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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 14, 1999
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BMC SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-17136 74-21226120
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
2101 CITYWEST BOULEVARD
HOUSTON, TEXAS 77042-2827
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (713) 918-8800
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Item 7. Financial Statements and Exhibits, as set forth in BMC Software,
Inc.'s (BMC) Form 8-K filed with the Securities and Exchange
Commission on April 28, 1999, is hereby amended in its entirety
to read as follows:
(a) Financial Statements of Business Acquired
Financial Statements of New Dimension Software Ltd. are filed
herewith:
Report of Mualem, Glezar, Inbar, Junio and Co. Certified Public
Accountants (Israel) (a member of the DFK International group
of accountants) and of Somekh Chaikin Certified Public
Accountants (Israel) (a member firm of KPMG International)
Report of Arthur Andersen LLP, Independent Public Accountants
New Dimension Software Ltd. Consolidated Balance Sheets as at
December 31, 1998 and 1997
New Dimension Software Ltd. Consolidated Statements of Income
for the years ended December 31, 1998, 1997 and 1996
New Dimension Software Ltd. Consolidated Statements of Changes
in Shareholders' Equity for the years ended December 31, 1998,
1997 and 1996
New Dimension Software Ltd. Consolidated Statements of Cash
Flows for the years ended December 31, 1998, 1997 and 1996
New Dimension Software Ltd. Notes to Consolidated Financial
Statements as at December 31, 1998
3
NEW DIMENSION
SOFTWARE LTD.
AND ITS SUBSIDIARIES
FINANCIAL STATEMENTS
AS AT DECEMBER 31,
1998
4
New Dimension Software Ltd.
and its subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
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CONTENTS
Page
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Reports of Independent Accountants 1
Consolidated Balance Sheets as at December 31, 1998 and 1997 2
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996 4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
5
Tel-Aviv, February 2, 1999
REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS OF
NEW DIMENSION SOFTWARE LTD.
We have audited the accompanying consolidated balance sheets of New Dimension
Software Ltd. (the "Company") and its subsidiaries as at December 31, 1998 and
1997 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the
three-year period ended December 31, 1998. The financial statements are the
responsibility of the Company's board of directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of certain consolidated subsidiaries
(New Dimension Software Inc., New Dimension Software B.V., Bang Real Estate
B.V. and New Dimension Software de Mexico, S.A. de C.V.), whose assets
constituted approximately 63.0% and 60.9% of total consolidated assets at
December 31, 1998 and 1997 respectively and whose revenues constituted
approximately 74.9%, 72.5% and 67.6% of consolidated revenues for the years
ended December 31, 1998, 1997 and 1996, respectively. The financial statements
of those subsidiaries were audited by other auditors whose reports thereon
have been furnished to us, and our opinion expressed herein, insofar as it
relates to the amounts included for above mentioned subsidiaries, is based
solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards including those prescribed by the Israeli Auditors' Regulations (Mode
of Performance), 1973, that are substantially equivalent to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance that the financial
statements are free of material misstatement whether due to error or
intentional misrepresentation. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the board of directors and by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a fair basis for our
opinion.
In our opinion, based upon our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and its
subsidiaries as at December 31, 1998 and 1997 and the consolidated results of
their operations, the changes in their shareholders' equity and their cash
flows for each of the three years in the three-year period ended December 31,
1998 in conformity with generally accepted accounting principles (GAAP) in the
United States.
Mualem, Glezer, Inbar, Junio and Co. Somekh Chaikin
Certified Public Accountants (Isr.) Certified Public Accountants (Isr.)
(A member of the DFK international (A member of KPMG
group of accountants) International)
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Dimension Software, Inc.:
We have audited the accompanying balance sheets of NEW DIMENSION SOFTWARE, INC.
(a Delaware corporation and wholly-owned subsidiary of New Dimension Software
Ltd.) as of December 31, 1998 and 1997, and the related statements of income,
shareholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Dimension Software, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
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ARTHUR ANDERSEN LLP
Orange County, California
January 29, 1999
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New Dimension Software Ltd.
and its subsidiaries
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31
- -------------------------------------------------------------------------------
EXPRESSED IN U.S. DOLLARS THOUSANDS
Note 1998 1997
--------- --------- ---------
ASSETS 9E
CURRENT ASSETS
Cash and cash equivalents 2D 20,024 14,222
Marketable securities and short-term
deposits 2E;9A 10,441 6,031
Trade receivables and distributors 2F;9B(1) 42,920 22,795
Other receivables 9B(2) 3,206 3,202
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TOTAL CURRENT ASSETS 76,591 46,250
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Long-term receivables, net 2F,9C 29,367 18,252
Severance pay fund 5 2,555 2,198
Non-current marketable securities and
deposits 2E,9A 806 1,911
Property and equipment, net 2G;3 8,463 7,303
Other assets, net 2H;4 12,736 13,682
--------- ---------
130,518 89,596
========= =========
8
New Dimension Software Ltd.
and its subsidiaries
- -------------------------------------------------------------------------------
EXPRESSED IN U.S. DOLLARS THOUSANDS
Note 1998 1997
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES 9E
Trade payables 3,360 4,584
Deferred income 2I,9D 21,524 16,659
Accrued payroll and related benefits 10,130 5,214
Other accrued liabilities 3,629 1,279
--------- ---------
TOTAL CURRENT LIABILITIES 38,643 27,736
Long-term deferred income 2I;9D 22,266 14,947
Liability for severance pay 5 3,281 2,778
Deferred income taxes 2L;8C 744 980
--------- ---------
TOTAL LIABILITIES 64,934 46,441
--------- ---------
COMMITMENTS AND CONTINGENCIES 6
SHAREHOLDERS' EQUITY 7
Share capital - Ordinary shares of
NIS 0.01 par value 51 50
Additional paid-in capital 41,206 39,308
Retained earnings 24,327 3,797
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 65,584 43,155
--------- ---------
--------- ---------
130,518 89,596
========= =========
The accompanying notes are an integral part of the financial statements.
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9
New Dimension Software Ltd.
and its subsidiaries
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31
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EXPRESSED IN U.S. DOLLARS THOUSANDS (EXCEPT FOR PER SHARE AMOUNTS)
Note 1998 1997 1996
---------------- ------ ------ ------
REVENUES 21;10A
Sale of software products 63,671 42,901 26,921
Maintenance fees 29,920 22,068 16,633
------ ------ ------
Total revenues 93,591 64,969 43,554
------ ------ ------
COST OF REVENUES 2J
Cost of sales 7,200 4,940 4,386
Cost of maintenance 10,365 8,689 6,772
------ ------ ------
Total cost of revenues 17,565 13,629 11,158
------ ------ ------
Gross profit 76,026 51,340 32,396
------ ------ ------
OTHER EXPENSES
Product development, net 2H;J;K;6B(1);10B 9,441 6,095 3,976
Sales and marketing 38,737 26,809 18,594
General and administrative 8,105 6,946 6,211
Special income 10C -- -- (477)
------ ------ ------
Total other expenses 56,283 39,850 28,304
------ ------ ------
OPERATING INCOME 19,743 11,490 4,092
------ ------ ------
FINANCIAL INCOME (EXPENSES) 10D
Income 3,898 1,740 1,327
Expenses (613) (782) (436)
------ ------ ------
Financial income, net 3,285 958 891
------ ------ ------
INCOME BEFORE TAXES ON INCOME 23,028 12,448 4,983
Taxes on income (tax benefit) 8B 2,498 1,482 (469)
------ ------ ------
NET INCOME FOR THE YEAR 20,530 10,966 5,452
====== ====== ======
EARNINGS PER SHARE: 2P;10E
Basic 1.71 0.95 0.49
====== ====== ======
Diluted 1.59 0.89 0.48
====== ====== ======
The accompanying notes are an integral part of the financial statements.
