<PAGE>
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 SEPTEMBER 30, 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 0-17136
BMC SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2126120
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
BMC Software, Inc.
2101 CityWest Boulevard
Houston, Texas 77042
(Address of principal executive officer) (Zip Code)
Registrant's telephone number including area code: (713) 918-8800
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
----- -----
As of November 1, 1995, there were outstanding 50,394,264 shares of Common
Stock, par value $.01, of the registrant.
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Quarter Ended September 30, 1995
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets
September 30, 1995 (Unaudited) and March 31, 1995 3
Condensed Consolidated Statements of Earnings
Three months and six months ended September 30, 1995
and 1994 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1995 and 1994
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1995 1995
------------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,728 $ 39,494
Securities held to maturity 77,189 54,330
Trade accounts receivable, net 73,153 64,741
Other accounts receivable 7,556 5,641
Prepaid expenses and other 3,278 6,432
Deferred income and other taxes 12,207 12,262
-------- --------
Total current assets 217,111 182,900
-------- --------
Property and equipment, net 102,733 101,288
Software development costs, net 20,116 16,499
Purchased software, net 14,176 11,118
Securities held to maturity 176,605 180,009
Finance receivables, long-term 6,802 8,047
Deferred charges and other assets 3,411 2,788
-------- --------
$540,954 $502,649
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(continued)
<TABLE>
<CAPTION>
September 30, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
------------- ---------
(Unaudited)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 9,888 $ 11,344
Accrued liabilities 20,396 35,564
Taxes payable 12,366 3,427
Current portion of deferred revenue 97,628 97,399
-------- --------
Total current liabilities 140,278 147,734
-------- --------
Deferred revenue and other 41,308 48,761
-------- --------
Total liabilities 181,586 196,495
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $.01 par value,
180,000,000 shares authorized,
52,520,000 shares issued 525 525
Additional paid-in capital 62,581 67,864
Retained earnings 349,953 296,204
Foreign currency translation adjustment 6 (282)
-------- --------
413,065 364,311
Less treasury stock (1,898,000 and
2,019,000 shares, respectively) 50,909 54,694
Less unearned portion of restricted
stock compensation 2,788 3,463
-------- --------
Total stockholders' equity 359,368 306,154
-------- --------
$540,954 $502,649
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Licenses $49,270 $ 45,957 $104,066 $ 90,268
Maintenance 38,980 34,043 77,484 67,732
------- --------- -------- ---------
Total revenues 88,250 80,000 181,550 158,000
------- --------- -------- ---------
Operating expenses:
Selling and marketing 22,247 20,181 46,819 40,649
Research and development 13,201 12,996 27,307 26,915
Cost of maintenance services
and product licenses 10,456 7,023 20,727 15,212
General and administrative 7,889 7,507 15,827 13,701
------- --------- -------- ---------
Total operating expenses 53,793 47,707 110,680 96,477
------- --------- -------- ---------
Operating income 34,457 32,293 70,870 61,523
Other income 3,902 2,900 7,585 5,700
------- --------- -------- ---------
Earnings before taxes 38,359 35,193 78,455 67,223
Income taxes 12,076 10,910 24,706 20,839
------- --------- -------- ---------
Net earnings $26,283 $ 24,283 $ 53,749 $ 46,384
======= ========= ======== =========
Earnings per share $ .50 $ .48 $ 1.03 $ .91
======= ========= ======== =========
Shares used in computing
earnings per share 52,667 50,590 52,250 50,993
======= ========= ======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 53,749 $ 46,384
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 13,246 6,175
Net change in receivables,
payables and other items (8,783) 1,213
-------- --------
Total adjustments 4,463 7,388
-------- --------
Net cash provided by operating activities 58,212 53,772
-------- --------
Cash flows from investing activities:
Cash paid for technology acquisitions/purchase options (14,867) --
Purchased software and related assets (3,903) --
Net capital expenditures (7,967) (8,235)
Capitalization of software development (8,496) (1,500)
Purchases of securities held to maturity (46,132) (51,162)
Proceeds from securities held to maturity 26,677 38,653
(Increase) decrease in long-term finance receivables 1,245 (8,019)
-------- --------
Net cash used in investing activities (53,443) (30,263)
-------- --------
Cash flows from financing activities:
Earned portion of restricted
stock compensation 675 (549)
Income tax reduction relating
to stock options 1,313 1,107
Stock options exercised and other 3,051 --
Net treasury stock acquired (5,862) (40,558)
-------- --------
Net cash used in financing activities (823) (40,000)
-------- --------
Effect of exchange rate changes on cash 288 208
-------- --------
Net change in cash and cash equivalents 4,234 (16,283)
Cash and cash equivalents at beginning of period 39,494 37,814
-------- --------
Cash and cash equivalents at end of period $ 43,728 $ 21,531
======== ========
Supplemental disclosure of cash flow
information:
Cash paid for Income taxes $ 14,456 $ 16,833
Treasury stock to be issued for technology
acquired 1,000 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of BMC Software, Inc. and its wholly owned subsidiaries
(collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
These financial statements should be read in conjunction with
the Company's annual audited financial statements for the year ended March
31, 1995, as filed with the Securities and Exchange Commission on Form 10-K.
