<PAGE>
Conformed copy with exhibits
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 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 0-17754
CONSILIUM, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 94-2523965
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
485 Clyde Avenue, Mountain View, California 94043
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 691-6100
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed under 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 the number of shares outstanding of each of the issuer's classes of
common stock as of September 9, 1996:
Common Stock, $0.01 par value 7,869,233
- ----------------------------- ----------------
Class Number of Shares
1
<PAGE>
CONSILIUM, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
July 31, 1996 and October 31, 1995..................... 3
Condensed Consolidated Statements of Operations -
Three and Nine months ended July 31, 1996 and 1995..... 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended July 31, 1996 and 1995............... 5
Notes to Condensed Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 14
Item 2. Changes in Securities...................................... 14
Item 3. Defaults upon Senior Securities............................ 14
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Item 5. Other Information.......................................... 14
Item 6. Exhibits and Reports on Form 8-K........................... 14
Signatures................................................. 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
CONSILIUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
<TABLE>
<CAPTION>
July 31, 1996 October 31, 1995
------------- ----------------
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,465 $10,686
Short term investments 0 1,478
Accounts receivable, net 9,017 7,578
Other current assets 685 1,055
------- -------
Total current assets 19,167 20,797
Property and equipment, net 4,476 2,425
Software development costs, net 4,368 5,121
Other assets 1,748 325
------- -------
Total assets $29,759 $28,668
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,442 $ 1,800
Other current liabilities and
accrued expenses 3,894 4,364
Note payable 1,917 0
Deferred revenue 4,429 5,621
------- -------
Total current liabilities 14,682 11,785
Deferred revenue 1,157 1,325
Deferred income taxes 158 158
Accrued lease obligation 0 17
------- -------
Total liabilities 15,997 13,285
------- -------
Total stockholders' equity 13,762 15,383
------- -------
Total liabilities and
stockholders' equity $29,759 $28,668
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CONSILIUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product $ 5,773 $4,598 $13,965 $12,047
Services 4,429 3,924 12,312 11,747
Development 513 330 1,376 788
------- ------ ------- -------
Total revenues 10,715 8,852 27,653 24,582
------- ------ ------- -------
Costs and expenses:
Product 1,720 661 3,211 2,179
Services 1,715 1,267 4,390 3,304
Research and development 3,527 3,048 10,241 7,960
Selling and marketing 3,228 3,150 9,245 8,549
General and administrative 902 538 2,851 2,131
------- ------ ------- -------
Total costs and expenses 11,092 8,664 29,938 24,123
======= ====== ======= =======
Income (loss) from operations (377) 188 (2,285) 459
Interest, net 51 156 277 440
------- ------ ------- -------
Income (loss) before income tax provision (326) 344 (2,008) 899
Provision for income taxes 207 129 579 420
------- ------ ------- -------
Net income (loss) $ (533) $ 215 $(2,587) $ 479
======= ====== ======= =======
Net income (loss) per share $ (0.07) $ 0.03 $ (0.33) $ 0.06
======= ====== ======= =======
Shares used in per share
calculation: 7,838 8,072 7,773 7,807
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CONSILIUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
<TABLE>
<CAPTION>
Nine months ended
July 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,587) $ 479
------- --------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 2,345 2,504
Provision for doubtful accounts 180 193
Change in assets and liabilities:
Accounts receivable, net (1,619) (2,211)
Other assets (1,053) 11
Accounts payable 2,642 519
Deferred revenue (1,360) (111)
Other liabilities and accrued expenses (487) (648)
------- --------
Total adjustments 648 257
------- --------
Net cash (used in) provided by
operating activities (1,939) 736
------- --------
Cash flows from investing activities:
Capital expenditures (2,973) (1,058)
Capitalized software development costs (670) (1,038)
Purchases of short-term investments 0 (64,215)
Sales of short-term investments 1,478 67,715
------- --------
Net cash (used in) provided by
investing activities (2,165) 1,404
------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 966 1,402
Issuance of notes payable 1,917 0
Principal payments on capital leases 0 (269)
------- --------
Net cash provided by financing activities 2,883 1,133
------- --------
Net (decrease) increase in cash and cash equivalents (1,221) 3,273
------- --------
Cash and cash equivalents at beginning of period 10,686 8,682
------- --------
Cash and cash equivalents at end of period $ 9,465 $ 11,955
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CONSILIUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
1. These interim condensed consolidated financial statements are unaudited but
reflect, in the opinion of management, all normal recurring adjustments
necessary to present fairly the financial position of Consilium, Inc. and
Subsidiaries ("the Company") as of July 31, 1996 and October 31, 1995,
including the results of operations for the three and nine months ended
July 31, 1996 and 1995 and the statement of cash flows for the nine months
ended July 31, 1996 and 1995. The results of operations for the three and
nine months ended July 31, 1996 are not necessarily indicative of results
of operations for any future period. Because all the disclosures required
by generally accepted accounting principles are not included, these interim
condensed consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto as of and for the
year ended October 31, 1995. The Company has restated the audited
financial statements for the year ended October 31, 1995 and amended its
Annual Report on Form 10-K for the year ended October 31, 1995. A
comparison of certain amounts as previously reported and as restated is
presented below.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended October 31, 1995
---------------------------
As Reported As Restated
----------- -----------
<S> <C> <C>
Total revenues $33,857 $33,125
Income before taxes 1,150 664
Provision for income taxes 523 523
Net income 627 141
Income per share 0.08 0.02
Shares used in per share calculations 7,912 7,912
Working capital 9,498 9,012
Total assets 29,437 28,668
Long-term debt, less current portion 0 0
Stockholders' equity 15,869 15,383
</TABLE>
The results of operations for the three and nine month periods ended July
31, 1995 were not affected by the restatement.
