<PAGE>
CONFORMED COPY WITH EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
X Annual report pursuant to Section 13 or 15(d) of the Securities
-----------
Exchange Act of 1934 for the fiscal year ended October 31, 1995
or
----------- Transition report pursuant to Section 13 or 15(d) of the
Securities Act of 1934
COMMISSION FILE NO. 0-17754
CONSILIUM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2523965
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
485 CLYDE AVENUE, MOUNTAIN VIEW, CA 94043
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (415) 691-6100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- --------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 (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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on January 18,
1996 as reported on the NASDAQ National Market System, was approximately
$43,454,999. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of January 18, 1996, Registrant had 7,710,812 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
This report contains 45 pages. The Exhibit Index is located on page 39.
<PAGE>
CONSILIUM, INC.
1995 FORM 10-K/A ANNUAL REPORT
Table of Contents
PART I
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Item 1. Business 1
PART II
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 21
PART III
Item 11. Executive Compensation 34
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports
on Form 8-K 39
Signatures 43
Exhibits 44
</TABLE>
<PAGE>
PART I
The Registrant hereby amends Part I, Item I, BUSINESS, to read in full as
follows:
ITEM 1. BUSINESS
--------
Consilium is the leading supplier of enterprise-wide, integrated
manufacturing execution systems (MES) software and services. MES software tracks
the five essential elements of the manufacturing plant floor -- materials,
equipment, personnel, specifications/work instructions and facility conditions
in real time -- and correlates the data for true visibility and control of
manufacturing operations. This access to comprehensive, up-to-date information
about the production process enables manufacturers to identify and implement
manufacturing Best Practices in the areas of cost, quality, service, compliance
and speed. Such continuous improvement in the area of production thus enables
companies to use their manufacturing operations for strategic competitive
advantage, and to optimize performance of the business as a whole.
The Company develops, markets and sells two distinct software product lines,
aimed at different manufacturing industries. The Company's WorkStream DFS
(Distributed Factory System) product line is targeted at manufacturers who
produce their products in discrete lots or batches, particularly those in the
semiconductor, electronics, and aerospace industries. The Company's FlowStream
product line is targeted at for industries that employ batch process
manufacturing such as pharmaceuticals, medical devices and specialty chemicals.
A comprehensive range of services complement these products, including a
Customer Response Center, training classes and both pre- and post-implementation
consulting services.
The Company's WorkStream DFS product line includes multiple software
products, WorkStream and WorkStream Open, as well as a set of new application
servers and a connecting message "bus", or network which, when used with
WorkStream or WorkStream Open, form a WorkStream DFS system. WorkStream
consists of 24 integrated software modules sharing a common database and
graphical user interface. WorkStream monitors and controls discrete
manufacturing operations, where product lots or batches are kept intact
throughout the production process. WorkStream also provides tools to enhance
productivity in indirect labor functions such as quality control, production
planning and facilities maintenance. Discrete manufacturers most commonly use
WorkStream systems to:
. reduce cycle times and meet just-in-time deliveries
. lower indirect labor costs
. reduce scrap and rework; increase yield
. increase utilization of capital equipment
. improve quality
. reduce regulatory compliance costs
. shorten response times to equipment breakdowns and
other manufacturing problems
The WorkStream system's modular design allows customers to license only those
functions necessary for their current business needs and to add functions as
their requirements evolve.
WorkStream software was initially developed to run on Digital Equipment
Corporation's line of VAX(R) computers, using Digital's proprietary VMS
operating system. For many years, Digital has been the leader in hardware
systems for the manufacturing floor, largely because of its secure and
expandable environment for computing. In the late 1980s, standards-based, open
systems computing
1
Consilium, WorkStream, and FlowStream are registered trademarks and WorkStream
Open and WorkStream DFS are trademarks of Consilium, Inc.
<PAGE>
environments also began to achieve success in the manufacturing market. In
1992, WorkStream was ported to its first open systems platform, Hewlett-Packard
Company's HP 9000 line of UNIX-based computers. The new UNIX-based product was
named WorkStream Open. The development of WorkStream Open incorporated several
technologies, including client/server architecture, X-windows terminal access,
Motif user interface standard, SQL database and POSIX compliance.
In 1995, the Company introduced a next-generation distributed technology
framework for its WorkStream DFS product line, as well as three new application
servers. The distributed technology framework is based on a software message
bus, which connects applications, software systems and manufacturing equipment
as servers on a network. The WorkStream DFS application servers introduced in
1995 include a quality server for on-line quality analysis and statistical
process control, a recipe management server for centralized context-sensitive
recipe management, and a station controller for automation implementation. The
next-generation additions to the WorkStream DFS system extend the capabilities
of the current WorkStream and WorkStream Open products into a distributed,
client/server environment. The distributed nature of the WorkStream DFS system
allows users to add new functional modules or servers to their existing systems
built around WorkStream or WorkStream Open, and to more easily integrate
software applications from other sources, as additional servers on the network.
The overall system utilizes computer resources more efficiently and can operate
more effectively as a result.
In October 1995, the Company announced an alliance with Avnet Computer,
Digital Equipment Corporation and Oracle Corporation to jointly provide an
upgrade path for WorkStream users to migrate from older Digital VAX systems to
Digital's new Alpha platform. When available, the solution will consist of a new
version of WorkStream running Digital's Open VMS Alpha operating system, Alpha
hardware platforms from Digital, Oracle's CODASYL DBMS database and a full range
of implementation services from Avnet.
Just after the close of fiscal 1995, the Company announced a partnership with
Oracle Corporation to create a total supply chain management solution for the
semiconductor industry. The companies will work together to tightly link
WorkStream DFS software with Oracle's order processing, financial and enterprise
resource planning (ERP) systems. Together, these systems will provide a more
comprehensive view of product availability from sales order through
manufacturing than is presently available. Such a view will enable
semiconductor manufacturers to better meet their customer's requirements for
specific product orders in committed time frames.
In early fiscal 1992, the Company introduced and sold the first copy of a
second software product line, called FlowStream, aimed at batch process
manufacturers. In a batch process manufacturing environment, product from the
same batch may be spread across several operations at once, thus requiring that
different tracking methods be used than those employed in a discrete
environment. FlowStream was built specifically to address the unique
requirements of batch process manufacturers, and supports several critical
functions including production, engineering, research and development,
regulatory compliance and reporting, and quality control. Benefits of
FlowStream in the batch process industries include:
. operational control for assured regulatory compliance
. improved efficiency of data collection
. reduced cost of documentation associated with compliance
. decreased cycle times
. decreased time to market
. lowered indirect labor costs
. shortened response times to equipment breakdowns and
other manufacturing problems
2
<PAGE>
FlowStream runs on Digital and HP workstations, and features graphical user
interfaces geared to the needs of specific users, from planners and engineers to
operators. FlowStream is based upon industry-standard technologies, including
X-windows, C++ object-oriented programming, an SQL relational database, and
TCP/IP communications, which facilitate ease of use of the software and the
transfer of data between FlowStream software and other programs used in the
manufacturing environment.
Both the FlowStream and WorkStream DFS product lines provide on-line views of
plant floor operations, highlighting opportunities for manufacturers to improve
operations.
Through its direct sales force, the Company markets its WorkStream DFS and
FlowStream product lines in the United States, Canada, France, Germany, Japan,
Malaysia, Singapore, South Korea, Taiwan, and the United Kingdom. The Company
also markets its products through distributors in Japan, Israel, Italy, and
Taiwan. Many of the Company's customers are Global Fortune 500 companies and,
based on the most recently available information, include 5 of the 10 largest
aerospace firms, 4 of the 10 largest chemical manufacturers, 11 of the 25
largest electronics companies, and 10 of the 20 largest pharmaceutical firms,
worldwide. To date, software from the Company's WorkStream DFS product line has
been purchased by over 100 companies for 230 sites in 20 countries, and the
Company's FlowStream product has been purchased by 16 companies for 30
sites in 8 countries.
The Company was incorporated in California in October 1978 to provide
consulting services and released its first standard software product in fiscal
1983. The Company reincorporated in the state of Delaware in March 1991.
Unless the context otherwise requires, "Consilium" and the "Company" refer to
Consilium, Inc. and its subsidiaries. The Company's executive offices are
located at 485 Clyde Avenue, Mountain View, California 94043, and its telephone
number is (415) 691-6100.
Background
- ----------
The goal of applying computer automation to the manufacturing environment is
improved efficiency and lowered costs, both direct and indirect. There are
several different computer software applications which are designed for various
stages of the product life cycle, from computer-aided engineering and design
("CAE/CAD") to computer-assisted production on the plant floor. The primary
software applications for planning and executing production once a product is
designed include: Enterprise Resource Planning (ERP) systems, manufacturing
execution systems (MES), and control systems for automated equipment and micro-
operations.
ERP systems help manufacturers translate forecasted demand or order backlog
into a manufacturing plan of raw materials, gross capacity and production orders
for the plant floor. They also track the associated financial and accounting
paperwork, and in fact are most commonly associated with financial transaction
automation. Since ERP systems only collect historical yield and cost data and
do not provide real-time information about the complete status of operations,
they do not support the proactive or ongoing management of the actual production
process as it occurs.
Distributed control systems direct the operation of numerically controlled
machines, robots, material transports, vessels, specialty equipment, sensors,
and measurement and inspection devices used in manufacturing. Such devices are
often grouped in self-contained "work cells." Control systems track the status
of materials and equipment within a particular work cell area and not on the
plant floor as a whole.
3
<PAGE>
Since the 1970s, as the increasing availability of lower cost, higher
performance computer systems made the use of manufacturing software more cost
effective, large numbers of ERP and distributed control systems have been
developed and installed. The usage of and benefit from using ERP and
distributed control systems is common across many industries. Increasingly,
manufacturers are recognizing that these tools, while effective in the functions
for which they were designed, do not have adequate capabilities to manage the
critical variables of the dynamic production process on the plant floor.
Manufacturing execution systems are specifically designed to manage
production operations on the plant floor. Some industries, such as
semiconductors, have long seen the benefit of using MES software and are
considered to have fully accepted MES as a critical tool for manufacturing.
Companies in other industries, such as pharmaceuticals, are not as familiar with
the benefits of MES, and are therefore slower to adopt what is to them a still
unproven concept. Across many industries, there is a growing need for tools
that can help improve manufacturing performance, as cost, quality, service and
regulatory pressures on manufacturers increase. The Company's WorkStream DFS
product line addresses the need for manufacturing performance tools for discrete
manufacturers who must track, control and document their use of materials,
equipment, personnel, job specifications and facilities at each step of the
production process. The Company's FlowStream product addresses this need for
manufacturers in batch process environments.
Types of Manufacturing
- ----------------------
Manufacturing operations can be characterized as either discrete, batch
process, continuous process, or hybrid (combining more than one form). In
discrete operations, such as electronics manufacturing, raw material is
processed in distinct units. Work-in-process can be tracked by lot, work order
or batch. In batch process operations, such as pharmaceutical manufacturing,
material is converted from one form or state to another through various
processing steps and is tracked by batch, lot or mass quantity. Material in
batch process-type operations may be spread across several conversion steps at
once. In continuous process operations, such as oil refining, raw material is
processed without interruption in a continuous flow. Finally, some producers,
such as specialty chemical companies, may require a combination of batch process
and discrete operations to manufacture their products.
