ITEM 1. BUSINESS
This Business section contains forward-looking statements that involve uncertainties. Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to those discussed below, particularly in "Business - Uncertainties Related to Forward Looking Statements."
GENERAL
Comshare, Incorporated and its subsidiaries (collectively referred to as "Comshare" or the "Company") develop, market and support management planning and control application software. Management planning and control is the process that encompasses planning, budgeting, financial consolidation, management reporting and analysis. The Company's management planning and control applications are designed to help management effectively implement its strategy. The Company targets its products and services for chief financial officers and the finance function across a broad range of industries, offering them software solutions that will help them add value to their organizations and increase their efficiency.
The Company is focused on serving the emerging market for integrated management planning and control software. The market for planning, budgeting, financial consolidation and reporting applications has been served by point solutions that the Company believes do not effectively support a management process that should be highly integrated and is frequently iterative. Many companies do not integrate their strategic planning with their budgeting and operating planning processes, and find strategies are not effectively implemented. Many companies use spreadsheets for budgeting, and face the difficult task of maintaining complicated spreadsheet applications and the accompanying data integrity problems. Despite the investments made in data warehouse solutions and Enterprise Resource Planning ("ERP") systems, many companies still have not fulfilled the need to provide broadly-deployed financial and performance information to managers.
Comshare's software is differentiated by its web-based architecture, its breadth of enterprise management planning and reporting function, its use of mainstream database technology, and its robust multi-dimensional analysis capabilities. The Company's software products enable the enterprise-wide integration of data from multiple data sources, complementing underlying ERP systems. The Company delivers complete software solutions by providing implementation, consulting, training and support services, in addition to its software products.
BUSINESS STRATEGY
The Company's objective is to be a leading software provider of management planning and control applications. The key elements of the Company's strategy include the following:
ESTABLISH COMSHARE AS A LEADER IN THE MANAGEMENT PLANNING AND CONTROL MARKET.
1. Offer an integrated software solution for management planning and control, replacing the disparate systems for planning, budgeting, financial consolidation, management reporting and analysis. An integrated software solution eliminates the wasted time spent re-keying data, reconciling separate systems and the accompanying data integrity problems, freeing up finance staff time to focus on value-added activities. An integrated software solution also enables management to more quickly respond to changes in the business environment, to adjust plans, change tactics and reallocate resources.
2. Provide web-architected software that has been designed to support enterprise-wide deployments. While the Company also offers client/server based software solutions, increasingly customers are adopting web-based solutions. The Company built an underlying architecture that fully supports web deployments on an enterprise basis. The advantages to the customer include lower cost of maintenance and deployment, because no software beyond a browser is required on the desktop. Historically, the Company has focused on mid to large-sized, complex organizations, so the underlying architecture was designed to be scaleable for enterprise-wide deployments.
3. Offer customers their choice of mainstream databases underlying the applications. Increasingly, customers have standardized on a certain database technology and prefer to purchase applications that utilize that technology. Comshare provides multidimensional software solutions on both relational and OLAP database platforms.
4. Differentiate Comshare products with best-of-breed financial functionality and analytical capability. Drawing upon years of experience in the business intelligence market, Comshare products offer rich product function and advanced
visualization features that enable managers to easily identify exceptions in large amounts of information. This allows management to plan and budget more effectively, analyze performance and improve decision-making.
5. Distribute worldwide to a range of customers from medium-sized to the largest companies, through multiple channels. Customers in over 35 countries have purchased Comshare products, and Comshare supports worldwide deployment by global companies through a network of direct and indirect channels.
PRODUCTS
The Company offers management planning and control software applications ("MPC") designed for use by customers in a broad range of industries, primarily targeting the finance organizations of large to medium-sized corporations.
Comshare's software products are generally licensed to end-use customers under non-exclusive perpetual license agreements. Software license fees for the Company's software applications vary widely depending upon the product, platform and number of users supported. In addition to the sale of the software license, customers typically purchase product maintenance for the first year of the license. Customers may continue product maintenance thereafter for an annual fee, normally ranging from 15 to 20 percent of the license fee. In addition, customers frequently purchase additional software to expand the number of users for an application or to add additional application components.
The Company currently offers MPC applications for planning, budgeting, financial consolidation and management reporting and analysis: Comshare MPC (formerly BudgetPLUS), Comshare Decision ("Decision"), and Comshare FDC ("FDC"). Customers can buy some or all depending on their needs. In addition, the Company supports a number of legacy products.
1. COMSHARE MPC
Comshare's flagship application is Comshare MPC, a web-architected planning, budgeting, management reporting and analysis application. Comshare MPC is designed to improve the effectiveness of strategic planning and top-down target setting, shorten budget cycles, reduce the time and cost of budgeting, deliver financial information and improve management decision-making.
Comshare MPC provides an integrated financial data repository that combines budgeted, actual and forecasted financial information to enhance the integrity and usability of the data. Easy ad-hoc analysis and reporting across the enterprise is available to business managers and analysts, either through the use of a web-browser or on a client/server basis.
Data collection for budgeting and forecasting occurs in a secure environment either through a web-browser or the use of Microsoft Excel spreadsheets, enabling the budget process to be distributed out to business managers, yet with a centrally administered database for easy consolidation and reporting. Comshare MPC provides the ability to customize data entry screens; load bulk transaction data; track multiple versions of budgeted, actual and forecasted financial information; translate currencies; eliminate intercompany transactions; perform consolidations; and quickly handle reorganizations.
Comshare MPC also offers management reporting and analysis capabilities that allow enterprise-wide reporting of actual, budget and forecasted information. Because Comshare MPC is built using the Comshare Application Architecture, end-users have the same robust advanced visualization and proactive alerting features available to users of the Decision product, described below.
Customers have their choice of databases when licensing Comshare MPC, which allows them to select the database that fits their technology standards. Comshare MPC supports both relational and OLAP database technology platforms, including Microsoft SQL Server, Oracle, IBM DB2 OLAP Server, and Hyperion's Essbase.
Comshare MPC is available in both web-based and client/server versions, and customers may implement a mixed environment of both web and client/server.
2. DECISION
Decision is the latest generation in a long line of the Company's business intelligence products that allow customers to develop customized reporting and analysis applications.
Decision provides advanced development and analytical features for creating customized OLAP reporting and analysis applications such as product and customer profitability analysis, sales analysis, balanced scorecards and other performance measurement applications.
Decision capitalizes on the increased use of multi-dimensional analysis by business professionals to solve business problems. Using multi-dimensional analysis, business professionals view information in a way that is consistent with their perspective on the underlying business (e.g., across time periods, business measures, geographies, products and markets). Decision includes software necessary to deliver an enterprise-wide reporting and analysis application, including software which 1) gathers and consolidates data from multiple, disparate data sources, 2) uses server-based technology to facilitate computer-intensive functions such as sorting and ad-hoc calculations and 3) provides analysis capabilities and front end presentation for end-users.
Decision offers advanced visualization and proactive alerting capabilities to help end-users focus on important exceptions in large amounts of information. End-users can use this exception alerting capability to define the data to be monitored and the acceptable data ranges that they want to be alerted on.
The Company views the web as an important technology platform for the types of applications that Decision supports, and Decision is available on both web and client/server platforms. Decision supports Essbase, Microsoft SQL Server Analysis Services, IBM DB2 OLAP Server databases, as well as other OLAP databases that support the Microsoft OLE DB for OLAP standard.
3. FDC
FDC is a statutory consolidation and management reporting application that collects and consolidates financial data from different general ledgers and other sources within a multi-divisional or multi-location organization. It produces consolidated financial reports for management, public and statutory reporting. With FDC, customers can reduce their financial closing time and provide financial results more quickly, thus freeing up time for improved financial analysis.
FDC offers the financial intelligence and control found in general ledgers. Information can be integrated from multiple general ledger systems without re-entering data. FDC handles currency translations, intercompany eliminations and account reclassifications.
A major strength of FDC is its ability to be distributed across multiple geographically dispersed operations. This allows distributed operations to collect, report and analyze their data, while making sure that information for corporate financial consolidations is timely and accurate.
A management reporting and analysis module for FDC provides both client/server and web-enabled management reporting and analysis. This allows key financial performance reporting and analysis to be broadly deployed to management and business analysts, thus eliminating time-consuming custom reports.
4. LEGACY PRODUCTS
Because Comshare has been in business for thirty-five years, the Company has a number of older products that it continues to support. Comshare continues to support Commander OLAP, the predecessor to Decision, older desktop EIS and modeling products, third party databases, and System W and IFPS products for use on mainframe computers. Customers use System W and IFPS for applications similar to those developed with Decision, although the multi-dimensional database resides on the mainframe rather than on the server. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
IMPLEMENTATION AND CONSULTING SERVICES
Implementation and consulting services are offered for all of the Company's software products and include application design and modification, installation assistance, implementation and troubleshooting support.
Comshare complements its services through partnership arrangements with value added consultants and has a certification process to recognize consultants qualified in the use of Comshare applications. The certification process is also designed to help Comshare's customers receive quality service, support, training and project oversight and to help Comshare monitor the services provided by its certified consultants.
