SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER 0-17136 BMC SOFTWARE, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-2126120 (State or other jurisdiction of (IRS Employer identification No.) incorporation or organization) BMC Software, Inc. 2101 CityWest Boulevard Houston, Texas 77042 (Address of principal executive officer) (Zip Code) Registrant's telephone number including area code: (713) 918-8800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of November 1, 1995, there were outstanding 50,394,264 shares of Common Stock, par value $.01, of the registrant.
BMC SOFTWARE, INC. AND SUBSIDIARIES Quarter Ended September 30, 1995 INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets September 30, 1995 (Unaudited) and March 31, 1995 3 Condensed Consolidated Statements of Earnings Three months and six months ended September 30, 1995 and 1994 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows Six months ended September 30, 1995 and 1994 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 2
Part I. FINANCIAL INFORMATION Item 1. Financial Statements BMC SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> September 30, March 31, ASSETS 1995 1995 ------------- --------- (Unaudited) <S> <C> <C> Current assets: Cash and cash equivalents $ 43,728 $ 39,494 Securities held to maturity 77,189 54,330 Trade accounts receivable, net 73,153 64,741 Other accounts receivable 7,556 5,641 Prepaid expenses and other 3,278 6,432 Deferred income and other taxes 12,207 12,262 -------- -------- Total current assets 217,111 182,900 -------- -------- Property and equipment, net 102,733 101,288 Software development costs, net 20,116 16,499 Purchased software, net 14,176 11,118 Securities held to maturity 176,605 180,009 Finance receivables, long-term 6,802 8,047 Deferred charges and other assets 3,411 2,788 -------- -------- $540,954 $502,649 ======== ======== </TABLE> See accompanying notes to condensed consolidated financial statements. 3
BMC SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share information) (continued) <TABLE> <CAPTION> September 30, March 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995 ------------- --------- (Unaudited) <S> <C> <C> Current liabilities: Trade accounts payable $ 9,888 $ 11,344 Accrued liabilities 20,396 35,564 Taxes payable 12,366 3,427 Current portion of deferred revenue 97,628 97,399 -------- -------- Total current liabilities 140,278 147,734 -------- -------- Deferred revenue and other 41,308 48,761 -------- -------- Total liabilities 181,586 196,495 -------- -------- Stockholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding -- -- Common stock, $.01 par value, 180,000,000 shares authorized, 52,520,000 shares issued 525 525 Additional paid-in capital 62,581 67,864 Retained earnings 349,953 296,204 Foreign currency translation adjustment 6 (282) -------- -------- 413,065 364,311 Less treasury stock (1,898,000 and 2,019,000 shares, respectively) 50,909 54,694 Less unearned portion of restricted stock compensation 2,788 3,463 -------- -------- Total stockholders' equity 359,368 306,154 -------- -------- $540,954 $502,649 ======== ======== </TABLE> See accompanying notes to condensed consolidated financial statements. 4
BMC SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended Six Months Ended September 30, September 30, 1995 1994 1995 1994 ------- --------- -------- --------- <S> <C> <C> <C> <C> Revenues: Licenses $49,270 $ 45,957 $104,066 $ 90,268 Maintenance 38,980 34,043 77,484 67,732 ------- --------- -------- --------- Total revenues 88,250 80,000 181,550 158,000 ------- --------- -------- --------- Operating expenses: Selling and marketing 22,247 20,181 46,819 40,649 Research and development 13,201 12,996 27,307 26,915 Cost of maintenance services and product licenses 10,456 7,023 20,727 15,212 General and administrative 7,889 7,507 15,827 13,701 ------- --------- -------- --------- Total operating expenses 53,793 47,707 110,680 96,477 ------- --------- -------- --------- Operating income 34,457 32,293 70,870 61,523 Other income 3,902 2,900 7,585 5,700 ------- --------- -------- --------- Earnings before taxes 38,359 35,193 78,455 67,223 Income taxes 12,076 10,910 24,706 20,839 ------- --------- -------- --------- Net earnings $26,283 $ 24,283 $ 53,749 $ 46,384 ======= ========= ======== ========= Earnings per share $ .50 $ .48 $ 1.03 $ .91 ======= ========= ======== ========= Shares used in computing earnings per share 52,667 50,590 52,250 50,993 ======= ========= ======== ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 5
BMC SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended September 30, 1995 1994 -------- -------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 53,749 $ 46,384 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 13,246 6,175 Net change in receivables, payables and other items (8,783) 1,213 -------- -------- Total adjustments 4,463 7,388 -------- -------- Net cash provided by operating activities 58,212 53,772 -------- -------- Cash flows from investing activities: Cash paid for technology acquisitions/purchase options (14,867) -- Purchased software and related assets (3,903) -- Net capital expenditures (7,967) (8,235) Capitalization of software development (8,496) (1,500) Purchases of securities held to maturity (46,132) (51,162) Proceeds from securities held to maturity 26,677 38,653 (Increase) decrease in long-term finance receivables 1,245 (8,019) -------- -------- Net cash used in investing activities (53,443) (30,263) -------- -------- Cash flows