FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-12192
BGS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2559993
(State of Incorporation) (I.R.S. Employer
Identification No.)
128 Technology Center, Waltham, Massachusetts 02254
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 891-0000
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
Number of shares outstanding of each of the issuer's classes of common stock.
Common stock, $.10 par value
Shares outstanding @ July 31, 1996.................................3,214,849
BGS Systems, Inc.
Table of Contents
Part I Financial Information: Page No.
Item 1 - Financial Statements:
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-8
Part II Other Information:
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures
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3
Part I Financial Information
Item 1. Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, January 31,
1996 1996
-----------------------------
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ASSETS
Current Assets:
Cash and cash equivalents $12,701,654 $11,228,411
Marketable securities 1,700,000 1,040,000
Accounts receivable, less allowances of
$365,000 at July 31, 1996 and January
31, 1996 for doubtful accounts 10,684,294 14,162,823
Prepaid expenses and other assets 1,288,857 951,033
Deferred income taxes 257,398 257,398
Total current assets 26,632,203 27,639,665
Capitalized software 831,250 775,000
Equipment:
Land 2,258,360 2,258,360
Building 3,085,480 3,037,777
Furniture and fixtures 1,653,276 1,607,098
Computer equipment 7,107,719 6,488,993
14,104,835 13,392,228
Less accumulated depreciation 6,945,831 6,426,094
7,159,004 6,966,134
Total Assets $34,622,457 $35,380,799
============ ============
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 940,860 $ 1,343,665
Accrued expenses 664,255 1,162,102
Accrued compensation and employee benefits 1,412,742 2,197,567
Deferred revenue 13,915,944 15,082,034
Federal and state income taxes payable 579,301 421,159
Billings in excess of costs and earnings on
uncompleted contracts - 213,110
Dividends payable - -
Total current liabilities 17,513,102 20,419,637
Stockholders' equity:
Common stock, $.10 par value-authorized
10,000,000 shares; issued and outstanding
3,214,849 shares 321,486 321,486
Capital in excess of par value 14,424,076 14,387,404
Retained earnings 5,015,868 3,082,920
Equity adjustment from foreign currency
translation (656,706) (700,680)
19,104,724 17,091,130
Less cost of 85,363 shares (112,885 shares
in 1995) of common stock in treasury 1,995,369 2,129,968
Total stockholders' equity 17,109,355 14,961,162
Total liabilities and stockholders' equity $34,622,457 $35,380,799
============ ============
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FORM 10-Q
4
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BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
License fees $ 6,272,251 $ 5,087,888 $11,553,299 $ 9,196,818
Maintenance fees 4,424,534 4,243,678 8,882,413 8,421,293
Other 621,107 375,818 1,371,222 1,010,255
------------ ------------ ------------ ------------
11,317,892 9,707,384 21,806,934 18,628,366
------------ ------------ ------------ ------------
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<S> <C> <C> <C> <C>
COSTS AND EXPENSES:
Costs of software 1,095,161 197,159 2,125,040 1,175,965
Costs of maintenance & support 2,156,716 2,283,312 4,082,954 3,377,540
Costs of consulting, develop-
ment contracts and other 352,906 209,617 559,021 380,746
Sales and marketing 3,406,551 3,065,767 6,541,742 5,807,723
General and administrative 960,840 883,698 1,774,699 1,725,950
Research and development 373,606 461,582 784,652 1,006,403
------------ ----------- ----------- -----------
8,345,780 7,101,135 15,868,108 13,474,327
------------ ----------- ----------- -----------
OPERATING INCOME 2,972,112 2,606,249 5,938,826 5,154,039
Investment income:
Interest income, net 140,966 215,302 284,001 414,777
Other income 173,139 92,352 237,252 174,055
------------ ----------- ------------ -----------
314,105 307,654 521,253 588,832
------------ ----------- ------------ -----------
INCOME BEFORE TAXES 3,286,217 2,913,903 6,460,079 5,742,871
Income taxes 1,112,100 1,017,281 2,184,332 1,973,566
NET INCOME $ 2,174,117 $ 1,896,622 $ 4,275,747 $ 3,769,305
============ =========== =========== ===========
Net income per share $ .69 $ .61 $ 1.36 $ 1.21
============ ============ ============ ===========
Weighted average number of
shares outstanding 3,163,224 3,123,413 3,154,089 3,119,817
============ ============ ============ ===========
Net income per share: The computations of income per share are based on the
weighted average number of shares of Common Stock outstanding during the
periods, including the dilutive effect of stock options.
