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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 0-12192
BGS SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
MASSACHUSETTS 04-2559993
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
128 TECHNOLOGY CENTER, WALTHAM, MASSACHUSETTS 02254-9111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 891-0000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<S> <C>
COMMON STOCK, $.10 PAR VALUE THE NASDAQ STOCK MARKET
(TITLE OF CLASS) (EXCHANGE ON WHICH REGISTERED)
</TABLE>
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the registrant's voting stock held by
non-affiliates (excluding shares as to which beneficial ownership is disclaimed
by affiliates), as of March 15, 1996, was $40,712,264.
Indicate the number of shares outstanding of the registrant's common stock,
as of March 15, 1996:
Common Shares: 3,123,729 (exclusive of 91,120 Treasury Shares)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the Annual Meeting of Stockholders to
be held June 11, 1996 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
BGS Systems, Inc., a Massachusetts corporation organized in 1975 (the
"Company") designs, develops, markets and supports the BEST/1(R) Performance
Assurance(R) line of performance management and capacity planning software
products which can measure, analyze, report or predict the performance of a
customer's computer system or network. These software products enable customers
to make more efficient use of their existing hardware, software and computer
personnel resources, and also to plan for the cost-effective expansion of their
computer operations to meet growing demands. This process can result in
substantial savings for the customer.
The Company focuses on a single specialty: performance and capacity
management software products. Many of the Company's products make use of
proprietary performance modeling technology as well as intellectual data display
technology, developed by the Company's research staff. The Company believes it
is the leading supplier of computer performance and capacity management
products.
Industry Requirements
The past few years have seen the accelerated usage of computer systems in
large enterprises and in every aspect of business, from the desktop to the
departmental client/server database to the corporate mainframe information
warehouse. Typically, these systems are linked together by local and wide area
communications facilities to form corporate-wide networks of often dissimilar
hardware and software platforms. Increasingly, these diverse computing platforms
are being used as components to deliver mission critical applications such as
airline, hotel and automobile reservations, credit card authorizations, banking
(especially automatic teller machines), stock market quotations and many others,
on a 24-hour per day seven day-a-week basis.
BGS Performance Assurance Product Functions
Assuring good performance has become an integral part of managing these
mission critical computing systems. Performance management requires software
tools to monitor current performance, detect and report performance problems,
analyze the causes of performance exceptions, and predict the effect of proposed
hardware and software changes. The Company believes that BEST/1 Performance
Assurance products cover the widest scope of functions including performance
monitoring, reporting, exceptions, performance data base, trending, tuning and
"What If?" modeling for capacity planning.
BGS Products Support Multiple Computing Environments
BGS Systems, Inc. and its BEST/1 Performance Assurance product family are
widely known and recognized as industry leaders in the performance field. The
Company believes that BEST/1 Performance Assurance tools cover the broadest
range of computing environments including all of the major mainframe, midrange,
and workstation platforms. BGS performance products support hardware platforms
from leading vendors including IBM System/390 architecture MVS and VM
mainframes, IBM AS/400 and OS/2 workstations, UNIX systems including versions
from IBM, Hewlett-Packard and Sun, OpenVMS systems and IBM SNA networks. BGS
Products introduced late in the year support performance management for Local
Area Networks for Microsoft Windows NT, Novell, and TCP/IP environments.
Custom Consulting Services
The Company offers custom consulting services to those customers who
request them. These consulting services are generally provided in those cases
where a customer has an unusual business problem to solve which demands special
expertise.
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Support Services
All customers who license BGS products are entitled to subscribe to the
annual maintenance services for an extra fee. The service includes product
upgrades (such as enhancements to reflect new product releases and the
correction of "bugs," if any), a "telephone hotline" for answering customers'
questions, product training classes, and "Technical Release Notes" which are
published periodically and made available to customers.
Approximately 83% of the Company's customers subscribe to the annual
maintenance services. The annual maintenance services are billed and payable in
one lump sum at the beginning of each maintenance year.
Principal Markets
The Company's customers include manufacturers, banks, insurance companies,
retailers, educational institutions, government agencies, health providers,
transportation companies, service companies, telecommunications companies,
utilities and several other categories of organizations. More than 32,000
products have been shipped. No individual customer has accounted for more than
10% of the Company's revenues in any of the past three fiscal years. License
revenues from exports (which do not include sales by the Company's
subsidiaries), all of which were billed in U.S. dollars, accounted for 4% of
total revenue in 1996, 4% in fiscal year 1995 and 6% of total revenue in fiscal
year 1994. See "Foreign and Domestic Operations and Export Sales." Inasmuch as
the Company's products are designed for use with moderately expensive computer
hardware equipment, most of its customers have the resources to make a
substantial commitment to data processing and computer installations. Many of
the companies in the 1996 Fortune directory of the 500 largest industrial
corporations in the United States, as well as a number of the nation's largest
insurance companies and financial institutions and federal and government
agencies, are customers for one or more of the Company's products. The Company
is expanding its foreign marketing and, to date, has made sales to over 200
major foreign companies.
Marketing
The Company generates market awareness and prospect leads for its products
through a combination of direct mail, telemarketing, product seminars,
attendance at appropriate trade groups, and through its product newsletter and
technical papers.
The Company sells its products through its own direct sales force in North
America and through wholly owned BGS subsidiaries in the U.K., Germany, Italy,
Australia and BGS Systems, Ltd.'s branches in France and Spain. Other global
markets such as Latin America and the Pacific Rim are covered by third party
distributors. IBM markets and sells BEST/1 for the AS/400 under a worldwide
distribution agreement.
World Wide Web Home Page
In July, 1995 the Company established a publicly accessible Home Page on
the Internet World Wide Web for Company product and financial information. BGS
information can be obtained by reference to the World Wide Web URL
http://www.bgs.com.
New Strategic Alliances for Open Systems Marketplace
Today's ever changing distributed client/server environments require close
cooperation with leading hardware platform and applications vendors so that BGS'
BEST/1 Performance Assurance products can keep up with rapidly evolving
technology. Over the past few years, BGS has formed alliances with such key
platform vendors as IBM, Hewlett-Packard, Sun, NCR, Sybase, Oracle, Informix,
Siemens Nixdorf and Bull.
In many cases, such alliances permit BGS to rapidly support more computer
platforms and to obtain timely information about changes in existing platforms
so that BGS products can properly represent the performance of the hardware,
software and workloads in use by customers.
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New Network Products
The Company invested heavily in the development of new local area network
products. Early commercial versions were released late in fiscal 1996. As with
most early versions, these products are not expected to generate significant
revenue in the initial years. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operation."
Backlog
Since orders are normally filled within one week of receipt, the Company
does not typically maintain a significant backlog for its products except
occasionally at the end of quarters.
Research and Product Development
Costs of software were $3,028,052 in 1996, $2,651,834 in 1995 and
$2,147,156 in 1994. Costs of maintenance and support were $6,471,298 in 1996,
$5,426,111 in 1995 and $4,204,070 in 1994. Consulting, development contracts and
other costs were $679,347 in 1996, $761,098 in 1995 and $1,106,439 in 1994. The
Company's research and development costs were $1,965,232 in 1996, $1,887,749 in
1995 and $1,649,392 in 1994. During fiscal year 1996, the Company capitalized
$637,500 of software costs relating to products that will be released during the
coming year and amortized $137,500 of previously capitalized software costs. The
Company believes that its future success will depend on its ability to continue
to improve its existing software products and to develop or acquire additional
software products.
Competition
Management believes that it is the only company that has a related suite of
performance and capacity modeling products covering all six major operating
systems described above. However, the Company believes that approximately 5-15
companies compete directly with the Company in at least one product area.
Those companies who have competing products include: Computer Associates,
Boole and Babbage, Digital Equipment Corporation, Compuware Corporation, Candle
Corporation, Hewlett-Packard, BMC Software, Landmark Systems Corporation and
IBM. While none of these competitors has more than a narrow competitive
offering, the Company believes that they do have a moderate (negative) impact on
the Company's sales and require the Company to increase its marketing and sales
efforts and expenditures in response.
The Company (like several of its competitors) licenses products to and from
other competitors for distribution to customers in combination with internally
produced products ("co-opetition"). There is no assurance that the Company or
the competitor-supplier or competitor-distributor will renew or extend these
distribution agreements on expiration. One such smaller competitor, for example,
has notified the Company of its intent not to renew, while larger competitors
have renewed and extended repeatedly. This co-opetition has not materially
adversely affected the Company to date, but may become a larger uncertainty in
the future.
