-----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, QOIkWc0DjGHEFyeYVPtxpAC5nS9M468RtVIBHWWrrf2Ssmn5BY2glftBMX0cyxr9 7unTQm6xkrR9bQg7EAVnYQ== 0000950005-97-000520.txt : 19970514 0000950005-97-000520.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950005-97-000520 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97602570 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 March 31, 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 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___ 18,815,440 shares of common stock of the Registrant were outstanding as of April 30, 1997. BOOLE & BABBAGE, INC. INDEX Part I FINANCIAL INFORMATION Page No. Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets March 31, 1997 and September 30, 1996 1 Consolidated Statements of Operations Three and Six Months Ended March 31, 1997 and 1996 2 Consolidated Statements of Cash Flows Six Months Ended March 31, 1997 and 1996 3 Notes to Consolidated Financial Statements 4-5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three and Six Months Ended March 31, 1997 and 1996 6-11 Part II OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13 Signatures 14 Boole & Babbage, Inc. Consolidated Balance Sheets (Amounts in thousands except shares) (March 31, 1997 unaudited)
March 31, September 30, Assets 1997 1996 --------- --------- Current assets: Cash and cash equivalents $ 32,608 $ 37,260 Short-term investments 25,593 24,750 Accounts receivable, net 26,824 27,955 Installment and other receivables, net 53,841 46,221 Deferred tax asset 5,603 5,649 Prepaid expenses and other current assets 5,348 4,383 --------- --------- Total current assets 149,817 146,218 Purchased and internally developed software, net 11,273 11,614 Equipment, furniture and leasehold improvements, net 10,427 12,763 Long-term installment and other receivables 44,076 39,141 Long-term deferred tax asset 9,461 9,472 Costs in excess of net assets of purchased businesses, net 647 660 Other assets 7,014 4,672 --------- --------- Total assets $ 232,715 $ 224,540 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 7,573 $ 7,605 Accrued payroll expense 8,991 7,890 Other accrued liabilities 24,351 25,090 Short-term borrowings 3,266 3,150 Notes payable due within one year 296 469 Capital lease obligations due within one year 1,395 1,813 Deferred maintenance revenue 51,043 51,241 --------- --------- Total current liabilities 96,915 97,258 Notes payable due after one year 339 444 Capital lease obligations due after one year 2,266 2,825 Deferred maintenance revenue due after one year 33,957 28,949 Stockholders' equity: Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued -- -- Common stock, $.001 par value, authorized--30,000,000 shares; issued-- 19,645,767 (19,110,385 at September 30, 1996) 20 19 Additional paid-in capital 85,042 81,047 Retained earnings 18,943 19,328 Unrealized gain on marketable securities 2,808 370 Foreign currency translation adjustment (570) 704 Less treasury stock, 1,173,788 shares (1,143,788 at September 30, 1996), at cost (7,005) (6,404) --------- --------- Total stockholders' equity 99,238 95,064 --------- --------- Total liabilities and stockholders' equity $ 232,715 $ 224,540 ========= ========= See accompanying notes.
1 Boole & Babbage, Inc. Consolidated Statements of Operations (Amounts in thousands, except net income per share) (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, ------------------------- ------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Revenue: Product licensing $ 25,057 $ 23,659 $ 52,335 $ 46,107 Maintenance fees and other 21,394 20,179 43,877 40,595 -------- -------- -------- -------- Total revenue 46,451 43,838 96,212 86,702 -------- -------- -------- -------- Costs and expenses: Cost of product licensing 3,312 4,048 7,290 7,835 Cost of maintenance fees and other 4,200 4,147 10,216 8,347 Product development 5,876 5,058 12,263 10,361 Sales and marketing 22,132 22,783 47,258 44,889 General and administrative 4,348 4,424 9,673 8,902 Acquisition and nonrecurring costs 11,309 -- 11,309 -- -------- -------- -------- -------- Total costs and expenses 51,177 40,460 98,009 80,334 -------- -------- -------- -------- Operating income (loss) (4,726) 3,378 (1,797) 6,368 Interest and other income, net 2,228 1,332 3,816 2,588 -------- -------- -------- -------- Income (loss) before provision for income taxes (2,498) 4,710 2,019 8,956 Provision (benefit) for income taxes (195) 1,530 2,405 3,355 -------- -------- -------- -------- Net income (loss) ($ 2,303) $ 3,180 ($ 386) $ 5,601 ======== ======== ======== ======== Net income (loss) per share $ (0.13) $ 0.17 $ (0.02) $ 0.29 ======== ======== ======== ======== Shares used in per share calculations 18,411 19,102 18,288 19,062 ======== ======== ======== ======== See accompanying notes.
