contributed to the increase.
An unusual charge of $6.4 million was recorded in fiscal 1995, due to the
write-off of capitalized software associated with the Company's mainframe
products. The write-off was the result of the Company's fiscal 1996 product
plans to focus primarily on desktop and client/server software and the decreased
industry emphasis on mainframe decision support software products. In addition,
the Company recently implemented a marketing strategy to migrate its existing
clients using mature mainframe products to its new client/server products. The
above factors will reduce the future revenue from mainframe software, and as a
result the Company wrote-off the remaining capitalized mainframe software.
Interest expense in fiscal 1995 was $.7 million, compared with $.6 million in
fiscal 1994. The increase is primarily due to the loan origination fees
associated with amending and restating the domestic credit agreement.
The benefit from income taxes was $3.0 million in fiscal 1995, as compared with
an income tax provision of $.9 million for fiscal 1994. The income tax benefit
included the release of tax valuation reserves of $2.5 million related to tax
credits, this is attributable to the significant improvement in the Company's
profitability in fiscal 1995, which allowed the realization of a significant
portion of these credits. In addition, settlements with tax authorities
regarding certain outstanding issues allowed the Company to release tax reserves
of $1.6 million previously established against these exposures. The net tax
assets remaining are projected by the Company to be utilized by fiscal 1997,
well before expiration. A comparative analysis of the factors influencing the
effective income tax rate is presented in Note 8 of the Notes to Consolidated
Financial Statements.
Approximately 55% of Comshare's fiscal 1995 revenue and expenses were from
outside North America and most of the Company's international revenue is
denominated in foreign currencies. Foreign currency fluctuations in fiscal 1995
had minimal impact on operating income as currency fluctuations on revenue
denominated in a foreign currency were offset by expenses denominated in foreign
currency. Overall, revenue and expenses would have been approximately $3.6
million and $3.3 million lower, respectively, with an estimated $.3 million
negative impact on pre-tax profit for fiscal 1995, at comparable exchange rates.
The Company recognizes currency transaction gains and losses in the period of
occurrence. As currency rates are constantly changing, these gains and losses
can, at times, fluctuate greatly. The Company had an exchange gain of $.3
million in fiscal 1995, attributable to the strengthening of the Deutsche mark
and French franc against the British pound. 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
13
<PAGE> 5
other types of derivatives to hedge such exposures nor does it speculate in
foreign currency. In general, the Company only uses forward exchange contracts
to hedge against large selective transactions that present the most exposure to
exchange rate fluctuations. The Company had two forward contracts totaling $2.2
million outstanding at June 30, 1995.
Inflation did not have a material impact on the Company's revenue or income from
operations in fiscal 1995 or fiscal 1994.
1994 COMPARED WITH 1993
Revenue for the fiscal year ended June 30, 1994 declined by 8% to $96.6 million
from $105.2 million in fiscal 1993. The decrease was principally due to both the
decline in revenue from mainframe sources and the weakening of foreign
currencies against the U.S. dollar in fiscal 1994. Overall revenue for fiscal
1994 would have been approximately $5.5 million higher, compared with fiscal
1993 levels, at comparable exchange rates.
Total software license fees declined 6% to $37.9 million in fiscal 1994 from
$40.4 million in fiscal 1993. License fees from desktop and client/server
products grew 18% to $28.2 million in fiscal 1994 from $24.0 million in fiscal
1993. Desktop and client/server products license fees represented 75% of total
software license fee revenue in fiscal 1994, compared with 59% in fiscal 1993.
License fees from the Company's mainframe products declined 42% to $9.4 million
in fiscal 1994 from $16.3 million in fiscal 1993. The Company believes that this
decline was due to the industry slowdown in sales of mainframe computer software
as customers migrated to new generation client/server operating systems from
their traditional mainframe operating systems.
In the EIS market, license fees declined 18% to $23.7 million from $28.8 million
in fiscal 1993, primarily due to the decline in mainframe license fee revenue
offset by the revenue resulting from the March 1994 release of the Company's
Commander OLAP product. License fees from financial reporting applications
remained essentially unchanged in fiscal 1994 at $7.3 million, compared with the
prior year. Retail decision support license fees increased 54% to $6.5 million
in fiscal 1994 from $4.2 million in fiscal 1993, principally as a result of the
international release of a new Windows version of ARTHUR Merchandise Planning.
Total maintenance revenue declined by 3% to $41.6 million in fiscal 1994 from
$43.1 million in 1993. Mainframe maintenance revenue declined 13% to $22.6
million in fiscal 1994 from $25.9 million in fiscal 1993. Offsetting the decline
was the increase in maintenance revenue from desktop and client/server products
which increased 12% to $18.5 million in fiscal 1994 from $16.5 million in fiscal
1993.
During fiscal 1994 maintenance revenue benefited from the release of
approximately $1.6 million of deferred revenue related to the conversion of the
Company's Belgium and Holland offices to an independent agency and to the
conversion of certain of the Company's agents to distributors. Included in
operating expenses was approximately $.9 million of costs associated with the
recording of the maintenance revenue.
Implementation and consulting services revenue declined 21% to $17.1 million in
fiscal 1994 from $21.7 million in fiscal 1993. The decrease in implementation
and consulting services revenue was due partially to the decline in mainframe
software revenue and increased competition from small implementation and
consulting service companies, as well as to disruptions in France due to
management changes in the second quarter.