In addition, distributors and resellers of the Company offer implementation and consulting services for their direct customers, similar to the services offered by the Company.
SOFTWARE MAINTENANCE AND SUPPORT
The Company provides customer telephone helpline support staffed with experienced professionals. Customers under maintenance agreements receive product enhancements and updates, bug fixes and access to Comshare's telephone helpline and helpline web site. Maintenance customers pay an annual maintenance fee, which is typically 15 to 20 percent of the software license fee.
CUSTOMER TRAINING
Comshare offers a training program to customers and third party consultants. Training classes are provided by the Company at customer sites and at its local sales offices. The Company's training program is designed for end-users and system support staff and includes a variety of training classes covering software application use, application building and system administration.
CUSTOMERS
Comshare and its distributors are currently providing maintenance at over 2,350 corporate and public sector customer sites in 35 countries. Comshare's diversified customer base includes many Fortune 1000 and Financial Times 1000 industrial companies as well as large and mid-sized companies in the manufacturing, financial services, utility, and services industries, and many governmental and other public sector organizations.
SALES AND MARKETING
Comshare's products and services are sold on a worldwide basis by direct sales operations, an extensive worldwide distributor network and a reseller channel that targets mid-sized companies. Comshare distributors and resellers leverage the Company's software and application expertise and offer presale and postsale implementation, consulting, customer support and services.
The Company sells and markets its software products and services in the U.S., Canada and the U.K. through its direct sales organizations. Direct sales operations are organized geographically.
The Company has an extensive distributor network covering 41 countries not directly served by the Company. The Company has selected established software application vendors to act as distributors to market, implement and support Comshare's products in their respective geographic areas. Revenue from the Company's distributors was $14.8 million, or approximately 24% of total revenue, in fiscal 2001.
The Company has a group of 10 resellers that focus on sales in the middle market enterprises in the US, UK and Canada.
To generate sales, the Company conducts comprehensive marketing programs that include direct mail, a corporate Web site, public relations, advertising, seminars, trade shows, web marketing, and ongoing customer communication programs. The sales cycle begins with the generation of a sales lead or request for proposal from a prospect. After a lead is qualified, the Company's sales force analyzes the prospect's needs and makes one or more presentations. After obtaining a preliminary commitment, the Company often develops customized demonstrations to illustrate how the Company's products will satisfy a customer's specific needs. The sales cycle varies in length from customer to customer, but typically ranges from six to nine months.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategies are to: (1) provide a suite of integrated applications for management planning and control; (2) deliver the integrated suite on a common application architecture; (3) deploy the applications on industry standard databases; (4) employ Microsoft standards and (5) differentiate Comshare products by their ease of implementation, deployment and use.
Management planning and control applications encompass a closed-loop set of processes that enable an enterprise to plan, budget, execute, report, evaluate, analyze and respond to strategic initiatives. Towards this end, Comshare is currently developing and delivering a set of integrated budgeting and planning, financial consolidation, and management reporting and analysis applications in support of these closed-loop processes.
Comshare MPC is developed on the Comshare Application Architecture ("CAA"). This architecture is a multi-tiered design with a back-end database tier, an application server tier consisting of an innovative set of application objects and components and a client-side presentation tier. The CAA enables Comshare's software to run on a variety of back-end databases and supports both client/server and web desktops. Comshare MPC and Decision are fully web-enabled. During fiscal 2001, FDC also was web-enabled for much of its data entry, reporting and analysis functions.
To broaden the market potential for Comshare MPC, the Company developed relational technology versions that run on mainstream relational databases.
All of Comshare's products run on Windows NT/2000 on the server and Windows 2000, Windows NT, and Windows 98 on the desktop. Comshare's web-based offerings utilize Microsoft's Internet Information Server (IIS) and support both Microsoft's Internet Server Application Programming Interface (ISAPI) and Active Server Page (ASP) technologies. The Company plans to continue to focus on Microsoft's platforms and to replace proprietary components over time with Microsoft technologies.
Comshare's applications are distinguished by their innovative guided analysis capabilities that enable customers to quickly and easily identify problem areas hidden within very large multi-dimensional databases.
During the fiscal years ended June 30, 2001, 2000 and 1999, worldwide internal research and product development expenses were (in thousands):
Internal research and product development was consistent as a percentage of revenue over the past three years. The decrease in the dollar amount spent on internal research and product development from fiscal 2000 to 2001 was primarily due to a reduction in the use of third parties for development.
The markets for the Company's products are characterized by rapid technological advances, evolving industry standards, changes in customer requirements and frequent introductions and enhancements of competitive products. The Company's success and future financial performance will depend on its ability to keep pace with these changes and to anticipate these changes as they occur and to enhance its existing products and develop new products in a timely and cost-effective manner. There can be no assurance that the Company will be able to successfully accomplish future technological or product transitions, that the Company will not experience significant delays in developing new products or enhancements required to accomplish such transitions or that the Company will have sufficient financial resources available to finance such efforts. There can be no assurance as to the impact that any such transition would have on the Company's revenue or profitability. In addition, there can be no assurance that the Company's new products and enhancements will adequately address the changing needs of the marketplace and achieve market acceptance or that developments by others will not render the Company's products obsolete or non-competitive.
The foregoing statements regarding the Company's product development efforts contain "forward looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to, those described above and under "Business - Uncertainties Relating to Forward Looking Statements."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is dependent on its proprietary technology. The Company does not hold any material patents and seeks to protect its technology primarily through trademarks, copyrights, employee and third party non-disclosure agreements and trade secret laws, which afford only limited protection.
Comshare distributes its software products under software license agreements that generally grant customers a non-exclusive license to use the Company's products. The Company considers its software products to be valuable and unique assets and actively attempts to protect them contractually, generally by restricting usage to internal operations and prohibiting the unauthorized reproduction or transfer to third parties. The Company also believes that the nature of its customers and the provision of continuing maintenance and support services reduce the risk of unauthorized reproduction.
The Company has registered certain of its trademarks and copyrights. The Company is the owner of various trademarks, including Comshare(R), Comshare MPC, Comshare BudgetPLUS, Comshare Decision, Comshare EIS, Guided
Analysis, Comshare FDC, The Decision Support Company(R), Overview and Comshare Application Architecture, as well as various other trademarks associated with its legacy products. The Company's software contains the statutory copyright notices.
The laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. In addition, certain provisions of the Company's contracts prohibiting unauthorized reproduction may be unenforceable under the laws of certain foreign countries. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or development by others of similar or superior technology. Although the Company believes that its products and technology do not infringe on any existing proprietary rights of others, there can be no assurance that third parties will not assert infringement claims in the future or that any such claims will not require the Company to enter into license arrangements or result in litigation, regardless of the merits of such claims. No assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms. Should litigation with respect to any such claims commence, such litigation could be extremely expensive and time consuming.
LICENSED TECHNOLOGIES
The Company licenses certain software programs and tools from third parties and incorporates them into the Company's products. These licenses are non-exclusive and provide for varying royalty payments and expiration dates. In addition, the Company resells certain third party databases. The Company believes that the inclusion of third party software programs and tools in its products reduces product development risk and time to market.
Examples of third party software tools that are either incorporated into or used with Comshare's products include Hyperion Solutions Corporation's ("Hyperion") Essbase, Inxight's Hyperbolic Tree, Pervasive Software, Inc.'s ("Pervasive") Pervasive.SQL 2000 database, Strategic Mapping, Inc.'s Atlas View SDK, Tidestone Technologies, Inc.'s Formula One, Advanced Visual Systems' OpenViz, and Quadbase Systems, Inc.'s EspressChart.
Comshare resells Hyperion's Essbase database in connection with Comshare's Decision and Comshare MPC products. While Essbase sales do not represent a significant percentage of the Company's license revenue, a significant percentage of the Company's maintenance revenues involve products using Essbase. Comshare's worldwide license to resell Essbase expires December 31, 2002, although the license may be terminated earlier in the event of an uncured material breach. The license agreement provides that Comshare and its distributors may continue to maintain and support its customer base after termination of the license agreement.
COMPETITION
The markets for Comshare's software products are highly competitive and characterized by continued change and rapid technological advancements. In general, the Company competes principally on the basis of: (1) software application utility, which includes the extent to which its product offerings meet specific end-user needs; (2) functionality, which includes the breadth and depth of features and functions, ease-of-use and deployment; (3) service and support, which includes the range and quality of technical support, training and consulting services; (4) vendor reputation; (5) product architecture, which includes database platform, distributed/network architecture (such as web support) and ease of integration with other applications; and (6) product pricing in relation to perceived value. The Company believes it competes favorably with respect to these factors, although it may be at a competitive disadvantage against certain of its competitors because of their significantly larger market presence and greater financial, technical, marketing and other resources.
The analytical applications software market is highly competitive, highly fragmented and subject to rapid change and evolving industry standards. The Company competes primarily with Adaytum Software, Inc. and Hyperion Solutions Corporation.
