UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
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, California 95134-1933
-------------------------------------------------
(Address of principal executive offices)
Registrant's Telephone number, including area code: 408-526-3000
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___
18,643,475 shares of common stock of the Registrant were outstanding as of July
24, 1997.
<PAGE>
BOOLE & BABBAGE, INC.
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1997 and September 30, 1996 1
Consolidated Statements of Operations
Three and Nine Months Ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three and Nine months Ended June 30, 1997 and 1996 6-11
Part II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
Signatures 13
<PAGE>
<TABLE>
Boole & Babbage, Inc.
Consolidated Balance Sheets
(Amounts in thousands except shares)
(June 30, 1997 unaudited)
<CAPTION>
June 30, September 30,
Assets 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,548 $ 37,260
Short-term investments 22,843 24,750
Accounts receivable, net 23,028 27,955
Installment and other receivables, net 58,656 46,221
Deferred tax asset 5,489 5,649
Prepaid expenses and other current assets 5,390 4,383
--------- ---------
Total current assets 148,954 146,218
Purchased and internally developed software, net 11,852 11,614
Equipment, furniture and leasehold improvements, net 10,323 12,763
Long-term installment and other receivables 45,689 39,141
Long-term deferred tax asset 9,433 9,472
Costs in excess of net assets of purchased businesses, net 641 660
Other assets 9,061 4,672
--------- ---------
Total assets $ 235,953 $ 224,540
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,781 $ 7,605
Accrued payroll expense 9,647 7,890
Other accrued liabilities 23,597 25,090
Short-term borrowings 894 3,150
Notes payable due within one year 318 469
Capital lease obligations due within one year 1,064 1,813
Deferred maintenance revenue 51,430 51,241
--------- ---------
Total current liabilities 93,731 97,258
Notes payable due after one year 66 444
Capital lease obligations due after one year 2,003 2,825
Deferred maintenance revenue due after one year 33,973 28,949
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued -- --
Common stock, $.001 par value, authorized--30,000,000 shares; issued--
19,813,576 (19,110,385 at September 30, 1996) 20 19
Additional paid-in capital 86,241 81,047
Retained earnings 25,535 19,328
Unrealized gain on marketable securities 3,956 370
Foreign currency translation adjustment (2,567) 704
Less treasury stock, 1,173,788 shares (1,143,788 at
September 30, 1996), at cost (7,005) (6,404)
--------- ---------
Total stockholders' equity 106,180 95,064
--------- ---------
Total liabilities and stockholders' equity $ 235,953 $ 224,540
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
1
<PAGE>
<TABLE>
Boole & Babbage, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except net income per share)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Product licensing $ 26,784 $ 24,169 $ 79,119 $ 70,276
Maintenance fees and other 21,972 21,426 65,849 62,021
-------- -------- -------- --------
Total revenue 48,756 45,595 144,968 132,297
-------- -------- -------- --------
Costs and expenses:
Cost of product licensing 3,676 3,863 10,966 11,698
Cost of maintenance fees and other 4,495 5,968 14,711 14,315
Product development 6,310 5,482 18,573 15,843
Sales and marketing 23,277 22,403 70,535 67,292
General and administrative 4,344 4,615 14,017 13,727
Acquisition and nonrecurring costs -- -- 11,309 --
-------- -------- -------- --------
Total costs and expenses 42,102 42,331 140,111 122,875
-------- -------- -------- --------
Operating income 6,654 3,264 4,857 9,422
Interest and other income, net 2,758 1,411 6,574 3,999
-------- -------- -------- --------
Income before provision for income taxes 9,412 4,675 11,431 13,421
Provision for income taxes 2,820 1,585 5,225 4,940
-------- -------- -------- --------
Net income $ 6,592 $ 3,090 $ 6,206 $ 8,481
======== ======== ======== ========
Net income per share $ 0.33 $ 0.16 $ 0.31 $ 0.44
======== ======== ======== ========
Shares used in per share calculations 20,095 19,317 19,940 19,130
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
Boole & Babbage, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands) (Unaudited)
<CAPTION>
Nine Months Ended June 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,206 $ 8,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and write-off of capitalized software 7,221 7,755
Gain on sale of equity securities -- (291)
Loss on disposal of assets 479 --
Stock issued under compensatory stock plans 54 312
Changes in operating assets and liabilities excluding the effect of acquisitions:
Accounts receivable and installment and other receivables (19,847) (24,613)
Prepaid expenses and other assets (1,967) (731)
Accounts payable and accrued expenses 1,188 2,226
Deferred maintenance revenue 7,598 13,394
-------- --------
Net cash provided by operating activities 932 6,533
-------- --------
Cash flows from investing activities:
Purchases of equipment, furniture and leasehold improvements (2,736) (3,149)
Payments for capitalized software (3,664) (2,957)
Net (purchases) sales of short-term investments 1,904 (1,606)
Investment in equity securities (361) (855)
Proceeds from sale of equity securities -- 717
-------- --------
Net cash used for investing activities (4,857) (7,850)
-------- --------
Cash flows from financing activities:
Proceeds from sale of lease contracts receivable 2,154 --
Proceeds from issuance of common stock 5,141 3,663
Treasury stock purchases (601) (1,169)
Borrowing under line of credit, net (2,256) 1,632
Payments on notes payable (273) (645)
Payments on capital leases (1,672) (1,576)
-------- --------
Net cash provided by financing activities 2,493 1,905
-------- --------
Effect of exchange rate changes on cash (2,280) (390)
-------- --------
Net decrease in cash and cash equivalents (3,712) 198
Cash and cash equivalents at beginning of period 37,260 25,956
-------- --------
Cash and cash equivalents at end of period $ 33,548 $ 26,154
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,304 $ 665
Income taxes, net $ 3,457 $ 3,730
<FN>
Supplemental disclosures of noncash investing and financing activities:
A capital lease obligation of $265,000 was incurred in 1996 for the purchase of equipment.
See accompanying notes
</FN>
</TABLE>
3
<PAGE>
BOOLE & BABBAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
all subsidiaries after the elimination of all significant inter-company
items and transactions.
A summary of the significant accounting policies of the Company is included
in Note 1 of Notes to Consolidated Financial Statements in the Company's
annual report on Form 10-K for the year ended September 30, 1996. These
consolidated financial statements should be read in conjunction with those
notes.
The consolidated financial information at June 30, 1997 and for the three-
and nine-month periods ended June 30, 1997 and 1996 is unaudited. The
statements in this report include all adjustments of a normal recurring
nature. In the opinion of management, these adjustments are necessary for a
fair statement of the interim results for the periods presented. The
interim results are not necessarily indicative of the results for the full
year.
2. Net Income Per Share
Net income per common share is computed by adding to the weighted average
number of common shares outstanding during the period the number of
dilutive common shares that would be issuable upon the exercise of
outstanding options using the treasury stock method of computation. Fully
diluted net income per share is not disclosed because it is not materially
different from primary net income per share.
3 mos. ended Jun. 30, 9 mos. ended Jun. 30,
(Amounts in thousands, except --------------------- ---------------------
net income per share) 1997 1996 1997 1996
------- ------- ------- -------
Primary:
Common shares outstanding 18,600 17,808 18,340 17,596
Employee stock option plans 1,495 1,509 1,600 1,534
------- ------- ------- -------
20,095 19,317 19,940 19,130
======= ======= ======= =======
Net income $ 6,592 $ 3,090 $ 6,206 $ 8,481
======= ======= ======= =======
Net income per share $ .33 $ .16 $ .31 $ .44
======= ======= ======= =======
3. Contingencies
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 adverse effect on the Company's
financial position or results of operations.
4
<PAGE>
BOOLE & BABBAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Acquisition
On January 16, 1997, Boole & Babbage ("Boole") acquired, subject to certain
conditions, all of the outstanding capital stock of MAXM Systems
Corporation ("MAXM"), a privately held company, in exchange for 1,137,115
shares, 10% of which are held in escrow with an independent third party
escrow agent, of Boole & Babbage common stock. The Company incurred a
charge in the quarter ending March 31,1997 (which is included in the income
statement line "Acquisition and nonrecurring costs") in connection with
activities to complete this acquisition and eliminate redundant facilities
and personnel. The transaction was accounted for using the pooling method
and the Company's consolidated financial statements for all prior periods
have been restated.
The unaudited pro forma results of operations of the combined companies for
the years ended September 30, 1995 and 1996 and the three months ended
December 31, 1996 are as follows:
Three Mo. Ended Dec. 31, 1996 Boole MAXM Combined
-------- -------- --------
Net revenues $ 47,696 $ 2,065 $ 49,761
Net income (loss) 6,047 (4,129) 1,918
Net income (loss) per share 0.33 (0.23) 0.10
Year Ended Sept. 30, 1996 Boole MAXM Combined
-------- -------- --------
Net revenues $165,077 $ 15,525 $180,602
Net income (loss) 18,040 (6,583) 11,457
Net income (loss) per share 0.99 (0.39) 0.60
Year Ended Sept. 30, 1995 Boole MAXM Combined
-------- -------- --------
Net revenues $152,244 $ 18,906 $171,150
Net income (loss) 13,948 (826) 13,122
Net income (loss) per share 0.81 (0.10) 0.71
5. Earnings Per Share
In February 1997, the Financial Accounting Standards Board adopted
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase in primary earnings per share.