Operating expenses for fiscal 1994 and fiscal 1993 included $2.3 million and
$1.5 million, respectively, of restructuring charges. Excluding the
restructuring charges, operating expenses in fiscal 1994 decreased 12% to $92.6
million from $105.0 million in fiscal 1993. The weakening of foreign currencies
against the U.S. dollar in fiscal 1994 caused $4.8 million of the decline in
operating expenses from fiscal 1993 levels. The remaining $6.4 million of the
decline is primarily the result of cost containment actions taken by the Company
at the end of fiscal 1993, most of which related to personnel reductions
implemented in connection with the restructuring.
Selling and marketing expense in fiscal 1994 was $46.5 million, or 48% of
revenue, compared with $54.1 million, or 51% of revenue in fiscal 1993. The
decrease was principally due to cost containment actions taken by the Company at
the end of fiscal 1993.
Cost of revenue and support was $17.7 million, or 18% of revenue in fiscal 1994,
compared with $20.5 million or 20% of revenue in 1993. The decline was
principally caused by lower costs associated with the $4.4 million decline
14
<PAGE> 6
in implementation and consulting services revenue. This was partially offset by
the inclusion of $1.0 million of royalty expense in fiscal 1994 for products
licensed from others for use in the Company's product offerings. The increase in
royalty expense is principally due to an increase in sales to customers
selecting a newly licensed database engine, Essbase, as part of their
information system solution beginning in March 1994.
Internal research and product development expense was $19.3 million, or 20% of
revenue in fiscal 1994, compared with $23.0 million, or 22% of revenue in fiscal
1993. The decrease was principally due to cost containment actions. The decrease
in research and product development costs resulted in lower capitalization of
internally developed software in fiscal 1994 of $13.2 million, or 14% of
revenue, compared with $15.0 million, or 14% of revenue in fiscal 1993. Software
amortization in fiscal 1994 was $12.5 million, or 13% of revenue, compared with
$10.8 million, or 10% of revenue in fiscal 1993. The increase is a result of
numerous products that were commercially released during the fourth quarter of
fiscal 1993 and the first quarter of fiscal 1994.
General and administrative expense was $9.9 million, or 10% of revenue in fiscal
1994, compared with $11.7 million, or 11% of revenue in fiscal 1993. The
decrease is primarily attributable to the $1.1 million gain on the sale of
undeveloped land in the second quarter of fiscal 1994 which was included in
general and administrative expense.
Restructuring and unusual charges were $2.3 million in fiscal 1994 and
represented provisions for management actions or plans in connection with
restructuring, primarily related to staff reductions. For the period ended June
30, 1994, the restructuring charges include staff reductions of approximately 50
employees. Restructuring charges for fiscal 1993 were $1.5 million and also
related to management actions or plans in connection with restructuring,
primarily related to staff reductions.
Interest expense was $.6 million in fiscal 1994, essentially unchanged from
fiscal 1993. Reduced loan balances were partly offset by higher interest rates
and a reduction in the amount of interest capitalized as part of capitalized
computer software. The banks with which the Company has its domestic credit
agreement reduced the interest rate on the Company's borrowings, effective
November 1, 1993, from prime plus 3% to prime plus 1%. Interest expense was
capitalized as required under accounting principles and included in capitalized
computer software.
The effective income tax rate for the year ended June 30, 1994 was 80%. The
provision for the year ended June 30, 1994 resulted from a combination of
factors including not tax benefiting certain losses and the reversal of taxes
previously provided, partially offset by ongoing tax planning. For the prior
year, there was a provision for income taxes on a loss, rather than a tax
benefit as would usually be expected, primarily caused by losses occurring in
certain countries where no tax benefit could be provided while profits occurred
in countries where a tax provision was required. A detailed comparative analysis
of the numerous factors influencing the effective income tax rate is presented
in Note 8 of the Notes to Consolidated Financial Statements.
Approximately 55% of the Company's fiscal 1994 revenue and expenses were from
outside North America. Most of the Company's international revenue is
denominated in foreign currencies. Foreign currency fluctuations in fiscal 1994
impacted operating income as currency fluctuations on revenue denominated in a
foreign currency were only partially offset by expenses denominated in a foreign
currency. Overall, revenue and expenses would have been $5.5 million and $4.8
million higher, respectively, with an estimated $.7 million positive impact on
pre-tax profit for fiscal 1994, at comparable exchange rates.
The Company recognizes currency transaction gains and losses in the period of
occurrence. As currency rates are constantly changing, these gains and losses
can, at times, fluctuate greatly. Exchange losses were $25,000 in fiscal 1994,
compared with exchange gains of $.5 million in fiscal 1993. The unusually high
currency gain in fiscal 1993 was principally due to Britain's withdrawal from
the European Exchange Rate Mechanism. At June 30, 1994, the Company did not have
any forward contracts.
Inflation did not have a material impact on the Company's revenue or income from
operations in fiscal 1994 or fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $23.3 million in fiscal 1995, up
$9.7 million over the prior year. Pretax profit excluding the non-cash write-off
of software was $8.6 million in fiscal 1995, contributing $7.5 million of the
15
<PAGE> 7
increase. Due to prior year net operating losses and tax credits, only $.6
million of taxes were paid in fiscal 1995. As a result, most of the operating
profits in fiscal 1995 generated positive cash flow. The $2.7 million reduction
in accounts receivable balances during fiscal 1995, attributable to improved
collections, also contributed to the increased cash flow.
Net cash used in investing activities was $14.1 million in fiscal 1995, up $1.7
million over the prior year, primarily due to the one-time benefit in fiscal
1994 from the proceeds of the sale of undeveloped land. Additions to capitalized
computer software declined during fiscal 1995 due to the decrease in internal
product development spending.