The year-end condensed consolidated balance sheet data as of October 31,
1995, as restated, was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
6
<PAGE>
2. Software Development Costs (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Capitalized software
development costs $180 $336 $ 670 $1,038
Amortization of
capitalized software
development costs $482 $466 $1,423 $1,394
</TABLE>
3. Net income per common share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of the dilutive effect
of stock options as computed using the treasury stock method. Net loss per
share is based upon the weighted average number of common shares
outstanding during the period.
4. The income tax provision for the three months ended July 31, 1996
represents taxes on earnings of certain foreign subsidiaries, which are
profitable, and taxes withheld on sales made in certain foreign
jurisdictions. The Company has established a valuation allowance against
its deferred tax asset and reviews this allowance on a periodic basis. At
such time that the Company believes that it is more likely than not that a
portion of the deferred tax asset will be realized, the valuation allowance
will be reduced.
5. In April 1996, the Company signed a four year $2.0 million promissory note,
payable to a bank in equal monthly installments of approximately $41,667.
This note is secured by certain assets of the Company. The promissory note
bears interest at prime rate per annum (8.25% at July 31, 1996). The
agreement requires the Company to maintain certain financial covenants,
including minimum net worth and profitability requirements. At July 31,
1996, the Company was not in compliance with the covenants. Following the
end of the quarter, the Company obtained a waiver from the bank for the
default.
6. In a one paragraph letter dated May 6, 1996 and a follow up letter dated
July 30, 1996, Honeywell Inc. ("Honeywell") informed the Company that,
although it remains willing to resolve matters amicably, Honeywell believes
it has claims against the Company for misrepresentation, breach of contract
and fraud, and that Honeywell will be left with no alternative but
litigation unless satisfactory progress is made toward resolution. The
contract involved was entered into in April of 1993, and is a distribution
and license agreement under which Honeywell paid the Company $4,000,000 as
a non-refundable pre-paid license fee in the Company's 1993 fiscal year.
The Company believes these assertions are utterly without merit and that
the Company has performed in keeping with both the letter and spirit of its
contract with Honeywell. The Company has informed Honeywell to that effect.
At present, the Company is evaluating Honeywell's claims with counsel along
with possible claims it may have against Honeywell. The Company hopes that
the matter can, as the Honeywell letter suggests, be resolved amicably.
7
<PAGE>
In the ordinary course of business, other legal actions and claims pending
have been filed against the Company. In the opinion of management, the
ultimate liability, if any, with respect to these matters will not
materially affect the results of operations or financial position of the
Company.
7. In July 1996, Consilium Taiwan, Inc., a Delaware corporation and a wholly-
owned subsidiary of Consilium, Inc., acquired the Taiwan operation of
Systematic Designs International, Inc.("SDI"), a privately-held Washington
corporation specializing in the development of factory automation products
and systems integration services for the semiconductor industry. The
Company purchased two existing semiconductor factory automation contracts,
certain tangible and intangible assets and assumed certain liabilities of
SDI. The price of the purchased assets consists of an initial payment of
$1,305,000 to be paid in three installments, $435,000 to be paid on July
12,1996, $435,000 to be paid on August 1,1996, $435,000 to be paid on
November 1,1996 and future performance-based payments equal to specified
percentages of revenues recognized by Consilium, Inc. or Consilium Taiwan,
Inc. from licenses within certain countries in Asia of software provided by
SDI and from certain service-related revenue of Consilium Taiwan, Inc. (the
"Includable Revenue") as set forth below for each of the two-twelve-month
periods ending on July 8, 1997 and July 8, 1998:
<TABLE>
<CAPTION>
Percentage of Includable
Amounts of Includable Revenue Revenues for Such Period
----------------------------- ------------------------
<S> <C>
$0 - $2.0 million 17.5%
Revenues over $2.0 - $4.5 million 50.0%
Revenues over $4.5 million 35.0%
</TABLE>
Comparative Pro Forma information has not been presented because the Taiwan
operations of SDI are not material to the Company's consolidated financial
statements.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
--------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- ---------------------
Revenues. Total revenues for the third quarter of fiscal 1996 increased 21% to
- --------
$10,715,000 compared with $8,852,000 in the third quarter of 1995. Revenues for
the first nine months of fiscal 1996 increased 12% to $27,653,000, compared with
$24,582,000 in the same period in 1995. The increase for the third quarter of
fiscal 1996 primarily was due to higher product license revenues in the North
American geographic region and higher overall services revenue. For the nine
months ended July 31, 1996, overall revenue increased over the same period of
the previous fiscal year primarily due to overall higher levels of product
license, services and development revenue.
The following table shows the proportion of the Company's total revenue
from each of its three principal geographic regions:
<TABLE>
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America 61% 73% 57% 66%
Europe 18% 13% 17% 18%
Asia/Pacific 21% 14% 26% 16%
</TABLE>
Product license revenues for the three months ended July 31, 1996 increased
26% over the same period of the previous year. Product license revenue for the
nine months ended July 31, 1996 increased 16% over the same period of the
previous year. The 1996 third fiscal quarter increase was primarily due to
higher product license revenue from both the Company's WorkStream DFS(TM) and
FlowStream product lines.
