-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Md1kDnywnAfSOLW7MMgPwi211MmOoQggB3YozjHYwmjwh+1wldAjT0Npw3BzITX2 yLGrGH1MtjoGTPyHC1869A== 0000950124-95-003209.txt : 19951012 0000950124-95-003209.hdr.sgml : 19951012 ACCESSION NUMBER: 0000950124-95-003209 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19951011 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMSHARE INC CENTRAL INDEX KEY: 0000201513 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 381804887 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-04096 FILM NUMBER: 95579738 BUSINESS ADDRESS: STREET 1: 3001 S STATE ST CITY: ANN ARBOR STATE: MI ZIP: 48108 BUSINESS PHONE: 3139944800 MAIL ADDRESS: STREET 1: P O BOX 1588 CITY: ANN ARBOR STATE: MI ZIP: 48106 10-K/A 1 FORM 10-K/A 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K/A (AMENDMENT NO. 2) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JUNE 30, 1995 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File Number 0-4096 COMSHARE, INCORPORATED (Exact name of registrant as specified in its charter) MICHIGAN 38-1804887 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (313) 994-4800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $1.00 Par Value 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 Common Stock held by non-affiliates of the Registrant as of August 31, 1995 based on $27.125 per share, the last sale price for the Common Stock on such date as reported on the NASDAQ National Market System, was approximately $112,618,000. As of August 31, 1995 the Registrant had 5,493,515 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT ----------------------------------------- Portions of Proxy Statement for the Part of Form 10-K Report 1995 Annual Meeting of Shareholders into which it is incorporated ("The 1995 Proxy Statement") III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW The Company's revenue consists of software license revenue, maintenance fees and implementation and consulting services fees from products sold in three decision support application market areas: Executive Information Systems (EIS), Financial Reporting and Retail Decision Support. Comshare licenses its products worldwide. In certain territories outside North America, products are licensed through distributors, where revenue is reported net of distributor fees. RESULTS OF OPERATIONS The following table summarizes the percentage relationships of income and expense items included in the Company's Consolidated Statement of Operations.
PERCENT INCREASE AS A PERCENT INCOME AND (DECREASE) OF REVENUE EXPENSE ITEMS FROM PRIOR YEAR - --------------------------------- ------------------------------- --------------------- 1995 1994 1993 1995 1994 - ----- ----- ----- ------ ------ Revenue: 45.5% 39.2% 38.4% Software licenses 30.2% (6.3)% 33.8 43.1 41.0 Software maintenance (12.0) (3.3) Implementation, consulting 20.7 17.7 20.6 and other services 30.9 (21.2) - ----- ----- ----- ------ ------ 100.0 100.0 100.0 Total revenue 12.1 (8.1) Costs and expenses: 41.8 48.1 51.4 Selling and marketing (2.5) (14.1) Cost of revenue and 22.9 18.3 19.5 support 40.3 (13.9) Internal research and 14.9 20.0 21.9 product development (16.1) (16.1) Internally capitalized (10.8) (13.7) (14.3) software (11.6) (12.3) 12.2 13.0 10.2 Software amortization 5.9 16.3 General and 10.8 10.2 11.1 administrative 17.9 (15.2) 5.9 -- -- Unusual charge * -- -- 2.4 1.4 Restructuring related costs (100.0) 57.4 - ----- ----- ----- ------ ------ Income (loss) from 2.3 1.7 (1.2) operations 50.8 229.7 (0.2) (0.5) 0.2 Other income, net (60.1) (408.0) - ----- ----- ----- ------ ------ Income (loss) 2.1 1.2 (1.0) before taxes 101.1 202.7 Provision (benefit) for (2.8) 1.0 0.6 income taxes (434.2) (38.4) - ----- ----- ----- ------ ------ 4.9% .2% (1.6)% Net income (loss) 2300.0% 112.6% ===== ===== ===== ====== ======
*Percent not meaningful. 11 3 1995 COMPARED WITH 1994 Revenue for the fiscal year ended June 30, 1995 increased 12% to $108.4 million from $96.6 million in fiscal 1994. The primary cause of this revenue growth was the increase in desktop and client/server license fees, reflecting the release of the Company's new products during the past 18 months. Total software license fee revenue in fiscal 1995 grew 30% to $49.3 million from $37.9 million in fiscal 1994. License fees from desktop and client/server products in fiscal 1995 grew 61% to $45.5 million from $28.3 million in fiscal 1994 and represented 92% of total software license fee revenue in fiscal 1995, compared with 75% in fiscal 1994. License fees from the Company's mainframe products declined 60% in fiscal 1995 to $3.8 million from $9.4 million in fiscal 1994. Mainframe license fees are expected to continue to decline as the Company continues to emphasize its newer client/server products which were introduced in response to the market's shift from mainframe to client/server systems. Most of the mainframe license fee decline was in the older Executive Information Systems (EIS) products. Software license fee growth was strong in all three decision support market areas. In the EIS market, license fees grew 26% to $29.8 million in fiscal 1995 from $23.7 million in fiscal 1994. License fees for the Company's desktop and client/server EIS products grew 69% to $26.8 million in fiscal 1995, compared with $15.8 million in the prior year, principally due to the March 1994 release of Commander OLAP. This increase in EIS desktop and client/server license fees was partially offset by declines in EIS mainframe license fees. License fees from financial reporting applications grew 40% to $10.2 million in fiscal 1995 from $7.3 million in fiscal 1994, principally due to the release of Windows versions of Commander FDC and Commander Budget. In the retail decision support applications market area, license fees increased 41% to $9.1 million in fiscal 1995 from $6.5 million in fiscal 1994, principally as a result of new releases of ARTHUR Merchandise Planning and ARTHUR Plan Monitor. Maintenance revenue in fiscal 1995 declined 12% to $36.6 million from $41.6 million in fiscal 1994. The decrease is primarily due to the decline in maintenance revenue from mainframe products. Mainframe maintenance revenue in fiscal 1995 declined 25% to $16.9 million from $22.6 million in fiscal 1994. The decrease was principally due to the impact of cancellations, price discounts on multi-year agreements and conversion of certain agents to distributors. Desktop and client/server maintenance revenue in fiscal 1995 grew 6% to $19.6 million from $18.5 million in fiscal 1994. The increase is due to the growth in license fees, partially offset by the conversion of certain agents to distributors, as described below. The comparability of maintenance revenue was impacted by the conversion of certain agents to distributors in fiscal 1994. When an agent converts to a distributor, sales are made directly to the distributor rather than the end customer, and the distributor assumes the obligation of providing maintenance. In addition, the revenue from distributors is recognized net of fees (which fees are approximately the same as agency fees which are recorded as selling expenses), and revenue from agents is recognized before their fees. Therefore, the conversion of agents to distributors reduced reported maintenance revenue in fiscal 1995, without a material impact on operating profits. In addition, in fiscal 1994, maintenance revenue benefited from the nonrecurring release of approximately $1.6 million of deferred revenue related to the conversion of the Company's Belgium and Holland offices to an independent agency and to the conversion of certain of the Company's agents to distributors. Included in fiscal 1994 operating expenses was approximately $.9 million of costs associated with the recording of the maintenance revenue. Implementation, consulting and other services revenue in fiscal 1995 increased 31% to $22.4 million from $17.1 million in fiscal 1994. The increased number of desktop and client/server licenses sold during the fiscal period, in all three decision support market areas, created increased demand for implementation and consulting services. Operating expenses, excluding restructuring and unusual charges, were $99.5 million, with an operating profit margin of 8%, in fiscal 1995, compared with operating expenses of $92.6 million and an operating profit margin of 4% in fiscal 1994. Selling and marketing expense in fiscal 1995 was $45.3 million, or 42% of revenue, compared with $46.5 million, or 48% of revenue in fiscal 1994. The decrease was principally due to a $5.4 million reduction in agency fees as a result 12 4 of the conversion of certain agents to distributors, as described above. Partially offsetting this decline was a $3.8 million increase in direct selling and marketing expenses during fiscal 1995 in support of increased