2 Boole & Babbage, Inc. Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited)
Six Months Ended March 31, ------------------------ 1997 1996 -------- -------- Cash flows from operating activities: Net income (loss) ($ 386) $ 5,601 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation, amortization and write-off of capitalized software 4,862 5,326 Loss on disposal of assets 570 -- Stock issued under compensatory stock plans 27 156 Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable and installment and other receivables (14,807) (18,722) Prepaid expenses and other assets (1,268) (47) Accounts payable and accrued expenses 1,485 626 Deferred maintenance revenue 5,755 9,418 -------- -------- Net cash provided by (used for) operating activities (3,762) 2,358 -------- -------- Cash flows from investing activities: Purchases of equipment, furniture and leasehold improvements (1,623) (1,957) Payments for capitalized software (1,904) (1,980) Net (purchases) sales of short-term investments (550) 311 Investment in equity securities (26) (855) -------- -------- Net cash used for investing activities (4,103) (4,481) -------- -------- Cash flows from financing activities: Proceeds from sale of lease contracts receivable 2,154 -- Proceeds from issuance of common stock 3,973 1,618 Treasury stock purchases (601) (570) Borrowing under line of credit, net 116 1,740 Payments on notes payable (26) (444) Payments on capital leases (1,079) (1,138) -------- -------- Net cash provided by financing activities 4,537 1,206 -------- -------- Effect of exchange rate changes on cash (1,028) (407) -------- -------- Net decrease in cash and cash equivalents (4,356) (1,324) Cash and cash equivalents at beginning of period 36,964 26,247 -------- -------- Cash and cash equivalents at end of period $ 32,608 $ 24,923 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 899 $ 403 Income taxes, net $ 3,240 $ 3,030 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, 1996. These consolidated financial statements should be read in conjunction with those notes. The consolidated financial information at March 31, 1997 and for the three- and six- month periods ended March 31, 1997 and 1996 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 (Loss) 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. Net loss per share is computed using only the weighted average number of common shares outstanding during the period. Fully diluted net income (loss) per share is not disclosed because it is not materially different from primary net income (loss) per share.
3 mos. ended Mar. 31, 6 mos. ended Mar 31, (Amounts in thousands, except ---------------------------- -------------------------- net income per share) 1997 1996 1997 1996 -------- ------- ------ ------- Primary: Common shares outstanding 18,411 17,591 18,288 17,518 Employee stock option plans n/a 1,511 n/a 1,544 -------- ------- ------ ------- 18,411 19,102 18,288 19,062 ======== ======= ====== ======= Net income (loss) ($ 2,303) $ 3,180 ($ 386) $ 5,601 ======== ======= ====== ======= Net income (loss) per share ($ .13) $ .17 ($ .02) $ .29 ======== ======= ====== =======
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 BOOLE & BABBAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Acquisition On January 16, 1997, Boole & Babbage ("Boole") acquired, subject to certain conditions, all of the outstanding capital stock of MAXM Systems Corporation ("MAXM"), a privately held company, in exchange for 1,137,115 shares, 10% of which are held in escrow with an independent third party escrow agent, of Boole & Babbage common stock. The Company incurred a charge in the quarter ending March 31, 1997 (which is included in the income statement line "Acquisition and nonrecurring costs") in connection with activities to complete this acquisition and eliminate redundant facilities and personnel. The transaction was accounted for using the pooling method and the Company's consolidated financial statements for all prior periods have been restated. The unaudited pro forma results of operations of the combined companies for the years ended September 30, 1995 and 1996 and the three months ended December 31, 1996 are as follows: Three Mo. Ended Dec. 31, 1996 Boole MAXM Combined ----- ---- -------- Net revenues $47,696 $ 2,065 $49,761 Net income (loss) 6,047 (4,129) 1,918 Net income (loss) per share 0.33 (0.23) 0.10 Year Ended Sept. 30, 1996 Boole MAXM Combined ----- ---- -------- Net revenues $165,077 $ 15,525 $180,602 Net income (loss) 18,040 (6,583) 11,457 Net income (loss) per share 0.99 (0.39) 0.60 Year Ended Sept. 30, 1995 Boole MAXM Combined ----- ---- -------- Net revenues $152,244 $ 18,906 $171,150 Net income (loss) 13,948 (826) 13,122 Net income (loss) per share 0.81 (0.10) 0.71 5. Earnings Per Share In February 1997, the Financial Accounting Standards Board adopted Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary earnings per share. The impact of Statement 128 on the calculation of fully diluted earnings per share is not expected to be material. 5 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: 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, 1996, 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 3 and 6 months ended March 31, 1997 and 1996 increased over the same period in the prior year by 6.0% and 11.0%, respectively. Without the effect of the MAXM acquisition and currency rate changes, total revenue increased 21.3% and 23.3%, respectively.