The impact of Statement 128 on the calculation of fully diluted earnings
per share is not expected to be material.
5
<PAGE>
BOOLE & BABBAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
When used in this discussion, the words "anticipate," "estimate," "project" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed below and in the Company's Form 10-K for the year ended September 30,
1996, that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
REVENUES:
The Company derives its revenues primarily from the licensing of computer
software programs, consulting and education services, and the sales of software
maintenance services. Total revenue for the 3 and 9 months ended June 30, 1997
and 1996 increased over the same period in the prior year by 6.9% and 9.6%,
respectively. Without the effect of the MAXM acquisition and currency rate
changes, total revenue increased 21.6% and 22.7%, respectively.
% of Revenue % of Revenue
------------ ------------
3 Mo. Ended June 30, 9 Mo. Ended June 30,
-------------------- --------------------
1997 1996 Y/Y chg 1997 1996 Y/Y chg
------------------------ ------------------------
Product licensing 54.9% 53.0% 10.8% 54.6% 53.1% 12.6%
Maintenance fees and other 45.1% 47.0% 2.5% 45.4% 46.9% 6.2%
----- ----- --- ----- ----- ---
Total 100.0% 100.0% 6.9% 100.0% 100.0% 9.6%
===== ===== === ===== ===== ===
Product Licensing:
The Company licenses its products to customers for use on their computer
systems. Product licensing accounted for 54.9% and 54.6% of total revenue for
the 3 and 9 months ended June 30, 1997, respectively, compared to 53.0% and
53.1% in 1996, and increased by 10.8% and 12.6% for the 3 and 9 months ended
June 30, 1997, respectively, compared to 1996. Without the effect of the MAXM
acquisition and currency rate changes, product licensing increased 28.0% and
29.5% for the 3 and 9 months ended June 30, 1997, respectively. 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 and adversely
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.
6
<PAGE>
BOOLE & BABBAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Products:
Client/Server products increased 9.7% for the quarter and decreased 6.4% for the
9 month periods and accounted for 31.6% and 24.1% of licensing. Without the
effect of MAXM and currency rate changes, client/server licensing increased
56.5% and 37.2% for the 3 and 9 month period, respectively. The Company
anticipates that this group will continue to show high growth rates for the
remainder of fiscal 1997. However, 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 new products will achieve significant
market acceptance or competitive success and thus contribute to revenue growth.
Mainframe products increased 11.4% and 20.4% (19.0% and 27.4% without the effect
of currency rate changes) for the 3 and 9 months ended June 30, 1997,
respectively, primarily as a result of strong growth in North America and
non-European international which had shown negative growth in 1996. The Company
does not expect mainframe growth to be as high in future quarters. Mainframe
products include Plex products, which enable customers to handle large groups of
computer processors, particularly the parallel processing machines by IBM. The
Company's product licensing growth rates could be materially and adversely
impacted if the 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.
<TABLE>
Markets:
<CAPTION>
% of Product Licensing % of Product Licensing
---------------------- ----------------------
3 Mo. Ended June 30, 9 Mo. Ended June 30,
---------------------- ----------------------
1997 1996 Y/Y chg 1997 1996 Y/Y chg
----------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Domestic 37.7% 38.0% 10.0% 35.8% 31.8% 26.8%
International 62.3% 62.0% 11.3% 64.2% 68.2% 6.0%
----------- ----------- ------------ ----------- ---------- -----------
Total 100.0% 100.0% 10.8% 100.0% 100.0% 12.6%
=========== =========== ============ =========== ========== ===========
</TABLE>
Domestic:
Field sales grew 6.2% and 26.3% (31.7% and 47.4% without the effect of MAXM) for
3 and 9 months, respectively, while telesales grew 46.4% and 30.1%. For growth
to continue in this geographic market, the Company is dependent on continued
increases from both the telesales group and the field sales force.
7
<PAGE>
BOOLE & BABBAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
International:
The Company's product licensing from its international operations, comprised of
foreign subsidiaries and marketing agents, increased 11.3% and 6.0% for 3 and 9
months, respectively, due primarily to strong growth in Japan and Europe.