Note 2 - Earnings Per Share
Earnings per share is based on the weighted average number of common
shares and common stock equivalents outstanding for the period. For purposes
of this calculation, outstanding stock options and unearned restricted stock
shares are considered common stock equivalents using the treasury stock
method. Fully diluted earnings per share is the same as, or not materially
different from, primary earnings per share and, accordingly, is not presented.
Note 3 - Securities Held to Maturity
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of
each subsequent balance sheet date. The Company has the ability and intent to
hold all securities in its portfolio to maturity and thus has classified
these securities as "held to maturity" pursuant to Statement of Financial
Accounting Standards (SFAS) No.115. These securities have been recorded at
amortized cost in the Company's balance sheets. The following table
summarizes the Company's securities as of September 30, 1995 and March 31,
1995:
7
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(continued)
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------------- ------------------
Carrying Market Carrying Market
amount value amount value
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
MARKETABLE SECURITIES
(MATURITIES WITHIN 1 YEAR)
Municipal Securities $ 41,017 $ 40,957 $ 32,652 $ 32,583
Preferred stock 27,950 27,950 19,050 19,050
Corporate Notes, Bonds
and Other 8,222 8,201 2,628 2,572
-------- -------- -------- --------
$ 77,189 $ 77,108 $ 54,330 $ 54,205
-------- -------- -------- --------
MARKETABLE SECURITIES
(MATURITIES FROM 1-5 YEARS)
Municipal Securities $136,073 $137,357 $122,212 $121,586
Preferred stock 0 0 8,900 8,900
Corporate Notes, Bonds
and Other 40,532 43,442 48,897 48,749
-------- -------- -------- --------
$176,605 $180,799 $180,009 $179,235
-------- -------- -------- --------
$253,794 $257,907 $234,339 $233,440
======== ======== ======== ========
</TABLE>
Note 4 - Stock Split
On July 19, 1995, the Company declared a two-for-one stock split of its
common stock. The stock split was effected in the form of a stock dividend.
Stockholders of record at the close of business on August 4, 1995, received
one share of common stock for each share held. The payment date for the
distribution of shares was August 14, 1995. All stock related data in the
financial statements reflects the stock split for all periods presented.
8
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that selected items in the Condensed Consolidated Statements of
Earnings bear to total revenues:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
License 55.8% 57.4% 57.3% 57.1%
Maintenance 44.2 42.6 42.7 42.9
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Operating expenses:
Selling and marketing 25.2 25.2 25.8 25.7
Research and development 15.0 16.2 15.1 17.0
Cost of maintenance services
and product licenses 11.8 8.8 11.4 9.6
General and administrative 8.9 9.4 8.7 8.7
----- ----- ----- -----
Operating income 39.1 40.4 39.0 39.0
Other income 4.4 3.6 4.2 3.6
----- ----- ----- -----
Earnings before taxes 43.5 44.0 43.2 42.6
Income taxes 13.7 13.6 13.6 13.2
----- ----- ----- -----
Net earnings 29.8% 30.4% 29.6% 29.4%
===== ===== ===== =====
</TABLE>
9
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Revenues
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
(in thousands) (in thousands)
------------------- ------------------
1995 1994 Change 1995 1994 Change
------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
North American license revenues $31,514 $27,368 15.1 % $ 65,810 $ 60,495 8.8%
International license revenues 17,756 18,589 (4.5)% 38,256 29,773 28.5%
------- ------- ---- -------- -------- ----
Total license revenues 49,270 45,957 7.2 % 104,066 90,268 15.3%
Maintenance revenues 38,980 34,043 14.5 % 77,484 67,732 14.4%
------- ------- -------- --------
Total revenues $88,250 $80,000 10.3 % $181,550 $158,000 14.9%
======= ======= ======== ========
</TABLE>
LICENSE REVENUES
The license revenues line item consists of two categories of revenues:
product license fees and CPU upgrade fees.
