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 April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-12192
BGS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2559993
(State of Incorporation) (I.R.S. Employer
Identification No.)
128 Technology Center, Waltham, Massachusetts 02254
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 891-0000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the issuer's classes of common stock.
Common stock, $.10 par value
Shares outstanding @ April 30, 1996.................................3,214,849
BGS Systems, Inc.
Table of Contents
Part I Financial Information: Page No.
Item 1 - Financial Statements:
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-9
Part II Other Information:
Item 3 - Exhibits and Reports on Form 8-K 10
Signatures 13
Part I Financial Information
Item 1. Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 30, January 31,
1996 1996
-----------------------------
ASSETS
Current Assets:
Cash and cash equivalents $14,891,623 $11,228,411
Marketable securities 1,730,000 1,040,000
Accounts receivable, less allowances of
$365,000 at April 30, 1996 and January
31, 1996 for doubtful accounts 9,265,148 14,162,823
Prepaid expenses and other assets 1,157,383 951,033
Deferred income taxes 257,398 257,398
Total current assets 27,301,552 27,639,665
Capitalized software 803,125 775,000
Equipment:
Land 2,258,360 2,258,360
Building 3,064,357 3,037,777
Furniture and fixtures 1,625,360 1,607,098
Computer equipment 6,754,017 6,488,993
13,702,094 13,392,228
Less accumulated depreciation 6,673,908 6,426,094
7,028,186 6,966,134
Total Assets $35,132,863 $35,380,799
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,277,923 $ 1,343,665
Accrued expenses 541,928 1,162,102
Accrued compensation and employee benefits 1,466,725 2,197,567
Deferred revenue 14,848,406 15,082,034
Federal and state income taxes payable 681,990 421,159
Billings in excess of costs and earnings on
uncompleted contracts - 213,110
Dividends payable - -
Total current liabilities 18,816,972 20,419,637
Stockholders' equity:
Common stock, $.10 par value-authorized
10,000,000 shares; issued and outstanding
3,214,849 shares 321,486 321,486
Capital in excess of par value 14,387,404 14,387,404
Retained earnings 4,403,616 3,082,920
Equity adjustment from foreign currency
translation (666,647) (700,680)
18,446,859 17,091,130
Less cost of 91,120 shares (112,885 shares
in 1995) of common stock in treasury 2,129,968 2,129,968
Total stockholders' equity 16,315,891 14,961,162
Total liabilities and stockholders' equity $35,132,863 $35,380,799
============ ============
See Accompanying Notes to Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 30,
1996 1995
-----------------------------
REVENUES:
License fees $ 5,281,048 $ 4,108,930
Maintenance fees 4,457,879 4,177,615
Other 750,115 634,437
------------ ------------
10,489,042 8,920,982
------------ ------------
COSTS AND EXPENSES:
Cost of software 1,029,879 561,200
Cost of maintenance and support 1,926,238 1,511,834
Cost of consulting, development contracts
and other 206,115 171,129
Sales and marketing 3,135,191 2,741,956
General and administrative 813,859 842,252
Research and development 411,046 544,821
------------ ------------
7,522,328 6,373,192
------------ ------------
OPERATING INCOME 2,966,714 2,547,790
Investment income:
Interest income, net 143,035 199,475
Other income 64,113 81,703
------------ ------------
207,148 281,178
------------ ------------
INCOME BEFORE TAXES 3,173,862 2,828,968
Income taxes 1,072,232 956,285
NET INCOME $ 2,101,630 $ 1,872,683
============ ============
Net income per share $ .67 $ .60
============ ============
Weighted average number of shares
outstanding 3,144,953 3,116,220
============ ============
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.
See Accompanying Notes to Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
April 30,
1996 1995
-----------------------------
OPERATING ACTIVITIES:
Net income $ 2,101,630 $ 1,872,683
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 363,671 208,041
Changes in operating assets and
liabilities:
Accounts receivable 4,883,236 4,170,404
Billings in excess of costs & estimated
earnings on uncompleted contracts (213,111) -
Other current assets (207,607) 105,262
Accounts payable and accrued expenses (1,390,970) (1,384,027)
Deferred revenue (212,887) (635,525)
Federal and state income taxes 259,536 (181,337)
Foreign currency transaction 12,870 (55,219)
------------ ------------
Net cash provided by operating activities 5,596,368 4,100,282
------------ ------------
FINANCING ACTIVITIES:
Purchases of common stock for treasury 0 0
Proceeds from issuance of common stock 0 0
Dividends paid (780,932) (775,491)
------------ ------------
Net cash used in financing activities (780,932) (775,491)
------------ ------------
INVESTING ACTIVITIES:
Purchases of available-for-sale securities (690,000) (505,000)
Proceeds from maturity of available-for-sale
securities - 900,000
Additions to capitalized software costs (142,188) (125,000)
Additions to equipment (309,943) (335,824)
Net cash provided by (used in) investing ------------ -----------
activities (1,142,131) (65,824)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents (10,093) 113,168
Net increase (decrease) in cash and cash
equivalents 3,663,212 3,372,135
Cash and cash equivalents at beginning of
fiscal year 11,228,411 9,084,622
------------ ------------
Cash and cash equivalents at end of period $14,891,623 $12,456,757
============ ============
See Accompanying Notes to Financial Statements
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 26, 1996, which incorporates
the financial statements and notes thereto, including a summary of significant
accounting policies, for the fiscal years ended January 31, 1996 and January
31, 1995.
