<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number 0-4096
Comshare, Incorporated
(Exact name of registrant as specified in its charter)
Michigan 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 Briarwood Circle, Ann Arbor, Michigan, 48108
(Address of principal executive offices) (Zip Code)
(313) 994-4800
(Registrant's telephone number, including area code)
3001 South State Street, Ann Arbor, Michigan 48108
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X NO ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (April
30, 1995).
Outstanding at
Class of Common Stock April 30, 1995
$1.00 par value 5,445,576 shares
<PAGE>2
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
Comshare, Incorporated
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash $ 2,687,400 $ 1,773,900
Accounts receivable, net 32,322,800 30,846,600
Other current assets 5,266,500 5,498,800
------------ -----------
Total current assets 40,276,700 38,119,300
Property and equipment, net 3,516,300 4,197,600
Computer software, net 39,748,400 40,235,600
Goodwill, net 2,303,600 2,033,000
Other assets 5,030,500 4,358,200
------------ -----------
$ 90,875,500 $88,943,700
============ ===========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 13,208,100 $10,636,600
Accrued liabilities 6,470,900 7,672,900
Income taxes 1,586,400 641,700
Deferred revenue 20,073,700 19,616,800
------------ -----------
Total current liabilities 41,339,100 38,568,000
Long-term debt 9,505,600 15,354,400
Deferred income taxes 5,969,500 5,510,500
Other liabilities 3,192,200 3,005,000
Shareholders' equity
Common stock, $1 par value;
authorized 10,000,000
shares; 5,445,576 shares
outstanding in 1995 and
5,357,811 shares in 1994 5,445,600 5,357,800
Capital contributed in excess
of par 15,557,700 14,660,600
Currency translation adjustments (2,979,700) (3,503,500)
Retained earnings 13,808,600 10,190,100
------------ -----------
31,832,200 26,705,000
Less: Notes receivable 963,100 199,200
------------ -----------
Total shareholders' equity 30,869,100 26,505,800
------------ -----------
$ 90,875,500 $88,943,700
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>3
Comshare, Incorporated
Condensed Consolidated Statement of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Revenue
Software licenses $ 12,705,400 $ 9,188,400
Software maintenance 8,895,100 10,193,500
Implementation and
consulting services 5,911,400 3,702,400
Remote processing and other 192,100 117,500
------------ -----------
27,704,000 23,201,800
Costs and expenses
Selling and marketing 11,375,100 11,386,500
Cost of revenue and support 6,959,200 4,223,500
Internal research and
product development 3,884,100 4,682,700
Internally capitalized software (2,844,700) (3,056,100)
Software amortization 3,415,300 3,075,400
General and administrative 3,087,000 2,696,500
------------ -----------
Total operating expenses 25,876,000 23,008,500
------------ -----------
Income from operations 1,828,000 193,300
Other income (expense)
Interest income 47,600 16,100
Interest expense (173,600) (98,300)
Exchange gain (loss) 217,300 108,400
------------ -----------
91,300 26,200
------------ -----------
Income before taxes 1,919,300 219,500
Provision for income taxes 714,700 125,700
------------ -----------
Net income $ 1,204,600 $ 93,800
============ ===========
Weighted average number of common
and dilutive common equivalent shares 5,647,700 5,513,500
========= =========
Net income per common share $ .21 $ .02
===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>4
Comshare, Incorporated
Condensed Consolidated Statement of Income
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994
<S> <C> <C>
Revenue
Software licenses $ 35,729,300 $26,814,300
Software maintenance 27,103,700 31,160,800
Implementation and
consulting services 16,232,500 12,055,600
Remote processing and other 451,900 680,100
------------ -----------
79,517,400 70,710,800
Costs and expenses
Selling and marketing 33,120,300 34,279,400
Cost of revenue and support 18,320,300 12,644,700
Internal research and
product development 11,984,900 14,582,200
Internally capitalized software (8,863,800) (9,852,900)
Software amortization 10,062,300 8,995,300
General and administrative 8,801,400 7,171,100
------------ -----------
Total operating expenses 73,425,400 67,819,800
------------ -----------
Income from operations 6,092,000 2,891,000
Other income (expense)
Interest income 103,600 61,000
Interest expense (571,400) (369,600)
Exchange gain (loss) 174,400 (30,200)
------------ -----------
(293,400) (338,800)
------------ -----------
Income before taxes 5,798,600 2,552,200
Provision for income taxes 2,162,600 749,700
------------ -----------
Net income $ 3,636,000 $ 1,802,500
============ ===========
Weighted average number of common
and dilutive common equivalent shares 5,565,100 5,475,100
========= =========
Net income per common share $ .65 $ .33
===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>5
Comshare, Incorporated