The Company used the net cash from operating activities to fund its investing
activities and reduce long-term debt by approximately $10.0 million during
fiscal 1995.
At June 30, 1995, the Company did not have any material capital expenditure
commitments. In fiscal 1996, property and equipment purchases and additions to
internally developed software are expected to continue at levels similar to
those of fiscal 1995 and fiscal 1994.
Working capital as of June 30, 1995 was a negative $2.2 million, compared with a
negative $.5 million from the same period last year. The decrease of $1.7
million was primarily due to the $2.7 million reduction in accounts receivable,
mentioned above, offset by the $1.0 million reduction in deferred, revenue which
is included in current liabilities. Deferred revenue as of June 30, 1995 and
1994 was $18.6 million and $19.6 million, respectively. Deferred revenue
principally relates to maintenance and is essentially non-cash in nature.
Total assets were $79.3 million at June 30, 1995, as compared with total assets
of $88.9 million at June 30, 1994. The primary contributing factor to the
decrease was the write-off of $6.4 million of capitalized software associated
with the Company's mainframe products.
On October 31, 1994 the Company entered into a $14.0 million amended and
restated, domestic credit agreement with its banks which matures on October 31,
1997. The amended and restated credit agreement contains covenants regarding
among other things, working capital, leverage, net worth and payment of
dividends. Under the terms of the agreement, the Company is not permitted to pay
dividends. Permitted borrowings under the credit agreement are based on a
percentage of worldwide eligible accounts receivable. At June 30, 1995,
permitted borrowings under the agreement totaled $14.0 million, of which $3.5
million was outstanding. At June 30, 1995 interest was at the bank's prime rate
(8.75% at June 30, 1995) plus 1% until July 1, 1995, at which time it changed to
the Eurodollar rate plus applicable margin, which varies between 1 1/2% and
2 1/2%. Subsequent to year end, the banks agreed to release all security
interests in the assets of the Company previously granted to the banks.
Separately, certain of the Company's subsidiaries have local currency credit
agreements or overdraft facilities with banks totaling $3.7 million, of which
$1.9 million was outstanding at June 30, 1995. The credit agreements expire on
October 1, 1997. The interest rates generally vary with the banks' base rate.
Most of such borrowings are guaranteed by the Company.
The Company believes that the combination of present cash balances, future
operating cash flows and credit facilities are sufficient for near term
operating needs. The Company intends to fund ongoing internal software additions
and equipment purchases through cash provided by operating activities. The
Company believes it will renew or repay its long-term debt prior to its
expiration.
ITEM 8. FINANCIAL STATEMENTS
The financial statements and schedule filed herewith are set forth on the Index
to Consolidated Financial Statements and Schedule on page 19 and are
incorporated herein by reference.
16
<PAGE> 8
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................. 20
Consolidated Statement of Operations for the Fiscal Years Ended
June 30, 1995, 1994 and 1993....................................................... 21
Consolidated Balance Sheet as of June 30, 1995 and 1994.............................. 22-23
Consolidated Statement of Cash Flows for the Fiscal Years Ended
June 30, 1995, 1994 and 1993....................................................... 24
Consolidated Statement of Shareholders' Equity for the Fiscal Years Ended
June 30, 1995, 1994 and 1993....................................................... 25
Notes to Consolidated Financial Statements........................................... 26-34
<CAPTION>
SCHEDULE
<S> <C>
II. Consolidated Schedule of Valuation and Qualifying Accounts....................... 35
</TABLE>
19
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comshare, Incorporated:
We have audited the accompanying consolidated balance sheet of COMSHARE,
INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. 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, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles.
As explained in Note 8 to the financial statements, effective July 1, 1992, the
Company changed its method of accounting for income taxes.
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,
July 27, 1995
20
<PAGE> 10
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Software licenses...................................... $ 49,294 $ 37,871 $ 40,397
Software maintenance................................... 36,649 41,625 43,064
Implementation, consulting and other services.......... 22,415 17,130 21,733
-------- -------- --------
108,358 96,626 105,194
COSTS AND EXPENSES
Selling and marketing.................................. 45,283 46,457 54,065
Cost of revenue and support............................ 24,799 17,670 20,528
Internal research and product development.............. 16,180 19,293 22,989
Internally capitalized software........................ (11,667) (13,193) (15,035)
Software amortization.................................. 13,250 12,517 10,761
General and administrative............................. 11,663 9,891 11,668
Unusual charge......................................... 6,365 -- --
Restructuring related costs............................ -- 2,343 1,489
-------- -------- --------
105,873 94,978 106,465
-------- -------- --------
Income (loss) from operations............................ 2,485 1,648 (1,271)
Other income (expense)
Interest income........................................ 157 79 298
Interest expense....................................... (669) (568) (611)
Exchange gain (loss)................................... 307 (25) 480
-------- -------- --------
(205) (514) 167
-------- -------- --------
INCOME (LOSS) BEFORE TAXES............................... 2,280 1,134 (1,104)
Provision (benefit) for income taxes..................... (3,048) 912 659
-------- -------- --------
NET INCOME (LOSS)........................................ $ 5,328 $ 222 $ (1,763)
======== ======== ========
Weighted average number of common and dilutive
common equivalent shares............................... 5,599 5,489 5,319
======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE....................... $ .95 $ .04 $ (.33)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE> 11
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................................... $ 1,398 $ 1,774
Accounts receivable, less allowance for doubtful accounts
of $887 in 1995, and $1,161 in 1994.................................. 29,531 30,846
Deferred income taxes................................................... 783 1,487
Prepaid expenses........................................................ 4,098 4,012
------- -------
Total current assets................................................. 35,810 38,119
PROPERTY AND EQUIPMENT, at cost
Computers and other equipment........................................... 24,023 24,278
Leasehold improvements.................................................. 3,053 4,258
------- -------
27,076 28,536
Less -- Accumulated depreciation........................................ 23,663 24,338
------- -------
Property and equipment, net............................................. 3,413 4,198
COMPUTER SOFTWARE, net of accumulated amortization of
$70,308 in 1995 and $50,114 in 1994..................................... 32,676 40,236
GOODWILL, net of accumulated amortization of
$1,751 in 1995 and $1,437 in 1994....................................... 2,246 2,033