Each hardware supplier (IBM, HP, SUN, DEC, NCR) from time to time, changes
its operating systems, computer hardware, and monitor data. Since its inception,
the Company has successfully adapted its products to accommodate these changes
but there is no assurance that it will be able to do so in the future. The
Company has designed into its products a number of facilities to ease the task
of maintaining compatibility.
The Company believes that the important considerations for potential
purchasers of the products are product capabilities, reputation for reliability
and customer service, integration and breadth of the product line, the continual
flow of new product features, the financial stability of the Company, and, to a
lesser extent, price.
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Product Protection
The Company generates new revenue through the sales of software licenses.
These licenses do not transfer title to the products, they "license" the right
to use the products for a period of time and under conditions controlled by the
Company's Master License Agreement.
The Company regards its software as proprietary and attempts to protect it
with copyrights, trade secret laws and internal and external non-disclosure
safeguards as well as restrictions on disclosure and transferability
incorporated in its software license agreements. Despite these restrictions, it
may be possible for competitors or users to copy aspects of the Company's
products or to obtain information which the Company regards as its trade
secrets. The Company believes that the rapid pace of technological change in the
computer industry makes patent or copyright protection of less significance than
such factors as the knowledge and experience of management and personnel and the
Company's ability to develop, enhance, market and acquire new systems and
services.
Employees
As of January 31, 1996, the Company and consolidated subsidiaries employed
242 people, 194 domestically and 48 internationally.
Working Capital Requirements
The Company's business has not thus far required working capital
significantly in excess of levels considered normal in the computer software
industry.
Government Contracts
The Company does not believe that any material portion of its business is
subject to renegotiation of profits or termination of contracts at the election
of the United States government.
Foreign and Domestic Operations and Export Sales
In fiscal years 1984, 1990, 1992, and 1994, the Company established
subsidiaries in the United Kingdom, Germany, Italy, and Australia respectively.
In fiscal years 1992 and 1994, BGS Systems, Ltd. established branches in France
and Spain respectively. Export revenues (which do not include revenues from
sales and service by these Company subsidiaries) were $1,780,826 in 1996,
$1,468,641 in fiscal year 1995 and $1,716,785 in fiscal year 1994. These
revenues were derived from sales and service by the Company's network of
independent distributors. A description of revenues, profits and assets
attributable to the operations of the Company's international subsidiaries is
set forth in Note 8 to the Company's Consolidated Financial Statements beginning
on page 26 of this Form 10-K.
ITEM 2. PROPERTIES
The Company's corporate offices, consisting of approximately 46,000 square
feet of leased office space, are located at 128 Technology Center, in Waltham,
Massachusetts. The lease expires in January 1997.
On October 26, 1995, the Company executed a Contract of Sale for the
purchase of the land, building and improvements (collectively the "Property")
known as 580 Winter Street, Waltham, Massachusetts. The closing for the Property
took place on December 28, 1995. The land consists of approximately 4.45 acres
improved by an 80,000 s.f. single-story, brick building. The Company intends to
use the Property primarily as its world-wide headquarters and to lease portions
of it to tenants from time to time. The new facility will accommodate a
substantial increase in the number of employees. The Property is listed on the
Massachusetts Department of Environmental Protection's List of Confirmed
Disposal Sites and Locations to be Inspected. It has been inspected by a
Licensed Site Professional under the Massachusetts Contingency Plan, and a LSP
Opinion was filed. A Notice of Audit Findings/Notice of Non-Compliance
("Notice") challenged the LSP Opinion and required the submission of a revised
one. The Licensed Site Professional submitted a revised LSP Opinion, responding
to and disagreeing with the Notice. Under the Massachusetts Contingency Plan,
state
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inspection is performed by "privatized inspectors" who become certified by the
State as "Licensed Site Professionals." Their opinions may be audited by the
Department of Environmental Protection for a period of five years from the date
of filing of the Report. See the Company's Reports on 8-K filed on November 17
and December 28, 1995. Based on the information available to the Company and
discussed in those Reports, the Company does not believe that compliance with
Federal, State and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment will have a material effect upon the
capital expenditures, earnings or competitive position of the Company. As noted
in said Reports on Form 8-K, the Company expects to use some of its current
assets which may include cash, cash equivalents, and/or marketable securities to
fund the entire acquisition, renovation, refurbishment and relocation costs
(expected to be in the approximate range of $9.0 million).
In addition, the Company leases office space under operating leases
expiring in various years through 1998. The Company's subsidiaries lease office
space in the United Kingdom, Germany, Italy, Australia, France and Spain. Total
rent expense amounted to $1,672,590 in 1996, $1,558,353 in 1995 and $1,472,377
in 1994.
ITEM 2A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
Set forth below is certain information with respect to the executive
officers of the Company during the fiscal year 1996 or at March 29, 1996.
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Harold S. Schwenk, Jr.................. 54 Chief Executive Officer, Chairman of
the Board of Directors, President and
Director
Jeffrey P. Buzen....................... 52 Chief Scientist, Senior Vice President,
Treasurer, Clerk and Director
James S. McGuire....................... 52 Chief Operating Officer
Normand Bilodeau....................... 46 Chief Financial Officer
John P. Pryor.......................... 53 Vice President, Marketing and Sales
C. Russel Hansen, Jr................... 49 Vice President and General Counsel
</TABLE>
HAROLD S. SCHWENK, JR. has served as President and Director of the Company
since it was founded in 1975, and as Chief Executive Officer since 1983. He also
served as the Chief Financial Officer until September 13, 1984, and was the
acting Chief Financial Officer from April 1985 to April 1990. Dr. Schwenk
received his Ph.D. in Applied Mathematics from Harvard University in 1972.
JEFFREY P. BUZEN is Chief Scientist, Treasurer and Senior Vice President of
the Company and has served as Clerk and Director of the Company since it was
founded in 1975. Dr. Buzen developed the mathematical techniques upon which many
of the Company's products are based. In addition to his work at the Company, Dr.
Buzen has held faculty positions at Harvard and Brown Universities and has
published numerous articles on the theory and practice of capacity management.
Dr. Buzen received a Ph.D. in Applied Mathematics from Harvard University in
1971.
JAMES S. MCGUIRE was named Chief Operating Officer in November 1990. From
1986, when Mr. McGuire joined BGS, until his promotion, he served as Vice
President of Sales and Marketing and Vice President, Product Development. Mr.
McGuire received his B.A. in Economics and Classics from Holy Cross College in
1965.
NORMAND BILODEAU, CPA was appointed Chief Financial Officer in April 1990.
Mr. Bilodeau joined the Company in 1984 and prior to his promotion held the
position of Controller. From March 1983 until he joined BGS, he was the Manager
of General Accounting for the Boston Consulting Group. Mr. Bilodeau received his
B.S. in accounting from Bryant College in 1976.
JOHN PRYOR has been Vice President, Marketing and Sales since September
1995. He joined the Company in February 1995 as Vice President for International
Operations. From September 1990 until he joined BGS, he was Vice President of
Sales for NYNEX Information Resources Co. where he was responsible for sales and
service of NYNEX directory advertising throughout the New England states. Mr.
Pryor received
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his B.A. in Economics and Business from Wagner College in 1965 and his M.B.A.
from Fairleigh Dickinson University in 1971.
C. RUSSEL HANSEN, JR. has been counsel to the Company since 1982, at which
time he was a senior partner at Hale and Dorr. He left Hale and Dorr to start
his own firm on January 1, 1991 and then joined BGS as Vice President and
General Counsel on February 1, 1992. On January 1, 1995 he founded Van
Rensselaer Press (corporate governance publishing) and became its
publisher-editor. In March of 1996, he founded The Governance Institute
(corporate governance consulting) and became its managing director. Mr. Hansen
received his A.B. from Harvard College in 1968 and his J.D. from Harvard Law
School in 1972.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or
to which any of its property is subject other than ordinary routine litigation
incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the
fiscal year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol: BGSS.
Dividends on the Registrant's common stock are declared by the Board of
Directors and normally paid to shareholders as of the record dates in April,
July, October and January.
