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 June 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 74-212610
(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 August 2, 1995, there were outstanding 25,254,111 shares of
Common Stock, par value $.01, of the registrant.
BMC SOFTWARE, INC. AND SUBSIDIARIES
Quarter Ended June 30, 1995
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheets
June 30, 1995 (Unaudited) and March 31, 1995 2
Condensed Consolidated Statements of Earnings
Three months ended June 30, 1995 and 1994
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1995 and 1994
(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 4. Submission of Matters to a Vote of Security Holders 14
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)
June 30, March 31,
1995 1995
ASSETS ----------- ---------
(Unaudited)
Current assets:
Cash and cash equivalents $ 21,890 $ 39,494
Securities held to maturity 87,526 54,330
Trade accounts receivable, net 62,428 64,741
Other accounts receivable 7,163 5,641
Prepaid expenses and other 4,306 6,432
Deferred income and other taxes 11,146 12,262
-------- --------
Total current assets 194,459 182,900
-------- --------
Property and equipment, net 101,709 101,288
Software development costs, net 18,163 16,499
Purchased software, net 10,232 11,118
Securities held to maturity 176,827 180,009
Finance receivables, long-term 6,762 8,047
Deferred charges and other assets 3,056 2,788
-------- --------
$511,208 $502,649
======== ========
See accompanying notes to condensed consolidated financial statements.
2
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(continued)
June 30, March 31,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY ----------- ---------
(Unaudited)
Current liabilities:
Trade accounts payable $ 9,140 $ 11,344
Accrued liabilities 17,812 35,564
Taxes payable 10,318 3,427
Current portion of deferred revenue 96,113 97,399
-------- --------
Total current liabilities 133,383 147,734
-------- --------
Deferred revenue and other 48,039 48,761
-------- --------
Total liabilities 181,422 196,495
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $.01 par value, 90,000
shares authorized, 26,260,000 shares issued 262 262
Additional paid-in capital 65,247 67,864
Retained earnings 323,933 296,467
Foreign currency translation adjustment (399) (282)
-------- --------
389,043 364,311
Less treasury stock (1,032,000 and 1,010,000
shares, respectively) 56,131 54,694
Less unearned portion of restricted
stock compensation 3,126 3,463
-------- --------
Total stockholders' equity 329,786 306,154
-------- --------
$511,208 $502,649
======== ========
See accompanying notes to condensed consolidated financial statements.
3
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
-----------------------
1995 1994
-------- -------
Revenues:
Licenses $54,796 $44,311
Maintenance 38,504 33,689
------- -------
Total revenues 93,300 78,000
------- -------
Operating expenses:
Selling and marketing 24,572 20,468
Research and development 14,106 13,919
Cost of maintenance services
and product licenses 10,271 8,189
General and administrative 7,938 6,194
------- -------
Total operating expenses 56,887 48,770
------- -------
Operating income 36,413 29,230
Other income 3,683 2,800
------- -------
Earnings before taxes 40,096 32,030
Income taxes 12,630 9,929
------- -------
Net earnings $27,466 $22,101
======= =======
Earnings per share $ 1.06 $ .86
======= =======
Shares used in computing
earnings per share 25,916 25,698
======= =======
See accompanying notes to condensed consolidated financial statements.