Manufacturers track and control each step of their operations based on
requirements of regulatory compliance, quality control assurance, and cost
reduction goals. Manufacturers with production processes that are hard to
consistently replicate must be able to ascertain the precise conditions under
which each product was manufactured in order to identify and correct process
variability or other causes of defects. Other manufacturers must be able to
trace both subassemblies or intermediate products and finished goods due to
product liability concerns or potential product recall, warranty or services
obligations. In addition, certain manufacturers must certify that their
products have been processed in accordance with regulatory or customer
specifications, or other standards. Manufacturers faced with these challenges
must be able to follow raw materials through each processing stage
("traceability") and recreate the history of work-in-process from any processing
stage ("genealogy"). The collection of such data serves not only to answer
questions about a particular product or process after the fact, but acts also as
a powerful tool to improve manufacturing performance in real time during the
production process.
A manufacturing execution system such as the Company's WorkStream DFS product
line provides the tools which discrete, lot-based manufacturers need to execute
their manufacturing plan and collect the data which will enable them to analyze
and control production. Typical discrete, lot-based industries include
semiconductors; disk drives; and assembly operations in the commercial
4
<PAGE>
aircraft, aerospace and defense industries. Such industries benefit from MES for
different reasons. For semiconductor companies, the visibility and control
provided by MES can enable various measurements of efficiency, such as capital
equipment utilization and quality. For aerospace manufacturers, assurance of
regulatory compliance is key, and MES provides both control mechanisms and
reporting capabilities to address this. Indirect labor usage is also a critical
measurement for the aerospace and defense industries, and MES provides the tools
to both account for and reduce indirect labor usage.
Batch process manufacturers such as pharmaceutical and chemical companies
have similar requirements for information collection and analysis.
Pharmaceutical manufacturers must be able to demonstrate compliance with a host
of procedural and environmental regulations before a batch of product can be
approved for shipment to customers. They must maintain complete and accurate
batch records, detailing the history of all related elements of the
manufacturing process - materials, labor, equipment, procedures, facilities,
etc. - and guaranteeing that all actions taken, both planned and unplanned, were
in line with documented and approved manufacturing practices. In addition,
pharmaceutical manufacturers increasingly are under pressure to lower costs to
their customers, and are therefore experiencing smaller margins than they had
previously enjoyed. Manufacturing is a key area in which such companies may
lower costs.
Today, many pharmaceutical plants use paper-based systems for record
keeping. Overhead and indirect labor costs associated with the compilation and
maintenance of these records is a large and increasing expense. Therefore, an
electronic system which automates the data collection process and incorporates
proactive features to prevent deviations from the standard procedures - such as
an MES - can pay for itself in a very short time.
Chemical companies confront both an increasingly stringent regulatory
environment and mounting global competition in nearly all segments of the
industry. In addition, the need to package end products in multiple forms
presents a unique challenge. Therefore, in addition to tracking precisely all
materials resulting from the manufacturing process - primary products, co- and
by-products, and various forms of waste - chemical manufacturers must also amass
enough detailed information about their operations to discover ways to improve
them from the cost or quality standpoint. The process control systems currently
used by the majority of these companies cannot provide this higher level
information, nor can their ERP systems provide the detail required to empower
this continuous improvement approach. Chemical manufacturers' competitive
situation drives them to seek new and more comprehensive tools.
A manufacturing execution system such as the Company's FlowStream product
provides pharmaceutical and chemical manufacturers with a tool for achieving
both regulatory compliance and manufacturing improvement.
Products
- --------
The WorkStream DFS and FlowStream product lines monitor and control the five
essential elements of manufacturing - materials, equipment, personnel,
specifications, and facilities - throughout the production process, and
correlate critical data for real-time visibility and control of manufacturing
operations.
5
<PAGE>
The following table shows the Companys principal products, price range and
approximate average new installation prices in fiscal 1995:
<TABLE>
<CAPTION>
Approximate
Average price of
new installation
WorkStream DFS Product Line List price range in fiscal 1995
--------------------------- ----------------------- ----------------
<S> <C> <C>
WorkStream and
WorkStream Open products $50,000 - $1,000,000+ $350,000
WorkStream DFS servers $45,000 - $ 50,000 $ 60,000
FlowStream Product Line
-----------------------
FlowStream product $50,000 - $1,000,000+ $300,000
</TABLE>
WorkStream DFS Product Line
- ---------------------------
The Company's WorkStream DFS product family consists of multiple software
products, WorkStream and WorkStream Open, as well as a set of application
servers and a connecting message "bus," or network. The WorkStream DFS system
includes a set of 24 integrated software modules for managing the execution of a
production plan for discrete lot-based industries; a software communications
"message bus;" and three functional servers providing additional capabilities in
a distributed, client/server environment. The 24 modules are grouped into four
benefits or solutions areas: tracking; quality and engineering management;
planning; and process control and automation. The current application servers
provide capabilities primarily in the areas of automation and quality. The
WorkStream DFS product lines modular design allows customers to license only
those functions necessary to their current business needs and to add functions
as their requirements evolve.
The WorkStream and WorkStream Open software products are written in the COBOL
and C computer languages and are principally licensed to run on either the
Digital VAX line of computers under Digital's proprietary VMS operating system
with Oracle Corporation's CODASYL DBMS database or on the Hewlett-Packard HP
9000 line of computers running under the HP-UX UNIX operating system and the
Informix relational database. The WorkStream and WorkStream Open systems'
modules are integrated through a common database, permitting all modules to
obtain information simultaneously from a single data source, and through a
common user interface. The systems are designed to allow distributed application
processing in the Digital cluster mode and in client/server mode. Users can
access WorkStream or WorkStream Open software directly via a terminal or
workstation to enter data, view data, initiate batch reports or analyses and
view the results. Data also can be entered using bar code wands or can be
entered automatically by automated equipment and work cell controllers. The
Company has recently entered into an alliance with Avnet Computer, Digital
Equipment Corporation and Oracle Corporation to port its WorkStream product to
run on Digital's Alpha platform running the Open VMS operating system.
The WorkStream DFS servers introduced in 1995 are object-oriented
applications and run in a UNIX-based environment. They are designed to operate
in a distributed software environment, and connect to an ISIS message bus, using
standard communication protocols to talk to either WorkStream or WorkStream
Open. They have been developed in the SmallTalk computer language and use the
6
<PAGE>
Informix relational database software. WorkStream DFS servers are currently
available to run on Hewlett-Packard's HP 9000 line of computers with the HP-UX
operating system.
Over the next several months, the Company plans to integrate WorkStream DFS
with various order processing, financial and ERP systems from Oracle
Corporation. The resulting system will be marketed as a total supply chain
management solution to the semiconductor industry.
The following table summarizes the primary functionality of the
WorkStream DFS product family:
<TABLE>
<CAPTION>
WorkStream DFS Functions
- --------------------------
<S> <C>
Tracking and Control . Tracks WIP by lot, sub-lot, or serial identifier.
. Maintains genealogy and lot traceability.
. Tracks manufacturing resources and labor and equipment states and maintains history.
Quality Management . Collects quality, test, and environmental data correlated by material, equipment, and operator.
. Provides Statistical Quality Control.
. Analyzes and charts collected process data and flags anomalous data.
. Displays job specifications in both text and graphics appropriate times and locations.
Planning and Scheduling . Rule-based dispatching.
. Finite capacity constraints.
. Work scheduling.
. Intracompany planning.
</TABLE>
FlowStream Product Line
- -----------------------
The Company's FlowStream product is designed for companies that employ batch
process styles of manufacturing. At present, FlowStream is targeted primarily
at the pharmaceutical and chemical industries. FlowStream addresses six
benefits or solutions areas: batch operations tracking and control; inventory or
materials management; quality management; document management; planning and
scheduling; and costing. FlowStream tracks work-in-process activity by work
order down through each operation or step, whether automated or manual.
FlowStream software is written in the C++ language, emphasizing an object-
oriented design, and runs on the Rdb and Oracle relational databases.
FlowStream is a distributed application that allows users to access and share
real-time information. FlowStream takes advantage of certain industry-standard
interfaces. Interfacing tools within FlowStream allow integration with other
manufacturing applications such as ERP, Laboratory Information Management
Systems (LIMS) and automation controllers. FlowStream provides graphical user
interfaces featuring icons and windows.
7
<PAGE>
The following table summarizes the primary functionality of the FlowStream
product family:
<TABLE>
<CAPTION>
FlowStream Functions
- -------------------------
<S> <C>
Tracking and Control . Tracks WIP by work order, batch production run, material, store, container or state.
. Maintains genealogy and lot traceability.
. Tracks manufacturing resources and labor and equipment states and maintains history.
Quality Management . Collects quality, test, and environmental data correlated by material, equipment, and operator.
. Provides Statistical Quality Control.
. Analyzes and charts collected process data and flags anomalous data.
. Displays job specifications in both text and graphics appropriate times and locations.
Document Management . Documentation and configuration management,
Planning and Scheduling . Rule-based dispatching.
. Finite capacity constraints.
. Work scheduling.
. Material requirements planning.
. Master production scheduler.
. Capacity planning.
Costing . Detailed model costing and reporting.
</TABLE>
Markets and Customers
- ---------------------
Software in the WorkStream DFS product line was first used primarily by
semiconductor manufacturers whose products were sold directly into the open
market and by electronics systems companies which used the software primarily to
produce semiconductors for use in their own products. Systems from the
WorkStream DFS product line have now also been installed by many commercial
aircraft, aerospace and defense, and electronics manufacturers for a range of
diverse applications, including electronics assembly; sheet metal fabrication;
disk drive assembly; silicon wafer fabrication; and radar and navigation systems
manufacture and assembly. Current target industries include manufacturers of
semiconductors, complex electronics such as disk drives and flat panel displays,
and aerospace products in both the Company's installed base and new accounts.
8
<PAGE>
FlowStream software is currently targeted at research and development and
manufacturing operations in the pharmaceutical, medical device and specialty
chemical (e.g. fibers, paints, resins, plastics and film) industries.
In fiscal 1995, no customer accounted for 10% or more of total revenue.
Sales
- -----
Through its direct sales force, Consilium markets its WorkStream DFS and
FlowStream product lines in the United States, Canada, France, Germany, Japan,
Malaysia, Singapore, South Korea, Taiwan, and the United Kingdom. The Company
also utilizes distributors in Israel, Italy, Japan, and Taiwan.
As a Digital Cooperative Marketing Partner (CMP) and a Hewlett-Packard
Independent Software Vendor (ISV) participant, the Company participates with
these computer systems firms in a variety of cooperative marketing programs
including joint appearances at tradeshows, joint brochures, joint sales seminars
and joint sales calls. Under the previously described alliances with Avnet
Computer, Digital Equipment Corporation and Oracle Corporation, the Company also
participates in a variety of cooperative marketing programs, including joint
appearances at tradeshows, joint brochures, joint sales seminars and joint sales
calls.
