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 October 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 02254-9111
(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 @ October 31, 1995..........................3,214,849
BGS Systems, Inc.
Table of Contents
Part I Financial Information: Page No.
Item 1 - Financial Statements:
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-8
Part II Other Information:
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 12
Part I Financial Information
Item 1. Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31, January 31,
1995 1995
ASSETS
Current Assets:
Cash and cash equivalents $11,013,194 $ 9,084,622
Marketable securities 6,295,000 6,440,000
Accounts receivable, less allowances of
$365,000 at October 31, 1995 and January
31, 1995 for doubtful accounts 9,394,623 12,458,895
Prepaid expenses and other assets 1,696,684 768,125
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 28,600,532 29,288,313
Capitalized software 650,000 275,000
Equipment:
Furniture and fixtures 1,609,806 1,537,295
Computer equipment 6,249,432 5,473,725
7,859,238 7,011,020
Less accumulated depreciation 6,189,427 5,481,522
1,669,811 1,529,498
Total Assets $30,920,343 $31,092,811
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 890,549 $ 1,247,818
Accrued expenses 595,387 1,005,153
Accrued compensation and employee benefits 1,414,794 1,542,835
Deferred revenue 10,390,507 13,129,025
Federal and state income taxes payable 332,839 429,380
Total current liabilities 13,624,076 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 14,292,599 14,441,965
Retained earnings 5,497,842 2,109,638
Equity adjustment from foreign currency
translation (583,240) (511,907)
19,528,687 16,361,182
Less cost of 96,190 shares (83,264 shares
in 1994) of common stock in treasury 2,248,477 2,638,639
Total stockholders' equity 17,280,210 13,722,543
Total liabilities and stockholders' equity $30,920,343 $31,092,811
============ ============
FORM 10-Q
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31,
1995 1994 1995 1994
REVENUES:
License fees $ 5,262,032 $ 4,483,759 $14,458,851 $11,995,264
Maintenance fees 4,176,412 3,611,852 12,597,705 11,024,171
Other 555,077 569,163 1,565,332 1,539,892
------------ ------------ ------------ ------------
9,993,521 8,664,774 28,621,888 24,559,327
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Sales and marketing 3,143,656 2,550,476 8,951,379 7,110,709
General and administrative 857,672 853,338 2,583,622 2,438,782
Product development and
maintenance 147,957 2,764,627 9,088,611 7,682,843
------------ ------------ ------------ ------------
7,149,285 6,168,441 20,623,612 17,232,334
------------ ------------ ------------ ------------
OPERATING INCOME 2,844,236 2,496,333 7,998,276 7,326,993
Investment income:
Interest income, net 199,623 147,960 614,400 457,849
Other income (16,493) 11,782 157,561 127,939
------------ ------------ ------------ -----------
183,130 159,742 771,961 585,788
------------ ------------ ------------ -----------
INCOME BEFORE TAXES 3,027,366 2,656,075 8,770,237 7,912,781
Income taxes 1,077,819 889,933 3,051,385 2,639,569
NET INCOME $ 1,949,547 $ 1,766,142 $ 5,718,852 $ 5,273,212
============ ============ ============ ============
Net income per share $ .62 $ .57 $ 1.83 $ 1.69
============ ============ ============ ============
Weighted average number of
shares outstanding 3,138,938 3,104,240 3,126,190 3,119,079
============ ============ ============ ============
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.
FORM 10-Q
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
October 31,
1995 1994
-----------------------------
OPERATING ACTIVITIES:
Net income $ 5,718,852 $ 5,273,212
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 696,590 588,448
Changes in operating assets and
liabilities:
Accounts receivable 3,457,926 808,505
Other current assets (912,918) (4,906,913)
Accounts payable and accrued expenses (941,674) 432,998
Deferred revenue (2,831,165) (957,870)
Federal and state income taxes (96,851) 272,604
Foreign currency transaction (91,848) 12,922
------------ ------------
Net cash provided by operating activities 4,998,912 1,523,906
------------ ------------
FINANCING ACTIVITIES:
Purchases of common stock for treasury 390,162 (950,140)
Proceeds from issuance of common stock (149,366) 4,494,833
Dividends paid (2,330,647) (1,705,100)
------------ ------------
Net cash used in financing activities (2,089,851) 1,839,593
------------ ------------
INVESTING ACTIVITIES:
Purchases of available-for-sale securities (2,260,000) -
Proceeds from maturity of available-for-sale
securities 2,405,000 -
Additions to capitalized software costs (375,000)
Additions to equipment (829,338) (628,324)
(Increase) decrease in marketable securities - (638,966)
Net cash provided by (used in) investing ------------ ------------
activities (1,059,338) (1,267,290)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents 78,852 249,378
Net increase (decrease) in cash and cash
equivalents 1,928,572 2,345,587
Cash and cash equivalents at beginning of
year 9,084,622 7,109,427
------------ ------------
Cash and cash equivalents at end of year $11,013,194 $ 9,455,014
============ ============
FORM 10-Q
BGS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
I. Accounting Comments
With respect to the unaudited statements for the interim periods included
in this report, management of the Company believes that all adjustments
necessary for fair presentation of the results for such interim periods have
been included, and are of a normal recurring nature.