revenue. Cost of revenue and support in fiscal 1995 was $24.8 million, or 23% of revenue, compared with $17.7 million, or 18% of revenue in fiscal 1994. The increase is primarily attributed to both royalty fees related to the use of Arbor Software Corporation's database engine, Essbase, in certain Comshare products and personnel and outside contract costs associated with the growth in implementation and consulting services. Internal research and product development expense in fiscal 1995 was $16.2 million, or 15% of revenue, compared with $19.3 million, or 20% of revenue in fiscal 1994. The decrease was primarily attributable to staff reductions made at the end of fiscal 1994. These reductions principally reflect the Company's development strategy which includes the increased utilization of technology developed by third parties to shorten development cycles, minimize investment in software tools and accelerate time to market. The decrease in research and product development costs resulted in lower capitalization of internally developed software in fiscal 1995 of $11.7 million, or 11% of revenue, compared with $13.2 million, or 14% of revenue in fiscal 1994. Software amortization expense was $13.2 million in the current fiscal year, or 12% of revenue, compared with $12.5 million, or 13% of revenue in fiscal 1994. The increase in amortization expense was a result of new client/server products released during the last year. The Company does not expect amortization expenses related to internally developed software to change materially in fiscal 1996. General and administrative expense in fiscal 1995 was $11.7 million, or 11% of revenue, compared to $9.9 million, or 10% of revenue in fiscal 1994. General and administrative expense increased only 6% in fiscal 1995, as compared with the prior year, after excluding the $1.1 million gain on the sale of undeveloped land which was included in general and administrative expense in fiscal 1994. General and administrative employee expenses relating to relocation, travel and incentives contributed to the increase. An unusual charge of $6.4 million was recorded in fiscal 1995, due to the write-off of capitalized software associated with the Company's mainframe products. The write-off was the result of the Company's fiscal 1996 product plans to focus primarily on desktop and client/server software and the decreased industry emphasis on mainframe decision support software products. In addition, the Company recently implemented a marketing strategy to migrate its existing clients using mature mainframe products to its new client/server products. The above factors will reduce the future revenue from mainframe software, and as a result the Company wrote-off the remaining capitalized mainframe software. Interest expense in fiscal 1995 was $.7 million, compared with $.6 million in fiscal 1994. The increase is primarily due to the loan origination fees associated with amending and restating the domestic credit agreement. The benefit from income taxes was $3.0 million in fiscal 1995, as compared with an income tax provision of $.9 million for fiscal 1994. The income tax benefit included the release of tax valuation reserves of $2.5 million related to tax credits, this is attributable to the significant improvement in the Company's profitability in fiscal 1995, which allowed the realization of a significant portion of these credits. In addition, settlements with tax authorities regarding certain outstanding issues allowed the Company to release tax reserves of $1.6 million previously established against these exposures. The net tax assets remaining are projected by the Company to be utilized by fiscal 1997, well before expiration. A comparative analysis of the factors influencing the effective income tax rate is presented in Note 8 of the Notes to Consolidated Financial Statements. Approximately 55% of Comshare's fiscal 1995 revenue and expenses were from outside North America and most of the Company's international revenue is denominated in foreign currencies. Foreign currency fluctuations in fiscal 1995 had minimal impact on operating income as currency fluctuations on revenue denominated in a foreign currency were offset by expenses denominated in foreign currency. Overall, revenue and expenses would have been approximately $3.6 million and $3.3 million lower, respectively, with an estimated $.3 million negative impact on pre-tax profit for fiscal 1995, at comparable exchange rates. The Company recognizes currency transaction gains and losses in the period of occurrence. As currency rates are constantly changing, these gains and losses can, at times, fluctuate greatly. The Company had an exchange gain of $.3 million in fiscal 1995, attributable to the strengthening of the Deutsche mark and French franc against the British pound. The Company at various times denominates borrowings in foreign currencies and enters into forward exchange contracts to hedge exposures related to foreign currency transactions. The Company does not use any 13 5 other types of derivatives to hedge such exposures nor does it speculate in foreign currency. In general, the Company only uses forward exchange contracts to hedge against large selective transactions that present the most exposure to exchange rate fluctuations. The Company had two forward contracts totaling $2.2 million outstanding at June 30, 1995. Inflation did not have a material impact on the Company's revenue or income from operations in fiscal 1995 or fiscal 1994. 1994 COMPARED WITH 1993 Revenue for the fiscal year ended June 30, 1994 declined by 8% to $96.6 million from $105.2 million in fiscal 1993. The decrease was principally due to both the decline in revenue from mainframe sources and the weakening of foreign currencies against the U.S. dollar in fiscal 1994. Overall revenue for fiscal 1994 would have been approximately $5.5 million higher, compared with fiscal 1993 levels, at comparable exchange rates. Total software license fees declined 6% to $37.9 million in fiscal 1994 from $40.4 million in fiscal 1993. License fees from desktop and client/server products grew 18% to $28.2 million in fiscal 1994 from $24.0 million in fiscal 1993. Desktop and client/server products license fees represented 75% of total software license fee revenue in fiscal 1994, compared with 59% in fiscal 1993. License fees from the Company's mainframe products declined 42% to $9.4 million in fiscal 1994 from $16.3 million in fiscal 1993. The Company believes that this decline was due to the industry slowdown in sales of mainframe computer software as customers migrated to new generation client/server operating systems from their traditional mainframe operating systems. In the EIS market, license fees declined 18% to $23.7 million from $28.8 million in fiscal 1993, primarily due to the decline in mainframe license fee revenue offset by the revenue resulting from the March 1994 release of the Company's Commander OLAP product. License fees from financial reporting applications remained essentially unchanged in fiscal 1994 at $7.3 million, compared with the prior year. Retail decision support license fees increased 54% to $6.5 million in fiscal 1994 from $4.2 million in fiscal 1993, principally as a result of the international release of a new Windows version of ARTHUR Merchandise Planning. Total maintenance revenue declined by 3% to $41.6 million in fiscal 1994 from $43.1 million in 1993. Mainframe maintenance revenue declined 13% to $22.6 million in fiscal 1994 from $25.9 million in fiscal 1993. Offsetting the decline was the increase in maintenance revenue from desktop and client/server products which increased 12% to $18.5 million in fiscal 1994 from $16.5 million in fiscal 1993. During fiscal 1994 maintenance revenue benefited from the release of approximately $1.6 million of deferred revenue related to the conversion of the Company's Belgium and Holland offices to an independent agency and to the conversion of certain of the Company's agents to distributors. Included in operating expenses was approximately $.9 million of costs associated with the recording of the maintenance revenue. Implementation and consulting services revenue declined 21% to $17.1 million in fiscal 1994 from $21.7 million in fiscal 1993. The decrease in implementation and consulting services revenue was due partially to the decline in mainframe software revenue and increased competition from small implementation and consulting service companies, as well as to disruptions in France due to management changes in the second quarter. Operating expenses for fiscal 1994 and fiscal 1993 included $2.3 million and $1.5 million, respectively, of restructuring charges. Excluding the restructuring charges, operating expenses in fiscal 1994 decreased 12% to $92.6 million from $105.0 million in fiscal 1993. The weakening