OTHER ASSETS.............................................................. 5,165 4,358
------- -------
$79,310 $88,944
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE> 12
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------
1995 1994
------- -------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable........................................................... $ -- $ 29
Accounts payable........................................................ 11,342 10,608
Accrued liabilities --
Payroll.............................................................. 3,467 4,910
Taxes, other than income taxes....................................... 1,486 1,399
Other................................................................ 1,465 1,364
------- -------
Total accrued liabilities.......................................... 6,418 7,673
Income taxes............................................................ 1,602 641
Deferred revenue........................................................ 18,599 19,617
------- -------
Total current liabilities.......................................... 37,961 38,568
LONG-TERM DEBT............................................................ 5,436 15,354
DEFERRED INCOME TAXES..................................................... 275 5,511
OTHER LIABILITIES......................................................... 3,090 3,005
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares;
none issued........................................................ -- --
Common stock, $1.00 par value;
authorized 10,000,000 shares;
outstanding 5,480,823 shares in
1995 and 5,357,811 shares in 1994.................................... 5,481 5,358
Capital contributed in excess of par.................................... 15,939 14,661
Retained earnings....................................................... 15,500 10,190
Currency translation adjustments........................................ (3,239) (3,504)
------- -------
33,681 26,705
Less -- Notes receivable................................................ 1,133 199
------- -------
Total shareholders' equity......................................... 32,548 26,506
------- -------
$79,310 $88,944
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
23
<PAGE> 13
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS)............................................. $ 5,328 $ 222 $ (1,763)
Adjustments to reconcile net income (loss) to
Net cash provided by operating activities:
Depreciation and amortization............................... 15,873 15,893 15,491
Write-off of capitalized software........................... 6,365 -- --
Gain on sale of undeveloped land............................ -- (1,102) --
Provision for losses on accounts receivable................. (119) 140 586
Loss on sale of property and equipment...................... 28 3 71
Changes in operating assets and liabilities:
Accounts receivable...................................... 2,675 585 4,601
Prepaid expenses......................................... 77 929 1,142
Other assets............................................. -- 35 1,122
Accounts payable......................................... (469) (1,083) (2,716)
Accrued liabilities...................................... (337) 853 (2,927)
Deferred revenue......................................... (1,489) (3,875) (396)
Deferred income taxes.................................... (4,645) 732 528
Other liabilities........................................ 42 301 607
-------- -------- --------
Net cash provided by operating activities................ 23,329 13,633 16,346
INVESTING ACTIVITIES
Additions to computer software.............................. (11,667) (13,187) (15,811)
Payments for property and equipment......................... (1,207) (1,199) (1,645)
Proceeds from sale of undeveloped land...................... -- 3,376 --
Other....................................................... (1,227) (1,382) (235)
-------- -------- --------
Net cash used in investing activities.................... (14,101) (12,392) (17,691)
FINANCING ACTIVITIES
Net repayments under notes payable.......................... (33) (40) (590)
Net borrowings (repayments) under long-term debt............ (10,044) (2,046) 768
Stock options exercised..................................... 248 74 358
Other....................................................... 202 (42) --
-------- -------- --------
Net cash provided by (used in) financing activities...... (9,627) (2,054) 536
EFFECT OF EXCHANGE RATE CHANGES............................... 23 (6) (408)
-------- -------- --------
NET DECREASE IN CASH.......................................... (376) (819) (1,217)
-------- -------- --------
BALANCE AT BEGINNING OF YEAR.................................. 1,774 2,593 3,810
-------- -------- --------
BALANCE AT END OF YEAR........................................ $ 1,398 $ 1,774 $ 2,593
======== ======== ========
Supplemental disclosures:
Cash paid for interest...................................... $ 690 $ 624 $ 540
======== ======== ========
Cash paid for income taxes.................................. $ 558 $ 481 $ 1,113
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
24
<PAGE> 14
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK
Balance beginning of year...................................... $ 5,358 $ 5,346 $ 5,287
Employee Stock Purchase Plan................................... 15 -- --
1994 Executive Stock Purchase Program.......................... 69 -- --
Retirement of shares........................................... (1) -- (18)
Stock options exercised........................................ 40 12 77
------- ------- -------
Balance end of year............................................ 5,481 5,358 5,346
------- ------- -------
CAPITAL CONTRIBUTED IN EXCESS OF PAR
Balance beginning of year...................................... 14,661 14,599 14,200
Employee Stock Purchase Plan................................... 162 -- --
1994 Executive Stock Purchase Program.......................... 890 -- --
Retirement of shares........................................... (4) -- (50)
Stock options exercised........................................ 230 60 436
Tax benefits related to stock options.......................... -- 2 13
------- ------- -------
Balance end of year............................................ 15,939 14,661 14,599
------- ------- -------
RETAINED EARNINGS
Balance beginning of year...................................... 10,190 9,968 11,831
Net income (loss).............................................. 5,328 222 (1,763)
Retirement of shares........................................... (18) -- (100)
------- ------- -------
Balance end of year............................................ 15,500 10,190 9,968
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS
Balance beginning of year...................................... (3,504) (3,553) (1,165)
Translation adjustments........................................ 265 49 (2,388)
------- ------- -------
Balance end of year............................................ (3,239) (3,504) (3,553)
------- ------- -------
LESS -- NOTES RECEIVABLE
Balance beginning of year...................................... 199 199 199
1994 Executive Stock Purchase Program.......................... 934 -- --
------- ------- -------
Balance end of year............................................ 1,133 199 199
------- ------- -------
Total shareholders' equity.................................. $32,548 $26,506 $26,161
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
25
<PAGE> 15
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
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 fees, software
maintenance service fees and implementation, consulting and other service fees.