During the quarter ended July 31, 1996, the Company received one
significant order for FlowStream product from an existing customer totaling
approximately $2,100,000, of which $2,000,000, or 19% of total revenues, was
recognized as product revenue in the third quarter. The Company's product
license revenue historically has been concentrated in a relatively small number
of customers and its products have a high average selling price. (See "Potential
Fluctuations in Quarterly Results.")
Product license revenue attributable to products in the Company's
WorkStream DFS product line increased 16% to $3,592,000 during the three months
ended July 31, 1996 as compared with $3,088,000 in the previous year quarter.
The year-over-year increase was due to continued demand in the semiconductor
industry for the Company's WorkStream(R) and WorkStream Open(TM) products,
especially in Asia, as well as commercial availability of the Company's new
WorkStream DFS application servers. For the nine months ended July 31, 1996,
product license revenue from the WorkStream product line increased 27% to
$11,540,000 as compared with $9,064,000 in the previous year due to increased
demand in WorkStream products and related third party products.
9
<PAGE>
Product license revenues attributable to FlowStream increased 44% to
$2,181,000 during the three months ended July 31, 1996 as compared with
$1,510,000 in the previous year's quarter. The increase was primarily due to
the receipt of one significant sales order from an existing customer during the
quarter ended July 31, 1996. For the nine months ended July 31, 1996, product
license revenue from the Flowstream product line decreased 19% to $2,424,000 as
compared with $2,983,000 in the previous year. The decrease was primarily due
to the timing of receipt of orders from quarter to quarter. (See "Potential
Fluctuations in Quarterly Results")
Services revenues for the three months ended July 31, 1996 increased 13% to
$4,429,000, compared with $3,924,000 for the same period of fiscal 1995. For the
nine months ended July 31, 1996, services revenue increased 5% to $12,312,000,
compared with $11,747,000 for the same period of the previous fiscal year.
Services revenues are derived primarily from custom programming services,
resident and application consulting services, customer training, and annual
software maintenance fees. The increase in services revenues for the three
months ended July 31, 1996 primarily was due to higher maintenance levels from
the Company's WorkStream DFS product lines. Services revenues normally are
subject to fluctuation primarily due to the timing of new contracts and the
completion of existing projects.
Development revenues for the three months ended July 31, 1996 increased 55%
to $513,000, compared with $330,000 for the same period of fiscal 1995. For the
nine months ended July 31, 1996, development revenues increased 75% from the
same period in the previous fiscal year. The increase in development revenues
primarily was due to continued development efforts on funded development
projects for the current fiscal year. Development revenues include work
associated with porting agreements and development contract work for third
parties. Under these contracts and agreements, the Company earns development and
porting revenues, with participating third parties having the right to license
and use the software, often sooner than otherwise would have occurred. The
results of these development contracts and porting projects are expected to
become standard products upon completion of the work. Development revenues can
vary significantly from period to period, depending upon the number of contracts
which have been entered into, the duration of these contracts and the state of
completion of such projects.
Costs and Expenses. Cost of product revenue for the three months ended
------------------
July 31, 1996 increased 160% to 1,720,000, compared with $661,000 for the same
period of the previous fiscal year. For the nine months ended July 31, 1996,
cost of product revenue increased 47% from the same period in the previous
fiscal year. The absolute dollar increase in cost of product revenue for the
three month period ended July 31, 1996 primarily was due to a large order
received for third party product which generated a high product cost. For the
nine months ended July 31, 1996, the absolute dollar increase in cost of product
revenue was due to the large order for the current period and increased product
license sales. Cost of product revenue includes amortization of capitalized
software development costs, royalties, distributor commissions, and purchased
software which is resold to the end customer, typically along with the Company's
proprietary software. Depending on the mix of sales of proprietary software,
third party licenses and sales made through distributors in a given period, the
associated costs of product revenue can vary significantly. Product costs as a
percentage of product revenue for the three and nine months ended July 31, 1996
were 30% and 23%, respectively, compared with 14% and 18% for the same periods
of fiscal 1995. The increase in cost of product revenue for the three and nine
months ended July 31, 1996 as a percentage of product
10
<PAGE>
revenue was due to higher purchased software costs as compared to the same
period of the previous fiscal year.
Cost of services revenue represented 39% and 36% of total services revenues
for the three and nine months ended July 31, 1996, compared with 32% and 28% for
the same periods of fiscal 1995. Services costs include expenses for the
customer response center, resident and application consulting services, customer
services, and training groups within the Company. Cost of services revenue
increased 35% to $1,715,000 for the three month period ended July 31, 1996
compared with $1,267,000 for the same period of the previous fiscal year. The
increase in the percentage and in absolute dollars of cost of services revenues
resulted from the hiring of additional services personnel, both permanent and
sub-contracted, to enhance the Company's ability to meet customer requirements
for maintenance, support and consulting services.
Research and Development Expenses. Research and development expenses
---------------------------------
represented 33% and 37% of total revenues for the three and nine month periods
ended July 31, 1996 compared with 34% and 32% for the same periods of the
previous fiscal year. These expenses increased to $3,527,000 in the third fiscal
quarter compared with $3,048,000 in the same quarter of the previous fiscal
year. The increase in the percentage and absolute dollar amount of research and
development expenses in the recent three month period compared with the same
quarter last year was due to a higher level of overall research and development
activity in the recent quarter compared with the levels in the third quarter in
fiscal 1995. Included in research and development expenses are costs associated
with the development of new products, costs of enhancing and maintaining
existing products, as well as costs of porting and funded-development projects.