Condensed Consolidated Statement of Cash Flow
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities
Cash received from customers $ 79,471,800 $69,261,700
Cash paid to suppliers
and employees (61,618,700) (59,071,400)
Interest received 84,000 61,500
Interest paid (439,500) (366,700)
Income taxes paid (198,300) (445,800)
------------ -----------
Net cash provided by
operating activities 17,299,300 9,439,300
Cash flows from investing activities
Additions to computer software (8,863,900) (9,857,100)
Payments for equipment (805,500) (949,300)
Proceeds from sale of
undeveloped land 0 3,376,100
Other (914,700) (1,126,300)
------------ -----------
Net cash used in investing
activities (10,584,100) (8,556,600)
Cash flows from financing activities
Net borrowings (repayments)
under notes payable (42,600) 256,400
Repayments under long-term debt (6,037,100) (2,704,200)
Other 245,200 0
------------ -----------
Net cash used in financing
activities (5,834,500) (2,447,800)
Effect of exchange rate changes 32,800 (39,100)
------------ -----------
Net increase (decrease) 913,500 (1,604,200)
Balance at beginning of period 1,773,900 2,592,500
------------ -----------
Balance at end of period $ 2,687,400 $ 988,300
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>6
Comshare, Incorporated
Condensed Consolidated Statement of Cash Flow
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994
<S> <C> <C>
Net income $ 3,636,000 $ 1,802,500
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 12,083,700 11,599,300
Gain on sale of undeveloped land 0 (1,101,900)
Other (67,800) 111,900
Change in operating assets and
liabilities:
Accounts receivable 82,900 669,500
Other current assets (254,800) (354,800)
Other assets 0 (152,400)
Accounts payable 1,167,700 32,900
Accrued liabilities (271,900) (1,632,900)
Deferred revenue (128,700) (2,274,500)
Deferred credits 953,100 706,600
Other liabilities 99,100 33,100
------------ -----------
Total adjustments 13,663,300 7,636,800
------------ -----------
Net cash provided by operating
activities $ 17,299,300 $ 9,439,300
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>7
Comshare, Incorporated
Notes to Condensed Consolidated Financial Statements
March 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three- and nine-
month periods ended March 31, 1995 are not necessarily indicative
of the results that may be expected for the year ended June 30,
1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Registrant Company's annual report on Form 10-K for the year
ended June 30, 1994.
NOTE B - BORROWINGS
On October 31, 1994 the Company entered into a $14,000,000
amended and restated, secured domestic credit agreement with
certain of its banks which matures on October 31, 1997. This
agreement replaces the former $13,000,000 domestic line of
credit. The amended and restated credit agreement contains
covenants regarding among other things, working capital, current
ratio and net worth. Permitted borrowings under the credit
agreement are based on a percentage of worldwide eligible
accounts receivable and worldwide borrowings. Interest is at the
bank's prime rate plus 1% and reduces, 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%.
NOTE C - FINANCIAL INSTRUMENTS
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
financial instruments to hedge such exposures nor does it engage
in speculation. In general the Company only hedges against large
selective transactions that present the most exposure to exchange
rate fluctuations. The foreign exchange contracts vary in
maturity dates but most do not exceed 12 months.
<PAGE>8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (dollars in thousands)
Revenue for the third quarter ended March 31, 1995 was $27,704,
an increase of $4,502 or 19% compared with the corresponding
period a year ago. For the nine month period ending March 31,
1995, revenue was $79,517, an increase of $8,807 or 12% compared
with the corresponding period a year ago. Software license fees
grew 38% for the third quarter and 33% for the nine month period
ended March 31, 1995 compared with the corresponding periods a
year ago. All three market areas continued to show solid license
fee growth: EIS (Commander OLAP and tools) growth for the third
quarter and nine month period ended March 31, 1995 was 46% and
30%, respectively, compared with the corresponding periods a year
ago; financial applications (Commander FDC and Budget) - 41% and
42%, respectively; and retail applications (ARTHUR) - 21% and
40%, respectively. Customer acceptance of product releases in
all three market areas continued to favorably influence license
fee growth. Revenue from mainframe license fees for the third
quarter ended March 31, 1995 was $852 or 7% of total license fee
revenue compared to $1,385 or 15% for the corresponding period a
year ago. Mainframe license fee revenue is now at a low enough
level that further declines, which are expected to continue, will
not significantly impact results.
