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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
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 001-16393
BMC SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2126120
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
BMC SOFTWARE, INC.
2101 CITYWEST BOULEVARD
HOUSTON, TEXAS 77042-2827
(Address of principal executive offices) (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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of August 11, 2003, there were outstanding 227,660,435 shares of Common
Stock, par value $.01, of the registrant.
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BMC SOFTWARE, INC. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 2003
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2003 and
June 30, 2003 (Unaudited)............................................... 3
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the three months ended June 30, 2002
and 2003 (Unaudited)..................................................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended June 30, 2002 and 2003 (Unaudited)......................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited).......... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition....................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 22
Item 4. Controls and Procedures...................................................... 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 23
Item 6. Exhibits and Reports on Form 8-K............................................. 23
Signatures................................................................... 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
MARCH 31, JUNE 30,
2003 2003
------------ -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 500.1 $ 428.1
Marketable securities...................................... 151.7 255.5
Trade accounts receivable, net............................. 186.4 150.0
Current trade finance receivables, net .................... 154.4 107.8
Other current assets....................................... 105.6 107.9
----------- -----------
Total current assets................................ 1,098.2 1,049.3
Property and equipment, net ................................. 408.4 402.9
Software development costs and related assets, net .......... 192.7 185.5
Long-term marketable securities.............................. 363.5 375.8
Long-term trade finance receivables, net..................... 175.9 132.3
Acquired technology, net .................................... 117.1 106.6
Goodwill, net................................................ 353.4 354.0
Intangible assets, net....................................... 57.4 54.2
Other long-term assets....................................... 78.9 85.1
----------- -----------
$ 2,845.5 $ 2,745.7
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable..................................... $ 52.2 $ 12.8
Accrued liabilities........................................ 225.0 204.8
Current portion of deferred revenue........................ 561.6 594.8
----------- -----------
Total current liabilities........................... 838.8 812.4
Long-term deferred revenue................................... 607.1 586.8
Other long-term liabilities.................................. 16.2 13.3
----------- -----------
Total liabilities................................... 1,462.1 1,412.5
Commitments and contingencies
Stockholders' equity:
Preferred stock............................................ -- --
Common stock............................................... 2.5 2.5
Additional paid-in capital................................. 537.0 537.0
Retained earnings.......................................... 1,143.9 1,137.3
Accumulated other comprehensive income (loss).............. (7.7) 6.5
----------- -----------
1,675.7 1,683.3
Less treasury stock, at cost............................... (290.1) (348.4)
Less unearned portion of restricted stock compensation..... (2.2) (1.7)
----------- ------------
Total stockholders' equity.......................... 1,383.4 1,333.2
----------- -----------
$ 2,845.5 $ 2,745.7
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------------------
2002 2003
------- --------
Revenues:
License......................................................... $ 136.0 $ 107.6
Maintenance..................................................... 149.7 183.5
Professional services........................................... 19.5 18.8
-------- --------
Total revenues.......................................... 305.2 309.9
-------- --------
Operating expenses:
Selling and marketing expenses.................................. 119.5 137.9
Research, development and support expenses...................... 118.2 127.3
Cost of professional services................................... 21.4 19.0
General and administrative expenses............................. 36.0 37.3
Amortization of acquired technology and intangibles............. 12.4 15.6
Restructuring costs............................................. (0.1) --
Merger-related costs and compensation charges................... 0.6 --
-------- --------
Total operating expenses................................ 308.0 337.1
-------- --------
Operating loss.......................................... (2.8) (27.2)
Interest and other income, net.................................... 15.8 21.6
Loss on marketable securities and other investments............... (6.3) (0.8)
-------- --------
Other income, net....................................... 9.5 20.8
-------- --------
Earnings (loss) before income taxes..................... 6.7 (6.4)
Income tax provision (benefit).................................... 1.5 (0.3)
-------- --------
Net earnings (loss)..................................... $ 5.2 $ (6.1)
======== ========
Basic earnings (loss) per share................................... $ 0.02 $ (0.03)
======== ========
Diluted earnings (loss) per share................................. $ 0.02 $ (0.03)
======== ========
Shares used in computing basic earnings (loss) per share.......... 240.9 229.6
======== ========
Shares used in computing diluted earnings (loss) per share........ 242.5 229.6
======== ========
Comprehensive income (loss):
Net earnings (loss)............................................. $ 5.2 $ (6.1)
Foreign currency translation adjustment......................... (7.4) 12.9
Unrealized gain (loss) on securities available for sale:
Unrealized gain, net of taxes of $0.1 and $1.0............... 0.2 1.8
Realized loss included in net earnings (loss), net of taxes
of $0.5 and $0.3.......................................... 1.0 0.6
-------- --------
1.2 2.4
Unrealized gain (loss) on derivative instruments:
Unrealized loss, net of taxes of $2.1 and $0.9............... (3.9) (1.7)
Realized loss included in net earnings (loss), net of taxes
of $0.6 and $0.3........................................... 1.2 0.6
-------- --------
(2.7) (1.1)
-------- --------
Comprehensive income (loss)............................. $ (3.7) $ 8.1
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
BMC SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
----------------------
2002 2003
--------- ---------
Cash flows from operating activities:
Net earnings (loss)............................................. $ 5.2 $ (6.1)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Merger-related costs and compensation charges................ 0.6 --
Depreciation and amortization................................ 52.9 57.7
Loss on marketable securities and other investments.......... 6.3 0.8
Earned portion of restricted stock compensation.............. 0.7 0.6
Decrease in finance receivables.............................. 30.7 91.3
Increase (decrease) in payables to third-party financing
institutions for finance receivables........................ 6.0 (35.1)
Net change in trade receivables, payables, deferred revenue and
other components of working capital......................... 148.4 14.8
--------- ---------
Net cash provided by operating activities............... 250.8 124.0
--------- ---------
Cash flows from investing activities:
Cash paid for technology acquisitions and other investments,
net of cash acquired.......................................... (1.9) (6.1)
Adjustment of cash paid for Remedy acquisition.................. -- 7.2
Purchases of marketable securities.............................. (57.9) (163.2)
Maturities of/proceeds from sales of marketable securities...... 80.7 49.1
Purchases of property and equipment............................. (3.8) (12.7)
Capitalization of software development costs and related assets. (17.5) (15.0)
--------- ---------
Net cash used in investing activities................... (0.4) (140.7)
--------- ---------
Cash flows from financing activities:
Stock options exercised and other............................... 10.9 1.3
Treasury stock acquired......................................... (38.7) (60.0)
--------- ---------
Net cash used in financing activities................... (27.8) (58.7)
--------- ---------
Effect of exchange rate changes on cash........................... (8.6) 3.4
--------- ---------
Net change in cash and cash equivalents........................... 214.0 (72.0)
Cash and cash equivalents, beginning of period.................... 330.0 500.1
--------- ---------
Cash and cash equivalents, end of period.......................... $ 544.0 $ 428.1
========= =========
Supplemental disclosure of cash flow information:
Cash paid (refunded) for income taxes........................... $ (2.4) $ 0.6
Receivable for disposal of technology........................... $ -- $ 2.0
Liabilities assumed in acquisitions............................. $ -- $ 0.2
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
BMC SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of BMC Software, Inc. and its majority- owned subsidiaries
(collectively, the Company or BMC). All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts previously
reported have been reclassified to provide comparability among the years
reported.
The accompanying unaudited interim condensed consolidated financial
statements reflect all normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the 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
audited financial statements for the year ended March 31, 2003, as filed with
the Securities and Exchange Commission on Form 10-K.
(2) EARNINGS (LOSS) PER SHARE
Basic earnings per share (EPS) is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. For purposes of this calculation, outstanding stock options and unearned
restricted stock are considered potential common shares using the treasury stock
method. For the three months ended June 30, 2002 and 2003, the treasury stock
method effect of 37.2 million and 31.1 million weighted options, has been
excluded from the calculation of diluted EPS as they are anti-dilutive. The
following table summarizes the basic and diluted EPS computations for the three
months ended June 30, 2002 and 2003:
THREE MONTHS ENDED
JUNE 30,
--------------------
2002 2003
--------- --------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
Basic earnings (loss) per share:
Net earnings (loss).................................. $5.2 $(6.1)
----- ------
Weighted average number of common shares............. 240.9 229.6
----- ------
Basic earnings (loss) per share...................... $0.02 ($0.03)
===== ======
Diluted earnings (loss) per share:
Net earnings (loss).................................. $5.2 $(6.1)
----- ------
Weighted average number of common shares............. 240.9 229.6
Incremental shares from assumed conversions of stock
options and other................................. 1.6 --
----- ------
Adjusted weighted average number of common shares.... 242.5 229.6
----- ------
Diluted earnings (loss) per share.................... $0.02 ($0.03)
===== ======
6
(3) SEGMENT REPORTING
In the quarter ended June 30, 2003, BMC's management began reviewing the
results of the Company's software business by the following product categories:
Enterprise Data Management (EDM) Software, including the Mainframe Data
Management and Distributed Systems Data Management product lines, Enterprise
Systems Management (ESM) Software, which includes the PATROL(R), MAINVIEW(R) and
Scheduling & Output Management product lines, Security, Other Software and
Remedy(R). Though the EDM and ESM product categories include the various product
lines above, profitability is measured at the product category level. In
addition to these software segments, the professional services business is also
considered a separate segment. Through March 31, 2003, BMC's management reviewed
the results of the Company's software business by different product categories.
