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, 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 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.)
One First Avenue, 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 @ April 30, 1997.................................6,429,698
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 3 - Exhibits and Reports on Form 8-K 9
Signatures 10
Part I Financial Information
Item 1. Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 30, January 31,
1997 1997
-----------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,642,201 $ 9,995,787
Marketable securities 3,235,000 3,010,000
Accounts receivable, less allowances of
$365,000 at April 30, 1997 and January
31, 1997 for doubtful accounts 12,907,157 14,471,847
Prepaid expenses and other assets 1,782,294 1,309,325
Prepaid income taxes 331,630 172,413
Deferred income taxes 282,728 282,728
------------ ------------
Total current assets 27,181,010 29,242,100
------------ ------------
Capitalized software 1,387,813 1,282,813
Equipment:
Land 2,258,360 2,258,360
Building 6,196,800 6,244,604
Furniture and fixtures 1,363,484 1,311,118
Computer equipment 6,090,556 5,700,204
------------ ------------
15,909,200 15,514,286
Less accumulated depreciation 5,389,613 5,104,874
------------ ------------
10,519,587 10,409,412
------------ ------------
Total Assets $39,088,410 $40,934,325
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,847,715 $ 1,562,500
Accrued expenses 1,146,170 1,975,772
Accrued compensation and employee benefits 782,618 1,758,230
Deferred revenue 15,057,744 16,402,902
Billings in excess of costs and earnings on
uncompleted contracts 186,960 486,960
Dividends payable - -
------------ -------------
Total current liabilities 20,021,207 22,186,364
------------ -------------
Deferred income taxes 505,582 505,582
Stockholders' equity:
Common stock, $.10 par value-authorized
10,000,000 shares; issued and outstanding
6,429,698 shares 642,971 642,971
Capital in excess of par value 14,156,285 14,156,285
Retained earnings 6,744,309 6,410,407
Equity adjustment from foreign currency
translation (1,104,784) (1,090,124)
------------ ------------
20,438,781 20,119,539
Less cost of 160,614 shares
of common stock in treasury 1,877,160 1,877,160
------------ -------------
Total stockholders' equity 18,561,621 18,242,379
------------ ------------
Total liabilities and stockholders' equity $39,088,410 $40,934,325
============ ============
See Accompanying Notes to Financial Statements
BGS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 30,
1997 1996
--------------------------------
REVENUES:
License fees $ 6,129,513 $ 5,281,048
Maintenance fees 4,731,932 4,457,879
Other 752,895 750,115
------------ ------------
11,614,340 10,489,042
------------ ------------
COSTS AND EXPENSES:
Cost of software 1,093,726 1,029,879
Cost of maintenance and support 2,135,044 1,926,238
Cost of consulting, development contracts
and other 231,869 206,115
Sales and marketing 2,935,969 3,135,191
General and administrative 912,797 813,859
Research and development 1,106,017 411,046
------------ ------------
8,415,422 7,522,328
------------ ------------
OPERATING INCOME 3,198,918 2,966,714
Investment income:
Interest income, net 128,080 143,035
Other income (6,252) 64,113
------------ ------------
121,828 207,148
------------ ------------
INCOME BEFORE TAXES 3,320,746 3,173,862
Income taxes 1,106,117 1,072,232
------------ -----------
NET INCOME $ 2,214,629 $ 2,101,630
============ ============
Net income per share $ .34 $ .33
============ ============
Weighted average number of shares
outstanding 6,439,316 6,289,906
============ ============
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,
1997 1996
----------------------------
OPERATING ACTIVITIES:
Net income $ 2,214,629 $ 2,101,630
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 298,492 249,609
Amortization of capitalized software 200,195 114,062
Gain on sales of
available-for-sale securities (248) -
Changes in operating assets and
liabilities:
Accounts receivable 1,545,285 4,883,236
Billings in excess of costs & estimated
earnings on uncompleted contracts (300,000) (213,111)
Other current assets (637,926) (207,607)
Accounts payable and accrued expenses (467,518) (1,390,970)
Deferred revenue (1,309,771) (212,287)
Federal and state income taxes (7,695) 259,536
Foreign currency transaction - 12,870
------------ ----------
Net cash provided by operating activities 1,535,443 5,596,368
------------ ----------
INVESTING ACTIVITIES:
Purchases of available-for-sale securities (475,000) (690,000)
Proceeds from sale of available-for-sale
securities 250,248 -
Additions to capitalized software costs (305,195) (142,188)
Additions to property, plant & equipment (412,282) (309,943)
------------ -----------
Net cash used in investing activities (942,229) (1,142,131)
------------ -----------
FINANCING ACTIVITIES:
Dividends paid (1,880,725) (780,932)
------------ ----------
Net cash used in financing activities (1,880,725) (780,932)
------------ -----------
Effect of exchange rate changes on cash and
cash equivalents (66,075) (10,093)
------------ ----------
Net increase (decrease) in cash and cash
equivalents (1,353,586) 3,663,212
Cash and cash equivalents at beginning of
fiscal year 9,995,787 11,228,411
------------ ----------
Cash and cash equivalents at end of period $ 8,642,201 $14,891,623
============ ===========
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 25, 1997, which incorporates
the financial statements and notes thereto, including a summary of significant
accounting policies, for the fiscal years ended January 31, 1997 and January
31, 1996.