Software license revenue, including sales to distributors, is recognized when a
customer contract is fully executed and the software has been shipped. Software
maintenance revenue, whether bundled with product license or priced separately,
is recorded as deferred revenue on the balance sheet when invoiced and is
recognized over the term of the maintenance contract. Implementation, consulting
and other services revenue is recognized as the services are performed.
EXPENSE CLASSIFICATION. Selling and marketing expense includes advertising and
agency fees. Cost of revenue and support includes personnel and other costs
related to produce the 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.
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.
The Company at various times has entered into forward exchange contracts to
hedge exposures related to foreign currency transactions. The Company does not
use any other types of derivatives to hedge such exposures nor does it speculate
in foreign currency. The Company only uses forward exchange contracts to hedge
against large selective transactions that present the most exposure to exchange
rate fluctuations. The Company entered into a forward contract on September 9,
1994 where it purchased $1,500,000 for British pounds with a maturity date of
September 29, 1995. The Company also entered into a forward contract on June 30,
1995 where it sold $750,000 for Canadian dollars with a maturity date of August
31, 1995. The carrying value of these contracts approximates the fair market
value.
Statement of Financial Accounting Standards No. 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" requires
additional disclosures regarding the nature of derivatives held. This statement
is required to be adopted by the Company during its fiscal year ended June 30,
1996.
CASH. Cash includes investments in highly liquid investments with maturities of
three months or less at the time of acquisition.
INTERNAL RESEARCH AND PRODUCT DEVELOPMENT. Internal research and product
development includes all such expense before computer software capitalization
and amortization.
COMPUTER SOFTWARE. The costs of developing and purchasing new software products
and enhancements to existing software products are capitalized after
technological feasibility is established. These costs include capitalized
interest of $681,000, $814,000, and $906,000 in fiscal 1995, 1994 and 1993,
respectively. The capitalized development costs are amortized over their
estimated service lives which are generally a rolling three years in 1993, 1994
and 1995. The policy is reevaluated and adjusted as necessary at the end of each
accounting period. On an ongoing basis, management reviews the valuation and
amortization of capitalized development costs. As part of this review, the
Company considers the value of future cash flows attributable to the capitalized
development costs in evaluating potential impairment of the asset. In addition
to the internally capitalized software, the Company expended $776,000 on
purchased software during the year ended June 30, 1993. There were no
expenditures for purchased software for the years ended June 30, 1994 and 1995.
26
<PAGE> 16
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. Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. This statement is required to be adopted by the Company
during its fiscal year ended June 30, 1997. Although a detailed analysis has not
been performed, the Company believes there would be no material impact on its
financial statements, if this statement was adopted as of June 30, 1995.
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.
RECLASSIFICATIONS. For the year ended June 30, 1995, the Company changed its
presentation of cash flows from operating activities from the direct method to
the indirect method.
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform with 1995 presentation.
2. RESTRUCTURING AND UNUSUAL CHARGES
During the year ended June 30, 1995, the Company recorded an unusual charge of
$6,365,000. This charge related to the write-off of capitalized software
associated with its mature mainframe products. The write-off of capitalized
software associated with the Company's mainframe products is the result of
current industry trends and reflects the Company's strategic product plan to
focus on desktop and client/server software products.
During the years ended June 30, 1994 and 1993, the Company made provisions
totaling $2,343,000 and $1,489,000, respectively, for management actions or
plans in connection primarily with staff reductions related to its
restructuring. For the period ended June 30, 1994, the restructuring charges
include staff reductions of approximately 50 employees and estimated savings of
$4,000,000 was achieved in fiscal 1995. At June 30, 1995, $554,000 remains to be
paid for contractual obligations related to restructuring actions taken during
1994.
3. BORROWINGS
Borrowing components are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Lines of credit............................................. $5,436 $15,354
Notes payable............................................... -- 29
------ -------
Total outstanding...................................... 5,436 15,383
Less current portion........................................ -- 29
------ -------
$5,436 $15,354
====== =======
</TABLE>
On October 31, 1994 the Company entered into a $14,000,000 amended and restated,
domestic credit agreement with its banks which matures on October 31, 1997. The
amended and restated credit agreement contains covenants regarding among other
things, working capital, leverage, net worth and payment of dividends. Under the
terms of the agreement, the Company is not permitted to pay dividends. Permitted
borrowings under the credit agreement are
27
<PAGE> 17
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on a percentage of worldwide eligible accounts receivable and worldwide
borrowings. At June 30, 1995, the permitted borrowings available under the
agreement were $14,000,000, of which $3,500,000 was outstanding. Interest was at
the bank's prime rate (8.75% at June 30, 1995) plus 1% and has been reduced
effective July 1, 1995, upon the Company's meeting certain financial criteria,
to the Eurodollar rate plus applicable margin, which varies between 1 1/2% and
2 1/2%. Subsequent to year end, the banks agreed to release all security
interests in the assets of the Company previously granted to the banks.