The amounts reported below for the quarters ended June 30, 2002 and 2003,
reflect this change in the composition of the segments.
For the EDM, ESM and professional services segments, segment performance is
measured based on contribution margin, reflecting only the direct controllable
expenses of the segments. Segment performance for the Security segment is
measured based on its direct controllable research and development (R&D) costs
and the costs of the dedicated Security sales and services team in North
America. As such, management's measure of profitability for these segments does
not include allocation of indirect research and development and support
expenses, the effect of software development cost capitalization and
amortization, selling and marketing expenses other than for North America
Security, general and administrative expenses, amortization of acquired
technology and intangibles, one-time charges, other income, net, and income
taxes. Effective with our acquisition of Remedy on November 20, 2002, Remedy is
operated as a separate business unit and therefore its performance is measured
based on operating margin and does not include amortization of acquired
technology and intangibles, other income, net, and income taxes. Remedy's costs
represent the direct controllable costs of the business unit and do not include
the costs of services performed by BMC on Remedy's behalf or allocations of
Corporate expenses. Assets and liabilities are not accounted for by segment,
other than for Remedy. Remedy's assets include the identifiable intangibles and
goodwill recorded at the acquisition date; however, as discussed above, the
performance of the Remedy business unit is measured based on operating margin,
excluding the amortization of these assets and any impairment charges that may
be incurred.
SOFTWARE, EXCLUDING REMEDY
-------------------------------------
PROFESSIONAL INDIRECT
EDM ESM SECURITY OTHER SERVICES COSTS BMC REMEDY CONSOLIDATED
--- --- -------- ----- ------------ -------- --- ------ ------------
QUARTER ENDED JUNE 30, 2002 (IN MILLIONS)
- ---------------------------
Revenues:
License................... $ 63.0 $ 65.4 $ 7.6 $ -- $ -- $ -- $136.0 $ -- $136.0
Maintenance............... 73.7 72.5 3.4 0.1 -- -- 149.7 -- 149.7
Professional services..... -- -- -- -- 19.5 -- 19.5 -- 19.5
------ ------ ----- ------ ------ ------- ------ ------ ------
Total revenues............. 136.7 137.9 11.0 0.1 19.5 -- 305.2 -- 305.2
R&D and support expenses... 29.9 55.2 5.4 -- -- 27.7 118.2 -- 118.2
Cost of services........... -- -- 0.8 -- 20.6 -- 21.4 -- 21.4
------ ------ ----- ------ ------ -------- ------ ------ ------
106.8 82.7 4.8 0.1 (1.1) (27.7) 165.6 -- 165.6
Selling and marketing
expenses.................. -- -- 1.9 -- -- 117.6 119.5 -- 119.5
------ ------ ----- ------ ------ ------- ------ ------ ------
Contribution margin ...... $106.8 $ 82.7 $ 2.9 $ 0.1 $ (1.1) $(145.3) 46.1 -- 46.1
====== ====== ===== ====== ====== =======
General and administrative expenses............................................................... 36.0 -- 36.0
------ ------ ------
Operating margin................................................................................. $ 10.1 $ -- 10.1
====== ======
Amortization of acquired technology and intangibles.................................................................. 12.4
Restructuring costs.................................................................................................. (0.1)
Merger-related costs and compensation charges........................................................................ 0.6
Other income, net.................................................................................................... 9.5
------
Consolidated earnings before taxes................................................................................... $ 6.7
======
7
SOFTWARE, EXCLUDING REMEDY
-------------------------------------
PROFESSIONAL INDIRECT
EDM ESM SECURITY OTHER SERVICES COSTS BMC REMEDY CONSOLIDATED
--- --- -------- ----- ------------ -------- --- ------ ------------
QUARTER ENDED JUNE 30, 2003 (IN MILLIONS)
- ---------------------------
Revenues:
License................. $ 35.0 $ 48.3 $ 3.3 $ 0.2 $ -- $ -- $ 86.8 $ 20.8 $ 107.6
Maintenance............. 73.8 75.1 4.1 0.7 -- -- 153.7 29.8 183.5
Professional services... -- -- -- -- 15.3 -- 15.3 3.5 18.8
------ ------ ------ ----- ----- ------- ------- ------ --------
Total revenues............. 108.8 123.4 7.4 0.9 15.3 -- 255.8 54.1 309.9
R&D and support expenses... 25.2 46.7 7.5 -- -- 33.8 113.2 14.1 127.3
Cost of services........... -- -- 1.0 -- 15.5 -- 16.5 2.5 19.0
------ ------ ------ ----- ----- ------- ------- ------ --------
83.6 76.7 (1.1) 0.9 (0.2) (33.8) 126.1 37.5 163.6
Selling and marketing
expenses.................. -- -- 2.7 -- -- 117.1 119.8 18.1 137.9
------ ------ ------ ----- ----- ------- ------- ------ --------
Contribution margin ..... $ 83.6 $ 76.7 $ (3.8) $ 0.9 $(0.2) $(150.9) 6.3 19.4 25.7
====== ====== ====== ===== ===== =======
General and administrative expenses.............................................................. 33.3 4.0 37.3
------- ------ --------
Operating margin............................................................................... $ (27.0) $ 15.4 (11.6)
======= ======
Amortization of acquired technology and intangibles................................................................. 15.6
Other income, net................................................................................................... 20.8
--------
Consolidated loss before taxes...................................................................................... $ (6.4)
=======
Total assets as of June 30, 2003................................................................ $2,369.2 $376.5 $2,745.7
======== ====== ========
(4) STOCK INCENTIVE PLANS
The Company has adopted numerous stock-based compensation plans that
provide for the grant of options and restricted stock to employees and directors
of the Company. All options under these plans vest over terms of three to five
years. The restricted stock is subject to transfer restrictions that lapse over
time, typically two to four years. The Company also has adopted an employee
stock purchase plan under which rights to purchase the Company's common stock
are granted at 85% of the lesser of the market value of the common stock at the
offering date or on the exercise date.
The Company accounts for stock-based employee compensation using the
intrinsic value method in accordance with APB Opinion No. 25 and related
interpretations, which generally requires that the amount of compensation cost
that must be recognized, if any, is the quoted market price of the stock at the
measurement date, which is generally the grant date, less the amount the grantee
is required to pay to acquire the stock. Alternatively, Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
employs fair value-based measurement and generally results in the recognition of
compensation expense for all stock-based awards to employees. SFAS No. 123 does
not require an entity to adopt those provisions, but rather, permits continued
application of APB Opinion No. 25. The Company has elected not to adopt the
recognition and measurement provisions of SFAS No. 123 and continues to account
for its stock-based employee compensation plans under APB Opinion No. 25 and
related interpretations. In accordance with APB Opinion No. 25, deferred
compensation is generally recorded for stock-based employee compensation grants
based on the excess of the market value of the common stock on the measurement
date over the exercise price. The deferred compensation is amortized to expense
over the vesting period of each unit of stock-based employee compensation
granted. If the exercise price of the stock-based compensation is equal to or
exceeds the market price of the Company's common stock on the date of grant, no
compensation expense is recorded.
For the three months ended June 30, 2002 and 2003, the Company recorded
compensation expense of $1.3 million and $0.6 million, respectively, for
restricted stock grants. The expense for the three months ended June 30, 2002
includes $0.6 million of merger-related compensation charges related to
restricted shares issued as part of the Evity, Inc. acquisition. The Company was
not required to record compensation expense for stock option grants and stock
issued under the employee stock purchase plan during the same periods.
8
The compensation expense recorded for restricted stock grants under the
intrinsic value method is consistent with the expense that would be recorded
under the fair value based method. Had the compensation cost for the Company's
employee stock option grants and stock issued under the ESPP been determined
based on the grant date fair values of awards estimated using the Black-Scholes
option pricing model, which is consistent with the method described in SFAS No.