<TABLE>
Information on market prices and dividends is set forth below:
COMMON STOCK SALE PRICES
<CAPTION>
FY 1996 FY 1995
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FISCAL QUARTER HIGH LOW HIGH LOW
----------------------------------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First................................................ 30 1/4 24 3/4 27 20 1/2
Second............................................... 34 28 1/2 26 1/4 20 3/4
Third................................................ 38 1/4 32 25 1/4 22 1/4
Fourth............................................... 41 34 3/4 28 22
</TABLE>
<TABLE>
CASH DIVIDENDS PAID
<CAPTION>
FISCAL QUARTER 1996 1995
------------------------------------------------------------------- ----- -----
<S> <C> <C>
First.............................................................. $ .25 $ .15
Second............................................................. $ .25 $ .20
Third.............................................................. $ .25 $ .20
Fourth*............................................................ $ .25 $ .25
$1.25 $1.40
---- ----
TOTAL.................................................... $2.25 $2.20
==== ====
<FN>
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* In addition to the regular quarterly dividend, the Board of Directors
authorized the payment of a special dividend of $1.25 and $1.40 per share in
the fourth quarters of FY 1996 and 1995, respectively.
</TABLE>
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As of March 29, 1996, there were 220 holders of record of the Company's
common stock.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
YEARS ENDED JANUARY 31
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1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Revenue.................... $ 41,056 $ 35,381 $ 32,052 $ 30,322 $ 25,338
Cost and Expenses.................... 29,627 24,798 22,589 21,456 17,420
Investment Income.................... 932 812 1,088 1,345 921
---------- ---------- ---------- ---------- ----------
Income Before Income Taxes........... 12,360 11,395 10,551 10,211 8,839
---------- ---------- ---------- ---------- ----------
Net Income........................... 7,982 7,405 7,195 6,727 5,785
---------- ---------- ---------- ---------- ----------
Net Income Per Share
Primary......................... 2.55 2.38 2.23 2.10 1.82
Fully Diluted................... 2.55 2.38 2.23 2.09 1.80
---------- ---------- ---------- ---------- ----------
Dividends Per Share.................. $ 2.25 $ 2.20 $ 2.00 $ 2.59 $ 1.60
Weighted Average
Shares Outstanding.............. 3,132,045 3,116,610 3,223,269 3,206,382 3,178,636
Working Capital...................... $ 7,220 $ 11,934 $ 12,301 $ 13,366 $ 13,305
Total Assets......................... 35,381 31,093 28,192 27,914 27,275
Long-Term Debt....................... -- -- -- -- --
Stockholders' Equity................. 14,961 13,723 13,784 14,706 14,813
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Material Changes in Results of Operations
Fiscal year 1996 operating revenues increased 16% to $41,056,000 over the
prior year's $35,381,000. License fee revenue grew 18%, maintenance revenue and
consulting, development contracts and other revenue both grew 13%. Operating
revenues for the prior fiscal year had increased 10% over fiscal year 1994's
$32,052,000.
The Company's domestic operations posted solid gains in license fee revenue
on a combination of renewed strength in the Company's traditional MVS mainframe
product offerings, such as the Datacenter products, and continued acceptance and
growth in sales of the Company's newer UNIX product offerings. The Company's
continued rollout and enhancement of its numerous UNIX variants resulted in some
installation problems at the beginning of the year which resulted in slower
first half growth in this product line. Enhancements released in July and August
improved the installation process and removed some barriers to sales. The
Company released its first product for local area networks at the end of the
fourth quarter of fiscal year 1996. The timing of this release precluded this
product from having an impact on license revenue for the year. Although interest
in this product has been strong, it is too early to determine if this new
product will have a material positive impact on future revenue growth.
License fee revenue from the Company's international operations grew 17%
primarily on the strength of the Company's UNIX products. France, Australia,
Italy and the Company's independent distributors as a group all posted increases
in license fee revenue for the year. None of these operations accounted for more
than 10% of the Company's license fee revenue. License fees from the Company's
operations in the United Kingdom were below the levels of the prior fiscal year
primarily as a result of staffing changes. The Company's German operations
rebounded in the latter half of the year and posted a gain in license fee
revenue over the prior fiscal year. The Company cautions that while the Company
is hopeful that this improvement will continue, it would be premature to attempt
to predict that it will.
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The Company continued to expand its UNIX based product offerings throughout
the year and now offers products for up to seventeen iterations of major UNIX
operating systems. License fee revenue from the Company's new Open Systems
products for UNIX, AS/400, and Open VMS accounted for over 41% of the fiscal
year 1996's license fee revenue. As we have been predicting, the erosion of
license fee revenue from the older Crystal, VM and SNA Network products
continued and these products accounted for only 2% of the Company's license fee
revenue.
Revenue from maintenance fees grew 13% over fiscal year 1995 which had
posted a 12% increase over fiscal year 1994. As with license fee revenue, the
Company continues to experience deterioration in the maintenance fees from the
Crystal, VM and SNA network product lines. We expect that this trend will not
only continue but that this deterioration will accelerate in future years. The
cancellation of several large maintenance contracts had an adverse impact on the
domestic renewal rate for the current year. The Company is concerned that the
renewal of high dollar value maintenance contracts will require some customers
to go through a higher level approval process that will result in some of these
maintenance contracts being canceled. The effect of this plus the lack of
historical trends for the maintenance renewal of the newer UNIX products has
hampered the Company's ability to reasonably ascertain any trend in the
maintenance fee revenue for the next year. The domestic maintenance renewal rate
was adversely impacted by the aforementioned cancellation of a number of large
maintenance contracts. The Company's average maintenance renewal rate was 83% as
compared to the 87% renewal rate experienced in the prior fiscal year and 84%
experienced in fiscal year 1994. The current year impact of the Company's tiered
pricing policy instituted during fiscal year 1991 continued to increase
maintenance revenue by approximately 5% of the Company's MVS renewals.
Consulting, development contracts and other revenue increased 13% primarily
as a result of an increase in third party consulting contracts and revenues for
customer training courses. Consulting, development contracts and other revenue
for fiscal year 1995 had declined 33% as the development contracts previously
entered into by the Company were completed as scheduled. These contracts have
been accounted for on the percentage of completion method. The Company expects
that it will receive only a minimal amount of revenue from these development
contracts in the future. Third party consulting contracts and "for pay" training
courses are primarily done for the convenience of the Company's existing or
potential customers.
Fiscal year 1996's aggregate costs and expenses of $29,627,000 increased
19% over last year's $24,798,000. The cost of software increased 14% or $376,000
to $3,028,000 over fiscal year 1995's cost, which had increased 24% over fiscal
year 1994's cost. The additional expense for both years was the result of an
increase in the number of products being developed. Gross margins on software
licenses were approximately 86% for all three years. The Company plans to
continue to increase its investment in developing new products for both new and
existing markets. The cost of providing maintenance and support for the
Company's expanding product lines resulted in costs increasing 19% or $1,045,000
and squeezed maintenance margins to 62% down from 64% last year and 69% the year
before. The continued expansion of the number and breadth of products offered by
the Company may continue to exert pressure on these margins over the next few
years.
The cost of consulting, development contracts and other revenue has
declined over the past two years. The reduced level of work on the outside
product development contracts and revenue from lower cost items such as third
party consulting contracts combined to reduce costs and increase margins in this
area. As some of the costs in this area, such as the cost of for pay training,
is tied to revenue that is done more for the convenience of the Company's
customers than as a growth oriented product line, the costs may vary
substantially with the type of revenue recognized during any period. The Company
is examining the possibility of expanding its consulting practice, as
distinguished from its third party consulting and training, and will increase
its investment in that area in the future. During fiscal year 1996 the Company
capitalized $637,500 of software costs relating to products that will be
released during the coming year and amortized $137,500 of previously capitalized
software costs. The Company has continued to expand its investment in the
development of new technology and plans to continue this trend for the
foreseeable future.
Sales and marketing expenses increased 26% to $13,496,000 as a result of a
higher level of commissionable revenue, marketing costs relating to the rollout
of new products and an expansion of the direct sales force. The Company expects
these costs to continue to increase as it proceeds with the launch of additional
products
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and expands its sales force to accelerate revenue growth. General and
administrative costs grew 19% over the prior year. The growth in the staffing
levels with a related increased cost of hiring, increased costs of benefits and
additional overhead costs were the principal causes of this increase. As the
Company strives to accelerate its revenue growth it will continue to have to
invest in its infrastructure which will increase general and administrative
costs.
Operating income increased 8% to $11,428,000. The operating margin
percentage was 28%, down from the 30% for both fiscal year 1995 and fiscal year
1994.