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10
New Dimension Software Ltd.
and its subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
EXPRESSED IN U.S. DOLLARS THOUSANDS (EXCEPT FOR NUMBER OF SHARES)
NUMBER SHARE ADDITIONAL RETAINED TOTAL
OF SHARES* CAPITAL PAID-IN EARNINGS SHAREHOLDERS'
CAPITAL EQUITY
---------- ------- ---------- -------- -------------
BALANCE AS AT
JANUARY 1, 1996 11,051,338 47 36,491 (12,621) 23,917
CHANGES DURING 1996:
Net income -- -- -- 5,452 5,452
Exercise of stock
options 162,863 1 596 -- 597
---------- -- ------ ------- ------
BALANCE AS AT
DECEMBER 31, 1996 11,214,201 48 37,087 (7,169) 29,966
CHANGES DURING 1997:
Net income -- -- -- 10,966 10,966
Exercise of stock
options 590,467 2 2,221 -- 2,223
---------- -- ------ ------- ------
BALANCE AS AT
DECEMBER 31, 1997 11,804,668 50 39,308 3,797 43,155
CHANGES DURING 1998:
Net income -- -- -- 20,530 20,530
Exercise of stock
options 367,576 1 1,898 -- 1,899
---------- -- ------ ------- ------
BALANCE AS AT
DECEMBER 31, 1998 12,172,244 51 41,206 24,327 65,584
========== == ====== ======= ======
* Issued and outstanding.
The accompanying notes are an integral part of the financial statements.
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11
New Dimension Software Ltd.
and its subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------
EXPRESSED IN U.S. DOLLARS THOUSANDS
1998 1997 1996
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 20,530 10,966 5,452
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,523 5,997 4,984
Capital (gain) loss 443 (7) (12)
Decrease (increase) in deferred
income taxes 69 944 (775)
Decrease (increase) in interest/dividend
receivable in respect of marketable
securities 466 21 (184)
Increase in receivables (31,340) (22,192) (6,352)
Increase in deferred income 12,184 14,294 5,754
Increase (decrease) in trade payables (1,123) 2,273 159
Increase in accrued payroll and
related benefits 4,916 679 2,781
Increase (decrease) in other
accrued liabilities 2,350 11 (3,966)
------- ------- -------
Net cash provided by operating activities 16,018 12,986 7,841
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities
and deposits (7,849) (2,347) (6,758)
Redemption of marketable securities
held-to-maturity and deposits 4,078 2,639 1,850
Payment for acquisition of property
and equipment (5,093) (3,752) (1,835)
Capitalization of product development
costs and technology acquisition (3,770) (6,208) (2,918)
Increase in severance pay fund (357) (498) (610)
Proceeds from sale of property and equipment 373 88 110
------- ------- -------
Net cash used in investing activities (12,618) (10,078) (10,161)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of shares -
exercise of options 1,899 2,223 597
Increase in liability for severance pay 503 582 412
Payments relating to long-term debt -- -- (1,606)
------- ------- -------
Net cash provided by (used in) financing
activities 2,402 2,805 (597)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,802 5,713 (2,917)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE YEAR 14,222 8,509 11,426
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 20,024 14,222 8,509
======= ======= =======
The accompanying notes are an integral part of the financial statements.
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12
New Dimension Software Ltd.
and its subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (CONT'D)
_______________________________________________________________________________
1998 1997 1996
__________ __________ __________
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases, product development and
deferred charges financed by trade payables 197 298 574
========== ========== ==========
Receivable in respect of royalty-bearing
participation in capitalized software
development cost (209) (283) --
========== ========== ==========
CASH PAID DURING THE YEAR FOR:
Interest 14 12 33
========== ========== ==========
Income tax 191 370 214
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
7
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New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
_______________________________________________________________________________
NOTE 1 - GENERAL
1. New Dimension Software Ltd. and its wholly-owned subsidiaries
(collectively, the "Company") is a worldwide developer and vendor of
software solutions for automating enterprise production management,
enterprise output management and enterprise security management. The
Company markets its products through a combination of direct sales and
independent distributors.
2. The accompanying financial statements are presented in U.S. dollars
thousands. The currency of the primary economic environment in which
the operations of the Company are conducted is the U.S. dollar, and
as such, the Company uses the dollar as its functional currency.
Certain of the dollar amounts in the financial statements represent
the dollar equivalents in other currencies. The Company's
transactions and balances denominated in U.S. dollars are presented
at their original amounts. Non-dollar transactions and balances have
been remeasured to U.S. dollars, in accordance with the principles
set forth in the Statement of Financial Accounting Standards No. 52
as promulgated by the Financial Accounting Standards Board of the
United States. All exchange gains and losses from remeasurement of
monetary balance sheet items denominated in non-dollar currencies are
reflected in the income statement when they arise, and are included in
financial income or expenses as appropriate.
3. The financial statements presented herein have been prepared in
accordance with generally accepted accounting principles (GAAP) in
the United States using the historical cost convention.
4. In April 1998 the Company incorporated a wholly-owned subsidiary in
Mexico. The subsidiary serves as a marketing arm for the Company's
products in Mexico, thus replacing the local distributor. All
incorporation expenses were expensed as incurred.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. These are management's best
estimates based on experience and historical data, however actual
results may vary from these estimates.
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New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
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NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
B. IMPAIRMENT OF VALUE
In 1996 the Company adopted Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable based on estimated future cash flows expected to result from
the use of the asset and its eventual disposition.
Impairment losses are required to be recorded to reduce such asset to fair
value if such asset is not considered to be recoverable based on estimated
future cash flows.
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and
balances were eliminated in consolidation.
D. CASH AND CASH EQUIVALENTS
Investments with original maturities of three months or less at date of
investment are considered by the Company to be cash equivalents. As of
December 31, 1998 and 1997 the Company's cash equivalents were comprised
primarily of U.S. dollar bank deposits. The carrying values of cash and
cash equivalents approximate market value.
E. MARKETABLE SECURITIES AND DEPOSITS - CURRENT AND NON-CURRENT
Under Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
management classifies investments as trading, available-for-sale, or
held-to-maturity at the time of purchase and periodically reevaluates such
designation. Debt securities are classified as "held-to-maturity" when the
Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated according to
yield-to-maturity. See Note 9A with regard to fair market value.
Available-for-sale securities are carried at fair value with the
unrealized gains and losses reported in shareholders' equity under the
caption "equity adjustments". The Company had no unrealized gains or losses
for the years ended December 31, 1998, 1997 and 1996. Gains or losses
arising from the realization of marketable securities are included in
financial income in accordance with the principles set forth in SFAS 115.
The carrying amount of short-term deposits approximates fair value because
of the short maturity of these instruments.
The Company's marketable securities consist primarily of high quality debt
securities with limited exposure to any single investment.
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15
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
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Note 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
F. TRADE RECEIVABLES AND DISTRIBUTORS
Trade receivables and distributors are stated net of allowance for
doubtful accounts. The allowance for doubtful accounts is calculated on
both specific and general bases in respect of those debts where, in
management's opinion, collection is doubtful.
The Company has entered into financing arrangements with certain software
customers primarily ranging from three to five years. The Company records
the present value of minimum payments under these arrangements as
installment receivables.
The unearned interest income is offset against the total installment
receivable and is amortized over the financing term in a manner that
approximates a constant rate of return.
The carrying values of trade receivables and distributors approximate
their fair value.
G. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the following
estimated useful lives:
Computers and peripheral equipment 3-5 years
Office furniture and equipment 5-15 years
Motor vehicles 7 years
Leasehold improvements Shorter of term of lease or
useful life of asset
Major renewals and improvements are capitalized, while repair and
maintenance are expensed as incurred.
Upon the sale or retirement of equipment, the cost and related
accumulated depreciation and amortization are eliminated from the
respective accounts and the resulting gain or loss is reflected in the
consolidated statement of income.
H OTHER ASSETS
1. In accordance with the principles set forth in Statement of
Financial Accounting Standards No. 86 "Accounting for Costs of
Computer Software to be Sold, Leased or Otherwise Marketed",
software development costs incurred in conjunction with product
development are charged to product development costs in the period
the cost is incurred until technological feasibility is
established. Thereafter, all software product development costs are
capitalized and reported at the lower of unamortized cost or net
realizable value. Software costs incurred in conjunction with
acquisition of technologically feasible products developed
externally are capitalized and reported at the lower of unamortized
cost or net realizable value.
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New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
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NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
H. OTHER ASSETS (CONT'D)
Amortization of capitalized software costs begins when the related
product is available for general release to customers and is provided
for each software product based on the greater of: (1) the straight-
line method over the estimated useful life of the product (usually 5
years) or (ii) the ratio of current gross revenues to the total of
current and anticipated future gross revenues from sales of the
related product.
Based on past experience, management believes that future revenues
related to these products will be sufficient to realize the amounts
capitalized as at December 31, 1998, and as such these amounts will be
recovered over the lives of the related projects.
The estimates of anticipated future revenues and remaining useful life
of the Company's products are subject to risk inherent in the software
industry, such as changes in technology and customer perceptions.
2. Deferred charges for the acquisition of distribution and marketing
rights and customer base from third parties are amortized over a
period of three to five years.
