<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, 2000
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: (734) 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, 2000.
OUTSTANDING AT
CLASS OF COMMON STOCK SEPTEMBER 30, 2000
--------------------- ------------------
$1.00 PAR VALUE 9,788,152 SHARES
1
<PAGE> 2
COMSHARE, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 2000 and 1999......................................3
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2000 and 1999......................................4
Condensed Consolidated Balance Sheets as of
September 30, 2000 and June 30, 2000........................................................5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2000 and 1999..............................................7
Notes to Condensed Consolidated Financial Statements............................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................... 16
SIGNATURE..................................................................................17
INDEX TO EXHIBITS..........................................................................18
</TABLE>
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
REVENUE
Software licenses $ 4,703 $ 5,302
Software maintenance 5,841 5,748
Implementation, consulting
and other services 4,899 3,456
-------- --------
TOTAL REVENUE 15,443 14,506
COSTS AND EXPENSES
Selling and marketing 5,461 5,817
Cost of revenue and support 6,781 5,238
Internal research and product development 2,056 2,150
General and administrative 1,432 1,479
-------- --------
TOTAL COSTS AND EXPENSES 15,730 14,684
-------- --------
LOSS FROM OPERATIONS (287) (178)
OTHER INCOME (EXPENSE)
Interest income 427 386
Interest expense (2) (22)
Exchange loss (15) (104)
-------- --------
TOTAL OTHER INCOME 410 260
INCOME BEFORE TAXES 123 82
Provision for income taxes 45 30
-------- --------
NET INCOME $ 78 $ 52
======== ========
SHARES USED IN BASIC EPS COMPUTATION 9,780 9,642
======== ========
SHARES USED IN DILUTED EPS COMPUTATION 10,007 9,642
======== ========
NET INCOME PER COMMON SHARE -
BASIC AND DILUTED EPS $ 0.01 $ 0.01
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- ----------
<S> <C> <C>
Net income $ 78 $ 52
Other comprehensive loss:
Currency translation adjustment (430) (32)
----------- ----------
COMPREHENSIVE INCOME (LOSS) $ (352) $ 20
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, June 30,
2000 2000
---- ----
<S> <C> <C>
ASSETS (UNAUDITED) (audited)
CURRENT ASSETS
Cash and cash equivalents $25,014 $29,506
Accounts receivable, net 17,383 17,328
Deferred income taxes 759 759
Prepaid expenses and other current assets 2,528 2,297
------- -------
TOTAL CURRENT ASSETS 45,684 49,890
Property and equipment, at cost
Computers & other equipment 8,128 8,508
Leasehold improvements 2,705 2,774
------- -------
10,833 11,282
Less - Accumulated depreciation 9,123 9,397
------- -------
Property and equipment, net 1,710 1,885
Goodwill, net 1,030 1,047
Deferred income taxes 6,243 5,845
Other assets 1,557 1,479
------- -------
TOTAL ASSETS $56,224 $60,146
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, June 30,
2000 2000
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) (audited)
CURRENT LIABILITIES
Accounts payable $ 3,018 $ 2,252
Accrued liabilities:
Payroll 731 2,240
Taxes 761 1,154
Other 6,392 6,583
-------- --------
Total accrued liabilities 7,884 9,977
Deferred revenue 10,148 12,178
-------- --------
TOTAL CURRENT LIABILITIES 21,050 24,407
Long-term debt 329 599
Other liabilities 4,225 4,249
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
9,788,152 shares as of September 30, 2000
and 9,771,962 shares as of June 30, 2000 9,788 9,772
Capital contributed in excess of par value 38,855 38,790
Retained deficit (7,729) (7,807)
Accumulated other comprehensive income: --
Pension liability, net of tax (4,282) (4,282)
Cumulative translation adjustment (6,012) (5,582)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 30,620 30,891
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 56,224 $ 60,146
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 78 $ 52
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 251 385
Changes in operating assets and liabilities:
Accounts receivable (242) (3,452)
Prepaid expenses and other assets (321) (307)
Accounts payable 790 (3,076)
Accrued liabilities (2,011) 1,747
Deferred revenue (1,924) (1,360)
Income taxes receivable -- 2,888
Deferred income taxes (398) (1,027)
Other liabilities (24) (283)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (3,801) (4,433)
INVESTING ACTIVITIES
Payments for property and equipment (9) (79)
Other (83) (38)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (92) (117)
FINANCING ACTIVITIES
Net repayments under debt agreements,
capital lease agreements and notes payable (254) (684)
Other 82 --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (172) (684)
Effect of exchange rate changes (427) (44)
-------- --------
NET DECREASE IN CASH (4,492) (5,278)
CASH AT BEGINNING OF PERIOD 29,506 32,212
-------- --------
CASH AT END OF PERIOD $ 25,014 $ 26,934
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 2 $ 23
======== ========
Cash paid for income taxes $ 443 $ 168
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by Comshare, Incorporated (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 accounting principles generally accepted in the
United States 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 most recent Annual Report on Form 10-K.