Maintenance revenue declined $1,298 or 13% for the third quarter
and $4,057 or 13% for the nine month period ended March 31, 1995
compared with the corresponding periods a year ago. A decline in
maintenance revenue from mainframe products was the primary
reason for the decrease. Mainframe maintenance revenue was
$4,027 or 45% of total maintenance revenue compared to $5,524 or
54% in the corresponding quarter a year ago. Mainframe
maintenance revenue is expected to continue to decline, although
at a slower rate than mainframe license fees. Maintenance
revenue from desktop and client/server products increased $322 or
7% for the third quarter and $955 or 7% for the nine month period
ended March 31, 1995 compared with the corresponding periods a
year ago. The comparability of maintenance revenue (and license
fee growth) continues to be impacted by the conversion of
selected agencies to distributors in fiscal year 1994. When an
agent converts to a distributor, sales are to the distributor,
rather than directly to the customer, and revenue declines by
approximately the same amount as what previously would have been
recorded as selling expense for agency fees. Accordingly, both
revenue and selling expenses are reduced by approximately the
same amount after agents are converted to distributors.
Implementation and consulting services revenue increased $2,209
or 60% for the third quarter and $4,177 or 35% for the nine month
period ended March 31, 1995 compared with the corresponding
periods a year ago. Increased software license fees are leading
to increases in implementation and consulting services revenue.
Operating expenses for the third quarter ended March 31, 1995
were $25,876, an increase of $2,866 or 12% compared with the
corresponding period a year ago. Operating expenses increased
$5,606 or 8% for the nine month period ended March 31, 1995
<PAGE>9
compared with the corresponding period a year ago. Selling and
marketing expenses were essentially unchanged for the third
quarter ended March 31, 1995 and decreased 3% for the nine month
period ended March 31, 1995 compared to the corresponding periods
a year ago. The decrease in selling and marketing expenses for the
nine month period ended March 31, 1995 is the net effect of decreases
in agency fees offset by increases in selling and marketing expenses
to support increased revenue. The decrease in agency fees of $1,649
and $4,079 for the third quarter and nine month period ended
March 31, 1995, compared with the corresponding periods a year
ago is due to the conversion of agents to distributors as
described above. Cost of revenue and support expenses increased
principally due to personnel and outside contract costs associated
with the growth in implementation and consulting services revenue
as well as increases in royalties related to the use of Arbor Software
Corporation's database engine in certain Comshare products.
Royalty expenses related to Commander OLAP, which was released in
the third quarter of last fiscal year, increased $1,334 and
$3,630 for the third quarter and nine month period ended March
31, 1995. Internal research and product development costs
decreased $799 and $2,597 for the third quarter and nine month
period ended March 31, 1995, compared with the corresponding
periods a year ago, primarily due to the effect of staff
reductions. Lower research and product development costs
resulted in lower capitalization of internally developed software
which declined $211 and $989 for the third quarter and nine month
period ended March 31, 1995 compared with the corresponding
periods a year ago. For the third quarter and nine month period
ended March 31, 1995, software amortization increased $340 and
$1,067 compared with the same corresponding a year ago as a result of
numerous products that were commercially released during the last
year. General and administrative expenses increased $391 and
$1,630 for the third quarter and nine month period ended March
31, 1995. The nine month period ended March 31, 1994 includes a
$1,102 gain on the sale of undeveloped land which occurred in the
second quarter ended December 31, 1993 and was included in
general and administrative expenses.
For the third quarter and nine month period ended March 31, 1995,
approximately 54% and 55%, respectively, of the Company's revenue
was from international sources and denominated in foreign
currencies. The dollar weakened against foreign currencies for
both the third quarter and nine month period ended March 31, 1995
compared with the corresponding periods a year ago positively
impacting revenue. Total revenue growth on a currency adjusted
basis for the third quarter and nine month period ended March 31,
1995 would have been approximately $1,000 and $2,500 less.
Corresponding amounts of operating expenses were also incurred in
foreign currencies which offsets most of the impact of foreign
exchange rates on net income.
As currency rates are constantly changing, exchange gains and
losses can, at times, fluctuate greatly. For the third quarter
ended March 31, 1995, there was a $217 exchange gain compared
with a $108 exchange gain in the corresponding period a year ago.
