-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EpSHPpPQBU3YlyNAxDm1NeNPsEGys4fyvAxdem8O7LjWeMfVtH+22pjCwg5MS9Kh wZQT2bz7KpjNsJRWYjToxw== 0000950005-96-000088.txt : 19960216 0000950005-96-000088.hdr.sgml : 19960216 ACCESSION NUMBER: 0000950005-96-000088 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOOLE & BABBAGE INC CENTRAL INDEX KEY: 0000734394 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 941651571 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13258 FILM NUMBER: 96519604 BUSINESS ADDRESS: STREET 1: 3131 ZANKER ROAD CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4085263000 MAIL ADDRESS: STREET 1: 3131 ZANKER ROAD CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 FORM 10-Q 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 DECEMBER 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 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 --- --- 10,878,479 shares of common stock of the Registrant were outstanding as of January 31, 1996. BOOLE & BABBAGE, INC. INDEX Part I FINANCIAL INFORMATION Page No. Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets December 31, 1995 and September 30, 1995 1 Consolidated Statements of Income Three Months Ended December 31, 1995 and 1994 2 Consolidated Statements of Cash Flows Three Months Ended December 31, 1995 and 1994 3 Notes to Consolidated Financial Statements 4-5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended December 31, 1995 and 1994 6-11 Part II OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12 Signatures 13 BOOLE & BABBAGE, INC. Consolidated Balance Sheets (Amounts in thousands except shares) (December 31, 1995 unaudited)
December 31, September 30, 1995 1995 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $21,358 $22,340 Short-term investments 13,700 15,800 Accounts receivable, net 23,804 27,293 Installment and other receivables, net 32,858 28,066 Deferred tax asset 5,770 5,810 Prepaid expenses and other current assets 5,642 4,967 ---------- ---------- Total current assets 103,132 104,276 Purchased and internally developed software, net 12,138 12,278 Equipment, furniture and leasehold improvements, net 7,358 7,341 Long-term installment and other receivables 38,297 32,223 Long-term deferred tax asset 4,843 4,843 Costs in excess of net assets of purchased businesses, net 680 687 Other assets 2,408 2,260 ---------- ---------- Total assets $168,856 $163,908 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $6,915 $6,595 Accrued payroll expense 6,926 7,149 Other accrued liabilities 17,214 18,133 Short-term borrowings 250 400 Notes payable due within one year 256 513 Capital lease obligations due within one year 1,074 1,348 Deferred maintenance revenue 38,647 40,180 ---------- ---------- Total current liabilities 71,282 74,318 Notes payable due after one year 663 663 Capital lease obligations due after one year 664 683 Deferred maintenance revenue due after one year 21,496 18,057 Stockholders' equity: Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued -- -- Common stock, $.001 par value, authorized--15,000,000 shares; issued--11,561,414 (11,476,050 at September 30, 1995) 11 11 Additional paid-in capital 31,753 30,844 Retained earnings 46,957 42,672 Unrealized gain (loss) on marketable securities (261) 132 Foreign currency translation adjustment 776 1,013 Less treasury stock, 683,325 shares, at cost (4,485) (4,485) ---------- ---------- Total stockholders' equity 74,751 70,187 ---------- ---------- Total liabilities and stockholders' equity $168,856 $163,908 ========== ========== See accompanying notes.
1 BOOLE & BABBAGE, INC. Consolidated Statements of Income (Amounts in thousands, except net income per share) (Unaudited) Three Months Ended December 31 -------------------------- 1995 1994 ---------- ---------- Revenue: New product revenue $21,474 $20,739 Maintenance fees and other 18,645 17,834 ---------- ---------- Total revenue 40,119 38,573 ---------- ---------- Costs and expenses: Cost of revenue 7,408 7,036 Product development, net 4,374 4,158 Sales and marketing 19,682 19,031 General and administrative 3,851 4,177 ---------- ---------- Total costs and expenses 35,315 34,402 ---------- ---------- Operating income 4,804 4,171 Interest and other income, net 1,306 631 ---------- ---------- Income before provision for income taxes 6,110 4,802 Provision for income taxes 1,825 1,490 ---------- ---------- Net income $4,285 $3,312 ========== ========== Net income per share (a) $ 0.36 $ 0.30 ========== ========== Shares used in per share calculations (a) 11,950 11,200 ========== ========== (a) Per share data and number of shares reflect a 3-for-2 stock split which became effective on December 6, 1995. 2 BOOLE & BABBAGE, INC. Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited)
Three Months Ended December 31, -------------------------- 1995 1994 -------- -------- Cash flows from operating activities: Net income $4,285 $3,312 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation, amortization and write-off of capitalized software 2,359 2,498 Stock issued under compensatory stock plans 36 23 Minority interest -- (61) Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable and installment and other receivables (7,965) (4,950) Prepaid expenses and other assets (610) (669) Accounts payable and accrued expenses (638) 607 Deferred maintenance revenue 2,269 3,489 --------- -------- Net cash provided by (used for) operating activities (264) 4,249 --------- -------- Cash flows from investing activities: Purchases of equipment, furniture and leasehold improvements (928) (778) Payments for capitalized software (1,082) (748) Net sales of short-term investments 2,100 -- Investment in equity securities (648) -- --------- -------- Net cash used for investing activities (558) (1,526) --------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 874 664 Payments on notes payable (253) (230) Payments on line of credit (150) -- Payments on capital leases (559) (500) --------- -------- Net cash used for financing activities (88) (66) --------- -------- Effect of exchange rate changes on cash (72) (112) --------- -------- Net increase (decrease) in cash and cash equivalents (982) 2,545 Cash and cash equivalents at beginning of year 22,340 34,019 --------- --------- Cash and cash equivalents at end of year $21,358 $36,564 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $142 $319 Income taxes, net $631 $513 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