Investment income increased 15% on a higher average of funds invested
throughout the year. Investment income had declined $275,000 in fiscal year 1995
from the prior year's level. The Company expects that fiscal year 1997
investment income will be below the levels of fiscal year 1996 as the Company
uses additional funds to renovate its new headquarters.
The effective tax rate for fiscal years 1996 and 1995 was 35% versus 32%
for fiscal year 1994. The tax rate for the past two years was higher than 1994's
rate primarily as a result of reduced utilization of research and development
tax credits, which is an incremental tax credit based upon the excess of
qualifying expenditures over a base amount. The research and development tax
credit expired in fiscal year 1996 and Congressional attempts to extend it have
not yet been successful. This could result in an increase in the effective tax
rate for the Company for future periods.
Net income increased 8% over fiscal year 1995 which had increased 3% over
fiscal year 1994. The Company's expenses relating to the rollout of new products
grew faster than revenue during the year. The Company expects future period
revenue growth will be greater than the growth in expenses. Earnings per share
increased to $2.55 from $2.38 per share in fiscal year 1995 which had increased
from $2.23 per share in fiscal year 1994.
Material Changes in Financial Condition/Liquidity
Cash and marketable securities decreased $3,256,000 to $12,268,000 at
January 31, 1996. Cash produced by earnings was offset by dividends declared and
paid in the amount of $7,009,000 and the purchase of a building that will serve
as headquarters for the Company. The Company declared and paid four regular
quarterly dividends of $.25. Additionally, the Company paid a special dividend
in the amount of $1.25. The Company had increased the rate of the regular
quarterly dividend twice during fiscal year 1995 to its current rate of $.25 per
share.
Accounts receivable increased $1,704,000 to $14,163,000 primarily as a
result of an increased level of sales in the fourth quarter and an increase in
billing of maintenance fee revenue that will be recognized in future periods.
Deferred revenue increased $1,953,000 to $15,082,000 from $13,129,000 at January
31, 1995 as a result of the increase in fourth quarter license fee revenue and
the increase in invoiced maintenance. This represents maintenance already
invoiced for future periods and the portion of the first year's software license
fee that relates to training and support services that will be provided by the
Company over the course of the next year.
Working capital declined $4,714,000 to $7,220,000 at January 31, 1996. The
payment of dividends, the purchase of computer equipment used in product
development and the purchase of a new corporate headquarters all contributed to
the decline in working capital.
The Company invests principally in short-term certificates of deposit,
money market funds, and high grade municipal bonds. The Company's cash resources
are considered sufficient to finance the Company's growth in the foreseeable
future.
Trends and Uncertainties
The environment of rapid technological change and intense competition which
is characteristic of the software development industry results in frequent new
products and evolving industry standards. The Company's continued success
depends on its ability to enhance current products and develop new products on
10
<PAGE> 11
a timely basis which keep pace with the changes in technology, evolving industry
standards and increasingly sophisticated customer needs. The Company currently
derives a significant portion of its revenue from licenses and related
maintenance fees of its Datacenter and UNIX product lines. As a result, any
factor adversely impacting sales of Datacenter or UNIX would have a material
adverse effect on the Company. The Company continued to invest heavily in the
development of its new products, particularly in the network and UNIX areas. The
success of these products will depend on the Company's ability to successfully
market these products to both its traditional customer base and to new companies
who are not familiar with the Company's existing products.
As previously noted, we do not know if the improvement in the German
subsidiary's revenues is temporary, the maintenance renewal area remains
uncertain and the impact of the trend of unpredictable co-opetition is difficult
to assess.
The trend toward larger, unpredictable orders has continued for several
years. Although this trend increases both the difficulty of forecasting revenue
from quarter to quarter and the likelihood of uneven quarterly revenues, the
Company has not experienced an unfavorable trend in quarterly revenue to date.
The Company's recent purchase of land and buildings near its current
location in Waltham, Massachusetts for use as its world-wide headquarters
creates less uncertainty regarding capacity of working space but adds a new area
of uncertainty relating to the ownership, upkeep, productive utilization and
environmental and other legal compliance of commercial property owners in the
Route 128 Technology Region.
The Company does not expect inflation and price changes to have a material
effect on its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of
Part IV (page 12) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The response to this item is furnished in Item 2A contained in Part I of
this Form 10-K captioned "EXECUTIVE OFFICERS OF THE REGISTRANT." The name, age
and background information for each of the Company's directors and nominees are
incorporated herein by reference to the section of the Company's Proxy Statement
for its 1996 Annual Meeting of Shareholders captioned "ELECTION OF DIRECTORS"
and "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES AND EXCHANGE ACT OF 1934."
ITEM 11. EXECUTIVE COMPENSATION
Information on compensation of the Company's executive officers and
directors is incorporated herein by reference to the sections of the Company's
Proxy Statement for its 1996 Annual Meeting of Shareholders captioned: "MEETINGS
AND COMMITTEES," COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION,"
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION," EXECUTIVE COMPENSATION," CERTAIN TRANSACTIONS," "OPTION GRANTS IN
LAST FISCAL YEAR," "AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END VALUES," AND GRAPHICAL COMPARISONS OF COMMON STOCK TO MARKET INDICES."
11
<PAGE> 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The number of Common Shares of the Company beneficially owned by each five
percent shareholder, director or current nominee for director, and by all
directors and officers as a group as of April 15, 1996 is incorporated herein by
reference to the sections of the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders captioned "SECURITY OWNERSHIP BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" and "ELECTION OF DIRECTORS."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning transactions with management, certain business
relationships and indebtedness of management is incorporated herein by reference
to the section of the Company's Proxy Statement for its 1996 Annual Meeting of
Shareholders captioned "CERTAIN TRANSACTIONS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following consolidated financial statements of BGS Systems, Inc.
and subsidiaries are included in Item 8 and set forth on pages 15 through
27 of this Report.
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets -- January 31, 1996 and 1995
Consolidated Statements of Income -- years ended January 31, 1996,
1995, and 1994
Consolidated Statements of Stockholders' Equity -- years ended
January 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- years ended January 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements (Including Supplementary
Data)
(a)(2) The following consolidated financial statement schedule is included
in Item 14(d):
Schedule II Valuation Accounts Page 28
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
(a)(3) Listing of Exhibits
Exhibits required by 14(a)(3) and 14(c) are shown in the "Exhibit
Index" on pages 29 to 30 of this Report.
(b) Reports on Form 8-K
The Company has filed two reports on Form 8-K during the last quarter
of the period covered by this Report reporting the purchase of the Property
for its new corporate headquarters, scheduled for occupancy in January
1997. The reports were filed on November 17 and December 28, 1995.
(c) Exhibits
The exhibits as shown in the "Exhibit Index" (pages 29-30) are filed
as part of this Report.
Each management contract or compensatory plan or arrangement is
identified as such in the Exhibit Index herein incorporated, and such
identification is so herein incorporated.
(d) Other Financial Statements
There are no financial statements required to be filed by Regulation
S-X which are excluded from the annual report to shareholders by Rule
14a-3(b).
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BGS SYSTEMS, INC.
Date: April 24, 1996 By: /s/ HAROLD S. SCHWENK, JR.
------------------------------------
Harold S. Schwenk, Jr.
Chairman of the Board, President and
Chief Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<S> <C>
By: /s/ HAROLD S. SCHWENK, JR. Date: April 24, 1996
- -------------------------------------------------
Harold S. Schwenk, Jr.
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ C. RUSSEL HANSEN, JR. for Date: April 24, 1996
- -------------------------------------------------
Jeffrey P. Buzen
Director
By: /s/ C. RUSSEL HANSEN, JR. for Date: April 24, 1996
- -------------------------------------------------
Paul R. Duncan
Director
By: /s/ C. RUSSEL HANSEN, JR. for Date: April 24, 1996
- -------------------------------------------------
Judith N. Goldberg
Director
By: /s/ NORMAND BILODEAU Date: April 24, 1996
- -------------------------------------------------
Normand Bilodeau
Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
13
<PAGE> 14
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2); 14(c) AND (d)
FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
YEAR ENDED JANUARY 31, 1996
BGS SYSTEMS, INC.
WALTHAM, MASSACHUSETTS
14
<PAGE> 15
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BGS Systems, Inc.