from financing activities: Earned portion of restricted stock compensation 675 (549) Income tax reduction relating to stock options 1,313 1,107 Stock options exercised and other 3,051 -- Net treasury stock acquired (5,862) (40,558) -------- -------- Net cash used in financing activities (823) (40,000) -------- -------- Effect of exchange rate changes on cash 288 208 -------- -------- Net change in cash and cash equivalents 4,234 (16,283) Cash and cash equivalents at beginning of period 39,494 37,814 -------- -------- Cash and cash equivalents at end of period $ 43,728 $ 21,531 ======== ======== Supplemental disclosure of cash flow information: Cash paid for Income taxes $ 14,456 $ 16,833 Treasury stock to be issued for technology acquired 1,000 -- </TABLE> See accompanying notes to condensed consolidated financial statements. 6
BMC SOFTWARE, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Note 1 - Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of BMC Software, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the Company's annual audited financial statements for the year ended March 31, 1995, as filed with the Securities and Exchange Commission on Form 10-K. Note 2 - Earnings Per Share Earnings per share is based on the weighted average number of common shares and common stock equivalents outstanding for the period. For purposes of this calculation, outstanding stock options and unearned restricted stock shares are considered common stock equivalents using the treasury stock method. Fully diluted earnings per share is the same as, or not materially different from, primary earnings per share and, accordingly, is not presented. Note 3 - Securities Held to Maturity Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each subsequent balance sheet date. The Company has the ability and intent to hold all securities in its portfolio to maturity and thus has classified these securities as "held to maturity" pursuant to Statement of Financial Accounting Standards (SFAS) No.115. These securities have been recorded at amortized cost in the Company's balance sheets. The following table summarizes the Company's securities as of September 30, 1995 and March 31, 1995: 7
BMC SOFTWARE, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (continued) <TABLE> <CAPTION> September 30, March 31, 1995 1995 ------------------- ------------------ Carrying Market Carrying Market amount value amount value -------- -------- -------- -------- (in thousands) <S> <C> <C> <C> <C> MARKETABLE SECURITIES (MATURITIES WITHIN 1 YEAR) Municipal Securities $ 41,017 $ 40,957 $ 32,652 $ 32,583 Preferred stock 27,950 27,950 19,050 19,050 Corporate Notes, Bonds and Other 8,222 8,201 2,628 2,572 -------- -------- -------- -------- $ 77,189 $ 77,108 $ 54,330 $ 54,205 -------- -------- -------- -------- MARKETABLE SECURITIES (MATURITIES FROM 1-5 YEARS) Municipal Securities $136,073 $137,357 $122,212 $121,586 Preferred stock 0 0 8,900 8,900 Corporate Notes, Bonds and Other 40,532 43,442 48,897 48,749 -------- -------- -------- -------- $176,605 $180,799 $180,009 $179,235 -------- -------- -------- -------- $253,794 $257,907 $234,339 $233,440 ======== ======== ======== ======== </TABLE> Note 4 - Stock Split On July 19, 1995, the Company declared a two-for-one stock split of its common stock. The stock split was effected in the form of a stock dividend. Stockholders of record at the close of business on August 4, 1995, received one share of common stock for each share held. The payment date for the distribution of shares was August 14, 1995. All stock related data in the financial statements reflects the stock split for all periods presented. 8
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that selected items in the Condensed Consolidated Statements of Earnings bear to total revenues: <TABLE> <CAPTION> Percentage of Total Revenues Three Months Ended Six Months Ended September 30, September 30, 1995 1994 1995 1994 ------ ------ ------ ------ <S> <C> <C> <C> <C> Revenues: License 55.8% 57.4% 57.3% 57.1% Maintenance 44.2 42.6 42.7 42.9 ----- ----- ----- ----- Total revenues 100.0 100.0 100.0 100.0 Operating expenses: Selling and marketing 25.2 25.2 25.8 25.7 Research and development 15.0 16.2 15.1 17.0 Cost of maintenance services and product licenses 11.8 8.8 11.4 9.6 General and administrative 8.9 9.4 8.7 8.7 ----- ----- ----- ----- Operating income 39.1 40.4 39.0 39.0 Other income 4.4 3.6 4.2 3.6 ----- ----- ----- ----- Earnings before taxes 43.5 44.0 43.2 42.6 Income taxes 13.7 13.6 13.6 13.2 ----- ----- ----- ----- Net earnings 29.8% 30.4% 29.6% 29.4% ===== ===== ===== ===== </TABLE> 9
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Revenues <TABLE> <CAPTION> Three Months Ended Six Months Ended September 30, September 30, (in thousands) (in thousands) ------------------- ------------------ 1995 1994 Change 1995 1994 Change ------- ------- ------ -------- -------- ------ <S> <C> <C> <C> <C> <C> <C> North American license revenues $31,514 $27,368 15.1 % $ 65,810 $ 60,495 8.8% International license revenues 17,756 18,589 (4.5)% 38,256 29,773 28.5% ------- ------- ---- -------- -------- ---- Total license revenues 49,270 45,957 7.2 % 104,066 90,268 15.3% Maintenance revenues 38,980 34,043 14.5 % 77,484 67,732 14.4% ------- ------- -------- -------- Total revenues $88,250 $80,000 10.3 % $181,550 $158,000 14.9% ======= ======= ======== ======== </TABLE> LICENSE REVENUES The license revenues line item consists of two categories of revenues: product license fees and CPU upgrade fees. Product license