123, the Company's reported net earnings (loss) and earnings (loss) per share
would have been reduced to the following pro forma amounts:
THREE MONTHS ENDED
JUNE 30,
-----------------------
2002 2003
-------- ----------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
Net earnings (loss): As Reported........... $ 5.2 $ (6.1)
Add stock-based employee compensation expense included in
net earnings (loss) as reported, net of related tax effects 1.1 0.4
Deduct stock-based employee compensation expense determined
under the fair value based method for all awards, net of (17.7) (25.9)
related tax effects ------- -------
Pro Forma............. $ (11.4) $ (31.6)
Basic earnings (loss) per share: As Reported........... $ 0.02 $ (0.03)
Pro Forma............. $ (0.05) $ (0.14)
Diluted earnings (loss) per share: As Reported........... $ 0.02 $ (0.03)
Pro Forma........... $ (0.05) $ (0.14)
(5) GUARANTEES
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain
guarantees to be recorded at fair value and requires a guarantor to make
disclosures, even when the likelihood of making any payments under the guarantee
is remote. For those guarantees and indemnifications that do not fall within the
initial recognition and measurement requirements of FIN 45, the Company must
continue to monitor the conditions that are subject to the guarantees and
indemnifications, as required under existing generally accepted accounting
principles, to identify if a loss has been incurred. If the Company determines
that it is probable that a loss has been incurred, any such estimable loss would
be recognized. The initial recognition and measurement requirements do not apply
to the Company's product warranties or to the provisions contained in the
majority of the Company's software license agreements that indemnify licensees
of the Company's software from damages and costs resulting from claims alleging
that the Company's software infringes the intellectual property rights of a
third party. The Company has historically received only a limited number of
requests for payment under these provisions and has not been required to make
material payments pursuant to these provisions. The Company has not identified
any losses that are probable under these provisions and, accordingly, the
Company has not recorded a liability related to these indemnification
provisions.
(6) SUBSEQUENT EVENT
Subsequent to June 30, 2003, the Company reduced its workforce excluding
Remedy by approximately 13% worldwide and began implementation of a plan to exit
certain leased facilities around the world. The workforce reduction was across
all functions and geographies and affected employees were provided cash
separation packages. In conjunction with this workforce reduction, the Company
will aggressively expand its operations in lower cost international locations,
including the Company's offices in India and Israel. As a result of these
actions, the Company will incur significant charges for exit costs during the
quarters ending September 30, 2003 and December 31, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This section of the Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
identified by the use of the words "believe," "expect," "anticipate," "will,"
"contemplate," "would" and similar expressions that contemplate future events.
Numerous important factors, risks and uncertainties affect our operating
results, including, without limitation, those contained in this report, and
could cause our actual results to differ materially from the results implied by
these or any other forward-looking statements made by us or on our behalf. There
can be no assurance that future results will meet expectations. You should pay
particular attention to the important risk factors and cautionary statements
described in the section of this Report entitled "Certain Risks and
9
Uncertainties." It is important that the historical discussion below be read
together with the attached condensed consolidated financial statements and notes
thereto, with the discussion of such risks and uncertainties and with the
audited financial statements and notes thereto, and Management's Discussion and
Analysis of Results of Operations and Financial Condition contained in our Form
10-K for fiscal 2003.
CRITICAL ACCOUNTING POLICIES
The preparation of condensed consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, we make and evaluate
estimates and judgments, including those related to revenue recognition,
capitalized software development costs, in-process research and development of
acquired businesses, acquired technology, goodwill and intangible assets,
deferred tax assets and marketable securities. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about amounts and timing of revenues and expenses, the carrying
values of assets and the recorded amounts of liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates and
such estimates may change if the underlying conditions or assumptions change.
The critical accounting policies related to the estimates and judgments listed
above are discussed further throughout our Form 10-K for fiscal 2003 under
Management's Discussion and Analysis of Results of Operations and Financial
Condition where such policies affect our reported and expected financial
results.
A. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table sets forth, for the periods indicated, the percentages
that selected items in the Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) bear to total revenues. These comparisons of
financial results are not necessarily indicative of future results.
PERCENTAGE OF
TOTAL REVENUES
THREE MONTHS ENDED
JUNE 30,
------------------
2002 2003
------- ------
Revenues:
License.............................................. 44.6% 34.7%
Maintenance.......................................... 49.0 59.2
Professional services................................ 6.4 6.1
----- -----
Total revenues................................... 100.0 100.0
Operating expenses:
Selling and marketing expenses....................... 39.1 44.5
Research, development and support expenses........... 38.7 41.1
Cost of professional services........................ 7.0 6.1
General and administrative expenses.................. 11.8 12.0
Amortization of acquired technology and intangibles.. 4.1 5.0
Merger-related costs and compensation charges........ 0.2 --
----- -----
Total operating expenses.......................... 100.9 108.7
----- -----
Operating loss.................................... (0.9) (8.7)
Interest and other income, net......................... 5.2 7.0
Loss on marketable securities and other investments.... (2.1) (0.3)
----- -----
Other income, net................................. 3.1 6.7
Earnings (loss) before income taxes............... 2.2 (2.0)
Income tax provision (benefit)......................... 0.5 --
----- -----
Net earnings (loss)............................... 1.7% (2.0)%
===== =====
10
REVENUES
We generate revenues from licensing software, providing maintenance,
enhancement and support for previously licensed products and providing
professional services.
THREE MONTHS ENDED
JUNE 30,
-------------------
2002 2003 CHANGE
-------- ------- ------
(IN MILLIONS)
License:
North America.......................... $ 87.4 $ 44.6 (49.0)%
International.......................... 48.6 63.0 29.6%
------- -------
Total license revenues........... 136.0 107.6 (20.9)%
Maintenance:
North America.......................... 92.5 109.4 18.3%
International.......................... 57.2 74.1 29.5%
------- -------
Total maintenance revenues........ 149.7 183.5 22.6%
Professional Services:
North America.......................... 9.2 9.3 1.1%
International.......................... 10.3 9.5 (7.8)%
------- -------
Total professional services....... 19.5 18.8 (3.6)%
------- -------
Total revenues................... $ 305.2 $ 309.9 1.5%
======= =======
Product License Revenues
Our product license revenues primarily consist of fees related to products
licensed to customers on a perpetual basis. Product license fees can be
associated with a customer's licensing of a given software product for the first
time or with a customer's purchase of the right to run a previously licensed
product on additional computing capacity or by additional users. In addition to
perpetual-based product license fees, our license revenues also include, to a
lesser extent, term license fees which are generated when customers are granted
license rights to a given software product for a defined period of time.
License revenues for the quarter ended June 30, 2003, declined 21% compared
to the same quarter last year. Excluding the impact of Remedy revenues during
the quarter ended June 30, 2003, license revenues declined 36%. Difficult
economic conditions in domestic and international markets have resulted in
reduced information technology (IT) spending by many of our customers, and we
have experienced a decline in the number and size of transactions with our
largest customers, which historically have accounted for a significant portion
of our revenues. Transaction closure rates during the quarter ended June 30,
2003, particularly for large transactions, declined significantly as customers
remain reluctant to sign large capacity-based transactions. We expect the IT
spending environment to remain challenging throughout fiscal 2004.
For the quarter ended June 30, 2003, gross additions to deferred license
revenue were $21.9 million. Based on licensing trends and increased customer
requests for contractual terms that result in deferral of revenue, we expect
that our base of deferred license revenue will continue to grow in the near
future. As of March 31, 2003 and June 30, 2003, our total deferred license
revenue balance was $218.1 million and $216.3 million, respectively.
Our North American operations generated 64% and 41% of license revenues in
the quarter ended June 30, 2002 and 2003, respectively. North American license
revenues for the quarter ended June 30, 2003 declined 49% compared to the same
quarter last year. Excluding the impact of Remedy revenues during the quarter
ended June 30, 2003, North American license revenues declined 63%, primarily due
to lower transaction closure rates with our largest customers. International
license revenues represented 36% and 59% of license revenues for the quarters
ended June 30, 2002 and 2003, respectively. International license revenues for
the quarter ended June 30, 2003 increased 30% compared to the same quarter last
year. Excluding the impact of Remedy revenues during the quarter ended June 30,
2003, international license revenues increased 12%. Approximately 8% of this
increase was due to foreign currency exchange rate changes, after giving effect
to our foreign currency hedging program.