The results for the interim periods are not necessarily indicative of the
results for the entire year.
FORM 10-Q PAGE 7
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 increased 11% to $11,614,000. Revenue from license fees
for the first quarter grew 16% to $6,130,000 from $5,281,000 last year.
Sales of the Company's products for distributed systems increased over 41%
over last year's first quarter and now account for 65% of the Company's
revenue from license fees. The Company's domestic operations showed
continued strength with license fee growth of 36% over the prior year's
first quarter license fee revenue. The Company's European operations posted
very weak results, as our international operations had a decrease in license
fee revenue of 37% from last year's first quarter. The Company had several
large orders in the forecast for the first quarter that are now forecasted for
the second quarter at the earliest. The Company continues to express caution
and concern that forecasting the closing and frequency of large orders, that
have recently helped to increase its revenue growth, is at best difficult and
may continue to result in uneven quarterly license fee comparisons.
Maintenance fees for the first quarter increased 6% to $4,732,000.
Maintenance fees from the Company's products for distributed systems grew 93%.
As anticipated, maintenance fee revenue from the Company's older product
lines, such as Crystal and SNA Network, continued to decline. The Company's
domestic maintenance renewal rate has continued to improve through the first
quarter.
Other revenue for the first quarter of fiscal year 1998 was essentially the
same as the comparable period of fiscal year 1997. The mix of revenue
between consulting and third party development contracts changed, as a decline
in consulting revenue was offset by a temporary increase in third party
development work.
FORM 10-Q PAGE 8
Aggregate costs and expenses for the three month period increased 12% to
$8,415,000 from $7,522,000 during the comparable period last year. Sales and
marketing expenses declined as a result of the reduction of marketing
activity relating to the Company's introduction of new products over the last
several years. As the Company identifies new market opportunities, and if or
when the Company's international operations resume their growth plan, these
costs will resume a normal growth trend. The cost of software increased
$64,000 or 6% over the prior year's first quarter. Software cost capitalized
during the quarter amounted to $300,000 versus $140,000 during the first
quarter of last year. Amortization of software costs for the first quarter of
this year was $200,000 versus $114,000 for the comparable period last year.
The cost of maintenance and support increased 11% or $209,000 primarily as a
result of supporting a broader product base. These costs should continue to
increase as the Company releases new products to the marketplace. General and
administrative costs increased 12% to $913,000 as the Company expands its
infrastructure to provide a foundation for growth. Growth in these expenses
should moderate in the future. Research and development costs increased
$695,000 or 169% and reflects the Company's costs of new research and
development projects and enhancements to existing products. While the
Company will try to lower the rate of increase of research and development
costs, from this level, in the future, the costs to develop new products, with
new technology, in the current tight labor market is escalating at a furious
pace.
Interest income declined 10% to $128,000 in the first quarter of fiscal year
1998, compared to $143,000 earned a year earlier primarily as a result of a
lower amount of cash invested. Other expense was $6,000 versus income of
$64,000 last year. Other income last year was primarily nonrecurring rental
income received from a tenant that was occupying a portion of the Company's
new headquarters.
Net income grew 5% while earnings per share grew only 3% over last year's
first quarter because of the higher number of shares used in the computation
of the current year's earnings per share. The effective tax rate for both
year's was approximately 33%.
Material Changes in Financial Condition/Liquidity
Cash and marketable securities decreased $1,129,000 primarily as a result of
the collections of fiscal year 1997 fourth quarter sales and current period
net income being offset by the payment of the regular quarterly $.30 per share
dividend, the payment of the prior year's accrued bonuses and the payment of
estimated taxes. 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 prior year's fourth quarter. Deferred revenue declined
from the normal higher year end levels as prebilled maintenance began to be
recognized in the first quarter of the current fiscal year.
The Company's cash resources are considered sufficient to finance the
Company's growth in the foreseeable future.
The Company declared and paid one regular quarterly $.30 per share dividend
during the quarter.
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 9
11 Statement regarding Computation
of per share earnings
27 Financial Data Schedule
99 Lease between BGS Systems Gmbh and berendes/Dr. Venator Bbr
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.
One First Avenue
Waltham, Massachusetts 02254-9111
Date: June 10, 1997 By: /S/ HAROLD S. SCHWENK, JR.
Harold S. Schwenk, Jr.
President and Chief Executive Officer
Date: June 10, 1997 By: /S/ NORMAND BILODEAU
Normand Bilodeau
Chief Financial Officer