of foreign currencies against the U.S. dollar in fiscal 1994 caused $4.8 million of the decline in operating expenses from fiscal 1993 levels. The remaining $6.4 million of the decline is primarily the result of cost containment actions taken by the Company at the end of fiscal 1993, most of which related to personnel reductions implemented in connection with the restructuring. Selling and marketing expense in fiscal 1994 was $46.5 million, or 48% of revenue, compared with $54.1 million, or 51% of revenue in fiscal 1993. The decrease was principally due to cost containment actions taken by the Company at the end of fiscal 1993. Cost of revenue and support was $17.7 million, or 18% of revenue in fiscal 1994, compared with $20.5 million or 20% of revenue in 1993. The decline was principally caused by lower costs associated with the $4.4 million decline 14 6 in implementation and consulting services revenue. This was partially offset by the inclusion of $1.0 million of royalty expense in fiscal 1994 for products licensed from others for use in the Company's product offerings. The increase in royalty expense is principally due to an increase in sales to customers selecting a newly licensed database engine, Essbase, as part of their information system solution beginning in March 1994. Internal research and product development expense was $19.3 million, or 20% of revenue in fiscal 1994, compared with $23.0 million, or 22% of revenue in fiscal 1993. The decrease was principally due to cost containment actions. The decrease in research and product development costs resulted in lower capitalization of internally developed software in fiscal 1994 of $13.2 million, or 14% of revenue, compared with $15.0 million, or 14% of revenue in fiscal 1993. Software amortization in fiscal 1994 was $12.5 million, or 13% of revenue, compared with $10.8 million, or 10% of revenue in fiscal 1993. The increase is a result of numerous products that were commercially released during the fourth quarter of fiscal 1993 and the first quarter of fiscal 1994. General and administrative expense was $9.9 million, or 10% of revenue in fiscal 1994, compared with $11.7 million, or 11% of revenue in fiscal 1993. The decrease is primarily attributable to the $1.1 million gain on the sale of undeveloped land in the second quarter of fiscal 1994 which was included in general and administrative expense. Restructuring and unusual charges were $2.3 million in fiscal 1994 and represented provisions for management actions or plans in connection with restructuring, primarily related to staff reductions. For the period ended June 30, 1994, the restructuring charges include staff reductions of approximately 50 employees. Restructuring charges for fiscal 1993 were $1.5 million and also related to management actions or plans in connection with restructuring, primarily related to staff reductions. Interest expense was $.6 million in fiscal 1994, essentially unchanged from fiscal 1993. Reduced loan balances were partly offset by higher interest rates and a reduction in the amount of interest capitalized as part of capitalized computer software. The banks with which the Company has its domestic credit agreement reduced the interest rate on the Company's borrowings, effective November 1, 1993, from prime plus 3% to prime plus 1%. Interest expense was capitalized as required under accounting principles and included in capitalized computer software. The effective income tax rate for the year ended June 30, 1994 was 80%. The provision for the year ended June 30, 1994 resulted from a combination of factors including not tax benefiting certain losses and the reversal of taxes previously provided, partially offset by ongoing tax planning. For the prior year, there was a provision for income taxes on a loss, rather than a tax benefit as would usually be expected, primarily caused by losses occurring in certain countries where no tax benefit could be provided while profits occurred in countries where a tax provision was required. A detailed comparative analysis of the numerous factors influencing the effective income tax rate is presented in Note 8 of the Notes to Consolidated Financial Statements. Approximately 55% of the Company's fiscal 1994 revenue and expenses were from outside North America. Most of the Company's international revenue is denominated in foreign currencies. Foreign currency fluctuations in fiscal 1994 impacted operating income as currency fluctuations on revenue denominated in a foreign currency were only partially offset by expenses denominated in a foreign currency. Overall, revenue and expenses would have been $5.5 million and $4.8 million higher, respectively, with an estimated $.7 million positive impact on pre-tax profit for fiscal 1994, at comparable exchange rates. The Company recognizes currency transaction gains and losses in the period of occurrence. As currency rates are constantly changing, these gains and losses can, at times, fluctuate greatly. Exchange losses were $25,000 in fiscal 1994, compared with exchange gains of $.5 million in fiscal 1993. The unusually high currency gain in fiscal 1993 was principally due to Britain's withdrawal from the European Exchange Rate Mechanism. At June 30, 1994, the Company did not have any forward contracts. Inflation did not have a material impact on the Company's revenue or income from operations in fiscal 1994 or fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $23.3 million in fiscal 1995, up $9.7 million over the prior year. Pretax profit excluding the non-cash write-off of software was $8.6 million in fiscal 1995, contributing $7.5 million of the 15 7 increase. Due to prior year net operating losses and tax credits, only $.6 million of taxes were paid in fiscal 1995. As a result, most of the operating profits in fiscal 1995 generated positive cash flow. The $2.7 million reduction in accounts receivable balances during fiscal 1995, attributable to improved collections, also contributed to the increased cash flow. Net cash used in investing activities was $14.1 million in fiscal 1995, up $1.7 million over the prior year, primarily due to the one-time benefit in fiscal 1994 from the proceeds of the sale of undeveloped land. Additions to capitalized computer software declined during fiscal 1995 due to the decrease in internal product development spending. The Company used the net cash from operating activities to fund its investing activities and reduce long-term debt by approximately $10.0 million during fiscal 1995. At June 30, 1995, the Company did not have any material capital expenditure commitments. In fiscal 1996, property and equipment purchases and additions to internally developed software are expected to continue at levels similar to those of fiscal 1995 and fiscal 1994. Working capital as of June 30, 1995 was a negative $2.2 million, compared with a negative $.5 million from the same period last year. The decrease of $1.7 million was primarily due to the $2.7 million reduction in accounts receivable, mentioned above, offset by the $1.0 million reduction in deferred, revenue which is included in current liabilities. Deferred revenue as of June 30, 1995 and 1994 was $18.6 million and $19.6 million, respectively. Deferred revenue principally relates to maintenance and is essentially non-cash in nature. Total assets were $79.3 million at June 30, 1995, as compared with total assets of $88.9 million at June 30, 1994. The primary contributing factor to the decrease was the write-off of $6.4 million of capitalized software associated with the Company's mainframe products. On October 31, 1994 the Company entered into a $14.0 million amended and restated, domestic credit agreement with its banks which matures on October 31, 1997. The amended and restated credit agreement contains covenants regarding among other things, working capital, leverage, net worth and payment of dividends. Under the terms of the agreement, the Company is not permitted to pay dividends. Permitted borrowings under the credit agreement are based on a percentage of worldwide eligible accounts receivable. At June 30, 1995, permitted borrowings under the agreement totaled $14.0 million, of which $3.5 million was outstanding. At June 30, 1995 interest was at the bank's prime rate (8.75% at June 30, 1995) plus 1% until July 1, 1995, at which time it changed to the Eurodollar rate plus applicable margin, which varies between 1 1/2% and 2 1/2%. Subsequent to year end, the banks agreed to release all security interests in the assets of the Company previously granted to the banks. Separately, certain of the Company's subsidiaries have local currency credit agreements or overdraft facilities with banks totaling $3.7 million, of which $1.9 million was outstanding at June 30, 1995. The credit agreements expire on October 1, 1997. The interest rates generally vary with the banks' base rate. Most of such borrowings are guaranteed by the Company. The Company believes that the combination of present cash balances, future operating cash flows and credit facilities are sufficient for near term operating needs. The Company intends to fund ongoing internal software additions and equipment purchases through cash provided by operating activities. The Company believes it will renew or repay its long-term debt prior to its expiration. ITEM 8. FINANCIAL STATEMENTS The financial statements and schedule filed herewith are set forth on the Index to Consolidated Financial Statements and Schedule on page 19 and are incorporated herein by reference. 16 8 COMSHARE, INCORPORATED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE FINANCIAL STATEMENTS