Maintenance, Enhancement and Support Revenues
Maintenance, enhancement and support revenues represent the ratable
recognition of fees to enroll licensed products in our software maintenance,
enhancement and support program. Maintenance, enhancement and support enrollment
generally entitles customers to product enhancements, technical support services
and ongoing compatibility with third-party operating systems, database
management systems, networks, storage systems and applications. Excluding
Remedy, these fees are generally charged annually and
11
equal 20% of the discounted price of the product. Maintenance revenues also
include the ratable recognition of the bundled fees for any initial maintenance
services covered by the related perpetual license agreement. Remedy's
maintenance fees are generally charged annually and equal 15% to 22% of the list
price of the product. In addition, customers may be entitled to reduced
maintenance percentages for entering into long-term maintenance contracts that
include prepayment of the maintenance fees or that are supported by a formal
financing arrangement.
Maintenance revenues increased 23% for the quarter ended June 30, 2003 over
the comparable prior year period primarily as a result of the additional
maintenance revenue associated with Remedy and the continuing growth in the base
of installed products and the processing capacity on which they run. Excluding
the impact of Remedy revenues during the quarter ended June 30, 2003,
maintenance revenues increased 3% over the comparable prior year period.
Maintenance fees increase in proportion to the aggregate processing capacity on
which the products are installed; consequently, we receive higher absolute
maintenance fees as customers install our products on additional processing
capacity. Due to the increased discounting for higher levels of additional
processing capacity, the maintenance fees on a per unit of capacity basis are
typically reduced in enterprise license agreements. These discounts, combined
with the reduced maintenance percentages for long-term contracts discussed above
and the recent decline in our license revenues, have led to lower growth rates
for our maintenance revenue excluding Remedy. Further declines in our license
revenue and/or increased discounting could lead to declines in our maintenance
revenues excluding Remedy. Historically, our maintenance renewal rates have been
high, but economic and competitive pressures could cause customers to reduce
their licensed capacity and therefore the capacity upon which our maintenance,
enhancement and support fees are charged.
We expect Remedy's quarterly maintenance revenues to increase sequentially
during fiscal 2004. As required by purchase accounting for the acquisition, the
Remedy deferred maintenance revenue at the acquisition date was written down to
fair value, as defined by U.S. generally accepted accounting principles. As
such, the amounts recognized as maintenance revenue out of that acquisition-date
deferred revenue balance will reflect this write-down. The vast majority of the
acquisition-date deferred revenue will be recognized during the 12 months
following the acquisition. All maintenance fees generated subsequent to the
acquisition date are deferred and recognized over the maintenance period at full
contractual amounts.
Product Line Revenues
THREE MONTHS ENDED
JUNE 30,
-------------------
2002 2003 CHANGE
-------- -------- -------
(IN MILLIONS)
EDM:
Mainframe Data Management................. $ 101.2 $ 82.9 (18.1)%
Distributed Systems Data Management....... 35.5 25.9 (27.0)%
-------- --------
136.7 108.8 (20.4)%
ESM:
PATROL.................................... 64.7 61.6 (4.8)%
MAINVIEW.................................. 40.5 30.9 (23.7)%
Scheduling & Output Management............ 32.7 30.9 (5.5)%
-------- --------
137.9 123.4 (10.5)%
Security.................................... 11.0 7.4 (32.7)%
Other ...................................... 0.1 0.9 nm
-------- --------
285.7 240.5 (15.8)%
Remedy...................................... -- 50.6 nm
-------- --------
Total license & maintenance revenues..... $ 285.7 $ 291.1 1.9%
======== =======
We market software solutions designed to improve the availability,
performance and recoverability of enterprise applications, databases and other
IT systems components operating in mainframe, distributed computing and Internet
environments. Our acquisition of Remedy in November 2002, extends our solutions
to include products that automate service-related business processes through a
complete suite of service management applications. In April 2003, we introduced
a new strategic direction focused on Business Service Management (BSM), the
direct linkage of IT resources, management and solutions with the goals of the
overall business. The objective of our BSM strategy is to enable companies to
move beyond traditional IT management and manage their business-critical
services from both an IT and business perspective. Our solutions are broadly
divided into four core business units. The Enterprise Data Management group
includes products designed for managing database management systems on mainframe
and
12
distributed computing platforms. The Enterprise Systems Management group
includes our systems management and monitoring, scheduling and output management
solutions. The Security group includes products that facilitate user
registration and password administration. The Remedy group includes our service,
change and asset management solutions.
Our Enterprise Data Management solutions combined represented 48% and 37%
of total software revenues for the quarters ended June 30, 2002 and 2003,
respectively. Total software revenues for this group declined 20% in the quarter
ended June 30, 2003 from the same period in the prior year. Decreased license
revenues across the mainframe and distributed systems products were the cause of
the overall decline as maintenance revenues did not change from the prior year.
Our Enterprise Systems Management solutions combined contributed 48% and 42% of
total software revenues for the quarters ended June 30, 2002 and 2003,
respectively. Total software revenues for this group declined 11% in the quarter
ended June 30, 2003 from the same period in fiscal 2002. Increases in
maintenance revenues for the PATROL and Scheduling & Output management product
lines were more than offset by a decrease in MAINVIEW maintenance revenues and
license revenue declines across the product lines. Our Security solutions
contributed 4% and 3% of total software revenues for the quarters ended June 30,
2002 and 2003, respectively. Total software revenues for this group declined 33%
in the quarter ended June 30, 2003 from the same period in the prior year. The
decline in Security license revenues more than offset increased maintenance
revenues. Our Remedy solutions contributed 17% of total software revenues for
the quarter ended June 30, 2003.
Professional Services Revenues
Professional services revenues, representing fees from implementation,
integration and education services performed during the period, decreased 4%
during the quarter ended June 30, 2003, from the comparable prior year period.
Excluding the impact of Remedy revenues during the quarter ended June 30, 2003,
professional services revenues declined 22%. This decline is the result of our
decreased license revenues, as this results in less demand for our
implementation and integration services.
EXPENSES
THREE MONTHS ENDED
JUNE 30,
-------------------
2002 2003 CHANGE
------- ------- ------
(IN MILLIONS)
Selling and marketing.............................. $ 119.5 $ 137.9 15.4%
Research, development and support.................. 118.2 127.3 7.7%
Cost of professional services...................... 21.4 19.0 (11.2)%
General and administrative......................... 36.0 37.3 3.6%
Amortization of acquired technology and intangibles 12.4 15.6 25.8%
Restructuring and severance costs.................. (0.1) -- nm
Merger-related costs and compensation charges...... 0.6 -- nm
------- -------
Total operating expenses................. $ 308.0 $ 337.1 9.4%
======= =======
Selling and Marketing
Our selling and marketing expenses primarily include personnel and related
costs, sales commissions and costs associated with advertising, industry trade
shows and sales seminars, and represented 39% and 45% of total revenues for the
quarter ended June 30, 2002 and 2003, respectively. Selling and marketing
expenses increased 15% for the quarter ended June 30, 2003 compared to the prior
year. Excluding the impact of Remedy expenses during the quarter ended June 30,
2003, there was no change in selling and marketing expenses. Decreased sales
commissions and bonuses due to the revenue performance discussed above were
offset by increases in marketing costs and bad debt expense related to license
billings.
Research, Development and Support
Research, development and support expenses mainly comprise personnel costs
related to software developers and development support personnel, including
software programmers, testing and quality assurance personnel and writers of
technical documentation such as product manuals and installation guides. These
expenses also include costs associated with the maintenance, enhancement and
support of our products, computer hardware/software costs and telecommunications
expenses necessary to maintain our data processing center, royalties and the
effect of software development cost capitalization and amortization.
Research, development and support expenses were reduced in the quarters
ended June 30, 2002 and 2003 by amounts capitalized in accordance with Statement
of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." We capitalize our
software development costs when the projects under development reach
13
technological feasibility as defined by SFAS No. 86, and amortize these costs
over the products' estimated economic lives, which historically have been five
years. As discussed below, we revised the estimated economic lives for certain
of our software products as of January 1, 2003, such that the capitalized costs
for the majority of our products will be amortized over an estimated life of
three years.
The following table summarizes the amounts capitalized and amortized during
the quarters ended June 30, 2002 and 2003. Amortization for the quarter ended
June 30, 2002 includes amounts accelerated for certain software products that
were not expected to generate sufficient future revenues to realize the carrying
value of the assets.
