UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal year ended SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________________to___________________
Commission File Number: 0-132-58
BOOLE & BABBAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1651571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3131 ZANKER ROAD, SAN JOSE, CA 95134-1933
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 526-3000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE (Title of Class)
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 voting stock held by nonaffiliates of the
registrant, based upon the average bid and asked price of the Common Stock on
November 30, 1995, was approximately $125,502,038. Shares of Common Stock held
by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded because such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock on November
30, 1995 was 10,867,762.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for fiscal year ended September 30,
1995 - Items 5, 6, 7, 8 and 14.
2. Portions of Proxy Statement dated January 17, 1996 - Items 10, 11, 12 and 13.
<PAGE>
UNITED STATES
BOOLE & BABBAGE, INC.
FORM 10-K
YEAR ENDED SEPTEMBER 30, 1995
Table of Contents
Item
Number Page
------ ----
PART I
1. Business...........................................................1
2. Properties.........................................................7
3. Legal Proceedings..................................................7
4. Submission of Matters to a Vote of Security Holders................7
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.................................8
6. Selected Consolidated Financial Data...............................8
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................8
8. Financial Statements and Supplementary Data........................8
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................8
PART III
10. Directors and Executive Officers of the Registrant.................9
11. Executive Compensation.............................................9
12. Security Ownership of Certain Beneficial Owners and Management.....9
13. Certain Relationships and Related Transactions.....................9
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...10
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Boole & Babbage, Inc. (hereinafter "Boole & Babbage" or the "Company") was
founded in 1967. Boole & Babbage is an independent software vendor that develops
and markets enterprise automation software solutions for managing distributed
computer systems in multivendor, multiplatform computing environments.
The Company's products are used by information systems professionals whose
organizations rely on the performance of their computing resources to conduct
business. Boole & Babbage has a strong commitment to the quality of the products
and services it provides to its customers. The Company continually invests in
research and development to maintain the quality of its software products and
focuses on customer support services to satisfy its large customer base.
See Note 7 of Notes to Consolidated Financial Statements for certain financial
information with respect to the Company's foreign operations.
MARKET
Over the last 25 years, systems management has evolved from simply monitoring
resource usage in a single mainframe to automated management of client/server
applications across the information system enterprise. This includes the
monitoring and management of mainframes, servers, networks and applications from
disparate vendors across a myriad of platforms.
The explosive growth of computing resources throughout the enterprise poses new
challenges for systems management. Organizations are increasingly dependent on
information systems for their moment-to-moment operations. If systems fail to
deliver service to the internal end user, there can be an immediate impact on
external customers and the bottom line.
Applications become increasingly complex as they support more business functions
and are distributed across the enterprise on downsized platforms. Today's
computing environment includes mainframes, minicomputers, workstations and LANs
spread throughout the organization
Along with the task of supporting this complex, mission-critical resource,
corporate MIS departments are under continuous pressure to reduce all the costs
associated with information systems and their management -- hardware, software,
networks and personnel.
The growing diversity of the enterprise computing environment contributes to
other features of the current market:
While IBM's dominance of the MIS organization is eroding, customers are
concerned with protecting their investment in their information systems.
This in turn is driving the emergence of often conflicting standards for
systems management, such as SNMP DCE and various emerging object-oriented
strategies like CORBA, OLE, DSOM, etc.
In an effort to reduce training costs and increase efficiencies, there is a
customer-driven trend toward consolidating the installed vendor base and
standardizing on as few products as possible.
1
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Despite recent acquisitions, a smaller field of software vendors has been slow
to deliver significant integration among system management tools while the
market continues to demand out-of-the-box interoperablilty of diverse products.
In the face of these market dynamics, traditional approaches to systems
management -- which focus on managing discrete components such as CPUs,
subsystems, devices and networks -- cannot meet the challenge of managing
service levels for complex distributed systems.
Boole & Babbage is focused on delivering the next generation of automated
systems management products needed to respond to these challenges.
PRODUCT STRATEGY: MULTIPLATFORM APPROACH WITH ENTERPRISE AUTOMATION
Boole & Babbage Enterprise Automation strategy focuses on the business needs of
large companies with strategic development of distributed information
technologies. Boole & Babbage today delivers a comprehensive solution aimed at
helping customers gain proactive command and control of their distributed
computing environment - from the mainframe to the desktop. With Boole & Babbage,
entire enterprises can be managed and automated from a central point-of-control,
regardless of the devices, operating systems, network standard and platforms it
contains.
Boole & Babbage Enterprise Automation is an open solution -- without any
boundaries to the type of IT components that can be reached. If an enterprise
has SNMP- and CMIP-managed equipment or is committed to one of the leading
Frameworks from IBM, HP or SUN, then Boole & Babbage Enterprise Automation
easily fits with and complements the customer standard or framework instead of
requiring extensive, and expensive, changes. The Company's products accept any
type of alert from non-standard-conforming environments such as legacy network
equipment, environmental systems and/or older midrange systems and allow for
fast implementation through ready-to-use knowledge bases.
COMMAND/POST: ENTERPRISE CENTRAL CONTROL FOR COMPREHENSIVE AVAILABILITY
MANAGEMENT
COMMAND/POST functions as a central point-of-control for managing and automating
all enterprise computers, networks, and applications. It is integrated with all
the Boole & Babbage product lines like Ensign and MainView products as well as
many of the leading help desk problem management products and frameworks such as
HP OpenView and IBM SystemView. COMMAND/POST uses a combination of agent- and
message-based capabilities to extend reach and scalability to any level of the
enterprise.
COMMAND/POST finds problems and pinpoints the actual causes of enterprise system
failures, triggers rapid corrective actions, interacts with problem management
systems and even escalates problem resolution to the appropriate level to insure
rapid restoration of service. It targets and solves network problems such as
node failures or the rerouting of data over a less-congested path. Customers
gain significant increases in application availability, while limiting required
manual intervention by system management professionals.
By bringing information about the enterprise to a central console, operational
staffing requirements are reduced, freeing up valuable resources for more
strategic functions while the overall control of the complex information system
infrastructure is enhanced.
2
<PAGE>
In the last two years, COMMAND/POST emerged as a valuable tool for centralized,
proactive Help Desk management, an area of renewed focus for corporate
enterprises. And through partnerships with other market leaders such as HP, IBM,
and SUN, COMMAND/POST has gained wide acceptance as the system integrator for
various point solutions. These partnerships, driven by customer requests, insure
COMMAND/POST users the benefits of integrated, complementary products from their
preferred vendors.
COMMAND/POST provides:
Immediate improvements in availability and performance through automated
recovery and failure prevention across WANs, LANs, mainframes and
minicomputers.
Low-cost implementation of connectivity through packaged interfaces and
tools for message and alert filtering.
An open architecture through interfaces to virtually any device.
Increased operator productivity through console and alert consolidation, a
graphical interface and graphical representations of enterprise
configuration.
Customization of data presentation on the UNIX workstation.
ENSIGN: INTELLIGENT AGENT EXTENSION FOR COMMAND/POST EVENT MANAGEMENT
AND AUTOMATION
Ensign intelligent agents for UNIX, NetWare, and NT can not only insure the
correct functioning of distributed client server applications but also apply
corrective actions. By distributing knowledge down into the servers Ensign
intelligent agents increase the scalability of the Enterprise Automation
solution and insure that only severe non-locally-solvable problems are reported
both locally and to the COMMAND/POST central point-of-control. Ensign agents
also filter important alarm information to leading frameworks like HP OpenView
and IBM SystemView. In addition to availability management, Ensign provides an
extensive set of administration applications including User, File, Security and
Storage backup and recovery management and via a set of partnerships can be
extended to address software distribution and workload management. All Ensign
functions can work in concert with COMMAND/Post or standalone in centralized
and/or distributed mode to fit the management philosophy of the customer
distributed system organization.
The Ensign products, which evolved from Boole & Babbage acquisition of
technology from Oslo-based Sysnet, were rolled out in 1994 have architectural
advantages over other offerings on the market. Ensign products require no
modification to the UNIX kernel ensuring smooth acceptance of UNIX upgrades,
interoperability with other application software and easy portability to the
different (13) versions of the UNIX operating system. Additionally, Ensign,
unlike its competitors, does not require weeks or months of implementations to
deliver value. Ensign installs and is operational in less than one hour.
3
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MAINVIEW: MAINFRAME AND PARALLEL SYSTEPLEX SERVER MANAGEMENT.
The Boole & Babbage integrated MainView family of products provides automation
and performance management for the IBM S/390 servers, ES/9000 series processors
and to the new CMOS based highly Parallel Sysplex servers. MainView products
provide unsurpassed flexibility and efficiency in data collection across
multiple MVS systems including Sysplex environments. On a single screen,
application-focused views help insure service and availability goals are being
met across the enterprise.
In the mainframe area, IBM has announced several aggressive and strategic
initiatives, destined to position the MVS operating system as an enterprise
server operating system. With the introduction of the System/390 Parallel
processors, which essentially reproduce the MVS operating system on a chip, IBM
has given a strong indication of its plan to accommodate market demand for more
efficient parallel processors.
Customers will benefit from greater efficiency and cost reduction with parallel
processors, however, they will also be faced with an attendant increase in
system complexity. Boole & Babbage was the first software vendor to offer
products specifically designed to handle the systems management needs of the
Parallel Sysplex environment.