3. The Company assesses the carrying value of other assets on an annual
basis in order to determine whether an impairment has occurred,
taking into account both historical and forecasted results of
operations. If an impairment has occurred, the amount by which the
unamortized balance of the asset exceeds the net realizable value of
the asset shall be written off (See Note 2B).
I. REVENUE RECOGNITION
1. The Company has adopted Statement of Position No. 97-2, "Software
Revenue Recognition" ("SOP 97-2") as of the fourth quarter of 1997.
The adoption of SOP 97-2 does not adversely impact the Company's
financial position or results of operations.
2. Revenue from sale of software products includes license fees,
professional service revenues, consulting and education services.
Revenue from license fees is recognized after delivery and when
collection is probable. Fees from licenses with standard acceptance
periods are recognized as revenue upon shipment, provided there are no
significant post-delivery obligations. If the acceptance period is
longer than standard, revenues are not recognized until the end of the
acceptance period.
Each contract entitles the customer to maintenance for a one-year
period. The portion of the contract fee associated with providing
first-year maintenance is unbundled and recognized ratably over one
year. The Company uses the same percentage to compute first-year
maintenance included in the product licensing amount as it uses to
price maintenance renewals. Revenues from maintenance contracts are
deferred and recognized ratably over the renewal periods.
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17
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
I. REVENUE RECOGNITION (CONT'D)
3. In connection with long-term leases of software, the portion of the present
value of the lease payments related to the product is recognized as revenue
upon the commencement of the lease. Related interest and maintenance
revenue are recognized ratably over the corresponding lease term.
4. Revenue from sales through distributors in certain markets is recorded at
the net amount receivable from these distributors. In territories where
collection is not probable revenue is recognized on a cash basis.
J. COST OF REVENUES AND PRODUCT DEVELOPMENT
The Company has formulated and utilizes a method to desegregate its cost of
revenues based on: (i) specific employee hours dedicated to the appropriate
activities; and (ii) identification of certain costs incurred with respect to a
specific activity. The Company believes that this methodology is reasonable.
Cost of sales consists primarily of amortization of capitalized software and
royalties paid to software authors and the Office of the Chief Scientist of the
Ministry of Trade (See Note 6B).
K. ROYALTY BEARING PARTICIPATION FROM THE GOVERNMENT OF ISRAEL
The amounts received as participation from the Government of Israel in approved
programs for research and development activities are deducted from research and
development expenses as qualifying expenditures are made. See Note 6B relating
to commitments under these programs.
L. DEFERRED INCOME TAXES
Deferred income taxes are provided for temporary differences between the
Company's balance sheet items for tax and financial reporting purposes. The
Company utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109 ("SFAS 109"). In
accordance with paragraph 9(f) of SFAS 109, no deferred taxes have been
calculated in respect of the difference between changes in the exchange rate
and indexing recognized for tax purposes. Pursuant to the requirements of SFAS
109 the Company has provided a valuation allowance with respect to a portion of
its deferred tax assets which, more likely than not, will not be realized.
12
18
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
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NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
M. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign currency forward contracts and options
in order to reduce the impact of fluctuations of certain currencies
against the U.S. dollar resulting from existing trade receivables and
other monetary balances denominated in non-U.S. dollars. These
activities do not qualify as hedging activities according to Statement
of Financial Accounting Standards No. 52, "Foreign Currency
Translation".
Changes in the fair value (realized or unrealized) of these financial
instruments are reflected in the statement of income when they arise.
As at December 31, 1998 and 1997, the Company had no outstanding
derivative financial instruments.
N. EMPLOYEE STOCK OPTIONS
The Company has adopted Accounting Principles Board Opinion No. 25 --
"Accounting for Stock Issued to Employees", ("APB 25") and related
interpretations in accounting for its plans.
O. OPERATING SEGMENTS
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131"). The Company has provided enterprise-wide
disclosures as required. See Note 10A.
P. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128, "basic
earnings per share" are calculated based upon the weighted average
number of common shares actually outstanding, and "diluted earnings per
share" are calculated based upon the weighted average number of common
shares, common equivalent shares, and other convertible securities
outstanding.
Q. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation.
R. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS 130") with effect from January
1, 1998. SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed in the
same prominence as other financial statements. It requires that an
enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet.
Comprehensive income is the same as net income for all years presented.
13
19
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 3 -- PROPERTY AND EQUIPMENT
COST ACCUMULATED DEPRECIATION
--------------------------- ---------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
----------- ----------- ----------- -----------
Computers and peripheral equipment 10,083 10,077 4,683 5,602
Office furniture and equipment 2,006 2,246 898 1,007
Motor vehicles 1,978 1,704 570 692
Leasehold improvements 867 899 320 322
------ ------ ----- -----
14,934 14,926 6,471 7,623
====== ====== ===== =====
Balances of cost and accumulated depreciation in respect of fully depreciated
assets have not been presented.
Depreciation expenses amounted to $3,089 thousand, $2,331 thousand and $1,954
thousand for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 4 -- OTHER ASSETS
Changes in other assets are as follows:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Net cost as at January 1 13,682 10,662
Changes during the year:
Technology acquisition and capitalization of
product development costs 3,122 6,686 (1)
Acquisition of marketing rights 366 --
Amortization (4,434) (3,666)
------ ------
12,736 13,682
====== ======
- ------------
(1) In 1997, the U.S. subsidiary acquired certain software products developed
by Enlighten Software Solutions Inc. ("Enlighten") and related computer
equipment in exchange for $2,123 thousand, plus the assumption of deferred
maintenance liabilities as of the acquisition date. Additionally, the
subsidiary paid the supplier $300 thousand in advanced royalties. The
Company allocated the purchase price to the net assets acquired, as follows:
Purchased software 3,232
Computer equipment 100
Deferred maintenance assumed (1,209)
------
2,123
======
14
20
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 4 -- OTHER ASSETS (CONT'D)
Net cost is as follows:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Acquired technology 4,128 5,193
Capitalized software development costs 8,274 8,406
Marketing rights and customer base 334 83
----------- -----------
12,736 13,682
=========== ===========
For the year ended December 31, 1996, capitalization of product development
costs amounted to $2,782 thousand and amortization expenses amounted to
$3,030 thousand.
NOTE 5 -- SEVERANCE PAY
Under Israeli law, the Company is required to make severance payments to
dismissed employees (including officers) and to employees leaving
employment in certain other circumstances. The Company's severance pay
liability to its employees, which is calculated on the basis of the salary
of each employee for the last month of the reported period, multiplied by
the years of such employee's employment, is covered by payments to
insurance policies managed by insurance companies, deposits with a
recognized severance pay fund and by a provision in the Company's balance
sheet. Of the amounts funded, $2,126 thousand are deposited in insurance
policies as at December 31, 1998 (December 31, 1997 - $1,736 thousand).
The Company may make withdrawals from the fund only for the purpose of
disbursement of severance pay.
Severance pay expenses amounted to $1,009 thousand, $855 thousand and $693
thousand for the years ended December 31, 1998, 1997 and 1996,
respectively.
15
21
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS
The Company leases its office space at all locations under operating
leases that expire on various dates through October 2003 and are
renewable at the Company's option. Future minimum rental payments are
as follows:
YEAR ENDED DECEMBER 31
----------------------
1999 2,037
2000 1,890
2001 1,805
2002 1,549
2003 724
-----
8,005
=====
Rent expense was $2,079 thousand, $1,694 thousand and $1,614 thousand
for the years ended December 31, 1998, 1997 and 1996 respectively.
B. ROYALTY COMMITMENTS
1. The Company is committed to pay royalties to the Government of
Israel on proceeds from sales of products, the research and
development of which was carried out with Government
participation by way of grants. The royalty rates are 3%-5%.
Royalties are payable from the commencement of sale of each of
these products, until the cumulative amount of the royalties
paid equals 100% of the grant received, without interest.
The amount of grants received and accrued, net of royalties
paid and accrued, as at December 31, 1998 was $917 thousand.
2. The Company is committed to pay royalties to certain parties
that participated in the development of certain components of
its products. Such royalties are based on sales of products
incorporating those components and are paid based on a fixed
price per unit sold or as a rate of the unit sale price.
C. PURCHASE OF EQUIPMENT
Under the program for the expansion of the Company's production
facilities, the Company is committed as of December 31, 1998 to
purchase computers and other equipment at a total cost of
approximately $2.8 million. See Note 8A(1).