Certain amounts in the fiscal 2000 financial statements have been reclassified
to conform with fiscal 2001 presentations.
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 statements
of operations and the consolidated statements of comprehensive income for the
three months ended September 30, 2000 and 1999, the consolidated balance sheets
as of September 30, 2000 and the consolidated statements of cash flows for the
three months ended September 30, 2000 and 1999.
The results of operations for the three months ended September 30, 2000
and 1999 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
Product upgrades for the Company's products have been released
regularly with an almost continuous product development cycle. Based on these
continuous product life cycles, the time between establishing technological
feasibility and general release to the public is very short. As a result,
software costs qualifying for capitalization are not significant. Accordingly,
the Company does not capitalize software development costs and does not
anticipate capitalization of software costs in future periods.
NOTE C - BORROWINGS
The Company has a $10 million credit agreement which expires on September
30, 2002. Borrowings are secured by accounts receivable and the credit agreement
contains covenants regarding, among other things, earnings leverage, net worth
and payment of dividends. Under the terms of the credit agreement, the Company
is not permitted to pay cash dividends on its common stock. Borrowings under
this credit agreement were approximately $0.3 million and total available
borrowings were $10 million at September 30, 2000. Borrowings available at any
time are based on the lower of $10 million or a percentage of worldwide eligible
accounts receivable and cash. At September 30, 2000, the interest rate on
borrowings denominated in Japanese yen, which was used to hedge receivables, was
2.14%.
8
<PAGE> 9
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE D - FINANCIAL INSTRUMENTS
The Company, at various times, enters into forward exchange contracts
to hedge certain exposures related to identifiable foreign currency transactions
that are relatively certain as to both timing and amount. Gains and losses on
the forward contracts are recognized concurrently with the gains and losses from
the underlying transactions. The forward exchange contracts used are classified
as "held for purposes other than trading." The Company does not use any other
types of derivative financial instruments to hedge such exposures, nor does it
use derivatives for speculative purposes. At September 30, 2000 and June 30,
2000, the Company had forward foreign currency exchange contracts outstanding of
approximately $4.1 million and $5.6 million (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at September 30,
2000 mature at various dates through January 12, 2001 and are intended to hedge
various foreign currency commitments due from the Company's distributors. Due to
the short-term nature of these financial instruments, the fair value of these
contracts is not materially different than their notional amounts at September
30, 2000 and June 30, 2000. The Financial Accounting Standards Board has issued
SFAS No. 137, a deferral of SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. As of September 30, 2000, the
Company has adopted this statement and quantified the impact, determining that
there was no material effect on the financial statements.
NOTE E - SEGMENT REPORTING
The Company has only one reportable segment - the development,
marketing and support of financial analytic applications software for management
planning and control. Revenue is derived from the licensing of software and the
provision of related services, that include product implementation, consulting,
training and support.
No single customer accounted for more that 10% of the Company's total
revenue in the three months ended September 30, 2000 and 1999. In addition, the
Company is not dependent on any single customer or group of customers.
Geographic segment information is as follows:
9
<PAGE> 10
COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ------------
(In thousands)
<S> <C> <C>
REVENUE FROM EXTERNAL CUSTOMERS:
United States $ 8,861 $ 7,501
United Kingdom 2,919 3,193
Other countries 3,663 3,812
-------- --------
TOTAL REVENUE $ 15,443 $ 14,506
======== ========
OPERATING INCOME (LOSS):
United States $ 248 $ (1,120)
United Kingdom (153) 1,064
Other countries 2,261 2,611
-------- --------
TOTAL OPERATING INCOME 2,356 2,555
Unallocated expenses (2,233) (2,473)
-------- --------
INCOME BEFORE TAXES $ 123 $ 82
======== ========
IDENTIFIABLE ASSETS:
United States $ 46,471 $ 48,433
United Kingdom and other countries 9,753 11,764
-------- --------
TOTAL IDENTIFIABLE ASSETS $ 56,224 $ 60,197
======== ========
</TABLE>
Unallocated expenses consist of general corporate expenses, internal
research and product development expenses, interest expense and interest income.