4
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
June 30,
--------------------
1995 1994
-------- --------
Cash flows from operating activities:
Net earnings $ 27,466 $ 22,101
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 6,572 4,917
Net change in receivables,
payables and other items (11,308) 16,236
-------- --------
Total adjustments (4,736) 21,153
-------- --------
Net cash provided by operating activities 22,730 43,254
-------- --------
Cash flows from investing activities:
Net capital expenditures (3,594) (4,012)
Capitalization of software development (4,177) --
Purchases of securities held to maturity (31,241) (25,597)
Proceeds from securities held to maturity 1,227 20,069
(Increase) decrease in long-term finance receivables 1,285 (7,100)
-------- --------
Net cash used in investing activities (36,500) (16,640)
-------- --------
Cash flows from financing activities:
Earned portion of restricted
stock compensation 337 (1,276)
Income tax reduction relating
to stock options 660 1,031
Stock options exercised and other 1,148 --
Net treasury stock acquired (5,862) (26,620)
-------- --------
Net cash used in financing activities (3,717) (26,865)
-------- --------
Effect of exchange rate changes on cash (117) 109
-------- --------
Net change in cash and cash equivalents (17,604) (142)
Cash and cash equivalents at beginning of period 39,494 37,814
-------- --------
Cash and cash equivalents at end of period $ 21,890 $ 37,672
-------- --------
Supplemental disclosure of cash
flow information:
Cash paid for Income taxes $ 2,200 $ 2,696
======== ========
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,
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 June 30 and March 31, 1995:
6
BMC SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(continued)
June 30, March 31,
1995 1995
-------------------- --------------------
Carrying Market Carrying Market
Amount Value Amount Value
-------- -------- -------- --------
($ in thousands)
MARKETABLE SECURITIES
(MATURITIES WITHIN 1 YEAR)
Municipal Securities $ 48,970 $ 48,995 $ 32,652 $ 32,583
Preferred stock 25,950 25,950 19,050 19,050
Corporate Notes, Bonds and Other 12,606 12,663 2,628 2,572
-------- -------- -------- --------
$ 87,526 $ 87,608 $ 54,330 $ 54,205
-------- -------- -------- --------
MARKETABLE SECURITIES
(MATURITIES FROM 1-5 YEARS)
Municipal Securities $130,160 $131,388 $122,212 $121,586
Preferred stock 2,000 2,000 8,900 8,900
Corporate Notes, Bonds and Other 44,667 45,441 48,897 48,749
-------- -------- -------- --------
$176,827 $178,829 $180,009 $179,235
-------- -------- -------- --------
$264,353 $266,437 $234,339 $233,440
======== ======== ======== ========
NOTE 4 - SUBSEQUENT EVENT
On July 19, 1995, the Company declared a two-for-one stock split of its
common stock. The stock split will be effected in the form of a stock
dividend. Stockholders of record at the close of business on August 4, 1995
are entitled to receive one share of common stock for each share held. The
payment date for the distribution of shares is August 14, 1995 and the
company will pay cash in lieu of issuing fractional shares. The shares used
in computing earnings per share do not reflect this stock dividend.
7
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:
Percentage of Total Revenues
Three Months Ended
June 30,
----------------------------
1995 1994
------- ---------
Revenues:
License 58.7% 56.8%
Maintenance
41.3 43.2
----- -----
Total revenues 100.0 100.0
Operating expenses:
Selling and marketing 26.4 26.2
Research and development 15.1 17.9
Cost of maintenance services
and product licenses 11.0 10.5
General and administrative 8.5 7.9
----- -----
Operating income 39.0 37.5
Other income 3.9 3.5
----- -----
Earnings before taxes 42.9 41.0
Income taxes 13.5 12.7
----- -----
Net earnings 29.4% 28.3%
===== =====
8
BMC SOFTWARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
REVENUES
Three Months Ended
June 30,
--------------------
1995 1994 Change
------- ------- ------
North American license revenues $34,296 $33,127 3.5%
International license revenues 20,500 11,184 83.3%
------- -------
Total license revenues 54,796 44,311 23.7%
Maintenance Revenues 38,504 33,689 14.3%
------- -------
Total revenues $93,300 $78,000 19.6%
======= =======
LICENSE REVENUES
License revenues are product license fees paid when a customer
initially licenses a product, central processing unit ("CPU") upgrade
fees and license restructuring fees. CPU upgrade fees are charged
when a customer acquires the right to run an already-licensed product
on additional processing capacity, which may be measured traditionally
by CPU or by millions of instructions per second ("MIPS"). The CPU
upgrade fee category includes fees for current and for future
additional processing capacity. License restructuring fees grant the
customer increased discounts when calculating future maintenance and
upgrade charges. Total CPU upgrade fees for the quarter ended June
30, 1995, as a percentage of total revenues, were in the mid-twenty
percent range.
North American license revenues comprised 63%, and international
license revenues comprised 37%, of total license revenues in the
quarter ended June 30, 1995. North American license growth in the
first quarter was attributable to increased license restructuring
fees received under the Company's enterprise licensing program and
increased product license fees from the Company's open systems
products. Enterprise license fees, primarily CPU upgrade fees for
future additional processing capacity, and product license fees
from the Company's mainframe products were the principal contributors
to license revenue growth internationally. Of the 83% increase in
international license revenues in the first quarter of fiscal 1996,
approximately 6% is attributed to changes in foreign currency exchange
rates from the first quarter of fiscal 1995.