PAGE ----- Report of Independent Public Accountants............................................. 20 Consolidated Statement of Operations for the Fiscal Years Ended June 30, 1995, 1994 and 1993....................................................... 21 Consolidated Balance Sheet as of June 30, 1995 and 1994.............................. 22-23 Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30, 1995, 1994 and 1993....................................................... 24 Consolidated Statement of Shareholders' Equity for the Fiscal Years Ended June 30, 1995, 1994 and 1993....................................................... 25 Notes to Consolidated Financial Statements........................................... 26-34 SCHEDULE II. Consolidated Schedule of Valuation and Qualifying Accounts....................... 35
19 9 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Comshare, Incorporated: We have audited the accompanying consolidated balance sheet of COMSHARE, INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 financial position of Comshare, Incorporated and subsidiaries as of June 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. As explained in Note 8 to the financial statements, effective July 1, 1992, the Company changed its method of accounting for income taxes. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the accompanying index is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Detroit, Michigan, July 27, 1995 20 10 COMSHARE, INCORPORATED CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30, ------------------------------------ 1995 1994 1993 -------- -------- -------- REVENUE Software licenses...................................... $ 49,294 $ 37,871 $ 40,397 Software maintenance................................... 36,649 41,625 43,064 Implementation, consulting and other services.......... 22,415 17,130 21,733 -------- -------- -------- 108,358 96,626 105,194 COSTS AND EXPENSES Selling and marketing.................................. 45,283 46,457 54,065 Cost of revenue and support............................ 24,799 17,670 20,528 Internal research and product development.............. 16,180 19,293 22,989 Internally capitalized software........................ (11,667) (13,193) (15,035) Software amortization.................................. 13,250 12,517 10,761 General and administrative............................. 11,663 9,891 11,668 Unusual charge......................................... 6,365 -- -- Restructuring related costs............................ -- 2,343 1,489 -------- -------- -------- 105,873 94,978 106,465 -------- -------- -------- Income (loss) from operations............................ 2,485 1,648 (1,271) Other income (expense) Interest income........................................ 157 79 298 Interest expense....................................... (669) (568) (611) Exchange gain (loss)................................... 307 (25) 480 -------- -------- -------- (205) (514) 167 -------- -------- -------- INCOME (LOSS) BEFORE TAXES............................... 2,280 1,134 (1,104) Provision (benefit) for income taxes..................... (3,048) 912 659 -------- -------- -------- NET INCOME (LOSS)........................................ $ 5,328 $ 222 $ (1,763) ======== ======== ======== Weighted average number of common and dilutive common equivalent shares............................... 5,599 5,489 5,319 ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE....................... $ .95 $ .04 $ (.33) ======== ======== ========
The accompanying notes are an integral part of this statement. 21 11 COMSHARE, INCORPORATED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
AS OF JUNE 30, ------------------ 1995 1994 ------- ------- ASSETS CURRENT ASSETS Cash.................................................................... $ 1,398 $ 1,774 Accounts receivable, less allowance for doubtful accounts of $887 in 1995, and $1,161 in 1994.................................. 29,531 30,846 Deferred income taxes................................................... 783 1,487 Prepaid expenses........................................................ 4,098 4,012 ------- ------- Total current assets................................................. 35,810 38,119 PROPERTY AND EQUIPMENT, at cost Computers and other equipment........................................... 24,023 24,278 Leasehold improvements.................................................. 3,053 4,258 ------- ------- 27,076 28,536 Less -- Accumulated depreciation........................................ 23,663 24,338 ------- ------- Property and equipment, net............................................. 3,413 4,198 COMPUTER SOFTWARE, net of accumulated amortization of $70,308 in 1995 and $50,114 in 1994..................................... 32,676 40,236 GOODWILL, net of accumulated amortization of $1,751 in 1995 and $1,437 in 1994....................................... 2,246 2,033 OTHER ASSETS.............................................................. 5,165 4,358 ------- ------- $79,310 $88,944 ======= =======
The accompanying notes are an integral part of this statement. 22 12 COMSHARE, INCORPORATED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
AS OF JUNE 30, ------------------ 1995 1994 ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable........................................................... $ -- $ 29 Accounts payable........................................................ 11,342 10,608 Accrued liabilities -- Payroll.............................................................. 3,467 4,910 Taxes, other than income taxes....................................... 1,486 1,399 Other................................................................ 1,465 1,364 ------- ------- Total accrued liabilities.......................................... 6,418 7,673 Income taxes............................................................ 1,602 641 Deferred revenue........................................................ 18,599 19,617 ------- ------- Total current liabilities.......................................... 37,961 38,568 LONG-TERM DEBT............................................................ 5,436 15,354 DEFERRED INCOME TAXES..................................................... 275 5,511 OTHER LIABILITIES......................................................... 3,090 3,005 SHAREHOLDERS' EQUITY Capital stock: Preferred stock, no par value; authorized 5,000,000 shares; none issued........................................................ -- -- Common stock, $1.00 par value; authorized 10,000,000 shares; outstanding 5,480,823 shares in 1995 and 5,357,811 shares in 1994.................................... 5,481 5,358 Capital contributed in excess of par.................................... 15,939 14,661 Retained earnings....................................................... 15,500 10,190 Currency translation adjustments........................................ (3,239) (3,504) ------- ------- 33,681 26,705 Less -- Notes receivable................................................ 1,133 199 ------- ------- Total shareholders' equity......................................... 32,548 26,506 ------- ------- $79,310 $88,944 ======= =======