The Company's mainframe products operate only with certain IBM operating
systems. IBM has often modified or changed its operating systems and introduced
new computer systems. The Company believes that IBM's successive operations
systems and mainframe architectures have been and will be designed to allow IBM
customers to enhance their systems and use new software as well as to modify and
use their existing software. The Company must adapt its products to accommodate
these IBM changes in order to license its products to new customers and to
obtain maintenance contracts from existing customers.
Boole & Babbage works closely with IBM to ensure that its products are kept
current with their product releases. The companies exchange information and work
cooperatively to ensure consistent service to their mutual customers. This
relationship also extends to a joint development partnership which the two
companies formalized in January 1991, and by the fact that IBM is also a
customer and user of Boole & Babbage products. Under the agreement, Boole &
Babbage and IBM are jointly designing and developing systems management products
for the CICS transaction processing environment.
While it is not anticipated that parallel processors will immediately replace
all traditional mainframes, Boole & Babbage is well-positioned for the
coexistence of both types of processors as they evolve to new roles. In fact,
many large firms are investing in Boole & Babbage Sysplex-ready products now in
order to prepare their system management infrastructure for a smooth transition
to parallel processors. The flexibility of the MainView architecture is
beneficial in both a parallel processing environment and in traditional
mainframe computing by making it possible to group resource activities in ways
that are meaningful to a particular business.
4
<PAGE>
STORAGE MANAGEMENT AND AUTOMATION
Boole & Babbage via a separate Storage Division sells products that address the
control and automation of mainframe and client/sever disk (DASD) storage
subsystems.
The ProSMS suite of integrated MVS software products provide advanced automated
management capabilities. ProSMS consists of product components that address key
storage management areas such as dynamic abend recovery, migration to system
managed storage, storage usage, administration and reporting.
In June 1994, Boole & Babbage acquired worldwide distribution rights to the
Stage3 LAN-to-mainframe backup product from Emprise Technologies. Stage3
provides a cooperative solution for centralized backup, taking advantage of
sophisticated, mature LAN backup software currently on the market and
redirecting the output via LU 6.2 to an MVS host.
The company also sells a number of products from independent software vendors;
these third-party products complement the Enterprise Automation strategy by
adding applications such as Scheduling, Tape, Output and Printing management,
JCL management, Desktop to Mainframe Connectivity etc. The following companies
provide products for the European and international market: Diversified Software
Systems, Inc., 4th Dimension Software, Simware, Inc., and Tone Software
Corporation.
MainView, COMMAND/POST, BBI, AutoCOMMAND and Ensign are trademarks of Boole &
Babbage, Inc.
IBM is a registered trademark of International Business Machines Corporation.
MVS, CICS, IMS, DB2, NetView and SystemView are trademarks of International
Business Machines Corporation.
CUSTOMER SUPPORT AND PRODUCT MAINTENANCE
The Company offers product maintenance, which includes maintenance and updating
of product capabilities to accommodate changes in a customer's hardware and
software. The first year of maintenance is included in all of the Company's
software licenses. Thereafter, the Company offers optional maintenance renewals
at prices that generally range from 15% to 20% annually of the current product
price. The Company also provides extensive computer-supported problem solving
capabilities over the telephone for its customers as part of their maintenance
contracts. The Company believes that support of its customers and products is
very important, and it continually attempts to improve its support systems and
techniques. In fiscal 1995, revenue from maintenance fees totaled 45.8% of
revenue. The Company's current annual maintenance cancellation rate is
approximately 10%.
COMPUTER AND EDUCATION SERVICES
Educational services with regard to the application of Boole & Babbage products
are provided to customers on a fee basis. The Company's computer services
division provides mainframe computing services on a time-sharing basis to
corporate affiliates and non-affiliates.
5
<PAGE>
MARKETING AND CUSTOMERS
The Company sells its products domestically through its own distribution
division, Boole & Babbage North America. In Europe, the Company's products are
sold through its European subsidiary, Boole & Babbage Europe. In areas outside
of North America and Europe, the Company has a wholly-owned sales subsidiary,
Boole & Babbage Australasia Pty. Ltd, in Australia and a majority-owned sales
subsidiary, Joint Systems & Technology, in Japan. In addition to its own sales
staff, the Company has agreements with several independent marketing agents who
serve international markets in which the Company has not established sales
offices.
The process of configuring the Company's products to meet the specific hardware
and software requirements of the environments in which they will be used is
rapid; consequently, shipments are generally made within one week of the time
the order is received. In addition, the Company offers its customers the
opportunity to use its products on a trial basis such that upon final acceptance
by the customer, full installation has already been completed. Accordingly, the
Company has no significant backlog of orders at any time.
The Company's customers are generally large corporate and government
organizations including industrial companies, commercial banks, insurance
companies, communications companies, retailers, transportation companies,
utilities, health care and educational institutions, and federal, state and
local governments. No customer accounts for greater than 10% revenue in 1995,
1994 or 1993.
The Company's commitment to customer satisfaction and service is reflected in
its policies regarding day-to-day operations and product maintenance, as well as
in its efforts to establish forums for customer interaction and dialogue.
Boole & Babbage has more than 12,500 products installed at more than 5,000 sites
worldwide. In each of the last three fiscal years, a large portion of the
Company's product revenue was from additional licensing by existing customers of
either new products or products for additional sites.
RESEARCH AND DEVELOPMENT
The computer hardware and software industries are characterized by rapid
technological change, which requires a continuing high level of expenditures for
the development and maintenance of software products. It is customary for
modifications to be made to a software product as experience with its use grows
or as changes in manufactures' hardware and software so require. In 1995, the
Company reinvested 16% of its Boole product revenues in R&D activities aimed at
both enhancing the existing products and adding several new ones. R&D costs net
of amounts capitalized were $15,650,000, $13,485,000 and $11,069,000 for the
years ended September 30, 1995, 1994 and 1993, respectively.
COMPETITION
The computer software industry is highly competitive. There are several large
software vendors that have substantially greater financial and technical
resources than the Company; in the future, these companies may develop and
market products similar to those offered by Boole & Babbage. Competitive
products are currently offered by a number of independent software companies.
6
<PAGE>
The most important consideration for customers of performance capacity
management, automated operations, and network management software are product
and product line capability, integration, on-going product enhancement, ease of
installation and use, reliability and quality of technical support,
documentation and training, name recognition, vendor experience and stability,
and, to a lesser extent, price. The Company believes that it competes favorably
in these areas.
PRODUCT PROTECTION
The Company relies on a combination of contract, patent, copyright and trade
secret laws, as well as various other measures, to protect its rights with
respect to its software products. The Company seeks protection of its
proprietary interest in its products and trade secrets and holds registered
related documentation. The company does not believe that any single contract,
patent, or copyright or trademark material to its business as a whole. The
Company does not sell or transfer title to its products to customers. The
products are licensed on a "right-to-use" basis pursuant to a perpetual license,
which is nontransferable and restricts use of the products to the customer's
internal purposes on specified computers at specified sites.
EMPLOYEES
As of November 30, 1995 Boole & Babbage employed approximately 754 persons,
including sales, marketing and related activities; product development and
customer support; management, administration and finance. Of such employees, 448
are employed in the United States and 306 are employed in foreign countries. The
Company believes that its employee relations are good.
ITEM 2. PROPERTIES
Boole & Babbage's principal administrative, marketing, research and development
and support groups are located in one facility in San Jose, California. This
facility is occupied under a lease that expires on March 31, 2000. The Company
believes that this facility is adequate for its current needs and that suitable
additional or substitute space will be available as needed to accommodate
physical expansion of the Company's operations. In addition, the Company leases
several sales and service facilities throughout North America, Europe, Japan and
Australia under leases that expire on dates ranging through 2018.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended September 30, 1995.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The information contained under the caption "Market for the Registrant's
Common Stock and Related Stockholder Matters" on page 18 of the 1995 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information contained under the caption, "Selected Consolidated
Financial Data" in the 1995 Annual Report to Stockholders on page 1 is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained under the caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 1995 Annual
Report to Stockholders on pages 3 - 7 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements for Boole & Babbage, Inc. are contained
on pages 8 - 11 of the 1995 Annual Report to Stockholders and are incorporated
herein by reference. Supplementary data is contained on page 2 of the 1995
Annual Report to Stockholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
8
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement dated January 17, 1996 under the captions
"Proposal 1" and "Additional Information."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement dated January 17, 1996 under the captions
"Proposal 1," "Executive Compensation," "Stock Option Grants and Exercises" and
"Board Compensation Committee Report on Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement dated January 17, 1996 under the caption
"Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement dated January 17, 1996 under the caption
"Certain Transactions."
9
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Boole & Babbage, Inc. and Report of Independent
Auditors are incorporated by reference to Registrant's 1995
Annual Report to Stockholders:
Page in
Exhibit 13.1
Consolidated Statements of Income-Years Ended
September 30, 1995, 1994 and 1993 .................................. 8
Consolidated Balance Sheets-September 30, 1995, 1994
and 1993............................................................ 9
Consolidated Statements of Stockholders' Equity-
Years Ended September 30, 1995, 1994 and 1993 ...................... 10
Consolidated Statements of Cash Flows-Years Ended
September 30, 1995, 1994 and 1993 .................................. 11
Notes to Consolidated Financial Statements ......................... 12
Report of Ernst & Young LLP, Independent Auditors .................. 18
2. Financial Statement Schedule. The following financial statement
schedule of Boole & Babbage, Inc. is filed as part of this Report
and should be read in conjunction with the Consolidated Financial
Statements of Boole & Babbage, Inc.:
Schedule for the fiscal years ended September 30, 1995, 1994 and
1993:
Schedule Page
-------- ----
II- Valuation and Qualifying Accounts................ 14
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedules, or because the information required is included in the
Consolidated Financial Statements and notes thereto included in the 1995
Annual Report to Stockholders, filed as Exhibit 13.1.