The Company also competes with a variety of additional software companies, third party professional service organizations that develop custom software and with internal information technology departments, which develop financial analytic applications. Among the Company's current and potential competitors are a number of large software companies, including ERP software developers, developers of spreadsheets, database query and reporting tools, transaction processing-based applications and database technologies, that may elect to increase the financial analytic capabilities of their current products or that may develop or acquire products that compete with the Company's products. Increased competition could result in price reductions, reduced operating margins and loss of market share. In addition, many of the Company's current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and sale of products than the Company. There can be no assurance that the Company will be able to compete successfully against current and future competitors.
INTERNATIONAL OPERATIONS
The Company derived 42.8%, 47.9% and 50.4% of its total revenue from outside North America in fiscal 2001, 2000, and 1999, respectively, and expects that revenue generated outside North America will continue to represent a significant portion of the Company's total revenue. This international business is subject to various risks inherent in international activities, including the impact on the Company's operations of, and the burdens of complying with, a wide variety of laws, regulations, rules and policies of local foreign governments, such as those relating to currency controls, hiring and termination of employees, import restrictions and the protection of proprietary rights.
The Company's international operations also expose the Company to constantly fluctuating currency rates. Currency fluctuations have in the past adversely affected, and may in the future adversely affect, the Company's reported revenue, expenses and shareholders' equity. The Company's international sales are primarily denominated in foreign currencies. As a result, an increase in the value of the U.S. dollar relative to foreign currencies has the effect of reducing the Company's reported revenue and profits from international sales denominated in such currencies. Conversely, a weakening in the value of the U.S. dollar relative to foreign currencies has the effect of increasing the Company's reported revenue and profits from international sales denominated in such currencies. Currency exchange rate fluctuations can also result in gains and losses from foreign currency exchange transactions. The Company, at various times, has entered into forward exchange contracts to hedge exposures related to foreign currency exchange transactions. Because the Company only selectively hedges against certain large transactions that present the most exposure to exchange rate fluctuations, the Company's results of operations will continue to be impacted by fluctuations in foreign currency exchange rates, which at times could be material. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of the Notes to Consolidated Financial Statements.
For a description of certain financial information regarding the Company by geographic area, see Note 10 of the Notes to Consolidated Financial Statements.
EMPLOYEES
Comshare employed 340 full-time employees as of June 30, 2001 including: 116 in sales and marketing, 52 in consulting and implementation services, 74 in research and product development and 98 in customer support and administration. None of the Company's employees are represented by a collective bargaining agreement, nor has the Company experienced any work stoppages. The Company considers its relations with its employees to be good.
MISCELLANEOUS
Compliance with federal, state and local laws and ordinances that regulate the discharge of materials into the environment has not had, and is not expected to have, a material effect upon the capital expenditures, earnings or competitive position of Comshare.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 1. Business" and other parts of this Form 10-K Report contain "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to, those discussed in this section and in "Research and Product Development," "Intellectual Property and Proprietary Rights," "Licensed Technologies," "Competition" and "International Operations" above and in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Sensitivity Analysis." Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to: the demand for the Company's products and services; the size, timing and recognition of revenue from significant orders; increased competition and pricing pressures from competitors; the Company's success in and expense associated with developing, introducing and shipping new products; new product introductions and announcements by the Company's competitors; the level of interest and success of the Company's distributors in marketing and selling the Company's products; changes in Company strategy; product life cycles; the cost and continued availability of third party software and technology incorporated into the Company's products, including the impact of expiration of the license for Essbase in December 2002; the impact of rapid technological advances, evolving industry standards and changes in customer requirements, including the impact on the Company's revenues of Microsoft's OLAP database; the overall competition for key employees; cancellations of maintenance and support agreements; software defects; changes in operating expenses; fluctuations in
foreign exchange rates; the ability of the Company to generate sufficient future taxable income or to execute available tax strategies required to realize deferred tax assets; and economic conditions generally or in specific industry segments. In addition, a significant portion of the Company's revenue in any quarter is typically derived from non-recurring license fees, a substantial portion of which is booked in the last month of a quarter. Since the purchase of the Company's products is relatively discretionary and generally involves a significant commitment of capital, in the event of any downturn in any potential customer's business or the economy in general, purchases of the Company's products may be deferred or cancelled. Further, the Company's expense levels are based, in part, on its expectations as to future revenue and a significant portion of the Company's expenses do not vary with revenue. As a result, if revenue is below expectations, results of operations are likely to be materially adversely affected.
ITEM 2.
ITEM 2. PROPERTIES
Comshare leases sales offices and general office space in 10 major cities throughout the United States, Canada and the United Kingdom. Comshare's primary leased locations are identified in the following table:
* Comshare has the option to cancel in February 2002.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the Nasdaq National Market(R) under the symbol "CSRE."
The following table sets forth, for the periods indicated, the high and low per share closing sales prices for the Company's common stock as reported on the Nasdaq National Market(R).
At August 31, 2001, there were approximately 815 holders of record of the Company's common stock.
DIVIDEND POLICY
The Company has not paid dividends on its common stock since incorporation. It is the Company's present policy to retain earnings for use in the Company's business. Accordingly, the Company does not anticipate that cash dividends will be paid in the foreseeable future. The Company's credit agreement contains covenants which prohibit the payment of cash dividends on the common stock. See Note 3 of the Notes to Consolidated Financial Statements regarding restrictions on the payment of dividends.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data for the five fiscal years ended June 30 are derived from the audited Consolidated Financial Statements of the Company. This information should be read in conjunction with "Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial data as a percentage of total revenue:
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2001 TO FISCAL YEAR ENDED JUNE 30, 2000
Revenues
Comshare's MPC suite of products is comprised of Comshare MPC (formerly BudgetPLUS), FDC and Decision.
The increase in revenue from the year ended June 30, 2000 was primarily due to a 35.3% growth in MPC revenue, offset by a decline of 41.6% in legacy revenue. MPC revenue was $47.6 million for the year ended June 30, 2001, representing 75.7% of total revenue.
The 5.4% decline in license fees reflects the decline in legacy revenues. MPC license fees, which grew 22.8% from the year ended June 30, 2000, represented 79.9% of total license fees for the year ended June 30, 2001. The increase in MPC license fees was largely offset by a decline in legacy product license fees of 50.4% from the year ended June 30, 2000 to the year ended June 30, 2001. MPC license fees were $17.7 million and $14.4 million for the fiscal years ended June 30, 2001 and 2000, respectively. License fees in the Company's direct operations, which include North America and the United Kingdom, grew 3.6% to $15.2 million for the fiscal year ended June 30, 2001, primarily due to the growth in MPC license fees. Direct license fee growth was slightly offset by the decline in distributor license fees of 1.8% to $6.9 million for the same time period, reflecting a decline in the Company's legacy products, which are concentrated in the distributor operations.
Software maintenance revenues increased 1.3% in the year ended June 30, 2001 due to the impact of the growth in MPC license fees. During the year ended June 30, 2001, the Company experienced 80.5% growth in maintenance revenues for the Company's MPC products to $14.0 million, or 59.2% of total maintenance. Maintenance revenues for the Company's MPC products for the year ended June 30, 2000 were $7.7 million. The growth in MPC product maintenance reflected the license fee growth of the MPC applications in the years ended June 30, 2001 and 2000. The increase in MPC maintenance revenues was offset by a decline in the Company's older legacy products, which declined 38.1%, primarily due to mainframe and desktop maintenance cancellations and continued customer migration to other platforms.
Implementation, consulting and other services revenues grew 16.9% for the year ended June 30, 2001, compared to the year ended June 30, 2000, primarily due to the growth in license fees in the Company's direct operations. Implementation services revenue from direct operations grew 17.1% for the year ended June 30, 2001. This growth was slightly offset by a decline in distributor implementation services revenue. In addition, there were a number of extensive custom applications which contributed to the growth in implementation services revenue. During the year ended June 30, 2001, 92.9% of total implementation services revenue was related to the MPC products. The Company experienced an increase of 22.3% of revenue associated with implementation, consulting and other services related to the Company's MPC products. Implementation, consulting and other services revenues for MPC products were $15.9 million and $13.0 million for the fiscal years ended June 30, 2001 and 2000, respectively.
Expenses/Interest Income
Total costs and expenses increased to $64.0 million from $61.7 million for the fiscal years ended June 30, 2001 and 2000, respectively. The increase of $2.3 million is primarily due to increased cost of revenue and support expenses, and a restructuring charge of $0.9 million taken in the third quarter of fiscal 2001 which was related to a reduction in personnel costs and other expenses.
Selling and marketing expenses decreased 1.7% to $23.8 million from $24.2 million for the fiscal years ended June 30, 2001 and 2000, respectively. The decrease was primarily a result of a reorganization of sales operations, partially offset by an increase in promotional marketing costs.
Cost of revenue and support expenses increased 11.9% to $24.5 million from $21.9 million for the fiscal years ended June 30, 2001 and 2000, respectively. The increase was attributable to increased costs associated with third party implementations due to the increased level of services provided during the period, offset by a reduction in database royalty expense resulting from lower sales of Essbase.
