FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 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 No. 0-12192
BGS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2559993
(State of Incorporation) (I.R.S. Employer
Identification No.)
128 Technology Center Waltham, Massachusetts 02254
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 891-0000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the issuer's classes of common stock.
Common stock, $.10 par value
Shares outstanding @ July 31, 1995..........................3,214,849
BGS Systems, Inc.
Table of Contents
Part I Financial Information:
Item 1 - Financial Statements:
Balance Sheets
Statements of Income
Statements of Cash Flows
Notes to Financial Statements
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Part II Other Information:
Item 4 - Submission of Matters to a Vote of
Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures
Part I Financial Information
Item 1. Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, January 31,
1995 1995
----------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $13,660,605 $ 9,084,622
Marketable securities 5,645,000 6,440,000
Accounts receivable, less allowances of
$365,000 at July 31, 1995 and January
31, 1995 for doubtful accounts 7,637,266 12,458,895
Prepaid expenses and other assets 1,034,756 768,125
Costs and estimated earnings in excess of
billings on uncompleted contracts - 335,640
Deferred income taxes 201,031 201,031
Federal and state income taxes receivable
Total current assets 28,178,658 29,288,313
Capitalized software 525,000 275,000
Equipment:
Furniture and fixtures 1,593,512 1,537,295
Computer equipment 6,088,003 5,473,725
7,681,515 7,011,020
Less accumulated depreciation 5,939,168 5,481,522
1,742,347 1,529,498
Total Assets $30,446,005 $31,092,811
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,052,978 $ 1,247,818
Accrued expenses 414,048 1,005,153
Accrued compensation and employee benefits 975,887 1,542,835
Deferred revenue 11,661,374 13,129,025
Federal and state income taxes payable 263,242 429,380
Total current liabilities 14,367,529 17,354,211
Deferred income taxes 16,057 16,057
Stockholders' equity:
Common stock, $.10 par value-authorized
10,000,000 shares; issued and outstanding
3,214,849 shares 321,486 321,486
Capital in excess of par value 14,366,949 14,441,965
Retained earnings 4,327,961 2,109,638
Equity adjustment from foreign currency
translation (588,650) (511,907)
18,427,746 16,361,182
Less cost of 101,190 shares (83,264 shares
in 1994) of common stock in treasury 2,365,327 2,638,639
Total stockholders' equity 16,062,419 13,722,543
Total liabilities and stockholders' equity $30,446,005 $31,092,811
============ ============
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
1995 1994 1995 1994
REVENUES:
License fees $ 5,087,888 $ 3,983,773 $ 9,196,818 $ 7,511,505
Maintenance fees 4,243,678 3,735,346 8,421,293 7,412,319
Other 375,818 450,942 1,010,255 970,729
------------ ------------ ------------ ------------
9,707,384 8,170,061 18,628,366 15,894,553
------------ ------------ ------------ -------------
COSTS AND EXPENSES:
Sales and marketing 3,065,767 2,274,620 5,807,723 4,560,233
General and administrative 883,698 842,125 1,725,950 1,585,444
Product development and
maintenance 3,151,670 2,622,803 5,940,654 4,918,216
------------ ------------ ------------ ------------
7,101,135 5,739,548 13,474,327 11,063,893
------------ ------------ ------------ ------------
OPERATING INCOME 2,606,249 2,430,513 5,154,039 4,830,660
Investment income:
Interest income, net 215,302 184,208 414,777 309,889
Other income 92,352 25,825 174,055 116,157
------------ ------------ ------------ -----------
307,654 210,033 588,832 426,046
------------ ------------ ------------ -----------
INCOME BEFORE TAXES 2,913,903 2,640,546 5,742,871 5,256,706
Income taxes 1,017,281 870,994 1,973,566 1,749,636
NET INCOME $ 1,896,622 $ 1,769,552 $ 3,769,305 $ 3,507,070
============ ============ ============ ============
Net income per share $ .61 $ .57 $ 1.21 $ 1.12
============ ============ ============ ============
Weighted average number of
shares outstanding 3,123,413 3,108,176 3,119,817 3,126,498
============ ============ ============ ============
Net income per share: The computations of income per share are based on the
weighted average number of shares of Common Stock outstanding during the
periods, including the dilutive effect of stock options.