Software development expenditures of $180,000 and $336,000 were capitalized
under Statement of Financial Accounting Standards No. 86 for the three months
ended July 31, 1996 and 1995, respectively. The amounts represented
approximately 5% and 11% of total research and development expenditures during
such periods. The percentage decrease was due to a decline in the absolute
dollar amount of software costs capitalized during these periods coupled with a
higher level of overall research and development expenditures. In accordance
with Statement 86, the amount of research and development expenditures
capitalized in a given time period depends upon the amount of development work
performed subsequent to the establishment of technological feasibility.
Selling and Marketing Expenses. Selling and marketing expenses
------------------------------
represented 30% and 33% of total revenues for the three and nine months ended
July 31, 1996, respectively, as compared with 36% and 35% for the same periods
of fiscal 1995. Selling and marketing expenses increased to $3,228,000 for the
three months ended July 31, 1996 compared with $3,150,000 for the same period of
the previous fiscal year. The third quarter increase in absolute dollars in
selling and marketing expenses primarily was due to an increase in the permanent
headcount, related travel expenses and commission expenses as a result of the
increase in sales. The proportional decrease in sales and marketing expense as a
percentage of total revenues was due to higher level of sales activities, offset
by relatively slight increase in selling and marketing expenses for the third
quarter of fiscal 1996 compared with the same period of the previous fiscal
year.
General and Administrative Expenses. General and administrative expenses
-----------------------------------
represented 8% and 10% of total revenues for the three and nine months ended
July 31, 1996, respectively, as compared with 6% and 9% for the same periods of
fiscal 1995. General and administrative costs include the costs of the finance,
accounting, purchasing and administrative operations of the Company. General and
administrative expenses increased to $902,000 for the three months ended July
31, 1996 compared with $538,000 for the same period of the previous fiscal year.
The third
11
<PAGE>
quarter increase in absolute dollars primarily was due to an increase in
headcount over the same period of the previous fiscal year, an increase in legal
and accounting related expenses primarily related to the restatement of fiscal
1995 10-K and the SDI acquisition.
Interest Income and Expense. For the three and nine months ended July 31,
---------------------------
1996, interest income was $93,000 and $319,000, compared with interest income of
$158,000 and $449,000 for the same periods of the previous fiscal year. Lower
invested cash balances and slightly lower interest rate levels accounted for the
decrease. Interest expense for the quarter ended July 31, 1996 was $42,000,
compared with $2,000 for the previous year quarter. The increase in interest
expense was primarily due to interest on the $2.0 million promissory note during
the third quarter in the current fiscal year.
Provision for Income Taxes. The Company's income tax provision for all
--------------------------
periods presented principally relates to withholding taxes on sales made in
foreign jurisdictions. The Company has established a valuation allowance against
its deferred tax asset and reviews this allowance on a periodic basis. At such
time that the Company believes that it is more likely than not that a portion of
the deferred tax asset will be realized, the valuation allowance will be
reduced.
Net Loss/Income. The Company generated a net loss of $553,000, or $.07 per
---------------
share, in the quarter ended July 31, 1996, compared with net income of $215,000,
or $.03 per share, in the same period of the prior year. For the nine months
ended July 31, 1996, the net loss was $2,587,000 or $.33 per share, as compared
with net income of $479,000, or $.06 per share, in the same period last year.
The current quarter and nine month period net loss was the result of significant
increases in expenses compared with the same period of the previous year which
was partially offset by higher revenues for the same period.
Potential Fluctuations in Quarterly Results. The Company's results of
-------------------------------------------
operations historically have fluctuated on a quarterly basis due to several
factors. These factors include: the relatively high average selling price of the
Company's products relative to the number of transactions; market acceptance of
new products; introduction of competitive product offerings and subsequent
deferrals in sales orders as competitive products are evaluated by prospective
customers; the size and timing of new orders; the timing of co-development
projects with customers; expense levels; pricing changes; gain or loss of
significant customers or distributors; the level of capital spending and the
general economic conditions in the Company's primary markets; and increased
competition. Any unfavorable change in these or other factors could have a
material adverse effect on the Company's operating results for a particular
quarter. The operating results in any quarter are not necessarily indicative of
results for future financial periods.
Liquidity and Capital Resources. As of July 31, 1996, the Company had
-------------------------------
$9,465,000 in cash and cash equivalents and short term investments, as compared
with $10,686,000 at October 31, 1995. The Company utilized $1,939,000 for
operating activities in the nine months ended July 31, 1996 compared with
$736,000 provided by operating activities in the same period of the previous
fiscal year. Net cash used by operating activities for the nine months ended
July 31, 1996 primarily resulted from the net loss for the period compared with
net income for the same period of the previous year in fiscal 1995, a decrease
in accounts receivable and deferred revenue and cash used for the asset purchase
of the Taiwan operation of Systematic Designs International, Inc. (See footnote
7 for further detail), partially offset by an increase in other assets and
accounts payable.