Internal research and product development expenses decreased 3.3% to $8.8 million from $9.1 million for the fiscal years ended June 30, 2001 and 2000, respectively. Internal research and product development expenses, as a percentage of total revenue, decreased to 14.1% from 14.8% for the same periods, respectively, reflecting no significant change in the Company's product development spending for financial applications.
General and administrative expenses decreased 7.7% to $6.0 million from $6.5 million for the fiscal years ended June 30, 2001 and 2000, respectively. The decrease is attributable to continued cost reduction actions taken to lower administration costs, combined with a reduction in the costs of third party services.
The Company recorded a $0.9 million restructuring charge in the third quarter ending March 31, 2001. This charge reflects certain cost reduction actions by the Company taken to reduce personnel costs and other expenses. The restructuring charge included total staff reductions of 13 employees. Because of planned investments in MPC products, the Company does not expect these cost reduction actions to reduce the Company's total expenses.
Interest income decreased 6.7% to $1.4 million from $1.5 million for the fiscal years ended June 30, 2001 and 2000, respectively. Lower average cash balances during fiscal 2001, combined with reduced interest rates, resulted in this decrease in interest income for the year ended June 30, 2001.
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2000 TO FISCAL YEAR ENDED JUNE 30, 1999
Revenues
Total revenue was affected by the sale of the Company's French and German operations during the quarter ended December 31, 1998, and by the change in the Company's product mix to its MPC applications from its legacy products. To better reflect revenue from the Company's operations on a comparable basis, the following table shows revenue for the fiscal years ended June 30, 2000 and 1999 reflecting the Company's French and German operations as distributors during the fiscal year ended June 30, 1999.
The decrease in comparable revenue from the year ended June 30, 1999 was primarily due to a 35.0% decline in legacy revenue, largely offset by a 57.4% growth in MPC revenue. MPC revenue was $35.1 million for the year ended June 30, 2000, representing 57.4% of total revenue.
The 1.7% growth in comparable license fees was primarily due to an increase in license fee revenues of the Company's MPC products of 114.9%, to $14.4 million for the year ended June 30, 2000. MPC license fee growth primarily reflected the growth of the Company's Budgeting product, particularly the relational version. MPC license fees represented 61.5% of total license fees for the year ended June 30, 2000. The increase in MPC license fees was largely offset by a decline in legacy product license fees, which declined 44.8% for the year ended June 30, 2000 versus the year ended June 30, 1999.
On a comparable basis, software maintenance revenues decreased 9.3% in the year ended June 30, 2000 due to the decline in legacy product maintenance. During the year ended June 30, 2000, the Company experienced 20.3% growth in maintenance revenues of the Company's MPC products to $7.7 million, or 33.0% of total maintenance. The growth in MPC product maintenance reflected the license fee growth of the MPC applications in the years ended June 30, 2000 and 1999. The increase in MPC maintenance revenues was more than offset by a decline in the Company's older legacy products, which declined 19%, primarily due to mainframe and desktop maintenance cancellations and continued customer migration to other platforms. On a comparable basis, legacy software maintenance represented 67.1% of total software maintenance revenue for the year ended June 30, 2000 as compared to 75.2% for the year ended June 30, 1999.
On a comparable basis, implementation, consulting and other services revenues grew 5.0% primarily due to the growth in license fees in the Company's direct operations. During the year ended June 30, 2000, 89.0% of total implementation services revenue was related to the MPC products. The Company experienced an increase of 41.3% of revenue associated with implementation, consulting and other services related to the Company's MPC products. Implementation, consulting and other services revenues for MPC products were $13.0 million and $9.2 million for the fiscal years ended June 30, 2000 and 1999, respectively.
Expenses/Interest Income
Total costs and expenses decreased to $61.7 million from $67.9 million for the fiscal years ended June 30, 2000 and 1999, respectively. On a comparable basis, total costs and expenses were $64.7 million for fiscal 1999. The decrease of $3.0 million is primarily due to reduced marketing expenditures, facility costs, decreased database royalties, and a restructuring charge taken in the prior fiscal year. In fiscal 1999, the Company recorded a $1.0 million pre-tax restructuring charge related to staff reduction as a result of the consolidation of the Company's financial and marketing activities and the consolidation of certain facilities.
On a comparable basis, selling and marketing expenses decreased 5.8% to $24.2 million from $25.7 million for the fiscal years ended June 30, 2000 and 1999, respectively. The decrease was primarily a result of reduced spending in marketing and reduced costs associated with consolidating the worldwide sales organization.
On a comparable basis, cost of revenue and support expenses decreased 6.4% to $21.9 million from $23.4 million for the fiscal years ended June 30, 2000 and 1999, respectively. The decrease is attributable to decreased costs associated with cost of sales and reduced database royalties in fiscal 2000.
On a comparable basis, internal research and product development expenses remained flat at $9.1 million for the fiscal years ended June 30, 2000 and 1999 and relatively flat as a percentage of total revenue. Internal research and product development expenses, as a percentage of total revenue, increased to 14.8% from 14.4% for the same periods, respectively, reflecting no significant change in the Company's product development spending for financial applications.
On a comparable basis, general and administrative expenses remained flat at $6.5 million for the fiscal years ended June 30, 2000 and 1999.
Interest income decreased 21.1% to $1.5 million from $1.9 million for the fiscal years ended June 30, 2000 and 1999. The Company had lower average cash balances in fiscal 2000 as compared to fiscal 1999, resulting in decreased interest income for the year ended June 30, 2000.
FOREIGN CURRENCY
In fiscal 2001, 2000 and 1999, 42.8%, 47.9% and 50.4%, respectively, of the Company's total revenue was from outside North America. Most of the Company's international revenue is denominated in foreign currencies. Comshare recognizes currency transaction gains and losses in the period of occurrence. As currency rates are constantly changing, these gains and losses can, at times, fluctuate greatly. The Company's $114,000 foreign exchange loss in fiscal 2001 principally reflected the weakening of certain foreign currencies against the British pound during the twelve months ended June 30, 2001. The Company had exchange losses of $54,000 and $56,000 in fiscal 2000 and 1999, respectively, principally due to the weakening of certain foreign currencies against the British pound.
Foreign currency fluctuations in fiscal 2001, 2000 and 1999 impacted operating income as currency fluctuations on revenue denominated in a foreign currency were partially offset by currency fluctuations on expenses denominated in a foreign currency. In fiscal 2001, the increase in total revenue, at actual exchange rates, was $1.6 million less than at comparable exchange rates. The increase in total expenses in fiscal 2001, at actual exchange rates, was $1.4 million less than at comparable exchange rates. As a result of the changes in the foreign currency exchange rates, the decrease in net income before taxes in fiscal 2001, at actual exchange rates, was $0.2 more than at comparable exchange rates. In fiscal 2000, the decrease in total revenue, at actual exchange rates, was $0.7 million greater than at comparable exchange rates. The decrease in total expenses in fiscal 2000, at actual exchange rates, was $0.4 million greater than at comparable exchange rates. As a result of the changes in the foreign currency exchange rates, the increase in net income before taxes in fiscal 2000, at actual exchange rates, was $0.3 million less than at comparable exchange rates.
Inflation did not have a material impact on the Company's revenue or income from operations in fiscal 2001, 2000 or 1999.
INCOME TAXES
The Company recorded a tax provision on pretax income in fiscal 2001, 2000 and 1999 at an effective rate of 35%. In fiscal 2001 and 1999, no tax benefit was recognized on restructuring costs.
Realization of deferred tax assets associated with the Company's future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration. Although realization of the deferred tax assets is not assured, management believes it is more likely than not that the deferred tax assets will be realized through future taxable income or by using a tax strategy currently available to the Company. On a quarterly basis, management will assess whether it remains more likely than not that the deferred tax assets will be realized. This assessment could be impacted by a combination of continuing operating losses and a determination that the tax strategy is no longer sufficient to realize some or all of the deferred tax assets.
The foregoing statements regarding the realization of deferred tax assets are "forward looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement" for discussion of uncertainties relating to such statements.
A comparative analysis of the factors influencing the effective income tax rate is presented in Note 8 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, cash and cash equivalents were $24.1 million, compared with cash and cash equivalents of $29.5 million at June 30, 2000. The decrease in cash and cash equivalents was principally due to payment of fiscal 2001 and prior years' restructuring related items, income tax payments, and other cash used in operating activities, combined with increased days sales outstanding in accounts receivable, due to the general slowdown in the economy.
Net cash used in operating activities was $5.3 million in fiscal 2001 compared with $0.9 million in fiscal 2000. The increase in net cash used in operating activities was primarily due to the payment of income taxes in fiscal 2001 (whereas fiscal 2000 benefited from a tax refund) and the payment of fiscal 2001 and earlier years' restructuring costs and related items.
Net cash used in investing activities was $0.4 million in fiscal 2001, compared to $0.5 million in fiscal 2000. The decrease in cash related to investing activities was largely due to reduced capital expenditures in fiscal 2001. At June 30, 2001, the Company did not have material capital expenditure commitments. In fiscal 2002, property and equipment purchases are expected to be comparable to fiscal 2001.