Reference is made to the registrant's 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.
FORM 10-Q
Part 1-Item 2
BGS SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Results of Operations
Operating revenues for the first nine months of fiscal year 1996 increased 17%
over the prior year. Sales of the Company s newer UNIX products pushed
license fee growth to 21% for the nine-month period and 17% for the third
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 improvement in the third quarter. The
Company's German operations posted improved results, with the balance of the
Company's international operations continuing to show growth. The timing and
frequency of large software purchases by the Company's customers continues to
impact the performance of one or more of the Company's operating units each
quarter, and continues to be of concern because of the increased potential for
unevenness in the total revenue of the Company for the foreseeable future.
Maintenance fee revenue grew approximately 14% in the nine month period and
16% in the third quarter over the comparable periods of the prior year. The
Company continues to experience a high degree of nonrenewal for its more
mature products and an unpredictable and uneven renewal of some large
maintenance contracts relating to the sales of newer products. If this were
to continue, it will adversely impact maintenance revenue not only in the
latter part of the year, but also in the next fiscal year. The Company is
continuing to monitor the renewal of its newer UNIX products to determine if
the renewal of these products will follow the model of its more mature product
lines.
Other revenue for both the nine-month period and the third quarter was
essentially even with the comparable periods 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 continues at a minimum maintenance level and is not expected
to vary significantly over the next few quarters.
Aggregate costs and expenses for the third quarter and the nine-month period
increased 16% and 20% over the comparable periods of the prior year. 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. The level of growth in sales and marketing expenses
moderated in the third quarter as some advertising programs were completed.
Product development and maintenance expenses increased approximately 18% for
the first nine months of the current fiscal year primarily as a result of an
increased investment in the development of both new products for distributed
systems and continued investment in the Company's mainframe products and the
continued porting of the Company's UNIX based products to additional UNIX
platforms.
FORM 10-Q
Gross margin, defined by the Company as net revenue less product development
and maintenance expenses, decreased slightly to 68% or $19,533,000 for the
nine-month period of the current fiscal year from 69% or $16,876,000 for the
comparable period of the prior fiscal year. The gross margins for the first
two quarters of the prior fiscal year were down primarily because of the UNIX
product development costs that were incurred prior to the product's release.
The gross margin for the third quarter of both fiscal years was 68%. Research
and development costs were $3,910,000 for the first nine months of the current
fiscal year versus $3,006,000 for the comparable period of the prior fiscal
year. For the third quarter, research and development costs were $1,585,000
for the current year versus $1,317,000 for the prior year.
Interest income improved in both periods as a result of an increase in both
interest rates and in the amount of funds invested. The Company does not
enter into any forward exchange contracts.
Net income grew approximately 8% for the first nine months and 10% for the
third quarter. Earnings per share grew 8% for the nine-month period and 9%
for the third quarter. The effective tax rate increased slightly to 35% in
the current fiscal year from 33% last fiscal year.
Material Changes in Financial Condition/Liquidity
Cash and marketable securities increased $1,800,000 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 entered into an agreement to purchase land and a building for its
future headquarters. The agreement calls for the Company to complete the
purchase by the end of the current calendar year. The purchase and cost of
remodelling will require the outlay of approximately $8.7 million over the
next twelve months. The lease for the Company's current headquarters expires
on January 31, 1997. The Company does not expect that this purchase will have
an impact on its dividend policy. For additional information relative to the
Company's purchase of the property, reference is made to the Company's Form
8-K filed with the Commission on November 17, 1995.
The Company's cash resources are considered sufficient to finance the
Company's growth in the foreseeable future.
FORM 10-Q
BGS SYSTEMS, INC.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits filed as part of this Form 10-Q are
listed on the Exhibit Index immediately preceding such
exhibits and are incorporated herein by reference.
(b) Form 8-K. The Registrant did not file any reports on
Form 8-K during the quarter for which this report is filed.
The Registrant did file a report on Form 8-K on November 17,
1995, during the quarter in which this report is filed.
FORM 10-Q
INDEX TO EXHIBITS
Exhibits
11 Statement regarding Computation
of per share earnings
27 Financial Data Schedule
FORM 10-Q
BGS SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BGS Systems, Inc.
128 Technology Center
Waltham, Massachusetts 02254
Date: December 13, 1995 By: /s/ Harold S. Schwenk, Jr.
---------------------------------
Harold S. Schwenk, Jr.
President and Chief Executive Officer
Date: December 13, 1995 By: /s/ Normand Bilodeau
---------------------------------
Normand Bilodeau
Chief Financial Officer