THREE MONTHS ENDED
JUNE 30,
--------------------
2002 2003
-------- --------
Software development and purchased software costs capitalized.. $(17.5) $ (15.0)
Total amortization............................................. 22.7 23.2
------ -------
Net increase in research, development and support expenses. $ 5.2 $ 8.2
====== =======
Accelerated amortization included in total amortization above.. $ 10.5 $ --
As a result of the changes in market conditions and research and
development headcount reductions during fiscal 2002 and 2003, we focused more on
our core businesses during those years. As part of this effort, we reviewed our
product portfolio during fiscal 2002 and fiscal 2003 and discontinued certain
products. To the extent that there were any capitalized software development
costs remaining on the balance sheet related to these products, we accelerated
the amortization to write these balances off. The continued need to accelerate
amortization to maintain our capitalized software costs at net realizable value,
the results of the valuation performed for the Remedy acquisition that indicated
a three-year life was appropriate for that acquired technology and changes in
the average life cycles for certain of our software products caused us to
evaluate the estimated economic lives for our internally developed software
products. As a result of this evaluation, we revised the estimated economic
lives of certain products as of January 1, 2003, such that most products will be
amortized over an estimated life of three years. These changes in estimated
economic lives resulted in an additional $12.4 million of amortization expense
in the first quarter of fiscal 2004, and reduced basic and diluted earnings per
share for the quarter by $0.04 per share.
Research, development and support expenses represented 39% and 41% of total
revenues for the quarters ended June 30, 2002 and 2003, respectively, and
increased 8% in the quarter ended June 30, 2003 over the same period in the
prior year. Excluding the impact of Remedy expenses during the quarter ended
June 30, 2003, research, development and support expenses decreased 4% primarily
due to reduced personnel costs which more than offset the net effect of software
cost capitalization and amortization.
Cost of Professional Services
Cost of professional services consists primarily of personnel costs
associated with implementation, integration and education services that we
perform for our customers, and the related infrastructure to support this
business and represented 7% and 6% of total revenues for the quarters ended June
30, 2002 and 2003, respectively. Cost of professional services decreased 11%
during the quarter ended June 30, 2003 from the comparable period in the prior
year. Excluding the impact of Remedy expenses during the quarter ended June 30,
2003, cost of professional services declined 23%. The decrease resulted
primarily from headcount reductions as a result of the decline in professional
services revenues.
General and Administrative
General and administrative expenses are comprised primarily of compensation
and personnel costs within executive management, finance and accounting, IT,
facilities management and human resources. Other costs included in general and
administrative expenses are fees paid for legal and accounting services,
consulting projects, insurance and bad debt expense related to maintenance
billings. General and administrative expenses represented 12% of total revenues
in the quarters ended June 30, 2002 and 2003 and increased 4% in the quarter
ended June 30, 2003 compared to the same period in the prior year. Excluding the
impact of Remedy expenses during the quarter ended June 30, 2003, general and
administrative expenses decreased 7% primarily as a result of reduced personnel
costs and professional fees.
14
Amortization of Acquired Technology and Intangibles
Under the purchase accounting method for certain of our acquisitions,
portions of the purchase prices were allocated to acquired software and other
intangible assets. We are amortizing these intangibles over three to five-year
periods, which reflect the estimated useful lives of the respective assets. The
increase in amortization expense relates to the additional intangibles being
amortized as a result of the Remedy and IT Masters acquisitions during the
quarters ended December 31, 2002 and March 31, 2003, respectively, which more
than offset the decrease in amortization expense related to intangibles that
have recently become fully amortized.
Merger-Related Costs and Compensation Charges
During the quarter ended June 30, 2002, merger-related costs and
compensation charges included compensation expense related to the vesting of
common stock issued as part of the Evity acquisition to certain Evity
shareholders who we employed after the acquisition. Vesting was completed during
that period.
Expense Reduction Efforts After June 30, 2003
Subsequent to June 30, 2003, we reduced our workforce excluding Remedy by
approximately 13% worldwide and began implementation of a plan to exit certain
leased facilities around the world. The workforce reduction was across all
departments and geographies and affected employees were provided cash separation
packages. In conjunction with this workforce reduction, we will aggressively
expand our operations in lower cost international locations, including the
Company's offices in India and Israel. As a result of these actions, we will
incur significant charges for exit costs during the quarters ending September
30, 2003 and December 31, 2003. Though we expect to begin realizing expense
reductions immediately, the full quarterly benefit of operating expense
reductions totaling $25 million to $30 million is expected to begin in the
quarter ending March 31, 2004.
OTHER INCOME, NET
Other income, net consists primarily of interest earned on cash, cash
equivalents, marketable securities and finance receivables, rental income on
owned facilities and gains and losses on marketable securities and other
investments. For the quarter ended June 30, 2003, other income, net was $20.8
million, reflecting an increase of $11.3 million from the same quarter of fiscal
2003. The increase in other income, net is primarily due to a $6.3 million
write-off of marketable securities in the quarter ended June 30, 2002, and the
gain on the licensing of our PATROL Storage Manager product to EMC Corporation
during the quarter ended June 30, 2003.
INCOME TAX PROVISION (BENEFIT)
For the quarter ended June 30, 2003, income tax benefit was $0.3 million,
compared to an expense of $1.5 million for the same period in the prior year.
Our effective tax rate was 5% for the three months ended June 30, 2003 and 22%
for the comparable prior year period. This low effective tax rate for the
quarter ended June 30, 2003 results because of the impact of non-deductible
amortization expense during a period with a net pre-tax loss.
As previously disclosed, we have received a Revenue Agent's Report (RAR)
from the Internal Revenue Service (IRS) for the tax years ended March 31, 1998
and 1999. We are working with the IRS Appeals division to resolve disputes
related to this RAR. We believe that we have meritorious defenses to the
proposed adjustments and that adequate provisions for income taxes have been
made, and therefore that the ultimate resolution of the issues will not have a
material adverse impact on our consolidated financial position or results of
operations. The IRS is currently examining our federal income tax returns filed
for the fiscal years ended March 31, 2000 and 2001. We have not received any
Notices of Proposed Adjustment from the IRS examination team.
15
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51" (FIN 46). FIN 46 requires the consolidation of entities in which an
enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other interests in the entity. Previously, entities
were generally consolidated by an enterprise when it had a controlling financial
interest through ownership of a majority voting interest in the entity. The
consolidation requirements of FIN 46 apply to variable interest entities created
after January 31, 2003 and to older entities in the first fiscal year or interim
period beginning after June 15, 2003. We are in the process of evaluating the
implications of FIN 46 to variable interest entities with which we have
involvement. We believe that adoption of FIN 46 will not have a material effect
on our consolidated financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, our cash, cash equivalents and marketable securities were
$1,059.4 million, an increase of $44.1 million from the March 31, 2003 balance
primarily as a result of positive operating cash flow. Of the cash, cash
equivalents and marketable securities at June 30, 2003, $779 million is held in
international locations and was largely generated from our international
operations. Our international operations have generated earnings for which U.S.
income taxes have not been recorded. These earnings would be subject to U.S.
income tax if repatriated to the United States. The potential related deferred
tax liability for these earnings is approximately $251 million; however, we have
not provided a deferred tax liability on any portion of these earnings as we
currently plan to utilize this cash in international locations for foreign
investment purposes.
Our working capital as of June 30, 2003, was $236.9 million, reflecting a
decrease from the March 31, 2003 balance of $259.4 million. A significant dollar
portion of our marketable securities is invested in securities with maturities
beyond one year, and while typically yielding greater returns, investing in such
securities reduces reported working capital. Our marketable securities are
primarily investment grade and highly liquid. Stockholders' equity as of June
30, 2003, was $1.3 billion.
We continue to finance our operations primarily through funds generated
from operations. For the quarter ended June 30, 2003, net cash provided by
operating activities was $124.0 million. Our primary source of cash is the sale
of our software licenses, software maintenance and professional services.
We provide financing on a portion of these sales transactions to customers
that meet our specified standards of creditworthiness. Our practice of providing
financing at reasonable interest rates enhances our competitive position. We
participate in established programs with third-party financial institutions to
securitize or sell a significant portion of our finance receivables, enabling us
to collect cash sooner and remove credit risk. For a detailed discussion of
these programs, see the Liquidity and Capital Resources section of our Annual
Report on Form 10-K. During the quarters ended June 30, 2002 and 2003, we
transferred $199 million, and $76 million, respectively, of such receivables
through these programs. The high credit quality of our finance receivables and
the existence of these third-party facilities extend our ability to offer
financing to qualifying customers on an ongoing basis without a negative cash
flow impact.
Recent shifts in various market factors have made the transfer of certain
of our finance receivables more difficult and/or less cost effective, including
changes in the overall capacity of the market for such receivables, in
customers' credit quality, in the credit risk that third-party financial
institutions are willing to accept and in the documentation requirements of the
third-party financial institutions. These factors may impact our ability to
transfer finance receivables in the future.