fees are (a) fees paid when a customer licenses its first copy or additional copies of a product and (b) license restructuring fees, which are fees a customer may pay, generally as part of an enterprise license transaction, to acquire additional permanent discounts that will be used in calculating future charges for already licensed products, including maintenance fees, CPU upgrade fees and product license fees for additional copies. CPU upgrade fees are fees charged when a customer acquires the right to install and run an already licensed product on additional processing capacity, whether measured traditionally by CPU tier or, under enterprise license terms, by millions of instructions per second ("MIPS"). The product upgrade fee category includes upgrade fees for both current additional processing capacity and for future additional processing capacity. Total CPU upgrade fees for the quarter and six months ended September 30, 1995, as a percentage of total revenues, were in the low twenty percent range. North American license revenues comprised 64% and 63% of total license revenues in the quarter and six months ended September 30, 1995, respectively. North American license revenue growth in the second quarter was derived principally from higher sales of the Company's open systems products and upgrade fees for current processing capacity. These components, as well as restructuring fees, contributed the majority of North American license revenue growth for the six month period. International license revenues contributed 36% of total license revenues in the second quarter and 37% of total license revenues in the first six months of fiscal 1996. While sales of open systems products and upgrade fees for future additional processing capacity in the second quarter of fiscal 1996 increased over the comparable prior year quarter, these increases were offset by a significant reduction in upgrade fees for current processing capacity, resulting in a decrease overall in international license revenues. International license revenues received a benefit of approximately 4% from the weakening of the dollar from the second quarter of fiscal 1995. For the six months ended September 10
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) 30, 1995, international license revenues increased 28.5% primarily as a result of increased open systems product licenses and upgrade fees for future additional processing capacity. The Company continues to rely upon enterprise license fees as a significant component of license revenue growth, license revenues and total revenues. An enterprise license converts a customer's traditional, CPU tier-based licenses to a MIPS-based license that allows the customer to run an unlimited number of copies of a product on its CPUs without regard to size, subject to a maximum limit on the aggregate power of the CPUs as measured in MIPS. In a typical enterprise license transaction, the customer pays the restructuring fee described above to secure a more favorable discount and pays significant upgrade fees for future additional processing capacity in anticipation of MIPS growth over the term of the agreement. For the six months ended September 30, 1995, the revenue contribution from restructuring fees and upgrade fees for future additional processing capacity was 19% of total revenues, consistent with the results from the fiscal year ended March 31, 1995. The Company's operating results are dependent upon the continued demand for enterprise license transactions, which will depend upon customers' increasing reliance on their IBM mainframe database management systems and a resulting increase in the mainframe MIPS on which they run their installed base of the Company's products. The database management line of products, comprising the company's tools and utilities for IBM's IMS and DB2 mainframe database management systems, contributed approximately 71% of total revenues and 71% of license revenues in the second quarter. Total revenues and license revenues from these product lines increased 8% and 1%, respectively, compared to the year-ago second quarter. For the six month period, the database management product lines contributed 72% of total revenues and 73% of license revenues, representing growth of 13% and 10%, respectively, over the comparable, prior year six month period. MAINTENANCE REVENUES Maintenance revenues represent maintenance fees charged to perpetual license customers entitling them to product enhancements, technical support services and ongoing compatibility with third-party operating systems. A warranty period of one year is included in the initial license for the Company's mainframe products; accordingly, the Company classifies a portion of the initial license fee as maintenance. All maintenance revenues are recognized ratably over the term of the maintenance agreement. The increase in maintenance revenues is attributable to a growing installed base of the Company's products resulting from additional license sales as well as CPU upgrades, which generate higher maintenance fees. The growth rate in maintenance revenues has slowed primarily as a result of the higher discounts granted to customers as a result of license restructurings and enterprise license agreements. 11
