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, 1994
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 January 31, 1995, there were outstanding 25,186,619 shares of Common
Stock, par value $.01, of the registrant.
BMC SOFTWARE, INC. AND SUBSIDIARIES
Quarter Ended December 31, 1994
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheets
December 31, 1994 (Unaudited) and March 31, 1994 2
Condensed Consolidated Statements of Earnings
Three months and nine months ended December 31,
1994 and 1993 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1994 and 1993
(Unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
-1-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
ASSETS 1994 1994
-------- --------
Current assets:
Cash and cash equivalents ................. $ 26,472 $ 37,814
Securities held to maturity ............... 48,366 42,455
Trade accounts receivable, net ............ 77,850 57,711
Other accounts receivable ................. 5,299 3,479
Prepaid expenses and other ................ 4,487 2,688
Deferred income and other taxes ........... 12,238 12,412
-------- --------
Total current assets ......... 174,712 156,559
-------- --------
Property and equipment, net .......................... 99,652 93,155
Software development costs, net ...................... 14,998 14,750
Purchased software, net .............................. 6,590 8,230
Securities held to maturity .......................... 151,539 138,654
Finance receivables, long-term ....................... 15,221 4,140
Deferred charges and other assets .................... 2,168 2,039
-------- --------
$464,880 $417,527
======== ========
See accompanying notes to condensed consolidated financial statements.
-2-
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(continued)
December 31, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994
---------- ----------
Current liabilities:
Trade accounts payable ......................... $ 9,162 $ 7,626
Treasury stock obligation ...................... -- 12,181
Accrued liabilities ............................ 23,282 24,046
Taxes payable .................................. 5,567 3,990
Current portion of deferred revenue ............ 85,734 79,287
---------- ----------
Total current liabilities .................. 123,745 127,130
---------- ----------
Deferred revenue and other ....................... 44,709 39,997
---------- ----------
Total liabilities .......................... 168,454 167,127
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none
issued and outstanding ...................... -- --
---------- ----------
Common stock, $.01 par value, 90,000,000
shares authorized, 26,260,000 shares issued.. 262 262
Additional paid-in capital ..................... 67,904 68,115
Retained earnings .............................. 293,042 218,950
Foreign currency translation adjustment ........ (634) (911)
---------- ----------
360,574 286,416
Less treasury stock (1,103,000 and 516,000
shares, respectively) ...................... 59,856 31,306
Less unearned portion of restricted
stock compensation .......................... 4,292 4,710
---------- ----------
Total stockholders' equity ............. 296,426 250,400
---------- ----------
$ 464,880 $ 417,527
========== ==========
See accompanying notes to condensed consolidated financial statements.
-3-
<TABLE>
<CAPTION>
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
---------- ---------- ---------- ----------
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Revenues:
Licenses ................... $ 55,555 $ 45,175 $ 145,823 $ 119,747
Maintenance ................ 35,145 30,325 102,877 88,753
---------- ---------- ---------- ----------
Total revenues ............. 90,700 75,500 248,700 208,500
---------- ---------- ---------- ----------
Operating expenses:
Selling and marketing ...... 23,875 20,000 64,524 55,156
Research and development ... 13,716 11,272 40,631 34,007
Cost of maintenance services
and product licenses .... 7,977 6,728 23,189 19,845
General and administrative.. 7,950 6,800 21,651 18,896
---------- ---------- ---------- ----------
Total operating expenses 53,518 44,800 149,995 127,904
---------- ---------- ---------- ----------
Operating income.. 37,182 30,700 98,705 80,596
Other income .................. 2,975 2,750 8,675 8,121
---------- ---------- ---------- ----------
Earnings before taxes ......... 40,157 33,450 107,380 88,717
Income taxes .................. 12,449 10,370 33,288 27,243
---------- ---------- ---------- ----------
Net earnings .................. $ 27,708 $ 23,080 $ 74,092 $ 61,474
========== ========== ========== ==========
Earnings per share ............ $ 1.10 $ .89 $ 2.92 $ 2.35
========== ========== ========== ==========
Shares used in computing
earnings per share ....... 25,185 25,931 25,392 26,159
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<TABLE>
<CAPTION>
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
December 31,
1994 1993
--------- ---------
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Cash flows from operating activities:
Net earnings ................................................ $ 74,092 $ 61,474
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization .......................... 9,454 6,758
Net change in receivables,
payables and other items ............................. (10,205) 9,271
--------- ---------
Total adjustments ................................... (751) 16,029
--------- ---------
Net cash provided by operating activities 73,341 77,503
--------- ---------
Cash flows from investing activities:
Net Capital expenditures .................................... (10,476) (29,040)