10
<PAGE>
3. Exhibits. The exhibits listed in Item 14(c) are filed as part of this
Annual Report.
(b) The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1995.
(c) Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation
of Registrant. (1)
3.2 Bylaws of Registrant. (2)
4.1 Reference is made to Exhibits 3.1 and 3.2.
10.1 1986 Incentive Stock Option Plan, as
amended, and related grant forms. (3)
10.2 1986 Supplemental Stock Option Plan, as
amended, and related grant forms. (3)
10.3 Employee Stock Purchase Plan. (4)
10.4 Form of Indemnity Agreement between
Registrant and its officers and directors. (1)
10.5 1993 Nonemployee Directors' Stock Option Plan, as
amended, and related grant forms. (5)
11.1 Computation of net income per share. (6)
13.1 1995 Annual Report to Stockholders. (6)
21.1 Subsidiaries of Registrant. (6)
23.1 Consent of Ernst & Young LLP, Independent
Auditors. (6)
27.1 Financial Data Schedule. (6)
(1) Previously filed as an exhibit to the definitive Proxy Statement for
January 20, 1987 Annual Meeting of Stockholders and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Annual Report on Form 10-K for the
year ended September 30, 1989, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Registration Statement on Form S-8
(Registration No. 33-65145) and incorporated herein by reference.
11
<PAGE>
(4) Previously filed as an exhibit to the Registration Statement on Form S-8
(Registration No. 33-55588) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registration Statement on Form S-8
(Registration No. 33-79782) and incorporated herein by reference.
(6) Filed as an exhibit to this Annual Report on Form 10-K.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as express in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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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 on the 22nd day of
December 1995.
BOOLE & BABBAGE, INC.
By: \Arthur F. Knapp, Jr.\
-------------------------------------------
Arthur F. Knapp, Jr.
Chief Financial Officer
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the following page constitutes and appoints Paul E. Newton and Arthur F. Knapp
his attorneys-in-fact for him in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that the said attorney-in-fact,
or his substitute or substitutes, may do or cause to be done by virtue hereof.
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 indicated on the 22nd day of December 1995.
\Terry R. McGowan\
- ---------------------------------------- -------------------------------
Johannes S. Bruggeling Terry R. McGowan
Executive Vice President and Director Director
\Raymond E. Cairns\ \Paul E. Newton\
- ---------------------------------------- -------------------------------
Raymond E. Cairns Paul E. Newton
Director President and Director
\Franklin P. Johnson, Jr.\ \Carl H. Reynolds\
- ---------------------------------------- -------------------------------
Franklin P. Johnson, Jr. Carl H. Reynolds
Chairman of the Board of Directors Director
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<TABLE>
SCHEDULE II
BOOLE & BABBAGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<CAPTION>
ADDITIONS
-----------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE AT
BEGINNING AND ACCOUNTS DEDUCTIONS END OF
OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995 $1,781,000 $ 129,000 -- $(176,000)* $1,734,000
YEAR ENDED SEPTEMBER 30, 1994 $1,832,000 $ 296,000 -- $(347,000)** $1,781,000
YEAR ENDED SEPTEMBER 30, 1993 $2,242,000 $ 381,000 -- $(791,000)*** $1,832,000
<FN>
* AMOUNT INCLUDES $162,000 OF ACCOUNT WRITE-OFFS NET OF $14,000 DUE TO
CURRENCY CHANGES.
** AMOUNT INCLUDES $378,000 OF ACCOUNT WRITE-OFFS NET OF $31,000 DUE TO
CURRENCY CHANGES.
*** AMOUNT INCLUDES $163,000 OF ACCOUNT WRITE-OFFS, $80,000 DUE TO CURRENCY
CHANGES, AND $548,000 IN REDUCTION OF RESERVE.
</FN>
</TABLE>
14
<TABLE>
BOOLE & BABBAGE, INC.
EXHIBIT 11.1
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
<CAPTION>
Years ended September 30,
-------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Weighted average number of common
shares outstanding during the year 10,589 10,035 9,638
Incremental common shares attributable
to exercise of outstanding options
(assuming proceeds would be used to
purchase treasury stock) 961 765 1,237
----- ----- -----
Total shares(a) 11,550 10,800 10,875
------ ------ ------
Net income $13,948 $7,946 $7,652
------- ------ ------
Net income per share(a) $1.21 $0.74 $0.70
----- ----- -----
FULLY DILUTED
Weighted average number of common
shares outstanding during the year 10,589 10,035 9,638
Incremental common shares attributable
to exercise of outstanding options
(assuming proceeds would be used to
purchase treasury stock) 1,026 895 1,262
----- ----- -----
Total shares(a) 11,615 10.930 10,900
------ ------ ------
Net income $13,948 $7,946 $7,652
------- ------ ------
Net income per share(a) $1.20 $0.73 $0.70
----- ----- -----
<FN>
(a) Per share data and number of shares reflect a 3-for-2 split which became
effective on December 6, 1995.
</FN>
</TABLE>
15
Exhibit 13.1
<TABLE>
BOOLE & BABBAGE, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
Years ended September 30,
----------------------------------------------
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $154,367 $131,796 $118,245 $110,539 $100,804
Expenses (a) 138,323 119,032 108,622 102,228 103,048
--------- -------- ------- -------- --------
Income (loss) excluding special charges (a) 16,044 12,764 9,623 8,311 (2,244)
Interest and other income (expense), net 3,904 2,003 1,548 (584) 409
--------- -------- ------- -------- --------
Income (loss) before income taxes 19,948 14,767 11,171 7,727 (1,835)
Provision (benefit) for income taxes 6,000 4,575 3,519 2,434 (675)
--------- -------- ------- -------- --------
Net income (loss) $13,948 $10,192 $7,652 $5,293 ($1,160)
========= ======== ======= ======== ========
Net income (loss) per share (b) $ 1.21 $ 0.94 $ 0.70 $ 0.53 $ (0.13)
========= ======== ======= ======== ========
Shares used in per share calculations (b) 11,550 10,800 10,875 10,050 8,740
========= ======== ======= ======== ========
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments $38,140 $34,019 $23,726 $16,113 $8,743
Total assets $163,908 $131,626 $100,905 $88,363 $73,223
Long-term debt $1,346 $3,080 $5,165 $5,196 $4,384
Deferred maintenance revenue $58,237 $46,905 $32,371 $32,182 $26,699
Stockholders' equity $70,187 $48,164 $34,467 $29,025 $21,110
</TABLE>
Page 1
<PAGE>
Exhibit 13.1
<TABLE>
Boole & Babbage, Inc.
Quarterly History
<CAPTION>
(In thousands, except per share amounts) Q1 94 Q2 94 Q3 94 Q4 94 Q1 95 Q2 95 Q3 95 Q4 95
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product licensing $14,962 $15,582 $16,221 $18,137 $20,390 $19,095 $18,755 $21,986
Maintenance fees 15,407 15,843 16,171 16,834 17,209 17,397 17,888 18,169
Services and other 748 598 637 656 974 761 725 1,018
----------------------------------------------------------------
Total revenue 31,117 32,023 33,029 35,627 38,573 37,253 37,368 41,173
----------------------------------------------------------------
Costs and expenses:
Cost of sales 4,364 4,257 3,659 4,500 5,290 5,252 4,986 6,208
Product development and support 5,748 6,151 6,219 6,088 5,904 5,900 5,872 6,669
Sales and marketing 14,001 14,829 16,872 17,863 19,031 18,255 20,145 19,908
General and administrative 3,665 3,475 3,414 3,927 4,177 3,792 3,006 3,928
Purchased R&D expense -- -- 3,251 -- -- -- -- --
----------------------------------------------------------------
Total costs and expenses 27,778 28,712 33,415 32,378 34,402 33,199 34,009 36,713
----------------------------------------------------------------
Operating income (loss) 3,339 3,311 (386) 3,249 4,171 4,054 3,359 4,460
Interest and other income, net 6 685 719 593 631 1,116 1,037 1,120
----------------------------------------------------------------
Income before taxes 3,345 3,996 333 3,842 4,802 5,170 4,396 5,580
Provision for income taxes 1,035 1,240 105 1,190 1,490 1,600 1,230 1,680
----------------------------------------------------------------
Net income $2,310 $2,756 $228 $2,652 $3,312 $3,570 $3,166 $3,900
================================================================
Net income per share (a) $ 0.22 $ 0.26 $0.02 $ 0.24 $ 0.30 $ 0.31 $ 0.27 $ 0.33
================================================================
Shares used in per share calculations (a) 10,635 10,665 10,905 11,025 11,200 11,550 11,650 11,750
================================================================
Stock Price (closing bid) (a)
High $ 12.56 $ 11.22 $ 13.67 $ 13.78 $ 17.50 $ 20.17 $ 20.83 $ 20.83
Low $ 10.22 $ 10.00 $ 10.22 $ 11.00 $ 13.28 $ 17.17 $ 18.17 $ 19.17
<FN>
(a) Per share data and number of shares reflect a 3-for-2 stock split which
became effective on December 6, 1995.
(b) Excludes $3.3 million ($0.20 per share) of purchased R&D expense in Q394.
</FN>
</TABLE>
Page 2
<PAGE>
Boole & Babbage, Inc.