Net cash provided by financing activities was $0.4 million in fiscal 2001, compared with net cash used in financing activities of $0.8 million in fiscal 2000. The increase in cash related to financing activities was principally due to lower bank borrowings and capital lease obligations as of June 30, 2001, compared to the prior year and increased stock purchases under the Company's Employee Stock Purchase Plan.
Working capital as of June 30, 2001 was $24.3 million, compared with $24.9 million as of June 30, 2000. The decrease in working capital was primarily due to the decline in cash and cash equivalents combined with an increase in accounts payable. These amounts were offset by an increase in accounts receivable, which was due to the increase in revenue combined with increased days sales outstanding, and a reduction in accrued liabilities due to payments made on third quarter fiscal 2001 and prior year's restructuring reserves. Total assets were $59.3 million at June 30, 2001, compared with $62.4 million at June 30, 2000. The decrease in total assets was primarily due to the decrease in cash and cash equivalents during the fiscal year.
The Company has a $10 million credit agreement which matures on September 30, 2003. Borrowings are secured by accounts receivable and the credit agreement contains covenants regarding, among other things, earnings, leverage, net worth and payment of dividends. Under the terms of the credit agreement, the Company is not permitted to pay cash dividends on its common stock. Permitted borrowings available as of June 30, 2001 under this credit agreement were $10 million, of which $0.2 million was outstanding. Borrowings available at any time are based on the lower of $10 million or a percentage of worldwide eligible accounts receivable and cash. At June 30, 2001, the interest rate on borrowings denominated in Japanese yen, which were used to hedge receivables, was 1.83%.
The Company believes that the combination of present cash balances and amounts available under credit facilities will be sufficient to meet the Company's currently anticipated cash requirements for at least the next twelve months. The foregoing statement is a "forward looking statement" within the meaning of the Securities Exchange Act of 1934, as amended. The extent to which such sources will be sufficient to meet the Company's anticipated cash requirements is subject to a number of uncertainties including the ability of the Company's operations to generate sufficient cash to support operations, and other uncertainties described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement."
MARKET SENSITIVITY ANALYSIS
The Company is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, the Company selectively uses financial instruments. The Company does not hold or issue financial instruments for trading purposes.
FOREIGN CURRENCY
The Company at various times denominates borrowings in foreign currencies and enters into forward exchange contracts to hedge exposures related to foreign currency transactions. The Company does not use any other types of derivatives to hedge such exposures nor does it speculate in foreign currency. In general, the Company uses forward exchange contracts to hedge against large selective transactions that present the most exposure to exchange rate fluctuations. At June 30, 2001 and June 30, 2000, the Company had forward contracts of approximately $1.7 million and $5.6 million (notional amounts), respectively, denominated in foreign currencies. The contracts outstanding at June 30,
2001 mature through September 14, 2001 and are intended to hedge various foreign currency commitments due from the Company's distributors. Due to the short-term nature of these financial instruments, the fair value of these contracts is not materially different than their notional amounts at June 30, 2001 and 2000.
Gains and losses on the forward contracts are largely offset by gains and losses on the underlying exposure. The Company conducts business in approximately six foreign currencies, predominately British pounds, the Euro and Japanese yen. A hypothetical 10 percent appreciation of the U.S. dollar from June 30, 2001 market rates would increase the unrealized value of the Company's forward contracts by an immaterial amount and a hypothetical 10 percent depreciation of the U.S. dollar from June 30, 2001 market rates would decrease the unrealized value of the Company's forward contracts by an immaterial amount. In either scenario, the gains or losses on the forward contracts are largely offset by the gains or losses on the underlying transactions, and so would have an immaterial impact on the Company's results of operations.
INTEREST RATES
The Company maintains its cash and cash equivalents in highly liquid investments with maturities of ninety days or less. The Company has the ability to hold its fixed income investments until maturity, and therefore the Company would not expect its operating results or cash flows to be affected to any significant degree by the effect of a hypothetical 10 percent change in market interest rates on its cash and cash equivalents.
SAFE HARBOR STATEMENT
Certain information in this Form 10-K Report contains "forward looking statements" within the meaning of the Securities Exchange Act of 1934, as amended, including those concerning the Company's future results, new market and business opportunities, strategy and product releases. Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to: the demand for the Company's products and services; the size, timing and recognition of revenue from significant orders; increased competition and pricing pressures from competitors; the Company's success in and expense associated with developing, introducing and shipping new products; new product introductions and announcements by the Company's competitors; the level of interest and success of the Company's distributors in marketing and selling the Company's products; changes in Company strategy; product life cycles; the cost and continued availability of third party software and technology incorporated into the Company's products, including the impact of the expiration of the license for Essbase in December 2002; the impact of rapid technological advances, evolving industry standards and changes in customer requirements, including the impact on the Company's revenues of Microsoft's OLAP database; the overall competition for key employees; cancellations of maintenance and support agreements; software defects; changes in operating expenses; fluctuations in foreign exchange rates; the ability of the Company to generate sufficient future taxable income or to execute available tax strategies required to realize deferred tax assets; and economic conditions generally or in specific industry segments. In addition, a significant portion of the Company's revenue in any quarter is typically derived from non-recurring license fees, a substantial portion of which is booked in the last month of a quarter. Since the purchase of the Company's products is relatively discretionary and generally involves a significant commitment of capital, in the event of any downturn in any potential customer's business or the economy in general, purchases of the Company's products may be deferred or cancelled. Further, the Company's expense levels are based, in part, on its expectations as to future revenue and a significant portion of the Company's expenses do not vary with revenue. As a result, if revenue is below expectations, results of operations are likely to be materially, adversely affected.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Sensitivity Analysis."
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule filed herewith are set forth on the Index to Consolidated Financial Statements and Schedule on page 23 and are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the Company's 2001 Proxy Statement under the captions "Election of Directors" and "Further Information-Executive Officers."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Company's 2001 Proxy Statement under the caption "Executive Compensation."
ITEM 12.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated herein by reference to the Company's 2001 Proxy Statement under the captions "Further Information-Principal Shareholders" and "Further Information-Stock Ownership of Management."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated herein by reference to the Company's 2001 Proxy Statement under the captions "Certain Relationships and Related Transactions."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements: The Financial Statements filed with this report are listed in the Index to Consolidated Financial Statements and Schedule, which appears on page 23.
2. Consolidated Financial Statement Schedule: The Financial Statement Schedule filed with this report is listed in the Index to Consolidated Financial Statements and Schedule, which appears on page 23.
3. The exhibits filed with this report are listed in the Exhibits which appears on page 46. The following are the Company's management contracts and compensatory plans and arrangements, which are required to be filed as exhibits to this Form 10-K Report:
EXHIBIT NO. DESCRIPTION
10.01 Benefit Adjustment Plan of Comshare, Incorporated, effective June 1, 1986, as amended and restated on November 6, 1997 - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1999.
10.02 First Amendment to the Benefit Adjustment Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the quarter ended March 31, 1999.
10.03 Second Amendment to the Benefit Adjustment Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.05 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.04 Comshare, Incorporated 1988 Stock Option Plan, as amended - incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1990 and Exhibit 10.22 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.05 Third Amendment to Comshare, Incorporated 1988 Stock Option Plan, as amended - incorporated by reference to Exhibit 10.06 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.06 Stock Option Agreement, effective as of March 10, 1997, between Comshare, Incorporated and Daniel T. Carroll - incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the quarter ended March 31, 1997.
10.07 Trust Agreement under the Benefit Adjustment Plan of Comshare, Incorporated, effective April 25, 1988, as amended - incorporated by reference to Exhibit 10.31 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1993.
10.08 1994 Executive Stock Purchase Program of Comshare, Incorporated - incorporated by reference to Exhibit 10.19 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.09 Employee Stock Purchase Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.10 First Amendment to Employee Stock Purchase Plan - incorporated by reference to Exhibit 10.01 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.11 Second Amendment to Employee Stock Purchase Plan - incorporated by reference to Exhibit 10.02 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.12 Third Amendment to Employee Stock Purchase Plan - incorporated by reference to Exhibit 10.03 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.13 1994 Directors Stock Option Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.14 First Amendment to Directors Stock Option Plan - incorporated by reference to Exhibit 10.05 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.15 Second Amendment to Directors Stock Option Plan - incorporated by reference to Exhibit 10.07 to Registrant's Form 10-Q for the quarter ended March 31, 2001.