Product license fees are (a) fees paid when a customer licenses its
first copy or additional copies of a product and (b) license restructuring
fees, which are fees a customer may pay, generally as part of an enterprise
license transaction, to acquire additional permanent discounts that will be
used in calculating future charges for already licensed products, including
maintenance fees, CPU upgrade fees and product license fees for additional
copies.
CPU upgrade fees are fees charged when a customer acquires the right to
install and run an already licensed product on additional processing
capacity, whether measured traditionally by CPU tier or, under enterprise
license terms, by millions of instructions per second ("MIPS"). The product
upgrade fee category includes upgrade fees for both current additional
processing capacity and for future additional processing capacity. Total CPU
upgrade fees for the quarter and six months ended September 30, 1995, as a
percentage of total revenues, were in the low twenty percent range.
North American license revenues comprised 64% and 63% of total license
revenues in the quarter and six months ended September 30, 1995,
respectively. North American license revenue growth in the second quarter was
derived principally from higher sales of the Company's open systems products
and upgrade fees for current processing capacity. These components, as well
as restructuring fees, contributed the majority of North American license
revenue growth for the six month period.
International license revenues contributed 36% of total license revenues
in the second quarter and 37% of total license revenues in the first six
months of fiscal 1996. While sales of open systems products and upgrade fees
for future additional processing capacity in the second quarter of fiscal
1996 increased over the comparable prior year quarter, these increases were
offset by a significant reduction in upgrade fees for current processing
capacity, resulting in a decrease overall in international license revenues.
International license revenues received a benefit of approximately 4% from
the weakening of the dollar from the second quarter of fiscal 1995. For the
six months ended September
10
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
30, 1995, international license revenues increased 28.5% primarily as a
result of increased open systems product licenses and upgrade fees for future
additional processing capacity.
The Company continues to rely upon enterprise license fees as a
significant component of license revenue growth, license revenues and total
revenues. An enterprise license converts a customer's traditional, CPU
tier-based licenses to a MIPS-based license that allows the customer to run
an unlimited number of copies of a product on its CPUs without regard to
size, subject to a maximum limit on the aggregate power of the CPUs as
measured in MIPS. In a typical enterprise license transaction, the customer
pays the restructuring fee described above to secure a more favorable
discount and pays significant upgrade fees for future additional processing
capacity in anticipation of MIPS growth over the term of the agreement. For
the six months ended September 30, 1995, the revenue contribution from
restructuring fees and upgrade fees for future additional processing capacity
was 19% of total revenues, consistent with the results from the fiscal year
ended March 31, 1995. The Company's operating results are dependent upon the
continued demand for enterprise license transactions, which will depend upon
customers' increasing reliance on their IBM mainframe database management
systems and a resulting increase in the mainframe MIPS on which they run
their installed base of the Company's products.
The database management line of products, comprising the company's tools
and utilities for IBM's IMS and DB2 mainframe database management systems,
contributed approximately 71% of total revenues and 71% of license revenues
in the second quarter. Total revenues and license revenues from these product
lines increased 8% and 1%, respectively, compared to the year-ago second
quarter. For the six month period, the database management product lines
contributed 72% of total revenues and 73% of license revenues, representing
growth of 13% and 10%, respectively, over the comparable, prior year six
month period.
MAINTENANCE REVENUES
Maintenance revenues represent maintenance fees charged to perpetual
license customers entitling them to product enhancements, technical support
services and ongoing compatibility with third-party operating systems. A
warranty period of one year is included in the initial license for the
Company's mainframe products; accordingly, the Company classifies a portion
of the initial license fee as maintenance. All maintenance revenues are
recognized ratably over the term of the maintenance agreement. The increase
in maintenance revenues is attributable to a growing installed base of the
Company's products resulting from additional license sales as well as CPU
upgrades, which generate higher maintenance fees. The growth rate in
maintenance revenues has slowed primarily as a result of the higher discounts
granted to customers as a result of license restructurings and enterprise
license agreements.