Management's Discussion and Analysis of Financial Condition & Results of
Operations
<TABLE>
The table below sets forth the results of operations of the Company for the
three fiscal years ended September 30, 1995
<CAPTION>
Percentage of Revenue Year-to-Year
Years Ended September 30, Percentage Change
------------------------------ ------------------------
1995 1994 1993 95 vs. 94 94 vs. 93
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Product licensing 52.0% 49.2% 45.6% 23.6% 20.4%
Maintenance fees 45.8% 48.8% 51.3% 10.0% 5.9%
Services and other 2.2% 2.0% 3.1% 31.8% (27.3%)
----------------------------------- ------------------------------
Total revenue 100.0% 100.0% 100.0% 17.1% 11.5%
----------------------------------- ------------------------------
Costs and expenses:
Cost of sales 14.1% 12.7% 13.7% 29.5% 3.6%
Product development and support 15.8% 18.4% 18.1% 0.6% 13.4%
Sales and marketing 50.1% 48.2% 47.8% 21.7% 12.4%
General and administrative 9.6% 11.0% 12.3% 2.9% (0.3%)
Purchased R&D expense -- 2.5% -- NM NM
----------------------------------- ------------------------------
Total costs and expenses 89.6% 92.8% 91.9% 13.1% 12.6%
----------------------------------- ------------------------------
Operating income 10.4% 7.2% 8.1% 68.7% (1.1%)
Interest and other income, net 2.5% 1.5% 1.3% 94.9% 29.4%
----------------------------------- ------------------------------
Income before provision for income taxes 12.9% 8.7% 9.4% 73.2% 3.1%
Provision for income taxes 3.9% 2.7% 2.9% 68.1% 1.4%
----------------------------------- ------------------------------
Net income 9.0% 6.0% 6.5% 75.5% 3.8%
=================================== ==============================
</TABLE>
Page 3
<PAGE>
Revenue
The Company derives its revenues primarily from the licensing of computer
software programs and the sales of software maintenance services. The Company
also generates revenue from computer services and other sources, although to a
much lesser degree. Total revenue increased over the prior year by 17.1% in 1995
compared to an increase of 11.5% in 1994.
Product Licensing
The Company licenses its products to customers for use on their computer
systems. Product licensing accounted for 52.0% or $80,226,000 of total revenue
in 1995, compared to 49.2% or $64,902,000 in 1994 and 45.6% or $53,922,000 in
1993. Revenue from product licensing increased by 23.6% in 1995 compared to 1994
and by 20.4% for 1994 over 1993. As is common in the industry, more than 50% of
the Company's license revenue is derived from transactions that close in the
last month of a quarter, which can make quarterly revenues difficult to
forecast. And, since operating expenses are relatively fixed, failure to achieve
projected revenues could materially affect the Company's operating results.
This, in turn, could result in an immediate and adverse effect on the market
price of the Company's stock.
Products
The product area with the highest growth rate in 1995 was the client/server
group which grew by 43.1% and comprised 11.5% of the total licensing revenue.
The Company anticipates that this group will continue to show high growth rates
for fiscal 1996 as products such as Ensign and Stage3 begin to produce greater
revenue. However, these two new products have taken longer to rollout than
originally planned and the Company competes with certain companies who have
greater resources along with products already in the marketplace. In addition,
the Company is dependent on the client/server market developing at a rapid rate
despite reports by industry analysts that implementation of client/server
networks may be more expensive and time consuming than users had anticipated,
which could potentially slow the growth of the market. Due to these factors,
there can be no assurances that these new products will achieve significant
market acceptance or competitive success and thus contribute to revenue growth.
The Company currently derives approximately 86% of its licensing revenue
from mainframe-based technology. Plex products, on which revenue grew 15.6% in
1995, enable customers to handle large groups of computer processors,
particularly the new parallel processing machines by IBM. The Company's
licensing growth could be materially and adversely affected if these new
parallel processors do not gain significant market acceptance and customer
spending shifts away from traditional mainframes to technology platforms where
the Company does not have significant product acceptance. Revenues from the
Company's traditional mainframe products grew 24.1% in 1995 principally as a
result of built-up demand for mainframes which produced several large orders.
The Company does not expect the growth rate to be this high on traditional
mainframe products in 1996.
Price changes during 1995, 1994 and 1993 were not significant.
Licensing growth:
----------- ------------
1995 1994
----------- ------------
Domestic 6.6% 8.8%
International 33.3% 28.0%
----------- ------------
23.6% 20.4%
----------- ------------
Licensing mix:
--------- ---------- ---------
1995 1994 1993
--------- ---------- ---------
Domestic 31.2% 36.0% 40.0%
International 68.8% 64.0% 60.0%
--------- ---------- ---------
100.0% 100.0% 100.0%
--------- ---------- ---------
Markets
Domestic:
Domestic licensing grew 6.6% overall in 1995, as the telesales group produced
strong growth, but which was partially offset by a flat year for the field sales
force. In 1994, domestic licensing grew 8.8% overall, as the field sales force
produced strong growth but which was mostly offset by a decline in storage
management products sold by the telesales group. That group's productivity had
been negatively impacted by a restaffing to people with more extensive software
industry backgrounds. For growth to continue in the domestic market, the company
is dependent on a resurgence in sales productivity from the field sales group
and the ability to close larger size sales orders.
4
<PAGE>
International:
In 1995, the Company's revenues from its international operations, comprised of
foreign subsidiaries and marketing agents, increased 33.3% as a result of strong
growth in South America and favorable currency exchange rates. Without the
impact of currency exchange rates, international growth was 20.8%. In 1994, the
Company's revenues from its international operations increased 28.0% due to the
economic recovery in Europe and continued growth in the Far East, particularly
Japan. Currency rate changes had no significant impact on product licensing
growth in 1994. As further described in Note 1, the Company has a hedging
program to attempt to reduce its exposure to currency fluctuations. Since the
majority of new license revenue is derived from international markets, the
Company's operations and financial results could be significantly and adversely
affected by such international factors as changes in currency exchange rates and
specific countries' political and economic circumstances.
Maintenance Fees
Maintenance revenue is generated from services the Company provides including
technical support, product enhancements, system updates and user documentation.
Maintenance revenue also includes the first year of maintenance services which
is included in the initial charge when the Company licenses its software
products under a long-term agreement. Thereafter on each anniversary date of the
license, the customer may elect to renew its maintenance agreement with the
Company. Customers may also elect to purchase advance maintenance at the time of
product licensing for maintenance periods beyond the first year.
For 1995, 1994 and 1993, maintenance revenue accounted for 45.8%, 48.8% and
51.3%, respectively, of total revenues. Year-to-year increases in maintenance
revenue for 1995 and 1994 were 10.0% and 5.9%, respectively. Without the impact
of currency exchange rates, the increase in 1995 was 4.1%. There was no
significant impact of currency exchange rates on growth rates in 1994. These
increases are mainly the result of increased product licensing in the previous
years combined with high renewal rates.
In both years, the maintenance revenue growth rates are lower than the
licensing growth rates primarily as a result of fewer customer sites due to the
consolidation of customer data centers; reduced revenue associated with
customers' conversion to non-CPU specific pricing systems such as MIPS-based
pricing; and higher discount levels offered by the Company on multiple-year
maintenance packages.
The Company anticipates that maintenance revenue growth in 1996 will
increase due to the higher license revenue growth in 1995, although it will
continue to be negatively impacted by reduced revenue associated with site
consolidations, non-CPU specific pricing and multiple-year maintenance packages.
The Company must continue to generate new product licensing revenues and
also continue to provide high quality maintenance support and upgrades to ensure
future maintenance revenue increases.
Services and Other
Revenue derived from consulting, computer services, educational services and
other comprised 2.2%, 2.0% and 3.1% of total revenues for 1995, 1994 and 1993,
respectively. The increase of 31.8% in 1995 is a result of increased consulting
revenue in all sales channels. The decrease of 27.3% in 1994 is attributed
primarily to a decrease in computer services. A further decrease is due to the
$500,000 earned in 1993 in relation to a joint development project with IBM to
develop systems management products in support of future CICS releases. These
decreases were partially offset by increased consulting and educational services
revenue in Europe.
Cost of Sales
Cost of sales consists primarily of royalties paid to independent software
authors, amortization of purchased and internally developed software, the cost
of hardware associated with sales of client/server products and costs related to
operating the computer services division. Cost of sales increased by 29.5% and
3.6% in 1995 and 1994, respectively, and represented 14.1%, 12.7% and 13.7% of
revenues for 1995, 1994 and 1993, respectively. The increase for 1995 was 21.8%
without the impact of currency exchange rates. In 1995, the increase is a result
of higher third-party royalties and software amortization. Third-party royalties
increased both as a result of higher third-party revenue in
5
<PAGE>
Europe and Japan as well as the addition of third-party client/server products
to which the Company has exclusive distribution rights. Software amortization
increased from the combination of 1994's Sysnet a.s. acquisition (see Note 3),
the write-off of certain software products, and the large number of product
releases at the end of 1994. In 1996, amortization of software developed
internally is expected to be only slightly higher than 1995 levels due to the
full amortization of research and development (R&D) costs which were first
capitalized in 1991. The increase in 1994 was primarily attributable to
licensing growth in client/server products and higher third-party revenue in
Europe which produced increased hardware costs and third-party royalties,
respectively. The effect of these increases was mitigated by decreases in the
computer services division as related revenues decreased and the termination of
the royalty agreement of certain storage management products. There was no
significant impact of currency exchange rates on changes from 1993 to 1994. In
general, fluctuations in the relationship of cost of sales to revenue are caused
primarily by changes in revenue mix, amortization of capitalized software and
royalty agreements.