10.16 Comshare, Incorporated Change in Control Severance Agreement dated as of June 1, 1998, between Comshare, Incorporated and Dennis G. Ganster - incorporated by reference to Exhibit 10.19 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.17 First Amendment to Comshare, Incorporated Change in Control Severance Agreement dated as of November 30, 1999, between Comshare, Incorporated and Dennis G. Ganster - incorporated by reference to Exhibit 10.03 to the Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.18 Comshare, Incorporated Change in Control Severance Agreement dated as of June 1, 1998, between Comshare, Incorporated and David King - incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.19 First Amendment to Comshare, Incorporated Change in Control Severance Agreement dated as of November 30, 1999, between Comshare, Incorporated and David King - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.20 Comshare, Incorporated Change in Control Severance Agreement dated as of June 1, 1998, between Comshare, Incorporated and Stanley Starkey - incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.21 First Amendment to Comshare, Incorporated Change in Control Severance Agreement dated as of November 30, 1999, between Comshare, Incorporated and Stanley R. Starkey - incorporated by reference to Exhibit 10.05 to the Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.22 Comshare, Incorporated Change in Control Severance Agreement dated as of February 9, 2001, between Comshare, Incorporated and Brian Hartlen - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.23 Comshare, Incorporated Change in Control Severance Agreement dated as of February 16, 2001, between Comshare, Incorporated and Brian Jarzynski - incorporated by reference to Exhibit 10.02 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.24 Comshare, Incorporated 1998 Global Employee Stock Option Plan - incorporated by reference to Exhibit 10.25 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.25 First Amendment to 1998 Global Employee Stock Option Plan - incorporated by reference to Exhibit 10.04 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1999.
10.26 Second Amendment to 1998 Global Employee Stock Option Plan - incorporated by reference to Exhibit 10.08 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.27 Letter of Understanding, dated February 8, 2001, between Comshare, Incorporated and Norm Neuman, Jr., and Norman J. Neuman, Jr. Notices of Grant of Stock Options and Option Agreements - incorporated by reference to Exhibit 10.03 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.28 Kathryn A. Jehle Notices of Grant of Stock Options and Option Agreements - incorporated by reference to Exhibit 10.04 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.29 Summary of 1999 Senior Executive Incentive Plan - incorporated by reference to Exhibit 10.27 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.30 Summary of 2000 Senior Executive Incentive Plan - incorporated by reference to Exhibit 10.32 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 2000.
10.31 Summary of 2001 Senior Executive Incentive Plan - incorporated by reference to Exhibit 10.33 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 2000.
(b) Reports on Form 8-K.
Since the end of the fiscal quarter ended March 31, 2001 the Registrant has not filed any reports on Form 8-K.
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comshare, Incorporated:
We have audited the accompanying consolidated balance sheets of COMSHARE, INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, comprehensive loss, cash flows and shareholders' equity for each of the three years in the period ended June 30, 2001. 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 auditing standards generally accepted in the United States. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States.
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, 2001.
COMSHARE, INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these consolidated statements.
COMSHARE, INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated statements.
COMSHARE, INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated balance sheets.
COMSHARE, INCORPORATED CONSOLIDATED BALANCE SHEETS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these consolidated balance sheets.
COMSHARE, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated statements.
COMSHARE, INCORPORATED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated statements.
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Comshare, Incorporated (the "Company") develops, markets and supports management planning and control applications software. The Company also provides maintenance, training, consulting and support services. Comshare is currently providing maintenance at over 2,350 corporate and public sector customer sites. The Company markets its products through a direct sales force in the United States, Canada and the United Kingdom and has an extensive distributor network in 41 other countries. The Company was incorporated in Michigan in February, 1966 and commenced operations at that time.
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 licenses, software maintenance and implementation services revenue. The Company recognizes software license revenue in accordance with the Accounting Institution of Certified Public Accountants' ("AICPA") Statement of Position ("SOP") 97-2 "Software Revenue Recognition" and related interpretations. Software maintenance revenue, whether bundled with a 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 services revenue is recognized as the services are performed.
EXPENSE CLASSIFICATION. Selling and marketing expenses primarily include employee costs and travel costs, facilities expenses and advertising. Cost of revenue and support includes personnel and other costs related to implementation service revenue, customer support costs, direct cost of producing software and royalty expenses 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.
FINANCIAL INSTRUMENTS. The Company, at various times, enters into forward exchange contracts to hedge certain exposures related to identifiable foreign currency transactions that are relatively certain as to both timing and amount. On July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS No. 137 and SFAS No. 138 and has quantified the impact, determining that there was no material effect on the financial statements. The Company uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange rates. The use of these financial instruments mitigates the Company's exposure to these risks with the intent of reducing the risks and variability of the Company's operating results. Initially, upon adoption of SFAS No. 133, and prospectively, on the date a derivative contract is entered into, the Company designates the derivative as a hedge. The ineffective portion of the hedge is recorded in earnings and reflected in the consolidated statement of operations as exchange gain or loss within other income (expense). The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. At June 30, 2001 and 2000, the Company had forward foreign currency exchange contracts of $1.7 million and $5.6 million (notional amounts), respectively. The contracts outstanding at June 30, 2001 mature through September 14, 2001 and are intended to hedge various foreign currency commitments due from foreign subsidiaries and the Company's distributors. Due to the short-term nature of these financial instruments, the fair value of these contracts is not materially different than their notional amount at June 30, 2001 and 2000.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes highly liquid investments with maturities of ninety days or less.
COMPUTER SOFTWARE. Product upgrades for the Company's products have been released regularly with an almost continuous product development cycle. Based on these continuous product life cycles, the time between establishing technological feasibility and general release to the public is very short. As a result, software costs qualifying for capitalization are not significant. Accordingly, the Company does not capitalize software development costs and does not anticipate capitalization of software costs in future periods.
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. There was no adjustment to the Company's financial statements as a result of this evaluation. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS No. 141 requires all business combinations initiated after June 2001 to be accounted for under the purchase method of accounting. Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Companies will, however, be required to perform an annual fair-value-based analysis to determine whether the value of goodwill has been impaired. The Company will adopt SFAS No. 142 for the Company's fiscal year beginning July 1, 2002. Although management has not fully assessed the impact of these pronouncements, the Company will cease recognizing approximately $17,500 of quarterly goodwill amortization beginning in the first quarter of fiscal year 2003.
INCOME TAXES. The Company accounts for estimated income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes." This statement provides for an asset and liability approach under which deferred income taxes are provided based upon enacted tax laws and rates applicable to the periods in which the taxes become payable.
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.
STOCK PLANS. The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the stock at grant date over the amount an employee must pay to acquire the stock. The Company has provided pro forma disclosure of the fair value of stock options granted during fiscal 2001, 2000 and 1999 in accordance with the requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." See Note 5 of Notes to Consolidated Financial Statements.
ACCOUNTING FOR PENSIONS. The Financial Accounting Standards Board has issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Post-retirement Benefits," which requires additional information on changes in benefit obligations and fair values of plan assets. See Note 7 of Notes to Consolidated Financial Statements.
USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results may differ from these estimates.
RECLASSIFICATIONS. Certain amounts in the 1999 and 2000 financial statements have been reclassified to conform with 2001 presentations.
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. RESTRUCTURING AND UNUSUAL CHARGES
The Company recorded a $0.9 million restructuring charge in the third quarter of fiscal 2001. This charge reflected certain cost reduction actions by the Company, taken to reduce personnel costs and other expenses. The restructuring charge included total staff reductions of 13 people. At June 30, 2001, $0.6 million of accruals were remaining of this charge and $1.4 million of accruals were remaining from this charge and prior year restructuring charges. Of this $1.4 million, $0.4 million is related to facilities and the remaining amounts are related to employee severance agreements.
At June 30, 2000, the Company had $1.3 million of accruals remaining that related to prior fiscal year restructuring charges. Of this, $0.9 million is related to facilities and the remaining amounts are related to employee severance agreements.
In fiscal 1999, the Company recorded a $1.0 million pre-tax charge for restructuring related to the consolidation of the Company's financial and marketing activities and the consolidation of certain facilities. The restructuring charges included total staff reductions of 14 employees.
3. BORROWINGS
The Company has a $10 million credit agreement which matures on September 30, 2003. Borrowings are secured by accounts receivable and the credit agreement contains covenants regarding among other things, earnings, leverage, net worth and payment of dividends. Under the terms of the credit agreement, the Company is not permitted to pay cash dividends on its common stock. Permitted borrowings available as of June 30, 2001 under the credit agreement were $10 million, of which $0.2 million was outstanding. At June 30, 2000, $0.6 of the permitted borrowings available were outstanding. Borrowings available at any time are based on the lower of $10 million or a percentage of worldwide eligible accounts receivable and cash. The interest rate on borrowings denominated in Japanese yen, which was used to hedge receivables, was 1.83% and 2.04% for fiscal years ended June 30, 2001 and 2000, respectively.
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SHAREHOLDERS' EQUITY
PREFERRED STOCK
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.
In September 1996, the Company's Board of Directors approved a Shareholder Rights Plan ("Rights Plan"). Under the Rights Plan, the Company declared a dividend of one preferred stock purchase right on each outstanding share of common stock. Under certain conditions, each right may be exercised to purchase one one-hundredth share of Series A Preferred Stock at an exercise price of $110. Of the 5,000,000 preferred shares the Company is authorized to issue, 200,000 shares have been designated Series A Preferred. The Series A Preferred has certain dividend, voting and liquidation preferences. No preferred shares have been issued as of June 30, 2001. The rights may only be exercised beginning ten business days following a public announcement that a person or group acquires 15% or more of the Company's common stock (subject to certain exceptions) or beginning ten business days (or under certain circumstances at a later date) following the commencement or announcement of a tender or exchange offer which would cause that result. In addition, under certain circumstances, the rights will entitle shareholders (other than the acquirer) to purchase the Company's common stock, or stock of the acquirer, at a discount to market prices. The rights, which do not have voting rights, expire on September 30, 2006.