Net cash used in investing activities for the quarter ended June 30, 2003
was $140.7 million, primarily for the purchase of marketable securities during
the period. Net cash used in financing activities for the quarter ended June 30,
2003 was $58.7 million, which primarily related to purchases of our common
stock. On April 24, 2000, our board of directors authorized the purchase of up
to $500.0 million in common stock, and on July 30, 2002, they authorized the
purchase of an additional $500.0 million. During the quarter ended June 30,
2003, we purchased 3.6 million shares for $60.0 million. Since the inception of
the repurchase plan, we have purchased 33.3 million shares for $581.8 million.
We plan to continue to buy our common stock and intend to purchase between $200
million and $300 million of common stock during fiscal 2004, subject to market
conditions and other possible uses of our cash.
We believe that our existing cash balances and funds generated from
operations will be sufficient to meet our liquidity requirements for the
foreseeable future.
16
B. CERTAIN RISKS AND UNCERTAINTIES
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section describes some, but not
all, of these risks and uncertainties that we believe may adversely affect our
business, financial condition or results of operations.
WE MAY EXPERIENCE A SHORTFALL IN REVENUE IN ANY GIVEN QUARTER OR MAY ANNOUNCE
LOWER FORECASTED REVENUE OR EARNINGS, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE.
Our revenue is difficult to forecast and is likely to fluctuate from
quarter to quarter due to many factors outside of our control. In addition, a
significant amount of our license transactions are completed during the final
weeks and days of the quarter, and therefore we generally do not know whether
revenues, earnings, cash flows and/or changes to the deferred license revenue
balances will have met expectations until the first few days of the following
quarter. Any significant revenue shortfall or lowered forecasts could cause our
stock price to decline substantially. Factors that could affect our financial
results include, but are not limited to:
o the possibility that our customers may defer or limit purchases as a result
of reduced information technology budgets, reduced data processing capacity
demand or the current weak and uncertain economic and industry conditions;
o the possibility that our customers may elect not to license our products
for additional processing capacity until their actual processing capacity
or expected future processing capacity exceeds the capacity they have
already licensed from us;
o the possibility that our customers may defer purchases of our products in
anticipation of new products or product updates from us or our competitors;
o the unpredictability of the timing and magnitude of our sales through
direct sales channels, value-added resellers and distributors, which tend
to occur late in each quarter;
o an unexpected increase in license transactions that require revenues to be
deferred or recognized ratably over time rather than upfront;
o the timing of new product introductions by us and the market acceptance of
new products, which may be delayed as a result of weak and uncertain
economic and industry conditions;
o changes in our pricing and distribution terms or those of our competitors;
and
o the possibility that our business will be adversely affected as a result of
the threat of significant external events that increase global economic
uncertainty.
Investors should not rely on the results of prior periods as an indication
of our future performance. Our operating expense levels are based, in
significant part, on our expectations of future revenue. If we have a shortfall
in revenue in any given quarter, we will not be able to reduce our operating
expenses proportionally in response. Therefore, any significant shortfall in
revenue will likely have an immediate adverse effect on our operating results
for that quarter.
DECREASING DEMAND FOR ENTERPRISE LICENSE TRANSACTIONS COULD ADVERSELY AFFECT
REVENUES.
Fees from enterprise license transactions have historically been a
fundamental component of our revenues. These revenues depend on our customers
planning to grow their computer processing capacity and continuing to perceive
an increasing need to use our existing software products on substantially
greater processing capacity in future periods. Prior to 2000, we licensed many
of our larger customers to operate our mainframe products on significant levels
of processing capacity in excess of their then current mainframe processing
capacity. During the past several years, we also entered into many enterprise
license agreements with our larger customers to operate our distributed systems
products on significant levels of processing capacity in excess of their then
current distributed processing capacity. In a weak economy, these customers may
elect not to license our products for additional processing capacity until their
actual processing capacity or expected future processing capacity exceeds the
capacity they have already licensed from us. If economic conditions weaken
further, demand for data processing capacity could decline. In addition, the
uncertain economic environment has reduced customers' expectations of future
capacity growth, thus lessening demand for licensing excess processing capacity
in anticipation of future growth. In the past, customers tended to renew their
enterprise license agreements prior to their expiration. Recent experience
indicates that some customers renew early while other customers continue to
operate under their existing capacity. Sustained sluggishness in IT and capital
spending can result in customers engaging in contract renewal discussions later
than we anticipate. These factors make it difficult to anticipate the size and
timing of renewals of enterprise licenses. If our customers who have entered
into multi-year capacity-based licenses for excess processing capacity do not
increase their processing capacity beyond the levels previously licensed from us
or license additional processing capacity in anticipation of future growth, then
our license revenues may not grow and our earnings could be adversely affected.
17
WE MAY HAVE DIFFICULTY ACHIEVING OUR CASH FLOW FROM OPERATIONS GOAL.
Our quarterly cash flow is and has been volatile. If our cash generated
from operations proved in some future period to be materially less than the
market expects, the market price of our common stock could decline. Factors that
could adversely affect our cash flow from operations in the future include:
reduced net earnings; increased time required for the collection of accounts
receivable; an increase in uncollectible accounts receivable; a significant
shift from multi-year committed contracts to short-term contracts; a reduced
ability to transfer finance receivables to third parties; reduced renewal rates
for maintenance; and a reduced yield from marketable securities and cash and
cash equivalents balances.
MAINTENANCE REVENUE COULD DECLINE.
Maintenance revenues have increased in each of the last three fiscal years
as a result of the continuing growth in the base of installed products and the
processing capacity on which they run. Maintenance fees increase as the
processing capacity on which the products are installed increases; consequently,
we receive higher absolute maintenance fees as customers install our products on
additional processing capacity. Due to increased discounting for higher levels
of additional processing capacity, the maintenance fees on a per unit of
capacity basis are typically reduced in enterprise license agreements for our
mainframe products. In addition, customers may be entitled to reduced
maintenance percentages for entering into long-term maintenance contracts that
include prepayment of the maintenance fees or that are supported by a formal
financing arrangement. These discounts, combined with reduced maintenance
percentages for long-term contracts and the recent decline in our license
revenues, have led to lower growth rates for our maintenance revenue, excluding
the impact of Remedy revenues subsequent to the acquisition date. Further
declines in our license revenue and/or increased discounting would lead to
declines in our maintenance revenues. Although renewal rates remain high, should
customers migrate from their mainframe applications or find alternatives to our
products, increased cancellations could lead to declines in our maintenance
revenue.
OUR RESTRUCTURING INITIATIVES MAY NOT ACHIEVE OUR DESIRED RESULTS AND, IF
UNSUCCESSFUL, COULD ADVERSELY AFFECT OUR BUSINESS.
We have recently implemented a restructuring plan and have revised our
fiscal year targets for expenses and cash flow from operations to reflect the
effects of this restructuring. Our plan involves reducing our workforce, moving
into lower cost facilities in some of our locations, and expanding our
operations in lower cost international locations, including in India and Israel.
Although we have made efforts to minimize the impact on quota-carrying sales
representatives, the workforce reductions have included some employees directly
responsible for sales, which may affect our ability to close future revenue
transactions with our customers and prospects. The failure to retain and
effectively manage our remaining employees could impact our development efforts
and the quality of our products, delay the delivery of new products or product
updates and affect customer service. In addition, to achieve our estimates of
expense savings from our restructuring plan, we must successfully exit multiple
leased facilities in a short time period. We may not be able to exit existing
high cost facilities, locate alternative lower cost facilities and move into new
facilities in a timely manner. If we are unable to achieve the desired results
of our restructuring plan, we may fall short of our revised financial
expectations. It is also possible that additional restructuring activity may be
required for us to achieve our profitability objectives.
OUR STOCK PRICE IS VOLATILE.
Our stock price has been and is highly volatile. Our stock price is highly
influenced by current expectations of future revenue, earnings and cash flows
from operations. Any failure to meet anticipated revenue, earnings and cash flow
from operations levels in a period or any negative change in our perceived
long-term growth prospects would likely have a significant adverse effect on our
stock price.
INTENSE COMPETITION AND PRICING PRESSURES COULD ADVERSELY AFFECT OUR EARNINGS.