Product Development and Support
Product development and support costs increased by 0.6% and 13.4% in 1995 and
1994, respectively, and represented 15.8%, 18.4% and 18.1% of revenues for 1995,
1994 and 1993, respectively. In 1995, a decrease in domestic R&D due to delayed
headcount replacements was offset by a full year of R&D costs in Oslo as a
result of the Sysnet acquisition in April 1994. The increase in 1994 is
primarily attributable to higher personnel costs as R&D headcount was increased
both domestically and through the Sysnet acquisition. In addition, the
percentage of R&D costs capitalized dropped from 24% in 1993 to 20% in 1994,
which had the effect of increasing net development expense. There was no
significant impact of currency exchange rates on year-over-year changes in 1995
or 1994. The Company capitalizes certain development costs in accordance with
Statement of Financial Accounting Standards No. 86 ("FAS 86"). To the extent the
Company capitalizes its product development costs, the effect is to defer such
costs to future periods and match them to the revenue generated by the products.
Product development and support expenses may fluctuate annually depending in
part upon the number and status of internal software development projects.
Sales and Marketing
Sales and marketing expenses increased by 21.7% and 12.4% in 1995 and 1994,
respectively, and represented 50.1% of revenues in 1995 compared to 48.2% and
47.8% in 1994 and 1993, respectively. Without the change in currency exchange
rates, the increase for 1995 was 15.7%. Sales commissions increased
proportionately with licensing revenue. The remainder of the increase is a
result of increased headcount in all sales channels including a full year of
expenses of the Japanese subsidiary, which was started June 1994. Most of the
increase in 1994 is due to higher commission expense on increased product
licensing, particularly in commissions paid to marketing agents. Commission
rates were comparable to those in 1993. North America and Europe had higher
personnel costs as headcount was increased for sales in both channels and
additional costs were incurred to start up the Japanese subsidiary. Currency
exchange rate fluctuations did not have a significant impact on the change from
1993 to 1994.
General and Administrative
General and administrative expenses increased 2.9% in 1995 but decreased .3% in
1994 and represented 9.6%, 11.0% and 12.3% of revenues for 1995, 1994 and 1993,
respectively. Without the impact of currency exchange rate changes, general and
administrative expenses decreased 0.8% in 1995. The Company negotiated a lease
termination in the third quarter of 1995 which resulted in the recovery of
approximately $350,000 of previously accrued lease payments on an idle facility.
This decrease in net facility expense was offset by increases in personnel both
domestically and in Europe. Costs in 1994 remained flat with 1993. Increases in
professional fees and severance costs were offset by decreased personnel and
facilities costs. There was no significant impact of currency exchange rates on
growth rates in 1994.
Purchased R&D Expense
In April 1994, the Company acquired the net assets of Sysnet a.s., an Oslo,
Norway-based provider of system administration software for
6
<PAGE>
UNIX systems and other distributed client/server systems, for $4.1 million in
cash plus potential additional consideration based upon future results (see Note
3).
The transaction was accounted for using the purchase method and a valuation
was performed of all assets acquired. As a result, $3,251,000, or approximately
78% of the purchase price was written off as a one-time charge related to
purchased research and development.
Interest and Other Income, Net
Interest and other income consists principally of interest income, interest
expense, and currency gain or loss. In 1995, the 94.9% increase over 1994 was
primarily attributable to interest income as gross lease contracts receivable
increased 60.4% over 1994. Additional net interest is a result of approximately
$300,000 of interest received from the IRS in settlement of an audit, more
investment income as a result of higher cash and short-term investment balances,
and less interest expense as capital leases and notes payable are paid down. The
29.4% increase in 1994 over 1993 is comprised of additional lease contracts
receivable interest income partially offset by higher currency losses in the
United States. The Company has a hedging program to minimize its exposure to
fluctuations in foreign currencies in the Company's statement of operations.
Income Taxes
The effective tax rate was 30.0%, 31.0% and 31.5% for 1995, 1994 and 1993,
respectively. The Company's effective tax rate differs from the federal
statutory rate due primarily to permanently invested earnings of foreign
subsidiaries being taxed at rates lower than the federal statutory rate.
Liquidity and Capital Resources
The significant sources of cash during 1995 include cash provided by operating
activities of $10,039,000; the exercise of employee stock options of $1,907,000;
stock purchases through the Employee Stock Purchase Plan of $928,000; and
proceeds from a line of credit of $400,000. The significant uses of cash during
1995 include $15,800,000 for the net purchases of short-term investments;
$3,326,000 for purchases of furniture, equipment and leasehold improvements;
$3,048,000 for internally developed capitalized software; $2,019,000 for
payments on capital leases; $1,186,000 for payments on notes payable; and
$346,000 for investment in equity securities. Management believes cash flows
from operations and existing cash resources will be adequate to meet its working
capital requirements for the foreseeable future.
7
<PAGE>
EXHIBIT 13.1
Boole & Babbage, Inc.
Consolidated Statements of Income
Years ended September 30,
----------------------------
(In thousands, except per share amount 1995 1994 1993
- -------------------------------------------------------------------------------
Revenue:
Product licensing $80,226 $64,902 $53,922
Maintenance fees 70,663 64,255 60,692
Services and other 3,478 2,639 3,631
-------- -------- ---------
Total revenue 154,367 131,796 118,245
-------- -------- ---------
Costs and expenses:
Cost of sales 21,736 16,780 16,192
Product development and support 24,345 24,206 21,340
Sales and marketing 77,339 63,565 56,564
General and administrative 14,903 14,481 14,526
Purchased R&D expense - 3,251 -
-------- -------- ---------
Total costs and expenses 138,323 122,283 108,622
-------- -------- ---------
Operating income 16,044 9,513 9,623
Interest and other income, net 3,904 2,003 1,548
-------- -------- ---------
Income before provision for income tax 19,948 11,516 11,171
Provision for income taxes 6,000 3,570 3,519
-------- -------- ---------
Net income $13,948 $7,946 $7,652
======== ======== =========
Net income per share (a) $ 1.21 $ 0.74 $ 0.70
======== ======== =========
Shares used in per share calculations 11,550 10,800 10,875
======== ======== =========
(a) Per share data and number of shares reflect a 3-for-2 stock split which
became effective on December 6, 1995.
Page 8
<PAGE>
EXHIBIT 13.1
<TABLE>
Boole & Babbage, Inc.
Consolidated Balance Sheets
<CAPTION>
September 30,
--------------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $22,340 $34,019 $23,726
Short-term investments 15,800 -- --
Accounts receivable, net 27,293 23,180 20,753
Installment and other receivables, net 28,066 18,251 12,862
Deferred tax asset 5,810 4,959 2,615
Prepaid expenses and other current assets 4,967 3,199 2,739
-------- -------- ---------
Total current assets 104,276 83,608 62,695
Purchased and internally developed software, net 12,278 14,276 14,110
Equipment, furniture and leasehold improvements, net 7,341 8,506 9,743
Long-term installment and other receivables 32,223 20,011 9,823
Long-term deferred tax asset 4,843 2,284 3,456
Costs in excess of net assets of purchased businesses, net 687 713 739
Other assets 2,260 2,228 339
-------- -------- ---------
Total assets $163,908 $131,626 $100,905
======== ======== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $6,595 $6,762 $7,583
Accrued payroll expense 7,149 6,603 6,127
Other accrued liabilities 18,133 16,835 11,730
Short-term borrowings 400 -- --
Notes payable due within one year 513 1,171 1,398
Capital lease obligations due within one year 1,348 2,045 2,064
Deferred maintenance revenue 40,180 34,174 27,724
-------- -------- ---------
Total current liabilities 74,318 67,590 56,626
Notes payable due after one year 663 1,177 1,217
Capital lease obligations due after one year 683 1,903 3,948
Deferred maintenance revenue due after one year 18,057 12,731 4,647
Minority interest -- 61 --
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized, $.001 par -- -- --
Common stock, $.001 par value, authorized--15,000,000 shares; issued--
11,476,050 (11,052,567 and 10,279,632 in 1994 and 19 11 11 10
Additional paid-in capital 30,844 23,840 19,001
Retained earnings 42,672 28,724 20,778
Unrealized gain on marketable securities 132 170 --
Foreign currency translation adjustment 1,013 (96) (1,542)
Less treasury stock, 683,325 shares (683,325 and 615,600
in 1994 and 1993, respectively), at cost (4,485) (4,485) (3,780)
-------- -------- ---------
Total stockholders' equity 70,187 48,164 34,467
-------- -------- ---------
Total liabilities and stockholders' equity $163,908 $131,626 $100,905
======== ======== =========
</TABLE>
Page 9
<PAGE>
EXIBIT 13.1
<TABLE>
Boole & Babbage, Inc.
