Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2011
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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)
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Delaware
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74-2126120 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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2101 CityWest Boulevard
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77042-2827 |
Houston, Texas
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(Zip Code) |
(Address of principal executive offices) |
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Registrants telephone number, including area code (713) 918-8800
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
Common Stock, par value $.01 per share
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The NASDAQ Stock Market LLC |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act).
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The aggregate market value of voting and non-voting common equity held by non-affiliates of the
registrant was approximately $7,189,940,000 at September 30, 2010 based upon the closing sale price
of the Common Stock on the NASDAQ Stock Market reported on such date.
As of May 2, 2011, there were 176,858,000 outstanding shares of Common Stock, par value $.01,
of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants Proxy Statement relating to its 2011 Annual Stockholders Meeting, to
be filed subsequently, are incorporated by reference into Part III.
TABLE OF CONTENTS
This Annual Report on Form 10-K (Report) 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, estimate, will, contemplate, would and similar
expressions that contemplate future events. Such forward-looking statements are based on
managements reasonable current assumptions and expectations. Numerous important factors, risks and
uncertainties affect our operating results, including, without limitation, those contained in this
Report, and could cause our actual results, levels of activity, performance or achievement to
differ materially from the results expressed or 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 Risk Factors. You should also carefully
review the cautionary statements described in the other documents we file from time to time with
the Securities and Exchange Commission (SEC), specifically our Quarterly Reports on Form 10-Q and
our Current Reports on Form 8-K. We undertake no obligation to update any forward-looking
statements. Information contained on our website is not part of this Report.
BMC, BMC Software and the BMC Software logo are the exclusive properties of BMC Software,
Inc., are registered with the U.S. Patent and Trademark Office, and may be registered or pending
registration in other countries. All other BMC trademarks, service marks, and logos may be
registered or pending registration in the U.S. or in other countries. All other trademarks or
registered trademarks are the property of their respective owners.
BladeLogic and the BladeLogic logo are the exclusive properties of BladeLogic, Inc. The
BladeLogic trademark is registered with the U.S. Patent and Trademark Office, and may be registered
or pending registration in other countries. All other BladeLogic trademarks, service marks, and
logos may be registered or pending registration in the U.S. or in other countries. All other
trademarks or registered trademarks are the property of their respective owners.
ITIL® is a registered trademark, and a registered community trademark of the Office
of Government Commerce (OGC), and is registered in the U.S. Patent and Trademark Office, and is
used here by BMC Software, Inc., under license from and with the permission of OGC.
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IT Infrastructure Library® is a registered trademark of the Office of Government
Commerce and is used here by BMC Software,
Inc., under license from and with the permission of OGC.
DB2, IMS and IBM are trademarks or registered trademarks of International Business Machines
Corporation in the United States, other countries, or both.
Java is the trademark or registered trademark of Sun Microsystems, Inc. in the U.S. and other
countries.
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PART I
Overview
BMC Software, Inc. (collectively, we, us, our, the Company or BMC) is one of the worlds
largest software companies. We provide IT management solutions primarily for large enterprises. Our
extensive portfolio of IT management software solutions simplifies and automates the management of
IT processes, mainframe, distributed, virtualized and cloud computing environments, as well as
applications and databases. We also provide our customers with maintenance and support services for
our products and assist customers with software implementation, integration, IT process and
organizational transformation, and education services. We were organized as a Texas corporation in
1980 and were reincorporated in Delaware in July 1988. Our principal corporate offices are located
at 2101 CityWest Boulevard, Houston, Texas 77042-2827. Our main telephone number is (713) 918-8800,
and our primary internet address is http://www.bmc.com. Our internet website and the information
contained therein or connected thereto are not intended to be incorporated into this Annual Report
on Form 10-K.
We file annual, quarterly and current reports, proxy statements and other information with the
SEC. These filings and all related amendments are available free of charge at
http://investors.bmc.com. We post all of our SEC documents to our website as soon as reasonably
practical after such material is electronically filed with, or furnished to, the SEC. Our corporate
governance guidelines and the charters of the Board of Directors committees are also available at
http://www.bmc.com, as is our Professional Conduct Policy and Code of Ethics, as amended from time
to time. Printed copies of each of these documents are available to stockholders upon request by
contacting our investor relations department at (800) 841-2031 ext. 4525 or via email at
investor@bmc.com.