% of Revenue % of Revenue ------------ ------------ 3 Mo. ended Mar. 31, 6 Mo. ended Mar. 31, ----------------------- ----------------------- 1997 1996 Y/Y chg 1997 1996 Y/Y chg ----------- ----------- ----------- ----------- ----------- ----------- Product licensing 53.9% 54.0% 5.9% 54.4% 53.2% 13.5% Maintenance fees and other 46.1% 46.0% 6.0% 45.6% 46.8% 8.1% ----------- ----------- ----------- ----------- ----------- ----------- Total 100.0% 100.0% 6.0% 100.0% 100.0% 11.0% ----------- ----------- ----------- ----------- ----------- -----------
Product Licensing: The Company licenses its products to customers for use on their computer systems. Product licensing accounted for 53.9% and 54.4% of total revenue for the 3 and 6 months ended March 31, 1997, respectively, compared to 54.0% and 53.2% in 1996, and increased by 5.9% and 13.5% for the 3 and 6 months ended March 31, 1997, respectively, compared to 1996. Without the effect of the MAXM acquisition and currency rate changes, product licensing increased 26.8% and 30.3% for the 3 and 6 months ended March 31, 1997, respectively. 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: Client/Server products decreased 24.1% and 16.2% for the 3 and 6 month period, respectively, and accounted for 22.4% and 20.3% of licensing. Without the effect of MAXM and currency rate changes, client/server licensing increased 22.8% and 25.6%. The Company anticipates that this group will continue to show high growth rates for the remainder of fiscal 1997. However, the Company competes with certain companies 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 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 new products will achieve significant market acceptance or competitive success and thus contribute to revenue growth. Mainframe products increased 19.5% and 24.8% (28.0% and 31.5% without the effect of currency rate changes) for the 3 and 6 months ended March 31, 1997, respectively, primarily as a result of strong growth in North America and non-European international which had shown negative growth in 1996. The Company does not expect mainframe growth to be as high in future quarters. Mainframe products include Plex products, which enable customers to handle large groups of computer processors, particularly the parallel processing machines by IBM. The Company's product licensing growth rates could be materially and adversely impacted if the 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 Product Licensing % of Product Licensing ----------------------- ----------------------- 3 Mo. ended Mar. 31, 6 Mo. ended Mar. 31, ----------------------- ---------------------- 1997 1996 Y/Y chg 1997 1996 Y/Y chg ----------- ----------- ------------ ----------- ---------- ----------- Domestic 31.9% 26.2% 28.6% 34.8% 28.6% 38.5% International 68.1% 73.8% (2.2%) 65.2% 71.4% 3.5% ----------- ----------- ------------ ----------- ---------- ----------- Total 100.0% 100.0% 5.9% 100.0% 100.0% 13.5% ----------- ----------- ------------ ----------- ---------- -----------
Domestic: Field sales grew 25.6% and 41.1% (54.7% and 57.7% without the effect of MAXM) for 3 and 6 months, respectively while telesales grew 47.3% and 22.6%. For growth to continue in this geographic market, the Company is dependent on continued increases from the telesales group and from the field sales force. 7 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS International: The 2.2% decrease (3.5% increase for six months) in the Company's product licensing from its international operations, comprised of foreign subsidiaries and marketing agents, is primarily a result of unfavorable currency exchange rates and the effect of the MAXM acquisition. Without the effect of MAXM and currency exchange rates, growth was 18.1% and 21.9% for the 3 and 6 month periods, respectively. 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 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 maintenance services for an initial period ranging from six months to one year 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 consulting and educational services, computer services, hardware sales (net of costs) and royalties from IBM for the jointly developed CICS product Maintenance fees and other grew 6.0% and 8.1% for the quarter and year-to-date, respectively. Without the effect of currency rate changes, maintenance fees and other grew 12.7% and 13.6%. 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 1997 will continue to increase due to the higher license revenue growth in 1996, 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 (excluding acquisition and nonrecurring costs):