Without the effect of MAXM and currency exchange rates, growth was 25.2% and
23.0% for the 3 and 9 month periods, respectively. Since the majority of new
revenue is derived from international markets, the Company's operations and
financial results could be significantly and adversely affected by international
factors such as changes in currency exchange rates and specific countries'
political and economic circumstances
Maintenance fees and other:
Maintenance revenue is generated from services the Company provides including
technical support, product enhancements, system updates and user documentation.
Maintenance revenue also includes maintenance services for an initial period
ranging from six months to one year 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 contract with the Company. Customers may also elect to
purchase advance maintenance at the time of product licensing for maintenance
periods beyond the first year. Included in maintenance fees and other is revenue
from consulting and educational services, computer services, hardware sales (net
of costs) and royalties from IBM for the jointly developed CICS product
Maintenance fees and other grew 2.5% and 6.2% for the quarter and year-to-date,
respectively. Without the effect of currency rate changes, maintenance fees and
other grew 14.4% and 15.1%. This increase is mainly the result of increased
product licensing in the previous year combined with high renewal rates but
reduced by higher discounts granted on multiple-year maintenance packages
purchased by customers.
The Company anticipates that maintenance revenues in fiscal 1997 will continue
to increase due to the higher license revenue growth in 1996, although it will
be negatively impacted by reduced revenue associated with site consolidations,
non-CPU specific pricing and multiple-year maintenance package discounts. In
addition, to produce maintenance revenue increases, the Company must continue to
generate new product licensing revenues and continue to provide high quality
maintenance support and upgrades.
8
<PAGE>
BOOLE & BABBAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
COSTS AND EXPENSES (excluding acquisition and nonrecurring costs):
<CAPTION>
% of Revenue % of Revenue
---------------------- ----------------------
3 Mo. Ended June 30, 9 Mo. Ended June 30,
---------------------- ----------------------
1997 1996 Y/Y chg 1997 1996 Y/Y chg
---------- --------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cost of product licensing 7.5% 8.5% (4.8%) 7.6% 8.8% (6.3%)
Cost of maintenance fees and other 9.2% 13.1% (24.7%) 10.1% 10.8% 2.8%
Product development 12.9% 12.0% 15.1% 12.8% 12.0% 17.2%
Sales and marketing 47.7% 49.1% 3.9% 48.7% 50.9% 4.8%
General and administrative 8.9% 10.1% (5.9%) 9.7% 10.4% 2.1%
---------- --------- ------------ ---------- --------- ------------
Total 86.2% 92.8% (0.5%) 88.9% 92.9% 4.8%
========== ========= ============ ========== ========= ============
</TABLE>
Cost of product licensing:
Cost of product licensing consists primarily of royalties paid to independent
software authors and amortization of purchased and internally developed
software. Cost of product licensing decreased 4.8% and 6.3% for the 3 and 9
months ended June 30, 1997, respectively. Without the impact of MAXM and
currency exchange rates, cost of product licensing increased 8.5% and 4.5% for
the 3 and 9 month periods, respectively. The increase relates primarily to
higher royalty costs due to increased third party sales. In general, the
relationship of cost of product licensing to licensing revenue will fluctuate
due primarily to changes in revenue mix, royalty agreements and amortization of
capitalized software.
Cost of maintenance fees and other:
Cost of maintenance fees and other consists primarily of cost of product
maintenance support, royalties paid to independent software authors,
amortization of purchased and internally developed software, the cost to provide
educational and consulting services and costs related to operating the computer
services division. Cost of maintenance fees and other decreased by 24.7% for the
quarter and increased 2.8% for the nine months ended June 30, 1997. Without the
impact of MAXM and currency exchange rates, the quarter had a decrease of 3.7%
while year-to-date increased 16.6%. In 1997, the increase was primarily due to
higher third party royalties in Europe as a result of the expiration of a
reduced rate from a third-party vendor which was in effect from the second
quarter of fiscal 1995 to the fourth quarter of fiscal 1996. In the third
quarter this was offset by lower educational and consulting costs in Europe. In
general, fluctuations in the relationship of cost of maintenance fees and other
to revenue are caused primarily by changes in revenue mix, maintenance support,
royalty agreements, and amortization of capitalized software.