Cash utilized by investing activities was $2,165,000 during the nine month
period ended July 31, 1996 which represented capital expenditures of $2,973,000
primarily related to the Company's
12
<PAGE>
move into its new corporate headquarters, offset by $1,478,000 cash received
from sales of short term investments. For the same period, cash provided by
financing activities was $2,883,000 primarily related to cash received from a
$2,000,000 promissory note.
The Company's promissory note requires the maintenance of certain financial
covenants, including minimum net worth and profitability requirements. At July
31, 1996, the Company was not in compliance with the covenants. Following the
end of the quarter, the Company obtained a waiver from the bank for the default.
Management believes the existing cash and cash equivalents will be
sufficient to meet the Company's working capital and capital expenditure
requirements for at least the next twelve months.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
----------------------
None
Item 3. Defaults upon Senior Securities
--------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
------------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a). List of Exhibits
Exhibit
Number Exhibit Title
------- -------------
3.1 Certificate of Incorporation of the Company. /3/
3.2 By-Laws of the Company. /3/
10.1 Lease agreement dated November 28, 1988, among the Company and John
Arrillaga, Trustee of the John Arrillaga Separate Trust and Richard
T. Peery, Trustee of the Richard T. Peery Separate Property Trust.
/1/
10.2 Master Lease Agreement, dated December 2, 1988, between the Company
and General Electric Capital Corporation, with schedules. /1/
10.3 Letter Agreement, dated July 22, 1987, with respect to the employment
of Thomas Tomasetti. /1,6/
10.4 Lease agreement paperwork for the 630 Clyde Court facility, dated
March 6, 1990, among the Company and Santa Clara Property Associates.
/2/
10.5 Agreement between the Company and Honeywell, Inc., Industrial
Automation and Control, dated April 1, 1993. /3,5/
10.6 Form of Director and Officer Indemnity Agreement. /4,6/
14
<PAGE>
10.7 Amended and Restated 1983 Stock Option Plan. /6,7/
10.8 Forms of Stock Option Agreement used in conjunction with the 1983
Stock Option Plan. /6,7/
10.9 1990 Outside Director's Stock Option Plan. /6,7/
10.10 Forms of Outside Directors Stock Option Agreement used in conjunction
with the 1990 Outside Director's Stock Option Plan. /6,7/
10.11 Lease agreement for the Company's principal facility, dated August 2,
1995, among the Company and The Prudential Insurance Company of
America. /7/
10.12 Letter Agreement, dated August 5, 1994, with respect to the
employment of Edward Norton. /6,7/
10.13 Letter Agreement, dated September 28, 1994, with respect to the
employment of Richard Van Hoesen. /6,7/
10.14 Letter Agreement, dated July 12, 1996 , with respect to the
resignation of Thomas Tomasetti. /6/
10.15 Letter Agreement dated June 3, 1996, with respect to the employment
of Larry Hootnick. /6/
11.1 Statement re Computation of Net Income (Loss) per Share (Three months
ended July 31, 1996).
11.2 Statement re Computation of Net Income (Loss) per Share (Nine months
ended July 31, 1996).
27 Financial Data Schedule (available in EDGAR format only).
/1/ Incorporated by reference from exhibits of the same number in
Registrant's Registration Statement on Form S-1 (File No. 33-27947),
effective May 9, 1989.
/2/ Incorporated by reference from exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the Year ended October 31, 1990.
/3/ Incorporated by reference from exhibits 3.1, 3.2 or 10.19,
respectively, to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended April 30, 1993.
/4/ Incorporated by reference from exhibit 10.6 to Registrant's Quarterly
Report on Form 10-Q for the Quarter ended July 31, 1994.
/5/ The Securities and Exchange Commission has granted confidential
treatment for portions of this document.
/6/ Compensatory or employment arrangement.
15
<PAGE>
/7/ Incorporated by reference from exhibits of the same number to
Registrant's Annual Report on Form 10-K for the Year ended October 31,
1995.
(b) Reports on Form 8-K
Report dated July 11, 1996 on Acquisition of Systematic Designs
International Inc.
Report dated July 12, 1996 on Resignation of Coopers & Lybrand
LLP as the Company's independent accountant.
Report dated August 2, 1996 on engaging Arthur Andersen LLP as
the Company's independent accountant.
16
<PAGE>
Signatures
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, a duly authorized officer and the chief accounting officer of the
registrant.
CONSILIUM, INC.
-------------------------
(Registrant)
Date September 13, 1996 by: /s/ Clifton Wong
------------------------ ----------------------
Clifton Wong
Vice President, Finance and
Chief Financial Officer
17
<PAGE>
EXHIBIT 10.14
CONFIDENTIAL RESIGNATION AGREEMENT
----------------------------------
AND GENERAL RELEASE OF CLAIMS
-----------------------------
1. Tom Tomasetti ("Tomasetti") is currently the president of Consilium, Inc.
(the "Company") and a member of the Company's Board of Directors. In light of
certain impending organizational changes, Tomasetti and the Company agree that
their employment relationship will be amended. In accordance with that
agreement and understanding, Tomasetti and the Company agree as set forth below.
2. Tomasetti and the Company agree that Tomasetti shall resign from his
capacity as an officer, but will remain a Board member of the Company effective
June 14, 1996.
3. Subsequent to June 14, 1996, Tomasetti will remain an employee of the
Company until June 30, 1997. However during the remainder of Tomasetti's
employment he will not be covered under any of the company's employee benefit
plans except as set forth in paragraph 5 (b) below, and he will not accrue any
vacation.