Separately, certain of the Company's subsidiaries entered into local currency
credit agreements or overdraft facilities in various currencies with banks
totaling $3,664,000. At June 30, 1995, the Company has outstanding borrowings of
$1,256,000 in British pounds and $680,000 in German marks. The credit agreements
expire on October 1, 1997. The interest rates generally vary with the banks'
base rate. Most of such borrowings are guaranteed by the Company.
4. SHAREHOLDERS' EQUITY
The Board of Directors has the authority to issue up to 5,000,000 shares of no
par value preferred stock. The shares can be issued in one or more series with
full, limited or no voting powers and with such special rights, qualifications,
limitations and restrictions as may be adopted by the Board of Directors.
The Company's senior executives are encouraged to own Comshare common stock. To
facilitate such ownership, the shareholders approved the 1994 Executive Stock
Purchase Program which enables such executives to purchase Comshare common stock
at then current market prices directly from the Company via a promissory note.
The promissory note cannot exceed the executive's base annual salary and is
secured by the related common stock issued by the Company. The promissory note
matures four years from the date of issuance. Interest is at the prime rate plus
1% and may be deferred until the promissory note matures. A total of 200,000
shares of the Company's common stock has been reserved for issuance under the
1994 Executive Stock Purchase Program. For the year ended June 30, 1995, a total
of 69,363 shares at prices ranging from $13.00 to $18.50 were issued in exchange
for notes totaling $934,000.
5. STOCK OPTIONS
The Company has two stock option plans, the 1988 Stock Option Plan (the "1988
Plan") and the 1994 Directors Stock Option Plan (the "Directors Plan") which was
adopted in November, 1994.
The Company's 1988 Plan provides for the grant of both incentive stock options
and non-qualified options to officers and key employees. Options under the 1988
Plan are granted at 100% of market price on date of grant, are exercisable at
the rate of 25% per year after one year from the date of grant and have a term
of five years. The Board of Directors may, at its discretion, grant stock
appreciation rights in connection with the grant of options, but to date has not
elected to do so.
Effective June 25, 1993, the Company offered current option holders except for
the Company's senior executive officers the opportunity to exchange outstanding
options, for an equal number of options of the Company's common stock, at the
current market price of $6.125. All eligible option holders accepted this offer
and the Company canceled the previous options and granted new options
representing 311,760 shares of common stock under the Company's 1988 Plan. The
new options vest over four years effective from the new date of grant.
Effective August 13, 1993 and September 23, 1993, the Company offered the senior
executives the opportunity to exchange certain outstanding options, for an equal
number of options of the Company's common stock, at the current market price of
$9.00 and $9.25, respectively. The executive option holders accepted this offer
and the Company canceled certain of the previous options and granted new options
representing 134,000 shares of common stock under the Company's 1988 Plan. The
new options vest over four years effective from the new date of grant.
The 1988 Stock Option Plan was amended in November, 1994 to increase the number
of shares of Common stock authorized for grant from 600,000 shares to 850,000.
28
<PAGE> 18
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1995, the Company has reserved 795,285 shares of common stock for
the exercise of employee stock options.
Stock option activity for the 1988 Plan is summarized below:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at June 30, 1992........................ 870,510 $5.75 to $22.00
Granted............................................. 352,760 6.13 to 10.50
Exercised........................................... (77,000) 5.75 to 7.25
Canceled............................................ (355,510) 7.25 to 20.88
---------
Outstanding at June 30, 1993........................ 790,760 6.13 to 22.00
Granted............................................. 235,000 9.00 to 13.75
Exercised........................................... (11,750) 6.13 to 6.13
Canceled............................................ (475,498) 6.13 to 22.00
---------
Outstanding at June 30, 1994........................ 538,512 6.13 to 16.75
Granted............................................. 144,000 11.00 to 19.50
Exercised........................................... (40,465) 6.13 to 6.13
Canceled............................................ (131,697) 6.13 to 16.75
---------
Outstanding at June 30, 1995........................ 510,350 $6.13 to $19.50
=========
Exercisable at June 30, 1995........................ 121,850
=========
</TABLE>
The 1994 Directors Stock Option plan was approved by the shareholders in
November, 1994. The Directors Plan provides for the issuance of options to
purchase up to 100,000 shares of the Company's common stock to nonemployee
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. In
November, 1994, a total of 35,000 options were granted, with each of the
Company's seven outside directors receiving 5,000 options at $12.50. None of the
options was exercisable as of June 30, 1995.
6. EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan was approved by the shareholders in November,
1994. A total of 200,000 shares of the Company's common stock have been reserved
for issuance under the Employee Stock Purchase Plan. The Employee Stock Purchase
Plan allows participating employees to purchase through payroll deductions
shares of the Company's common stock at 85% of the fair market value at July 1
and January 1. Substantially all full time employees are eligible to participate
in the Employee Stock Purchase Plan. During the year ended June 30, 1995, 14,556
shares were issued at $12.11 per share under the Employee Stock Purchase Plan.
7. BENEFIT PLANS
The Company has profit sharing and employee stock ownership plans covering
substantially all United States employees. The profit sharing plan provides for
a minimum annual contribution of 2% of an employee's salary, and both plans
require the Company to make matching contributions based on employee 401K
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 contributions,
other than the above, are discretionary and are determined by the Board of
Directors. The total contributions were $1,224,000 in 1995, $1,007,000 in 1994,
$1,129,000 in 1993.