9
<PAGE>
BOOLE & BABBAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Product development:
Product development costs increased by 15.1% for the quarter and 17.2% for the 9
month period in 1997. Without the effect of MAXM and currency rate changes, the
increases were 23.3% and 23.9%, respectively. The increase in 1997 is primarily
attributable to higher R&D personnel costs due to increased headcount. In
addition, reimbursement of expenses by IBM relating to the jointly developed
CICS product was terminated as a result of the new royalty contract in the
fourth quarter of fiscal 1996. R&D expenditures were 16% of revenue (excluding
third party) in both 1997 and 1996 and the amount of R&D capitalized was 16% of
gross R&D costs in both years. The Company capitalizes certain development costs
in accordance with Statement of Financial Accounting Standard 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 3.9% and 4.8% for the 3 and 9 month
0eriods, respectively. Without the effect of MAXM and currency rate changes, the
increases were 22.1% and 18.8%, respectively. The increase in 1997 is primarily
attributable to higher agent and employee commissions on increased sales and
higher sales personnel costs in Europe and Japan due to increased headcount.
General and Administrative:
General and administrative expenses decreased by 5.9% for the quarter and
increased 2.1% for the 9 month period. Without the effect of MAXM and currency
rate changes, there was a 10.9% increase for the quarter and a 13.9% increase
for the nine month period. The increase is primarily attributable to increased
costs relating to higher personnel and consulting costs, European facility
costs, and performance based accruals.
Acquisition and Nonrecurring Costs:
During the second quarter of 1997, the Company had approximately $11.3 million
of nonrecurring costs which included $1 million of purchased research and
development costs and $10.3 million of acquisition costs related to the purchase
of MAXM Systems Corporation on January 16, 1997 (see Note 4). The acquisition
costs consisted primarily of $4.0 million of termination costs related to
reseller agreements, $2.8 million of employee costs, $1.6 million of costs
related to closing redundant facilities and $1.6 million of legal, accounting
and broker fees.
10
<PAGE>
BOOLE & BABBAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and other income, net:
Interest and other income consists principally of interest income, interest
expense, currency gain or loss, and gain or loss on disposal of assets. The
year-to-date 64.4% increase over 1996 is mainly due to higher interest income as
installment receivables increased and a $500,000 currency gain in 1997 versus a
loss of $600,000 in the prior year.
Income Taxes:
Income taxes have been provided based upon the estimated effective tax rate for
the year. The effective tax rate for the nine months ended June 30, 1997 was 30%
exclusive of the tax effect of expenses related to the acquisition of MAXM
Systems Corporation in the second quarter and operating losses of MAXM in the
first quarter for which no tax benefit is recognized. Acquisition costs and
operating losses of MAXM increased tax expense $1,800,000 for the nine months
ended June 30, 1997.
The effective tax rate before the valuation allowance for MAXM and
non-deductible acquisition costs differs from the federal statuary rate due
primarily to permanently invested earnings of foreign subsidiaries being taxed
at rates lower than the federal statutory rate. Management believes future
taxable income will be sufficient to realize the tax benefit of the net deferred
tax asset of approximately $15 million.
LIQUIDITY AND CAPITAL RESOURCES:
The significant sources of cash during 1997 include proceeds from the exercise
of employee stock options of $3,419,000; proceeds from sale of lease contracts
receivable of $2,154,000; stock purchases through the Employee Stock Purchase
Plan of $1,722,000; net sales of short-term investments of $1,904,000 and
$932,000 provided by operating activities. The significant uses of cash during
1997 include $3,664,000 for internally developed capitalized software;
$2,736,000 for purchases of furniture, equipment and leasehold improvements; net
payments under a line of credit of $2,256,000; payments on capital leases and
notes payable of $1,945,000; $601,000 for the purchase of treasury stock and
$361,000 for investment in long-term 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.
11
<PAGE>
BOOLE & BABBAGE, INC.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed herewith.
Exhibit
Number Description of Document
------- -----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the three months ended March 31, 1997, the
Company filed a Current Report on Form 8-K dated January
16, 1997 under Item 2, Acquisition or Disposition of
Assets, relating to the acquisition of MAXM Systems
Corporation. During the three months ended June 30,
1997, the Company filed Form 8-K/A under Item 7,
Financial Statements and Pro Forma Financial
Information, which amended Form 8-K dated January 16,
1997.
12
<PAGE>
BOOLE & BABBAGE, INC. SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOOLE & BABBAGE, INC.
August 8, 1997 \Paul E. Newton\
- -------------- --------------------------
Paul E. Newton
President and Director
(Principal Executive Officer)
August 8, 1997 \Arthur F. Knapp, Jr.\
- -------------- --------------------------
Arthur F. Knapp, Jr.
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
August 8, 1997 \Carla J. Dorow\
- -------------- --------------------------
Carla J. Dorow
Controller
(Principal Accounting Officer)
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