% of Revenue % of Revenue -------------------- -------------------- 3 Mo. ended Mar. 31, 6 Mo. ended Mar. 31, -------------------- -------------------- 1997 1996 Y/Y chg 1997 1996 Y/Y chg ---------- --------- ------------ ---------- --------- ------------ Cost of product licensing 7.1% 9.2% (18.2%) 7.6% 9.0% (7.0%) Cost of maintenance fees and other 9.0% 9.5% 1.3% 10.6% 9.6% 22.4% Product development 12.7% 11.5% 16.2% 12.8% 12.0% 18.4% Sales and marketing 47.7% 52.0% (2.9%) 49.1% 51.8% 5.3% General and administrative 9.4% 10.1% (1.7%) 10.1% 10.3% 8.7% ---------- --------- ------------ ---------- --------- ------------ Total 85.9% 92.3% (1.5%) 90.2% 92.7% 7.9% ---------- --------- ------------ ---------- --------- ------------
Cost of product licensing: Cost of product licensing consists primarily of royalties paid to independent software authors and amortization of purchased and internally developed software. Cost of product licensing decreased 18.2% and 7.0% for the 3 and 6 months ended March 31, 1997, respectively. Without the impact of MAXM and currency exchange rates, the decrease for the quarter was 3.7% with a 2.5% increase for the six month period. The decrease in the second quarter is primarily attributable to less software amortization. The first quarter had higher third party vendor sales which increased royalty expense. In general, the relationship of cost of product licensing to licensing revenue will fluctuate due primarily to changes in revenue mix, royalty agreements and amortization of capitalized software. Cost of maintenance fees and other: Cost of maintenance fees and other consists primarily of cost of product maintenance support, royalties paid to independent software authors, amortization of purchased and internally developed software, the cost to provide educational and consulting services and costs related to operating the computer services division. Cost of maintenance fees and other increased by 1.3% and 22.4% for the 3 and 6 months ended March 31, 1997, respectively. Without the impact of MAXM and currency exchange rates, the increases were 20.8% and 30.4%%. In 1997, the increase was primarily due to higher third party royalties in Europe as a result of the expiration of a reduced rate from a third-party vendor which ran from the second quarter of fiscal 1995 to the fourth quarter of fiscal 1996. In general, fluctuations in the relationship of cost of maintenance fees and other to revenue are caused primarily by changes in revenue mix, maintenance support, royalty agreements, and amortization of capitalized software. 9 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Product development: Product development costs increased by 16.2% for the quarter and 18.4% for the 6 month period in 1997. Without the effect of MAXM and currency rate changes, the increases were 19.5% and 24.2%, respectively. The increase in 1997 is primarily attributable to higher R&D personnel costs due to increased headcount. In addition, reimbursement of expenses by IBM relating to the jointly developed CICS product was terminated as a result of the new royalty contract in the fourth quarter of fiscal 1996. R&D expenditures were 15% and 16% of revenue (excluding third party) in 1997 and 1996, respectively, and the amount of R&D capitalized was 16% and 15% of gross R&D costs in 1997 and 1996, respectively. 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. Sales and marketing: Sales and marketing expenses decreased by 2.9% for the quarter and increased 5.3% for the 6 month period in 1997. Without the effect of MAXM and currency rate changes, the increases were 14.4% and 17.2%, respectively. The increase in 1997 is primarily attributable to higher agent and employee commissions on increased sales, higher sales personnel costs in Europe and Japan due to increased headcount. General and Administrative: General and administrative expenses decreased by 1.7% for the quarter and increased 8.7% for the 6 month period. Without the effect of MAXM and currency rate changes, there was a 14.3% increase for the quarter and a 15.4% increase for the six month period. The increase is primarily attributable to increased costs relating to European facility costs, performance based accruals and higher personnel costs. Acquisition and Nonrecurring Costs: During the second quarter of 1997, the Company had approximately $11.3 million of nonrecurring costs which included $1 million of purchased research and development costs and $10.3 million of acquisition costs related to the purchase of MAXM Systems Corporation on January 16, 1997 (see Note 4). The acquisition costs consisted primarily of $4.0 million of termination costs related to reseller agreements, $2.8 million of employee costs, $1.6 million of costs related to closing redundant facilities and $1.6 million of legal, accounting and broker fees. 10 BOOLE & BABBAGE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 67.3% increase over 1996 is mainly due to higher interest income as installment receivables increased approximately 