Strategy
Our strategy is to be the leader in providing a unified IT management platform that simplifies
and automates complex IT functions and processes in order to improve IT efficiency and value. We
believe Business runs on IT and that by helping our customers run their IT organizations smarter,
faster and stronger, their businesses will thrive. Our solutions and services help businesses
address key initiatives, such as cloud computing, IT service management, proactive operations, data
center automation, mainframe cost optimization and IT costs.
Responding to the needs of IT executives to optimize costs, increase business competitive
advantage, improve service quality, manage risk and provide greater transparency, we provide
solutions that enable Business Service Management (BSM), which we define as a unified platform for
simplifying and automating the management of IT. Our BSM approach resonates powerfully with
customers and results in substantial savings and value created through improved IT operational
efficiency, consistent service delivery and the ability to rapidly address changing business needs.
We have developed our BSM platform so that it can be adopted both universally and incrementally. To
accomplish this, we provide integrated products and solutions (see the Solutions and Products
section below). Our current BSM offering represents continued innovation from internal development,
strategic acquisitions and by partnering with leading technology providers. We are committed to
further enhancing our BSM platform in order to help our customers better manage IT complexity
across diverse infrastructures and processes. We are also committed to providing customer choice by
delivering our products and solutions through a combination of on-premise delivery, managed
services and software-as-a-service (SaaS).
Helping to enable our unified BSM platform, we provide a family of shared foundational
technologies called BMC Atrium that unifies information and processes from disparate management
tools and also discovers, models, visualizes and assigns priorities to business services. One of
the key components of BMC Atrium is the BMC Atrium Configuration Management Database (CMDB). The
BMC Atrium CMDB is an open-architected, federated, intelligent data repository that simplifies the
management of IT configurations and delivers accurate visibility into the dependencies between
business services, users and IT infrastructure across cloud, virtual, mainframe and distributed
environments. Along with other components of BMC Atrium, the BMC Atrium CMDB enables a
Configuration Management System that ensures a consistent approach to managing IT processes such as
incident management, problem management, change management, configuration management, asset
management and event management.
To help clients, we offer education and consulting services that include both industry best
practices and our own best practices and deliver them through a comprehensive methodology that is
focused on customer value realization. We provide services that assist our customers in defining,
implementing and operating our BSM solutions, including technology, process and organizational
assessment, design and transformation services. Our BSM solutions support best practices, including
those found in IT Infrastructure Library (ITIL), the most widely adopted IT-related best practices
framework, and we have broadly trained our customer-facing organizations on ITIL best practices and
provide ITIL education and certification to customers and partners through our professional
services
organization.
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As part of our BSM strategy, we also differentiate our approach by supporting mainframe
environments. A substantial portion of the worlds most valuable computer data resides on
mainframes. Our ability to integrate the mainframe into BSM offers significant benefits to
financial services, telecommunications, transportation and other industries. Mainframes remain
important to our larger enterprise customers as they continue to be one of the most cost effective
and scalable platforms for IT service delivery.
In recent years, we have been expanding our offerings to provide Dynamic BSM solutions that
enable the on-demand provisioning and management of services using new computing platforms, such as
cloud computing, in addition to traditional IT environments. In addition to our own efforts, we
are working closely with other leading technology providers in the hardware, networking, managed
services and SaaS markets to enable the industrys most comprehensive and robust Dynamic BSM
platform.
Solutions and Products
We are organized into two software business segments: Enterprise Service Management (ESM) and
Mainframe Service Management (MSM). This structure provides the focus required to align our
resources and product development efforts to meet the demands of the markets we serve. Our
leadership reviews the results of our business using these segments. For financial information
related to these two segments, see Note 13 to the accompanying consolidated financial statements.