The accompanying notes are an integral part of this statement. 23 13 COMSHARE, INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30, -------------------------------- 1995 1994 1993 -------- -------- -------- OPERATING ACTIVITIES NET INCOME (LOSS)............................................. $ 5,328 $ 222 $ (1,763) Adjustments to reconcile net income (loss) to Net cash provided by operating activities: Depreciation and amortization............................... 15,873 15,893 15,491 Write-off of capitalized software........................... 6,365 -- -- Gain on sale of undeveloped land............................ -- (1,102) -- Provision for losses on accounts receivable................. (119) 140 586 Loss on sale of property and equipment...................... 28 3 71 Changes in operating assets and liabilities: Accounts receivable...................................... 2,675 585 4,601 Prepaid expenses......................................... 77 929 1,142 Other assets............................................. -- 35 1,122 Accounts payable......................................... (469) (1,083) (2,716) Accrued liabilities...................................... (337) 853 (2,927) Deferred revenue......................................... (1,489) (3,875) (396) Deferred income taxes.................................... (4,645) 732 528 Other liabilities........................................ 42 301 607 -------- -------- -------- Net cash provided by operating activities................ 23,329 13,633 16,346 INVESTING ACTIVITIES Additions to computer software.............................. (11,667) (13,187) (15,811) Payments for property and equipment......................... (1,207) (1,199) (1,645) Proceeds from sale of undeveloped land...................... -- 3,376 -- Other....................................................... (1,227) (1,382) (235) -------- -------- -------- Net cash used in investing activities.................... (14,101) (12,392) (17,691) FINANCING ACTIVITIES Net repayments under notes payable.......................... (33) (40) (590) Net borrowings (repayments) under long-term debt............ (10,044) (2,046) 768 Stock options exercised..................................... 248 74 358 Other....................................................... 202 (42) -- -------- -------- -------- Net cash provided by (used in) financing activities...... (9,627) (2,054) 536 EFFECT OF EXCHANGE RATE CHANGES............................... 23 (6) (408) -------- -------- -------- NET DECREASE IN CASH.......................................... (376) (819) (1,217) -------- -------- -------- BALANCE AT BEGINNING OF YEAR.................................. 1,774 2,593 3,810 -------- -------- -------- BALANCE AT END OF YEAR........................................ $ 1,398 $ 1,774 $ 2,593 ======== ======== ======== Supplemental disclosures: Cash paid for interest...................................... $ 690 $ 624 $ 540 ======== ======== ======== Cash paid for income taxes.................................. $ 558 $ 481 $ 1,113 ======== ======== ========
The accompanying notes are an integral part of this statement. 24 14 COMSHARE, INCORPORATED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30, ----------------------------- 1995 1994 1993 ------- ------- ------- COMMON STOCK Balance beginning of year...................................... $ 5,358 $ 5,346 $ 5,287 Employee Stock Purchase Plan................................... 15 -- -- 1994 Executive Stock Purchase Program.......................... 69 -- -- Retirement of shares........................................... (1) -- (18) Stock options exercised........................................ 40 12 77 ------- ------- ------- Balance end of year............................................ 5,481 5,358 5,346 ------- ------- ------- CAPITAL CONTRIBUTED IN EXCESS OF PAR Balance beginning of year...................................... 14,661 14,599 14,200 Employee Stock Purchase Plan................................... 162 -- -- 1994 Executive Stock Purchase Program.......................... 890 -- -- Retirement of shares........................................... (4) -- (50) Stock options exercised........................................ 230 60 436 Tax benefits related to stock options.......................... -- 2 13 ------- ------- ------- Balance end of year............................................ 15,939 14,661 14,599 ------- ------- ------- RETAINED EARNINGS Balance beginning of year...................................... 10,190 9,968 11,831 Net income (loss).............................................. 5,328 222 (1,763) Retirement of shares........................................... (18) -- (100) ------- ------- ------- Balance end of year............................................ 15,500 10,190 9,968 ------- ------- ------- CURRENCY TRANSLATION ADJUSTMENTS Balance beginning of year...................................... (3,504) (3,553) (1,165) Translation adjustments........................................ 265 49 (2,388) ------- ------- ------- Balance end of year............................................ (3,239) (3,504) (3,553) ------- ------- ------- LESS -- NOTES RECEIVABLE Balance beginning of year...................................... 199 199 199 1994 Executive Stock Purchase Program.......................... 934 -- -- ------- ------- ------- Balance end of year............................................ 1,133 199 199 ------- ------- ------- Total shareholders' equity.................................. $32,548 $26,506 $26,161 ======= ======= =======
The accompanying notes are an integral part of this statement. 25 15 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All material intercompany accounts and transactions have been eliminated. REVENUE. The Company's revenue consists of software license fees, software maintenance service fees and implementation, consulting and other service fees. Software license revenue, including sales to distributors, is recognized when a customer contract is fully executed and the software has been shipped. Software maintenance revenue, whether bundled with product license or priced separately, is recorded as deferred revenue on the balance sheet when invoiced and is recognized over the term of the maintenance contract. Implementation, consulting and other services revenue is recognized as the services are performed. EXPENSE CLASSIFICATION. Selling and marketing expense includes advertising and agency fees. Cost of revenue and support includes personnel and other costs related to produce the implementation and consulting services revenue, customer support costs, direct cost of producing software and royalty expense for products licensed from others for use in the Company's product offerings. FOREIGN CURRENCY TRANSLATION. All assets and liabilities of the Company's foreign operations are translated at current exchange rates and revenue and expenses are translated at monthly exchange rates. Resulting translation adjustments are reflected as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in net income. The Company at various times has entered into forward exchange contracts to hedge exposures related to foreign currency transactions. The Company does not use any other types of derivatives to hedge such exposures nor does it speculate in foreign currency. The Company only uses forward exchange contracts to hedge against large selective transactions that present the most exposure to exchange rate fluctuations. The Company entered into a forward contract on September 9, 1994 where it purchased $1,500,000 for British pounds with a maturity date of September 29, 1995. The Company also entered into a forward contract on June 30, 1995 where it sold $750,000 for Canadian dollars with a maturity date of August 31, 1995. The carrying value of these contracts approximates the fair market value. Statement of Financial Accounting Standards No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" requires additional disclosures regarding the nature of derivatives held. This statement is required to be adopted by the Company during its fiscal year ended June 30, 1996. CASH. Cash includes investments in highly liquid investments with maturities of three months or less at the time of acquisition. INTERNAL RESEARCH AND PRODUCT DEVELOPMENT. Internal research and product development includes all such expense before computer software capitalization and amortization. COMPUTER SOFTWARE. The costs of developing and purchasing new software products and enhancements to existing software products are capitalized after technological feasibility is established. These costs include capitalized interest of $681,000, $814,000, and $906,000 in fiscal 1995, 1994 and 1993, respectively. The capitalized development costs are amortized over their estimated service lives which are generally a rolling three years in 1993, 1994 and 1995. The policy is reevaluated and adjusted as necessary at the end of each accounting period. On an ongoing basis, management reviews the valuation and amortization of capitalized development costs. As part of this review, the Company considers the value of future cash flows attributable to the capitalized development costs in evaluating potential impairment of the asset. In addition to the internally capitalized software, the Company expended $776,000 on purchased software during the year ended June 30, 1993. There were no expenditures for purchased software for the years ended June 30, 1994 and 1995. 