The sales cycle for a new installation of a WorkStream DFS system typically
ranges from nine to fifteen months from the initial identification of a
qualified potential user to the installation of the software. The sales cycles
for a new installation of FlowStream typically range from nine to eighteen
months. Sales cycles for either product can be extended due to the nature of
the decision-making process for purchasing MES solutions, which generally
involves many individuals from many departments within a manufacturing company.
In addition, the missionary nature of marketing a new product such as FlowStream
into new industries, such as pharmaceuticals and chemicals, contributes to
uncertainty about the timing of future sales order closures.
Implementation of a WorkStream DFS system, including customer training,
typically takes between four and six months. Implementation of FlowStream takes
between three and twelve months to complete, depending on the scope and
complexity of the project. Follow-on orders for additional modules, servers,
and/or sites typically are not received until successful implementation at the
initial site.
The Company's direct sales force and support staff are organized by
geographical regions. As of October 31, 1995, the sales and marketing
organizations consisted of 61 employees.
The Company's foreign distributors either sublicense the Company's products
directly to end users after acquiring copies from the Company at a discount from
list price, or act as agents and receive a commission for initiating a license
agreement between the Company and the end user.
Revenues from foreign customers represented 34% of total revenues in
1995, 31% of total revenues in fiscal 1994 and 27% of total revenues in fiscal
1993. The majority of the Company's revenues are denominated in U.S. dollars.
Some foreign sales revenues are denominated in foreign currencies and are
subject to currency fluctuations during the time between revenue recognition and
receipt of funds. To date, the Company has not hedged against such foreign
currency fluctuations.
Since the Company ships its standard products upon receipt of customer
orders, it generally has no material product backlog.
9
<PAGE>
Product Development
- -------------------
Consilium has invested significant development resources to create, enhance
and extend the functionality of its WorkStream DFS and FlowStream software
product lines. Research and development expenses were 33%, 39% and 36% of
revenues in fiscal 1995, 1994 and 1993, respectively.
The Company expects to continue to incur development expenses to maintain and
augment its current products in 1996. This augmentation could include the
creation of additional WorkStream DFS servers, the extension of availability of
its WorkStream and WorkStream Open software to additional platforms and
operating environments, and the enhancement of functionality of its FlowStream
product for the batch process industries.
In August 1985, the Financial Accounting Standards Board issued a statement
requiring that certain software development and production costs be capitalized
and amortized over the economic life of the related product. For the fiscal
years 1995, 1994 and 1993, the Company capitalized $1,460,000, $1,662,000 and
$1,842,000, respectively, which represented approximately 12%, 13% and 15% of
total spending on research and development in such periods. These capitalized
costs are amortized on a module-by-module or server-by-server basis. For the
fiscal years 1995, 1994 and 1993, the Company amortized $1,863,000, $1,809,000
and $1,578,000, respectively. (See Note 2 of Notes to Consolidated Financial
Statements.)
Services and Support
- --------------------
The Company offers product support to its customers through comprehensive
maintenance agreements. The majority of the Company's customers purchase and
renew maintenance pursuant to the Company's standard maintenance agreement.
Maintenance, which consists of product enhancements and technical support, may
be purchased after the expiration of the warranty period, which is currently 90
days, and is automatically renewable annually thereafter. Annual maintenance
fees are generally 15% of the list price of the modules or servers being
maintained and are subject to a Consumer Price Index-based inflator. Product
support services are provided worldwide by a combination of local office
technical support staff and the Company's Customer Response Center.
The Company also offers a variety of training and consulting services through
its Professional Services organization. Training classes are regularly scheduled
at regional centers or customer locations. Consulting services cover pre-
selling analysis, installation, project management, customization and
application integration. These services are offered as consulting products with
defined deliverables in order to facilitate the customers' planning and
budgeting. Time-and-material-based services are also offered to augment the
Company's consulting products and to meet specialized requirements.
The Company is increasing its allocation of resources to its Professional
Services organization because it believes that this function is key to
satisfying its customers requirements for implementation and consulting
assistance. Satisfying its customers requirements is, in turn, critical for
maintaining a positive image in the marketplace as a successful provider of MES
solutions.
The Company believes that the ability to identify and work with qualified
systems integration firms which integrate various manufacturing and other
systems together is an important component to its success. In early fiscal
1996, the Company announced a certification program to train and certify systems
integration firms to integrate the Company's WorkStream DFS and FlowStream
product lines in customer implementations.
10
<PAGE>
Competition
- -----------
The Company believes that the primary competitive factors in the market for
MES software are size of installed base and product functionality, and that
additional factors include price/performance, ease of use, hardware and
software platform, vendor reputation, and financial stability. The Company
believes that its products currently compete favorably with other systems on the
primary factors listed above, although it may be at a competitive disadvantage
against companies with greater financial, marketing, services and support and
technological resources than the Company. The Company also believes that the
relative importance of these competitive factors may change over time.
The Company continues to experience competition primarily from the management
information systems departments of its largest potential customers, which have
the capability to develop software internally. The Company believes that
acquisition of MES products will increasingly shift to external vendors as
packages, services and expertise become more widely available from third
parties. The Company continues to experience direct competition primarily in
the semiconductor and pharmaceutical industries from various competitors,
including Base-10, FASTech, Incode, Promis, Inc., and SAP.
The Company anticipates increased competition from both large and small
companies. FASTech markets a competing product for the semiconductor industry.
IBM directly offers and cooperatively markets POMS, a product developed by a
third party, to the pharmaceutical industry. In addition, ERP system vendors
are beginning to compete with the Company. The first such offering was released
by SAP in mid-1995. The Company believes that the development effort required
for producing an MES comparable to the Company's WorkStream DFS and FlowStream
product lines presents a significant barrier to the entrance of new competitors.
Proprietary Rights
- ------------------
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company generally provides its products to end
users under a non-exclusive, non-transferable license which typically has a
perpetual term unless terminated for breach. Under the Company's current form
of license agreement, the licensed software may be used solely for internal
operations at specified sites. In certain instances, the Company has granted a
customer licensed rights to any modifications made to the licensed software by
or for such a customer. The Company protects the human readable, source code
version of its WorkStream Open and FlowStream products as a trade secret and an
unpublished copyrighted work.
The Company has registered "CONSILIUM," "WorkStream" and "FlowStream" as
trademarks in the United States and several foreign jurisdictions and has
received trademark designation for "CONSILIUM," "WorkStream" and "FlowStream" in
several other foreign jurisdictions.
The Company holds three patents, and also relies on a combination of trade
secret, copyright and trademark laws and license agreements to protect its
proprietary rights in its products. There can be no assurance that others will
not develop technologies that are similar or superior to the Company's
technology, duplicate the Company's technology, or design around patents owned
by the Company. The Company generally enters into confidentiality or license
agreements with employees, distributors and customers, and limits access to and
distribution of its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Companys products or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries .
11
<PAGE>
The Company believes that, because of the rapid pace of technological change
in the computer software industry, patent, trade secret and copyright protection
are important to support the continued building up of knowledge, ability and
experience of the Company's employees. This in turn supports the ability of the
Company to provide frequent product enhancements, and deliver quality support
services in a timely manner.
There has been substantial industry litigation regarding patent and other
intellectual property rights involving technology companies. In the future,
litigation may be necessary to protect and enforce the Company's intellectual
property rights, to defend the Company against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. Any such litigation could be costly and could divert
managements attention, which could have a material adverse effect on the
Company's business, results of operations or financial condition regardless of
the outcome of the litigation. In addition, third parties making claims against
the Company with respect to intellectual property infringement may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a claim of
infringement, the Company and its customers may be required to obtain one or
more licenses from third parties. There can be no assurance that the Company or
its customers could obtain necessary licenses from third parties at a reasonable
cost or at all.
Employees
- ---------
As of October 31, 1995, the Company had a total of 210 full-time employees,
including 61 in sales, marketing and related activities, 71 in product
development and maintenance, 46 in services and support, and 19 in management,
administration and finance. The Company also regularly utilizes a significant
number of contract personnel, primarily to assist with software development. At
October 31, 1995, the Company utilized approximately 32 contracted personnel.
None of the Company's employees is represented by a labor union. The Company
has experienced no work stoppages and believes that employee relations are good.
Competition in the recruitment of personnel in the computer software industry
is intense. The Company believes that its future success will depend in part on
its continued ability to hire and retain qualified sales, customer support,
technical and management employees and consultants.
12
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
As of December 31, 1995, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------- --- ----------------------------------------------------------------------------------
<S> <C> <C>
Jonathan J. Golovin 45 Chairman of the Board of Directors, Secretary and Chief Technical Officer
Frank Kaplan 53 Vice President, Software Development
Edward Norton 51 Vice President, International Field Operations and Worldwide Services
Lloyd Payton 55 Vice President, American Field Operations
Thomas A. Tomasetti 51 President, Chief Executive Officer and Director
Richard H. Van Hoesen 40 Vice President, Operations, Administration and Finance and Chief Financial Officer
Clifton Wong 35 Controller
Ralph Zak 46 Vice President, Marketing
</TABLE>
Dr. Golovin, the founder of Consilium, was President of the Company from 1978
to 1987 and has served as a director of the Company since its inception and as
Secretary since January 1989. In April 1992, he was named Chief Technical
Officer. Dr. Golovin has taught both graduate and undergraduate courses in
operations management and production planning at the Massachusetts Institute of
Technology and the University of California at Berkeley. He holds a Ph.D. in
Operations Management from the Massachusetts Institute of Technology and a B.S.
degree from Cornell University.
Mr. Kaplan joined the Company in May 1994 as Vice President of Software
Development. From 1987 to 1994, he held various high level software development
positions with NEC America, Inc., a communications technology company, including
Assistant General Manager, Software Development and Director, Software
Development. Prior to NEC, Mr. Kaplan was with AT&T Bell Laboratories, a
communications technology research firm, where he was Department Head for
Operations Systems Development. Mr. Kaplan holds two Masters degrees in
Mathematics from Yale University and a B.S. in Mathematics from City College of
New York.
Mr. Norton joined the Company in September 1994 as Vice President of
Consulting and Services. In April 1995, he was promoted to Vice President,
International Sales and Worldwide Services. His title was changed to
International Field Operations and Worldwide Services in January 1996. Mr.
Norton was with Industrial Resources, Inc. from 1993 to 1994, a company he
founded to provide investment and development services for companies and
government organizations in Asia. From 1989 to 1993, Mr. Norton held the
positions of Vice President of Asia Pacific and Vice President, Worldwide
Customer Services Division with Pyramid Technology, a computer company. Mr.
Norton's prior experience includes senior management assignments with Tolerant
Systems (now Veritas), a computer systems company, from 1983 to 1989 and
Burroughs Corporation, a computer systems company (now Unisys). He holds a B.S.
in Chemistry from Sussex University in England.
Mr. Payton joined the Company in 1993 as Western Region Sales Manager and was
promoted to Vice President, North American Sales in April 1995. In January
1996, his title was changed to Vice President, American Field Operations. From
1990 to 1993, he was an independent consultant in factory automation and
business planning. From 1984 to 1990, Mr. Payton was Chief Executive Officer
13
<PAGE>
of WSI Corporation, a specialty hardware company. From 1970 to 1983, he held a
variety of executive sales management positions with Parallex Corporation, an
on-line data processing services company, Xerox Corporation, a multi-technology
company, and Telecom Midwest Corporation, a provider of on-line accounting and
control systems for manufacturers. He holds B.A. degrees in Business and English
from Murray State University in Kentucky and an M.B.A. from Wake Forest
University.