Consolidated Statements of Stockholders' Equity
<CAPTION>
Unrealized Foreign Total
Common Stock Additional Gain on Currency Stock-
---------------- Paid-in Retained Marketable Translation Treasury holders'
(Dollars in thousands) Shares Amount Capital Earnings Securities Adjustment Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992 9,566,746 $10 $15,875 $13,126 $ - $998 ($984) $29,025
Exercise of employee stock options and
related tax benefit 605,570 - 2,406 - - - - 2,406
Sale of common stock under the employee
stock purchase plan 92,371 - 560 - - - - 560
Issuance of common stock under the
employee incentive stock plan 14,945 - 160 - - - - 160
Purchase of treasury stock - - - - - - (2,796) (2,796)
Foreign currency translation adjustment - - - - - (2,540) - (2,540)
Net income - - - 7,652 - - - 7,652
------------ ------ ------- ------- --------- -------- ------- -------
Balance, September 30, 1993 10,279,632 10 19,001 20,778 - (1,542) (3,780) 34,467
Exercise of employee stock options and
related tax benefit 655,848 1 3,877 - - - - 3,878
Sale of common stock under the employee
stock purchase plan 105,504 - 829 - - - - 829
Issuance of common stock under the
employee incentive stock plan 11,583 - 133 - - - - 133
Unrealized gain on marketable securities,
net of taxes - - - - 170 - - 170
Purchase of treasury stock - - - - - - (705) (705)
Foreign currency translation adjustment - - - - - 1,446 - 1,446
Net income - - - 7,946 - - - 7,946
------------ ------ ------- ------- --------- -------- ------- -------
Balance, September 30, 1994 11,052,567 11 23,840 28,724 170 (96) (4,485) 48,164
Exercise of employee stock options and
related tax benefit 321,723 - 5,892 - - - - 5,892
Sale of common stock under the employee
stock purchase plan 94,253 - 974 - - - - 974
Issuance of common stock under the
employee incentive stock plan 7,507 - 138 - - - - 138
Unrealized loss on marketable securities,
net of taxes - - - - (38) - - (38)
Foreign currency translation adjustment - - - - - 1,109 - 1,109
Net income - - - 13,948 - - - 13,948
------------ ------ ------- ------- --------- -------- ------- -------
Balance, September 30, 1995 11,476,050 $11 $30,844 $42,672 $132 $1,013 ($4,485) 70,187
============ ====== ======== ======= ========= ======== ======== =======
</TABLE>
Page 10
<PAGE>
EXHIBIT 13.1
<TABLE>
Boole & Babbage, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Years ended September 30,
--------------------------------
(Dollars in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $13,948 $7,946 $7,652
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and write-off of capitalized software 9,667 11,922 8,605
Loss on disposal of assets 103 -- 286
Write-off of investment in equity securities -- 150 --
Deferred income taxes (960) (1,117) 1,588
Stock issued under compensatory stock plans 138 133 160
Minority interest (62) (199) --
Changes in operating assets and liabilities excluding the effect
of acquisitions:
Accounts receivable and installment and other receivables (25,041) (20,272) (11,015)
Prepaid expenses and other assets (1,439) (1,040) 576
Accounts payable and accrued expenses 3,042 2,955 8,269
Deferred maintenance revenue 10,643 12,941 3,472
-------- -------- --------
Net cash provided by operating activities 10,039 13,419 19,593
-------- -------- --------
Cash flows from investing activities:
Purchases of equipment, furniture and leasehold improvements (3,326) (2,848) (2,757)
Payments for capitalized software (3,048) (6,542) (4,512)
Net purchases of short-term investments (15,800) -- --
Investment in equity securities (346) (997) --
-------- -------- --------
Net cash used for investing activities (22,520) (10,387) (7,269)
-------- -------- --------
Cash flows from financing activities:
Sale of lease contracts receivables -- 6,376 --
Proceeds from issuance of common stock 2,835 3,703 2,966
Proceeds from minority interest investors -- 252 --
Purchase of treasury stock -- (705) (2,796)
Borrowings under line of credit 400 -- --
Payments on notes payable (1,186) (1,450) --
Payments on capital leases (2,019) (2,063) (2,002)
-------- -------- --------
Net cash provided by (used for) financing activities 30 6,113 (1,832)
-------- -------- --------
Effect of exchange rate changes on cash 772 1,148 (2,879)
Net increase (decrease) in cash and cash equivalents (11,679) 10,293 7,613
-------- -------- --------
Cash and cash equivalents at beginning of year 34,019 23,726 16,113
-------- -------- --------
Cash and cash equivalents at end of year $22,340 $34,019 $23,726
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,081 $1,510 $1,537
Income taxes $3,355 $1,814 $1,652
<FN>
Supplemental disclosures of noncash investing and financing activities:
A capital lease obligation of $103,000 was incurred in 1995 for the purchase of equipment.
Notes payable of $901,000 were incurred in 1994 when the Company purchased the net assets of Sysnet a.s.
A note payable of $283,000 was incurred in 1994 for the purchase of various equipment.
A capital lease obligation of $1,025,000 was incurred in 1993 when the Company entered into a lease
for certain computer equipment.
Notes payable of $2,591,000 were incurred in 1993 in connection with a product acquisition.
See accompanying notes
</FN>
</TABLE>
Page 11
<PAGE>
1. Summary of Significant Accounting Policies
Business
Boole & Babbage, Inc. ("the Company") provides enterprise automation software
that helps users worldwide to organize and manage complex computer systems.
Basis of Presentation
The accompanying financial statements include the accounts of Boole & Babbage
Europe (BBE), Boole & Babbage Australasia (BBA), and Boole & Babbage a.s.,
Norway (BBN), wholly-owned subsidiaries of Boole & Babbage, and Joint Systems &
Technology (JST), a majority-owned Japanese subsidiary of Boole & Babbage. All
significant intercompany accounts and transactions have been eliminated.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments that mature within ninety
days of purchase to be cash equivalents. At September 30, 1995, cash equivalents
consisted of $6,842,000 of time deposits with original maturities of 30 days or
less. All of the Company's cash equivalents and short-term investments are
classified as available-for-sale and are reported at fair value with unrealized
gains and losses included in equity. At September 30, 1995, cost approximated
fair value for all cash equivalents and short-term investments. All of the
Company's available-for-sale securities have a contractual maturity of one year
or less. Realized gains and losses and declines in value judged to be other than
temporary are included in interest income. To date, there have been no
significant gains or losses realized on the Company's cash equivalents or
short-term investments. The cost of securities sold is based upon the specific
identification method.
Short-term investments as of September 30, 1995 consisted of the following:
(Dollars in thousands)
- ------------------------------- ----------------------------------------------
Municipal bonds and notes $ 7,500
Auction preferred stock 4,000
Taxable commercial paper 1,500
Certificates of deposit 2,800
-------
$15,800
=======
Included in short-term investments is a $1,400,000 certificate of deposit
pledged as collateral for capital lease obligations.
The Company adopted FAS 115, Accounting for Certain Investments in Debt and
Equity Securities, during fiscal 1994.
Receivables
Accounts receivable and installment receivables are net of allowances for
doubtful accounts of $1,734,000, $1,781,000, and $1,832,000, at September 30,
1995, 1994, and 1993, respectively.
The Company markets computer software systems to customers in diversified
industries. Ongoing credit evaluations of its customers' financial condition are
made and generally no collateral is required.
Revenue Recognition
Revenue from product licensing is recognized after delivery and customer
acceptance without contingencies. Each license contract entitles the customer to
maintenance and enhancements for a one-year period. The portion of the contract
fee associated with providing first year maintenance is deferred and recognized
ratably over one year. The Company uses the same percentage to compute
first-year maintenance included in the product licensing amount as it uses to
price maintenance renewals. Revenue and related royalty and agent commission
costs from maintenance contracts are deferred and recognized ratably over the
renewal periods.
In connection with long-term leases of software, the portion of the present
value of the lease payments related to the product license are recognized as
revenue upon the commencement of the lease. Related interest income and
maintenance revenue are recognized ratably over the corresponding lease term.
Revenue from sales through marketing agents in certain overseas markets is
recorded at the gross sales price to the customer, and the commissions withheld
by these agents are included in sales and marketing expense.
Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements are stated at cost. Depreciation
and amortization are provided principally on a straight-line basis over useful
lives ranging from 3 to 10 years. Assets under capital leases are amortized over
the shorter of the asset life or the remaining lease term. Equipment, furniture
and leasehold improvements consist of the following:
-------------------------------
September 30,
-------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------- ---------- --------- ----------
Equipment $25,065 $23,644 $21,552
Furniture 8,572 7,704 6,903
Leasehold improvements 742 613 513
---------- --------- ----------
34,379 31,961 28,968
Accumulated depreciation 27,038 23,455 19,225
and amortization ---------- --------- ----------
$ 7,341 $8,506 $ 9,743
---------- --------- ----------
12
<PAGE>
Costs in Excess of Net Assets of Purchased Businesses
The excess of the purchase price over the net assets of BBE is being amortized
on a straight line basis over 40 years. Costs in excess of net assets of
purchased businesses are summarized below:
--------------------------
September 30,
--------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------- -------- -------- --------
Costs in excess of net
assets of purchased businesses $1,056 $1,056 $1,056
Accumulated amortization 369 343 317
-------- -------- --------
$ 687 $ 713 $ 739
======== ======== ========
Marketable Securities
Included in noncurrent Other Assets are marketable securities which are
classified as available for sale and stated at fair value:
--------------------------
September 30,
--------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------- -------- -------- --------
Cost of marketable securities $1,193 $ 847 $ --
Unrealized gain 230 293 --
-------- -------- --------
$ 1,423 $ 1,140 $ --
======== ======== ========
The unrealized gain is recorded net of tax in a separate stockholders' equity
account as follows:
--------------------------
September 30,
--------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------- -------- -------- --------
Unrealized gain $ 230 $ 293 $ --
Deferred income tax (98) (123) --
-------- -------- --------
$ 132 $ 170 $ --
======== ======== ========
Purchased and Internally Developed Software
Capitalized software consists of purchases of completed software products from
outside vendors and internal costs associated with the development of software.