29
<PAGE> 19
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A subsidiary in the United Kingdom maintains, through a trustee, a defined
benefit pension plan for substantially all of its employees hired before January
1, 1994 and a defined contribution plan for employees hired January 1, 1994 or
later. The defined contribution plan provides that employees contribute a
minimum of 5% of their pensionable salary with the Company contributing 5%. The
benefits of the defined pension plan, which are pay related, are integrated with
and supplement the benefits called for under the applicable laws of the United
Kingdom.
The components of pension expense are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the year................. $ 540 $ 501 $ 485
Interest cost on projected benefit obligation.................... 1,292 1,111 962
Actual return on assets.......................................... (1,347) (1,347) (4,916)
Net amortization and deferral.................................... 101 261 3,770
------- ------- -------
Net pension expense.............................................. $ 586 $ 526 $ 301
======= ======= =======
</TABLE>
The funded status of the pension plan is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................................... $14,705 $11,801
Non-vested benefits..................................................... 29 41
------- -------
Accumulated benefit obligation....................................... 14,734 11,842
Effects of salary progression........................................... 1,664 1,241
------- -------
Projected benefit obligation......................................... 16,398 13,083
Plan assets at fair value................................................. 15,103 13,997
------- -------
Plan assets under (over) projected benefit obligation..................... $ 1,295 $ (914)
======= =======
Amounts not recognized in balance sheet:
Unamortized transition obligation....................................... $ 702 $ 748
Unamortized net (gain) loss............................................. 2,888 (81)
------- -------
$ 3,590 $ 667
======= =======
</TABLE>
The actuarial present value of the projected benefit obligation was determined
using a weighted average discount rate of 8.5% and an annual increase in future
compensation of 6.5% for fiscal 1995 calculations; for the fiscal years 1994 and
1993 a weighted average discount rate of 9% and an annual rate of increase in
future compensation of 7% was used to project benefit obligations. The long term
weighted average rate of return on assets used was 8.5%, 10% and 12% for 1995,
1994 and 1993, respectively.
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 $142,000 in fiscal 1995, $201,000 in fiscal 1994
and $269,000 in fiscal 1993.
30
<PAGE> 20
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
During 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The statement
requires a change in the method of financial accounting and reporting for income
taxes from the deferral method to an asset and liability approach. The adoption
of this standard had no material effect on income. 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):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income (loss) before provision (benefit) for income taxes:
Domestic.................................................. $ 486 $(2,270) $(1,884)
Foreign................................................... 1,794 3,404 780
------- ------- -------
$ 2,280 $ 1,134 $(1,104)
======= ======= =======
Domestic provision (benefit) for income taxes:
Current................................................... $ (15) $ (230) $ 229
Deferred.................................................. (2,773) (205) (678)
Foreign provision (benefit) for income taxes:
Current................................................... 1,499 281 (99)
Deferred.................................................. (1,759) 1,066 1,207
------- ------- -------
Provision (benefit) for income taxes........................ $(3,048) $ 912 $ 659
======= ======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal statutory provision (benefit)....................... $ 775 $ 386 $ (375)
Non-deductible meals and entertainment...................... 109 83 44
State income taxes, net of federal tax benefit.............. 67 41 27
Increase in valuation reserve due to domestic and foreign
losses without tax benefit and tax credits................ 42 882 499
Recognition of tax credits.................................. (2,500) -- --
Tax reserves provided (released)............................ (1,600) 65 --
Tax rate differences........................................ (51) 189 343
FAS 109 adjustment.......................................... -- -- 131
Tax credits generated....................................... -- (665) --
Other, net.................................................. 110 (69) (10)
------- ------- -------
Actual income tax provision (benefit)....................... $(3,048) $ 912 $ 659
======= ======= =======
</TABLE>
31
<PAGE> 21
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes represent temporary differences in the recognition of
certain items for income tax and financial reporting purposes. The components of
the net deferred income tax liability (asset) as of June 30 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Research and development............................................. $ 3,714 $ 7,005
Remittance of foreign earnings....................................... -- 1,151
Employee benefits.................................................... 727 535
Other................................................................ 190 208
------- -------
4,631 8,899
Deferred income tax assets:
Tax credits excluding foreign........................................ (1,534) (1,428)
Foreign tax credit................................................... (68) (1,160)
Depreciation and amortization........................................ (1,075) (1,196)
Net operating loss................................................... (493) (2,708)
Deferred revenue..................................................... (474) (997)
Employee benefits.................................................... (640) (680)
Other................................................................ (1,224) (1,044)
------- -------
(5,508) (9,213)
Valuation allowance.................................................... 369 4,338
------- -------
(5,139) (4,875)
------- -------
Net deferred income tax liability (asset).............................. $ (508) $ 4,024
======= =======
</TABLE>
At June 30, 1995, for income tax purposes, the Company and certain of its
foreign subsidiaries had available net operating loss carryforwards of
approximately $493,000. If not used, these net operating loss carryforwards, as
well as the Company's general business tax credits, will expire between 1998 and
2009.
Income taxes have been provided on all undistributed earnings of foreign
subsidiaries which are expected to be remitted to the Company.
9. LEASES
The Company leases most of its office space and certain of its equipment.
Initial lease terms vary in length; several of the leases contain renewal
options. Future minimum lease payments under noncancellable operating leases are
as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year ending June 30,
1996...................................................... $ 5,130
1997...................................................... 4,309
1998...................................................... 3,513
1999...................................................... 2,722
2000...................................................... 2,642
After 2000................................................ 18,955
-------
$37,271
=======
</TABLE>
During 1988, the Company purchased its London sales and administrative office
building; it was also sold in 1988 along with leasehold improvements and leased
back. The gain on the sale was deferred. During 1992, the Company consolidated
this facility with its former London computer center. The Company has thus
reduced the deferred gain
32
<PAGE> 22
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the sale by $1,135,000 to provide for the estimated costs until the lease
obligations are assumed by a new tenant.