Our ESM segment consists of our solutions and related professional services in the following
IT management areas:
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Service Assurance Our service assurance offerings manage IT
functions and processes such as availability and performance
management, event management, service impact management and capacity
management and provide proactive analytics to help IT identify issues
before end users are affected by performance problems. Our solutions
prioritize IT events based on business impact and help determine and
initiate corrective actions to quickly restore services to the
business. We were one of the first IT management leaders to bring
business relevance to IT component events in this important market
segment for our business. The capacity optimization solution from our
October 2010 acquisition of the software business of Neptuny S.r.l. is
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Service Automation Our service automation offerings manage IT
functions and processes such as provisioning, configuration change and compliance automation for
servers,
networks, applications and databases. Our solutions in this area help
IT manage increasing complexity to support rapidly changing business
needs, and include our Cloud Lifecycle Management solutions which are
generating significant interest and early adoption among enterprises,
service providers and public sector agencies. This market segment
continues to attract significant customer interest due to the
pervasive need for organizations to automate manually-intensive and
time-consuming processes in order to achieve greater operational
efficiency. The database configuration change and compliance automation solution from our November
2010 acquisition of GridApp Systems, Inc. (GridApp Systems) is
included in this solution area. |
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Service Support Our service support offerings manage IT functions
and processes such as the service desk, incident management, service
request management, problem management, asset management, service
level management, change and release management and identity
management. These solutions, built around the industry leading service
desk, manage and improve IT service as perceived by business end
users. They drive improvements in efficiency through application of
best practices (such as ITIL) and drive down costs by helping end
users solve their own problems, reduce the number of calls to the
service desk and track the status of IT requests. We also offer
solutions to manage various business functions in IT such as financial
planning and budgeting, demand and resource management, supplier
management, service cost management and IT controls. In fiscal 2011,
we broadened our solutions in this area by offering our
industry-leading BMC Remedy IT Service Management Suite via a SaaS
model and further expanding our strategic alliance with Salesforce.com
by offering an expanded SaaS solution called RemedyForce. |
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BMC Atrium Our BMC Atrium offering provides a family of shared
foundational technologies that unifies information and processes from
disparate management tools and also discovers, models, visualizes and
assigns priorities to business services. It includes our BMC Atrium
CMDB, a widely implemented and industry-leading CMDB. Our BMC Atrium
solution also includes comprehensive discovery and dependency mapping,
process and task workflow orchestration, service level management,
dashboard and analytic reporting, and service catalog products and
capabilities. |
Our professional services organization consists of a worldwide team of experienced software
and education consultants who provide implementation, integration, IT process, organizational
design, re-engineering and education services related to our products and the IT functions and
processes they help to manage. By easing the implementation of our products, these services help
our customers realize value more quickly and sustainably. By improving the overall customer
experience, we believe that these services
also drive future software license transactions with customers.
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Our MSM segment addresses IT requirements for mainframe data and performance management,
middleware management and enterprise workload automation. These solutions, tightly integrated with
the BMC Atrium CMDB, help our customers consistently meet service objectives while lowering the
cost of mainframe, middleware and workload operations by: (i) increasing the availability of their
critical business applications; (ii) reducing their hardware resource requirements; (iii) managing
ever increasing data, transaction and task volumes with the same or reduced staff; and (iv)
mitigating the risk and cost associated with regulatory compliance issues facing mainframe,
middleware and workload automation organizations. Our MSM solutions are organized into two areas:
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Data and Performance Management Our mainframe data and performance
management solutions ensure the availability and reliability of the
business critical data, applications and systems that support the
bottom line for many of the largest companies worldwide. These
solutions help customers optimize the performance, facilitate the
administration and enhance the recoverability of the corporate data
housed in IBMs DB2® and IMS databases. Our
MainView product line delivers business-centric systems management,
intelligent optimization and capacity management for an extensive
array of mainframe infrastructure components. Our MainView
AutoOperator products enable automation of comprehensive monitoring,
problem diagnosis and resolution through real-time execution of
pre-defined tasks. The MainView architecture facilitates seamless
integration of the entire product line for faster problem resolution.
BMC Middleware Management helps our customers improve the management
of the application middleware layer and related application
transactions. Tight integration of these offerings with BMC Atrium
ensures the mainframe is managed in accordance with business service
priorities. |
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Enterprise Workload Automation Our Control-M product line provides
a comprehensive set of features which enable data centers to automate
their increasingly complex workloads and critical business processes.
Our solution orchestrates and optimizes dispersed and disparate
management processes across multiple locations, platforms and
applications, and provides the facilities to centrally monitor and
manage workload elements required to support the batch portion of the
organizations business services across physical, virtual and cloud
computing environments. Our Control-M Output Management solution
automates the difficult task of managing the life cycle of mainframe
output reports with facilities which include report decollation,
distribution, bundling, viewing, archival and deletion. In fiscal
2011, we expanded our workload automation reach through BMC Control-M
Cloud Extensions which extended dynamic workload management with the
power and flexibility of virtualization and cloud computing.