11
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Expenses
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
(in thousands) (in thousands)
------------------- ------------------
1995 1994 Change 1995 1994 Change
------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Selling and marketing expenses $22,247 $20,181 10.2% $ 46,819 $40,649 15.2%
Research and development
expenses 13,201 12,996 1.6% 27,307 26,915 1.5%
Cost of maintenance services
and product licenses 10,456 7,023 48.9% 20,727 15,212 36.3%
General and administrative
expenses 7,889 7,507 5.1% 15,827 13,701 15.5%
------- ------- -------- -------
Total operating expenses $53,793 $47,707 12.8% $110,680 $96,477 14.7%
======= ======= ======== =======
</TABLE>
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased primarily as a result of the
addition of software consultants, sales representatives and marketing
personnel related to the Company's new software offerings in the open systems
market. The growth in selling and marketing expenses was offset by a
reduction in commission expense largely due to changes in the sales
commission plan. The Company also incurred certain costs relative to
international sales personnel changes. As a percentage of total revenues, the
Company's total selling and marketing expenses have remained constant in a
range of 25% to 26% of total revenues.
RESEARCH AND DEVELOPMENT EXPENSES
The Company's research and development expenditures in the second quarter
and in the first six months of fiscal 1996 increased slightly over the second
quarter and the first six months of fiscal 1995. Virtually all of the growth
in research and development expenses during the second quarter and during the
first six months was capitalized into software development costs in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86. These costs
directly relate to new product development of open systems and mainframe
software products. As a percentage of total revenues, research and development
expenses decreased to 15% in the second quarter of fiscal 1996 from 16% in the
second quarter of fiscal 1995.
COST OF MAINTENANCE SERVICES AND PRODUCT LICENSES
Cost of maintenance services and product licenses expenses consist of
amortization of purchased and internally developed software, compensation of
technical support personnel and royalty fees. These costs have increased in
the second quarter of fiscal 1996 primarily as a result of the increased
amortization of purchased and internally developed software. Also, increases
in royalty fees have contributed to the increase in cost of maintenance
services and product licenses. As a percentage of total revenues, these
expenses increased from 9% in the second quarter of fiscal 1995 to 12% in the
second quarter of fiscal 1996.
12
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
For the second quarter of fiscal 1996, the Company capitalized
$4,319,000 in software development costs pursuant to SFAS No. 86. The Company
amortized software costs of $2,367,000 during the second quarter of fiscal
1996. In the second quarter of fiscal 1995, the Company capitalized
$1,500,000 in software development costs and recorded $631,000 in
amortization of internally developed software.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased only slightly from the
second quarter of fiscal 1995. The small growth in general and administrative
expenses is primarily the result of lower executive bonuses. Executive
bonuses are based on the increase in net income over the same quarter in the
previous fiscal year. General and administrative expenses for the first six
months of fiscal 1996 have grown 16% over general and administrative expenses
in the same period in fiscal 1995. The primary contributor to this growth
rate was the relatively low level of discretionary general and administrative
expense in the first quarter of fiscal 1995. As a percentage of total
revenues, the Company's general and administrative expenses have remained
unchanged at 9%.
OTHER INCOME
For the second quarter of fiscal 1996, other income was $3,902,000,
reflecting an increase of 35% over $2,900,000 of other income in the same
quarter of fiscal 1995. Other income consists primarily of interest earned on
tax-exempt municipal securities, auction preferred stock, Eurodollar
deposits, financed receivables and money market funds. The increase is
primarily the result of the increase in cash available for investment.
INCOME TAXES
For the second quarter of fiscal 1996, income tax expense was
$12,076,000, compared to $10,910,000 for the same quarter in fiscal 1995. The
Company's income tax expense represents the federal statutory rate of 35%,
plus certain state taxes, reduced by the benefit from the Company's Foreign
Sales Corporation, the effect of tax exempt interest earned from temporary
cash investments and foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth through funds generated from
operations. As of September 30, 1995, the Company had cash, cash equivalents
and securities of $297,522,000.
The Company's Board of Directors has authorized the purchase of up to
4,000,000 shares of common stock. During the quarter ended September 30,
1995, the Company did not repurchase any shares of its common stock in open
market transactions; however, during October 1995 the Company repurchased
615,000 shares of its common stock for approximately $21,250,000. As of
October 31, 1995, approximately 700,000 shares of the Board of Directors'
authorization remain to be purchased.
13
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
The Company believes that existing cash balances and funds generated
from operations will be sufficient to meet its liquidity requirements for the
foreseeable future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Numerous factors affect the Company's operating results, including
general economic conditions, market acceptance of its products and
competitive pressures. The Company derives over 90% of its revenues from
software products for IBM and IBM-compatible mainframe computers. CPU upgrade
fees and enterprise license transactions are an integral component of the
Company's mainframe business and the percentage of license revenues
contributed by enterprise license transactions has increased over the last
two fiscal years. See "Results of Operations-Revenues-License Revenues"
above. The Company believes that, over the past two years, this business has
been driven by an increase in customers' long term investments in their
mainframe systems and processing capacity as hardware costs have declined
dramatically and the efficacy of the mainframe platform was reaffirmed for
large enterprises. The Company's future operating results are dependent upon
customers' continued requirements for, and investment in, their mainframe
systems software and customers' continually increasing need to use the
Company's existing software products on greater mainframe processing
capacity. Future operating results are also dependent on sustained
improvement of the Company's international operating results.