Mr. Tomasetti has served as President and Chief Executive Officer of the
Company since June 1987 and as Director since November 1987. He was a
technology consultant with Hillman Ventures, a venture capital firm, from
November 1986 to June 1987, and served as Chief Executive Officer for Formaster
Magnetic Designs, a software duplication equipment firm, from November 1984 to
November 1986. From January 1982 to September 1984, he was Director of Western
Operations for Scientific Calculations, Inc., a software company, and previously
spent 16 years at General Electric Company, a diversified multi-national
conglomerate, most recently as Vice President/General Manager for the Calma
division. Mr. Tomasetti holds a B.S. degree in Engineering from the University
of Massachusetts at Lowell.
Mr. Van Hoesen joined the Company in October 1994 as Vice President
Operations, Administration and Finance and Chief Financial Officer. Mr. Van
Hoesen was Director of Investor Relations at Sun Microsystems, a computer
company, from 1992 to 1994. From 1988 to 1992, he held several senior finance
and administration positions, most recently as Director, Administration, MIS and
Investor Relations, with Teradata Corporation, a computer company. Mr. Van
Hoesen's prior experience includes financial and administrative assignments with
Clabir Corporation, a diversified holding company, Unimation Robotics, an
industrial robotics company and Andersen Consulting, a management consulting
firm. He holds a B.S. in Industrial Engineering from Lehigh University and an
M.B.A. from the University of Pennsylvania's Wharton School of Finance.
Mr. Wong joined the Company as Controller in May 1995. From 1990 to 1995, he
was Director of Finance at Kubota Graphics Corporation, a computer hardware
company, which was previously known as Kubota Pacific Computer, Inc. From 1986
to 1990, he held various positions in finance with Stardent Computer, a computer
hardware company, which was previously known as Ardent Computer, most recently
serving as Operations Controller. He holds a B.A. in Accounting from Golden
Gate University in California and is a Certified Public Accountant in the state
of California.
Mr. Zak joined the Company as Vice President, Marketing in May 1995. From
1992 to May 1995 he was with Quickturn Design Systems, an electronic design
automation company, where he held the positions of Vice President, Business
Development and Communications and Vice President, Marketing. From 1989 to
1992, he was Director of Marketing for the printed circuit board division of
Mentor Graphics Corporation, an electronic design automation company. From 1970
to 1989, Mr. Zak held various executive marketing, business development and
strategic planning positions with HHB Systems, Quadtree Corporation and Calma
Company, design automation companies, and Bechtel Corporation, an engineering
construction firm. He holds a B.S. in Mechanical Engineering from the
University of California at Berkeley and an M.B.A. from Stanford University.
14
<PAGE>
PART II
The Registrant hereby amends Part II, Item 6, SELECTED FINANCIAL DATA,
to read in full as follows:
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
(In thousands, except income (loss) per share amounts)
<TABLE>
<CAPTION>
Years ended October 31: 1995 1994 1993 1992 1991
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues $33,125 $27,944 $28,475 $27,558 $27,354
Income (loss) before taxes 664 (5,523) (4,973) (5,161) (1,567)
Provision (benefit) for
income taxes 523 725 310 162 (503)
Net income (loss) 141 (6,248) (5,283) (5,323) (1,064)
Income (loss) per share 0.02 (0.85) (0.75) (0.77) (0.15)
Shares used in per share
calculations 7,912 7,362 7,025 6,915 6,910
At October 31: 1995 1994 1993 1992 1991
--------- -------- --------- -------- --------
Working capital 9,012 7,345 12,571 17,354 20,699
Total assets 28,668 26,998 31,643 34,506 37,235
Long-term debt, less
current portion --- --- 313 464 ---
Stockholders equity 15,383 13,646 18,836 23,192 27,617
</TABLE>
The Registrant hereby amends Part II, Item 7, MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, to read in
full as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations
- ---------------------
REVENUES. Total revenues increased 19% to $33,125,000 in fiscal
- --------
1995 compared with $27,944,000 in fiscal 1994, which was down 2% from revenues
of $28,475,000 in fiscal 1993.
The following table shows the proportion of the Company's total revenue for
the past three fiscal years from each of its three principal geographic regions:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
1995 1994 1993
--------- ------- ------
<S> <C> <C> <C>
North America 66% 69% 73%
Europe 18% 17% 18%
Asia/Pacific 16% 14% 9%
</TABLE>
15
<PAGE>
Product License Revenues. Product license revenues increased 52% to
$16,115,000 in fiscal 1995 compared with $10,588,000 in fiscal 1994, which
was up 7% from product license revenues of $9,927,000 in fiscal 1993. The
fiscal 1995 increase was due to higher levels of sales in both of the Company's
product lines.
Broken out by product line, product license revenue attributable to
products in the Company's WorkStream DFS product line increased 36% to
$12,436,000 in fiscal 1995 compared with $9,153,000 in fiscal 1994, which was up
51% from revenues of $6,048,000 in fiscal 1993. The 1995 increase was due to a
resurgence in demand in the semiconductor industry for the Company's Workstream
and Workstream Open products, as well as commercial availability of the
Company's new Workstream DFS application servers. Throughout 1995, the
semiconductor industry expanded rapidly, and many industry observers expect it
to continue to do so in 1996.
License revenues attributable to the FlowStream product line increased
156% to $3,679,000 in fiscal 1995 compared with $1,435,000 in fiscal 1994, which
was down 63% from revenues of $3,879,000 in fiscal 1993. The increase in fiscal
1995 from fiscal 1994 was due to a higher level of acceptance of the FlowStream
product in the pharmaceutical industry, which historically has not used packaged
computer systems to track plant floor operations and is therefore in the early
stages of adopting such systems. The fiscal 1993 product license revenue figure
for FlowStream included $2.7 million in non-refundable prepaid license fees
associated with a major agreement signed by the Company with Honeywell
Automation and Control. Excluding this transaction, FlowStream revenues were up
22% in fiscal 1994 from net revenues of $1,179,000 in fiscal 1993.
The Company does not expect product license revenues to grow at the
percentage levels reached in 1995, as future growth will be compared with
relatively stronger periods than in earlier years. In addition, future growth
could be negatively affected if the semiconductor industry slowed its expansion,
or if the pharmaceutical industry, which has not yet adopted computer automated
manufacturing on a wide scale, does not develop into a strong market for the
Company's FlowStream product line. Finally, competition is expected to
increase, and there can be no assurance that competitive pressures will not have
a material effect on the Company's business. Additional competitors entering
the market could result in customer deferral of purchasing decisions for the
Company's products in the near-term, as prospective customers evaluate
competitive products.
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 Fluctuation in Quarterly Results." During
fiscal 1995, the percentage of product license revenue derived from the
Company's ten largest customers was approximately 60% compared with 69% in
fiscal 1994 and 65% in fiscal 1993. Product license fees generally are payable
upon delivery of the licensed software, and cover the customer's use of the
software for the entire term of the license agreement, which is generally
perpetual.
Services Revenues. Services revenues in 1995 were $15,979,000, an increase of
10% over $14,589,000 in fiscal 1994, which was down 7% from $15,655,000 in
fiscal 1993. 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 in fiscal
1995 primarily was due to an increase in revenues from consulting services and
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. The decrease in services revenues from
fiscal 1993 to fiscal 1994 primarily was due to a reduction in custom
programming revenues.
16
<PAGE>
Development Revenues. Development revenues decreased 63% in fiscal 1995 to
$1,031,000 from $2,767,000 in fiscal 1994, which was down 4% from $2,893,000 in
fiscal 1993. The decrease is associated with the completion of activities
related to certain customer-funded development 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 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. In
addition, the timing and scope of development projects can change during the
period of development, making it difficult to accurately forecast the level of
development revenues beyond the near term. Based on current projects planned,
development revenues in fiscal 1996 are expected to remain approximately
constant with fiscal 1995 levels.
Costs and Expenses.
- ------------------
Cost of Product Revenue. Cost of product revenue increased 9% to
$3,022,000 in fiscal 1995, compared with $2,763,000 in fiscal 1994 and
$2,410,000 in fiscal 1993. The increase in cost of product revenues in fiscal
1995 was due to higher product license revenues recorded during the year. 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 own 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 percent of product
revenue were 19%, 26%, and 24% for fiscal years 1995, 1994, and 1993,
respectively. The decrease in cost of product revenue as a percentage of
product revenue from fiscal 1994 to fiscal 1995 was due to a change in the mix
of product revenues coupled with higher amortization, royalties, and purchased
software costs.
Cost of Services Revenue. Cost of services revenue was 30% of total services
revenues in fiscal 1995, compared with 31% and 34% in fiscal 1994 and 1993,
respectively. Services costs include expenses for the customer response center,
resident and application consulting services, custom programming services, and
training groups within the Company. Costs increased 5% from fiscal 1994 to
fiscal 1995. The absolute dollar increase in cost of services compared with
fiscal 1994 primarily was due to the hiring of additional services personnel to
continue to meet customer requirements for consulting services. Services costs
decreased 16% from fiscal 1993 to fiscal 1994. The absolute dollar decrease
resulted from a change in the nature of work performed by the corporate
professional services group. The nature of the group's work changed from
service-oriented projects to research and development activities during the
early part of fiscal 1994.
Research and Development Expenses. Research and development expenses
represented 33% of total revenues in fiscal year 1995, 39% in 1994 and 36%
in fiscal 1993. These expenses increased to $10,880,000 in fiscal 1995
compared with $10,860,000 in fiscal 1994 and $10,206,000 in fiscal 1993.
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. The
proportional decrease in research and development expense as a percentage of
total revenues was due to a higher level of sales for fiscal 1995 than in fiscal
1994.
Software development expenditures of $1,460,000, $1,662,000, and $1,842,000
were capitalized under Statement of Financial Accounting Standards No. 86 in
fiscal 1995, 1994, and 1993, respectively. The amounts capitalized represented
approximately 12%, 13%, and 15% of total research and development expenditures
during such periods. The percentage decreases were due to a
17
<PAGE>
decline in the absolute dollar amount of software costs capitalized during these
periods. In accordance with Statement 86, the amount of research and development
expenditures capitalized in a given time period depends upon the nature of the
development work performed. Accordingly, amounts capitalized may vary from
period to period. See Notes 1 and 2 of Notes to Consolidated Financial
Statements.
Selling and Marketing Expenses. Selling and marketing expenses represented
36% of total revenues in fiscal 1995, compared with 41% and 45% in fiscal
1994 and 1993, respectively. Selling and marketing expenses increased to
$11,812,000 in fiscal 1995 from $11,519,000 in fiscal 1994 and decreased
from $12,701,000 in fiscal 1993. The current year increase in absolute dollars
was due primarily to an increase in the commission expense for the period
resulting from the higher level of sales for the year, partially offset by a
lower headcount. The proportional decrease in sales and marketing expense as a
percentage of total revenues was due to a higher level of sales for fiscal 1995
than in fiscal 1994 and increased sales productivity. The Company believes it
has achieved much of the available sales productivity increases, and that future
revenue increases would be accompanied by proportionate increases in selling and
marketing expenses.