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Expenses <TABLE> <CAPTION> Three Months Ended Six Months Ended September 30, September 30, (in thousands) (in thousands) ------------------- ------------------ 1995 1994 Change 1995 1994 Change ------- ------- ------ -------- -------- ------ <S> <C> <C> <C> <C> <C> <C> Selling and marketing expenses $22,247 $20,181 10.2% $ 46,819 $40,649 15.2% Research and development expenses 13,201 12,996 1.6% 27,307 26,915 1.5% Cost of maintenance services and product licenses 10,456 7,023 48.9% 20,727 15,212 36.3% General and administrative expenses 7,889 7,507 5.1% 15,827 13,701 15.5% ------- ------- -------- ------- Total operating expenses $53,793 $47,707 12.8% $110,680 $96,477 14.7% ======= ======= ======== ======= </TABLE> SELLING AND MARKETING EXPENSES Selling and marketing expenses increased primarily as a result of the addition of software consultants, sales representatives and marketing personnel related to the Company's new software offerings in the open systems market. The growth in selling and marketing expenses was offset by a reduction in commission expense largely due to changes in the sales commission plan. The Company also incurred certain costs relative to international sales personnel changes. As a percentage of total revenues, the Company's total selling and marketing expenses have remained constant in a range of 25% to 26% of total revenues. RESEARCH AND DEVELOPMENT EXPENSES The Company's research and development expenditures in the second quarter and in the first six months of fiscal 1996 increased slightly over the second quarter and the first six months of fiscal 1995. Virtually all of the growth in research and development expenses during the second quarter and during the first six months was capitalized into software development costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 86. These costs directly relate to new product development of open systems and mainframe software products. As a percentage of total revenues, research and development expenses decreased to 15% in the second quarter of fiscal 1996 from 16% in the second quarter of fiscal 1995. COST OF MAINTENANCE SERVICES AND PRODUCT LICENSES Cost of maintenance services and product licenses expenses consist of amortization of purchased and internally developed software, compensation of technical support personnel and royalty fees. These costs have increased in the second quarter of fiscal 1996 primarily as a result of the increased amortization of purchased and internally developed software. Also, increases in royalty fees have contributed to the increase in cost of maintenance services and product licenses. As a percentage of total revenues, these expenses increased from 9% in the second quarter of fiscal 1995 to 12% in the second quarter of fiscal 1996. 12
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) For the second quarter of fiscal 1996, the Company capitalized $4,319,000 in software development costs pursuant to SFAS No. 86. The Company amortized software costs of $2,367,000 during the second quarter of fiscal 1996. In the second quarter of fiscal 1995, the Company capitalized $1,500,000 in software development costs and recorded $631,000 in amortization of internally developed software. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased only slightly from the second quarter of fiscal 1995. The small growth in general and administrative expenses is primarily the result of lower executive bonuses. Executive bonuses are based on the increase in net income over the same quarter in the previous fiscal year. General and administrative expenses for the first six months of fiscal 1996 have grown 16% over general and administrative expenses in the same period in fiscal 1995. The primary contributor to this growth rate was the relatively low level of discretionary general and administrative expense in the first quarter of fiscal 1995. As a percentage of total revenues, the Company's general and administrative expenses have remained unchanged at 9%. OTHER INCOME For the second quarter of fiscal 1996, other income was $3,902,000, reflecting an increase of 35% over $2,900,000 of other income in the same quarter of fiscal 1995. Other income consists primarily of interest earned on tax-exempt municipal securities, auction preferred stock, Eurodollar deposits, financed receivables and money market funds. The increase is primarily the result of the increase in cash available for investment. INCOME TAXES For the second quarter of fiscal 1996, income tax expense was $12,076,000, compared to $10,910,000 for the same quarter in fiscal 1995. The Company's income tax expense represents the federal statutory rate of 35%, plus certain state taxes, reduced by the benefit from the Company's Foreign Sales Corporation, the effect of tax exempt interest earned from temporary cash investments and foreign income taxes. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth through funds generated from operations. As of September 30, 1995, the Company had cash, cash equivalents and securities of $297,522,000. The Company's Board of Directors has authorized the purchase of up to 4,000,000 shares of common stock. During the quarter ended September 30, 1995, the Company did not repurchase any shares of its common stock in open market transactions; however, during October 1995 the Company repurchased 615,000 shares of its common stock for approximately $21,250,000. As of October 31, 1995, approximately 700,000 shares of the Board of Directors' authorization remain to be purchased. 13