16
22
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 -- COMMITMENTS AND CONTINGENCIES (CONT'D)
D. CONTINGENT LIABILITIES
1. On December 23, 1998 the Supreme Court of Israel rejected the appeal
filed by the Company's former CEO, a major shareholder ("the former
CEO") regarding the judgement of the Tel-Aviv District Court dated
December 21, 1995. The Supreme Court thus rejected the former CEO's
claims regarding the validity of the Company's board of directors and
declared the board of directors legally constituted and its
resolutions, including the resolution to dismiss the former CEO,
binding.
In conjunction with the rejection of the former CEO's appeal, the
Supreme Court accepted the Company's appeal and approved the grant of
options during the course of the lawsuit to certain members of the
board of directors (present and former).
On January 5, 1999 the Supreme Court granted the former CEO an
extension of 30 days on the period during which a request for an
additional hearing may be filed.
2. On March 3, 1995, and May 15, 1995, respectively, the former CEO
filed two derivative actions in the Superior Court of California
(County of Orange) (the "Original California Court") against the
Company, one of its directors and its United States wholly owned
subsidiary, alleging misfeasance of the subsidiary's funds by that
director ("the Derivative Actions"). Both Derivative Actions have
been dismissed by the California Court on the ground that such court
does not constitute the proper forum for such Derivative Actions
(forum non convenience). The former CEO appealed both dismissals with
the California Court of Appeal. On February 1998 the Appellate Court
upheld both appeals and returned the Derivative Actions to the
Original California Court for hearing. Both Derivative Actions are
now pending with the Original California Court. In view of the nature
of the Derivative Actions the Company, based on the advice of legal
counsel, believes that it is not exposed to any financial liability
with respect to the Derivative Actions and thus there is no necessity
to record a liability in respect thereof.
3. In July 1995, the former CEO of the Company filed suit against a
subsidiary of the Company in the California Superior Court, Orange
County, alleging breach of an employment agreement and seeking
damages.
During February 1997 and July 1997, the subsidiary entered into two
partial settlement agreements with the former CEO, whereby the
subsidiary paid the plaintiff a total of $300,000. In July 1998 a
further agreement was entered into by the parties whereby the
plaintiff has dismissed without prejudice all claims that remain
pending, but retains the right to pursue arbitration of these
remaining claims. Of the total amount paid to the plaintiff, $100,000
will serve as an offset to any recovery by the plaintiff in any
arbitration of the remaining claims.
17
23
New Dimension Software Ltd
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
D. CONTINGENT LIABILITIES (CONT'D)
The Company, based on the advice of legal counsel, believes that the
final outcome will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
4. On November 2, 1998, the subsidiary, EagleEye Control Software, Ltd.
("the subsidiary"), filed an action with the Tel Aviv District Court
against a distributor, Memco Software Ltd. (the "Distributor")
requesting the court to order the Distributor to pay the subsidiary
the amount of $2 million due to it under a distribution agreement
between the parties and its amendments.
Under the distribution agreement, the Distributor agreed not to grant
Platinum Technology Inc. ("Platinum") or any of its majority owned
subsidiaries any rights in the subsidiary's products. Following the
merger announcements made the distributor and Platinum in August 1998,
the Distributor requested the subsidiary's consent to the assignment
of the Distributor's rights under the distribution agreement to
Platinum. The subsidiary denied the Distributor's request and
consequently the Distributor defaulted on two payments of $1,000,000
each, which were due under the provisions of the distribution
agreement on October 30, 1998 and January 30, 1999, respectively.
As a result of this refusal, the subsidiary filed the action. In
response, on December 3, 1998, the Distributor filed an application
for leave to defend with the Tel-Aviv District Court, alleging,
inter-alia, that the subsidiary's denial of its request to assign it
distribution rights to Platinum constitutes a breach of the
distribution agreement, thus entitling the Distributor to a refund of
amount previously paid to the subsidiary in the amount of
approximately $2.1 million. In its application the Distributor states
that upon receipt of leave to defend, it intends to file a counter
claim against the subsidiary for the amount of the alleged refund.
A first hearing in the matter is scheduled for October 1999. The
Company, based on the advice of legal counsel, believes that the
subsidiary's action has merit, but is unable at this stage to estimate
the outcome of the action and of the Distributor's counter claim,
should one be filed.
18
24
New Dimension Software Ltd.
and its subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 -- COMMITMENTS AND CONTINGENCIES (CONT'D)
D. CONTINGENT LIABILITIES (CONT'D)
5. The Company and its subsidiaries are involved in litigation
arising from the normal course of business. The Company, based
on the advice of legal counsel, believes that the final outcome
of such litigation will not have a material adverse effect on
the Company's financial position, results of operations or cash
flows.
E. CONCENTRATION OF CREDIT RISK
Financial instruments which may potentially subject the Company to
significant concentrations of credit risk consist of cash investments
and trade and distributor accounts receivable.
Cash and cash equivalents, and investments in marketable securities and
short-term deposits are maintained by major financial institutions in
Israel and the United States.
The Company grants credit to customers and distributors without
generally requiring collateral or security. The Company performs
ongoing credit evaluation of the financial condition of its customers
and distributors. The risk of collection associated with trade and
installment receivables is further mitigated by the large number and
geographical dispersion of the Company's customer base.
F. CONTINGENT REMUNERATION PLANS
1. Certain senior officers of the Company will be entitled to
special compensation not to exceed $1.5 million in the event
of a change in the control of the Company.
2. EagleEye Control Software Ltd. option conversion plan -- see
Note 7C.
NOTE 7 -- SHAREHOLDERS' EQUITY
A. SHARE CAPITAL
Share capital consists of ordinary shares of NIS 0.01 par value. As at
December 31, 1998 and 1997, 20,000,000 shares are authorized.
19
25
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - SHAREHOLDERS' EQUITY (CONT'D)
B. DIVIDENDS
Dividends may be paid by the Company only out of unconsolidated retained
earnings in Israeli currency as determined for Israeli statutory purposes (see
Note 8A(1)). There are no restrictions on the transfer of funds to foreign
shareholders for the payment of dividends.
C. OPTIONS
The shareholders at the Annual General Meeting held on September 30, 1992
approved the Company's 1992 stock option plan ("the 1992 Plan") under which the
Company may grant options of up to 1,000,000 shares. Subsequently, at the
Annual General Meetings held on November 15, 1994 and December 17, 1996 this
amount was increased to 2,000,000 and 2,357,000 shares, respectively. The 1992
Plan expires on September 30,2002. The 1992 Plan provides that options may be
granted to employees, directors, consultants and contractors of the Company.
A subsidiary, EagleEye Control Software Ltd. (hereinafter, "EagleEye")
maintains a separate option plan ("the EagleEye 1996 Plan") under which
EagleEye may grant options up to 20,000 shares. As of December 31, 1998,
EagleEye has 100,400 outstanding shares, all owned by the Company.
The two plans are designed to benefit from the provisions of Section 3(i) of
the Israel Income Tax Ordinance (New Version) 1961, with respect to employees
of the Company and from the provisions of the United States Internal Revenue
Code of 1986 (the "Code"), as amended with respect to employees of the
Company's U.S. subsidiary. The option awards are personal and non-assignable
and terminate automatically upon termination of employment (except for approved
retirement, termination caused by death or disability, or termination without
cause). The price per share under the option award is to be determined on the
date of grant, provided that (i) such price shall not be less than 75% of the
fair market value on such date; (ii) in the case of options which qualify as
"Incentive Stock Options" as defined in the Code, such price shall not be less
than 100% of the fair market value on such date or 110%, if at the time of
grant the optionee owns more than 10% of the voting stock of the Company. Under
the EagleEye 1996 plan, if such shares are not publicly traded at the time an
option is granted, "fair market value of a share" shall mean the per share fair
market value of EagleEye as conclusively determined and approved by EagleEye's
stock option committee or its Board of Directors.
Shares covered by the options granted and exercised but not paid for, as well
as shares available for future grants, have no voting rights or rights to cash
dividends.