5. STOCK OPTIONS
The Company has four stock option plans: The 1988 Stock Option Plan (the "1988 Plan"), the 1994 Directors Stock Option Plan (the "Directors Plan"), the 1997 Global Employee Stock Option Plan (the "1997 Plan") and the 1998 Global Employee Stock Option Plan (the "1998 Plan").
1988 STOCK OPTION PLAN
The 1988 Plan, which expired on June 26, 1998, provided for the grant of both incentive stock options and non-qualified options to officers and key employees. Options under the 1988 Plan were granted at 100% of market price on the 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.
At June 30, 2001, the Company has reserved 384,500 shares of common stock for the exercise of employee stock options under the 1988 Stock Option Plan. The number of options outstanding and exercisable under the 1988 Plan was 306,252 and 241,379 at June 30, 2001 and 2000, respectively, and no further grants can be made under the 1988 Plan.
1994 DIRECTORS STOCK OPTION PLAN
The Directors Plan provides for the grant of options to purchase up to 200,000 shares of the Company's common stock to non-employee 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.
At June 30, 2001 the Company has reserved 196,250 shares of common stock for the exercise of directors' stock options. The number of options outstanding and exercisable under the Directors Plan was 28,625 and 22,500 at June 30, 2001 and 2000, respectively.
1997 GLOBAL EMPLOYEE STOCK OPTION PLAN
The 1997 Plan provides for the issuance of options to purchase 500,000 shares of the Company's common stock to non-officer employees of the Company. Options under the 1997 Plan were granted at 100% of the market price on the date of grant, exercisable at a rate of 25% per year after one year from the date of grant and have a term of
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
five years. With the adoption of the 1998 Global Employee Stock Option Plan by shareholders on November 23, 1998, no future grants under the 1997 Plan are permitted.
At June 30, 2001, the Company has reserved 144,476 shares of common stock for the exercise of employee stock options under the 1997 Plan. The number of options outstanding and exercisable under the 1997 Global Employee Stock Option Plan was 88,944 and 61,580 at June 30, 2001 and 2000, respectively.
1998 GLOBAL EMPLOYEE STOCK OPTION PLAN
The 1998 Plan provides for the issuance of options to purchase 1,400,000 shares of the Company's common stock to all employees including officers, key employees and non-officer employees of the Company. Options under the 1998 Plan are granted at 100% of the market price on the date of grant and are exercisable at a rate of 25% per year after one year from the date of grant and have a term of 5 or 10 years.
At June 30, 2001, the Company has reserved 1,390,100 shares of common stock for the exercise of employee stock options under the 1998 Plan. The number of options outstanding and exercisable under the 1998 Plan was 291,269 and 154,233, at June 30, 2001 and 2000, respectively.
SUMMARY OF ACTIVITY
Stock option activity under all plans is summarized below:
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of outstanding and exercisable stock options as of June 30, 2001 is as follows:
PRO FORMA DISCLOSURE UNDER SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
Using the intrinsic value method of accounting for the value of stock options and shares of the Company's stock under the Employee Stock Purchase Plan (Note 6) granted during the fiscal years ended June 30, 2001, 2000 and 1999, no compensation cost was recorded in the accompanying Consolidated Statement of Operations. Had compensation costs been determined based on the fair value at the date of grant for awards in fiscal years ended June 30, 2001, 2000 and 1999 consistent with the provisions of SFAS 123, net loss and net loss per share would have been reduced (increased) to the pro forma amounts indicated below (in thousands, except per share amounts):
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. Because the SFAS 123 method of accounting has not been applied to options granted prior to July 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The following weighted average assumptions were used in valuing the option grants:
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan (the "ESPP"), 2,519 shares of the Company's common stock have been reserved for purchase as of June 30, 2001. The ESPP allows participating employees to purchase shares of the Company's common stock through payroll deductions at 85% of the lower of fair market value at the beginning or the end of the six month period beginning either July 1 or January 1. Non-employee directors have the right to purchase the Company's common stock in lieu of cash for directors' fees at a purchase price equal to 100% of fair market value on the date of issuance, which shall be February 15 or August 15. Substantially all employees are eligible to participate in the ESPP. Under the ESPP, 322,763, 233,541, and 148,716 shares were purchased and issued in fiscal 2001, 2000 and 1999, respectively.
7. BENEFIT PLANS
The Company has a profit sharing plan covering substantially all United States employees. The profit sharing plan provides for Company matching of 100% of contributions based on eligibility rules for employees making 401(k) contributions up to 6% of their compensation. 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's contributions, other than the matching contributions to the profit sharing plan, are discretionary and are determined by the Board of Directors. The total contributions for both plans were $617,000, $733,000 and $642,000 in fiscal 2001, 2000 and 1999, respectively.
A subsidiary in the United Kingdom maintains a defined contribution plan for substantially all United Kingdom employees. The plan provides a minimum annual Company contribution of 2.5% of the employee's compensation and matching contributions up to an additional 2.5% of compensation, based on employee contributions.
The United Kingdom subsidiary also has a defined benefit plan, which covered substantially all of its employees hired prior to January 1, 1994. This plan was frozen on April 1, 1997, with no further benefits accruing under the plan. The components of pension expense for the fiscal years ended June 30 are as follows (in thousands):
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. INCOME TAXES
A summary of income (loss) before provision (benefit) for income taxes and components of the provision (benefit) for income taxes for the fiscal years ended June 30 is as follows (in thousands):
The differences between the United States Federal statutory income tax provision (benefit) and the consolidated income tax provision (benefit) for the fiscal years ended June 30 are summarized as follows (in thousands):
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 asset as of June 30 are summarized as follows (in thousands):
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Realization of deferred tax assets associated with the Company's future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration. Although realization of the deferred tax assets is not assured, management believes it is more likely than not that the deferred tax assets will be realized through future taxable income or by using a tax strategy currently available to the Company. On a quarterly basis, management will assess whether it remains more likely than not that the deferred tax assets will be realized. This assessment could be impacted by a determination that the tax strategy is no longer sufficient to realize some or all of the deferred tax assets.
At June 30, 2001, for income tax purposes, the Company had available net operating loss carryforwards of approximately $7.2 million, which do not expire. In addition, the Company has general business credits, which will expire between 2010 and 2019.
9. LEASES
The Company leases office space, transportation and computer equipment under non-cancelable operating leases. Initial lease terms vary in length and several of the leases contain renewal options. Future minimum lease payments under all non-cancelable operating leases are as follows (in thousands):
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Minimum payments under non-cancelable operating leases have not been reduced by minimum sublease rentals of $5.8 million due in the future under non-cancelable subleases.
Total rental expense was $4.2 million, $5.2 million and $6.1 million for the fiscal years ended June 30, 2001, 2000, and 1999, respectively.
10. SEGMENT REPORTING
The Company has only one reportable segment - the development, marketing and support of management planning and control applications software. Revenue is derived from the licensing of software, software maintenance, and the provision of product implementation and support services.
No single customer accounted for more than 10% of the Company's total revenue in the fiscal years ended June 30, 2001, 2000 and 1999. In addition, the Company is not dependent on any single customer or group of customers.
The accounting policies for the geographic information are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. Segment information for revenue is disclosed based on the geographic location of the customer. Geographic segment information is as follows:
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Unallocated expenses consist of general corporate expenses, internal research and product development expenses, interest expense and interest income. Unallocated amounts in the fiscal year ended June 30, 2001 include approximately $0.9 million of restructuring and unusual related expenses. Unallocated amounts in the fiscal year ended June 30, 1999 include approximately $1.0 million of restructuring and unusual related expenses.
COMSHARE, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited and in thousands except per share data):
The Company recorded a $0.9 million restructuring charge in the third quarter ending March 31, 2001. This charge reflected certain cost reduction actions by the Company, taken to reduce personnel costs and other expenses.
During the quarter ended June 30, 1999, the Company recorded approximately $1.0 million of restructuring charges related to staff reductions due to the consolidation of the Company's financial and marketing activities and the consolidation of certain facilities.
12. LITIGATION
The Company is a party to various disputes and litigation in the normal course of business. Management does not anticipate that the outcome of any such disputes or litigation will have a materially adverse effect on the financial position of the Company.
COMSHARE, INCORPORATED
SCHEDULE II CONSOLIDATED SCHEDULE OF VALUATION & QUALIFYING ACCOUNTS
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: SEPTEMBER 28, 2001 By: /s/ Brian J. Jarzynski ---------------------- Brian J. Jarzynski Vice President, Chief Financial Officer and Treasurer
Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.01 Restated Articles of Incorporation of the Registrant, as amended - incorporated by reference to Exhibit 3.01 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
3.02 Restated Bylaws of the Registrant - incorporated by reference to Exhibit 3.02 to the Registrant's Form 8-K Report filed March 9, 2001.