Capitalization of software development ...................... (3,745) (3,575)
Capitalization of purchased software ........................ (338) (739)
Purchases of securities held to maturity .................... (50,861) (70,730)
Proceeds from securities held to maturity ................... 32,065 89,025
Increase in long-term finance receivables ................... (11,081) --
--------- ---------
Net cash used in investing activities (44,436) (55,301)
--------- ---------
Cash flows from financing activities:
Repayment of note payable to bank, net....................... -- (36,000)
Earned portion of restricted
stock compensation ..................................... 418 1,575
Income tax reduction relating
to stock options ....................................... 1,107 83
Stock options exercised and other ........................... -- 562
Net treasury stock acquired ................................. (42,049) (21,521)
--------- ---------
Net cash used in financing activities ............ (40,524) (19,301)
--------- ---------
Effect of exchange rate changes on cash .......................... 277 (1,270)
--------- ---------
Net change in cash and cash equivalents .......................... (11,342) 5,873
Cash and cash equivalents at beginning of period ................. 37,814 44,797
--------- ---------
Cash and cash equivalents at end of period ....................... $ 26,472 $ 50,670
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid for:
Income taxes ........................................... $ 23,300 $ 22,946
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
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, 1994,
as filed with the Securities and Exchange Commission on Form 10-K.
Note 2 - Adoption of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109
In April 1993 the Company adopted STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 109 (SFAS 109), "Accounting for Income Taxes". Information on the
adoption of SFAS 109 is set forth in Note 5 of the Notes to Consolidated
Financial Statements of the Company's Annual Report for the period ended March
31, 1994.
Note 3 - Finance Receivables
As of September 30, 1994, the Company began reporting its long-term
customer finance receivables separately in its consolidated balance sheet. These
balances have been reclassified in prior financial statements accordingly. The
current portion is included in trade accounts receivable. These receivables
arise in the ordinary course of business and are the result of the Company's
decision to hold low risk customer obligations at interest rates which are
attractive to the Company. Customers that finance their software purchases
typically do so for internal budget and cashflow management purposes. Customers
that desire to finance their software purchases may do so pursuant to the
Company's internal finance program or pursuant to arrangements with third-party
finance companies. In each case involving a Company-financed software
acquisition, the customer must meet various financial and other criteria.
Note 4 - 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.
-6-
BMC SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(continued)
Note 5 - Adoption of Statement of Financial Accounting Standards No. 115
Effective April 1, 1994, the Company adopted on a prospective basis
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS 115, 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 SFAS 115. These securities, all of which are debt
securities, have been recorded at amortized cost in the Company's balance
sheets. The following table summarizes the company's securities as of December
31 and March 31, 1994:
December 31 March 31
1994 1994
----------------- -----------------
Carrying Market Carrying Market
Amount Value Amount Value
-------- ------ -------- ------
($ in millions)
Tax exempt municipal bonds ............. $136.8 $134.3 $120.4 $119.6
Tax exempt auction preferred stock ..... 28.5 28.5 46.1 46.1
Corporate bonds ........................ 31.0 30.2 14.6 14.4
Other debt securities .................. 3.6 3.5 -- --
------ ------ ------ -------
$199.9 $196.5 $181.1 $180.1
====== ====== ====== ======
-7-
BMC SOFTWARE, INC. AND SUBSIDIARIES
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:
Percentage of Total Revenues
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
---- ---- ---- ----
Revenues:
License ...................... 61.3% 59.8% 58.6% 57.4%
Maintenance .................. 38.7 40.2 41.4 42.6
----- ----- ----- -----
Total revenues ............. 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Selling and marketing ........ 26.3 26.5 25.9 26.5
Research and development ..... 15.1 14.9 16.4 16.3
Cost of maintenance services
and product licenses ...... 8.8 8.9 9.3 9.5
General and administrative ... 8.8 9.0 8.7 9.0
----- ----- ----- -----
Operating income ............... 41.0 40.7 39.7 38.7
Other income ................... 3.3 3.6 3.5 3.9
----- ----- ----- -----
Earnings before taxes .......... 44.3 44.3 43.2 42.6
Income taxes ................... 13.7 13.7 13.4 13.1
----- ----- ----- -----
Net earnings ................... 30.6% 30.6% 29.8% 29.5%
===== ===== ===== =====
-8-
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
REVENUES
Total revenues for the third quarter of fiscal 1995 were $90.7 million, an
increase of $15.2 million, or 20%, compared to $75.5 million for the third
quarter of fiscal 1994. Total revenues for the first nine months of fiscal 1995
were $248.7 million, an increase of $40.2 million, or 19%, compared to $208.5
million for the same period in fiscal 1994.