We have audited the accompanying consolidated balance sheets of BGS
Systems, Inc. and subsidiaries as of January 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended January 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BGS Systems, Inc. and subsidiaries at January 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1996
15
<PAGE> 16
BGS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $11,228,411 $ 9,084,622
Marketable securities........................................... 1,040,000 6,440,000
Accounts receivable, less allowance of $365,000 in 1996
and 1995 for doubtful accounts............................... 14,162,823 12,458,895
Prepaid expenses and other assets............................... 951,033 768,125
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................ 335,640
Deferred income taxes........................................... 257,398 201,031
----------- -----------
Total current assets.................................... 27,639,665 29,288,313
Capitalized software.............................................. 775,000 275,000
Property, plant and equipment, net................................ 6,966,134 1,529,498
----------- -----------
Total assets............................................ $35,380,799 $31,092,811
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable................................................ $ 1,343,665 $ 1,247,818
Accrued expenses................................................ 1,162,102 1,005,153
Accrued compensation and employee benefits...................... 2,197,567 1,542,835
Deferred revenue................................................ 15,082,034 13,129,025
Income taxes payable............................................ 421,159 429,380
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................ 213,110 0
----------- -----------
Total current liabilities............................... 20,419,637 17,354,211
Deferred income taxes............................................. 16,057
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value-authorized 10,000,000 shares;
issued and outstanding 3,214,849 shares in 1996 and 1995..... 321,486 321,486
Capital in excess of par value.................................. 14,387,404 14,441,965
Retained earnings............................................... 3,082,920 2,109,638
Equity adjustment from foreign currency translation............. (700,680) (511,907)
----------- -----------
17,091,130 16,361,182
Less cost of 91,120 shares (112,885 shares in 1995)
of common stock in treasury.................................. 2,129,968 2,638,639
----------- -----------
Total stockholders' equity........................................ 14,961,162 13,722,543
----------- -----------
Total liabilities and stockholders' equity........................ $35,380,799 $31,092,811
=========== ===========
</TABLE>
See accompanying notes.
16
<PAGE> 17
BGS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
License fees...................................... $21,975,611 $18,516,896 $15,904,035
Maintenance fees.................................. 16,967,017 14,990,795 13,365,257
Consulting, development contracts and other....... 2,112,904 1,872,842 2,783,047
----------- ----------- -----------
41,055,532 35,380,533 32,052,339
Costs and expenses:
Cost of software.................................. 3,028,052 2,651,834 2,147,156
Cost of maintenance and support................... 6,471,298 5,426,111 4,204,070
Cost of consulting, development contracts and
other.......................................... 679,347 761,098 1,106,439
Sales and marketing............................... 13,495,746 10,706,677 10,417,638
General and administrative........................ 3,987,697 3,364,635 3,064,261
Research and development.......................... 1,965,232 1,887,749 1,649,392
----------- ----------- -----------
29,627,372 24,798,104 22,588,956
----------- ----------- -----------
Operating income.................................... 11,428,160 10,582,429 9,463,383
Investment income................................... 932,174 812,277 1,087,629
----------- ----------- -----------
Income before income taxes.......................... 12,360,334 11,394,706 10,551,012
Income taxes........................................ 4,378,417 3,989,407 3,355,953
----------- ----------- -----------
Net income.......................................... $ 7,981,917 $ 7,405,299 $ 7,195,059
=========== =========== ===========
Net income per share................................ $ 2.55 $ 2.38 $ 2.23
=========== =========== ===========
</TABLE>
See accompanying notes.
17
<PAGE> 18
BGS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
----------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1993........................ 3,214,849 $ 321,486 $14,419,361 $ 607,426
Shares issued under employee stock purchase and
stock option plans............................... (59,344)
Tax benefit related to exercise of stock options... 208,423
Dividends declared ($2.00 per share)............... (6,289,312)
Net income......................................... 7,195,059
Translation adjustment.............................
Purchase of common stock for treasury..............
--------- -------- ----------- -----------
BALANCE AT JANUARY 31, 1994........................ 3,214,849 321,486 14,568,440 1,513,173
Shares issued under employee stock purchase and
stock option plans............................... (148,601)
Tax benefit related to exercise of stock options... 22,126
Dividends declared ($2.20 per share)............... (6,808,834)
Net income......................................... 7,405,299
Translation adjustment.............................
Purchase of common stock for treasury..............
--------- -------- ----------- -----------
BALANCE AT JANUARY 31, 1995........................ 3,214,849 321,486 14,441,965 2,109,638
Shares issued under employee stock purchase and
stock option plans............................... (125,661)
Tax benefit related to exercise of stock options... 71,100
Dividends declared ($2.25 per share)............... (7,008,635)
Net income......................................... 7,981,917
Translation adjustment.............................
--------- -------- ----------- -----------
BALANCE AT JANUARY 31, 1996........................ 3,214,849 $ 321,486 $14,387,404 $ 3,082,920
========= ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
EQUITY ADJUSTMENT
FROM FOREIGN TREASURY STOCK
CURRENCY -----------------------
TRANSLATION SHARES AMOUNT TOTAL
----------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1993.................... $(488,947) 22,610 $ (153,620) $14,705,706
Shares issued under employee stock purchase and
stock option plans........................... (38,846) 560,830 501,486
Tax benefit related to exercise of stock
options...................................... 208,423
Dividends declared ($2.00 per share)........... (6,289,312)
Net income..................................... 7,195,059
Translation adjustment......................... (72,424) (72,424)
Purchase of common stock for treasury.......... 99,500 (2,464,926) (2,464,926)
--------- ------- ----------- -----------
BALANCE AT JANUARY 31, 1994.................... (561,371) 83,264 (2,057,716) 13,784,012
Shares issued under employee stock purchase and
stock option plans........................... (23,579) 551,277 402,676
Tax benefit related to exercise of stock
options...................................... 22,126
Dividends declared ($2.20 per share)........... (6,808,834)
Net income..................................... 7,405,299
Translation adjustment......................... 49,464 49,464
Purchase of common stock for treasury.......... 53,200 (1,132,200) (1,132,200)
--------- ------- ----------- -----------
BALANCE AT JANUARY 31, 1995.................... (511,907) 112,885 (2,638,639) 13,722,543
Shares issued under employee stock purchase and
stock option plans........................... (21,765) 508,671 383,010
Tax benefit related to exercise of stock
options...................................... 71,100
Dividends declared ($2.25 per share)........... (7,008,635)
Net income..................................... 7,981,917
Translation adjustment......................... (188,773) (188,773)
--------- ------- ----------- -----------
BALANCE AT JANUARY 31, 1996.................... $(700,680) 91,120 $(2,129,968) $14,961,162
========= ======= =========== ===========
</TABLE>
See accompanying notes.
18
<PAGE> 19
BGS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income.......................................... $ 7,981,917 $ 7,405,299 $ 7,195,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 959,606 787,436 573,283
Amortization of capitalized software.............. 137,500
Gain on sales of available-for-sale securities.... (18,117) (33,179) (387,297)
Deferred income taxes............................. (72,424) (54,638) 839
Changes in operating assets and liabilities:
Accounts receivable............................ (1,946,918) (1,648,942) (1,497,139)
Costs and estimated earnings in excess of
billings on uncompleted contracts............ 548,750 (306,000) 401,360
Other current assets........................... (98,856) (230,439) (136,389)
Accounts payable and accrued expenses.......... 1,052,300 105,138 (136,596)
Deferred revenue............................... 2,043,830 2,036,458 1,515,663
Income taxes................................... 105,367 576,196 424,273
----------- ----------- -----------
Net cash provided by operating activities........... 10,692,955 8,637,329 7,953,056
Investing activities
Purchases of available-for-sale securities.......... (3,060,000) (9,305,000)
Proceeds from maturity of available-for-sale
securities........................................ 3,905,000 4,075,000
Proceeds from sale of available-for-sale
securities........................................ 4,573,117 4,221,912
Decrease in marketable securities................... 1,235,343
Additions to property, plant and equipment.......... (6,403,427) (758,436) (922,576)
Additions to capitalized software costs............. (637,500) (275,000)
----------- ----------- -----------
Net cash provided (used) by investing activities.... (1,622,810) (2,041,524) 312,767
Financing activities
Purchases of common stock for treasury.............. (1,132,200) (2,464,926)
Proceeds from issuance of common stock.............. 383,010 402,676 501,486
Dividends paid...................................... (7,008,635) (6,808,834) (6,289,312)
----------- ----------- -----------
Net cash used in financing activities............... (6,625,625) (7,538,358) (8,252,752)
Effect of exchange rate changes on cash and cash
equivalents....................................... (300,731) 217,750 (25,595)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 2,143,789 (724,803) (12,524)
Cash and cash equivalents at beginning of year...... 9,084,622 9,809,425 9,821,949
----------- ----------- -----------
Cash and cash equivalents at end of year............ $11,228,411 $ 9,084,622 $ 9,809,425
=========== =========== ===========
</TABLE>
See accompanying notes.