General and Administrative Expenses. General and administrative expenses
include the costs of the finance, accounting, purchasing and administrative
operations of the Company. General and administrative expenses as a percent of
total revenue were 8%, 10%, and 11% for fiscal years 1995, 1994 and 1993,
respectively. The decrease from 1994 to 1995 was primarily due to increases in
sales over the comparable periods. Contributing to the decrease in 1994 from
1993 was lower bad debt expense. It is anticipated that expenses will be at
higher levels for the next fiscal year, particularly in the first two quarters,
due to the costs associated with moving the Company's headquarters following the
expiration of its current lease in February 1996.
Restructuring Charge. During the third quarter of fiscal 1994, the Company
announced a worldwide consolidation of its operations and recorded a
restructuring charge of $1,407,000. The consolidation primarily affected
several field offices. Major cost components associated with the restructuring
were severance pay amounts for terminated employees, lease and rental costs
associated with the consolidation of sales offices and the consolidation of
operations at the Company's headquarters facilities. The balance was comprised
of fixed asset write-offs in the offices affected, as well as travel and legal
fees. The consolidation was designed to improve efficiencies and bring
operational expenses in line with revenues.
Between the third quarter of 1994 and the second quarter of 1995, the Company
utilized $1,196,000 for various restructuring activities. During the third
quarter of fiscal 1995, the Company reevaluated the status of its restructuring
activities in light of results of operations that had improved substantially
since the commencement of the restructuring. As a result of that reevaluation,
the Company decided to discontinue subsequent restructuring activities and
reversed the remaining restructuring reserve of $211,000.
Interest Income and Expense. For the fiscal year ended October 31, 1995,
interest income was $588,000, compared with interest income of $442,000 for
fiscal 1994 and $404,000 for fiscal 1993. Higher invested cash balances and
higher interest rate levels accounted for the increase from fiscal 1994 to
fiscal 1995. Higher interest rate levels, offset by a lower invested cash
balance, accounted for the increase from fiscal 1993 to fiscal 1994. Interest
expense of $10,000, $35,000, and $59,000 in fiscal 1995, 1994 and 1993,
respectively, relates to computer equipment financed under capital leases.
Provision for Income Taxes. The Company's income tax provision for all years
presented principally relates to withholding taxes on sales made in foreign
jurisdictions. The Company has not incurred domestic income tax charges due to
utilization of net operating losses in fiscal 1995 and its net loss
18
<PAGE>
position in fiscal years 1994 and 1993. The Company has established a valuation
allowance against its deferred tax assets and reviews this allowance on a
periodic basis. As such time that the Company believes that is it more likely
than not that the deferred tax asset will be realized, the valuation allowance
will be reduced.
The Company adopted Statement of Financial Accounting Standards No. 109 as of
November 1, 1993. The cumulative effect of adoption of Statement 109 was not
material to the Company's results of operations or financial position for the
year ended October 31, 1994.
Net Income(Loss). The Company had net income of $141,000, or $.02 per
share in fiscal 1995 compared with the prior year net loss of $6,248,000, or
$.85 per share in fiscal 1994. This compares with a net loss of $5,283,000, or
$.75 per share in fiscal 1993.
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; a relatively small 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; and the general economic
conditions in the Company's primary markets. 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 October 31, 1995, the Company had working capital of $9,012,000,
compared with $7,345,000 at October 31, 1994. The fiscal 1995 increase was due
primarily to cash collections associated with the higher level of product sales
for the year. Net cash provided by operating activities in fiscal 1995 was
$1,702,000 compared with net cash used in operating activities of $524,000 in
fiscal 1994. Net cash provided by operations in fiscal 1995 primarily resulted
from fiscal 1995 net income and an increase in non-cash charges for depreciation
and amortization, offset by an increase in accounts receivable and a decrease in
other liabilities and accrued expenses. Higher levels of sales contributed to
the increase in accounts receivable, and the utilization of the restructuring
charge recorded in the third quarter of fiscal 1994 accounted for the decrease
in the other liabilities and accrued expenses. Net cash used in operating
activities in fiscal 1994 was due primarily to the current year net loss offset
by non-cash charges for depreciation and amortization, a decrease in accounts
receivable, and an increase in other liabilities and accrued expenses. Improved
collections contributed to the decrease in accounts receivable. Higher accrued
compensation levels and expenses associated with the restructuring charge
recorded in the third quarter of fiscal 1994 contributed to the increase in
other liabilities and accrued expenses.
Net cash used for investing activities was $981,000 in fiscal 1995 as
compared to net cash provided by investing activities of $1,377,000 in fiscal
1994 and $2,977,000 in fiscal 1993. The change from fiscal 1994 to 1995 was due
to a decrease in short-term investments of $2,022,000, a decrease in
expenditures on capitalized software production costs of $202,000, offset by an
increase in investments in capital equipment of $880,000. During fiscal 1994,
short-term investments decreased $3,702,000. Amounts spent on property, plant
and equipment decreased to $663,000 in fiscal 1994 from $722,000 in fiscal 1993.
Net cash provided by financing activities of $1,283,000, $676,000, and $565,000
in fiscal 1995, 1994 and 1993, respectively, represents primarily sales of
19
<PAGE>
common stock under the employee stock purchase and stock option plans, partially
offset by principal payments on capital leases.
At October 31, 1995, the Company had $10,686,000 in cash and cash equivalents
and $1,478,000 in short-term investments. Management believes the existing cash
and cash equivalents, including short-term investments, will be sufficient to
meet the Company's currently anticipated working capital and capital expenditure
requirements in fiscal 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
During March 1995, the Financial Accounting Standards Board issued Statement No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of." This standard is effective for the
Company's 1997 fiscal year and its adoption is not expected to have a material
effect on the financial statements of the Company.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This standard, which established a fair value based method of accounting for
stock-based compensation plans, also permits an election to continue following
the requirements of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" with disclosures of pro forma net income and earnings per share under
the new method. The Company is reviewing the implications of SFAS No. 123 and
evaluating the effect, if any, on the financial condition and results of
operations of the Company. SFAS No. 123 will be effective for the Company's
fiscal year 1997.
20
<PAGE>
The Registrant hereby amends Part II, Item 8, FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA, to read in full as follows:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Report of Independent Accountants
Board of Directors and Stockholders
Consilium, Inc.
We have audited the accompanying consolidated balance sheets of
Consilium, Inc. and subsidiaries as of October 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Consilium, Inc.
and subsidiaries as of October 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 of the notes to the financial statements, the
Company's 1995 financial statements have been restated.
/S/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
San Jose, California
December 6, 1995, except for Note 10,
for which the date is December 15, 1995,
and Note 1, for which the date is June 11, 1996.
21
<PAGE>
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended October 31,
---------------------------------------
1995 1994 1993
(Restated)
<S> <C> <C> <C>
Revenues
Product $16,115 $10,588 $ 9,927
Services 15,979 14,589 15,655
Development 1,031 2,767 2,893
-------- -------- ---------
Total revenues 33,125 27,944 28,475
-------- -------- ---------
Costs and Expenses
Product 3,022 2,763 2,410
Services 4,734 4,497 5,363
Research and development 10,880 10,860 10,206
Selling and marketing 11,812 11,519 12,701
General and administrative 2,802 2,828 3,113
Restructuring charge (211) 1,407 ---
--------- -------- --------
Total operating expenses 33,039 33,874 33,793
--------- -------- --------
Income (loss) from operations 86 (5,930) (5,318)
---------- -------- --------
Interest income 588 442 404
Interest expense (10) (35) (59)
--------- -------- ---------
Income (loss) before income 664 (5,523) (4,973)
--------- -------- ---------
tax provision
Provision for income taxes 523 725 310
--------- -------- ---------
Net income (loss) $ 141 $(6,248) $ (5,283)
========= ======== =========
Income (loss) per share $ 0.02 $ (0.85) $ (0.75)
========= ======== =========
Shares used in
per share calculations 7,912 7,362 7,025
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
October 31,
-------------------------
1995 1994
---- ----
(Restated)
Assets
Current Assets:
Cash and cash equivalents $ 10,686 $ 8,682
Short-term investments 1,478 3,500
Accounts receivable, net of allowance
for doubtful accounts of $650 and
$625 in 1995 and 1994, respectively 7,578 5,181
Other current assets 1,055 1,055
---------- ----------
Total current assets 20,797 18,418
Property & equipment, net 2,425 2,351
Software production costs, net 5,121 5,524
Other assets 325 705
---------- ----------
Total assets $ 28,668 $ 26,998
========== ==========
Liabilities
Current liabilities:
Accounts payable $ 1,800 $ 1,209
Other current liabilities and accrued
expenses 4,364 4,589
Deferred revenue 5,621 4,962
Capital lease obligation --- 313
---------- ----------
Total current liabilities 11,785 11,073
Deferred revenue 1,325 1,846
Deferred income taxes 158 348
Accrued lease obligation 17 85
---------- ----------
Total liabilities 13,285 13,352
---------- ----------
Commitments and contingencies (Notes 3,
8 and 10)
Stockholders' Equity
Preferred stock, $.01 par value
Authorized: 4,000,000 shares
Issued and outstanding: no shares
in 1995 and 1994 -- --
Common stock, $.01 par value
Authorized: 25,000,000 shares:
Issued and outstanding: 7,695,655
in 1995 and 7,428,651 in 1994 77 74
Additional paid-in capital 23,337 21,744
Accumulated deficit (8,031) (8,172)
---------- ----------
Total stockholders' equity 15,383 13,646
---------- ----------
Total liabilities and
stockholders' equity $ 28,668 $ 26,998
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Retained
Earnings/
Common Stock Additional (Accumulated
(In thousands) Shares Amount Paid-in Capital Deficit) Total
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
BALANCES, NOVEMBER 1, 1992 6,958 $ 70 $19,763 $ 3,359 $23,192
- -----------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
stock purchase plan 121 1 749 -- 750
Exercise of common stock options for cash 141 1 176 -- 177
Net loss -- -- -- (5,283) (5,283)
- -----------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1993 7,220 72 20,688 (1,924) 18,836
- -----------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
stock purchase plan 142 1 738 -- 739
Exercise of common stock options for cash 67 1 318 -- 319
Net loss -- -- -- (6,248) (6,248)
- -----------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1994 7,429 74 21,744 (8,172) 13,646
- -----------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
stock purchase plan 136 1 708 -- 709
Exercise of common stock options for cash 131 2 885 -- 887
Net income -- -- -- 141 141
- -----------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1995 (Restated) 7,696 $ 77 $23,337 $ (8,031) $15,383
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended October 31,
---------------------------------
1995 1994 1993
(In thousands) (Restated)
- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 141 $ (6,248) $(5,283)
-------- --------- --------
Adjustments to reconcile net income(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,332 3,162 3,053
Provision for doubtful accounts receivable 324 188 699
Change in assets and liabilities:
Accounts receivable (2,721) 1,085 (210)
Other assets 190 (654) 1,043
Accounts payable 591 (321) (306)
Deferred revenue 138 714 1,574
Other liabilities and accrued expenses (293) 1,550 310
--------- --------- --------
Total adjustments 1,561 5,724 6,163
--------- --------- --------
Net cash provided by (used in) operating activities 1,702 (524) 880
--------- --------- --------
Cash flows from investing activities:
Capital expenditures (1,543) (663) (722)
Capitalized software production costs (1,460) (1,662) (1,842)
Purchases of short-term investments (1,708) (3,502) (9,469)
Sales of short-term investments 3,730 7,204 15,010
-------- -------- --------
Net cash (used for) provided by investing activities (981) 1,377 2,977
--------- --------- --------
Cash flows from financing activities:
Issuance of common stock and other 1,596 1,058 927
Principal payments on capital leases (313) (382) (362)
--------- --------- --------
Net cash provided by financing activities 1,283 676 565
--------- --------- --------
Net increase in cash and cash equivalents 2,004 1,529 4,422
--------- --------- --------
Cash and cash equivalents at beginning of period 8,682 7,153 2,731
--------- --------- --------
Cash and cash equivalents at end of period $10,686 $ 8,682 $ 7,153
--------- --------- --------
Supplemental cash flow information:
Cash paid for:
Interest $ 10 $ 35 $ 59
Income taxes paid (refunded) $ 13 $ 12 $ (340)
Equipment acquired under capital leases $ -- $ -- $ 235
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
Notes to Consolidated Financial Statements
- ----------------------------------------------
Note 1: Summary of Significant Accounting Policies:
Consilium, Inc. was incorporated in October 1978 and designs and licenses
integrated manufacturing execution systems (MES) software for the manufacturing
plant floor. The Company also markets consulting, implementation and training
services for its software products.