LICENSE REVENUES
Worldwide license revenues increased 23% to $55.6 million from the third
quarter of fiscal 1994 to the third quarter of fiscal 1995, with North American
licenses increasing 21% to $32.2 million and international license revenues
increasing 27% to $23.4 million. For the nine months ended December 31, 1994,
North American and international license revenue grew by 25% and 17%,
respectively, over the comparable prior year periods. License revenue growth was
driven by fees received under the Company's enterprise licensing program as
discussed below. Of the 27% increase in international license revenues in the
third quarter of fiscal 1995, approximately 8% is attributed to changes in
foreign currency exchange rates from the third quarter of fiscal 1994. North
American license revenues comprised 58%, and international license revenues
comprised 42%, of total license revenues in the quarter ended December 31, 1994.
The percentage of total revenues derived from CPU upgrade fees in the December
quarter remained in the mid-twenty percent range relative to total revenues.
Third quarter CPU upgrade fees include current charges for installing the
company's products on a more powerful CPU under the traditional tiered licensing
practice and to a lesser extent, fees paid by the customer for capacity beyond
the current usage level. The Company anticipates that CPU upgrade fees as a
percentage of total revenues will be in the mid-twenty percent range for the
remainder of fiscal 1995, subject to customer purchasing decisions, market
conditions and other factors that are inherently difficult to predict.
Enterprise license fees have been, and continue to, be a significant
component of the Company's license revenues. Enterprise licenses provide
customers with a more flexible and accommodative licensing alternative to the
Company's traditional tiered licensing practice, under which a software product
is licensed to a single CPU and CPU upgrade charges are owed if the customer
installs the product on a CPU that falls into a higher tier category. An
enterprise license instead allows the customer to run an unlimited number of
copies of the product on its CPUs without regard to their size, subject to a
maximum limit on the aggregate power of the CPUs as measured in millions of
instructions per second, or MIPS. An enterprise license transaction includes
license fees for new products, additional copies of products already licensed, a
fee for additional MIPS capacity beyond the customer's current usage level
and/or a restructuring fee. Conversion to enterprise license terms typically
results in higher, volume-based discounts for future maintenance and
capacity-based (i.e. upgrade) charges. Enterprise licenses generally do not
cover the Company's full product lines and do not include products that are not
generally available on the date of the transaction. The fee for additional MIPS
capacity is based on a customer's growth plan for the next three to five years
and has represented from over half, to substantially all, of the total
enterprise license fee, excluding maintenance fees. At the end of the term, and
in some cases annually during the term, additional fees are owed if the customer
has exceeded the MIPS maximum. The product license fee and additional MIPS
capacity fee components of an enterprise license are recognized as license fees
and license upgrade fees, respectively, when the license is executed and any
applicable products have been delivered, in accordance with the Company's
standard revenue recognition practices. An enterprise license usually includes a
prepaid maintenance fee, which is recognized ratably over the maintenance term.
-9-
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
Enterprise license fees have been primarily responsible for the Company's
license revenue growth in fiscal 1994 and the first nine months of fiscal 1995.
The Company also expects enterprise license fees to be the primary source of
license revenue growth in the fourth quarter of fiscal 1995. Individual
enterprise license transactions have ranged from less than $50,000 to well in
excess of $1,000,000. The Company's operating results are dependent on the
timely closing of the large, independently significant transactions, which can
have extended sales cycles and be less predictable, due in part to higher
customer approval levels. Continued demand for enterprise licenses depends upon
customers' intentions to increase significantly their mainframe MIPS in the
future and their continued acceptance of CPU upgrade fees. Failure to close one
or more anticipated large enterprise licenses in a quarter would have a material
adverse effect on operating results for that quarter.