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
July 31,
1995 1994
-------------------------------
OPERATING ACTIVITIES:
Net income $ 3,769,305 $ 3,507,073
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 442,930 383,823
Changes in operating assets and
liabilities:
Accounts receivable 5,155,630 2,299,870
Other current assets (216,516) (4,589,623)
Accounts payable and accrued expenses (1,411,764) 112,894
Deferred revenue (1,564,918) (1,200,857)
Federal and state income taxes (168,273) 535,244
Foreign currency transaction (107,235) 4,304
------------ ------------
Net cash provided by operating activities 5,899,159 1,052,728
------------ ------------
FINANCING ACTIVITIES:
Purchases of common stock for treasury 273,312 (1,132,200)
Proceeds from issuance of common stock (75,016) 4,700,461
Dividends paid (1,550,982) (1,087,865)
------------ ------------
Net cash used in financing activities (1,352,686) 2,480,396
------------ ------------
INVESTING ACTIVITIES:
Purchases of available-for-sale securities (1,210,000) -
Proceeds from maturity of available-for-sale
securities 2,005,000 -
Additions to capitalized software costs (250,000)
Additions to equipment (645,090) (490,687)
(Increase) decrease in marketable securities - (449,597)
Net cash provided by (used in) investing ------------ ------------
activities (100,090) (940,284)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents 129,600 155,077
Net increase (decrease) in cash and cash
equivalents 4,575,983 2,747,917
Cash and cash equivalents at beginning of
year 9,084,622 7,109,425
------------ ------------
Cash and cash equivalents at end of year $13,660,605 $ 9,857,342
============ ============
BGS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
I. Accounting Comments
With respect to the unaudited statements for the interim periods included
in this report, management of the Company believes that all adjustments
necessary for fair presentation of the results for such interim periods have
been included.
Reference is made to the registrant's Form 10-K Annual Report, filed with
the Securities and Exchange Commission on April 17, 1995, which incorporates
the financial statements and notes thereto, including a summary of significant
accounting policies, for the fiscal years ended January 31, 1995 and January
31, 1994.
The results for the interim periods are not necessarily indicative of the
results for the entire year.
Part I-Item 2
BGS SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Results of Operations
Operating revenues for the first six months of fiscal year 1996 increased 17%
over the prior year. Sales of the Company's newer UNIX products pushed
license fee growth to 22% for the six-month period and 28% for the second
quarter. Sales of the Company's Datacenter and Visualizer products kept pace
with the prior year's demand. License fee revenue from the Company's
international operations showed uneven improvement over the first quarters
results. The Company's United Kingdom and Italian operations both posted
strong results which were helped by several large orders, while our German
operation continued to underperform. The frequency of large software
purchases by the Company's customers continues to impact, either favorably or
unfavorably, the performance of one or more of the Company's operating units
each quarter, and continues to be of concern because of the increased
potential for unevenness in the total revenue of the Company for the
foreseeable future.
Maintenance fee revenue grew approximately 14% for both periods. While the
renewal rate for the Company's newer products exceeds 90%, the Company
continues to experience a high degree of nonrenewal for its more mature
products. The Company is unsure if the growth experienced in the first two
quarters of the current fiscal year in maintenance fee revenue will continue
through the balance of the current fiscal year. Several customers who
accounted for large sales of new products over the past few years have
recently failed to renew large maintenance contracts with the Company. If
this were to become a trend, it could adversely impact maintenance revenue in
the latter part of the year. An additional concern of the Company is the
renewals of the newer UNIX products. The Company is unsure if the renewal of
these newer products will follow the model of its more mature product lines.
