<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-12410
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BI Incorporated
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(Exact name of issuer as specified in charter)
Colorado 84-0769926
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6400 Lookout Road, Boulder, Colorado
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80301
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(Address of principal executive offices)
(Zip Code)
(303) 530-2911
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of no par
value common stock outstanding at April 12, 1996 is 6,768,425.
<PAGE>
BI INCORPORATED
INDEX
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PART I - FINANCIAL INFORMATION: Page No.
Item 1 - Financial Statements
Balance Sheet
at March 31, 1996 and June 30, 1995 2
Statement of Operations
for the three and the nine months ended March 31,
1996 and 1995 3
Statement of Cash Flows
for the nine months ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Signatures 8
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings: Incorporated by reference to Notes
to Financial Statements in Part I.
Item 6 - Exhibits and Reports on Form 8-K: None
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<TABLE>
<CAPTION>
BI INCORPORATED
BALANCE SHEET
(in thousands, unaudited)
March 31, June 30,
1996 1995
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ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $2,897 $2,358
Short-term investments 541 376
Receivables, net 7,524 6,245
Investment in sales-type leases, net 3,887 3,204
Inventories
Raw materials 1,384 1,333
Work in process 1,119 1,049
Finished goods 910 896
Deferred income taxes 544 519
Prepaid expenses 749 683
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Total current assets 19,555 16,663
Investment in sales-type leases, net 2,988 2,792
Rental and monitoring equipment, net 4,256 4,197
Property and equipment, net 2,260 2,027
Software, net 1,949 2,004
Intangibles, net 7,502 8,162
Deferred income taxes 407 568
Other assets 253 468
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$39,170 $36,881
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $881 $407
Accrued compensation and benefits 1,347 1,060
Accrued product warranty 226 326
Current income taxes payable 130
Deferred revenue 1,402 1,232
Other liabilities 296 570
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Total current liabilities 4,152 3,725
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Deferred revenue and long-term debt 641 824
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Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 6,872 shares issued March 31, 1996
and 6,865 shares issued June 30, 1995 28,954 28,883
Retained earnings 5,436 3,464
Less treasury shares at cost; 123 shares at
March 31, 1996 and 154 shares at June 30, 1995 (13) (15)
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34,377 32,332
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$39,170 $36,881
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts, unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended March 31, ended March 31,
--------------------- ----------------------
1996 1995 1996 1995
Revenues -------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $3,859 $3,083 $11,022 $8,607
Service and monitoring income 5,279 4,214 15,715 11,978
Rental income 209 207 622 627
Interest income 58 21 160 108
Other income 83 38 167 98
-------- ------- -------- -------
9,488 7,563 27,686 21,418
-------- ------- -------- -------
Costs and expenses
Cost of net sales 1,820 1,599 5,629 4,257
Cost of service and monitoring income 2,640 1,944 7,515 5,370
Cost of rental income 74 84 216 297
Selling, general and administrative expenses 2,697 2,308 8,038 6,625
Amortization and depreciation 355 317 1,015 906
Research and development expenses 678 474 1,931 1,482
-------- ------- -------- -------
8,264 6,726 24,344 18,937
-------- ------- -------- -------
Income before income taxes 1,224 837 3,342 2,481
Income tax provision (499) (320) (1,369) (1,001)
-------- ------- -------- -------
Net income $725 $517 $1,973 $1,480
======== ======= ======== =======
Income per common and common equivalent share:
Net income $0.10 $0.08 $0.28 $0.22
======== ======= ======== =======
Weighted average number of common and common equivalent
shares outstanding 7,095 6,785 7,065 6,869
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
3
<PAGE>
BI INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
For the nine months
ended March 31,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,973 $1,480
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 4,265 3,205
Provision for losses on accounts receivable and STLs 169 139
Changes in assets and liabilities:
Receivables (1,550) (632)
Investment in STLs (879) (1,049)
Inventories (105) (472)
Accounts payable 474 182
Accrued expenses (87) 665
Income taxes payable (130) (162)
Deferred revenue 133 308
Rental equipment-net, converted to STL 122
Other 275 (214)
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Net cash from operating activities 4,538 3,572
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Cash flows from investing activities:
Capital expenditures (1,079) (1,069)
Increase in rental and monitoring equipment (2,095) (1,817)
Increase in capitalized software (552) (172)
Cash for acquisition (35)
Change in investments (165) (5)
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Net cash from investing activities (3,926) (3,063)
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Cash flows from financing activities:
Purchase of treasury stock (970) (2,501)
Proceeds from issuance of common stock 897 150
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Net cash from financing activities (73) (2,351)
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Net change in cash and cash equivalents 539 (1,842)
Cash and cash equivalents at June 30 2,358 3,045
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Cash and cash equivalents at March 31 $2,897 $1,203
=============== ===============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
BI INCORPORATED
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
Note 1 - Preparation of Financial Statements
- --------------------------------------------
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual report.