26 16 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DEPRECIATION. The cost of depreciable assets is charged to operations on a straight-line basis. Principal service lives for computers and other equipment are three to five years. Leasehold improvements are amortized over the expected life of the asset or term of the lease, whichever is shorter. GOODWILL. Goodwill represents the unamortized cost in excess of fair value of net assets acquired and is amortized on a straight-line basis over forty years. On an ongoing basis, management reviews the valuation and amortization of goodwill. As part of this review, the Company considers the value of future cash flows attributable to the acquired operations in evaluating potential impairment of goodwill. OTHER ASSETS. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. This statement is required to be adopted by the Company during its fiscal year ended June 30, 1997. Although a detailed analysis has not been performed, the Company believes there would be no material impact on its financial statements, if this statement was adopted as of June 30, 1995. EARNINGS PER SHARE. Earnings per share of common stock is based on the daily weighted average number of shares of common stock outstanding considering the dilutive effect of outstanding stock options when appropriate. RECLASSIFICATIONS. For the year ended June 30, 1995, the Company changed its presentation of cash flows from operating activities from the direct method to the indirect method. Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with 1995 presentation. 2. RESTRUCTURING AND UNUSUAL CHARGES During the year ended June 30, 1995, the Company recorded an unusual charge of $6,365,000. This charge related to the write-off of capitalized software associated with its mature mainframe products. The write-off of capitalized software associated with the Company's mainframe products is the result of current industry trends and reflects the Company's strategic product plan to focus on desktop and client/server software products. During the years ended June 30, 1994 and 1993, the Company made provisions totaling $2,343,000 and $1,489,000, respectively, for management actions or plans in connection primarily with staff reductions related to its restructuring. For the period ended June 30, 1994, the restructuring charges include staff reductions of approximately 50 employees and estimated savings of $4,000,000 was achieved in fiscal 1995. At June 30, 1995, $554,000 remains to be paid for contractual obligations related to restructuring actions taken during 1994. 3. BORROWINGS Borrowing components are as follows (in thousands):
1995 1994 ------ ------- Lines of credit............................................. $5,436 $15,354 Notes payable............................................... -- 29 ------ ------- Total outstanding...................................... 5,436 15,383 Less current portion........................................ -- 29 ------ ------- $5,436 $15,354 ====== =======
On October 31, 1994 the Company entered into a $14,000,000 amended and restated, domestic credit agreement with its banks which matures on October 31, 1997. The amended and restated credit agreement contains covenants regarding among other things, working capital, leverage, net worth and payment of dividends. Under the terms of the agreement, the Company is not permitted to pay dividends. Permitted borrowings under the credit agreement are 27 17 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) based on a percentage of worldwide eligible accounts receivable and worldwide borrowings. At June 30, 1995, the permitted borrowings available under the agreement were $14,000,000, of which $3,500,000 was outstanding. Interest was at the bank's prime rate (8.75% at June 30, 1995) plus 1% and has been reduced effective July 1, 1995, upon the Company's meeting certain financial criteria, to the Eurodollar rate plus applicable margin, which varies between 1 1/2% and 2 1/2%. Subsequent to year end, the banks agreed to release all security interests in the assets of the Company previously granted to the banks. Separately, certain of the Company's subsidiaries entered into local currency credit agreements or overdraft facilities in various currencies with banks totaling $3,664,000. At June 30, 1995, the Company has outstanding borrowings of $1,256,000 in British pounds and $680,000 in German marks. The credit agreements expire on October 1, 1997. The interest rates generally vary with the banks' base rate. Most of such borrowings are guaranteed by the Company. 4. SHAREHOLDERS' EQUITY The Board of Directors has the authority to issue up to 5,000,000 shares of no par value preferred stock. The shares can be issued in one or more series with full, limited or no voting powers and with such special rights, qualifications, limitations and restrictions as may be adopted by the Board of Directors. The Company's senior executives are encouraged to own Comshare common stock. To facilitate such ownership, the shareholders approved the 1994 Executive Stock Purchase Program which enables such executives to purchase Comshare common stock at then current market prices directly from the Company via a promissory note. The promissory note cannot exceed the executive's base annual salary and is secured by the related common stock issued by the Company. The promissory note matures four years from the date of issuance. Interest is at the prime rate plus 1% and may be deferred until the promissory note matures. A total of 200,000 shares of the Company's common stock has been reserved for issuance under the 1994 Executive Stock Purchase Program. For the year ended June 30, 1995, a total of 69,363 shares at prices ranging from $13.00 to $18.50 were issued in exchange for notes totaling $934,000. 5. STOCK OPTIONS The Company has two stock option plans, the 1988 Stock Option Plan (the "1988 Plan") and the 1994 Directors Stock Option Plan (the "Directors Plan") which was adopted in November, 1994. The Company's 1988 Plan provides for the grant of both incentive stock options and non-qualified options to officers and key employees. Options under the 1988 Plan are granted at 100% of market price on date of grant, are exercisable at the rate of 25% per year after one year from the date of grant and have a term of five years. The Board of Directors may, at its discretion, grant stock appreciation rights in connection with the grant of options, but to date has not elected to do so. Effective June 25, 1993, the Company offered current option holders except for the Company's senior executive officers the opportunity to exchange outstanding options, for an equal number of options of the Company's common stock, at the current market price of $6.125. All eligible option holders accepted this offer and the Company canceled the previous options and granted new options representing 311,760 shares of common stock under the Company's 1988 Plan. The new options vest over four years effective from the new date of grant. Effective August 13, 1993 and September 23, 1993, the Company offered the senior executives the opportunity to exchange certain outstanding options, for an equal number of options of the Company's common stock, at the current market price of $9.00 and $9.25, respectively. The executive option holders accepted this offer and the Company canceled certain of the previous options and granted new options representing 134,000 shares of common stock under the Company's 1988 Plan. The new options vest over four years effective from the new date of grant. The 1988 Stock Option Plan was amended in November, 1994 to increase the number of shares of Common stock authorized for grant from 600,000 shares to 850,000. 28 18 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of June 30, 1995, the Company has reserved 795,285 shares of common stock for the exercise of employee stock options. Stock option activity for the 1988 Plan is summarized below:
NUMBER PRICE OF SHARES PER SHARE --------- ---------------- Outstanding at June 30, 1992........................ 870,510 $5.75 to $22.00 Granted............................................. 352,760 6.13 to 10.50 Exercised........................................... (77,000) 5.75 to 7.25 Canceled............................................ (355,510) 7.25 to 20.88 --------- Outstanding at June 30, 1993........................ 790,760 6.13 to 22.00 Granted............................................. 235,000 9.00 to 13.75 Exercised........................................... (11,750) 6.13 to 6.13 Canceled............................................ (475,498) 6.13 to 22.00 --------- Outstanding at June 30, 1994........................ 538,512 6.13 to 16.75 Granted............................................. 144,000 11.00 to 19.50 Exercised........................................... (40,465) 6.13 to 6.13 Canceled............................................ (131,697) 6.13 to 16.75 --------- Outstanding at June 30, 1995........................ 510,350 $6.13 to $19.50 ========= Exercisable at June 30, 1995........................ 121,850 =========