3 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, 1995. These consolidated financial statements should be read in conjunction with those notes. The consolidated financial information at December 31, 1995 and for the three-month periods ended December 31, 1995 and 1994 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 Dec. 31, (Amounts in thousands, except --------------------- net income per share) 1995 1994 ---- ---- Primary: (a) Common shares outstanding 10,888 10,360 Employee stock option plans 1,062 840 ------ ------ 11,950 11,200 ------ ------ Net income $4,285 $3,312 ------ ------ Net income per share $.36 $.30 ---- ---- (a) Reflects a 3-for-2 stock split effective December 6, 1995. 4 BOOLE & BABBAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. Reclassifications Beginning in the first quarter of 1996, changes have been made in the classification of revenue and operating expense in the Consolidated Statements of Income. 1995 has been reclassified to conform to these changes. "New Product Revenue" consists of licensing of core software products (net of the bundled maintenance) plus consulting and education services. "Maintenance Fees and Other" consists of revenue from maintenance, hardware sales, computer services and royalties from IBM related to the jointly developed CICS product now being sold by IBM. "Cost of Revenue" now includes the cost of maintenance support. "Product Development, Net" consists of development costs less costs capitalized under FAS 86. 5 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1995 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, 1995, 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 three months ended December 31, 1995 increased over the same period in the prior year by 4.0%. % of Revenue ---------------------- Year-to-Year 1996 1995 % Change ------------------------------------------------ New product revenue 53.5% 53.8% 3.5% Maintenance fees and other 46.5% 46.2% 4.5% ------------------------------------------------ Total 100.0% 100.0% 4.0% ================================================ NEW PRODUCT REVENUE: The Company licenses its products to customers for use on their computer systems and performs consulting and educational services related to those products. New product revenue accounted for 53.5% or $21,474,000 of total revenue in 1996, compared to 53.8% or $20,739,000 in 1995 and increased by 3.5% in 1996 compared to 1995. 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 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Products: The product area with the highest growth rate in 1996 is the client/server group which grew by 51.7% comprising 18.8% of the total new product revenue. The Company anticipates that this group will continue to show high growth rates for the remainder of fiscal 1996 as new products such as Ensign and Stage3 begin to produce greater revenue. However, these two new products have taken longer to rollout than originally planned and the Company competes with certain firms 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 recent 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 these new products will achieve significant market acceptance or competitive success and thus contribute to revenue growth. Mainframe products decreased 3.5% over the first quarter in 1995 which, in turn, had increased a strong 38.1% due to several large sales. Mainframe products include Plex products, which enable customers to handle large groups of computer processors, particularly the new parallel processing machines by IBM. The Company's new product growth rates could be materially and adversely impacted if the new 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. Markets: % of new product revenue ------------------------ Year-to-Year 1996 1995 % Change --------------------------------------------------- Domestic 31.4% 34.2% (4.9%) International 68.6% 65.8% 7.9% --------------------------------------------------- 100.0% 100.0% 3.5% =================================================== Domestic: Field sales grew 12.9%, but was offset by a decrease in telesales of 50.7%, resulting in a decrease for total domestic new product revenue of 4.9%. The telesales group decrease was primarily attributable to a change in sales year from a calendar year to a fiscal year to conform with the rest of the Company's sales force which had the effect of shifting momentum away from the traditional final quarter. For growth to return in this geographic market, the Company is dependent on increased productivity from the telesales group and continued increases from the field sales force. 7 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS International: In 1996 the Company's new product revenues from its international operations, comprised of foreign subsidiaries and marketing agents, increased 7.9% due primarily to strong growth in Europe. Without the effect of favorable currency rate changes, international new product revenue grew 1.1% in 1996. 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. The Company has implemented an economic hedging program to attempt to reduce its exposure to currency fluctuations for a portion of its anticipated intercompany royalty transactions for the next two quarters. As a result of this strategy, the Company has recognized less benefit from continued weakness in the U.S. dollar than if no hedging programs were undertaken. 