Such costs are capitalized and amortized in accordance with guidelines set forth
in Financial Accounting Standard No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." All software costs are
amortized to cost of sales on the basis of each product's projected revenues or
on a straight-line basis over the remaining estimated economic life of the
products, whichever is greater. The estimated economic lives range from five to
seven years. Amortization of capitalized software was $5,315,000, $4,112,000,
and $3,888,000 for 1995, 1994, and 1993, respectively.
Cost of Sales
Cost of sales consists of royalties paid to software authors, amortization of
capitalized software, the cost of hardware associated with sales of certain
client/server products, and the costs of operating a computer services division.
Product Development and Support
Product development and support costs include expenditures for research and
development, net of amounts capitalized, product maintenance and product
support. Research and development expenditures included in product development
and support costs are as follows:
------------------------------
Years Ended September 30,
------------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------- ---------- --------- ---------
Total costs $18,700 $16,850 $14,500
Less amounts capitalized 3,050 3,365 3,431
---------- --------- ---------
$15,650 $13,485 $11,069
========== ========= =========
These expenditures do not include net costs relating to the joint development
project with IBM to develop systems management products in support of new CICS
releases. These project costs are net of IBM reimbursements of $2,080,000,
$2,540,000 and $2,700,000 in 1995, 1994 and 1993, respectively.
Accounting for Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109 ("FAS
109"), "Accounting for Income Taxes," in its first quarter of fiscal 1994 and
applied its provisions retroactively.
Net Income Per Share
Net income per share is computed using the weighted average number of common
shares outstanding and shares issuable assuming the exercise of outstanding
options using the treasury stock method. Fully diluted earnings per share is not
disclosed because it is not materially different from primary earnings per
share.
All shares and per share amounts have been restated to retroactively reflect
the 3-for-2 stock split described in Note 6.
Foreign Currency
The assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates. Revenue and expense accounts of these
operations are translated at average exchange rates prevailing during the year.
Translation gains and losses are included as an adjustment to stockholders'
equity.
The Company has a hedging strategy to minimize the short-term impact of
foreign currency fluctuations on its net asset position in foreign currencies.
The gains and losses on these contracts are netted with gains and losses on the
revaluation of the net asset position and are included in income in the period
in which the exchange rates change. Aggregate transaction gains (losses)
included in determining net income in 1995, 1994, and 1993 were approximately
($513,000), ($764,000), and $175,000, respectively. These amounts are included
in the consolidated statements of income under the caption interest and other
income, net. The Company had approximately $26.3 million, $20.4 million and
13
<PAGE>
$15.4 million of open forward exchange contracts at September 30, 1995, 1994 and
1993, respectively.
Beginning the last quarter of fiscal 1994, the Company implemented an economic
hedge for a portion of its anticipated intercompany royalty transactions. Gains
and losses on these contracts are deferred and recognized in the period in which
the transaction is complete. In connection with this strategy, the Company had
approximately $9.7 million and $18.3 million of forward contracts at September
30, 1995 and 1994, respectively. At September 30, 1994, the carrying value
approximated the market value while at September 30, 1995, the deferred loss was
approximately $670,000.
2. Installment and Other Receivables
Installment and other receivables consists of lease contracts receivables, sales
tax and value-added tax on trade receivables, and other receivables. The
Company's leasing operations consist of the leasing of various computer software
products under term or perpetual licensing agreements with payment periods from
one to five years.
Following are the components of the lease contracts receivable:
---------------------------
September 30,
---------------------------
(Dollars in thousands) 1995 1994 1993
- ------------------------- ------- ------- -------
Minimum lease payments receivable $62,553 $39,001 $20,575
Less unearned interest 6,399 4,177 2,712
------- ------- -------
Net investment in sales type leases 56,154 34,824 17,863
Amount due within one year 23,931 14,813 8,040
------- ------- -------
Amount due after one year $32,223 $20,011 $ 9,823
======= ======= =======
Minimum lease payments receivable during each of the succeeding fiscal years are
as follows:
- ------------------ ---------------------------------
Year (Dollars in thousands)
- ------------------ ---------------------------------
1996 $27,260
1997 19,847
1998 10,754
1999 4,087
2000 605
----------
$62,553
==========
The Company periodically sells portions of its lease contracts receivable to a
finance company subject to limited recourse provisions. No lease contract
receivables were sold during 1995 and 1993. The total lease contracts
receivables sold during 1994 had present values of $6,376,000. The uncollected
present value of receivables that have been sold was approximately $4,050,000,
$6,950,000, and $3,331,000 at September 30, 1995, 1994 and 1993, respectively.
3. Product Acquisitions
Fiscal 1994
In April 1994, the Company acquired the net assets of Sysnet, a.s., an Oslo,
Norway-based provider of system administration software for UNIX systems and
other distributed client/server systems, for $4.1 million in cash plus maximum
potential additional consideration of $1.4 million based upon future results.
Payment terms included an initial payment of $3.0 million in cash with another
$1.1 million to be paid in four annual installments of $275,000 which began in
April 1995. (See Note 5.)
The transaction was accounted for using the purchase method and an
independent appraisal was performed of all assets acquired. As a result,
$3,251,000 or approximately 78% of the purchase price was written off as a
one-time charge related to purchased research and development. Product
development for those products (now renamed Ensign) is being performed by the
Company's subsidiary in Oslo, Norway. Revenues and expenses of Sysnet prior to
the acquisition were insignificant. The Company's consolidated financial
statements include the results of operations of the acquired entity subsequent
to the purchase date.
Fiscal 1993
In December 1992, the Company acquired the rights to certain software products
and related items from Goldfield Computers Limited. Notes payable of $2,591,000
were incurred on a total purchase price of $3,591,000.
4. Income Taxes
Pretax income consists of the following:
-------------------------------
Years Ended September 30,
-------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------- ---------- --------- ----------
Domestic $ 9,944 $ 5,675 $ 5,191
Foreign 10,004 5,841 5,980
---------- --------- ----------
$19,948 $11,516 $11,171
========== ========= ==========
The provision for taxes on income consists of the following:
-------------------------------
Years Ended September 30,
-------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------- ---------- --------- ----------
Federal
Current $2,982 $1,741 $ 66
Deferred (293) (850) 920
---------- --------- ----------
2,689 891 986
State
Current 1,075 899 78
Deferred (516) (314) 506
---------- --------- ----------
559 585 584
Foreign
Current 2,903 2,047 1,787
Deferred (151) 47 162
---------- --------- ----------
2,752 2,094 1,949
---------- --------- ----------
$6,000 $3,570 $3,519
========== ========= ==========
14
<PAGE>
No provision for residual federal taxes has been made on approximately
$35,000,000 of accumulated undistributed earnings of the Company's foreign
subsidiaries, since it is the Company's intention to permanently invest such
earnings in its foreign operations. Determination of the amount of unrecognized
deferred tax liabilities is not practicable.
The provision for taxes on income differs from the amount computed by
applying the statutory tax rate of 35% for 1995 and 34% for 1994 and 1993 to
income before taxes as follows:
-------------------------
Years Ended September 30,
-------------------------
1995 1994 1993
----- ----- -----
Computed expected tax provision 35.0% 34.0% 34.0%
State income tax, net of federal benefit 1.4% 3.4% 3.5%
Permanently invested earnings of
foreign subsidiaries, net
of foreign income taxes (8.0%) (5.4%) (9.9%)
Goodwill amortization and
other permanent items 0.5% 0.5% 0.4%
Research & development credit (2.3%) (1.5%) --
Net change in valuation allowance 3.7% -- 2.1%
Other (0.3%) -- 1.4%
----- ----- -----
30.0% 31.0% 31.5%
===== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
--------------------------------
September 30,
--------------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------- -------- -------- --------
Deferred Tax Assets:
Net operating loss carryforwards ........ $ 1,791 $ 1,218 $ 2,441
Foreign tax credit carryforwards ....... 17 237 2,738
Research credit carryforwards .......... 898 3,266 2,936
AMT credit carryforwards ............... 650 531 282
Deferred maintenance revenue ........... 9,564 7,395 4,276
Accrued expenses ....................... 1,694 1,251 1,534
Bad debt allowance ..................... 520 533 568
Other .................................. 506 194 180
-------- -------- --------
Total gross deferred ..................... 15,640 14,625 14,955
tax asset
Less valuation allowance.................. 1,946 3,946 3,907
-------- -------- --------
Total deferred tax asset ............. 13,694 10,679 11,048
-------- -------- --------
Deferred Tax Liabilities:
Unrealized gain on marketable securities (98) (123) --
Software capitalization, net ........... (2,943) (2,870) (3,078)
Other .................................. -- (443) (1,899)
-------- -------- --------
Total deferred tax liability ............. (3,041) (3,436) (4,977)
-------- -------- --------
Net deferred tax asset ................... $ 10,653 $ 7,243 $ 6,071
======== ======== ========
The net valuation allowance decreased $2,000,000 from 1994 to 1995 as a result
of reversing the allowance of $2,782,000 for foreign tax credits. Since these
credits were attributable to stock option deductions, the benefit was credited
to paid-in capital and does not affect the effective income tax rate. This
reversal was partially offset by an addition of $782,000 to the allowance for
carryforwards of capital losses and foreign net operating losses. None of the
total allowance at September 30, 1995 is attributable to stock option
deductions. Management believes future taxable income will be sufficient to
realize the deferred tax benefit of the net deferred tax asset.
At September 30, 1995, the Company had research and experimentation credit
carryovers of approximately $748,000 for United States federal tax purposes
which expire in the years 2009 through 2010.