The 1994 Directors Stock Option plan was approved by the shareholders in November, 1994. The Directors Plan provides for the issuance of options to purchase up to 100,000 shares of the Company's common stock to nonemployee directors of the Company. Options under the Directors Plan are granted at 100% of the market price on the date of grant, are exercisable at a rate of 25% per year after one year from the date of grant and have a term of five years. In November, 1994, a total of 35,000 options were granted, with each of the Company's seven outside directors receiving 5,000 options at $12.50. None of the options was exercisable as of June 30, 1995. 6. EMPLOYEE STOCK PURCHASE PLAN The Employee Stock Purchase Plan was approved by the shareholders in November, 1994. A total of 200,000 shares of the Company's common stock have been reserved for issuance under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan allows participating employees to purchase through payroll deductions shares of the Company's common stock at 85% of the fair market value at July 1 and January 1. Substantially all full time employees are eligible to participate in the Employee Stock Purchase Plan. During the year ended June 30, 1995, 14,556 shares were issued at $12.11 per share under the Employee Stock Purchase Plan. 7. BENEFIT PLANS The Company has profit sharing and employee stock ownership plans covering substantially all United States employees. The profit sharing plan provides for a minimum annual contribution of 2% of an employee's salary, and both plans require the Company to make matching contributions based on employee 401K contributions. The Company also has a deferred compensation plan for United States officers for the payment of benefits which would not otherwise be eligible under its tax-qualified retirement plans. The Company contributions, other than the above, are discretionary and are determined by the Board of Directors. The total contributions were $1,224,000 in 1995, $1,007,000 in 1994, $1,129,000 in 1993. 29 19 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A subsidiary in the United Kingdom maintains, through a trustee, a defined benefit pension plan for substantially all of its employees hired before January 1, 1994 and a defined contribution plan for employees hired January 1, 1994 or later. The defined contribution plan provides that employees contribute a minimum of 5% of their pensionable salary with the Company contributing 5%. The benefits of the defined pension plan, which are pay related, are integrated with and supplement the benefits called for under the applicable laws of the United Kingdom. The components of pension expense are as follows (in thousands):
1995 1994 1993 ------- ------- ------- Service cost for benefits earned during the year................. $ 540 $ 501 $ 485 Interest cost on projected benefit obligation.................... 1,292 1,111 962 Actual return on assets.......................................... (1,347) (1,347) (4,916) Net amortization and deferral.................................... 101 261 3,770 ------- ------- ------- Net pension expense.............................................. $ 586 $ 526 $ 301 ======= ======= =======
The funded status of the pension plan is as follows (in thousands):
1995 1994 ------- ------- Actuarial present value of benefit obligations: Vested benefits......................................................... $14,705 $11,801 Non-vested benefits..................................................... 29 41 ------- ------- Accumulated benefit obligation....................................... 14,734 11,842 Effects of salary progression........................................... 1,664 1,241 ------- ------- Projected benefit obligation......................................... 16,398 13,083 Plan assets at fair value................................................. 15,103 13,997 ------- ------- Plan assets under (over) projected benefit obligation..................... $ 1,295 $ (914) ======= ======= Amounts not recognized in balance sheet: Unamortized transition obligation....................................... $ 702 $ 748 Unamortized net (gain) loss............................................. 2,888 (81) ------- ------- $ 3,590 $ 667 ======= =======
The actuarial present value of the projected benefit obligation was determined using a weighted average discount rate of 8.5% and an annual increase in future compensation of 6.5% for fiscal 1995 calculations; for the fiscal years 1994 and 1993 a weighted average discount rate of 9% and an annual rate of increase in future compensation of 7% was used to project benefit obligations. The long term weighted average rate of return on assets used was 8.5%, 10% and 12% for 1995, 1994 and 1993, respectively. The Company provides defined retirement benefits to the employees of the other foreign subsidiaries through various contribution plans. The amount charged to expense for these benefits was $142,000 in fiscal 1995, $201,000 in fiscal 1994 and $269,000 in fiscal 1993. 30 20 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES During 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The statement requires a change in the method of financial accounting and reporting for income taxes from the deferral method to an asset and liability approach. The adoption of this standard had no material effect on income. A summary of income (loss) before provision (benefit) for income taxes and components of the provision (benefit) for income taxes for the years ended June 30 is as follows (in thousands):
1995 1994 1993 ------- ------- ------- Income (loss) before provision (benefit) for income taxes: Domestic.................................................. $ 486 $(2,270) $(1,884) Foreign................................................... 1,794 3,404 780 ------- ------- ------- $ 2,280 $ 1,134 $(1,104) ======= ======= ======= Domestic provision (benefit) for income taxes: Current................................................... $ (15) $ (230) $ 229 Deferred.................................................. (2,773) (205) (678) Foreign provision (benefit) for income taxes: Current................................................... 1,499 281 (99) Deferred.................................................. (1,759) 1,066 1,207 ------- ------- ------- Provision (benefit) for income taxes........................ $(3,048) $ 912 $ 659 ======= ======= =======
The differences between the United States Federal statutory income tax provision (benefit) and the consolidated income tax provision (benefit) for the years ended June 30 are summarized as follows (in thousands):
1995 1994 1993 ------- ------- ------- Federal statutory provision (benefit)....................... $ 775 $ 386 $ (375) Non-deductible meals and entertainment...................... 109 83 44 State income taxes, net of federal tax benefit.............. 67 41 27 Increase in valuation reserve due to domestic and foreign losses without tax benefit and tax credits................ 42 882 499 Recognition of tax credits.................................. (2,500) -- -- Tax reserves provided (released)............................ (1,600) 65 -- Tax rate differences........................................ (51) 189 343 FAS 109 adjustment.......................................... -- -- 131 Tax credits generated....................................... -- (665) -- Other, net.................................................. 110 (69) (10) ------- ------- ------- Actual income tax provision (benefit)....................... $(3,048) $ 912 $ 659 ======= ======= =======
31 21 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes represent temporary differences in the recognition of certain items for income tax and financial reporting purposes. The components of the net deferred income tax liability (asset) as of June 30 are summarized as follows (in thousands):
1995 1994 ------- ------- Deferred income tax liabilities: Research and development............................................. $ 3,714 $ 7,005 Remittance of foreign earnings....................................... -- 1,151 Employee benefits.................................................... 727 535 Other................................................................ 190 208 ------- ------- 4,631 8,899 Deferred income tax assets: Tax credits excluding foreign........................................ (1,534) (1,428) Foreign tax credit................................................... (68) (1,160) Depreciation and amortization........................................ (1,075) (1,196) Net operating loss................................................... (493) (2,708) Deferred revenue..................................................... (474) (997) Employee benefits.................................................... (640) (680) Other................................................................ (1,224) (1,044) ------- ------- (5,508) (9,213) Valuation allowance.................................................... 369 4,338 ------- ------- (5,139) (4,875) ------- ------- Net deferred income tax liability (asset).............................. $ (508) $ 4,024 ======= =======