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5
FORM 10-Q
<TABLE>
<CAPTION>
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
July 31,
1996 1995
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,275,747 $ 3,769,305
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 732,010 442,930
Changes in operating assets and
liabilities:
Accounts receivable 3,560,503 5,155,630
Billings in excess of costs & estimated
earnings on uncompleted contracts (213,111) -
Other current assets (329,324) (216,516)
Accounts payable and accrued expenses (1,777,883) (1,411,764)
Deferred revenue (1,237,551) (1,564,918)
Federal and state income taxes 150,588 (168,273)
Foreign currency transaction 8,511 (107,235)
------------ ------------
Net cash provided by operating activities 5,169,490 5,899,159
------------ ------------
FINANCING ACTIVITIES:
Purchases of common stock for treasury 36,672 273,312
Proceeds from issuance of common stock 134,599 (75,016)
Dividends paid (2,342,797) (1,550,982)
------------ ------------
Net cash used in financing activities (2,171,526) (1,352,686)
------------ ------------
INVESTING ACTIVITIES:
Purchases of available-for-sale securities (660,000) (1,210,000)
Proceeds from maturity of available-for-sale
securities - 2,005,000
Additions to capitalized software costs (284,375) (250,000)
Additions to equipment (686,241) (645,090)
Net cash provided by (used in) investing ------------ ------------
activities (1,630,616) (100,090)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents 105,895 129,600
Net increase (decrease) in cash and cash
equivalents 1,473,243 4,575,983
Cash and cash equivalents at beginning of
fiscal year 11,228,411 9,084,622
------------ ------------
Cash and cash equivalents at end of period $12,701,654 $13,660,605
============ ============
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6
FORM 10-Q
BGS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
I. Accounting Comments
With respect to the unaudited statements for the interim periods included
in this report, management of the Company believes that all adjustments
necessary for fair presentation of the results for such interim periods have
been included, and are of a normal recurring nature.
Reference is made to the registrant's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on April 26, 1996, which
incorporates the financial statements and notes thereto, including a summary
of significant accounting policies, for the fiscal years ended January 31, 1996
and January 31, 1995.
The results for the interim periods are not necessarily indicative of the
results for the entire year.
7
FORM 10-Q
Part 1-Item 2
BGS SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Results of Operations
Operating revenues for both the second quarter the first six months of fiscal
year 1997 increased 17% over the comparable periods of the prior year. A
combination of the increased sales of the Company s newer UNIX products and
growth from the Company's German and French operations pushed license fee
growth to 26% for the six month period and 23% for the second quarter. Sales of
the Company's Datacenter and Visualizer products continued at levels similar to
the prior year's. Additionally, the Company entered into several agreements
which call for the delivery of products in the third and fourth quarters of the
current fiscal year, resulting in a backlog of approximately $1,270,000.
Maintenance fee revenue grew increased 5% for the six-month period and 4% for
the second quarter. As expected, maintenance renewals of the Company's older
product lines such as VM, SNA and Crystal are declining at a faster pace than in
the past as our customers replace their older technology with new systems. The
benefits of an improved domestic operations maintenance renewal rate and
maintenance renewals of the Company's newer products will not have a positive
impact on maintenance revenue for several quarters.
Other revenue for the six-month period increased 36% and increased 65% for the
second quarter. Consulting revenue, which is usually earned at a comparable
level from quarter to quarter, increased as more of the Company's customers
required additional services. Revenue from third party development contracts
was at a minimum maintenance level and did not vary significantly from the
levels of either period last year.
Aggregate costs and expenses for both the second quarter and the six-month
period increased approximately 18%. Sales and marketing expenses were higher
for both periods as a result of increased marketing activity relating to the
Company's newer UNIX and Network products and the higher level of commissionable
revenue. This trend should continue for the foreseeable future.
The increased cost of software reflects the continuation of the increased
investment in both people and equipment required for the Company to develop
products for distributed systems. The Company currently markets and supports 21
versions of UNIX products and has recently released several different products
for computer networks and Windows NT. The Company expects that this trend will
continue as more companies enter the market and drive up the cost of the
resources needed to develop products in this area, especially the cost of labor.
Maintenance and support costs also increased in the current fiscal year
primarily for the same reason as software costs and are expected to follow a
trend line similar to that of software costs. Margins for both license fee
revenue and maintenance revenue will be slightly lower than in the past until
revenue growth catches up with the increased costs of both product
development and product support. Research and development costs declined in the
current fiscal year as more products were released to production and less work
could be characterized as pure research.
8
FORM 10-Q
The growth in general and administrative expenses was primarily due to normal
inflation and is expected to continue to grow slowly for the near term. The
cost of consulting and other revenue increased in as a result of the
temporary allocation of additional resources for providing the revenue related
services.