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 72% of total revenues and 74% of license revenues in
the third quarter. Total revenues for this product line increased 25% and
license revenues increased 26% compared to the year-ago third quarter. For the
fiscal year to date, the database management products year over year license and
total revenue growth exceeded the Company's overall revenue growth rates.
MAINTENANCE REVENUES
Maintenance revenues for the third quarter of fiscal 1995 increased $4.8
million, or 16%, to $35.1 million, from the comparable period in fiscal 1994.
For the nine months ended December 31, 1994, maintenance revenue increased by
16% over the comparable period in the prior year. Maintenance revenues are
annual fees for technical support, enhancements and updates of licensed products
and include the implicit fee for first-year maintenance services that is bundled
with the perpetual license fee. Maintenance revenues increased as a result of
high annual renewal rates, a growing base of installed products and higher
charges for maintenance services under the Company's tiered pricing policy as
customers acquire larger computers. Maintenance revenue growth in a particular
quarter is impacted by the level of license revenue in the preceding four
quarters and the attendant fees for first-year maintenance and by enterprise
license transactions. Enterprise license transactions can provide customers with
higher, volume-based discounts that apply to future maintenance charges.
EXPENSES
SELLING AND MARKETING EXPENSES
Selling and marketing expenses for the third quarter of fiscal 1995
increased by 19%, to $23.9 million, from the comparable period in fiscal 1994.
These expenses increased by 17%, to $64.5 million, in the nine months ended
December 31, 1994 versus the comparable prior year nine month period.
Contributing to these increases were increased sales commissions, increases in
marketing and sales support efforts and the addition of sales and marketing
personnel. As a percentage of total revenues, these expenses decreased slightly,
from 27% in the third quarter of fiscal 1994 to 26% in the third quarter of
fiscal 1995. The Company anticipates that marketing expenses will continue to
increase at a faster rate as the Company attempts to increase its market
presence and share, particularly in the client/server markets.
-10-
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the third quarter of fiscal 1995
increased 22%, to $13.7 million, from the comparable period in fiscal 1994.
These expenses increased by 19%, to $40.6 million, in the nine months ended
December 31, 1994 versus the comparable prior year nine month period. These
increases in research and development costs are primarily attributable to the
addition of product development personnel and an increase in costs related to
the data center and testing environment. As a percentage of total revenues,
research and development expenses increased slightly to 15.1% in the third
quarter of fiscal 1995 from 14.9% in the year ago third quarter. The Company
continues to hire additional software developers with client/server expertise
and to invest significantly in PATROL and other open systems products.
COST OF MAINTENANCE SERVICES AND PRODUCT LICENSES
Cost of maintenance services and product licenses for the third quarter
and for the first nine months of fiscal 1995 increased by 19% and 17%,
respectively, from the third quarter and first nine months of fiscal 1994. As a
percentage of total revenues, these expenses remained at 9% in the third quarter
of fiscal 1994 and the third quarter of fiscal 1995. Cost of maintenance
services and product licenses consists of technical support employees
compensation and amortization of purchased and internally developed software.
These costs have increased in fiscal 1995 primarily due to the hiring of
additional technical support personnel and the acquisition of hardware and other
equipment used in the customer support process.
For the third quarter of fiscal 1995, the Company capitalized $2.1 million
in software development costs pursuant to STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 86 (FAS 86). The Company recorded software cost amortization
expense of $822,000 during the third quarter of fiscal 1995. In the third
quarter of fiscal 1994, the Company capitalized $683,000 of software development
costs, net of related amortization.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the third fiscal quarter increased
by $1.2 million, or 17%, to $8.0 million from the same prior year period and
decreased slightly as a percentage of total revenues from 9.0% to 8.8%. These
expenses increased 15% in the first nine months of fiscal 1995 compared to the
first nine months of fiscal 1994. These increases are in line with the Company's
plan to grow its administrative and support functions at a rate commensurate
with the growth in business activity. While the Company anticipates that general
and administrative expenses will continue to approximate 9% of revenue, these
expenses are subject to fluctuation based on the timing of certain legal,
professional and other administrative services and discretionary expenditures.