4. Tomasetti hereby resigns from his employment with the Company effective June
30, 1997 (the "Resignation Date").
5. In exchange for the release of claims set forth below and upon the
effectiveness of this Agreement, the Company agrees to provide Tomasetti with
the following benefits:
(a) continuation of Tomasetti's base salary at his current monthly base
salary paid in accordance with the Company's normal payroll procedures and less
applicable withholding through the Resignation Date. Tomasetti will not be
entitled to any bonus programs;
(b) As of June 30, 1996, Tomasetti shall be entitled to elect continued
medical, dental, vision and life insurance coverage in accordance with
applicable provisions of federal law (COBRA) and the Company shall pay the cost
of such continued coverage under the Company's group employee medical, dental,
vision and life insurance plan through the earlier of (i) the Resignation Date,
or (ii) the date Tomasetti is covered under another employer's group insurance
plans. Thereafter, Tomasetti shall be responsible for such payments through the
end of the COBRA election period as established under federal law.
(c) Tomasetti was previously granted three options under the Company's
1983 Stock Option Plan (the "Option Plan") to purchase the Company's common
stock ("Stock"), all or portions of which remain outstanding as of the date of
this Agreement (the "Options"): (i) grant number 1048 on September 21, 1993 for
3,500 shares ("First Option"), (ii) grant number 1049 on September 21, 1993 for
125,000 shares ("Second Option"), and (iii) grant number 1050 on September 21,
1993 for 600 shares ("Third Option"). Tomasetti and the Company agree that, as
of June 30, 1996, the number of "Vested Shares" (as defined in the agreements
evidencing the Options) under the First Option is 2,406, the number of Vested
Shares under the Second Option is 85,937, and the number of Vested Shares under
the Third Option is 412. Tomasetti and the Company further agree that the
agreements evidencing the Options are hereby amended to provide that,
notwithstanding Tomasetti's continued employment during the period provided by
this Agreement, no additional shares of Stock shall become Vested Shares under
the Options after June 30, 1996. Except as provided herein, all other terms and
conditions of the Options shall remain in full force and effect.
(d) Subject to approval by the stockholders of the Company at the
Company's 1997 Annual Meeting of the Stockholders of a sufficient increase in
the number of shares of Stock available for the grant of options under the
Option Plan, and upon approval by the Compensation Committee of the Board of
Directors as soon as practicable thereafter, you will be granted a nonqualified
stock option pursuant to the Option Plan to purchase 15,000 shares of Stock at
an exercise price per share equal to the fair market value of a share of Stock
determined on the date of grant in accordance with the Option Plan.
<PAGE>
(e) the Company will continue to provide Tomasetti with his current
voicemail box, his existing e-mail account and reimbursement for expenses
incurred by Tomasetti for activities requested by the Company in accordance with
Company policy.
(f) Tomasetti is also to be granted for the period June 30, 1996 to June
30, 1997:
1. Secretarial support, as reasonably determined by Consilium.
2. Counseling expense reimbursements up to $10,000.
3. Title/business cards to be agreed upon mutually.
4. Service award gift reimbursed up to $1,000.
5. Tomasetti's current Personal Computer and Palm Top.
6. Tomasetti and his successors and assigns release and absolutely discharge
the Company and its shareholders, directors, employees, agents, attorneys, legal
successors and assigns of and from any and all claims, actions and causes of
action, whether now known or unknown, which Tomasetti now has, or at any other
time had, or shall or may have against the Company based upon or arising out of
his employment with the Company or the termination of his employment with the
Company, any matter, cause, fact, thing, act or omission whatsoever occurring or
existing at anytime to and including the date hereof, including any claims for
breach of contract, wrongful discharge, age or other discrimination under the
Civil Rights Act of 1964, The Americans with Disabilities Act, the Age
Discrimination In Employment Act of 1967, the Fair Employment and Housing Act or
any other applicable law. This release of claims shall not impair Tomasetti's
right to be indemnified by the Company to the fullest extent allowed by law or
the Company's by-laws for any claims against Tomasetti arising out of any acts
or omissions, or alleged acts or omissions, by Tomasetti for acts within the
course and scope of his employment with the Company.
7. Tomasetti acknowledges that he has read section 1542 of the Civil Code of
the State of California which states:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Tomasetti hereby waives any right or benefit which he has or may have under
section 1542 of the Civil Code of the State of California to the full extent
that he may lawfully waive such rights and benefits pertaining to the subject
matter of this general release of claims.
8. The Company hereby releases Tomasetti from any claims which it has or may
have against Tomasetti to the same extent that Tomasetti has released the
Company in paragraphs 6 and 7 above with the exception of any claims relating to
the violation of the proprietary rights agreement referenced in paragraph 9
below.
9. Tomasetti acknowledges and agrees that he shall continue to be bound by and
comply with the terms of any proprietary rights or confidentiality agreements
between the Company and Tomasetti.
10. Tomasetti agrees that for the one year period following the Termination
Date, he shall not, either directly or indirectly, solicit the services, or
attempt to solicit the services, of any employee of the Company to any other
person or entity.
11. Tomasetti agrees that he shall not directly or indirectly disclose any of
the terms of this Agreement to anyone other than his immediate family or
counsel, except as such disclosure may be required for accounting or tax
reporting purposes or as otherwise may be required by law.
<PAGE>
12. The prevailing party shall be entitled to recover from the losing party its
attorney's fees and costs incurred in any lawsuit or other action brought to
enforce any right arising out of this Agreement.
13. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
14. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and super-sedes all prior negotiations and
agreements, whether written or oral, with the exception of any agreements
described in paragraph 8. This Agreement may not be altered or amended except
by a written document signed by the Company and Tomasetti.
TOMASETTI UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
- ------------------------------------------------------------------------------
THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
- ---------------------------------------------------------------------------
COMPANY BY SIGNING THIS AGREEMENT. TOMASETTI FURTHER UNDERSTANDS THAT HE MAY
- -----------------------------------------------------------------------------
HAVE 21 DAYS TO CONSIDER THIS AGREEMENT, THAT HE MAY REVOKE IT AT ANY TIME
- --------------------------------------------------------------------------
DURING THE 7 DAYS AFTER HE SIGNS IT, AND THAT IT SHALL NOT BECOME EFFECTIVE
- ---------------------------------------------------------------------------
UNTIL THAT 7-DAY PERIOD HAS PASSED. TOMASETTI ACKNOWLEDGES THAT HE DOES SO
- ---------------------------------------------------------------------------
KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED
- ---------------------------------------------------------------------------
ABOVE.
- ------
Dated: July 12, 1996 ____________________________
TOM TOMASETTI
Dated: July 12, 1996 CONSILIUM, INC.
By:_________________________
Its:________________________
<PAGE>
EXHIBIT 10.15
June 3, 1996
Larry Hootnick
4249 Manuela Court
Palo Alto, CA 94306
Re: Employment Agreement
Dear Larry:
Pursuant to our recent discussion May 31, 1996, this letter will supersede the
Employment Agreement dated May 30, 1996. We are pleased to offer you the
position of President and Chief Executive Officer of Consilium, Inc. (the
"Company"). This position reports directly to the Company's Board of Directors
effective on June 14, 1996 (hereinafter known as the "Effective Date"),
contingent upon our standard background investigation. This letter sets forth
the terms of your employment with the Company as well as our understanding with
respect to any termination of that employment relationship. You agree to accept
employment with the Company on the terms and conditions set forth in this
Agreement, and you agree to devote your full business time, energy and skills to
your duties at the Company with the exception of participation on outside
Boards. These duties shall include, but not be limited to, any duties consistent
with your position, as well as any other duties which may be assigned to you
from time to time by the Board.
The compensation and benefits you will receive upon your employment include the
following:
1. $20,000 per month base salary ($240,000 on an annualized basis) paid semi-
monthly in accordance with the Company's payroll procedures, less applicable
withholdings.
2. Eligible for $120,000 Executive bonus (pro-rated on an annual fiscal year
basis) i.e. July 1, 1996 start date, eligibility is 4/12 of bonus. This bonus
will be paid if the company meets certain financial goals. (See attached FY96
corporate revenue matrix).
3. Stock Options Upon approval by the Compensation Committee of the Board of
-------------
Directors (the "Committee") as soon as practicable after the Effective Date, you
will be granted a nonqualified stock option pursuant to the Company's 1983 Stock
Option Plan (the "Option Plan") to purchase 300,000 shares of the Company's
Common Stock ("Stock") at an exercise price per share equal to the fair market
value of a share of Stock determined on the date of grant, which will be the
same as the Effective Date, in accordance with the Option Plan (the "First
Option"). Subject to your continued employment with the Company, the First
Option will vest in 48 approximately equal monthly installments commencing as of
the Effective Date; provided, however, that you shall be credited with certain
additional months of vesting (the "Accelerated Vesting") in the event of any
"Transfer of Control" of the Company, as defined in the standard form of
nonqualified stock option agreement incorporated by reference into the Option
Plan (a "Transfer of Control") as follows:
(A) an additional 24 months of vesting if the consideration per share of Stock
received by the stockholders of the Company has a fair market value of less than
$15 per share of Stock; or,
(B) an additional 30 months of vesting if the consideration per share of Stock
received by the stockholders of the Company has a fair market value of at least
$15 but less than $18 per share of Stock; or,
<PAGE>
(C) an additional 36 months of vesting if the consideration per share of Stock
received by the stockholders of the Company has a fair market value of at least
$18 per share of Stock.
Notwithstanding the foregoing, you shall not be credited with Accelerated
Vesting in connection with a transaction constituting a Transfer of Control that
could otherwise be accounted for as a "pooling of interests" if any governmental
body determines that such Accelerated Vesting would constitute a change in
equity interests precluding "pooling of interests" accounting. In all other
respects the First Option shall be governed by the terms and conditions of the
standard form of nonqualified stock option agreement approved by the Board of
Directors for use under the Option Plan.
4. Stock Options Upon approval by the Committee as soon as practicable on or
-------------
after November 1, 1996, you will be granted an additional nonqualified stock
option pursuant to the Option Plan to purchase 78,000 shares of Stock at an
exercise price per share equal to the fair market value of a share of Stock
determined on the date of grant in accordance with the Option Plan (the "Second
Option"). The Second Option shall be subject to the same terms and conditions as
the First Option, including that vesting shall commence as of the Effective
Date. You will keep the option for 15,000 shares already granted to you as a
Director.