4.01 Specimen form of Common Stock Certificate - incorporated by reference to Exhibit 4(c) to the Registrant's Form S-1 Registration Statement No. 2-29663.
4.02 Credit agreement dated September 23, 1997, among Comshare, Incorporated, its Borrowing Subsidiary (as defined therein) and Harris Trust and Savings Bank - incorporated by reference to Exhibit 4.02 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1997.
4.03 First Amendment to Credit Agreement, dated September 23, 1998, between the Registrant, Comshare, Limited and Harris Trust and Savings Bank - incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1998.
4.04 Second Amendment and Waiver to Credit Agreement, dated October 10, 1999, between the Registrant, Comshare Limited and Harris Trust and Savings Bank - incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1999.
4.05 Third Amendment and Waiver to Credit Agreement, dated June 29, 2000, between the Registrant, Comshare Limited and Harris Trust and Savings Bank - incorporated by reference to Exhibit 4.01 to the Registrant's Form 10-Q Report for the quarter ended September 30, 2000.
4.06 Fourth Amendment and Waiver to Credit Agreement, dated October 31, 2000, between the Registrant, Comshare Limited and Harris Trust and Savings Bank - incorporated by reference to Exhibit 4.02 to the Registrant's Form 10-Q Report for the quarter ended September 30, 2000.
4.07 Fifth Amendment to Credit Agreement, dated May 15, 2001, between the Registrant, Comshare Limited and Harris Trust and Savings Bank.
4.08 Sixth Amendment to Credit Agreement, dated September 17, 2001, between the Registrant, Comshare Limited and Harris Trust and Savings Bank.
4.09 Rights Agreement, dated as of September 16, 1996, between Comshare, Incorporated and Key Bank National Association, as Rights Agent - incorporated by reference to Exhibit 2 to the Registrant's Registration Statement on Form 8-A, filed on September 17, 1996.
4.10 Form of certificate representing Rights (included as Exhibit B to the form of Rights Agreement filed as Exhibit 4.04). Pursuant to the Rights Agreement, Rights Certificates will not be mailed until after the earlier of (i) the tenth business day (or such later date as may be determined by the Board of Directors, with the concurrence of a majority of the Continuing Directors, prior to such time as any person becomes an Acquiring Person) after the date of the commencement of, or first public announcement of the intent to commence, a tender or exchange offer by any person or group of affiliated or associated persons (other than the Company or certain entities affiliated with or associated with the Company), if, upon consummation thereof, such person or group of affiliated or associated persons would be the beneficial owner of 15% or more of such outstanding shares of common stock - incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A, filed on September 17, 1996.
4.11 Agreement among Computershare Investor Services, Inc., Harris Trust and Savings Bank and the Registrant.
10.01 Benefit Adjustment Plan of Comshare, Incorporated, effective June 1, 1986, as amended and restated on November 6, 1997 - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1999.
10.02 First Amendment to the Benefit Adjustment Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the quarter ended March 31, 1999.
10.03 Second Amendment to the Benefit Adjustment Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.05 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.04 Comshare, Incorporated 1988 Stock Option Plan, as amended - incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1990 and Exhibit 10.22 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.05 Third Amendment to the Comshare, Incorporated 1988 Stock Option Plan, as amended - incorporated by reference to Exhibit 10.06 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.06 Stock Option Agreement, effective as of March 10, 1997, between Comshare, Incorporated and Daniel T. Carroll - incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-Q Report for the quarter ended March 31, 1997.
10.07 Trust Agreement under the Benefit Adjustment Plan of Comshare, Incorporated, effective April 25, 1988, as amended - incorporated by reference to Exhibit 10.31 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1993.
10.08 1994 Executive Stock Purchase Program of Comshare, Incorporated - incorporated by reference to Exhibit 10.19 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.09 Employee Stock Purchase Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.10 First Amendment to Employee Stock Purchase Plan - incorporated by reference to Exhibit 10.01 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.11 Second Amendment to Employee Stock Purchase Plan - incorporated by reference to Exhibit 10.02 to Registrant's Form 10-Q for the quarter ended September 30, 1999
10.12 Third Amendment to Employee Stock Purchase Plan - incorporated by reference to Exhibit 10.03 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.13 1994 Directors Stock Option Plan of Comshare, Incorporated - incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994.
10.14 First Amendment to Directors Stock Option Plan - incorporated by reference to Exhibit 10.05 to Registrant's Form 10-Q for the quarter ended September 30, 1999.
10.15 Second Amendment to Directors Stock Option Plan - incorporated by reference to Exhibit 10.07 to the Registrant's Form 10-Q for the quarter ended March 31, 2001.
10.16 Comshare, Incorporated Change in Control Severance Agreement dated as of June 1, 1998, between Comshare, Incorporated and Dennis G. Ganster - incorporated by reference to Exhibit 10.19 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.17 First Amendment to Comshare, Incorporated Change in Control Severance Agreement dated as of November 30, 1999, between Comshare, Incorporated and Dennis G. Ganster - incorporated by reference to Exhibit 10.03 to the Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.18 Comshare, Incorporated Change in Control Severance Agreement dated as of June 1, 1998, between Comshare, Incorporated and David King - incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.19 First Amendment to Comshare, Incorporated Change in Control Severance Agreement dated as of November 30, 1999, between Comshare, Incorporated and David King - incorporated by reference to Exhibit 10.02 to the Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.20 Comshare, Incorporated Change in Control Severance Agreement dated as of June 1, 1998, between Comshare, Incorporated and Stanley Starkey - incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.21 First Amendment to Comshare, Incorporated Change in Control Severance Agreement dated as of November 30, 1999, between Comshare, Incorporated and Stanley R. Starkey - incorporated by reference to Exhibit 10.02 to the Registrant's Form 10-Q Report for the quarter ended December 31, 1999.
10.22 Comshare, Incorporated Change in Control Severance Agreement dated as of February 9, 2001, between Comshare, Incorporated and Brian Hartlen - incorporated by reference to Exhibit 10.01 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.23 Comshare, Incorporated Change in Control Severance Agreement dated as of February 16, 2001, between Comshare, Incorporated and Brian Jarzynski - incorporated by reference to Exhibit 10.02 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.24 Comshare, Incorporated 1998 Global Employee Stock Option Plan - incorporated by reference to Exhibit 10.25 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.25 First Amendment to 1998 Global Employee Stock Option Plan - incorporated by reference to Exhibit 10.04 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1999.
10.26 Second Amendment to 1998 Global Employee Stock Option Plan - incorporated by reference to Exhibit 10.08 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.27 Letter of Understanding, dated February 8, 2001, between Comshare, Incorporated and Norman Neuman, Jr., and Norman Neuman, Jr. Notices of Grant of Stock Options and Option Agreements - incorporated by reference to Exhibit 10.03 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.28 Kathryn A. Jehle Notices of Grant of Stock Options and Option Agreements - incorporated by reference to Exhibit 10.04 to the Registrant's Form 10-Q Report for the quarter ended March 31, 2001.
10.29 Summary of 1999 Senior Executive Incentive Plan - incorporated by reference to Exhibit 10.27 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1998.
10.30 Summary of 2000 Senior Executive Incentive Plan - incorporated by reference to Exhibit 10.32 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 2000.
10.31 Summary of 2001 Senior Executive Incentive Plan - incorporated by reference to Exhibit 10.33 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 2000.
10.32 Lease dated September, 1994, between Comshare, Incorporated, Tenant and MGI Holding, Inc., Landlord for office space located at 555 Briarwood Circle, Ann Arbor, Michigan 48108 - incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-Q Report for the quarter ended September 30, 1994
10.33 Agreement between Taurusbuild Limited, Comshare and Svenska Handelsbanken related to the lease of office space for the Company's London office facility - incorporated by reference to Exhibit 10.17 of the Registrant's Form 10-K Report for the fiscal year ended June 30, 1994.
10.34 Software License Agreement by and between Arbor Software Corporation and Comshare, Incorporated dated December 23, 1993 - incorporated by reference to Exhibit 10.20 to Amendment Number 3 to the Registrant's Form 10-K Report, filed November 8, 1995, for the fiscal year ended June 30, 1995. (Portions
of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2.)
10.35 First Amendment to License Agreement by and between Arbor Software Corporation and Comshare, Incorporated dated March 1, 1994 - incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-K Report for the fiscal year ended June 30, 1995. (Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2.)
10.36 Second Amendment to License Agreement by and between Arbor Software Corporation and Comshare, Incorporated - incorporated by reference to Exhibit 10 of the Registrant's Form 8-K Report filed on December 24, 1997. (Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-02.)
10.37 Third Amendment to License Agreement by and between Hyperion and Comshare, Incorporated- incorporated by reference to Exhibit 10.33 to the Registrants Form 10-K Report for the fiscal year ended June 30, 1998. (Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-02.)
21.01 Subsidiaries of the Registrant.
23.01 Consent of Independent Public Accountants.
99.00 Amended and Restated Profit Sharing Plan of Comshare, Incorporated, Form 11-K Annual Report - filed pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended June 30, 2001.