19
<PAGE> 20
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Business
The environment of rapid technological change and intense competition which
is characteristic of the software development industry results in frequent new
products and evolving industry standards. The Company's continued success
depends on its ability to enhance current products and develop new products on a
timely basis which keep pace with the changes in technology, evolving industry
standards and increasingly sophisticated customer needs. The Company currently
derives a significant portion of its revenue from licenses and related
maintenance fees of its Datacenter and UNIX product lines. As a result, any
factor adversely impacting sales of Datacenter or UNIX would have a material
adverse effect on the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of BGS Systems,
Inc. (the Company) and its wholly-owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Estimates used in the preparation of the Company's consolidated
financial statements include, but are not limited to: allowance for doubtful
accounts, revenue recognition and associated deferrals and amortization periods
of capitalized software.
Foreign Currency Translation
The balance sheet accounts of the foreign subsidiaries are translated into
U.S. dollars at current exchange rates; revenue and expense accounts are
translated at average exchange rates during the period. Translation gains and
losses are included in a separate component of stockholders' equity. Transaction
gains and losses, which are immaterial, are included in income.
Revenue Recognition
License fees, which include fees from initial leases, are recognized as
revenue as follows: The portion which relates to maintenance, enhancements and
training of customer personnel for a one-year period is deferred and is
recognized ratably over such period. The remaining portion is recognized at the
time the computer tapes are delivered. Fees from maintenance and lease renewal
contracts are recognized ratably over the contract periods.
Revenues from long-term contracts are recognized on the percentage of
completion method. Earned revenue is based on the percentage that incurred costs
to date bear to total estimated costs after giving effect to the most recent
estimates of total cost. The cumulative impact of revisions in total cost
estimates during the progress of work is reflected in the year in which these
changes become known. Earned revenue reflects the original contract price
adjusted for agreed upon claim and change order revenue, if any. Losses expected
to be incurred on jobs in process, after consideration of estimated minimum
recoveries from claims and change orders, are charged to income as soon as such
losses are known. Progress billings in accounts receivable are currently due in
accordance with contract terms.
20
<PAGE> 21
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
Cash equivalents consist of certificate of deposits, money market funds,
and similar investments with maturities of three months or less at the date of
acquisition. The cost of all cash and cash equivalents approximates fair market
value due to the short maturity of the instruments.
Marketable Securities
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Statement 115 establishes the accounting and reporting
requirements for all debt securities and for investments in equity securities
that have readily determinable fair value. All affected investment securities
must be classified as one of the following; held-to-maturity, available-for-sale
or trading. Held-to-maturity securities are carried at amortized cost.
Available-for-sale securities are carried at fair value, with unrealized holding
gains and losses reported as a separate component of stockholders' equity.
Trading securities are carried at fair value, with unrealized holding gains and
losses reported in the income statement. Realized gains and losses and declines
in value judged to be other-than-temporary on available-for-sale securities are
included in investment income. Interest and dividends on securities classified
as available-for-sale are included in investment income.
In accordance with the statement, prior period financial statements have
not been restated. The adoption of statement 115 had an immaterial impact on
stockholder's equity at February 1, 1994.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents, marketable
securities and accounts receivable. The Company invests its excess cash
primarily in high quality securities and limits the amount of credit exposure to
any one financial institution. The investment policy limits the Company's
exposure to concentration of credit risk and changes in market conditions.
The Company provides credit in the normal course of business, and
accordingly, performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. These allowances when realized, have
been within the range of management's expectations. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's worldwide customer base.
<TABLE>
Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost. Depreciation
is computed by use of the straight-line method over the following estimated
useful lives:
<S> <C>
Building....................................................... 39.5 years
Furniture and fixtures......................................... 6 to 10 years
Computer equipment and software................................ 3 to 5 years
</TABLE>
Capitalized Software
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies. The Company capitalized $637,500 and
$275,000 of software development costs during 1996 and 1995. Total amortization
of capitalized software was $137,500 in 1996. There was no
21
<PAGE> 22
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization in 1995. During 1994, the Company did not capitalize or amortize
any software costs as the costs incurred after technological feasibility was
established were not significant.
Amortization of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
remaining estimated economic life of the product, not to exceed two years.
All other research and development expenditures are charged to research and
development expense in the period incurred.
Income Taxes
The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under Statement
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and intends to
continue to do so. Accordingly, no compensation expense is recognized for the
stock option grants.
Net Income per Share of Common Stock
Net income per share of Common Stock is based on the weighted average
number of common shares and common equivalents outstanding during each year
(3,132,045 shares in 1996, 3,116,610 shares in 1995 and 3,223,269 shares in
1994).
Fully diluted earnings per share does not differ materially from primary
earnings per share.
Reclassifications
Certain amounts in 1995 and 1994 with respect to cost of software;
maintenance and support; and consulting, development contracts and other, have
been reclassified to permit comparison.
New Accounting Standards
The Company has not yet adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of ", which will require adoption in Fiscal 1997. The
Company does not expect adoption of the new standard to have a material impact
on its consolidated financial position or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued which prescribes accounting
and reporting standards for all stock-based compensation plans. Under Statement
123, companies are encouraged, but not required, to adopt the fair value method
of accounting for such plans. Companies can elect to continue to follow the
intrinsic value method of accounting under Accounting Principles Board Opinion
No. 25, but are required to disclose the pro forma information regarding
stock-based compensation plans under the fair value method required by Statement
123. The Company will be required to adopt Statement 123 in fiscal 1997.
22
<PAGE> 23
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. MARKETABLE SECURITIES
At January 31, 1996 and 1995 the Company's marketable securities consist of
$1,040,000 and $6,440,000 of tax free municipal bonds classified as
available-for-sale, respectively. Due to the nature of the securities, fair
value approximates cost at January 31, 1996 and 1995, and, accordingly, no
unrealized gains or losses are reflected in stockholder's equity. Gross realized
gains from sales of available-for-sale securities were $18,117 in 1996 and
$33,179 in 1995. The cost of securities sold is based on the specific
identification method. Based upon contractual maturities, all securities held at
January 31, 1996 are scheduled to mature in 1997.
3. EMPLOYEE BENEFITS
Profit-Sharing Retirement Plan
The Company has a profit-sharing retirement plan covering all employees and
officers who are at least 21 years of age and have completed at least one year
of service with the Company. Contributions under the plan are discretionary and
may not exceed 15% of the total compensation paid to all eligible participants
each year. Contributions were $50,000 for each year 1996, 1995 and 1994.
Stock Option Plan
In 1994, the Company adopted the 1993 Stock Option Plan (the Plan). Under
the Plan, 150,000 shares of the Company's Common Stock are available for grant
to employees. Option prices and exercise periods are determined by the Board of
Directors on the date of grant. All options granted under the Plan become
exercisable in installments over a two-to five-year period commencing one year
from the date of grant.
Outside Director Stock Option Plan
In 1994, the Company adopted the 1993 Outside Director Stock Option Plan
(the Director's Plan). The Company has reserved 40,000 shares of Common Stock
under the Director's Plan. The Director's Plan authorizes a one time automatic
grant of options to acquire 10,000 shares of Common Stock as an initial award
for being an outside Director. Additionally, the Director's plan also authorizes
the automatic grant to purchase 2,000 shares of Common Stock as an annual award
to outside Directors. Options granted under the initial award are exercisable
ratably over a five-year period. Options granted under the annual award become
exercisable on the date of the fifth annual meeting of stockholders following
the date of grant. All options expire ten years from the date of grant and have
an exercise price equal to 115% of the fair market value of the Company's Common
Stock on the date of grant.