The Company continues to rely on enterprise license fees,
primarily CPU upgrade fees for additional processing capacity and
license restructuring fees, as significant components of license
revenue growth, license revenues and total revenues. An enterprise
license allows the customer to run an unlimited number of copies of a
product on its CPUs without regard to their size, subject to a maximum
limit on the aggregate power of the CPUs as measured in MIPS. The
Company expects enterprise license fees and license fees from its open
systems products to be the primary sources of license revenue growth
for the remainder of fiscal 1996. The Company's operating results are
dependent on the timely closing of 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'
9
BMC SOFTWARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
increasing reliance on their IBM and IBM-compatible mainframe data-
base management systems and the resulting increase in mainframe MIPS.
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 73% of total
revenues and 75% of license revenues in the first quarter. Total
revenues and license revenues of these product lines increased 18% and
19%, respectively, compared to the year-ago first quarter.
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 or less is included
in the initial license for the Company's 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.
EXPENSES
Three Months Ended
June 30,
------------------
1995 1994 Change
------- ------- ------
Selling and Marketing Expenses $24,572 $20,468 20.1%
Research and Development
Expenses 14,106 13,919 1.3%
Cost of Maintenance Services
and Product Licenses 10,271 8,189 25.4%
General and Administrative
Expenses 7,938 6,194 28.2%
------- -------
Total operating expenses $56,887 $48,770 16.6%
======= =======
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. Additionally, the Company increased its
participation in trade shows and other marketing activities. 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 at 26% of
total revenues.
10
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
RESEARCH AND DEVELOPMENT EXPENSES
The Company's research and development expenditures in the first
three months of fiscal 1996 increased only $187,000 from the first
three months of fiscal 1995. Virtually all of the growth in research
and development expenses 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 first quarter of fiscal 1996 from 18% in the first 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 first quarter of fiscal 1996
primarily as a result of the increased amortization of purchased and
internally developed software. Also, to a lesser extent, 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 slightly from 10% in the first quarter of
fiscal 1995 to 11% in the first quarter of fiscal 1996.
For the first quarter of fiscal 1996, the Company capitalized
$4,177,000 in software development costs pursuant to SFAS No. 86. The
Company amortized software costs of $2,513,000 during the first
quarter of fiscal 1996. In the first quarter of fiscal 1995, the
Company did not capitalize any software development costs but did
record $1,951,000 of software cost amortization expense.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to 9% of total
revenues in the first three months of fiscal 1996 up from 8% of total
revenues in the first three months of fiscal 1995. The increase of
$1,744,000 in these expenses is in line with the Company's plan to
grow its administrative functions to a level which supports the
overall growth in business activity. Also, the Company's general and
administrative expenses were relatively low in the first quarter of
fiscal 1995 due to the timing of certain legal, professional and other
administrative services. While the Company anticipates that general
and administrative expenses will continue to approximate 9% of total
revenues, these expenses are subject to fluctuations based on the
timing of certain consulting, legal, professional and other
discretionary costs.
11
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
OTHER INCOME
For the first quarter of fiscal 1996, other income was
$3,683,000, reflecting an increase of 32% over $2,800,000 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 the result of greater cash
balances and increased interest rates.
INCOME TAXES
For the first quarter of fiscal 1996, income tax expense was
$12,630,000, compared to $9,929,000 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 June 30, 1995, the Company had cash, cash
equivalents and securities of $286,243,000.
The Company's 1995 stock repurchase program authorized the
purchase of up to 1,000,000 shares of common stock. During the
quarter ended June 30, 1995, the Company repurchased 72,500 shares of
its common stock in open market transactions. As of June 30, 1995,
the Company was authorized by its Board of Directors to purchase up to
656,300 remaining 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 affect the Company's operating results,
including general economic conditions, market acceptance of its
products and competitive pressures. The Company derives over 95% 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. Future operating results are also dependent on the
continued improved results of the Company's international operations.
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
12
BMC SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Results of Operations and Financial Condition
(continued)
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 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.
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, 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 those under development, will compete effectively, this
market will be relatively unpredictable over the next few years.
CPU upgrade fees have contributed between 19% and 27% of total
revenues over the last three fiscal years. 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 large enterprise licenses, it has not
significantly changed its effective charges for its products. 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. If future changes in the 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.
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: August 14, 1995 By: /s/ MAX P. WATSON JR.
--------------- ---------------------
Max P. Watson Jr.
Chairman of the Board, President and
Chief Executive Officer
Date: August 14, 1995 By: /s/ Kevin M. Klausmeyer
--------------- -----------------------
Chief Accounting Officer
15