Principles of Consolidation: The consolidated financial statements include the
accounts of Consilium, Inc. and its wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
Cash and Cash Equivalents: The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. At
October 31, 1995, the Company maintained substantially all of its cash and cash
equivalents with three financial institutions.
Short-Term Investments: On November 1, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In accordance with the Statement,
prior period consolidated financial statements have not been restated to reflect
the change in accounting principle. The impact of adopting Statement No. 115
did not have a material effect on the consolidated financial statements.
Short-term investments consist of debt securities with a remaining maturity
of more than three months when purchased. The Company has determined that all
of its debt securities should be classified as available for sale. The
difference between the cost basis and the market value of the Company's
investments was not material at October 31, 1995. All of the Company's
investments at October 31, 1995 consist of commercial paper with remaining
maturities of less than one year.
Depreciation and Amortization: Property and equipment are stated at cost and
depreciated on a straight-line basis over estimated useful lives of five years.
Leasehold improvements are amortized over their estimated useful lives or the
remaining term of the related lease, if shorter.
Software Production Costs: Costs incurred prior to establishment of
technological feasibility are charged to research and development expense.
Thereafter, the Company capitalizes certain costs, consisting of salaries,
related benefits and an allocation of indirect costs, incurred internally in
creating computer software. Software production costs are capitalized until the
software is available for general release. Amortization is provided on the
basis of license revenues recognized during the year to total anticipated
license revenues; however, the annual amortization expense, at a minimum, will
not be less than 20% of the capitalized costs. Research and development costs
incurred to improve and enhance existing software are charged to expense as
incurred.
Revenue Recognition: The Company licenses standard application software
programs and offers annual maintenance contracts that provide for technical
support and updates to software modules. Product license revenue is generally
recognized upon receipt of a customer purchase order, execution of a software
license agreement and shipment of a product to the customer. However, with
respect to sales made through foreign distributors or systems integrators,
revenue is recognized either upon resale by the distributor to the end user or
upon installation of the software at the end user's facility. Revenue from
development and porting contracts is generally recognized using the percentage
of completion method of accounting. Revenue from customer maintenance contracts
is recognized ratably over the period of the contract. Payments for maintenance
contracts are generally made for the upcoming year and are non-refundable.
Service revenue is recognized as work is performed.
26
<PAGE>
Advertising Costs: Advertising costs are charged to operations as incurred.
Advertising costs were $470,000, $503,000 and $453,000 in fiscal years 1995,
1994 and 1993.
Income Taxes: Effective November 1, 1993, the Company adopted Financial
Accounting Standards Statement No. 109, "Accounting for Income Taxes." Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Prior to the adoption of Statement 109, income tax expense was
determined using the deferred method in accordance with Accounting Principles
Board Opinion No. 11.
Foreign Currencies: The functional currency of the Company's wholly owned
subsidiaries is the U.S. dollar. Translation gains and losses are included in
the statement of operations.
Concentrations of Credit Risk: A significant portion of the Company's sales and
receivables are from customers in the semiconductor, electronics, pharmaceutical
and chemical industries. The Company maintains allowances for doubtful accounts
receivable and does not require collateral. Short term investments are
comprised primarily of taxable notes and municipal bonds with maturities not
exceeding six months. The Company has investment policies and performs ongoing
credit evaluations to minimize credit risk.
Computation of Income/Loss per Share: 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 on the weighted average number of common
shares outstanding during the period. Stock options have not been included in
the calculation of common equivalent shares for loss per share as their
inclusion would be antidilutive.
Recent Accounting Pronouncements: During March 1995, the Financial Accounting
Standards Board issued Statement No. 121 (SFAS No. 121), Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. This
standard is effective for the Company's 1997 fiscal year and its adoption is not
expected to have a material effect on the financial statements of the Company.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." This
standard, which established a fair value based method of accounting for stock-
based compensation plans, also permits an election to continue following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
with disclosures of pro forma net income and earnings per share under the new
method. The Company is reviewing the implications of SFAS No. 123 and evaluating
the effect, if any, on the financial condition and results of operations of the
Company. SFAS No. 123 will be effective for the Company's fiscal year 1997.
Reclassifications: Certain reclassifications were made to prior year amounts to
conform to the 1995 presentation. These reclassifications did not change the
previously reported net income (loss), total assets or total cash flows of the
Company for those years.
Restatement: During April 1996, the Company discovered that one of its sale
representatives had falsified certain sales documents related to sales
transactions that had been recorded as revenue during the fourth quarter of
fiscal 1995. The Company has reduced revenues for the erroneously recorded
transactions and has reduced bonuses payable to certain officers of the Company
to the extent the
27
<PAGE>
bonuses had been overpaid to such officers of the Company as a result of the
error in the consolidated financial statements.
Accordingly, the Company has restated its financial statements for the year
ended October 31, 1995. The restatement has resulted in a reduction of
previously reported consolidated net sales by $732,000 in fiscal 1995 and a
reduction in previously recorded net income of $486,000. 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>
Note 2: Balance Sheet Detail:
<TABLE>
<CAPTION>
Property and Equipment:
October 31,
(In thousands) 1995 1994
-------- -------
<S> <C> <C>
Computer equipment $ 8,136 $ 6,934
Office equipment 2,040 2,043
Purchased software 1,965 1,733
Leasehold improvements 736 723
-------- -------
12,877 11,433
======== =======
Less accumulated depreciation and amortization (10,452) (9,082)
-------- -------
$ 2,425 $ 2,351
======== =======
</TABLE>
Property and equipment at October 31, 1995 and 1994 includes computer
equipment acquired under capital leases of $1,131,000 (accumulated amortization
of $1,131,000 and $819,000, respectively).
<TABLE>
<CAPTION>
Software Production Costs:
October 31,
(In thousands) 1995 1994
--------- ------------
<S> <C> <C>
Software production costs $ 16,325 $14,865
Less accumulated amortization (11,204) (9,341)
-------- -------
$ 5,121 $ 5,524
======== =======
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31,
(In thousands) 1995 1994 1993
------ ----------- ----------
<S> <C> <C> <C>
Software production costs
capitalized $1,460 $1,662 $1,842
Annual amortization of software
production costs $1,863 $1,809 $1,578
</TABLE>
Other Current Liabilities and Accrued Expenses:
<TABLE>
<CAPTION>
October 31,
(In thousands) 1995 1994
------------ -----------
<S> <C> <C>
Accrued compensation $ 2,023 $1,105
Employee stock purchase plan withholdings 326 302
Other 1,009 2,161
Accrued taxes 1,006 1,021
------ ------
$ 4,364 $4,589
====== ======
</TABLE>
Note 3: Commitments:
Operating Leases: The Company leases its headquarters, research and development
facility, sales offices and certain equipment under noncancelable operating
leases for periods of up to twenty-five years. Certain facility leases
provide for monthly rentals of approximately $66,000, subject to increases in
the Consumer Price Index, or 5% annual increases, and continue through January
1996. Under these agreements, the Company is responsible for property taxes,
insurance and maintenance. During August 1995, the Company entered into a lease
for a new headquarters facility with monthly rental payments beginning February
1996 of approximately $55,000, subject to increases in the Consumer Price Index,
to a maximum of 5% annual increase.
Future minimum lease payments under operating leases at October 31, 1995, are
as follows:
Year Ending October 31,
- ------------------------------
(in thousands)
1996 $1,075
1997 934
1998 891
1999 901
2000 798
Thereafter 2,638
------
Total minimum lease payments $7,237
======
Rental expense was approximately $1,245,000, $1,577,000, and $1,349,000 for
the years ended October 31, 1995, 1994, and 1993, respectively.
Note 4: Capital Stock:
Employee Stock Purchase Plan: On March 15, 1989, the Board of Directors adopted
an employee stock purchase plan (the "Purchase Plan") and initially reserved a
total of 250,000 shares of Common Stock of the Company. In March 1993, the
number of shares reserved for issuance under the Plan was increased by 250,000.
The Company again increased the number of shares reserved for issuance
29
<PAGE>
under the Plan from 500,000 to 680,000 shares in March 1994. Under the Plan,
employees may purchase common stock through payroll deductions at 85% of the
lesser of the fair market value on the first or last day of six month offering
periods. At October 31, 1995, a total of 111,351 shares remained available for
purchase under the plan.
Employee Stock Option Plans: The Company increased the number of shares
reserved for issuance under its 1983 stock option plan from 2,000,000 to
2,320,000 in March 1994. 418,056 shares were available for future grants as of
October 31, 1995. In March 1993, the Company adopted its 1993 stock option plan
under which options for a total of 500,000 shares of Common Stock may be granted
to employees other than executive officers of the Company. 1,974 shares were
available for future grants as of October 31, 1995. Under the 1983 and 1993
plans, both qualified and non-qualified options may be granted to employees to
purchase Common Stock at prices not less than fair market value at date of
grant. The exercise period is determined by the Board of Directors at the date
of grant. All options granted under the Plan are exercisable immediately and
generally expire five years from date of grant. Options generally vest over
four years and, if exercised prior to vesting, are subject to repurchase at the
original purchase price. At October 31, 1995, a total of 401,380 options were
vested.
On September 21, 1993, the Board of Directors approved the repricing of all
employee stock options previously granted with exercise prices greater than
$6.125 per share. A total of 631,124 shares were repriced at $6.125 per share.
The Board of Directors agreed to the repricing with the condition that all
grants would begin re-vesting on September 21, 1993.
