<PAGE>
Conformed copy with exhibits
Form 10-Q/A
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 January 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 March 11, 1996:
Common Stock, $0.01 par value 7,721,845
- ----------------------------- ------------------
Class Number of Shares
1
<PAGE>
CONSILIUM, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets --
January 31, 1996 and October 31, 1995.................. 3
Condensed Consolidated Statements of Operations --
Three months ended January 31, 1996
and 1995............................................... 4
Condensed Consolidated Statements of Cash Flows --
Three months ended January 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..................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 12
Signatures.............................................. 14
2
<PAGE>
The Registrant hereby amends Part 1, Item 1, FINANCIAL STATEMENTS, to read in
full as follows:
PART I. FINANCIAL INFORMATION
CONSILIUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
<TABLE>
<CAPTION>
January 31, 1996 October 31, 1995
---------------- ----------------
(Restated) (Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,519 $ 10,686
Short term investments 0 1,478
Accounts receivable, net 8,806 7,578
Other current assets 1,095 1,055
--------- --------
Total current assets 20,420 20,797
Property and equipment, net 2,586 2,425
Software production costs, net 4,942 5,121
Other assets 330 325
--------- --------
Total assets $ 28,278 $ 28,668
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,075 $ 1,800
Deferred revenue 5,453 5,621
Other current liabilities and
accrued expenses 3,655 4,364
--------- --------
Total current liabilities 11,183 11,785
Deferred revenue 1,233 1,325
Deferred income taxes 158 158
Accrued lease obligation 0 17
--------- --------
Total liabilities 12,574 13,285
--------- --------
Total stockholders' equity 15,704 15,383
--------- --------
Total liabilities and
stockholders' equity $ 28,278 $ 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
January 31,
1996 1995
--------- -------
<S> <C> <C>
Revenues:
Product $ 4,782 $ 3,801
Services 3,931 3,690
Development 446 128
------- -------
Total revenues 9,159 7,619
------- -------
Costs and expenses:
Product 721 798
Services 1,216 975
Research and development 3,146 2,235
Selling and marketing 2,882 2,647
General and administrative 870 820
------- -------
Total costs and expenses 8,835 7,475
Income from operations 324 144
Interest income, net 146 136
------- -------
Income before income tax
provision 470 280
Provision for income taxes 248 182
------- -------
Net income $ 222 $ 98
======= =======
Net income per share $ 0.03 $ 0.01
======= =======
Shares used in per share
calculations: 8,260 7,621
======= =======
</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>
Three months ended
January 31,
1996 1995
----------- ------------
(Restated)
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 222 $ 98
------- --------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 711 834
Provision for doubtful accounts 90 114
Change in assets and
liabilities:
Accounts receivable, net (1,318) (1,171)
Other assets (45) (88)
Accounts payable 275 177
Deferred revenue (260) (240)
Other liabilities and
accrued expenses (726) (820)
Deferred income taxes 0 0
------- -------
Total adjustments (1,273) (1,194)
------- -------
Net cash used in
operating activities (1,051) (1,096)
------- -------
Cash flows from investing
activities:
Capital expenditures (407) (251)
Capitalized software production costs (286) (357)
Purchases of short-term investments 0 (18,504)
Sales of short-term investments 1,478 20,777
------- -------
Net cash provided by investing
activities 785 1,665
------- -------
Cash flows from financing activities:
Issuance of common stock 99 401
Principal payments on capital leases 0 (100)
------- -------
Net cash provided by financing
activities 99 301
------- -------
Net increase (decrease)
in cash and cash equivalents (167) 870
------- -------
Cash and cash equivalents
at beginning of period 10,686 8,682
------- -------
Cash and cash equivalents
at end of period $10,519 $ 9,552
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CONSILIUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 January 31, 1996 and October 31, 1995,
including the results of operations and cash flows for the three months
ended January 31, 1996 and 1995. 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. As previously announced, the Company will be
restating such financial statements, which will be filed in a Form 10-K/A
amending 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 (loss) before taxes 1,150 664
Provision (benefit) for
income taxes 523 523
Net income (loss) 627 141
Income (loss) 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 month period ended January 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.