At June 30, 1995, for income tax purposes, the Company and certain of its foreign subsidiaries had available net operating loss carryforwards of approximately $493,000. If not used, these net operating loss carryforwards, as well as the Company's general business tax credits, will expire between 1998 and 2009. Income taxes have been provided on all undistributed earnings of foreign subsidiaries which are expected to be remitted to the Company. 9. LEASES The Company leases most of its office space and certain of its equipment. Initial lease terms vary in length; several of the leases contain renewal options. Future minimum lease payments under noncancellable operating leases are as follows (in thousands): Fiscal Year ending June 30, 1996...................................................... $ 5,130 1997...................................................... 4,309 1998...................................................... 3,513 1999...................................................... 2,722 2000...................................................... 2,642 After 2000................................................ 18,955 ------- $37,271 =======
During 1988, the Company purchased its London sales and administrative office building; it was also sold in 1988 along with leasehold improvements and leased back. The gain on the sale was deferred. During 1992, the Company consolidated this facility with its former London computer center. The Company has thus reduced the deferred gain 32 22 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) on the sale by $1,135,000 to provide for the estimated costs until the lease obligations are assumed by a new tenant. Total rental expense was $7,252,000 in fiscal 1995, $7,231,000 in fiscal 1994 and $8,451,000 in fiscal 1993. 10. GEOGRAPHIC OPERATIONS AND SEGMENT INFORMATION The following table summarizes selected financial information of the Company's operations by geographic location (in thousands):
FISCAL YEAR ENDED JUNE 30, -------------------------------- 1995 1994 1993 -------- -------- -------- Revenue from customers: North America............................................... $ 48,478 $ 43,222 $ 45,596 International............................................... 59,880 53,404 59,598 -------- -------- -------- Total revenue............................................ $108,358 $ 96,626 $105,194 ======== ======== ======== Operating income: North America............................................... $ 15,205 $ 10,082 $ 10,118 International............................................... 15,392 13,938 12,163 -------- -------- -------- Total operating income................................... 30,597 24,020 22,281 Unallocated expenses, net..................................... (28,317) (22,886) (23,385) -------- -------- -------- Income (loss) before taxes.................................... $ 2,280 $ 1,134 $ (1,104) ======== ======== ======== Identifiable assets: North America............................................... $ 16,672 $ 21,356 $ 25,582 International............................................... 29,962 27,352 27,849 -------- -------- -------- Total identifiable assets................................ 46,634 48,708 53,431 Computer software............................................. 32,676 40,236 39,151 -------- -------- -------- Total assets.................................................. $ 79,310 $ 88,944 $ 92,582 ======== ======== ========
Unallocated expenses consist of general corporate expenses, internal research and product development expenses, interest expense and interest income. In fiscal 1995, unallocated expenses include $6,365,000 of unusual charges related to the write-off of capitalized software associated with the Company's mature mainframe products. The presentation of information on a geographical basis requires the use of estimation techniques and does not take into account the extent to which Comshare's marketing and management skills are inter-dependent. The Company operates in one business segment: the development and marketing of computer software and related services. No customer accounted for more than 5% of total revenues in the fiscal years ended June 30, 1995, 1994 and 1993. 33 23 COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. QUARTERLY FINANCIAL DATA Summarized quarterly financial data is as follows (unaudited) (in thousands except per share data)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 1995 Revenue................................................. $24,158 $27,656 $27,704 $28,840 Income (loss) from operations........................... 1,418 2,846 1,828 (3,607) Net income.............................................. 751 1,680 1,205 1,692 Net income per share.................................... .14 .30 .21 .30 1994 Revenue................................................. $23,730 $23,779 $23,202 $25,915 Income (loss) from operations........................... 997 1,701 193 (1,243) Net income (loss)....................................... 657 1,052 94 (1,581) Net income (loss) per share............................. .12 .19 .02 (.30)
During the quarter ended June 30, 1995, the Company wrote-off $6,365,000 of capitalized mainframe computer software. The fourth quarter ended June 30, 1995 also included a $4,100,000 tax benefit related to the recognition of prior years net operating losses and tax credits as well as tax reserves released. During the quarter ended June 30, 1994 the Company made provisions totaling $2,343,000 for management actions or plans primarily in connection with staff reductions related to restructuring. During the quarter ended December 31, 1993, the Company concluded an agreement to sell undeveloped land that it owned. This resulted in a gain of approximately $1,100,000. 12. SUBSEQUENT EVENT (UNAUDITED) On October 9, 1995, the Board of Directors declared a three-for two stock split of the Company's Common Stock, subject to shareholder approval of an increase in the authorized shares of Common Stock to 20,000,000 shares. The shareholders will vote on the proposal at the November 18, 1995 annual shareholders' meeting. The following unaudited proforma summary presents the charge to capital contributed in excess of par and the credit to common stock as well as the impact on net income (loss) per common share as if the transaction had been approved.
AS OF JUNE 30, -------------------- 1995 1994 ------- ------- (IN THOUSANDS) Common stock........................................................... $ 8,221 $ 8,037 Capital contributed in excess of par................................... 13,199 11,982
FISCAL YEAR ENDED JUNE 30, ------------------------- 1995 1994 1993 ---- ---- ----- Net income (loss) per common share.................................. $.63 $.03 $(.22)
34 24 COMSHARE, INCORPORATED SCHEDULE II CONSOLIDATED SCHEDULE OF VALUATION & QUALIFYING ACCOUNTS
BALANCE CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND FROM TRANSLATION END OF DESCRIPTION OF PERIOD EXPENSES RESERVES ADJUSTMENTS OTHER PERIOD - ------------------------------------ --------- ---------- ---------- ----------- ----- ------- Allowance for doubtful accounts For the year ended June 30,: 1995........................... $ 1,161 $ (119) $ (173) $ 18 $ -- $ 887 ======= ====== ====== ===== ==== ======= 1994........................... $ 1,029 $ 140 $ (19) $ 11 $ -- $ 1,161 ======= ====== ====== ===== ==== ======= 1993........................... $ 1,366 $ 586 $ (802) $(121) $ -- $ 1,029 ======= ====== ====== ===== ==== =======
35 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Comshare, Incorporated Date October 11, 1995 By: /s/ Kathryn A. Jehle -------------------------- Kathryn A. Jehle Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary 26 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------- 23.01 Consent of Independent Public Accountants.
EX-23.01 2 EXHIBIT 23.01 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report on the June 30, 1995 consolidated financial statements of Comshare, Incorporated and subsidiaries dated July 27, 1995, included in this Form 10-K, into the Company's previously filed Form S-8 and S-3 registration statements (File No. 33-6730, File No. 33-9755-3, File No. 33-28437, File No. 33-27002, File No. 33-85720, File No. 33-87706, File No. 33-87708 and File No. 33-86908). ARTHUR ANDERSEN LLP Detroit, Michigan October 9, 1995 -----END PRIVACY-ENHANCED MESSAGE-----