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 the first year of maintenance services 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 computer services, hardware sales and royalties from IBM for the jointly developed CICS product. Maintenance fees and other grew 4.5% in 1996 accounting for 46.5% and 46.2% of total revenues in 1996 and 1995, respectively. Without the effect of currency rate changes, maintenance fees and other grew 0.6%. 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 1996 will continue to increase due to the higher license revenue growth in 1995, 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 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COSTS AND EXPENSES: % of Revenue ----------------- Year-to-Year 1996 1995 % Change -------------------------------------- Cost of revenue 18.4% 18.3% 5.3% Product development, net 10.9% 10.8% 5.2% Sales and marketing 49.1% 49.3% 3.4% General and administrative 9.6% 10.8% (7.8%) -------------------------------------- Total 88.0% 89.2% 2.7% ====================================== COST OF REVENUE: Cost of revenue consists primarily of the cost of product maintenance support, royalties paid to independent software authors, amortization of purchased and internally developed software, the cost of hardware associated with certain sales of client/server products and costs related to operating the computer services division. Cost of revenue increased by 5.3% in 1996 and represented 18.4% and 18.3% of revenues for 1996 and 1995, respectively. Without the effect of currency rate changes, the increase was 1.4%. The increase in 1996 is primarily attributable to increased royalties on higher third-party revenue in Europe and Japan which was partially offset by lower maintenance royalties payable to one of the third-party vendors in Europe. This decrease resulted from a new contract with that vendor effective Q295 which significantly reduced the royalty rate on maintenance billings through fiscal 1996. In general, the relationship of cost of revenue to revenue will fluctuate due primarily to changes in revenue mix, maintenance support, royalty agreements and amortization of capitalized software. PRODUCT DEVELOPMENT, NET: Net product development costs increased by 5.2% in 1996 and represented 10.9% and 10.8% of revenues for 1996 and 1995, respectively. Without the effect of currency rate changes, the increase was 4.3%. The increase in 1996 is primarily attributable to higher R&D personnel costs due to increased headcount. R&D expenditures were approximately 16% of revenue (excluding third party) in both years with the amount of R&D capitalized in both years at approximately 15% of gross R&D costs. 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. 9 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES AND MARKETING: Sales and marketing expenses increased by 3.4% and represented 49.1% of revenues in 1996 compared to 49.3% in 1995. Without the effect of currency rate changes, there would be no change from the prior year as an increase in commission expense in Europe was offset by lower marketing costs worldwide. GENERAL AND ADMINISTRATIVE: General and administrative expenses decreased 7.8% in 1996 and represented 9.6% and 10.8% of revenues for 1996 and 1995. Without the effect of currency rate changes, general and administrative expenses would have decreased 10.6%. The decrease is primarily attributable to lower personnel costs and legal expense. 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 increase in 1996 over 1995 is mainly due to interest income as installment receivables increased approximately 61% over the first quarter of 1995. In addition, 1995 included a write-off of an investment of approximately $300,000. INCOME TAXES: The effective tax rate was 30.0% for 1996 and 1995. The Company's effective tax rate 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 $10,613,000. The Company is currently under audit for federal tax purposes for fiscal year 1993. Management believes that the audit will be resolved without material adverse effect on the Company's financial position. 10 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES: The significant sources of cash during 1996 include proceeds from the sale of short-term investments of $2,100,000; the exercise of employee stock options of $381,000 and stock purchases through the Employee Stock Purchase Plan of $493,000. The significant uses of cash during 1996 include $264,000 used by operating activities; $928,000 for purchases of furniture, equipment and leasehold improvements; $757,000 for internally developed capitalized software; $648,000 for investment in long-term equity securities; $559,000 for payments on capital leases; $253,000 for payments on notes payable; $325,000 for purchased capitalized software and $150,000 for net payments under a line of credit. Included in short-term investments is a $1,400,000 certificate of deposit pledged as collateral for the lease financing of certain computer equipment. Management believes cash flows from operations and existing cash resources will be adequate to meet its working capital requirements for the foreseeable future. 11 BOOLE & BABBAGE, INC. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits EX-27 Financial Data Schedule (b) Reports on Form 8-K - None 12 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. \Paul E. Newton\ February 12, 1996 - ----------------- ------------------------------ Paul E. Newton President and Director (Principal Executive Officer) \Arthur F. Knapp, Jr.\ February 12, 1996 - ----------------- ----------------------------- Arthur F. Knapp, Jr. Senior Vice President Chief Financial Officer (Principal Financial Officer) \Carla J. Dorow\ February 12, 1996 - ----------------- ------------------------------ Carla J. Dorow Controller (Principal Accounting Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1996 OCT-01-1995 DEC-31-1995 21,358 13,700 97,016 2,057 0 103,132 35,451 28,093 168,856 71,282 0 11 0 0 74,740 168,856 40,119 40,119 0 7,408 27,557 350 150 6,110 1,825 4,285 0 0 0 4,285 0.36 0.36
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