For the nine month period ended March 31, 1995 there was a $174
exchange gain compared with a $30 loss in the corresponding
period a year ago. The third quarter and nine month period ended
<PAGE>10
March 31, 1995 were favorably impacted by the increase in value
of the German Mark compared with the US Dollar. At March
31,1995, the Company had three forward dollar contracts whose US
Dollar equivalent was $6,000 with various maturities through
September 1995 to hedge currency exposures.
The effective tax rate for the third quarter and nine month
period ended March 31, 1995 was 37% compared with 57% and 29%,
respectively, for the corresponding periods a year ago. The
higher tax rate for the third quarter ended March 31, 1994 is
attributable to losses occurring in foreign countries where there
were no tax benefits available. The reversal of taxes previously
provided for impacted the effective tax rate for the nine month
period ended March 31, 1994.
FINANCIAL CONDITION (dollars in thousands)
Net cash provided by operating activities was $17,299 for the
nine month period ended March 31, 1995 compared with $9,439 for
the corresponding period a year ago. Higher billing levels
combined with improved collections were the primary factors
favorably impacting cash flow from operating activities. Current
liabilities exceeded current assets by $1,062 and $449 as of
March 31, 1995 and June 30, 1994, respectively. However,
included in current liabilities as of March 31, 1995 was $20,074
of deferred revenue ($19,617 at June 30, 1994), substantially all
of which relates to maintenance and is essentially non-cash in
nature.
Net cash used in investing activities was $10,584 for the nine
month period ended March 31, 1995 compared with $8,557 for the
corresponding period a year ago. Included in investing
activities a year ago was $3,376 in proceeds from the sales of
undeveloped land. Net cash used in investing activities
decreased in the nine month period ended March 31, 1995 compared
with the corresponding quarter a year ago after excluding the
benefits of the land sale. The decrease resulted from lower
capitalization of internally developed software and reduced
acquisitions of property and equipment.
Net cash from operating activities for the nine months ended
March 31, 1995 was used to reduce long-term debt by $6,037 and
fund additions to computer software.
On October 31, 1994 the Company entered into a $14,000 amended
and restated, secured domestic credit agreement with certain of
its banks which matures on October 31, 1997. This agreement
replaced a former $13,000 domestic line of credit. The amended
and restated credit agreement contains covenants regarding among
other things, working capital, current ratio and net worth.
Permitted borrowings under the credit agreement are based on a
percentage of worldwide eligible accounts receivable and
worldwide borrowings. At March 31, 1995 the total amount
available, including foreign lines of credit, was approximately
$17,000. Interest is at the bank's prime rate plus 1% and
reduces, 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%.
<PAGE>11
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 software additions and equipment purchases primarily through
cash flow from operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits included herewith are set forth on the
Index to Exhibits.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the
quarter ended March 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: May 11, 1995 Comshare, Incorporated
(Registrant)
/s/ Kathryn A. Jehle
Kathryn A. Jehle
Senior Vice President and
Chief Financial Officer
<PAGE>12
INDEX TO EXHIBITS
Exhibit No. Description
4.01 Specimen form of Common Stock Certificate -
incorporated by reference to Exhibit 4(c) to the
Company's Form S-1 Registration Statement No. 2-
29663.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informatin extracted from SEC
form 10-Q and is qualified in its entirely by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,687,400
<SECURITIES> 0
<RECEIVABLES> 32,322,800<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,276,700
<PP&E> 3,516,300<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 90,875,500
<CURRENT-LIABILITIES> 41,339,100
<BONDS> 0
<COMMON> 5,445,600
0
0
<OTHER-SE> 25,423,500
<TOTAL-LIABILITY-AND-EQUITY> 90,875,500
<SALES> 0
<TOTAL-REVENUES> 79,517,400
<CGS> 0
<TOTAL-COSTS> 73,425,400
<OTHER-EXPENSES> 278,000<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 571,400
<INCOME-PRETAX> 5,798,600
<INCOME-TAX> 2,162,600
<INCOME-CONTINUING> 3,636,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,636,000
<EPS-PRIMARY> .65
<EPS-DILUTED> 0
<FN>
<F1>Accounts receivable are stated at net of allowance for doubtful accounts.
<F2>Property and equipment is shown at net of accumulated depreciation.
<F3>Comprised of $103,600 of interest income and $174,400 of exchange gain.
</FN>
</TABLE>
