<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 SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
COMMISSION FILE NUMBER 0-4096
COMSHARE, INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 994-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of SEPTEMBER 30, 1996.
CLASS OF COMMON OUTSTANDING AT
STOCK SEPTEMBER 30, 1996
------------------- ---------------------
$1.00 PAR VALUE 9,717,655 SHARES
<PAGE> 2
COMSHARE, INCORPORATED
INDEX
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of
September 30, 1996 and June 30, 1996 3
Condensed Consolidated Statement of Operations for the
Three Months Ended September 30, 1996 and 1995 5
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
INDEX TO EXHIBITS 14
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ---------
ASSETS (unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 17,884 $ 27,468
Accounts receivable, net 31,255 34,853
Deferred income taxes 758 758
Prepaid expenses and other current assets 6,245 5,733
--------- ---------
Total current assets 56,142 68,812
PROPERTY AND EQUIPMENT, at cost 29,101 27,945
Less - accumulated depreciation 23,919 23,426
--------- ---------
Property and equipment, net 5,182 4,519
COMPUTER SOFTWARE, net 9,038 9,064
GOODWILL, net 1,908 1,947
DEFERRED INCOME TAXES 7,940 7,940
OTHER ASSETS 6,399 5,956
--------- ---------
$ 86,609 $ 98,238
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 13,148 $ 17,934
Accrued liabilities 6,157 7,956
Deferred revenue 17,295 18,364
--------- ---------
Total current liabilities 36,600 44,254
LONG-TERM DEBT 2,797 1,913
OTHER LIABILITIES 3,395 3,407
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares;none issued - -
Common stock, $1.00 par value;
authorized 20,000,000 shares; outstanding
9,717,655 shares as of September 30, 1996
and 9,691,443 shares as of June 30, 1996 9,718 9,691
Capital contributed in excess of par 38,414 38,132
Retained earnings 156 5,239
Currency translation adjustments (3,548) (3,586)
--------- ---------
44,740 49,476
Less - Notes receivable 923 812
--------- ---------
Total shareholders' equity 43,817 48,664
--------- ---------
$ 86,609 $ 98,238
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1996 1995
-------- -----------
<S> <C> <C>
REVENUE
Software licenses $ 6,568 $ 13,920
Software maintenance 8,777 9,015
Implementation, consulting and other services 4,639 5,718
-------- --------
TOTAL REVENUE 19,984 28,653
COSTS AND EXPENSES
Selling and marketing 13,436 12,038
Cost of revenue and support 6,917 6,690
Internal research and product development 4,389 3,998
Internally capitalized software (1,499) (2,358)
Software amortization 1,526 2,616
General and administrative 2,924 3,041
-------- --------
TOTAL COSTS AND EXPENSES 27,693 26,025
-------- --------
INCOME (LOSS) FROM OPERATIONS (7,709) 2,628
OTHER INCOME (EXPENSE)
Interest income (expense) 211 (141)
Exchange loss (96) (89)
-------- --------
Total other income (expense) 115 (230)
-------- --------
INCOME (LOSS) BEFORE TAXES (7,594) 2,398
Provision (benefit) for income taxes (2,663) 888
-------- --------
NET INCOME (LOSS) $ (4,931) $ 1,510
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
AND DILUTIVE COMMON EQUIVALENT SHARES 9,704 8,730
======== ========
NET INCOME (LOSS) PER COMMON SHARE $ (0.51) $ 0.17
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (4,931) $ 1,510
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,087 3,198
Changes in operating assets and liabilities:
Accounts receivable 3,660 (1,396)
Prepaid expenses and other assets (506) (58)
Accounts payable (4,818) 1,403
Accrued liabilities (1,806) (810)
Deferred revenue (1,116) 116
Other liabilities (11) 383
-------- --------
Net cash provided by (used in) operating activities (7,441) 4,346
INVESTING ACTIVITIES
Additions to computer software (1,490) (2,409)
Payments for property and equipment (1,160) (523)
Other (457) (332)
-------- --------
Net cash used in investing activities (3,107) (3,264)
FINANCING ACTIVITIES
Net borrowings (repayments) under long-term debt 873 (737)
Stock options exercised 21 74
Other 25 187
-------- --------
Net cash provided by (used in) financing activities 919 (476)
EFFECT OF EXCHANGE RATE CHANGES 45 19
-------- --------
NET INCREASE (DECREASE) IN CASH (9,584) 625
BALANCE AT BEGINNING OF PERIOD 27,468 1,398
-------- --------
BALANCE AT END OF PERIOD $ 17,884 $ 2,023
======== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 39 $ 118
======== ========
Cash paid for income taxes $ 243 $ 537
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, required to present fairly its consolidated balance
sheet as of September 30, 1996, the consolidated statement of operations for
the three months ended September 30, 1996 and 1995 and the consolidated
statement of cash flows for the three months ended September 30, 1996 and 1995.