The interim financial data are unaudited; however, in the opinion of the
management of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
Note 2 - Net Income per Common and Equivalent Share
- ---------------------------------------------------
Net income per common and common equivalent share is computed on the basis of
the weighted average number of shares of common and common equivalent shares
outstanding during the period. Common equivalent shares are determined using the
treasury stock method, which assumes that proceeds from exercise of certain
outstanding stock options and warrants are utilized to repurchase outstanding
shares of the Company at the average fair market value during such period.
Note 3 - Legal Proceedings
- --------------------------
The Company is involved in two legal proceedings; one alleging product liability
and another alleging wrongful termination of a distributor contract who seeks
damages up to $2,700,000. On February 27, 1996, a third suit, also alleging
product liability, was dismissed and on February 20, 1996, a fourth suit
alleging tortious interference with a competitor was also dismissed. Management
believes the Company has adequate legal defenses and/or insurance coverage
against all claims and intends to defend them. There can be no assurances
however, that any individual case will result in an outcome favorable to the
Company. In the event of any adverse outcome, neither the amount nor the
likelihood of any potential liability which might result is reasonably
estimable. The Company currently believes that the amount of the ultimate
potential loss would not be material to the Company's financial position or
results of operations. However, an adverse future outcome in any individual
case, including legal defense costs, could have a material effect on the
Company's reported results of operations in a particular quarter.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information in "Management's Discussion and Analysis" and other
statements periodically reported by the Company contain forward-looking
statements that involve risks and uncertainties. Management believes that its
expectations are based on reasonable assumptions. However, no assurances can be
given that its goals will be achieved. It should be noted that the earnings
history of the Company has not been consistent year to year. Factors that could
cause actual results to differ materially include, but are not limited to:
pricing pressures; changes in federal, state and local regulations;
misrepresented political or media statements; new product introductions by
competitors or unexpected delays of new product introductions by the Company;
raw material availability, changes in telecommunications regulations or
technologies, or the loss of a material contract in October 1996.
RESULTS OF OPERATIONS
- ---------------------
THE THREE-MONTH PERIOD ENDED MARCH 31, 1996 (FISCAL 1996), COMPARED TO THE
THREE-MONTH PERIOD ENDED MARCH 31, 1995 (FISCAL 1995):
Total revenue for the three months ended March 31, 1996, increased 25.5% to
$9,488,000 compared to $7,563,000 in the corresponding period a year ago. This
increase related both to an increase in net sales of $776,000 or 25.1% and an
increase in service, monitoring and rental income of $1,067,000 or 24.1%. During
the three months ended March 31, 1996, 20.8% of total revenue was from customers
who had not previously purchased the Company's equipment or services, and 79.2%
was from the growth of existing customers.
Gross profit on net sales, service, monitoring and rental income was 51.5% in
fiscal 1996 compared to 51.7% in fiscal 1995. The increase in net sales gross
profit margin of 4.7% in fiscal 1996 was due largely to a fiscal 1995 upgrade
program of home arrest equipment the Company offered to certain customers which
resulted in lower margins for that period. Service, monitoring and rental gross
profits decreased from 54.1% in fiscal 1995 to 50.5% in fiscal 1996 largely as a
result of a lower service usage rate for monitoring equipment. This lower
utilization of monitoring equipment, and increased costs for telephone and
certain monitoring supplies resulted in the lower margins for the fiscal 1996
period. The Company expects monitoring gross margins to improve over time as a
result of efficiencies gained on increased units being monitored.