20
26
New Dimension Software Ltd.
and it subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - SHAREHOLDERS' EQUITY (CONT'D)
C. OPTIONS (CONT'D)
The 1992 plan
A summary of the status of the Company's 1992 plan as of December 31,
1998, 1997 and 1996 and changes during the years ending on those dates is
presented below:
1998 1997 1996
-------------------------- -------------------------- --------------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
EXERCISE EXERCISE EXERCISE
(THOUSANDS) PRICE (THOUSANDS) PRICE (THOUSANDS) PRICE
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at
beginning of year 1,206 6.3 1,126 3.9 1,274 3.7
Granted 55 20.0 403 10.9 84 5.7
Validated* 195 4.3 300 3.9 -- --
Exercised (367) 4.6 (590) 3.7 (163) 3.7
Forfeited (100) 6.5 (33) 6.1 (69) 3.7
----------- ----------- -----------
Outstanding at
end of year 989 7.5 1,206 6.3 1,126 3.9
=========== =========== ===========
Options exercisable
at year end 533 5.1 501 4.0 744 3.7
=========== =========== ===========
- --------------
* As mentioned in Note 6D(1) above, the Company's appeal regarding the
granting of 125,000 options issued at an exercise price of $3.677 and
70,000 options issued at an exercise price of $5.375 to certain
directors, was sustained by the Supreme Court. Consequently, these
options were validated.
Furthermore, 70,000 options and 7,500 options issued at exercise
prices of $5.375 and $3.677 respectively, which had previously been
suspended by the District Court, were cancelled during 1998.
27
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 -- SHAREHOLDERS' EQUITY (CONT'D)
C. OPTIONS (CONT'D)
The following table summarizes information about stock options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
WEIGHTED
RANGE NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OF EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
- --------------- ----------- ----------------- --------------- ----------- ---------------
(IN US DOLLARS) (THOUSANDS) (IN YEARS) (IN US DOLLARS) (THOUSANDS) (IN US DOLLARS)
- --------------- ----------- ---------- --------------- ----------- ---------------
3.6 - 4.9 556 4.35 4.3 424 4.0
5.2 - 5.9 42 5.34 5.6 16 5.6
8.1 - 12.3 285 5.65 9.9 82 8.9
14.6 - 19.3 101 5.68 18.1 11 17.1
25.8 - 34.5 5 7.03 27.7 -- --
---- ----
Total 989 533
==== ====
EagleEye 1996 Plan
A summary of the status of the EagleEye 1996 Plan as at December 31,
1998 and 1997 is presented below:
1998 1997
--------- ---------
NUMBER OF NUMBER OF
SHARES SHARES
--------- ---------
Outstanding at beginning of year 6,800 --
Granted 500(1) 6,900
Forfeited (130) (100)
--------- ---------
Outstanding at end of year 7,170(2) 6,800
========= =========
Options exercisable at year end 2,945(3) 1,375
========= =========
(1) Until such time as EagleEye shares have been listed for trade
on any stock exchange, options granted subsequent to January 1,
1998, shall not be exercisable by way of acquisition of the
shares, and may only be redeemed against a cash payment by
EagleEye.
(2) Include 500 options with an exercise price of $348 and 6,670
options with an exercise price of $200. The weighted average
remaining contractual life is 6 years.
(3) The options have an exercise price of $200.
In December 1998, the Option Committee approved a plan for the
conversion of the outstanding EagleEye stock options into a cash bonus
in the event of a change in control of the Company. The computation of
the cash bonus will be based on the value of EagleEye relative to the
value of the Company.
22
28
New Dimension Software Ltd.
and its subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 7. -- SHAREHOLDERS' EQUITY (CONT'D)
C. OPTIONS (CONT'D)
Compensation expense
The Company applies APB 25 in accounting for its plans. The options
were granted at the market value of the shares on the date of the
grant. Accordingly, no compensation expense has been recognized for its
stock option plan. Had compensation expense for the Company's
stock-based compensation plan been determined based on the fair value
at the grant dates for awards under that plan consistent with the
method of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1998 1997 1996
------ ------ -----
Net income ($ thousands) As reported 20,530 10,966 5,452
Pro forma 19,193 9,627 5,030
Basic earnings per share($) As reported 1.71 0.95 0.49
Pro forma 1.60 0.83 0.45
Diluted earnings per share($) As reported 1.59 0.89 0.48
Pro forma 1.50 0.78 0.44
The fair value of each option grant is estimated on the date of the
grant using the Black and Scholes option pricing model with the
following assumptions:
OPTION RISK-FREE
TERM EXPECTED DIVIDEND INTEREST
YEAR OF GRANT (YEARS) VOLATILITY YIELD RATE
------------- ------- ---------- -------- -----------
1998 6 - 9 *54% - 73% 0% 4.5% - 5.8%
1997 6 - 9 54% - 77% 0% 6 %
1996 6 - 8 62% - 79% 0% 5.5% - 6 %
* With the exception of the EagleEye options, for which volatility
is 0%.
SFAS 123 does not apply to awards granted prior to 1995.
As required by SFAS 123, the Company has determined the weighted average
fair value of stock options granted during 1998 to be $12.76.
23
29
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 8-TAXES ON INCOME
A. TAX PROGRAMS UNDER VARIOUS ISRAELI TAX LAWS
1) Tax benefits under the Law for the Encouragement of Capital Investments
The Company's production facilities have been granted the status of an
"Approved Enterprise" under the Law for the Encouragement of Capital
Investment, 1959. An approved enterprise is eligible for reduced tax rates.
The Company qualifies as a foreign-invested company, thus the benefits to be
received are a maximum tax rate of 25% for a period of ten years or if the
Company elected to be taxed under the "Alternative Benefit Method" a tax
exemption for two years of the ten year benefit period and a maximum tax rate
of 25% during the additional eight years. (The approved enterprises of the
Company that were approved up to 1996 are eligible for four years of tax
exemption and six years of 25% tax rate.) The benefit period commences the
first year in which the approved enterprise generates taxable income but is
limited to 12 years from commencement of production or 14 years from the date
of approval, whichever is earlier. The first fiscal year of taxable income
from the approved enterprise was 1987, and the benefit period according to
this program has since been completed.
The Company's production facilities have undergone various expansions, some
of which have been completed and approved by the Investment Center, and some
of which have been completed but the final investment report has not yet been
submitted to the Investment Center.
As the Company elected to apply the Alternative Benefit Method, these
expansions, except the latest one will enjoy future tax exemption on the
increase in income derived from that approved expansion for a period of four
years and a reduced tax rate of 25% for an additional six years. The latest
expansion will be tax exempt for a period of two years and will be liable for
25% tax for the remaining eight years.
The tax exempt income attributable to the "Approved Enterprise" can be
distributed to shareholders without subjecting the Company to taxes only upon
the complete liquidation of the Company. The Company has determined that such
tax exempt income will not be distributed as dividends. Accordingly, no
deferred income taxes have been provided on income attributable to the
Company's "Approved Enterprise".
If the retained tax exempt income is distributed in a manner other than in
the complete liquidation of the Company, it would be taxed at the corporate
tax rate applicable to such profits as if the Company had not chosen the
alternative tax benefits (currently-25%) and an income tax liability would be
incurred of approximately $3,880 thousand as of December 31, 1998.
Income from sources other than the Approved Enterprises during the relevant
periods of benefits will be taxable at the regular corporate rate, which
currently is 36%.
24
30
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 8 -- TAXES ON INCOME (CONT'D)
A. TAX PROGRAMS UNDER VARIOUS ISRAELI TAX LAWS (CONT'D)
(2) Measurement of results for tax purposes under the Income Tax Law
(Inflationary Adjustments) - 1985
The Company is assessed for tax purposes under the Income Tax Law
(Inflationary Adjustments) - 1985. Under this law, the Company is
entitled to deduct from its taxable income an "Equity Preservation
Deduction" (which partially compensates for the decrease in the
value of shareholders' equity resulting from the annual increase
in the Israeli Consumer Price Index ("CPI") or has to add to its
taxable income an "Additional Amount" (which reflects the effect
of such increase in the Israeli CPI on the excess of depreciated
costs of fixed assets over shareholders' equity).
In January 1999 the Company elected to apply for US dollar
bookkeeping for tax purposes. The Company will apply these rules
during the tax years 1999 through 2001 and thereafter may extend
application of these rules on an annual basis.