5. Stock Options Subject to approval by the stockholders of the Company at the
-------------
Company's 1997 Annual Meeting of the Stockholders of a sufficient increase in
the number of shares of Stock available for the grant of options under the
Option Plan, and upon approval by the Committee as soon as practicable
thereafter, you will be granted an additional nonqualified stock option pursuant
to the Option Plan to purchase 20,000 shares of Stock at an exercise price per
share equal to the fair market value of a share of Stock determined on the date
of grant in accordance with the Option Plan (the "Third Option"). The Third
Option shall be subject to the same terms and conditions as the First Option,
including that vesting shall commence as of the Effective Date.
6. In the event that the Company terminates your employment for reasons other
than gross misconduct (as defined below), neither you nor the Company shall have
any further obligation under this agreement nor shall you be entitled to any
further compensation for any damage or injury arising out of the termination of
your employment, except as follows: a) You shall receive a severance package
consisting of six months base salary at your then current salary paid in
accordance with the Company's payroll procedures, less applicable withholding.
b) You shall receive continued medical, dental, and vision insurance coverage
for that same six month period.
If your employment is terminated by the Company for gross misconduct defined
below, you shall be entitled to no compensation or benefits from the Company
other than those earned under paragraph 1 through the date of your termination.
For purposes of this Agreement, a termination due to "gross misconduct" occurs
if you are terminated for any of the following reasons:
a) theft, dishonesty, or falsification of any employment or Company records;
b) improper disclosure of the Company's confidential or proprietary
information; or
c) any intentional act by you which has a material detrimental effect on the
Company's reputation or business.
7. Medical, dental, vision, life and disability insurance as described in the
enclosed Benefits Summary once you meet the requirements for qualification.
8. Ability to participate in Consilium's Employee Stock Purchase Plan (ESPP) in
accordance with the terms of the Plan.
9. Ability to establish and contribute to your own savings and retirement
(401K) account in accordance with the terms of Consilium's 401(k) Plan.
Your employment with Consilium is voluntarily entered into and is for no
specified period of time. As a result, you are free to resign at any time, for
any reason or for no reason. Similarly, Consilium is free to conclude its at-
will employment relationship with you at any time, with or without cause. Thirty
days notice of termination shall be provided by you or the Company in the event
that either elects to terminate the
<PAGE>
employment relationship. During such thirty day period you shall continue to
provide full and proper service to the Company in your then current employment
capacity unless the Company waives such notice period which it reserves the
right to do.
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement or the termination of our employment
relationship, including but not limited to any claims of wrongful termination or
age or other discrimination, you and Consilium agree that all such disputes
shall be fully and finally resolved by binding arbitration conducted by the
American Arbitration Association in San Jose, California and we waive our rights
to have such tried by a court or jury. However, we agree that this arbitration
provision shall not apply to any dispute or claims relating to or arising out of
the misuse or misappropriation of Consilium's trade secrets or proprietary or
confidential information.
This letter, and any additional written proprietary rights agreement between
Consilium and you, which you agree to sign as a condition of your employment,
define the terms of your employment and supersedes all prior agreements, both
written and verbal. This letter can not be modified or amended unless done so in
writing and signed by an authorized Consilium representative and you.
We are very happy to confirm your employment offer with this letter, and we look
forward to you joining Consilium. Please indicate your acceptance of this offer
by signing one copy of this letter and returning it me.
Sincerely,
Jonathan J. Golovin
Chairman of the Board
I agree to and accept employment with Consilium on the terms set out above, and
I certify that I have responded fully and accurately to all inquiries made of me
by Consilium during the pre-employment process with regard to employment history
and salary, education and criminal or civil lawsuits.
________________________________________________
Signature & Date
enc.: Benefits Summary
Company Confidential Performance Matrix
<PAGE>
EXHIBIT 11.1
CONSILIUM, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Primary and fully diluted
earnings per share:
Weighted average number of
shares outstanding 7,838 7,598
Weighted average number of shares
computed using the treasury
stock method (1) -- 474
------ ------
Weighted average number of shares
outstanding, as adjusted 7,838 8,072
====== ======
Net income (loss) $ (533) $ 215
====== ======
Net income (loss) per share $(0.07) $ 0.03
====== ======
</TABLE>
(1) Stock options have not been included in calculation of loss per share
for 1996 as their effect would be anti-dilutive.
Note: There is no material difference in the calculation of primary and fully
diluted income per share.
<PAGE>
EXHIBIT 11.2
CONSILIUM, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Primary and fully diluted
earnings per share:
Weighted average number of
shares outstanding 7,773 7,526
Weighted average number of shares
computed using the treasury
stock method (1) -- 281
------- ------
Weighted average number of shares
outstanding, as adjusted 7,773 7,807
======= ======
Net income (loss) $(2,587) $ 479
======= ======
Net income (loss) per share $ (0.33) $ 0.06
======= ======
</TABLE>
(1) Stock options have not been included in calculation of loss per share
for 1996 as their effect would be anti-dilutive.
Note: There is no material difference in the calculation of primary and fully
diluted income per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 9,465
<SECURITIES> 0
<RECEIVABLES> 9,017
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,167
<PP&E> 4,476
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,759
<CURRENT-LIABILITIES> 14,682
<BONDS> 0
0
0
<COMMON> 13,762
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,759
<SALES> 27,653
<TOTAL-REVENUES> 27,653
<CGS> 7,601
<TOTAL-COSTS> 7,601
<OTHER-EXPENSES> 22,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,008)
<INCOME-TAX> 579
<INCOME-CONTINUING> (2,285)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,587)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> 0
</TABLE>