The results of operations for the three months ended January 31, 1996 and
the statement of cash flows for the three months ended January 31, 1996 are not
necessarily indicative of results of operations and cash flows for any future
period.
6
<PAGE>
2. Software Production Costs (in thousands):
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Capitalized software
production costs $ 286 $ 357
Amortization of
capitalized software
production costs $ 465 $ 466
</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.
4. The income tax provision for the three months ended January 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 a one paragraph letter dated May 6, 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.
In the ordinary course of business, other various 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
<PAGE>
The Registrant hereby amends Part I, Item 2, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, to read in full as
follows:
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
This section contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements about expected possible corporate
implementation of FlowStream(R) and expected increased maintenance revenues.
Actual results could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth under the caption
"Potential Fluctuations in Quarterly Results."
Revenues. Total revenues for the first quarter of fiscal 1996 increased
--------
20% to $9,159,000 compared with $7,619,000 in the first quarter of 1995. The
increase primarily was due to higher product, services, and development
revenues.
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
January 31,
1996 1995
--------- --------
<S> <C> <C>
North America 63% 64%
Europe 13% 17%
Asia/Pacific 24% 19%
</TABLE>
Product license revenues for the three months ended January 31, 1996
increased 26% over the same period of the previous year. The 1996 first fiscal
quarter increase was primarily due to higher revenue levels from the Company's
WorkStream DFS(TM) product, partially offset by lower revenue levels from the
Company's FlowStream product line.
During the quarter ended January 31, 1996, the Company received one order
from an existing customer totaling $1,100,000, or 12% of total revenues, for
software licenses and services. 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 57% to $4,539,000 during the three months
ended January 31, 1996 as compared with $2,895,000 in the previous year quarter.
The increase was due to increased 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.
License revenues attributable to FlowStream decreased 73% to $243,000
during the three month period ended January 31, 1996 as compared with $906,000
for the same period in fiscal 1995.
8
<PAGE>
The decrease was primarily attributable to the variable timing in receipt of
orders for the Company's products in any given quarter. In addition, several of
the Company's customers have begun to consider corporate implementations of
FlowStream. If customers proceed with corporate implementations, the Company may
in the future receive a smaller number of orders with a higher total dollar
value than in the past.
Services revenues for the three months ended January 31, 1996 increased 7%
to $3,931,000, compared with $3,690,000 for the same period of fiscal 1995.
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 January 31, 1996 primarily was due to higher maintenance levels
from the Company's WorkStream DFS product lines. The Company anticipates
maintenance revenues associated with its WorkStream DFS and FlowStream product
lines will continue to increase in the near term due to the higher volume of
product licenses sold in recent quarters which are scheduled to commence
maintenance terms. 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 January 31, 1996 increased
248% to $446,000, compared with $128,000 for the same period of fiscal 1995. The
increase in development revenues primarily was due to the Company's starting new
funded development projects, partially offset by the completion of existing
projects. 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 and the state of completion of such projects.
Costs and Expenses. Cost of product revenue for the three months
------------------
ended January 31, 1996 decreased 10% to $721,000, compared with $798,000 for the
same period of the previous fiscal year. The decrease in cost of product
revenue primarily was due to a large order for WorkStream that generated minimal
costs. Cost of product revenue includes amortization of capitalized software
production 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 months ended January 31, 1996 were
15% compared with 21% for the same period of the previous year. The decrease in
cost of product revenue as a percentage of product revenue was due to a change
in the mix of product revenues coupled with lower royalties, as well as lower
purchased software costs.
Cost of services revenue represented 31% of total services revenues for the
three months ended January 31, 1996, compared with 26% in the comparable period
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 25% to
$1,216,000 for the three month period ended January 31, 1996 compared with
$975,000 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 to enhance the Company's ability to
meet customer requirements for maintenance, support and consulting services.