The results of operations for the three months ended September 30, 1996 and
1995 are not necessarily indicative of the results to be expected in future
quarters or the full fiscal year. The software industry is generally
characterized by seasonal trends.
NOTE B - COMPUTER SOFTWARE
The costs of developing and purchasing new software products and
enhancements to existing software products are capitalized after technological
feasibility and realizability are established. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated gross product
revenue, estimated economic product lives and changes in software and hardware
technology. Capitalized development costs are currently amortized using the
straight-line method over a two-year service life. During the three months
ended September 30, 1995 capitalized development costs were amortized using the
straight-line method over a four-year service life. On an ongoing basis,
management reviews the valuation and amortization of capitalized development
costs. As part of this review, the Company considers the value of future cash
flows attributable to the capitalized development costs in evaluating potential
impairment of the asset.
7
<PAGE> 8
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE C - FINANCIAL INSTRUMENTS
The Company at various times enters into forward exchange contracts to
hedge certain exposures related to identifiable foreign currency transactions
that are relatively certain as to both timing and amount. Gains and losses on
the forward contracts are recognized concurrently with the gains and losses from
the underlying transactions. The forward exchange contracts used are classified
as "held for purposes other than trading." The Company does not use any other
types of derivative financial instruments to hedge such exposures, nor does it
use derivatives for speculative purposes. At September 30, 1996 and June 30,
1996, the Company had forward foreign currency exchange contracts of
approximately $6,418,000 and $5,746,000 (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at September 30,
1996 mature at various dates through May 17, 1997, and are intended to hedge
various foreign currency commitments due from foreign subsidiaries and the
Company's agents and distributors. Due to the short term nature of these
financial instruments, the fair value of these contracts is not materially
different than their notional amount at September 30, 1996 and June 30, 1996.
NOTE D - LITIGATION
The Company and Arbor Software Corporation ("Arbor") disagree about certain
definitions in the license agreement between the two parties related to the
calculation of royalties. Comshare and Arbor were in the process of defining
the procedure and legal and accounting issues to be resolved through
arbitration, when on September 27, 1996, Arbor filed a lawsuit against Comshare
alleging breach of contract and fraud relating to royalty calculations. Arbor's
suit principally seeks monetary damages. On October 21, 1996, Comshare filed a
denial of all of Arbor's claims and filed a counterclaim against Arbor for
defamation, unfair competition, interference with economic relationships and
breach of contract. The litigation is in its early stages, therefore the
Company does not possess sufficient information to reasonably estimate the
potential liability, if any. Management is contesting the Arbor suit
vigorously.
8
<PAGE> 9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis sets forth information for the three
months ended September 30, 1996 compared to the three months ended September 30,
1995. This information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial
data as a percentage of total revenue.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
------- --------
<S> <C> <C>
REVENUE
Software license fees 32.9% 48.6%
Software maintenance revenue 43.9 31.4
Implementation and consulting services 23.2 20.0
----- -----
Total revenue 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 67.2 42.0
Cost of revenue and support 34.6 23.3
Internal research
and product development 22.0 14.0
Internally capitalized software (7.5) (8.2)
Software amortization 7.6 9.1
General and administrative 14.6 10.6
----- -----
Total costs and expenses 138.5 90.8
----- -----
INCOME (LOSS) FROM OPERATIONS (38.5) 9.2
OTHER INCOME (EXPENSE)
Interest income (expense) 1.0 (0.5)
Exchange loss (0.5) (0.3)
----- -----
Total other income (expense) 0.5 (0.8)
----- -----
INCOME (LOSS) BEFORE INCOME TAXES (38.0) 8.4
Provision (benefit) for income taxes (13.3) 3.1
===== =====
NET INCOME (LOSS) (24.7)% 5.3%
===== =====
</TABLE>
9
<PAGE> 10
REVENUE
<TABLE>
<CAPTION>
Three Months Ended Percent
September 30, Change
---------------------- -------
1996 1995
--------- ---------
<S> <C> <C> <C>
REVENUE
Software license fees $ 6,568 $13,920 (52.8)%
Software maintenance revenue 8,777 9,015 (2.6)
Implementation and consulting services 4,639 5,718 (18.9)
-------- -------
TOTAL REVENUE $19,984 $28,653 (30.3)%
======== =======
</TABLE>
Total revenue decreased 30.3% in the three months ended September 30, 1996
compared to the prior year primarily due to the decrease in software license
fee revenue. The decline in license fee revenue was primarily due to the
Company's internal focus during the first quarter as a result of the expanded
fiscal year-end audit and investigation into violations of the Company's
revenue recognition policies. The audit and investigation were concluded in
September 1996. The decline in license fee revenue was also attributable to
the transitional changes in the Company's sales organization.