Interest income declined for both periods as funds that were invested in the
prior year's first several quarters was used to purchase a building that will
serve as the Company's new headquarters. Other income improved primarily as a
result of rental income, from tenants currently occupying a portion of the
aforementioned building, and currency transaction exchange gains incurred in the
normal course of business. The Company does not enter into any forward exchange
contracts.
Net income grew approximately 13% over last year's first six months and 15%
over last year's second quarter. The effective tax rate was approximately 34%
for both years.
Material Changes in Financial Condition/Liquidity
Cash and marketable securities increased $2,133,000 primarily as a result of the
collections of fiscal year 1996 fourth quarter sales and current year earnings.
The decrease in accounts receivable from January 31 is primarily due to the
collection of outstanding accounts and the lower sales levels in the first and
second quarters of the current fiscal year versus the normal increased sales
activity during the fourth quarter.
The Company's cash resources are considered sufficient to finance the Company's
growth in the foreseeable future.
Accounts payable and accrued expenses declined primarily as a result of a
lower level of spending in the second quarter as compared to the fourth
quarter and earlier payment of vendors invoices at the end of the second
quarter. Accrued compensation declined as a result of the payment of
year-end bonuses in the first quarter of the current fiscal year. Deferred
revenue declined as revenue from maintenance contracts pre-billed last year
was partially recognized during the first two quarters of the current fiscal
year.
Trends and Uncertainties
The Company has several new product offerings available for release in the third
quarter of the current fiscal year. These products continue the Company's push
into markets not currently served by the Company's product lines. The
long-term success of these products is contingent upon these products being
accepted by customers who normally do not purchase the Company's products.
The frequency of large software purchases by the Company's customers continues
to impact the performance of one or more of the Company's operating units
each quarter, and continues to be of concern because of the increased
potential for unevenness in the total revenue of the Company for the
foreseeable future.
9
FORM 10-Q
BGS SYSTEMS, INC.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits filed as part of this Form 10-Q are
listed on the Exhibit Index immediately preceding such
exhibits and are incorporated herein by reference.
(b) Form 8-K. The Registrant did not file any reports on
Form 8-K during the quarter for which this report is filed.
10
FORM 10-Q
INDEX TO EXHIBITS
Exhibits Page Number
11 Statement regarding Computation
of per share earnings
27 Financial Data Schedule
FORM 10-Q
BGS SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BGS Systems, Inc.
128 Technology Center
Waltham, Massachusetts 02254
Date: September 12, 1996 By: /S/ HAROLD S. SCHWENK, JR.
Harold S. Schwenk, Jr.
President and Chief Executive Officer
Date: September 12, 1996 By: /S/ NORMAND BILODEAU
Normand Bilodeau
Chief Financial Officer
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FORM 10-Q
STATEMENT REGARDING COMPUTATIONS OF PER SHARE EARNINGS
BGS SYSTEMS, INC.
<CAPTION>
For the quarter ended
July 31,
1996 1995
---------------------------
<S> <C> <C>
PRIMARY
Average shares outstanding 3,126,608 3,107,312
Net effect of stock options, if dilutive,
based on the treasury stock method using
the average market price 36,616 16,101
----------- -----------
Total 3,163,224 3,123,413
----------- -----------
Net income $ 2,174,117 $ 1,896,622
=========== ===========
Net income per share $ .69 $ .61
=========== ===========
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For the six months ended
July 31,
1996 1995
---------------------------
<S> <C> <C>
PRIMARY
Average shares outstanding 3,125,169 3,104,638
Net effect of stock options, if dilutive,
based on the treasury stock method using
the average market price 28,920 15,179
----------- -----------
Total 3,154,089 3,119,817
----------- -----------
Net income $ 4,275,747 $ 3,769,305
=========== ===========
Net income per share $ 1.36 $ 1.21
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000718976
<NAME> BGS SYSTEMS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<EXCHANGE-RATE> 1
<CASH> 12,701,654
<SECURITIES> 1,700,000
<RECEIVABLES> 10,684,294
<ALLOWANCES> 365,000
<INVENTORY> 0
<CURRENT-ASSETS> 26,632,203
<PP&E> 14,104,835
<DEPRECIATION> 6,945,831
<TOTAL-ASSETS> 34,622,457
<CURRENT-LIABILITIES> 17,513,102
<BONDS> 0
0
0
<COMMON> 321,486
<OTHER-SE> 16,787,869
<TOTAL-LIABILITY-AND-EQUITY> 34,622,457
<SALES> 11,553,299
<TOTAL-REVENUES> 21,806,934
<CGS> 14,814,188
<TOTAL-COSTS> 15,868,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,460,079
<INCOME-TAX> 2,184,332
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,275,747
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