B. TAXES ON INCOME
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- -----------
1998 1997 1996
----------- ----------- -----------
Income (loss) before taxes on income
Israel and its Israeli subsidiaries 19,353 11,716 6,739
Non-Israeli subsidiaries 3,675 732 (1,756)
----------- ----------- -----------
23,028 12,448 4,983
=========== =========== ===========
Taxes on income included in income
statements:
Current taxes:
Tax benefits from previous years -- -- (199)
Israel and its Israeli subsidiaries 2,193 318 369
Non-Israeli subsidiaries 236 220 136
----------- ----------- -----------
2,429 538 306
----------- ----------- -----------
Deferred taxes:
Israel (59) 944 (775)
Non-Israeli subsidiaries 128 -- --
----------- ----------- -----------
69 944 (775)
----------- ----------- -----------
2,498 1,482 (469)
=========== =========== ===========
25
31
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 8 -- TAXES ON INCOME (CONT'D)
C. DEFERRED INCOME TAXES
1. Comprised of:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Benefits from a loss carryforward 2,822 5,687
Other benefits (including allowance for doubtful accounts,
provision for vacation and severance pay) 571 423
Amortization of capitalization of software development costs,
acquired technology, marketing rights and customer base (617) (1,010)
Other 451 (45)
----------- -----------
Deferred tax asset, net 3,227 5,055
Less - valuation allowance (3,465) (5,224)
----------- -----------
Deferred tax liability, net (238) (169)
=========== ===========
2. Included in the balance sheet:
Deferred income tax - asset (Note 9B(2)) 506 811
liability (744) (980)
----------- -----------
(238) (169)
=========== ===========
D. RECONCILIATION OF THE STATUTORY TAX EXPENSE TO THE ACTUAL TAX EXPENSE
A reconciliation of statutory tax expense, assuming all income is taxed
at the statutory rate of 36% applicable to the income of companies in
Israel, and the actual tax expense, is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1996
----------- ----------- -----------
Income before taxes on income, as reported in the
consolidated statements of income 23,028 12,448 4,983
=========== =========== ===========
Statutory tax on the above amount 8,290 4,481 1,794
Tax effect of non-Israeli subsidiaries (959) (42) 632
Increase in taxes due to foreign withholding taxes 100 253 369
Taxes in respect of prior years 60 -- (199)
Tax benefits arising from the "Approved Enterprise" (5,383) (2,893) (703)
Permanent differences 93 167 1,249
Utilization of tax losses and inflationary
deductions in respect of which deferred
tax asset was not recorded in prior years -- (539) (2,917)
Recording of deferred income taxes in respect
of prior years -- (29) (775)
Increase in taxes arising from differences between
Israeli currency income and dollar income - net* 297 84 81
----------- ----------- -----------
Taxes on income for the reported year 2,498 1,482 (469)
=========== =========== ===========
* Resulting from the difference between the changes in the Israeli CPI (the
basis for computation of taxable income) and the exchange rate of Israeli
currency relative to the U.S. dollar.
26
32
New Dimension Software Ltd.
and it subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 8 -- TAXES ON INCOME (CONT'D)
E. TAX ASSESSMENTS
Final tax assessments have been received by the Company through the 1996
tax year (year ended December 31, 1996). Regarding the subsidiaries of the
Company: one Israeli subsidiary has received final tax assessments through
1994, and the other subsidiaries have not been assessed for tax purposes
since inception.
NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION
A. MARKETABLE SECURITIES AND DEPOSITS
Comprised of:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Short-term
Money market fund - available-for-sale 3,670 2,244
Debt securities - held-to-maturity 6,550 3,495
Deposits 221 292
----------- -----------
10,441 6,031
----------- -----------
Long-term
Debt securities - held-to-maturity(1) 462 1,575
Deposits 344 336
----------- -----------
806 1,911
----------- -----------
11,247 7,942
=========== ===========
The fair value of marketable securities held-to-maturity as at December 31, 1998
is $6,712 thousand (December 31, 1997 - $4,944 thousand).
- --------------
(1) Mature during year 2000.
27
33
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 -- SUPPLEMENTARY BALANCE SHEET INFORMATION (CONT'D)
B. RECEIVABLES
(1) TRADE RECEIVABLES AND DISTRIBUTORS
Comprised of:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Trade(1) 36,222 17,400
Distributors(2) 6,698 5,395
----------- -----------
42,920 22,795
=========== ===========
(1) As of December 31, 1998, are net of allowance for doubtful
accounts of $824 thousand (December 31, 1997 - $500 thousand)
(2) As of December 31, 1998, are net of allowance for doubtful
accounts of $466 thousand (December 31, 1997 - $300 thousand)
The expense recorded for uncollectible debts and allowance for doubtful
debts during the year ended December 31, 1998 amounted to $626 thousand
(December 31, 1997 and 1996 - $525 thousand and $152 thousand,
respectively).
(2) OTHER RECEIVABLES
Comprised of:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Deferred income taxes(1) 506 811
Other 2,700 2,391
----------- -----------
3,206 3,202
=========== ===========
(1) See also Note 2L and Note 8C.
28
34
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION (CONT'D)
C. LONG-TERM RECEIVABLES, NET
Comprised of:
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
Installment receivables 58,808 34,446
Less - unearned interest income (7,240) (6,359)
------- -------
Installment receivables, net* 51,568 28,087
Employees and other 212 295
------- -------
51,780 28,382
Less - current maturities (22,413) (10,130)
------- -------
29,367 18,252
======= =======
Aggregate maturities are as follows:
DECEMBER 31
1998
-----------
First year (current maturities) 22,413
Second year 13,676
Third year 8,714
Fourth year 4,962
Fifth year and thereafter 2,015
------
51,780
======
* See also Note 13A with respect to sale of receivables.
D. LONG-TERM DEFERRED INCOME
Aggregate maturities are as follows:
DECEMBER 31
1998
-----------
First year (current maturities) 21,524
------
Second year 9,860
Third year 6,695
Fourth year 3,758
Fifth year and thereafter 1,953
------
22,266
------
43,790
======
29
35
New Dimension Software Ltd
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 -- SUPPLEMENTARY BALANCE SHEET INFORMATION (CONT'D)
E. MONETARY BALANCES IN NON-DOLLAR CURRENCIES
DECEMBER 31, 1998
-----------------------------------------------------------------------
OTHER NON-DOLLAR
ISRAELI CURRENCY CURRENCIES
----------------------------------------- -----------------------
LINKED TO THE LINKED TO AUSTRALIAN
UNLINKED ISRAELI CPI THE U.S. DOLLAR DOLLAR OTHER
-------- ------------- --------------- ---------- -----
ASSETS
Current assets 1,217 169 1,279 3,288 2,899
Long-term
receivables -- 294 98 3,893 --
----- ----- ----- ----- -----
1,217 463 1,377 7,181 2,899
===== ===== ===== ===== =====
LIABILITIES
Current
liabilities 6,432 1,312 2,096 490 690
===== ===== ===== ===== =====
DECEMBER 31, 1997
-----------------------------------------------------------------------
OTHER NON-DOLLAR
ISRAELI CURRENCY CURRENCIES
----------------------------------------- -----------------------
LINKED TO THE LINKED TO AUSTRALIAN
UNLINKED ISRAELI CPI THE U.S. DOLLAR DOLLAR OTHER
-------- ------------- --------------- ---------- -----
ASSETS
Current assets 1,329 563 973 2,877 1,184
Long-term
receivables -- -- 152 5,197 246
----- ----- ----- ----- -----
1,329 563 1,125 8,074 1,430
===== ===== ===== ===== =====
LIABILITIES
Current
liabilities 3,275 662 1,764 764 99
===== ===== ===== ===== =====
The above reflects the exposure of the Company's monetary balances in
non-dollar currencies to the effect of changes in the rate of exchange of
the NIS or other non-dollar currencies to the U.S. dollar at each balance
sheet date.
30
36
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 10 - SUPPLEMENTARY INCOME STATEMENT DATA
A. GEOGRAPHIC AREAS AND MAJOR DISTRIBUTORS
The Company operates in a single industry with facilities in Israel, North
America, Australia and Europe. The Company's products form an integrated
family, thus its operations consist of one homogeneous activity sold by a
single sales force. The development of software products takes place in Israel
and the United States.
The Company adopted SFAS 131 in 1998. In accordance with the definition of
operating segments in SFAS 131, the Company has identified a single reportable
segment i.e. software with operations in the various geographic areas to which
sales are made, i.e., North America, Western Europe, Australia and New Zealand,
and the rest of world (includes Latin America, South America, Africa,
Asia/Pacific region). Prior year amounts have been restated to conform with
current year presentation.
The Company's revenues and long-lived assets by geographic areas are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- -----------
1998 1997 1996
----------- ----------- -----------
REVENUES:(1)
United States of America and Canada ............. 63,309 38,522 22,537
Australia and New Zealand ....................... 5,644 6,399 5,329
Europe .......................................... 13,799 11,031 10,090
Rest of the world ............................... 10,839 9,017 5,598
------ ------ ------
93,591 64,969 43,554
====== ====== ======
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
LONG-LIVED ASSETS:
Israel ......................................................... 15,076 15,505
North America .................................................. 6,019 5,341
Australia ...................................................... 104 139
------ ------
21,199 20,985
====== ======
- ------------
(1) Revenues are attributed to geographic areas based on location of customer.