Software maintenance revenue decreased 2.6% in the three months ended
September 30, 1996 compared to the same period last year. Client/server
software maintenance revenue in the three months ended September 30, 1996
represented 74.5% of total software maintenance revenue and grew 14.3% compared
with the prior year quarter. Mainframe software maintenance revenue decreased
32.0% in the three months ended September 30, 1996 compared to last year
primarily due to mainframe maintenance cancellations and continued migration to
client/server platforms. Mainframe software maintenance revenue is expected to
continue to decline.
Implementation, consulting and other service revenue decreased 18.9% in
the three months ended September 30, 1996 compared to last year. Approximately
40% of the decline is due to the sale in June 1996 of the Company's Australian
business to a Comshare agent.
<TABLE>
<CAPTION>
COSTS AND EXPENSES
Three Months Ended Percent
September 30, Change
------------------ -------
1996 1995
------- ------
<S> <C> <C> <C>
COSTS AND EXPENSES
Selling and marketing $13,436 $12,038 11.6%
Cost of revenue and support 6,917 6,690 3.4
Internal research
and product development 4,389 3,998 9.8
Internally capitalized software (1,499) (2,358) (36.4)
Software amortization 1,526 2,616 (41.7)
General and administrative 2,924 3,041 (3.8)
------- -------
TOTAL COSTS AND EXPENSES $27,693 $26,025 6.4%
======= =======
</TABLE>
Selling and marketing expense increased 11.6% in the three months ended
September 30, 1996 compared to the same period last year primarily due to
increased spending on marketing promotions to launch the Company's new
budgeting application Commander BudgetPlus and the two BOOST applications,
BOOST Sales Analysis and BOOST Sales and Margin Planning. The hiring of new
direct sales representatives and sales support consultants during the quarter
also contributed to the increase in selling and marketing expense.
10
<PAGE> 11
Cost of revenue and support increased 3.4% in the three months ended
September 30, 1996 compared to the prior year principally due to hiring of
additional customer service technicians and implementation consultants during
the quarter.
Internal research and product development expense increased 9.8% in the
three months ended September 30, 1996 compared to last year mainly due to
increased spending for new software applications and on-going enhancements to
existing software products.
Internally capitalized software decreased in the three months ended
September 30, 1996 primarily due to increased levels of development costs that
were not capitalizable. Software amortization expense decreased in the three
months ended September 30, 1996 principally due to the reduced levels of
capitalized software following the $23.2 million write-off of capitalized
software in the second quarter of fiscal 1996.
General and administrative expense decreased 3.8% in the three months
ended September 30, 1996 compared to the same period last year primarily due to
lower employee-related costs.
NON-OPERATING INCOME AND EXPENSE
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
------ ------
<S> <C> <C>
OTHER INCOME (EXPENSE)
Interest income (expense) $211 $(141)
Exchange gain (loss) (96) (89)
---- ------
TOTAL OTHER INCOME (EXPENSE) $115 $(230)
==== ======
</TABLE>
The Company had interest income in the three months ended September 30,
1996 due to investment of the net proceeds received from the public offering of
the Company's common stock in the quarter ended December 31, 1995.
PROVISION FOR INCOME TAXES
The effective income tax rate in the three months ended September 30, 1996
was 35%, comparable with 37% for the same period a year ago.
FOREIGN CURRENCY
In the three months ended September 30, 1996, 52% of the Company's total
revenue was from outside North America compared with 54% for the three months
ended September 30, 1995. Most of the Company's international revenue is
denominated in foreign currencies. The Company recognizes currency transaction
gains and losses in the period of occurrence. As currency rates are constantly
changing, these gains and losses can, at times, fluctuate greatly.