<TABLE>
Additional information relating to the Stock Option Plan and the Outside
Director Stock Option Plan is as follows:
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year..... 251,640 $ 28.35 220,640 $ 28.35 222,912 $ 24.83
Granted.............................. 59,000 35.56 39,000 32.22 24,000 37.81
Expired or canceled.................. (15,000) 32.22
Exercised............................ (7,000) 8.50 (8,000 9.52 (26,272) 7.08
------- ------- ------- ------- ------- -------
Outstanding at end of year........... 288,640 $ 31.19 251,640 $ 28.35 220,640 $ 28.35
======= ======= =======
Exercisable at end of year........... 131,640 107,640 72,640
Available for future grants.......... 80,000 127,000 166,000
</TABLE>
23
<PAGE> 24
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the Company adopted the 1995 Employee Stock Purchase Plan (the
Plan), as the 1990 Employee Stock Purchase Plan expired on June 30, 1995. Under
the Plan, an aggregate of 30,000 shares of Common Stock are reserved for
purchase by qualified employees, at 85% of the appropriate market price. The
Plan has a term of two years with 7,500 shares being offered for purchase in
semiannual offerings. The Plan provides that qualified employees may authorize
payroll deductions from 1% to 10% of their base pay to purchase shares at the
lower of the market price in effect on the day the offering starts or the day
the offering terminates. If more than 7,500 shares qualify to be purchased in an
offering, employees receive shares on a pro rata basis. The Company issued the
following shares under the Plans: 9,695 shares and 5,070 shares at prices of
$18.70 and $28.05, respectively, in fiscal year 1996; 6,787 shares and 8,792
shares at prices of $22.10 and $20.08, respectively, in fiscal year 1995; 6,305
shares and 6,269 shares at prices of $27.20 and $22.95, respectively, in fiscal
year 1994.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property plant and equipment consists of the following at January 31:
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Land....................................................... $ 2,258,360
Building................................................... 3,037,777
Furniture and fixtures..................................... 1,607,098 $1,537,295
Computer equipment......................................... 6,488,993 5,473,725
----------- -----------
13,392,228 7,011,020
Less accumulated depreciation.............................. 6,426,094 5,481,522
----------- -----------
$ 6,966,134 $1,529,498
=========== ===========
</TABLE>
During 1996, the Company purchased land and a building for $5,296,137 for
use as the Company's future corporate headquarters.
5. LEASES
<TABLE>
The Company leases office space under operating leases expiring in various
years through 2001. Most of the leases include renewal options. Future minimum
payments under non cancelable operating leases with initial or remaining terms
of one year or more are as follows:
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1997..................................................................... $1,365,164
1998..................................................................... 290,418
1999..................................................................... 145,819
2000..................................................................... 64,947
2001..................................................................... 64,586
----------
Total minumun lease payments............................................. $1,930,934
==========
</TABLE>
Total rent expense amounted to $1,672,590 in 1996, $1,558,353 in 1995 and
$1,472,377 in 1994.
24
<PAGE> 25
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
Consulting, development contracts and other consists of the following:
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Software development contracts................. $ 500,000 $ 566,867 $1,178,640
Consulting fees................................ 1,046,174 1,093,419 1,315,739
Other.......................................... 566,730 212,556 288,668
---------- ---------- ----------
$2,112,904 $1,872,842 $2,783,047
========== ========== ==========
</TABLE>
Expenses incurred with regard to software development contracts were
$177,266, $203,135 and $453,680 for 1996, 1995 and 1994, respectively.
7. INCOME TAXES
<TABLE>
For financial reporting purposes, income before income taxes includes the
following components:
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Pretax income:
Domestic.................................. $11,368,217 $10,775,901 $10,468,940
Foreign................................... 992,117 618,805 82,072
----------- ----------- -----------
$12,360,334 $11,394,706 $10,551,012
=========== =========== ===========
</TABLE>
<TABLE>
The provision for income taxes reflected in the statement of income
consists of the following:
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal...................................... $3,342,801 $3,076,102 $2,704,839
State........................................ 809,617 744,272 602,232
Foreign...................................... 298,423 223,671 48,043
---------- ---------- ----------
4,450,841 4,044,045 3,355,114
Deferred....................................... (72,424) (54,638) 839
---------- ---------- ----------
$4,378,417 $3,989,407 $3,355,953
========== ========== ==========
</TABLE>
<TABLE>
A reconciliation of the federal statutory rate to the effective income tax
rate follows:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate......................................... 35.0% 34.0% 34.0%
State taxes, less federal benefit.............................. 4.2 4.3 3.8
Tax-exempt interest............................................ (1.4) (1.4) (1.6)
Research and development credit................................ (1.4) (2.1) (4.5)
Other.......................................................... (1.0) 0.2 0.1
---- ---- ----
Effective tax rate............................................. 35.4% 35.0% 31.8%
==== ==== ====
</TABLE>
25
<PAGE> 26
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Significant components of the Company's deferred tax liabilities and assets
as of January 31 are as follows:
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................. $ (16,057)
--------- ---------
Total deferred tax liabilities..................... (16,057)
Deferred tax assets:
Net operating loss carry forwards.......................... $ 479,686 507,162
Allowance for doubtful accounts............................ 120,207 120,207
Vacation accrual........................................... 92,648 80,824
Book over tax depreciation................................. 44,543
--------- ---------
Total deferred tax assets.......................... 737,084 708,193
Less: Valuation allowance for deferred tax assets............ (479,686) (507,162)
--------- ---------
$ 257,398 $ 184,974
========= =========
</TABLE>
At January 31, 1996, the Company's German subsidiary had net operating loss
carry forwards of $1 million for income tax purposes. For financial reporting
purposes, a valuation allowance of $479,686 has been recognized to offset the
deferred tax assets related to those carry forwards.
The Company made income tax payments of $4,111,689, $3,356,683 and
$2,845,031 in fiscal years 1996, 1995 and 1994, respectively.
<TABLE>
8. BUSINESS SEGMENT AND FOREIGN OPERATIONS
<CAPTION>
UNITED OTHER
DOMESTIC KINGDOM GERMAN INTERNATIONAL
OPERATIONS OPERATIONS OPERATIONS OPERATIONS ELIMINATION CONSOLIDATED
----------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 1996:
Revenues........................ $26,553,132 $8,107,290 $4,015,292 $2,379,818 $ 41,055,532
Transfers between geographic
areas......................... 6,229,301 $ 6,229,301
----------- ---------- ---------- ---------- ----------- ------------
$32,782,433 $8,107,290 $4,015,292 $2,379,818 $ 6,229,301 $ 41,055,532
=========== ========== ========== ========== =========== ============
Income (loss) from operations... $10,765,831 $ 465,537 37,460 $ 159,332 $ 11,428,160
=========== ========== ========== ========== =========== ============
Assets.......................... $25,908,218 $4,881,019 $2,436,489 $2,155,073 $ 35,380,799
=========== ========== ========== ========== =========== ============
Year ended January 31, 1995:
Revenues........................ $22,953,987 $7,467,369 $3,156,421 $1,802,756 $ 35,380,533
Transfers between geographic
areas......................... 5,287,758 $ 5,287,758
----------- ---------- ---------- ---------- ----------- ------------
$28,241,745 $7,467,369 $3,156,421 $1,802,756 $ 5,287,758 $ 35,380,533
=========== ========== ========== ========== =========== ============
Income (loss) from operations... $10,208,424 $ 408,915 (28,932) $ (5,979) $ 10,582,428
=========== ========== ========== ========== =========== ============
Assets.......................... $21,397,863 $6,171,723 $1,708,233 $1,814,992 $ 31,092,811
=========== ========== ========== ========== =========== ============
</TABLE>
26
<PAGE> 27
BGS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED OTHER
DOMESTIC KINGDOM GERMAN INTERNATIONAL
OPERATIONS OPERATIONS OPERATIONS OPERATIONS ELIMINATION CONSOLIDATED
----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 1994:
Revenues........................ $22,777,096 $4,941,405 $3,240,983 $1,092,855 $ 32,052,339
Transfers between geographic
areas......................... 4,285,954 $ 4,285,954
----------- ---------- ---------- ---------- ----------- ------------
$27,063,050 $4,941,405 $3,240,983 $1,092,855 $ 4,285,954 $ 32,052,339
=========== ========== ========== ========== =========== ============
Income (loss) from operations... $ 9,446,928 $ 65,362 $ (5,751) $ (43,156) $ 9,463,383
=========== ========== ========== ========== =========== ============
Assets.......................... $22,136,486 $3,485,097 $1,459,022 $1,111,273 $ 28,191,878
=========== ========== ========== ========== =========== ============
</TABLE>
The Company operates in one business segment -- the sale of computer
software and related services.
The Company's foreign operations are subject to certain economic and
regulatory risks and uncertainties specific to each geographic region. Such
risks and uncertainties could disrupt the Company's foreign operations and have
a material impact on the Company's financial results.
Transfers to affiliates are made at prices above the Company's cost and
include charges for freight and handling.