Selling, general and administrative expenses increased $389,000 to $2,697,000 in
fiscal 1996 from $2,308,000 in fiscal 1995, but decreased as a percentage of
total revenue to 28.4% for the three months ended March 31, 1996, versus 30.5%
for the three months ended March 31, 1995. The increase largely related to
increased sales and marketing expenses on increased revenue.
Research and development expenses increased $204,000 to $678,000, or 7.1% of
total revenue, compared to $474,000, or 6.3% in fiscal 1995. Approximately half
of the fiscal 1996 increase related to a study of the need for improved
automation to the monitoring operations. In addition, the Company continued its
evaluation and enhancements of current products.
The Company recorded income tax expense of $499,000 and $320,000 for the three
months ended March 31, 1996 and 1995, respectively, which differs from the
statutory rate largely as a result of state income taxes and non-deductible
goodwill amortization expense.
6
<PAGE>
THE NINE-MONTH PERIOD ENDED MARCH 31, 1996 (FISCAL 1996), COMPARED TO THE NINE-
MONTH PERIOD ENDED MARCH 31, 1995 (FISCAL 1995):
Total revenue increased 29.3% to $27,686,000 in fiscal 1996 from $21,418,000 in
fiscal 1995. Revenue from net sales increased $2,415,000 to $11,022,000, or
28.1% in fiscal 1996 from $8,607,000 for the same period in fiscal 1995. This
increase is largely the result of increased sales to certain non-governmental
customers who purchase the Company's equipment and provide monitoring services
to government agencies. Service, monitoring and rental revenue in fiscal 1996 of
$16,337,000 increased 29.6% from $12,605,000 reported one year ago. This is the
result of a continuing trend of government agencies to utilize monitoring
services and a focusing of our sales efforts on this revenue stream.
Gross profit on net sales, service, monitoring and rental income decreased to
51.2% in fiscal 1996 from 53.2% in fiscal 1995 largely as a result of lower
margins on service and monitoring revenue as discussed above.
Selling, general and administrative expenses increased $1,413,000 to $8,038,000
in fiscal 1996 from $6,625,000 in fiscal 1995, but decreased as a percentage of
total revenue to 29.0% for the nine months ended March 31, 1996, versus 30.9%
for the same period ended March 31, 1995. The increase was largely related to
increased sales and marketing expenses on increased revenues.
Research and development expenses increased $449,000 to $1,931,000 in fiscal
1996 from $1,482,000 in fiscal 1995, but remained approximately 7% of total
revenue in both periods. The increase was due largely to factors discussed
above.
The Company's income tax expense for fiscal 1996 and 1995 was higher than the
expected statutory rate as discussed above.
Liquidity and Capital Resources
- -------------------------------
The Company has significant net accounts receivable and net sales-type leases
available to borrow against which could be used as collateral for future
borrowing arrangements.
During the nine months ended March 31, 1996, the Company generated $4,538,000
from operating activities and expended $3,726,000 for capital equipment, rental
and monitoring equipment and internally developed software. The Company
purchased $972,000 of its common stock on the open market in October 1995 and
has received $897,000 from the exercise of stock options during the period. All
cash flow activities resulted in an increase in cash of $539,000.
Working capital increased $2,465,000 to $15,403,000 at March 31, 1996. This
increase was primarily the result of an increase in cash and receivables offset
by an increase in accounts payable.
The Company believes its existing sources of liquidity to be generated from
operations will provide adequate cash to fund the Company's anticipated capital
needs through fiscal 1996.
7
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BI Incorporated
Date 4/22/96 By /s/ David J. Hunter
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David J. Hunter
President and Chief Executive Officer
/s/ Jacqueline A. Chamberlin
----------------------------
Jacqueline A. Chamberlin
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,897
<SECURITIES> 541
<RECEIVABLES> 11,411
<ALLOWANCES> 0
<INVENTORY> 3,413
<CURRENT-ASSETS> 19,555
<PP&E> 2,260
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,170
<CURRENT-LIABILITIES> 4,152
<BONDS> 0
0
0
<COMMON> 28,954
<OTHER-SE> (13)
<TOTAL-LIABILITY-AND-EQUITY> 39,170
<SALES> 27,359
<TOTAL-REVENUES> 27,686
<CGS> 13,360
<TOTAL-COSTS> 24,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,342
<INCOME-TAX> 1,369
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,973
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