The market for systems management software is highly competitive. We
compete with a variety of software vendors including IBM, Hewlett Packard (HP),
Computer Associates (CA) and a number of smaller software vendors. We derived
approximately half of our total revenues in fiscal 2003 from software products
for IBM and IBM-compatible mainframe computers. IBM continues, directly and
through third parties, to enhance and market its utilities for IMS and DB2 as
lower cost alternatives to the solutions provided by us and other independent
software vendors. Although such utilities are currently less functional than our
solutions, IBM continues to
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invest in the IMS and DB2 utility market and appears to be committed to
competing in these markets. If IBM is successful with its efforts to achieve
performance and functional equivalence with our IMS, DB2 and other products at a
lower cost, our business would be materially adversely affected. As a large
hardware vendor and outsourcer of IT services, IBM has the ability to bundle its
other goods and services with its software and offer packaged solutions to
customers which could result in increased pricing pressure. To date, our
solutions have competed well against IBM's because we have developed advanced
automation and artificial intelligence features and our utilities have
maintained a speed advantage. In addition, we believe that because we provide
enterprise management solutions across multiple platforms we are better
positioned to provide customers with comprehensive management solutions for
their complex multi-vendor IT environments than integrated hardware and software
companies like IBM. CA is also competing with us in these markets. Competition
has led to increased pricing pressures within the mainframe systems software
markets. We continue to reduce the cost to our customers of our mainframe tools
and utilities in response to such competitive pressures. Although to date we
have not experienced significant competition from Microsoft, their dominant
position in the operating system market makes them capable of exerting
competitive pressure in the systems management market as well. We also face
competition from several niche software vendors, particularly for our
distributed systems product lines. In addition, the software industry is
experiencing continued consolidation. There is a risk that some of our
competitors may combine and consolidate market positions or combine technology,
making them stronger competitors.
OUR PRODUCTS MUST REMAIN COMPATIBLE WITH EVER-CHANGING OPERATING AND DATABASE
ENVIRONMENTS.
IBM, HP, Microsoft and Oracle are by far the largest suppliers of systems
and database software and, in many cases, are the manufacturers of the computer
hardware systems used by most of our customers. Historically, operating and
database system developers have modified or introduced new operating systems,
database systems, systems software and computer hardware. Such new products
could incorporate features which perform functions currently performed by our
products or could require substantial modification of our products to maintain
compatibility with these companies' hardware or software. Although we have to
date been able to adapt our products and our business to changes introduced by
hardware manufacturers and operating and database system software developers,
there can be no assurance that we will be able to do so in the future. Failure
to adapt our products in a timely manner to such changes or customer decisions
to forego the use of our products in favor of those with comparable
functionality contained either in the hardware or operating system could have a
material adverse effect on our business, financial condition and operating
results.
FUTURE PRODUCT DEVELOPMENT IS DEPENDENT UPON ACCESS TO THIRD-PARTY SOURCE CODE.
In the past, licensees using proprietary operating systems were furnished
with "source code," which makes the operating system generally understandable to
programmers, and "object code," which directly controls the hardware and other
technical documentation. Since the availability of source code facilitated the
development of systems and applications software which must interface with the
operating systems, independent software vendors such as BMC were able to develop
and market compatible software. IBM and other hardware vendors have a policy of
restricting the use or availability of the source code for some of their
operating systems. To date, this policy has not had a material effect on us.
Some companies, however, may adopt more restrictive policies in the future or
impose unfavorable terms and conditions for such access. These restrictions may,
in the future, result in higher research and development costs for us in
connection with the enhancement and modification of our existing products and
the development of new products. Although we do not expect that such
restrictions will have this adverse effect, there can be no assurances that such
restrictions or other restrictions will not have a material adverse effect on
our business, financial condition and operating results.
FUTURE PRODUCT DEVELOPMENT IS DEPENDENT UPON EARLY ACCESS TO THIRD-PARTY
OPERATING AND DATABASE SYSTEMS.
Operating and database system software developers have in the past provided
us with early access to pre-generally available (GA) versions of their software
in order to have input into the functionality and to ensure that we can adapt
our software to exploit new functionality in these systems. Some companies,
however, may adopt more restrictive policies in the future or impose unfavorable
terms and conditions for such access. These restrictions may result in higher
research and development costs for us in connection with the enhancement and
modification of our existing products and the development of new products.
Although we do not expect that such restrictions will have this adverse effect,
there can be no assurances that such restrictions or other restrictions will not
have a material adverse effect on our business, financial condition and
operating results.
FAILURE TO ADAPT TO TECHNOLOGICAL CHANGE COULD ADVERSELY AFFECT OUR EARNINGS.
If we fail to keep pace with technological change in our industry, such
failure would have an adverse effect on our revenues and earnings. We operate in
a highly competitive industry characterized by rapid technological change,
evolving industry standards, changes in customer requirements and frequent new
product introductions and enhancements. During the past several years, many
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new technological advancements and competing products entered the marketplace.
The distributed systems and application management markets in which we operate
are far more crowded and competitive than our traditional mainframe systems
management markets. Our ability to compete effectively and our growth prospects
depend upon many factors, including the success of our existing distributed
systems products, the timely introduction and success of future software
products, and the ability of our products to interoperate and perform well with
existing and future leading databases and other platforms supported by our
products. We have experienced long development cycles and product delays in the
past, particularly with some of our distributed systems products, and expect to
have delays in the future. Delays in new product introductions or
less-than-anticipated market acceptance of these new products are possible and
would have an adverse effect on our revenues and earnings. New products or new
versions of existing products may, despite testing, contain undetected errors or
bugs that could delay the introduction or adversely affect commercial acceptance
of such products.
FAILURE TO MAINTAIN OUR EXISTING DISTRIBUTION CHANNELS AND DEVELOP ADDITIONAL
CHANNELS IN THE FUTURE COULD ADVERSELY AFFECT REVENUES AND EARNINGS.
With the acquisition of Remedy, the percentage of our revenue from sales of
our products and services through distribution channels such as systems
integrators and value-added resellers is increasing. Conducting business through
indirect distribution channels presents a number of risks, including:
o each of our systems integrators and value-added resellers can cease
marketing our products and services with limited or no notice and with
little or no penalty;
o our existing systems integrators and value-added resellers may not be able
to effectively sell new products and services that we may introduce;
o we do not have direct control over the business practices adopted by our
systems integrators and value-added resellers;
o our systems integrators and value-added resellers may also offer
competitive products and services;
o we may face conflicts between the activities of our indirect channels and
our direct sales and marketing activities; and
o our systems integrators and value-added resellers may not give priority to
the marketing of our products and services as compared to our competitors'
products.
CHANGES IN PRICING PRACTICES COULD ADVERSELY AFFECT REVENUES AND EARNINGS.
We may choose to make changes to our product packaging, pricing or
licensing programs in response to customer demands or as a means to
differentiate our product offerings. If made, such changes may have a material
adverse impact on revenues or earnings.
OUR CUSTOMERS MAY NOT ACCEPT OUR PRODUCT STRATEGIES.
Historically, we have focused on selling software products to address
specific customer problems associated with their applications. Our BSM strategy
requires us to integrate multiple software products so that they work together
to provide comprehensive systems management solutions. There can be no assurance
that customers will perceive a need for such solutions. In addition, there may
be technical difficulties in integrating individual products into a combined
solution that may delay the introduction of such solutions to the market or
adversely affect the demand for such solutions. We may also adopt different
sales strategies for marketing our products, and there can be no assurance that
our strategies for selling solutions will be successful.
RISKS RELATED TO BUSINESS COMBINATIONS.
As part of our overall strategy, we have acquired or invested in, and plan
to continue to acquire or invest in, complementary companies, products, and
technologies and to enter into joint ventures and strategic alliances with other
companies. Risks commonly encountered in such transactions include: the
difficulty of assimilating the operations and personnel of the combined
companies; the risk that we may not be able to integrate the acquired
technologies or products with our current products and technologies; the
potential disruption of our ongoing business; the inability to retain key
technical, sales and managerial personnel; the inability of management to
maximize our financial and strategic position through the successful integration
of acquired businesses; the risk that
20
revenues from acquired companies, products and technologies do not meet our
expectations; and decreases in reported earnings as a result of charges for
in-process research and development and amortization of acquired intangible
assets.
For us to maximize the return on our investments in acquired companies, the
products of these entities must be integrated with our existing products. These
integrations can be difficult and unpredictable, especially given the complexity
of software and that acquired technology is typically developed independently
and designed with no regard to integration. The difficulties are compounded when
the products involved are well established because compatibility with the
existing base of installed products must be preserved. Successful integration
also requires coordination of different development and engineering teams. This
too can be difficult and unpredictable because of possible cultural conflicts
and different opinions on technical decisions and product roadmaps. There can be
no assurance that we will be successful in our product integration efforts or
that we will realize the expected benefits.
With each of our acquisitions, we have initiated efforts to integrate the
disparate cultures, employees, systems and products of these companies.
Retention of key employees is critical to ensure the continued advancement,
development, support, sales and marketing efforts pertaining to the acquired
products. We have implemented retention programs to keep many of the key
technical, sales and marketing employees of acquired companies; nonetheless, we
have lost some key employees and may lose others in the future.