Export revenues were $1,780,826 in 1996, $1,468,641 in 1995 and $1,716,785
in 1994.
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996:
Net revenues........................... $8,920,982 $9,707,384 $9,993,521 $12,433,645
Gross profit........................... 6,676,829 7,017,305 7,328,956 9,853,745
Net income............................. 1,872,683 1,896,622 1,949,547 2,263,065
Net income per share................... .60 .61 .62 .72
1995:
Net revenues........................... $7,724,292 $8,170,061 $8,664,774 $10,821,206
Gross profit........................... 5,860,694 6,086,679 6,379,604 8,214,513
Net income............................. 1,737,517 1,769,552 1,766,142 2,132,088
Net income per share................... .55 .57 .57 .69
</TABLE>
Gross profit is the result of total revenues less cost of software;
maintenance and support; and consulting, development contracts and other.
27
<PAGE> 28
SCHEDULE II
VALUATION ACCOUNTS
BGS SYSTEMS, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COL. C
-------------------------------
COL. B ADDITIONS
--------- ------------------------------- COL. E
BALANCE (1) (2) COL. D ----------
COL. A AT CHARGED TO CHARGED TO ---------- BALANCE AT
- ---------------------------------- BEGINNING COSTS AND OTHER DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS--DESCRIBE DESCRIBE OF PERIOD
- ---------------------------------- --------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1996:
Allowance for doubtful
accounts..................... $ 365,000 $ 0 $ 0 $0 $ 365,000
Year ended January 31, 1995:
Allowance for doubtful
accounts..................... 365,000 0 0 0 365,000
Year ended January 31, 1994:
Allowance for doubtful
accounts..................... 394,160 (29,190) 0 0 365,000
</TABLE>
28
<PAGE> 29
<TABLE>
EXHIBIT INDEX
<S> <C>
3.1 Articles of Organization, as amended (Incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on May 2, 1983, File No. 2-83449 ("Form S-1") and Exhibit A to
the Registrant's Proxy Statement dated May 27, 1987).
3.2 By-Laws, as amended (Incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-K for the year ended January 31, 1995).
4 Specimen copy of certificate for shares of Common Stock of the Registrant
(Incorporated by reference to Exhibit 4 to Form S-1 filed with the Securities and
Exchange Commission on June 1, 1983).
10.1 Lease between 128 Technology Trust and the Registrant (Incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-K for the year ended January 31, 1991).
10.2 Lease between P.W. & Co. and BGS Systems, Ltd. (Incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-K for the fiscal year ended January 31, 1991).
10.3 Lease between Axel Unteregger Bauunternehmung GmbH and BGS Systems GmbH (Incorporated
by reference to Exhibit 10.3 to the Registrant's Form 10-K for the year ended January
31, 1990).
10.4 Lease between Maria Rosa Bertot and BGS Systems, s.r.1. (Incorporated by reference to
Exhibit 10.4 to the Registrant's Form 10-K for the fiscal year ended January 31,
1992).
10.5 Lease between Reseaux et Communications Informatiques and BGS Systems, Ltd.
(Incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-K for the
fiscal year ended January 31, 1992).
10.6 BGS Systems, Inc. 401(k) and Profit Sharing Retirement Plan, as amended and restated
(Incorporated by reference to Exhibit 99 to the Registrant's Form 10-Q for the
quarter ended October 31, 1994).
10.7 BGS Systems, Inc. 1993 Stock Option Plan (Incorporated by reference to Exhibit A to
the Registrant's Proxy Statement dated June 8, 1993, File No. 33-64034).*
10.8 BGS Systems, Inc. 1993 Outside Director Stock Option Plan (Incorporated by reference
to Exhibit B to the Registrant's Proxy Statement dated June 8, 1993, File No.
33-64036).*
10.9 1990 Employee Stock Purchase Plan (Incorporated by reference to Exhibit A to the
Registrant's Proxy Statement dated June 12, 1990, File No. 33-35625).*
10.10 BGS Systems, Inc. 1983 Stock Option Plan, as amended (Incorporated by reference to
Exhibit 10.6 to the Registrant's Form 10-K for the year ended January 31, 1991, File
No. 33-31162).*
10.11 Employment and Loan Arrangements with Mr. McGuire (Incorporated by reference to the
portion of the Registrant's Proxy Statement dated June 8, 1993, set forth under the
caption, "Employment Contracts and Termination Arrangements," and Exhibit 10.8 to the
Registrant's Form 10-K for the year ended January 31, 1991).*
10.12 Lease between UNIPIERRE IV & V and BGS Systems Ltd. (Incorporated by reference to
Exhibit 10.12 to Registrant's Form 10-K for the year ended January 31, 1994).
10.13 Lease between Elysee Pty. Ltd. and BGS Systems Pty. Ltd. (Incorporated by reference
to Exhibit 10.13 to Registrant's Form 10-K for the year ended January 31, 1994).
10.14 BGS Systems, Inc. 1995 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit A to Registrant's Definitive Proxy Statement dated June 13, 1995).*
10.15 Contract of Sale Between BGS Systems, Inc. and 580 Winter Street Corp. (Incorporated
by reference to Exhibit 10.1 to Registrants Form 8-K dated October 26, 1995).
11 Statement Regarding Computation of Earnings Per Share (filed herewith).
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
21 Subsidiaries of the Registrant at January 31, 1996 (filed herewith).
23 Consent of Ernst & Young LLP, Independent Auditors (filed herewith).
24 Powers of Attorney. (Incorporated by reference to Exhibit 24 to Registrant's Form
10-K for the year ended January 31, 1995).
27 Financial Data Schedule
<FN>
- ---------------
* Compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 14(c) of this Form 10-K.
</TABLE>
30
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
BGS SYSTEMS, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding............................. 3,111,710 3,100,823 3,173,604
Net effect of stock options, if dilutive, based on
treasury stock method using the year-end market
price, if higher..................................... 20,335 15,787 49,665
========== ========== ==========
TOTAL........................................ 3,132,045 3,116,610 3,223,269
========== ========== ==========
Net income............................................. $7,981,917 $7,405,299 $7,195,059
========== ========== ==========
Net income per share................................... $ 2.55 $ 2.38 $ 2.23
========== ========== ==========
FULLY DILUTED
Average shares outstanding............................. 3,111,710 3,100,823 3,173,604
Net effect of stock options, if dilutive, based on
treasury stock method using the year end market price
if higher than the average market price.............. 23,610 15,787 49,665
========== ========== ==========
TOTAL........................................ 3,135,320 3,116,610 3,223,269
========== ========== ==========
Net income............................................. $7,981,917 $7,405,299 $7,195,059
========== ========== ==========
Net income per share................................... $ 2.55 $ 2.38 $ 2.23
========== ========== ==========
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
- -------------------------------------------------------------------- -------------------------------
<S> <C>
BGS Securities Corporation.......................................... Massachusetts
BGS Systems, Ltd.................................................... England
BGS Systems, GmbH................................................... Germany
BGS Systems s.r.1................................................... Italy
BGS Systems Pty. Ltd................................................ Australia
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-31162, 33-35625, 33-64034, 33-64036, and 33-60763) pertaining
to the 1983 Stock Option Plan, the 1990 Employee Stock Purchase Plan, the 1993
Stock Option Plan, the 1993 Outside Director Stock Option Plan and the 1995
Employee Stock Purchase Plan of BGS Systems, Inc. of our report dated March 14,
1996, with respect to the consolidated financial statements and schedule of BGS
Systems, Inc. included in the Annual Report (Form 10-K) for the year ended
January 31, 1996.
ERNST & YOUNG LLP
Boston, Massachusetts
April 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,228,411
<SECURITIES> 1,040,000
<RECEIVABLES> 14,162,823
<ALLOWANCES> 365,000
<INVENTORY> 0
<CURRENT-ASSETS> 27,639,665
<PP&E> 13,392,228
<DEPRECIATION> 6,426,094
<TOTAL-ASSETS> 35,380,799
<CURRENT-LIABILITIES> 20,419,637
<BONDS> 0
<COMMON> 321,486
0
0
<OTHER-SE> 14,639,676
<TOTAL-LIABILITY-AND-EQUITY> 35,380,799
<SALES> 21,975,611
<TOTAL-REVENUES> 41,055,532
<CGS> 10,178,697
<TOTAL-COSTS> 29,627,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,630,334
<INCOME-TAX> 4,378,417
<INCOME-CONTINUING> 7,981,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,981,917
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 2.55
</TABLE>