Activity under the 1983 and 1993 Employee Stock Option Plans is as follows:
<TABLE>
<CAPTION>
(In thousands)
Number Price Aggregate
of Shares per Share Price
---------- ------------- ----------
<S> <C> <C> <C>
Balance at November 1, 1992 701 $ .75-$18.75 $ 6,375
Granted 791 $6.125-$10.00 9,633
Exercised (141) $ .75-$7.25 (172)
Canceled (185) $4.875-$17.25 (7,945)
- ----------------------------- ----- ------------- -------
Balance at October 31, 1993 1,166 $ .75-$18.75 $ 7,891
Granted 319 $ 4.50-$8.75 2,221
Exercised (67) $ .75-$7.25 (316)
Canceled (320) $6.125-$18.75 (2,459)
- ----------------------------- ----- ------------- -------
Balance at October 31, 1994 1,098 $ 4.50-$15.00 $ 7,337
Granted 438 $6.375-$12.14 3,521
Exercised (131) $ 4.50-$8.75 (887)
Canceled (215) $ 4.50-$12.50 (1,635)
- ----------------------------- ----- ------------- -------
Balance at October 31, 1995 1,190 $ 4.50-$12.50 $ 8,336
</TABLE>
Outside Director Stock Option Plan: In 1990, the Company adopted a stock option
plan under which options for a total of up to 100,000 shares of Common Stock may
be granted to non-executive directors of the Company. The plan provides for the
granting of nonqualified stock options at prices not less than fair market value
on the date of grant. Options expire 10 years after the date of grant. At
October 31, 1995, a total of 32,500 options had been granted at exercise prices
ranging between $6.125 and $8.50 per share, of which none were exercised. In
addition, the Company has separate option agreements with non-executive
directors which totaled 27,500 shares at an exercise price of $6.25 per share as
of October 31, 1995.
30
<PAGE>
Note 5: Income Taxes:
As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 109 as of November 1, 1993. The cumulative effect of adoption of
Statement 109 was not material to the CompanyOs results of operations or
financial position for the year ended October 31, 1994. Prior periods were not
restated.
The provision for income taxes consists of foreign withholding taxes.
The reconciliation between the provision for taxes calculated at the
effective tax rate and at the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Federal income tax statutory rate 34.0% (34.0%) (34.0%)
Foreign taxes 45.5% 13.1% 6.2%
Operating losses (34.0%) 34.0% 34.0%
----- ----- -----
Effective tax rate 45.5% 13.1% 6.2%
===== ===== =====
</TABLE>
The following table shows the major components of the deferred tax assets and
liabilities as of October 31, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands)
Current deferred tax assets: 1995 1994
------ --------
<S> <C> <C>
Accounts receivable, inventory
and other reserves $ 221 $ 513
Accrued expenses 184 689
Deferred revenue 282 580
Valuation allowance (529) (1,434)
----- -------
Net current deferred tax assets $ 158 $ 348
===== =======
</TABLE>
Non current deferred tax assets (liabilities):
<TABLE>
<S> <C> <C>
Net operating losses $ 5,124 $ 4,605
Tax credit carryforwards 4,515 3,440
Depreciation (357) (180)
Amortization (2,089) (2,185)
Other 222 444
Valuation allowance (7,573) (6,472)
------- -------
Net non-current liability $ (158) $ (348)
======= =======
</TABLE>
Deferred income taxes included in other current assets at October 31, 1995
and 1994 were $158,000 and $348,000, respectively. The Company has recorded a
valuation allowance against its net deferred tax assets due to the uncertainty
surrounding the realization of such assets. Management evaluates on a quarterly
basis the recoverability of the deferred tax assets and the level of the
valuation allowance. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
31
<PAGE>
At October 31, 1995, the Company has federal net operating loss carryforwards
of approximately $14,075,000 and state net operating loss carryforwards of
approximately $5,500,000. In addition, the Company has approximately $4,160,000
and $350,000 in general business credit carryforwards for federal tax and state
tax reporting purposes, respectively.
These carryforwards and credits expire between 1996 and 2010 for both federal
and state purposes, if not used before such time to offset future taxable income
or taxes payable.
Note 6: Geographic and Significant Customer Information:
The Company designs and licenses integrated manufacturing execution systems
(MES) software for batch process and discrete manufacturers and operates
primarily in one segment. The Company markets and services its products in the
United States and foreign countries through its direct sales organization and
through distributors.
The Company's foreign operations primarily consist of product sales and
services. Geographic net revenue information is as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
(In thousands) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
North America $21,919 $19,168 $20,893
Asia / Pacific Rim 5,147 3,834 2,387
Europe 6,059 4,942 5,195
------- ------- -------
Total net revenue $33,125 $27,944 $28,475
======= ======= =======
</TABLE>
No customer accounted for more than 10% of total revenue for fiscal 1995.
Two customers accounted for 11% and 10%, respectively, of total revenue in
fiscal 1994. One other customer accounted for 11% of total revenue in fiscal
1993.
Note 7: Employee Benefit Plan:
The Company has a 401(k) plan for eligible employees. The Board of Directors
may elect to make a discretionary contribution to the plan. There were no such
contributions in fiscal 1995, 1994, or 1993.
Note 8: Litigation:
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.
32
<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.
Note 9: Restructuring Charge:
During the third quarter of fiscal 1994, the Company announced a worldwide
consolidation of its operations and recorded a restructuring charge of
$1,407,000. The consolidation primarily affected several field offices. Major
cost components associated with the restructuring were severance pay amounts for
terminated employees, lease and rental costs associated with the consolidation
of sales offices and the consolidation of operations at the Company's
headquarters facilities. The balance was comprised of fixed asset write-offs in
the offices affected, as well as travel and legal fees. The consolidation was
designed to improve efficiencies and bring operational expenses in line with
revenues.
Between the third quarter of 1994 and the second quarter of 1995, the Company
utilized $1,196,000 for various restructuring activities. During the third
quarter of fiscal 1995, the Company reevaluated the status of its restructuring
activities in light of results of operations that had improved substantially
since the commencement of the restructuring. As a result of that reevaluation,
the Company decided to discontinue subsequent restructuring activities and
reversed the remaining restructuring reserve of $211,000. No reserve amount
remains at October 31, 1995.
Note 10: Subsequent Event:
On December 15, 1995, the Company entered into an agreement with Electronic Data
Systems Corporation to out-source the Company's computer data center and
telecommunication services. The contract has a 10-year term beginning December
1995. In the event the Company decides to terminate the contract before the
expiration of the term, the Company will be required to pay a termination fee
depending on the termination date, as stated in the agreement.
The table below sets out the obligations under this contract:
<TABLE>
<CAPTION>
Service Termination
Fiscal Year Obligation Fee
- --------------------------- ----------- -----------
<S> <C> <C>
1996 $ 1,396,000 $900,000
1997 2,747,000 800,000
1998 2,874,000 600,000
1999 2,950,000 500,000
2000 3,028,000 300,000
Thereafter 16,581,000 150,000
----------- --------
Total Service Obligations $29,576,000
===========
</TABLE>
33
<PAGE>
PART III
The Registrant hereby amends Part III, Item 11, EXECUTIVE COMPENSATION, to
read in full as follows:
ITEM 11. EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation
of the Chief Executive Officer of the Company and the four other executive
officers of the Company as of October 31, 1995 whose total salary and bonus for
the year ended October 31, 1995 exceeded $100,000, for services in all
capacities to the Company and its subsidiaries, during the fiscal years ended
October 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
---------------------
Annual Compensation Awards
------------------- ---------------------
Securities Underlying
Name and Principal Position Year Salary Bonus /1/ Options
- ---------------------------------------- ----- ------ ----------- ---------------------
<S> <C> <C> <C> <C>
Thomas Tomasetti 1995 $200,000 $ 38,073/2/ 0
---- $188,156 $ 13,167/3/ 0
President and Chief Executive Officer 1994 $182,825 $ 0 254,700/4/
----
1993
----
Richard Lloyd Payton 1995 $ 88,333 $ 94,072/5/ 32,000
---- $ 89,332 $103,918/6/ 0
Vice President, North American Field 1994 $ 16,041/7/ $ 4,213/8/ 8,000
Operations ----
1993
----
Jonathan Golovin 1995 $190,000 $ 30,573/9/ 0
---- $180,740 $ 12,289/10/ 0
Chairman of the Board, Chief Technical 1994 $175,100 $ 0 200,000/11/
Officer and Secretary ----
1993
----
Edward Norton 1995 $135,000 $ 74,275/12/ 70,000
---- $ 18,952 $ 0 0
Vice President, International Field 1994 -- /13/ -- --
Operations and Worldwide Services ----
1993
----
Richard Van Hoesen 1995 $135,000 $ 23,073/14/ 0
---- $ 5,625 $ 0 70,000
Vice President, Finance and 1994 -- /15/ -- --
Administration and Chief Financial ----
Officer 1993
----
</TABLE>
/1/ Bonuses are paid based on Company performance and individual objectives set
by Mr. Tomasetti and/or the Compensation Committee. No Company performance
bonuses to the above officers were paid in fiscal 1994 or 1993, except for
profit sharing.
34
<PAGE>
2 Includes $573 in profit sharing bonus from fiscal 1995 profits, and
performance bonus based on achievement of Company revenue and profitability
targets and customized objectives determined by the Compensation Committee.
3 Includes $454 in profit sharing bonus from fourth quarter 1994
profits and performance bonus based on achievement of customized objectives
determined by the Compensation Committee.
4 Includes options to purchase an aggregate of 129,100 shares which
were repriced September 21, 1993, replacing options to purchase 3,500 shares
granted in fiscal 1992 and options to purchase an aggregate of 125,600 shares
granted in fiscal 1993.
5 Includes $573 in profit sharing bonus from fiscal 1995 profits, and
performance bonus based on achievement of Company revenue and profitability
targets and customized objectives determined by Mr. Tomasetti and approved by
the Compensation Committee. Also includes $68,409 in bonuses paid on
accomplishment of sales revenue objectives.
6 Includes $454 in profit sharing bonus from fourth quarter 1994
profits and performance bonus based on achievement of customized objectives
determined by Mr. Tomasetti and approved by the Compensation Committee. Also
includes $103,464 in bonuses paid on accomplishment of sales revenue
objectives.
7 Mr. Payton commenced his employment with the Company on September 7, 1993
and became an executive officer of the Company in March 1995.
8 Bonus paid on accomplishment of sales revenue objectives.
9 Includes $573 in profit sharing bonus from fiscal 1995 profits, and
performance bonus based on achievement of Company revenue and profitability
targets and customized objectives determined by Mr. Tomasetti and approved by
the Compensation Committee.
10 Includes $454 in profit sharing bonus from fourth quarter 1994
profits and performance bonus based on achievement of customized objectives
determined by Mr. Tomasetti and approved by the Compensation Committee.
11 Includes options to purchase 100,000 shares which were repriced
September 21, 1993, replacing an option to purchase an identical number of
shares granted earlier in fiscal 1993.
12 Includes $573 in profit sharing bonus from fiscal 1995 profits,
and performance bonus based on achievement of Company revenue and
profitability targets and customized objectives determined by Mr. Tomasetti
and approved by the Compensation Committee. Also includes $24,734 in bonuses
paid on accomplishment of sales revenue objectives.