During the three months ended September 30, 1996 foreign currency
fluctuations on revenue denominated in a foreign currency were offset by
currency fluctuations on expenses denominated in a foreign currency. For the
three months ended September 30, 1996 the decrease in total revenue, at actual
exchange rates, was $102,000 more than at comparable exchange rates. For the
three months ended September 30, 1996 the increase in total expenses, at actual
exchange rates, was $243,000 less than at comparable exchange rates. As a
result of the changes in the foreign currency exchange rates, the decrease in
income before taxes, at actual exchange rates, was $141,000 less than at
comparable exchange rates.
The Company had several forward contracts totaling $6.4 million
outstanding at September 30, 1996. See Note C of Notes to Condensed
Consolidated Financial Statements.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, cash and cash equivalents were $17.9 million,
compared with cash of $27.5 million at June 30, 1996. The decrease in cash and
cash equivalents is principally due to the net cash used for operating
activities in the quarter ended September 30, 1996.
Net cash used in operating activities was $7.4 million in the three months
ended September 30, 1996, compared with net cash provided by operating
activities of $4.3 million in the three months ended September 30, 1995. The
decrease in net cash provided by operating activities was primarily due to the
net loss from operations and decrease in accounts payable, which included a
$2.4 million payment to terminate the Company's lease obligation on its vacated
London office facility.
Net cash used in investing activities was $3.1 million in the three months
ended September 30, 1996, compared with $3.3 million in the three months ended
September 30, 1995. The slight decrease in net cash used in investing
activities was primarily due to the decrease in the amount of capitalized
internally developed software costs, partially offset by an increase in
property and equipment purchases. At September 30, 1996, the Company did not
have any material capital expenditure commitments.
Total assets were $86.6 million at September 30, 1996, compared with total
assets of $98.2 million at June 30, 1996. Working capital as of September 30,
1996 was $19.5 million, compared with $24.6 million as of June 30, 1996. The
decrease in both total assets and working capital from June 30, 1996 to
September 30, 1996 was primarily due to the decline in cash and cash
equivalents.
The Company believes that the combination of present cash balances, future
operating cash flows and amounts available under credit facilities will be
sufficient to meet the Company's currently anticipated cash requirements for at
least the next twelve months.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) The exhibit included herewith is set forth on the Index to Exhibits.
(b.) Since the end of its most recent fiscal quarter on June 30, 1996, Comshare
has filed the following reports on Form 8-K:
Date of Report Item Reported
- -------------- -------------
August 7, 1996............. Comshare, Incorporated announced the delay of
releasing its financial results for the fourth
quarter and year ended June 30, 1996 pending
completion of its year-end audit including a more
detailed review of orders in the United Kingdom and
certain other foreign countries to determine if
revenue recognition was in accordance with the
Company's policies.
September 17, 1996......... Comshare, Incorporated announced the adoption of a
shareholder rights plan.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: NOVEMBER 13, 1996 COMSHARE, INCORPORATED
(Registrant)
/s/ Kathryn A. Jehle
-----------------------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11.1 Computation of Earnings per Share.
27 Financial Data Schedule.
14
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
---- ----
<S> <C> <C>
WEIGHTED AVERAGE SHARES
Common shares outstanding 9,704 8,234
Common equivalent shares, treasury stock method - 496
----- -----
9,704 8,730
===== =====
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) $ (4,931) $ 1,510
Shares used in per common share computation 9,704 8,730
Net income (loss) per common share $ (0.51) $ 0.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,884,000
<SECURITIES> 0
<RECEIVABLES> 31,255,000<F1>
<ALLOWANCES> 1,414,000
<INVENTORY> 0
<CURRENT-ASSETS> 56,142,000
<PP&E> 29,101,000
<DEPRECIATION> 23,919,000
<TOTAL-ASSETS> 86,609,000
<CURRENT-LIABILITIES> 36,600,000
<BONDS> 0
0
0
<COMMON> 9,718,000
<OTHER-SE> 34,099,000
<TOTAL-LIABILITY-AND-EQUITY> 86,609,000
<SALES> 0
<TOTAL-REVENUES> 19,984,000
<CGS> 0
<TOTAL-COSTS> 27,693,000
<OTHER-EXPENSES> (217,000)<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,000
<INCOME-PRETAX> (7,594,000)
<INCOME-TAX> (2,663,000)
<INCOME-CONTINUING> (4,931,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,931,000)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> 0
<FN>
<F1>Accounts receivable are stated at net of allowance for doubtful accounts.
<F2>Comprised of $313,000 of interest income and $96,000 of exchange loss.
</FN>
</TABLE>