Other revenue for the six-month period was essentially even with the
comparable period of the prior fiscal year. For the second quarter, other
revenue declined 17% or $75,000 to $376,000 from $451,000 earned for the
comparable period of the prior fiscal year. Usually, consulting revenue is
earned at a comparable level from quarter to quarter as the Company does not
seek to expand this business beyond the immediate requirements of its
customers. The level of third party development contract revenue has reached
a minimum maintenance level and is not expected to vary significantly over the
next few quarters.
Aggregate costs and expenses for both the second quarter and the six-month
period increased over 20%. Sales and marketing expenses were higher for both
periods as a result of increased marketing activity relating to the Company's
new products, especially introductory marketing expenses for the UNIX
products, and the higher level of commissionable revenue. Product development
and maintenance expenses increased approximately 20% for both periods
primarily as a result of an increased investment in the development of both
new products for distributed systems and the continued porting of the
Company's UNIX based products to additional UNIX platforms. This level of
expenditure is expected to continue through at least the end of the current
fiscal year.
Interest income improved in both periods as a result of an increase in both
interest rates and in the amount of funds invested. Other income improved as
a result of currency exchange gains in the normal course of business. The
Company does not enter into any forward exchange contracts.
Net income grew approximately 7% for both periods and earnings per share grew
8% for the six-month period and 7% for the second quarter. The effective tax
rate for the second quarter and first six months increased slightly to 34% in
the current fiscal year from 33% last fiscal year.
Material Changes in Financial Condition/Liquidity
Cash and marketable securities increased $3,780,000 primarily as a result of
the collections of fiscal year 1995 fourth quarter sales and current year
earnings. The decrease in accounts receivable from January 31 is primarily
due to the collection of outstanding accounts and the lower sales levels in
the first and second quarters of the current fiscal year versus the normal
increased sales activity during the fourth quarter.
The Company's cash resources are considered sufficient to finance the
Company's growth in the foreseeable future.
BGS SYSTEMS, INC.
Part II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a), (c) At the Annual Meeting of Stockholders held on June 13, 1995, the
stockholders of the Company voted to fix the number of directors at four and
elected Harold S. Schwenk, Jr. to serve as the Class III director for a term
of three years. The other directors whose terms continued after the meeting
are Jeffrey P. Buzen and Paul R. Duncan (Class I directors whose terms expire
at the Annual Meeting of Stockholders in 1996) and Judith N. Goldberg (Class
II director whose term expires at the Annual Meeting of Stockholders in 1997).
A total of 2,891,809 shares were voted in favor of the election of Dr.
Schwenk, with 1,404 votes withheld.
In addition, the stockholders of the Company approved the adoption of the 1995
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") as described
in the Company's Proxy Statement (the "Proxy Statement") filed with the
Commission on May 8, 1995. A complete description of the Employee Stock
Purchase Plan is set forth on Exhibit A to the Proxy Statement which is hereby
incorporated by reference.
A total of 2,657,050 shares voted in favor of such proposal with 190,344
shares opposed and 45,819 shares abstaining.
BGS SYSTEMS, INC.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits filed as part of this Form 10-Q are
listed on the Exhibit Index immediately preceding such
exhibits and are incorporated herein by reference.
(b) Form 8-K. The Registrant did not file any reports on
Form 8-K during the quarter for which this report is filed.
INDEX TO EXHIBITS
Exhibits
11 Statement regarding Computation
of per share earnings
27 Financial Data Schedule
BGS SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BGS Systems, Inc.
128 Technology Center
Waltham, Massachusetts 02254
Date: September 7, 1995 By: /s/ Harold S. Schwenk, Jr.
---------------------------------
Harold S. Schwenk, Jr.
President and Chief Executive Officer
Date: September 7, 1995 By: /s/ Normand Bilodeau
---------------------------------
Normand Bilodeau
Chief Financial Officer