13 Mr. Norton commenced his employment with the Company on September 12, 1994.
14 Includes $573 in profit sharing bonus from fiscal 1995 profits and
performance bonus based on achievement of Company revenue and profitability
targets and customized objectives determined by Mr. Tomasetti and approved by
the Compensation Committee.
15 Mr. Van Hoesen commenced his employment with the Company on October 17, 1994.
35
<PAGE>
The following table provides the specified information concerning grants
of options to purchase the Company's Common Stock made during the year ended
October 31, 1995 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants in Fiscal 1995 for Option Term /1/
- ---------------------------------------------------------------------------------------------------- ---------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price/3/ Expiration
Name Granted/2/ Fiscal Year Date 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas Tomasetti 0 0.00% -- -- -- --
Lloyd Payton 5,000 1.14% $6.375 11/16/99 $ 8,806 $ 19,460
27,000 6.17% $8.625 2/22/00 $64,339 $142,173
Jonathan Golovin 0 0.00% -- -- -- --
Edward Norton 50,000 11.42% $6.375 11/16/99 $88,065 $194,600
20,000 4.57% $8.625 2/22/00 $47,659 $105,313
Richard Van Hoesen 0 0.00% -- -- -- --
</TABLE>
1 Potential gains are net of exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only, in accordance with the Securities and Exchange
Commission's rules. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall market
conditions and the optionholders' continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved. One share of stock purchased at $6.375 in 1995 would yield profits
of $1.76 at 5% appreciation over five years, or $3.89 per share at 10%
appreciation over the same period. One share purchased at $8.625 per share in
1995 would yield profits of $2.38 per share at 5% appreciation over five
years, or $5.27 per share at 10% appreciation over the same period.
2 All options granted in fiscal 1995 under the Company's
1983 Stock Option Plan (the "Option Plan") are immediately
exercisable, and generally vest over a four year period at the rate of one-
fourth on the first anniversary of the date of grant and 1/48 per month
thereafter for each full month of the optionee's continuous
employment with the Company. Unvested options are subject to repurchase by
the Company. Under the Option Plan, the Board retains discretion to modify
the terms, including the price, of outstanding options. See
"EXECUTIVE COMPENSATION AND OTHER MATTERS - Severance and Change of
Control Arrangements."
3 All options listed were granted at market value on the date of
grant.
36
<PAGE>
The following table provides the specified information concerning
exercises of options to purchase the Company''s Common Stock in the fiscal year
ended October 31, 1995, and unexercised options held as of October 31, 1995, by
the persons named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised In-the-
Unexercised Money Options at
Options at 10/31/95 10/31/95 /1/
-------------------- -------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable/2/ Unexercisable Exercisable/2/ Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas Tomasetti -- -- 129,100/3/ 0 $806,875 --
Lloyd Payton 1,300 $3,087.50/4/ 38,700/5/ 0 $173,125 --
Jonathan Golovin -- -- 100,000/6/ 0 $625,000 --
Edward Norton -- -- 70,000/7/ 0 $375,000 --
Richard Van Hoesen -- -- 70,000/8/ 0 $490,000 --
</TABLE>
1 Based on a fair market value of $12.375, the closing price of the
Company's Common Stock on October 31, 1995.
2 Company stock options are immediately exercisable at date of grant,
but vest over a period of four years. The value shown is for all outstanding
in-the-money options regardless of vesting restrictions.
3 Includes 51,106 shares that are unvested and subject to repurchase
by the Company.
4 Based on a fair market value of $8.50, the closing price of the
Company's Common Stock on the date of exercise.
5 Includes 26,855 shares that are unvested and subject to repurchase
by the Company.
6 Includes 39,584 shares that are unvested and subject to repurchase
by the Company.
7 Includes 47,292 shares that are unvested and subject to repurchase
by the Company.
8 Includes 46,667 shares that are unvested and subject to repurchase
by the Company.
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
Pursuant to a letter agreement between the Company and Thomas Tomasetti,
its President and Chief Executive Officer, the Company and Mr. Tomasetti are
each required to give 90 days' notice of termination of employment, and upon
the Company's termination of Mr. Tomasetti's employment, he is entitled to
severance pay consisting of six months' base salary, payable monthly, and six
months of extended coverage under the Company's medical plan.
37
<PAGE>
In the event of a transfer of control of the Company as defined
under the Option Plan, the Company's repurchase option will terminate
as of the date of the transfer of control if the acquiring or successor
corporation does not elect to assume the outstanding options. Any outstanding
options which are not exercised or assumed will terminate as of the date of the
transfer of control.
Options granted under the Company's 1990 Outside Directors Stock Option Plan
(the "Directors Plan") contain provisions pursuant to which all outstanding
options granted under the Directors Plan will become fully vested and
immediately exercisable upon a "transfer of control" as defined under the
Directors Plan.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive any cash
compensation for their services as members of the Board of Directors, although
they are reimbursed for expenses incurred in attending each Board and committee
meeting. The Company's Directors Plan provides for the initial automatic grant
of an option to purchase 15,000 shares of the Company's Common Stock to
directors of the Company who are not employees of the Company (an "Outside
Director") upon initial appointment or election to the Board of Directors, and
subsequent grants to each Outside Director of an option to purchase 2,500 shares
of Common Stock on the date of the first Board meeting of each successive fiscal
year thereafter, prorated for the first year based on the number of full months
of service as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
L. Barton Alexander and Gerard Langeler served as members of the Board of
Directors' Compensation Committee at the commencement of the fiscal year ended
October 31, 1995. Mr. Langeler did not stand for re-election at the 1995 Annual
Meeting of Stockholders, and Robert Horne was appointed to the Compensation
Committee, effective upon the 1995 Annual Meeting, to fill the vacancy created
by Mr. Langeler's departure. Jonathan J. Golovin was appointed to the
Compensation Committee in September 1995 to replace Mr. Alexander. Dr. Golovin
is the Chairman of the Board of Directors and Secretary of the Company, and was
named Chief Technical Officer of the Company in April 1992. Dr. Golovin did not
participate in any deliberations of the Compensation Committee concerning his
salary, bonus or stock options during fiscal 1995.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% stockholders were complied with, except that, due to
administrative error, one annual statement of changes in beneficial ownership
reporting one exempt transaction by Edward Norton was not timely filed; also due
to administrative error, one annual statement of changes in beneficial ownership
reporting one exempt transaction by Thomas Tomasetti was not timely filed; and
one monthly statement of changes in beneficial ownership, reporting two
transactions by former officer Charles DeVita after his departure from the
Company, was not timely filed.
38
<PAGE>
PART IV
The Registrant hereby amends Part IV, Item 14, EXHIBITS, FINANCIAL STATEMENT
-----------------------------
SCHEDULES AND REPORTS ON FORM 8-K, to read in full as follows:
- -------------------------------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Financial Statements.
---------------------
Report of Independent Accountants dated December 6 and December 15,
1995 and June 11, 1996.
Consolidated Statements of Operations - Years Ended October 31, 1995, 1994
and 1993.
Consolidated Balance Sheets - October 31, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years Ended October 31,
1995, 1994, and 1993.
Consolidated Statements of Cash Flows - Years Ended October 31, 1995, 1994
and 1993.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule. The following financial statement schedule
----------------------------
of Consilium, Inc. is filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Consilium,
Inc.
Report of Independent Accountants on Financial
Statement Schedule Page S-1
Schdule II- Valuation and Qualifying Accounts Page S-2
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Consolidated Financial Statements or notes thereto.
3. Exhibits (a)
------------
Exhibit
Number Exhibit Title
------- --------------
3.1 Certificate of Incorporation of the Company. 3
3.2 By-Laws of the Company. 3
39
<PAGE>
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,#
10.8 Forms of Stock Option Agreement used in conjunction with
the 1983 Stock Option Plan. 6, #
10.9 1990 Outside Director's Stock Option Plan. 6, #
10.10 Forms of Outside Directors Stock Option Agreement used in
conjunction with the 1990 Outside Director's Stock Option Plan.
6,#
10.11 Lease agreement for the Company's principal facility, dated
August 2, 1995, among the Company and The Prudential Insurance
Company of America. #
10.12 Letter Agreement, dated August 5, 1994, with respect to the
employment of Edward Norton. 6, #
10.13 Letter Agreement, dated September 28, 1994, with respect to the
employment of Richard Van Hoesen. 6, #
11.1 Statement re Computation of Income (Loss) per Share.
21.1 Schedule of Subsidiaries. #
23.1 Consent of Independent Accountants.
24.1 Power of Attorney. #
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.
40
<PAGE>
2 Incorporated by reference from exhibit 10.3 to Registrant's Annual
Report on Form 10-K filed for the Year ended October 31, 1990.
3 Incorporated by reference from exhibits 3.1, 3.2 or 10.19 to
Registrant's Quarterly Report on Form 10-Q filed 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.
# Previously filed with Registrant's Annual Report on Form 10-K for the
Year ended October 31, 1995.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the last quarter
of the fiscal year ended October 31, 1995.
41
<PAGE>
FORM S-8 UNDERTAKING
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended,
the undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into the Registrant's Registration Statements on
Form S-8 Nos.E33-30381 (filed August 8, 1989), 33-30382 (filed August 8, 1989),
33-35363 (filed July 9, 1990), 33-41312 (filed June 20, 1991), 33-63346 (filed
May 27, 1993) 33-63512 (filed May 28, 1993), 33-79474 (filed May 27, 1994) and
33-79458 (filed May 27, 1994).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedents, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication
of such issue.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONSILIUM, INC.
By: /s/ Clifton Wong
-------------------------
Clifton Wong
Controller and
Chief Accounting Officer
DATED: July 2, 1996
------------
43
<PAGE>
EXHIBIT 11.1
CONSILIUM, INC.
STATEMENT RE COMPUTATIONS OF INCOME/LOSS PER SHARE
(Amounts in thousands, except per share amounts)
Years ended October 31,
1995 1994 1993
---------- -------- -------
(Restated)
Net income/(loss) $141 ($6,248) ($5,283)
======== ======== =========
Weighted average number of shares
outstanding 7,567 7,362 7,025
Weighted average number of shares
computed using the treasury
stock method (1) 345 -- --
-------- -------- ---------
Weighted average number of shares
outstanding, as adjusted 7,912 7,362 7,025
======== ======== =========
Income/(loss) per share $0.02 ($0.85) ($0.75)
======== ======== =========
(1) Stock options have not been included in the calculation of loss per share as
there effect would be anti-dilutive.
Note: There is not material difference in the calculation of primary and fully
diluted income (loss) per share.
44
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Consilium, Inc., on Form S-8 (File Nos. 33-30381, 33-30382, 33-35363, 33-41312,
33-63346, 33-63512, 33-79474 and 33-79458) of our reports dated December 6,
1995, except for Note 10, for which the date is December 15, 1995, and Note 1,
for which the date is June 11, 1996, on our audits of the consolidated
financial statements and financial statement schedule of Consilium, Inc., as of
October 31, 1995 and 1994 and for each of the three years in the period ended
October 31, 1995, which reports are include in this Form 10-K.
s/s Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
July 2, 1996