31
37
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 10 - SUPPLEMENTARY INCOME STATEMENT DATA (CONT'D)
A. GEOGRAPHIC AREAS AND MAJOR DISTRIBUTORS (CONT'D)
The Company's revenues by major product lines are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------ ------------ -----------
1998 1997 1996
------------ ------------ -----------
Enterprise Security Management 9,781 2,190 960
Enterprise Output Management 19,180 12,776 10,263
Enterprise Production Management 59,065 49,178 32,331
Tandem 5,565 825 --
------ ------ ------
TOTAL REVENUES 93,591 64,969 43,554
====== ====== ======
Many of the Company's transactions include sales of a number of products. In
such cases the allocation of the entire transaction revenue between the
various products is based on the Company's price list. This allocation does not
necessarily reflect which of the products was the customer's primary purchase.
For the years ended December 31, 1998, 1997 and 1996, revenues from one
distributor aggregated 13.6%, 15.8% and 22.6%, respectively of total revenues.
B. PRODUCT DEVELOPMENT, NET
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------ ------------ ------------
1998 1997 1996
------------ ------------ ------------
Product development cost 12,713 8,962 6,758
Less - Capitalization of product
development costs, net (2,654) (2,379) (2,782)
- Royalty bearing participation (618) (488) --
------ ------ ------
Product development, net 9,441 6,095 3,976
====== ====== ======
32
38
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 10 -- SUPPLEMENTARY INCOME STATEMENT DATA (CONT'D)
C. SPECIAL INCOME
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------ ------------ ------------
1998 1997 1996
------------ ------------ ------------
Termination of distribution agreement (1) -- -- 227
Class action suit, net(2) -- -- 250
------------ ------------ ------------
-- -- 477
============ ============ ============
(1) Adjustment to a provision made in 1994 in respect of a termination
agreement with a major distributor.
(2) Adjustment to the settlement agreement in respect of the Class Action
Suit filed against the Company in 1994.
D. FINANCIAL INCOME, NET
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------ ------------ ------------
1998 1997 1996
------------ ------------ ------------
INCOME
Interest income from banks and others 905 836 891
Gain from debt securities 592 389 185
Interest income from installment receivables 2,401 515 251
------------ ------------ ------------
3,898 1,740 1,327
------------ ------------ ------------
EXPENSES
Interest and bank charges 121 71 84
Interest expense to tax authorities
and others -- 56 --
Exchange and translation loss, net 492 655 352
------------ ------------ ------------
613 782 436
------------ ------------ ------------
Financial income, net 3,285 958 891
============ ============= ============
33
39
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 10 -- SUPPLEMENTARY INCOME STATEMENT DATA (CONT'D)
E. EARNINGS PER SHARE ("EPS")
Following are the details of the basic and diluted EPS:
1998 1997 1996
----------------------------- ----------------------------- ------------------------------
NET NUMBER PER SHARE NET NUMBER PER SHARE NET NUMBER PER SHARE
INCOME OF SHARES AMOUNT INCOME OF SHARES AMOUNT INCOME OF SHARES AMOUNT
------ --------- --------- ------ --------- --------- ------ --------- ---------
Basic EPS 20,530 11,984 1.71 10,966 11,530 0.95 5,452 11,152 0.49
==== ==== ====
Effect of dilutive
securities:
Employee stock
options (91) *877 -- 799 -- 325
------ ------ ------ ------ ----- ------
Diluted EPS 20,439 12,861 1.59 10,966 12,329 0.89 5,452 11,477 0.48
====== ====== ==== ====== ====== ==== ===== ====== ====
* Include 195,000 options validated by the Supreme Court in 1998, as described
in Note 6D(1). These options were not included in the number of dilutive
securities in prior years, as they were suspended by the Tel-Aviv District
Court.
34
40
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company does not generally engage in transactions with related parties,
other than directors' fees.
A. BALANCES OWED TO, OR DUE FROM, RELATED PARTIES
Balances owed to or due from related parties are disclosed in the notes to the
financial statements. See Note 6D(3) with regard to settlement of employment
agreement and Note 7C with regard to validated options.
B. INCOME FROM, AND EXPENSES TO, RELATED PARTIES
Income from and expenses to related parties are immaterial.
NOTE 12 - RECENTLY ENACTED ACCOUNTING STANDARDS
1. In June 1998, the FASB issued statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes
in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction and, if it is, the type of
hedge transaction.
The Company expects to adopt SFAS 133 in the fiscal year beginning January
1, 2000. The adoption of SFAS 133 is not expected to have a material impact
on the Company's financial position or results of operations.
2. In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1"). SOP 98-1 is effective for fiscal years beginning after
December 15, 1998.
The Company will adopt SOP 98-1 in the fiscal year beginning January 1,
1999. The adoption of SOP 98-1 is not expected to have a material impact on
the Company's financial position or results of operations.
3. In April 1998 the AICPA issued Statement of Position 98-5, "Start-Up Costs"
("SOP 98-5"). According to this standard, the cost of start-up activities,
including organization costs, should be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998.
The Company will adopt SOP 98-5 in the fiscal year beginning January 1,
1999. The adoption of SOP 98-5 is not expected to have a material impact on
the Company's financial position or results of operations.
35
41
New Dimension Software Ltd.
and its subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1998
NOTE 13 - SUBSEQUENT EVENTS
A. Sale of Receivables
On January 25, 1999, the U.S. subsidiary sold, without recourse, three of
its installment receivable balances totaling approximately $6,924 thousand
for approximately $7,100 thousand. The Company has guaranteed the
performance of all its obligations in respect of these receivables.
B. Change in control (unaudited)
On April 14, 1999 a cash tender offer by BMC Software, Inc. ("BMC"), for
the purchase of all the issued and outstanding ordinary shares of the
Company, was consummated. The tender offer price was $52.50 per share.
As an inducement for BMC to enter into and consummate the tender offer, the
Company entered into settlement agreements with three non-executive
directors, subject to approval by the shareholders at the Special Meeting.
The agreements result from a dispute between the Company and the
non-executive directors regarding the allegation by the latter that the
Company promised to issue them 450,000 stock options. In view of the
requirement under Israeli law that any compensation to the non-executive
directors be approved by the Company's shareholders (whose approval was
never obtained or requested), the Company does not believe that the
non-executive directors are entitled to such options. In order to avoid
litigation and to allow the tender offer to proceed, the parties agreed to
settlement agreements, whereby upon closing of the tender offer, the
Company paid consideration of $7,500,000 in cash (plus Value Added Tax as
prescribed by law- currently 17%), less any amounts required to be withheld
pursuant to applicable tax regulations, and the non-executive directors
released the Company from any and all claims. The payment of the settlement
amount does not serve as an admission or acknowledgement by the Company of
any liability in connection with the non-executive directors' claims. The
agreements were contingent upon and subject to the closing of the tender
offer.
Furthermore, as an inducement for BMC to enter into and consummate the
tender offer, the former CEO and other parties to the litigation described
in Notes 6D(1)-(3) entered into mutual release agreements which became
effective upon the closing of the tender offer. The release agreements
were subject to the approval by the shareholders at the Special Meeting.
In connection with the release agreement, the Company reimbursed the former
CEO for his legal expenses incurred in connection with the abovementioned
litigation, in an amount of $500,000, upon the closing of the tender offer.
36
42
(b) Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheet as of March 31, 1999
Pro Forma Condensed Combined Statement of Earnings for the year
ended March 31, 1999
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
The following unaudited pro forma condensed combined financial statements
reflect adjustments to the historical consolidated balance sheets and statements
of earnings of BMC and New Dimension Software Ltd. ("New Dimension") to give
effect to the merger, using the purchase method of accounting for a
business combination.
The fiscal year ends for BMC and New Dimension occur at different dates.
BMC's fiscal year end is March 31 while New Dimension's fiscal year end is
December 31.
The unaudited pro forma condensed combined statement of earnings for the
year ended March 31, 1999 assumes the merger was effected as of April 1, 1998
and is based on the consolidated statement of earnings of BMC for the year ended
March 31, 1999 and on the consolidated statement of income of New Dimension for
the year ended December 31, 1998.
The unaudited pro forma condensed combined balance sheet as of March 31,
1999 assumes the merger was effected as of March 31, 1999 and is based on the
consolidated balance sheet of BMC as of March 31, 1999 and on the consolidated
balance sheet of New Dimension as of December 31, 1998.