9
<PAGE>
Research and Development Expenses. Research and development expenses
---------------------------------
represented 34% of total revenues for the three month period ended January 31,
1996 compared with 29% for the same period of the previous fiscal year. These
expenses increased to $3,146,000 in the first fiscal quarter compared with
$2,235,000 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 decreased capitalization of software development costs, costs associated with
preparation for the Company's second quarter building move, a higher level of
funded development activity and a higher level of overall research and
development activity in the recent quarter compared with the levels in the first
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 $286,000 and $357,000 were capitalized
under Statement of Financial Accounting Standards No. 86 for the three months
ended January 31, 1996 and 1995, respectively. The amounts represented
approximately 8% and 14% 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 31% and 35% of total revenues for the three months ended January 31,
1996 and 1995, respectively. Selling and marketing expenses increased to
$2,882,000 for the three months ended January 31, 1996 compared with $2,647,000
for the same period of the previous fiscal year. The first fiscal quarter
increase in absolute dollars in selling and marketing expenses primarily was due
to an increase in the commission expense for the period resulting from the
higher level of sales for the quarter, partially offset by a lower headcount.
The proportional decrease in sales and marketing expense as a percentage of
total revenues was due to increased sales productivity and a higher level of
sales for the first quarter of fiscal 1996 compared with the same period of the
previous fiscal year.
General and Administrative Expenses. General and administrative expenses
-----------------------------------
represented 9% and 11% of total revenues for the three months ended January 31,
1996 and 1995, respectively. General and administrative costs include the costs
of the finance, accounting, purchasing and administrative operations of the
Company. General and administrative expenses increased to $870,000 for the
three months ended January 31, 1996 compared with $820,000 for the same period
of the previous fiscal year. The first quarter increase in absolute dollars
primarily was due to an increase in headcount over the same period of the
previous fiscal year, as well as additional costs associated with the Company's
building move.
Interest Income and Expense. For the three months ended January 31, 1996,
---------------------------
interest income was $146,000, compared with interest income of $141,000 for the
same period of the previous fiscal year. Higher invested cash balances and
slightly higher interest rate levels accounted for the increase. There was no
interest expense for the period ended January 31, 1996 as compared with $5,000
for the previous year quarter.
Provision for Income Taxes. The first fiscal quarter's effective tax rate
--------------------------
of 53% represents taxes on earnings of certain foreign subsidiaries and taxes
withheld on sales made in certain foreign
10
<PAGE>
jurisdictions. The comparable rate for the first quarter of fiscal 1995 was 65%.
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 Income. The Company generated net income of $222,000, or $.03 per
----------
share, in the quarter ended January 31, 1996, compared with a net income of
$98,000, or $.01 per share, in the same period of the prior year. The first
fiscal quarter's net income was the result of higher revenues and lower expenses
compared with the same period of the previous year.
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 January 31, 1996, the Company had
-------------------------------
$10,519,000 in cash and cash equivalents and short term investments, as compared
with $12,164,000 at October 31, 1995. The Company used $1,051,000 in operating
activities during the three months ended January 31, 1996. This was principally
due to an increase of $1,318,000 in accounts receivable and a decrease in other
liabilities and accrued expenses of $726,000, offset by net income of $222,000
and non-cash depreciation and amortization of $711,000.
Cash provided by investing activities was $785,000 during the first quarter
of 1996 which represented sales of short term investments of $1,478,000, offset
by capital expenditures and capitalized software production costs.
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.
11
<PAGE>
The Registrant hereby amends Part II, Item 6, EXHIBITS AND REPORTS ON FORM 8-K,
to read in full as follows:
PART II. OTHER INFORMATION
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/
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
emploment of Edward Norton. /6,7/
12
<PAGE>
10.13 Letter Agreement, dated September 28, 1994, with respect to the
employment of Richard Van Hoesen. /6,7/
11.1 Statement re Computation of Net Income per Share.
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.
/7/ Incorporated by reference from exhibits of the same number to
Registrant's Annual Report on Form 10K for the Year ended October
31, 1995, as amended.
(b). Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
January 31, 1996.
13
<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 July 2, 1996 by: /s/ Clifton Wong
---------------------------------------
Clifton Wong
Controller and
Chief Accounting Officer
14