Total rental expense was $7,252,000 in fiscal 1995, $7,231,000 in fiscal 1994
and $8,451,000 in fiscal 1993.
10. GEOGRAPHIC OPERATIONS AND SEGMENT INFORMATION
The following table summarizes selected financial information of the Company's
operations by geographic location (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue from customers:
North America............................................... $ 48,478 $ 43,222 $ 45,596
International............................................... 59,880 53,404 59,598
-------- -------- --------
Total revenue............................................ $108,358 $ 96,626 $105,194
======== ======== ========
Operating income:
North America............................................... $ 15,205 $ 10,082 $ 10,118
International............................................... 15,392 13,938 12,163
-------- -------- --------
Total operating income................................... 30,597 24,020 22,281
Unallocated expenses, net..................................... (28,317) (22,886) (23,385)
-------- -------- --------
Income (loss) before taxes.................................... $ 2,280 $ 1,134 $ (1,104)
======== ======== ========
Identifiable assets:
North America............................................... $ 16,672 $ 21,356 $ 25,582
International............................................... 29,962 27,352 27,849
-------- -------- --------
Total identifiable assets................................ 46,634 48,708 53,431
Computer software............................................. 32,676 40,236 39,151
-------- -------- --------
Total assets.................................................. $ 79,310 $ 88,944 $ 92,582
======== ======== ========
</TABLE>
Unallocated expenses consist of general corporate expenses, internal research
and product development expenses, interest expense and interest income. In
fiscal 1995, unallocated expenses include $6,365,000 of unusual charges related
to the write-off of capitalized software associated with the Company's mature
mainframe products.
The presentation of information on a geographical basis requires the use of
estimation techniques and does not take into account the extent to which
Comshare's marketing and management skills are inter-dependent.
The Company operates in one business segment: the development and marketing of
computer software and related services.
No customer accounted for more than 5% of total revenues in the fiscal years
ended June 30, 1995, 1994 and 1993.
33
<PAGE> 23
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited) (in thousands
except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Revenue................................................. $24,158 $27,656 $27,704 $28,840
Income (loss) from operations........................... 1,418 2,846 1,828 (3,607)
Net income.............................................. 751 1,680 1,205 1,692
Net income per share.................................... .14 .30 .21 .30
1994
Revenue................................................. $23,730 $23,779 $23,202 $25,915
Income (loss) from operations........................... 997 1,701 193 (1,243)
Net income (loss)....................................... 657 1,052 94 (1,581)
Net income (loss) per share............................. .12 .19 .02 (.30)
</TABLE>
During the quarter ended June 30, 1995, the Company wrote-off $6,365,000 of
capitalized mainframe computer software.
The fourth quarter ended June 30, 1995 also included a $4,100,000 tax benefit
related to the recognition of prior years net operating losses and tax credits
as well as tax reserves released.
During the quarter ended June 30, 1994 the Company made provisions totaling
$2,343,000 for management actions or plans primarily in connection with staff
reductions related to restructuring.
During the quarter ended December 31, 1993, the Company concluded an agreement
to sell undeveloped land that it owned. This resulted in a gain of approximately
$1,100,000.
12. SUBSEQUENT EVENT (UNAUDITED)
On October 9, 1995, the Board of Directors declared a three-for two stock split
of the Company's Common Stock, subject to shareholder approval of an increase in
the authorized shares of Common Stock to 20,000,000 shares. The shareholders
will vote on the proposal at the November 18, 1995 annual shareholders' meeting.
The following unaudited proforma summary presents the charge to capital
contributed in excess of par and the credit to common stock as well as the
impact on net income (loss) per common share as if the transaction had been
approved.
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Common stock........................................................... $ 8,221 $ 8,037
Capital contributed in excess of par................................... 13,199 11,982
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE
30,
-------------------------
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Net income (loss) per common share.................................. $.63 $.03 $(.22)
</TABLE>
34
<PAGE> 24
COMSHARE, INCORPORATED
SCHEDULE II
CONSOLIDATED SCHEDULE
OF VALUATION & QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND FROM TRANSLATION END OF
DESCRIPTION OF PERIOD EXPENSES RESERVES ADJUSTMENTS OTHER PERIOD
- ------------------------------------ --------- ---------- ---------- ----------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
For the year ended June 30,:
1995........................... $ 1,161 $ (119) $ (173) $ 18 $ -- $ 887
======= ====== ====== ===== ==== =======
1994........................... $ 1,029 $ 140 $ (19) $ 11 $ -- $ 1,161
======= ====== ====== ===== ==== =======
1993........................... $ 1,366 $ 586 $ (802) $(121) $ -- $ 1,029
======= ====== ====== ===== ==== =======
</TABLE>
35
<PAGE> 25
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 October 11, 1995 By: /s/ Kathryn A. Jehle
--------------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
23.01 Consent of Independent Public Accountants.
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report on the June 30, 1995 consolidated financial statements
of Comshare, Incorporated and subsidiaries dated July 27, 1995, included in
this Form 10-K, into the Company's previously filed Form S-8 and S-3
registration statements (File No. 33-6730, File No. 33-9755-3, File No.
33-28437, File No. 33-27002, File No. 33-85720, File No. 33-87706, File No.
33-87708 and File No. 33-86908).
ARTHUR ANDERSEN LLP
Detroit, Michigan
October 9, 1995