-11-
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
OTHER INCOME
For the third quarter of fiscal 1995, other income was $3.0 million,
compared to $2.8 million for the same quarter in fiscal 1994. Other income
consists primarily of interest earned on tax-exempt municipal securities,
auction preferred stock, Eurodollar deposits and money market funds.
INCOME TAXES
For the third quarter of fiscal 1995, income tax expense was $12.4
million, compared to $10.4 million for the same quarter in fiscal 1994. The
Company's income tax expense represents the federal statutory rate of 35%
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.
As discussed in Note 2, the Company adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 109 (SFAS 109), "Accounting for Income Taxes," as of
April 1, 1993. SFAS 109 changes the Company's method of accounting for income
taxes from the deferred method to an asset and liability approach. Adoption of
SFAS 109 had an immaterial impact on the Company's operating results and
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth through funds generated from
operations. As of December 31, 1994, the Company had cash, cash equivalents and
securities of $226.4 million.
In July 1994, the Company's Board of Directors authorized the Company to
purchase up to an additional 1,000,000 shares of its common stock. During the
quarter ended December 31, 1994, the Company repurchased 30,000 shares of its
common stock in open market transactions. As of December 31, 1994, the Company
was authorized by its Board of Directors to purchase 729,000 shares.
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 could affect the Company's future operating results,
including general economic conditions, market acceptance of the Company's new
products and competitive pressures. The Company derives virtually all of its
revenues from software products for IBM and compatible mainframe computers, so
that future operating results are dependent upon customers' continued
requirements for mainframe systems software.
The Company's international license revenues increased by 27% in the third
quarter of fiscal 1995 relative to the year-ago period, after increasing by 55%
in the second quarter of fiscal 1995 compared to the year ago quarter. Over the
past eighteen months, the performance of the international offices has varied
from period to period and from country to country. Future revenue growth and
operating results are dependent upon a sustained turnaround by, and continued
license revenue growth from, the Company's international operations,
particularly in Europe.
-12-
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
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
client/server 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. 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.
The Company's client/server development initiative extends beyond its
traditional areas of expertise, and development cycles and schedules for these
products may prove to be less predictable. 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.
The Company derives a significant portion of its license revenues from CPU
upgrade fees. The charging of such 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 pressure from customers. Mainframe hardware costs have decreased
dramatically while software costs have continued to rise. In April 1994, IBM
announced alternatives to tier-based pricing charges for certain products and
eliminated tier-based charges for using its software on the largest mainframe
CPUs. Although the Company has adopted MIPS-based pricing for large enterprise
licenses, it continues to charge additional license fees for products utilized
on incremental processing power. The Company believes its current pricing
policies most properly reflect the value provided by its products. IBM's actions
have, however, increased pricing pressures within the mainframe systems software
markets. The Company derives a significant portion of its license, upgrade and
enterprise license fees from products on CPUs in the tier categories for which
IBM has eliminated upgrade fees. If future changes in the Company's pricing
structure or existing or future competition results in significant price
decreases that are not offset by sales volume increases, the Company's business
and financial results will be adversely affected.
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 immediate and adverse effect on
the Company's 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.
-13-
BMC SOFTWARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
(b) REPORTS ON FORM 8-K.
None
-14-
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: February 13, 1995 By:/S/ MAX P. WATSON JR.
Max P. Watson Jr.
Chairman of the Board, President and
Chief Executive Officer
Date: February 13, 1995 By:/S/ KEVIN M. KLAUSMEYER
Chief Accounting Officer
-15-
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<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Company's
unaudited condensed consolidated financial statements for the nine months ended
December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 26,472
<SECURITIES> 199,905
<RECEIVABLES> 100,390
<ALLOWANCES> 2,020
<INVENTORY> 0
<CURRENT-ASSETS> 174,712
<PP&E> 123,742
<DEPRECIATION> 24,090
<TOTAL-ASSETS> 464,880
<CURRENT-LIABILITIES> 123,745
<BONDS> 0
<COMMON> 262
0
0
<OTHER-SE> 296,164
<TOTAL-LIABILITY-AND-EQUITY> 464,880
<SALES> 145,823
<TOTAL-REVENUES> 248,700
<CGS> 23,189
<TOTAL-COSTS> 149,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 107,380
<INCOME-TAX> 33,288
<INCOME-CONTINUING> 74,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,092
<EPS-PRIMARY> 2.92
<EPS-DILUTED> 2.92
</TABLE>