ENFORCEMENT OF OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of copyright, patent, trademark, trade secrets,
confidentiality procedures and contractual procedures to protect our
intellectual property rights. Despite our efforts to protect our intellectual
property rights, it may be possible for unauthorized third parties to copy
certain portions of our products or to reverse engineer or obtain and use
technology or other information that we regard as proprietary. There can also be
no assurance that our intellectual property rights would survive a legal
challenge to their validity or provide significant protection for us. In
addition, the laws of certain countries do not protect our proprietary rights to
the same extent as do the laws of the United States. Accordingly, there can be
no assurance that we will be able to protect our proprietary technology against
unauthorized third party copying or use, which could adversely affect our
competitive position.
POSSIBILITY OF INFRINGEMENT CLAIMS.
From time to time, we receive notices from third parties claiming
infringement by our products of patent and other intellectual property rights.
We expect that software products will increasingly be subject to such claims as
the number of products and competitors in our industry segments grows and the
functionality of products overlaps. In addition, we may receive more patent
infringement claims as companies increasingly seek to patent their software and
business methods and enforce such patents, especially given the increase in
software and business method patents issued during the past several years.
Regardless of its merit, responding to any such claim could be time-consuming,
result in costly litigation and require us to enter into royalty and licensing
agreements which may not be offered or available on terms acceptable to us. If a
successful claim is made against us and we fail to develop or license a
substitute technology, our business, results of operations or financial position
could be materially adversely affected.
RISKS RELATED TO INTERNATIONAL OPERATIONS.
We have committed, and expect to continue to commit, substantial resources
and funding to our international infrastructure. Operating costs in many
countries, including many of those in which we operate, are higher than in the
United States. To increase international sales in fiscal 2004 and subsequent
periods, we must continue to globalize our software product lines; expand
existing and establish additional foreign operations; strategically hire
additional personnel; identify suitable locations for sales, marketing, customer
service and development; and recruit international distributors and resellers in
selected territories. Future operating results are dependent on sustained
performance improvement by our international offices, particularly our European
operations. Our operations and financial results internationally could be
significantly adversely affected by several risks such as changes in foreign
currency exchange rates, sluggish regional economic conditions and difficulties
in staffing and managing international operations. Generally, our foreign sales
are denominated in our foreign subsidiaries' local currencies. If these foreign
currency exchange rates change unexpectedly, we could have significant gains or
losses.
We maintain a software development and information technology operations
office in India which operates as an extension of our primary development and
information technology operations and we contract with third-party developers in
India. As other software companies have done and are continuing to do, we plan
to continue to allocate more development and IT resources to India with the
expectation of achieving significant efficiencies, including reducing
operational costs and permitting an around-the-clock development
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cycle. To date, the dispute between India and Pakistan involving the Kashmir
region has not adversely affected our operations in India. Should we be unable
to conduct operations in India in the future, we believe that our business could
be temporarily adversely affected.
We conduct substantial development and marketing operations in multiple
locations in Israel and, accordingly, we are directly affected by economic,
political and military conditions in Israel. Any major hostilities involving
Israel or the interruption or curtailment of trade between Israel and its
present trading partners could materially adversely affect our business,
operating results and financial condition. We maintain comprehensive contingency
and business continuity plans, and to date, the current conflict in the region
and hostilities within Israel have not caused disruption of our operations
located in Israel.
ACCOUNTING PRONOUNCEMENTS UNDER CONSIDERATION RELATED TO STOCK-BASED
COMPENSATION WOULD REDUCE OUR REPORTED EARNINGS AND COULD ADVERSELY AFFECT OUR
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL BY REDUCING THE STOCK-BASED
COMPENSATION WE ARE ABLE TO PROVIDE.
We have used stock options and other long-term equity incentives as a
fundamental component of our employee compensation packages. We believe that
stock options and other long-term equity incentives directly motivate our
employees to maximize long-term stockholder value and, through the use of
vesting, encourage employees to remain with BMC Software. In accounting for our
stock option grants using the intrinsic value method under the provisions of
Accounting Principles Board Opinion No. 25, we recognize no compensation cost
because the exercise price of options granted is equal to the market value of
our common stock on the date of grant. The Financial Accounting Standards Board
(FASB) is currently considering changes to US generally accepted accounting
principles that, if implemented, would require us to record charges to earnings
for employee stock option grants, which would negatively impact our earnings.
For example, as disclosed in Note (4) to the accompanying Condensed Consolidated
Financial Statements, recording charges for employee stock options using the
fair value method under SFAS No. 123, "Accounting for Stock-Based Compensation"
would have reduced net earnings by $16.6 million and $25.5 million for the
quarters ended June 30, 2002, and June 30, 2003, respectively. In addition, new
regulations adopted by The New York Stock Exchange requiring stockholder
approval for all stock option plans as well as new regulations prohibiting NYSE
member organizations from giving a proxy to vote on equity-compensation plans
unless the beneficial owner of the shares has given voting instructions could
make it more difficult for us to grant options to employees in the future. To
the extent that new regulations make it more difficult or costly to grant
options and/or other stock-based compensation to employees, we may incur
increased cash compensation costs or find it difficult to attract, retain and
motivate employees, either of which could materially adversely affect our
business.
POSSIBLE ADVERSE IMPACT OF INTERPRETATIONS OF EXISTING ACCOUNTING
PRONOUNCEMENTS.
On April 1, 1998 and 1999 we adopted AICPA SOP 97-2, "Software Revenue
Recognition," and SOP 98-9 "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," respectively. The adoption
of these standards did not have a material impact on our financial position or
results of operations. Based on our reading and interpretation of these SOPs, we
believe that our current sales contract terms and business arrangements have
been properly reported. Future interpretations of existing accounting standards
or changes in our business practices could result in future changes in our
revenue accounting policies that could have a material adverse effect on our
business, financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency exchange
rate fluctuations and changes in the market value of our investments in
marketable securities. In the normal course of business, we employ established
policies and procedures to manage these risks including the use of derivative
instruments. There have been no material changes in our foreign exchange risk
management strategy or our marketable securities subsequent to March 31, 2003,
therefore our market risk sensitive instruments remain substantially unchanged
from the description in our Annual Report on Form 10-K for the year ended March
31, 2003.
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ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of June 30, 2003, the Company's principal executive officer and
principal financial officer evaluated the effectiveness of the Company's
disclosure controls and procedures. Based on the evaluation, the Company's
principal executive officer and principal financial officer believe that:
o the Company's disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in the reports it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms; and
o the Company's disclosure controls and procedures were effective to ensure
such information was accumulated and communicated to the Company's
management, including the Company's principal executive officer and the
principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company' internal
controls subsequent to their evaluation, nor have there been any corrective
actions with regard to significant deficiencies or material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 29, 2003, we filed a complaint against NetIQ Corporation (NetIQ)
in the United States District Court of the Southern District of Texas, Houston
Division, alleging that one or more of NetIQ's software products and their use
infringe a valid U.S. patent and that Net IQ infringed one or more trademarks
held by us. BMC Software seeks to enjoin NetIQ's current and future infringement
of our patent and trademarks and to recover compensatory damages and punitive
damages, interest, costs and fees.
We are subject to various legal proceedings and claims, either asserted or
unasserted, which arise in the ordinary course of business. We do not believe
that the outcome of any of these legal matters will have a material adverse
effect on our consolidated financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of the Chief Executive Officer of BMC Software, Inc.
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of BMC Software, Inc.
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer of BMC Software, Inc.
pursuant to 18 U.S.C. Section 1350.
32.2 Certification of the Chief Financial Officer of BMC Software, Inc.
pursuant to 18 U.S.C. Section 1350.
(b) Reports on Form 8-K.
On April 24, 2003, BMC Software filed a Current Report on Form 8-K, dated
April 24, 2003, furnishing under Item 9 (pursuant to Item 12) its news
release covering its historical financial results for the quarter ended
March 31, 2003, and reporting under Item 9 the conference call scheduled to
discuss its historical financial results for the quarter ended March 31,
2003 and its financial guidance for fiscal 2004.
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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.
By: /s/ Robert E. Beauchamp
-------------------------------------------
Robert E. Beauchamp
President and Chief Executive Officer
August 14, 2003
By: /s/ John W. Cox
-------------------------------------------
John W. Cox
Vice President, Chief Financial Officer and
Chief Accounting Officer
August 14, 2003
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INDEX TO EXHIBITS
31.1 Certification of the Chief Executive Officer of BMC Software, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of BMC Software, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer of BMC Software, Inc. pursuant
to 18 U.S.C. Section 1350.
32.2 Certification of the Chief Financial Officer of BMC Software, Inc. pursuant
to 18 U.S.C. Section 1350.