The following unaudited pro forma condensed combined financial statements
have been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of BMC and New Dimension.
The following unaudited pro forma condensed combined statement of earnings is
not necessarily indicative of the results of operations that would have occurred
had the merger occurred on April 1, 1998, nor is it necessarily indicative of
the future operating results of the combined company. See "Notes to Unaudited
Pro Forma Condensed Combined Financial Statements" in this section for an
explanation of the pro forma adjustments.
43
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(In thousands)
MARCH 31, 1999 DECEMBER 31, 1998
BMC NEW DIMENSION PRO FORMA PRO FORMA
SOFTWARE, INC. SOFTWARE LTD. ADJUSTMENTS COMBINED
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 347,914 $ 20,024 $ (170,789)(a) $ 197,149
Investments....................................... 106,292 10,441 116,733
Trade Receivables................................. 359,002 42,920 401,922
Other current assets.............................. 60,217 3,206 63,423
---------- --------- ----------
Total Current Assets............................ 873,425 76,591 779,227
========== ========= ==========
Property and equipment, net......................... 244,359 8,463 252,822
Purchased and internally developed software, net.... 142,902 12,736 113,564 (b) 269,202
Investment Securities............................... 750,427 806 (21,243)(a) 727,726
(2,264)(a)
Other long-term assets.............................. 271,580 31,922 436,600 (b) 740,102
---------- --------- ----------
Total Assets.................................... $2,282,693 $ 130,518 $2,769,079
========== ========= ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of deferred revenue............... $ 411,172 $ 21,524 $ 432,696
Other current liabilities......................... 239,679 17,119 500,000 (a) 752,013
(28,280)(b)
23,495 (b)
---------- -------- ----------
Total Current Liabilities....................... 650,851 38,643 1,184,709
Deferred Revenue.................................... 297,477 22,266 319,743
Other long-term liabilities......................... -- 4,025 4,025
---------- -------- ----------
Total Liabilities............................... 948,328 64,934 1,508,477
========== ======== ==========
Stockholders' Equity:
Common Stock...................................... 2,366 51 (51)(b) 2,366
Additional Paid-in capital........................ 185,831 41,206 (41,206)(b) 185,831
Retained Earnings................................. 1,143,131 24,327 (23,495)(b) 1,090,611
(52,520)(b)
(832)(b)
Other stockholders' equity (deficit).............. 3,037 -- (21,243)(a) (18,206)
---------- -------- ----------
Total Stockholders' Equity..................... 1,334,365 65,584 1,260,602
---------- -------- ----------
Total Liabilities and Stockholders' Equity..... $2,282,693 $130,518 $2,769,079
========== ======== ==========
44
Unaudited Pro Forma Condensed Combined Statement of Earnings
For the Year Ended March 31, 1999
March 31, 1999 December 31, 1998
BMC New Dimension Pro Forma Pro Forma
Software, Inc. Software Ltd. Adjustments Combined
Revenues
Software license fees $ 906,858 $63,671 $ (13,480)(c) $ 957,049
Maintenance fees 397,018 29,920 426,938
------------------------- ----------
1,303,876 93,591 $1,383,987
Operating Expenses
Sales & Marketing 417,740 38,737 456,477
Research & Development 168,194 9,441 177,635
Cost of Maintenance &
product licenses 151,985 17,565 (13,480)(c) 156,070
General & Administrative 95,118 8,105 137,541 (b) 240,764
Merger related costs 38,305 -- 38,305
Acquired Research &
development costs 17,304 -- 17,304
------------------------- ---------
888,646 73,848 1,086,555
------------------------- ---------
Earnings from Operations 415,230 19,743 297,432
Other Income 62,686 3,285 (41,247)(d) 24,724
------------------------- ----------
Earnings before Taxes 477,916 23,028 322,156
Income Tax Provision 113,745 2,498 (62,576)(b)(d) 53,667
------------------------- ----------
Net Earnings $ 364,171 $20,530 $ 268,489
========== ======= ==========
Basic EPS $ 1.55 $ 1.71 $ 1.15
Diluted EPS $ 1.46 $ 1.59 $ 1.08
Shares used to calculate Basic EPS 234,255 11,984 234,255
Shares used to calculate Diluted EPS 248,647 12,861 248,647
45
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statement of earnings for the
year ended March 31, 1999 is based on the consolidated statement of earnings
of BMC for the year ended March 31, 1999 and New Dimension for the year ended
December 31, 1998.
The unaudited pro forma condensed combined balance sheet is based on the
consolidated balance sheets of BMC at March 31, 1999 and New Dimension at
December 31, 1998, after giving effect to the adjustments and assumptions
described below.
The unaudited pro forma condensed combined balance sheet reflects expenses
expected to be incurred by BMC and New Dimension in connection with the merger;
however, the unaudited pro forma condensed combined statement of earnings does
not reflect such expenses. The unaudited pro forma condensed combined financial
statements do not reflect the effect of cost savings and revenue enhancements,
if any, which may be realized after consummation of the merger.
BMC and New Dimension employ accounting policies that are in accordance
with generally accepted accounting principles in the United States. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates. In the opinion of
management, the unaudited pro forma condensed combined financial statements
include all adjustments necessary to present fairly the pro forma financial
position of BMC and New Dimension and the pro forma results of operations of
BMC and New Dimension.
NOTE 2. PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed combined financial statements include the
following adjustments.
(a) Purchase Price. The unaudited pro forma financial information assumes
a total purchase price for New Dimension of approximately $673
million, including transaction costs of approximately $7.2 million. In
order to fund the purchase price, BMC entered into a revolving credit
facility with a group of banks on which BMC borrowed approximately
$500 million of short-term borrowings. The remaining consideration was
satisfied from BMC's existing working capital. The purchase price also
includes approximately $2.3 million representing BMC's basis in
approximately 452,800 shares of New Dimension common stock owned by
Boole & Babbage, Inc. (Boole) prior to the merger of BMC and Boole
which was completed on March 30, 1999. These shares have been
reflected in BMC's historical financial information at current market
value which, as of March 31, 1999, approximated $51.52 per share, and
as such, a pro forma adjustment has been made to eliminate an
unrealized gain of approximately $21.2 million. The shares of New
Dimension common stock held by Boole have been assumed to be owned by
BMC prior to the tender offer, and therefore are not deemed to be
outstanding as of the tender offer and not subject to the tender offer
price of $52.50 per share for purposes of calculating the purchase
price.
(b) Purchase Price Allocation. The purchase price allocation for acquired
in-process research and development is approximately $80.8 million
($52.5 million, net of income taxes). The purchase price allocation
for software assets is approximately $126.3 million and goodwill and
other intangibles is approximately $436.6 million. A pro forma
adjustment has been made to increase the book value of software assets
to the allocated value. Amortization of the acquired software assets
and goodwill and other intangibles will occur over a four year life,
resulting in an annual noncash amortization expense of $140.7 million
($91.5 million, net of income taxes). A pro forma adjustment has been
made for the increased amortization associated with software assets,
goodwill and other intangibles. Approximately $29.4 million has been
allocated to assets and liabilities such as receivables, equipment,
accounts payable and accrued liabilities. The net assets of New
Dimension as of December 31, 1998, have been reduced by estimated
transaction costs of approximately $26.1 million ($23.5 million, net
of income taxes). The equity balances of New Dimension have been
eliminated in accordance with purchase accounting.
(c) Elimination of Distributor Payments. The unaudited pro forma
financial information eliminates distributor payments between BMC and
New Dimension resulting from a distributor arrangement between Boole
and New Dimension of $13.5 million for the year ended March 31, 1999.
(d) Interest. The unaudited pro forma financial information includes
interest expense related to short term borrowings of $500 million at
6.0% per annum and reduced interest income associated with the use of
approximately $171 million of cash and investments with an
approximate return of 6.0% per annum.
Note 3. Pro Forma Earnings per Common Share
Basic and Diluted pro forma EPS were calculated using the basic and
diluted weighted average shares outstanding of BMC for the year
ended March 31, 1999. All outstanding common shares of New Dimension were
assumed to be retired as of April 1, 1998, as a result of the tender offer, for
purposes of the pro forma financial statements.
46
SIGNATURE
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 hereunto duly authorized.
BMC SOFTWARE, INC.
Date: June 28, 1999 By: /s/ Kevin M. Klausmeyer
------------------------------
Name: Kevin M. Klausmeyer
Title: Vice President,
Controller and
Chief Accounting Officer