The results for the interim periods are not necessarily indicative of the
results for the entire year.
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
Revenue from license fees for the first quarter grew 29% to $5,281,000 from
$4,109,000 last year and provided the basis for an 18% increase in operating
revenues. Sales of the Company's products for distributed systems increased
over 200% over last year's first quarter. The domestic operations posted a
17% gain in license fees over the prior year's first quarter while the
Company's international operations almost doubled the license fee revenue for
the first quarter over the prior year's weak first quarter. The Company's
German operations continued to rebound and posted revenue gains for the
quarter and the Company's UK operations also posted revenue gains over the
prior year's first quarter. The Company's other international operations, in
total, posted revenue gains for the period. The Company's new network
products are not expected to have a material impact on the Company's revenue
until the latter part of this fiscal year, at the earliest.
Maintenance fees for the first quarter increased 7% to $4,458,000. The
Company's domestic maintenance renewal rate improved slightly over last year's
renewal rate which had been adversely impacted by the cancellation of a few
renewals of large dollar value. The Company expects to continue to experience
a deterioration of the maintenance renewals from its older Crystal, VM and SNA
network product lines. The Company lacks any meaningful historical data
concerning the renewal trends of UNIX products. This is hampering the
Company's ability to ascertain any trend in maintenance revenue over the
balance of the current fiscal year.
Consulting, development contracts and other revenue increased 18% to $750,000
on the strength of improved levels of consulting work completed during the
quarter. Revenue from development contracts and other revenue were at levels
similar to those of the prior year. Revenue from these sources tends to come
from the Company's existing customer base and continues to be done primarily
for the convenience of our customers.
Aggregate costs and expenses for the three month period increased 18% to
$7,522,000 from $6,373,000 during the comparable period last year. Sales and
marketing expenses were higher as a result of the higher level of
commissionable revenue, a continuation of the expansion of the sales force and
marketing activity relating to the Company's new products. General and
administrative expenses were essentially even with the prior year.
The cost of software increased 84% to $1,030,000, as the Company continues to
increase its investment in the development of new products. The cost of
maintenance and support also increased as additional resources are required to
provide adequate support for our expanding product base. The cost of
consulting, development contracts and other revenue increased at approximately
the same rate as the related revenue.
Investment income declined 26% to $207,000 in the first quarter of fiscal year
1997, compared to $281,000 earned a year earlier. A decrease in the amount
invested in interest bearing securities was the primary reason for the
decline. In the fourth quarter of the prior fiscal year the Company used some
of its cash reserves to purchase a building that will serve as its new
headquarters.
Net income and earnings per share grew 12% over last year's first quarter.
The effective tax rate for both years was 34%.
Material Changes in Financial Condition/Liquidity
Cash increased $4,353,000 primarily as a result of the collections of fiscal
year 1996 fourth quarter sales. 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 quarter of the 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.
Accrued compensation declined by $731,000 as a result of the payment in the
first quarter of bonuses accrued at January 31, 1996. Accrued expenses
declined primarily as a result of the payment of compensation related fringe
benefits and other expenses relating to the year end increased level of
revenue.
The Company declared and paid one regular quarterly $.25 per share dividend
during the quarter. Subsequent to the end of the quarter, the Company
declared and increased its regular quarterly dividend to .$50 per share from
$.25 per share.
Trends and Uncertainties
Having a relatively small "float" has been a characteristic of the Company's
stock performance since the Company "went public" in 1983. Historically, one
of the consequences of having a small float has been that there are relatively
few "market makers" in the stock compared to substantially larger companies
with much larger floats. Heretofor the number of market makers has ranged
from one to five. Additionally, average spreads between the bid and asked
prices of the Company's stock have ranged from approximately $2.00 to $3.00.
As investors know, the spread on the bid and asked prices of the Company's
common stock has recently increased to an approximate range of $4.00 to
$10.00, and the number of market makers has declined from five to two.
Investors are also aware that the implementation by the NASDAQ Stock Market of
the so-called "Small Order Entry System" has given apparent rise to so-called
"SOES Bandits." The Company does not know if the risks faced by market makers
in its stock from raids by these "SOES Bandits" has caused this increased
spread on the bid and asked prices of the Company's stock or resulted in the
current decline in the number of market makers.
While these apparent trends are not expected to materially affect the
Company's corporate performance, the Company does not know if they may have
had some indeterminable effect on the amount and volatility of its stock
prices. The Company is unable to predict the future effect of the Small Order
Entry System, the SOES Bandits, the spreads between bid and asked or changes
in the number of market makers on the future performance of its stock.
BGS SYSTEMS, INC.
Part II. OTHER INFORMATION
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 Page Number
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: June 10, 1996 By: /S/ HAROLD S. SCHWENK, JR.
Harold S. Schwenk, Jr.
President and Chief Executive Officer
Date: June 10, 1996 By: /S/ NORMAND BILODEAU
Normand Bilodeau
Chief Financial Officer