23% over a year ago and a $250,000 currency gain in 1997 versus a loss of $125,000 in the prior year. Income Taxes: Income taxes have been provided based upon the estimated effective tax rate for the year. The effective tax rate for the six months ended March 31, 1997 was 30% exclusive of the tax effect of expenses related to the acquisition of MAXM Systems Corporation and operating losses of MAXM for which no tax benefit is recognized. Acquisition costs and operating losses of MAXM increased tax expense $555,000 and $1,800,000 for the three and six months ended March 31, 1997, respectively. The effective tax rate before the valuation allowance for MAXM and non-deductible acquisition costs 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 approximately $15 million. LIQUIDITY AND CAPITAL RESOURCES: The significant sources of cash during 1997 include proceeds from the exercise of employee stock options of $3,145,000; proceeds from sale of lease contracts receivable of $2,154,000; stock purchases through the Employee Stock Purchase Plan of $828,000 and net borrowings under a line of credit of $116,000. The significant uses of cash during 1997 include $3,761,000 used by operating activities; $1,904,000 for internally developed capitalized software; $1,623,000 for purchases of furniture, equipment and leasehold improvements; $1,105,000 for payments on capital leases and notes payable; $601,000 for the purchase of treasury stock; $550,000 for the net purchase of short-term investments and $26,000 for investment in long-term equity securities. 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 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of Boole & Babbage, Inc. was held February 20, 1997, for the purpose of electing two people to the Company's Board of Directors to serve a three-year term expiring on the date of the Company's 2000 annual meeting of stockholders, to approve an amendment to the Company's Restated Certificate of Incorporation to increase the authorized number of shares of Common Stock, to amend the Company's employee stock purchase plan to increase the aggregate number of shares available for issuance and to ratify the selection of Ernst & Young LLP as the Company' independent auditors for the next fiscal year. Proxies were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitations. Franklin P. Johnson, Jr. was elected to the board of directors for a three-year term with 15,036,976 votes "FOR" and 84,736 votes "WITHHELD". Johannes S. Bruggeling was elected to the board of directors for a three-year term with 15,037,559 votes "FOR" and 84,153 votes "WITHHELD". The amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized number of shares of Common Stock from 30,000,000 to 45,000,000 was approved by the following vote: "FOR" "AGAINST" "ABSTAIN" Broker Nonvotes ----- --------- --------- --------------- 14,609,965 292,081 18,024 201,642 The amendment to the Company's employee stock purchase plan to increase the aggregate number of shares available for issuance under the plan was approved by the following vote: "FOR" "AGAINST" "ABSTAIN" Broker Nonvotes ----- --------- --------- --------------- 12,833,722 2,035,684 50,664 201,642 The selection of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending September 30, 1997 was ratified by the following vote: "FOR" "AGAINST" "ABSTAIN" Broker Nonvotes ----- --------- --------- --------------- 15,100,903 12,269 8,540 NONE 12 BOOLE & BABBAGE, INC. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibit is filed herewith. Exhibit Number Description of Document ------ ----------------------- 27 Financial Data Schedule (b) Reports on Form 8-K. During the three months ended March 31, 1997, the Company filed a Current Report on Form 8-K dated January 16, 1997 under Item 2, Acquisition or Disposition of Assets, relating to the acquisition of MAXM Systems Corporation. Subsequent to March 31, 1997, the Company filed Form 8-K/A under Item 7, Financial Statements and Pro Forma Financial Information, which amended Form 8-K dated January 16, 1997. 13 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. --------------------- May 12, 1997 \Paul E. Newton\ ---------------------------- Paul E. Newton President and Director (Principal Executive Officer) May 12, 1997 \Arthur F. Knapp, Jr.\ ---------------------------- Arthur F. Knapp, Jr. Senior Vice President Chief Financial Officer (Principal Financial Officer) May 12, 1997 \Carla J. Dorow\ ---------------------------- Carla J. Dorow Controller (Principal Accounting Officer) 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 32,608 25,593 126,790 2,049 0 149,817 49,498 39,071 232,715 96,915 0 20 0 0 99,218 232,715 46,451 46,451 0 7,512 43,665 0 899 (2,498) (195) (2,303) 0 0 0 (2,303) (0.13) (0.13)
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