10
<PAGE> 11
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, 2000 compared to the three months ended
September 30, 1999. 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,
2000.
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,
---------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUE
Software licenses 30.5 % 36.6 %
Software maintenance 37.8 39.6
Implementation, consulting and other services 31.7 23.8
--------- ---------
TOTAL REVENUE 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 35.4 40.1
Cost of revenue and support 43.9 36.1
Internal research and product development 13.3 14.8
General and administrative 9.3 10.2
--------- ---------
TOTAL COSTS AND EXPENSES 101.9 101.2
LOSS FROM OPERATIONS (1.9) (1.2)
OTHER INCOME (EXPENSE)
Interest income 2.8 2.7
Interest expense - (0.2)
Exchange loss (0.1) (0.7)
--------- ---------
TOTAL OTHER INCOME 2.7 1.8
INCOME BEFORE TAXES 0.8 0.6
Provision for income taxes 0.3 0.2
--------- ---------
NET INCOME 0.5 % 0.4 %
========= =========
</TABLE>
11
<PAGE> 12
REVENUE
The following table shows revenue for the Company during the quarters
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
In thousands 2000 1999
---- ----
% OF % OF INCREASE
REVENUE TOTAL REVENUE REVENUE TOTAL REVENUE (DECREASE)
------- ------------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
License Fees $ 4,703 30.5% $ 5,302 36.6% (11.3%)
Maintenance $ 5,841 37.8% $ 5,748 39.6% 1.6%
Implementation and Other $ 4,899 31.7% $ 3,456 23.8% 41.8%
------------------------------- -----------------------------
Total Revenue $ 15,443 100.0% $ 14,506 100.0% 6.5%
</TABLE>
Total revenue growth of 6% from the quarter ended September 30, 1999
was primarily due to an 18% growth in revenue from management planning and
control software applications ("MPC"), offset by an 8% decline in revenue from
the Company's older desktop ("legacy") products. MPC revenue was $9.4 million
for the quarter ending September 30, 2000, representing 61% of total revenue.
The 11% decline in license fees was primarily due to a decrease in FDC
license fees, which decreased 61% from the three months ended September 30,
1999. As a result, license fee revenues of the Company's MPC products decreased
7%, to $2.9 million for the quarter ended September 30, 2000. License fees for
the Company's BudgetPLUS product grew 41% from $1.9 million for the three months
ended September 30, 1999 to $2.6 million for the same period ended September 30,
2000. MPC license fees represented 61% of total license fees for the quarter
ended September 30, 2000. License fees of legacy products declined 17% for the
quarter ended September 30, 2000 versus the quarter ended September 30, 1999
from $2.2 million to $1.8 million.
Software maintenance revenues increased 2% for the quarter ended
September 30, 2000 primarily due to an increase in MPC product maintenance.
During the quarter ended September 30, 2000, the Company experienced 20% growth
in maintenance revenues of the Company's MPC products to $2.1 million. MPC
product maintenance accounted for 36% of total maintenance revenue for the three
months ended September 30, 2000. The growth in MPC product maintenance reflected
the license fee growth of the MPC applications in the prior fiscal year. The
increase in MPC maintenance was largely offset by the Company's older legacy
products, which declined 7%, primarily due to mainframe and desktop maintenance
cancellations. Legacy software maintenance represented 64% of total software
maintenance revenue for the quarter ended September 30, 2000 as compared to 70%
for the quarter ended September 30, 1999.
Implementation, consulting and other services revenues grew 42%
primarily due to the growth in license fees in the Company's direct operations
in the six months ended June 30, 2000. During the quarter ended September 30,
2000, 90% of total implementation services revenue was related to MPC products,
which grew 42%. Implementation, consulting and other services revenues for MPC
products were $4.4 million and $3.1 million for the quarters ended September 30,
2000 and 1999, respectively.
12
<PAGE> 13
COSTS AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT
SEPTEMBER 30, CHANGE
---------------------------- ----------
2000 1999
---- ----
(in thousands)
<S> <C> <C> <C>
COST AND EXPENSES
Selling and marketing $ 5,461 $ 5,817 (6.1) %
Cost of revenue and support 6,781 5,238 29.5
Internal research and product development 2,056 2,150 (4.4)
General and administrative 1,432 1,479 (3.2)
------------ -----------
TOTAL COSTS AND EXPENSES $ 15,730 $ 14,684 7.1 %
============ ===========
</TABLE>
Total costs and expenses increased 7.1% in the three months ended
September 30, 2000 compared to the prior year, primarily due to increased third
party consulting costs associated with increased implementation services
revenue.