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) The Company believes that existing cash balances and funds generated from operations will be sufficient to meet its liquidity requirements for the foreseeable future. FACTORS THAT MAY AFFECT FUTURE RESULTS Numerous factors affect the Company's operating results, including general economic conditions, market acceptance of its products and competitive pressures. The Company derives over 90% of its revenues from software products for IBM and IBM-compatible mainframe computers. CPU upgrade fees and enterprise license transactions are an integral component of the Company's mainframe business and the percentage of license revenues contributed by enterprise license transactions has increased over the last two fiscal years. See "Results of Operations-Revenues-License Revenues" above. The Company believes that, over the past two years, this business has been driven by an increase in customers' long term investments in their mainframe systems and processing capacity as hardware costs have declined dramatically and the efficacy of the mainframe platform was reaffirmed for large enterprises. The Company's future operating results are dependent upon customers' continued requirements for, and investment in, their mainframe systems software and customers' continually increasing need to use the Company's existing software products on greater mainframe processing capacity. Future operating results are also dependent on sustained improvement of the Company's international operating results. The Company's stock price has been highly volatile over the last several years. Future revenues, earnings and stock prices may be subject to wide swings, particularly on a quarterly basis. The stock price of software companies in general, and the Company in particular, is primarily based on expectations of future revenue and earnings growth. Any failure of revenues or earnings to meet expected levels in a period would likely have an adverse effect on the CompanyOs stock price. A high percentage of the Company's sales is closed at the end of each quarter, and there has been and continues to be a trend toward larger single sales transactions, which can have extended sales cycles and are less predictable. The Company may not know whether revenues and earnings will meet expected results until the end of a quarter. The Company's ability to sustain growth depends in part on the timely development or acquisition of successful new and updated products. The Company is investing heavily in the development of new products for the rapidly growing open systems market and for its existing mainframe market. The Company believes it has the resources to compete effectively in these markets. Software development is, however, a complex and creative process that can be difficult to accurately schedule and predict, and the Company has experienced long development cycles for certain of its products. As is typical in its industry, the Company has experienced product delays in the past and may have delays in the future. Delays in new product introductions or less-than-anticipated market acceptance of these new products could have an adverse effect on the Company's revenues and earnings. Further, the Company's strategic plans contemplate significant revenue growth from its client/server product families. This market is highly dynamic and is characterized by rapid change and intense competition. While the Company believes its products that address this market, including 14
BMC SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) those under development, will compete effectively, this market will be relatively unpredictable over the next few years. CPU upgrade fees contributed 19%, 27% and 25% of total revenues in fiscal years 1993, 1994 and 1995. The charging of upgrade fees based on CPU tier classifications is standard among mainframe systems software vendors, including IBM. The pricing of mainframe systems software, including the charging of tier-based upgrade fees, is under continued pressure from customers. Although the Company has adopted MIPS-based pricing for enterprise licenses, it has not significantly changed the fact that customers pay more to use its products on more powerful CPU's. The Company believes its current pricing policies most properly reflect the value provided by its products. IBM provides alternatives to tier-based pricing with respect to its large mainframe CPUs. This action has increased pricing pressures within the mainframe systems software markets. The advent of IBM's "Sysplex" pricing of its mainframe systems software when installed in a complex of coupled mainframe CPUs may additionally increase these pricing pressures. If changes in mainframe systems software pricing or increased competition were to result in significant price decreases that were not offset by sales volume increases, the Company's business and financial results would be adversely affected. 15
BMC SOFTWARE, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Stockholders Meeting was held on August 28, 1995. At the meeting, the stockholders elected all of the management's six nominees to serve as directors for the following year and ratified the selection of Arthur Andersen LLP as the Company's independent auditors for fiscal 1996. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. (b) REPORTS ON FORM 8-K. None 16
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BMC SOFTWARE, INC. Date: November 14, 1995 By: /S/ MAX P. WATSON JR. ------------------------- -------------------------------- Max P. Watson Jr. Chairman of the Board, President and Chief Executive Officer Date: November 14, 1995 By: /S/ KEVIN M. KLAUSMEYER ------------------------- -------------------------------- Chief Accounting Officer 17