5. Leases, Notes Payable and Contingencies
Operating Leases
The Company leases its facilities and certain equipment under operating leases
expiring at various dates through 2018. Minimum lease commitments for facilities
and equipment at September 30, 1995 are as follows:
- ------------------------- -------------------------------
Year (Dollars in thousands)
- ------------------------- -------------------------------
1996 $7,159
1997 5,477
1998 4,677
1999 3,745
2000 1,894
Thereafter 2,716
----------
$25,668
==========
Total rent expense under operating leases was $7,700,000, $5,800,000 and
$5,167,000, for 1995, 1994, and 1993, respectively.
Capital Leases
The Company leases certain computer equipment under long-term capital leases.
Capitalized costs of $11,343,000, $11,235,000, and $11,228,000, are included in
equipment, furniture and leasehold improvements at September 30, 1995, 1994 and
1993, respectively. Accumulated amortization amounted to $9,944,000, $8,254,000,
and $6,227,000, at September 30, 1995, 1994 and 1993, respectively.
The following is a schedule of future minimum lease payments under long-term
capital leases together with the present value of the net minimum lease payments
as of September 30, 1995:
- ---------------------------------- ----------------------
Year (Dollars in thousands)
- ---------------------------------- ----------------------
1996 $1,461
1997 596
1998 86
1999 25
2000 13
----------
Total minimum lease payments 2,181
Less amount representing interest 150
----------
Present value of future minimum lease
payments 2,031
Amount due within one year 1,348
----------
Amount due after one year $ 683
==========
15
<PAGE>
Notes Payable
The Company incurred notes payable as a result of the acquisitions in 1994 and
1993 as described in Note 3. The noninterest bearing obligations, net of
discounts based on imputed interest rates from 8.25% to 9%, are due as follows:
- ----------------------- ------------------------
Year (Dollars in thousands)
- ----------------------- ------------------------
1996 $ 513
1997 294
1998 319
1999 50
----------
Total notes payable 1,176
Amount due within one year 513
----------
Amount due after one year $ 663
==========
Total interest expense related to capital lease obligations, notes payable, and
sale of lease contracts receivable (see Note 2) was $1,032,000, $1,331,000, and
$1,731,000 in 1995, 1994 and 1993, respectively.
Line of Credit
During 1995, the Company entered into arrangements for the Japanese subsidiary
for two lines of credit totaling $1,500,000. As of September 30, 1995, there was
an outstanding balance of $400,000. Interest rates on these lines of credit are
approximately 1.8% per annum.
Litigation
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes that such litigation and claims
will be resolved without material effect on the Company's financial position or
results of operations.
6. Common Stock
Stock split
On October 25, 1995, the Company's Board of Directors authorized a 3-for-2 split
of common stock payable on December 6, 1995, to shareholders of record as of
November 6, 1995. The stock split is effected in the form of a stock dividend.
The stated par value of each share remained $0.001. A total of $4,000 was
reclassified from the Company's additional paid-in capital account to the
Company's common stock account. All shares, per share amounts and stock option
data have been restated to retroactively reflect the stock split.
Stock option plans
Under the terms of the 1986 Incentive Stock Option Plan (1986 ISO), as amended,
and the 1986 Supplemental Stock Option Plan, as amended, the Company may grant
options to purchase up to 5,310,000 shares of the Company's common stock to key
employees and directors of the Company. The option price must be at least 100%
of the market value at the date of grant in the case of the 1986 ISO plan and at
least 85% of the market value at the date of grant in the case of the
supplemental plan.
In November 1993, the Board of Directors adopted the 1993 Nonemployee Directors'
Stock Option Plan (the 1993 plan). The 1993 plan, as amended, authorized the
grant of up to 112,500 shares of the Company's common stock to nonemployee
directors of the Company. The exercise price is 100% of the fair market value of
the stock on the date such options are granted. At September 30, 1995, 22,500
shares were issued under this plan.
Options outstanding under all plans are currently exercisable to the extent that
the optionees have vested under the terms of their grant. Options vest at a rate
of twenty to twenty-five percent per year, or in the case of some employees,
vesting occurs quarterly at the same annual rate.
The number of options exercisable was 1,390,749, 1,222,061, and 1,298,132 at
September 30, 1995, 1994 and 1993, respectively.
Employee Stock Purchase Plan
The Company adopted an Employee Stock Purchase Plan and, as amended, has
reserved an aggregate total of 1,293,750 shares. Purchase rights under the plan
are granted at 85% of the lesser of the market value on the offering date or the
exercise date. At September 30, 1995 there were 190,193 shares available for
future purchases of which 42,266 were committed to be issued in October 1995.
Stock Incentive Plan
In April 1988, the Company adopted a Stock Incentive Plan and, as amended,
entitles employees who have reached certain anniversary dates with the Company
to receive the Company's common stock for each year of service. The Board has
reserved 89,625 shares for issuance under the plan, including 18,750 during
fiscal 1995. At September 30, 1995, there were 12,143 shares available for
future awards. The following table summarizes activity of the stock option plans
for the three years ended September 30, 1995:
16
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------------------
Options Potential
Available for Aggregate Price
Future Grant Number Proceeds Per Share
----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance, September 30, 1992 243,710 2,785,751 $12,720,287 $ 2.55 - $8.55
Authorized increase 810,000 -- -- -
Options granted (378,563) 378,563 4,167,010 10.13 - 12.00
Options exercised -- (605,570) (2,405,926) 2.55 - 8.55
Options canceled 51,601 (51,601) (287,057) 3.55 - 12.00
----------------- --------------- ---------------- -----------------
Balance, September 30, 1993 726,748 2,507,143 14,194,314 3.45 - 12.00
Authorized increase 112,500 -- -- -
Options granted (627,525) 627,525 7,026,663 10.45 - 12.39
Options exercised -- (655,848) (2,873,848) 3.45 - 9.95
Options canceled 136,958 (136,958) (1,033,020) 4.11 - 12.00
----------------- --------------- ---------------- -----------------
Balance, September 30, 1994 348,681 2,341,862 17,314,109 3.45 - 12.39
Authorized increase 900,000 -- -- -
Options granted (804,750) 804,750 13,486,605 13.95 - 20.21
Options exercised -- (324,091) (1,906,868) 3.45 - 12.39
Options canceled 76,712 (76,712) (761,563) 4.11 - 20.00
- --------------------------------------- ----------------- --------------- ---------------- -----------------
Balance, September 30, 1995 520,643 2,745,809 $28,132,283 $ 4.11 -$20.21
======================================= ================= =============== ================ =================
</TABLE>
7. Foreign Operations
The following table summarizes selected financial information of the Company's
operations by geographic location:
--------------------------------
Years Ended September 30,
--------------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------
Revenues:
United States and $56,727 $54,432 $ 53,885
Canada
Europe 74,144 60,944 54,231
Other 23,496 16,420 10,129
---------- ---------- ----------
Consolidated $ 154,367 $131,796 $118,245
---------- ---------- ----------
Operating income:
United States and $ 4,750 $2,039 $4,234
Canada
Europe 8,044 4,587 3,483
Other 3,250 2,887 1,906
---------- ---------- ----------
Consolidated $ 16,044 $9,513 $9,623
---------- ---------- ----------
Identifiable assets:
United States and $ 87,403 $ 76,190 $ 61,599
Canada
Europe 77,711 59,787 43,129
Other 8,207 4,562 3,688
Eliminations (9,413) (8,913) (7,511)
---------- ---------- ----------
Consolidated $163,908 $131,626 $100,905
---------- ---------- ----------
Included in operating income but excluded from revenues are royalties charged to
international operations by domestic operations which aggregated $17,550,000,
$15,136,000 and $12,126,000 in 1995, 1994, and 1993, respectively.
17
<PAGE>
The Board of Directors and Stockholders
Boole & Babbage, Inc.
We have audited the accompanying consolidated balance sheets of Boole & Babbage,
Inc. as of September 30, 1995, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boole & Babbage,
Inc. at September 30, 1995, 1994 and 1993, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
San Jose, California
October 27, 1995
- --------------------------------------------------------------------------------
Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's common stock has been traded in the over-the-counter market under
the NASDAQ symbol "BOOL" since the Company's initial public offering on February
3, 1984. The number of stockholders of record of the Company's common stock as
of November 30, 1995 was 443. The Company has not paid any cash dividends since
1978 on its common stock, with the exception of payment of partial shares as a
result of the stock splits in November 1994 and December 1995. The Company
anticipates that for the foreseeable future, it will continue to retain its
earnings for use in its business. The table on page 2 reflects the range of high
and low closing bid quotations for each period indicated as reported by NASDAQ.
These quotations represent prices between dealers without adjustment for retail
markups, markdowns or commissions, and may not represent actual transactions.
18
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
BOOLE & BABBAGE, EUROPE
BOOLE & BABBAGE, AUSTRALASIA PTY LTD.
BOOLE & BABBAGE A.S.
JOINT SYSTEMS & TECHNOLOGY, INC.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Boole & Babbage, Inc. of our report dated October 27, 1995, included in
the 1995 Annual Report to Stockholders of Boole & Babbage, Inc.
Our audits also included the financial statement schedule of Boole &
Babbage, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-13837, 33-39248, 33-55588, 33-79782 and 33-65145)
pertaining to the 1986 Incentive Stock Option Plan, the 1986 Supplemental Stock
Option Plan, the Employee Stock Purchase Plan and the 1993 Nonemployee Directors
Stock Option Plan of Boole & Babbage, Inc. of our report dated October 27, 1995,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial Statement Schedules included in this Annual Report (Form 10-K) of
Boole & Babbage, Inc.
\Ernst & Young LLP\
San Jose, California
December 22, 1995
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