The Company's stock price has been highly volatile over the last several
years. Future revenues, earnings and stock prices may be subject to wide
swings, particularly on a quarterly basis. The stock price of software
companies in general, and the Company in particular, is primarily based on
expectations of future revenue and earnings growth. Any failure of revenues
or earnings to meet expected levels in a period would likely have an adverse
effect on the CompanyOs stock price. A high percentage of the Company's sales
is closed at the end of each quarter, and there has been and continues to be
a trend toward larger single sales transactions, which can have extended
sales cycles and are less predictable. The Company may not know whether
revenues and earnings will meet expected results until the end of a quarter.
The Company's ability to sustain growth depends in part on the timely
development or acquisition of successful new and updated products. The
Company is investing heavily in the development of new products for the
rapidly growing open systems market and for its existing mainframe market.
The Company believes it has the resources to compete effectively in these
markets. Software development is, however, a complex and creative process
that can be difficult to accurately schedule and predict, and the Company has
experienced long development cycles for certain of its products. As is
typical in its industry, the Company has experienced product delays in the
past and may have delays in the future. Delays in new product introductions
or less-than-anticipated market acceptance of these new products could have
an adverse effect on the Company's revenues and earnings. Further, the
Company's strategic plans contemplate significant revenue growth from its
client/server product families. This market is highly dynamic and is
characterized by rapid change and intense competition. While the Company
believes its products that address this market, including
14
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
those under development, will compete effectively, this market will be
relatively unpredictable over the next few years.
CPU upgrade fees contributed 19%, 27% and 25% of total revenues in
fiscal years 1993, 1994 and 1995. The charging of upgrade fees based on CPU
tier classifications is standard among mainframe systems software vendors,
including IBM. The pricing of mainframe systems software, including the
charging of tier-based upgrade fees, is under continued pressure from
customers. Although the Company has adopted MIPS-based pricing for enterprise
licenses, it has not significantly changed the fact that customers pay more
to use its products on more powerful CPU's. The Company believes its current
pricing policies most properly reflect the value provided by its products.
IBM provides alternatives to tier-based pricing with respect to its large
mainframe CPUs. This action has increased pricing pressures within the
mainframe systems software markets. The advent of IBM's "Sysplex" pricing of
its mainframe systems software when installed in a complex of coupled
mainframe CPUs may additionally increase these pricing pressures. If changes
in mainframe systems software pricing or increased competition were to result
in significant price decreases that were not offset by sales volume
increases, the Company's business and financial results would be adversely
affected.
15
<PAGE>
BMC SOFTWARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Stockholders Meeting was held on August 28,
1995. At the meeting, the stockholders elected all of the management's six
nominees to serve as directors for the following year and ratified the
selection of Arthur Andersen LLP as the Company's independent auditors for
fiscal 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
(b) REPORTS ON FORM 8-K.
None
16
<PAGE>
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.
BMC SOFTWARE, INC.
Date: November 14, 1995 By: /S/ MAX P. WATSON JR.
------------------------- --------------------------------
Max P. Watson Jr.
Chairman of the Board, President
and Chief Executive Officer
Date: November 14, 1995 By: /S/ KEVIN M. KLAUSMEYER
------------------------- --------------------------------
Chief Accounting Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 43,728
<SECURITIES> 253,794
<RECEIVABLES> 81,584
<ALLOWANCES> 1,629
<INVENTORY> 0
<CURRENT-ASSETS> 217,111
<PP&E> 134,119
<DEPRECIATION> 31,386
<TOTAL-ASSETS> 540,954
<CURRENT-LIABILITIES> 140,278
<BONDS> 0
<COMMON> 525
0
0
<OTHER-SE> 358,843
<TOTAL-LIABILITY-AND-EQUITY> 540,954
<SALES> 49,270
<TOTAL-REVENUES> 88,250
<CGS> 10,456
<TOTAL-COSTS> 53,793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,359
<INCOME-TAX> 12,076
<INCOME-CONTINUING> 26,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,283
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