Selling and marketing expenses decreased 6% primarily due to cost
reductions associated with the consolidation of the Company's worldwide sales
organization, which occurred in October 1999.
Cost of revenue and support expenses increased 29% from the first
quarter of the prior year. The increase was primarily due to increased costs
associated with third party consultants involved in implementations.
Internal research and product development costs, and general and
administrative costs remained relatively flat from the first quarter of the
prior year.
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
OTHER INCOME (EXPENSE)
Interest income $ 427 $ 386
Interest expense (2) (22)
Exchange loss (15) (104)
------------ -----------
TOTAL OTHER INCOME $ 410 $ 260
============ ===========
</TABLE>
Higher interest rates on short-term investments during the three months
ended September 30, 2000 resulted in increased interest income for the quarter
ended September 30, 2000, compared to the three months ended September 30, 1999.
13
<PAGE> 14
FOREIGN CURRENCY
For the three months ended September 30, 2000, 43% of the Company's
total revenue was from outside North America compared with 48% for the three
months ended September 30, 1999. 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. The Company's
future operating results may be adversely impacted by the overall strengthening
of the U.S. dollar against foreign currencies of countries where the Company
conducts business; conversely, future operating results may be favorably
impacted by an overall weakening of the U.S. dollar against foreign currencies.
For the three months ended September 30, 2000, foreign currency fluctuations did
not have a material impact on the Company's revenues, operating expenses or net
income.
The Company had several forward exchange contracts totaling a notional
amount of $4.1 million, outstanding at September 30, 2000. See Note D of Notes
to Condensed Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate in the three months ended
September 30, 2000 and 1999 was approximately 35%, as the Company recorded a
provision for income taxes on its operating income in the first quarter of
fiscal 2001 and fiscal 2000.
Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable income or by using a tax
strategy currently available to the Company. On a quarterly basis, management
will assess whether it remains more likely than not that the deferred tax assets
will be realized. The assessment could be impacted by a combination of
continuing operating losses and a determination that the tax strategy is no
longer sufficient to realize some or all of the deferred tax assets. The
foregoing statements regarding the realization of deferred tax assets are
"forward looking statements" within the meaning of the Securities Exchange Act
of 1934. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement" for discussion of
uncertainties relating to such statements.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, cash and cash equivalents were $25.0 million,
compared with cash and cash equivalents of $29.5 million at June 30, 2000. The
decrease in cash and cash equivalents is principally due to increased days sales
outstanding in accounts receivable lower payroll accruals during the quarter
and due to payment of fiscal 1999 and prior years' restructuring and related
items.
Net cash used in operating activities was $3.8 million in the three
months ended September 30, 2000, compared with $4.4 million in the three months
ended September 30, 1999. The decrease in cash used in operating activities was
primarily due to decreases in deferred revenue and accrued liabilities due to
payment of fiscal year 1999 and prior years' restructuring and related items.
Net cash used in investing activities was $0.1 million in the three
months ended September 30, 2000 and in the three months ended September 30,
1999. The Company purchases most of its computer equipment under operating
leases. At September 30, 2000, the Company did not have any material capital
expenditure commitments.
Net cash used in financing activities was $0.2 million in the three
months ended September 30, 2000, compared with net cash used in financing
activities of $0.7 million in the same period one year ago. The net decrease in
cash used in financing activities was primarily due to the repayment of capital
leases, which was completed in fiscal 2000 and did not impact the quarter ended
September 30, 2000.
14
<PAGE> 15
Total assets were $56.2 million at September 30, 2000, compared with
total assets of $60.1 million at June 30, 2000. Working capital as of September
30, 2000 was $24.6 million, compared with $25.5 million as of June 30, 2000. The
decrease in total assets and working capital from June 30, 2000 to September 30,
2000 was primarily due to the decline in cash and cash equivalents during the
three months ended September 30, 2000.
The Company has a $10 million credit agreement which expires on
September 30, 2002. Borrowings are secured by accounts receivable and the credit
agreement contains covenants regarding, among other things, earnings leverage,
net worth and payment of dividends. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Borrowings
under this credit agreement were approximately $0.3 million and total available
borrowings were $10 million at September 30, 2000. Borrowings available at any
time are based on the lower of $10 million or a percentage of worldwide eligible
accounts receivable and cash. At September 30, 2000, the interest rate on
borrowings denominated in Japanese yen, which were used to hedge receivables in
those currencies, was 2.14%.
The Company believes that the combination of present cash balances and
amounts available under credit facilities will be sufficient to meet the
Company's currently anticipated cash requirements for at least the next twelve
months. The foregoing statement is a "forward looking statement" within the
meaning of the Securities and Exchange Act of 1934, as amended. The extent to
which such sources will be sufficient to meet the Company's anticipated cash
requirements is subject to a number of uncertainties, including the ability of
the Company's operations to generate sufficient cash to support operations, and
other uncertainties described in "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Safe Harbor Statement."
MARKET SENSITIVITY ANALYSIS
The Company is exposed to market risk from changes in foreign exchange
and interest rates. To reduce the risk from changes in foreign exchange rates,
the Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
The Company, at various times, denominates borrowings in foreign
currencies and enters into forward exchange contracts to hedge exposures related
to foreign currency transactions. The Company does not use any other types of
derivatives to hedge such exposures nor does it speculate in foreign currency.
In general, the Company uses forward exchange contracts to hedge against large
selective transactions that present the most exposure to exchange rate
fluctuations. At September 30, 2000 and June 30, 2000, the Company had forward
contracts of approximately $4.1 million and $5.6 million (notional amounts),
respectively, denominated in foreign currencies. The contracts outstanding at
September 30, 2000 mature through January 12, 2001 and are intended to hedge
various foreign currency commitments due from the Company's distributors. Due to
the short-term nature of these financial instruments, the fair value of these
contracts is not materially different than their notional amounts at September
30, 2000 and June 30, 2000.
Gains and losses on the forward contracts are largely offset by gains
and losses on the underlying exposure. The Company conducts business in
approximately 8 foreign currencies, predominately British pounds, the Euro and
Japanese yen. A hypothetical 10 percent appreciation of the U.S. dollar from
September 30, 2000 market rates would increase the unrealized value of the
Company's forward contracts and a hypothetical 10 percent depreciation of the
U.S. dollar from September 30, 2000 market rates would decrease the unrealized
value of the Company's forward contracts. In either scenario, the gains or
losses on the forward contracts would be largely offset by the gains or losses
on the underlying transactions.
The Company maintains its cash and cash equivalents in highly liquid
investments with maturities of ninety days or less. The Company has the ability
to hold its fixed income investments until maturity, and therefore the Company
would not expect its operating results or cash flows to be affected to any
significant degree by the effect of a hypothetical 10 percent change in market
interest rates on its cash and cash equivalents.
15
<PAGE> 16
SAFE HARBOR STATEMENT
Certain information in this Form 10-Q Report contains "forward looking
statements" within the meaning of the Securities Exchange Act of 1934, as
amended, including those concerning the Company's future results, new market and
business opportunities, strategy and product releases. Actual results could
differ materially from those in the forward looking statements due to a number
of uncertainties, including, but not limited to, the demand for the Company's
products and services; the size, timing and recognition of revenue from
significant orders; increased competition and pricing pressures from
competitors; the Company's success in and expense associated with developing,
introducing and shipping new products; new product introductions and
announcements by the Company's competitors; the level of interest and success of
the Company's distributors in marketing and selling the Company's products;
changes in Company strategy; product life cycles; the cost and continued
availability of third party software and technology incorporated into the
Company's products; the impact of rapid technological advances, evolving
industry standards and changes in customer requirements, including the impact on
the Company's revenues of Microsoft's OLAP database; the overall competition for
key employees; cancellations of maintenance and support agreements; software
defects; changes in operating expenses; fluctuations in foreign exchange rates;
the ability of the Company to generate sufficient future taxable income or to
execute available tax strategies required to realize deferred tax assets; and
economic conditions generally or in specific industry segments. In addition, a
significant portion of the Company's revenue in any quarter is typically derived
from non-recurring license fees, a substantial portion of which is booked in the
last month of a quarter. Since the purchase of the Company's products is
relatively discretionary and generally involves a significant commitment of
capital, in the event of any downturn in any potential customer's business or
the economy in general, purchases of the Company's products may be deferred or
cancelled. Further, the Company's expense levels are based, in part, on its
expectations as to future revenue and a significant portion of the Company's
expenses do not vary with revenue. As a result, if revenue is below
expectations, results of operations are likely to be materially, adversely
affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) The exhibits included with this Form 10-Q are set forth on the Index to
Exhibits.
(B) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended September
30, 2000.
16
<PAGE> 17
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, 2000 COMSHARE, INCORPORATED
--- (Registrant)
/s/ Kathryn A. Jehle
--------------------
Kathryn A. Jehle
Senior Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
17
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
4.01 Third Amendment and Waiver to Credit Agreement
4.02 Fourth Amendment and Waiver to Credit Agreement
27 Financial Data Schedule
18