Additionally, we released BMC Control-M Self Service to improve IT and
business productivity by reducing IT service requests and empowering
IT and business users with direct visibility and access to their
workload automation services through a service view and a catalog of
orderable workload automation services. |
Sales and Marketing
We market and sell our products in most major world markets directly through our sales force
and indirectly through channel partners including: distributors, resellers, original equipment manufacturers
(OEMs), alliance partners and systems integrators.
Our sales force includes an inside sales division which provides a channel for additional sales to
existing customers and the expansion of our customer base.
International Operations
We are a global company that conducts sales, sales support, professional services, product
development and support, marketing and product distribution services from numerous international
offices. In addition to our sales offices located in major economic centers around the world, we
also conduct development activities in the United States, India and Israel, as well as in small
offices in other locations. Our product manufacturing and distribution operations are based in
Houston, Texas, and Dublin, Ireland. We plan to continue to look for opportunities to efficiently
expand our operations in international locations that offer highly talented resources as a way to
maximize our global competitiveness.
Software Licenses
We license our software under both perpetual and term license models for customer on-premise
use. Under perpetual license arrangements, our customers receive the perpetual license right to
use our software, and related maintenance and support services are generally purchased on an annual
basis. Under term license arrangements, our customers receive license rights to use our software
along with bundled maintenance and support services for the term of the contract. The majority of
our contracts provide customers with the right to use one or more of our products up to a specific
license capacity. Capacity can be measured in many ways, including mainframe computing capacity,
number of servers, number of users or number of gigabytes, among others. Certain of our enterprise
license agreements stipulate that customers can exceed pre-determined base capacity levels, in
which case additional fees are specified in the license agreement. Such fees are typically paid on
an annual basis in the form of an incremental true-up payment. In the absence of such an
arrangement, customers are not entitled to exceed the capacity levels in the original license
rights.
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For qualifying transactions we offer extended payment terms for our solutions under a
financing program. We believe that by offering such financing we allow our customers to better
manage their IT expenditures and cash flows. Our financing program is discussed in further detail
below under Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
Our license revenue comprised 41.9%, 39.7% and 37.9% of our total revenue in fiscal 2011, 2010
and 2009, respectively. For a discussion of our revenue recognition policies and the impact of our
licensing models on revenue, see Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical Accounting Policies and Estimates Revenue
Recognition and Note 1 to the accompanying consolidated financial statements.
Software-as-a-Service
We provide on-demand SaaS offerings within our ESM segment. These offerings,
the first of which we introduced to the market in late fiscal 2010,
provide
management solutions through a hosted service rather than a traditional on-premise license model
and allow our customers to obtain the benefits of these solutions with reduced infrastructure and
setup requirements, leading to faster deployment and lower total cost of ownership. These
offerings are sold as either annual or multi-year subscriptions with pricing generally based on the
number of users. We also offer customer on-boarding and other related services for these offerings.
Through fiscal 2011, SaaS revenue has not been significant to our consolidated financial results.
Maintenance and Support Services
Maintenance and support enrollment entitles software license customers to technical support
services, including telephone and internet support and problem resolution services, and the right
to receive unspecified product upgrades, maintenance releases and patches released during the term
of the support period on a when-and-if-available basis. Maintenance and support service fees are an
important source of recurring revenue, and we invest significant resources in providing maintenance
and support services. Revenue from maintenance and support services comprised 49.6%, 53.6% and
54.4% of our total revenue in fiscal 2011, 2010 and 2009, respectively.
Professional Services
Our professional services group consists of a worldwide team of experienced software and
education consultants who provide implementation, integration, IT process, organizational design,
re-engineering and education services related to our products. By easing the implementation of our
products, these services help our customers accelerate the time to value. By improving the overall
customer experience, we believe that these services also drive future software license transactions
with customers. Revenue from professional services comprised 8.6%, 6.8% and 7.7% of our total
revenue in fiscal 2011, 2010 and 2009, respectively.
Research and Development
We conduct research and development activities in various locations throughout the world.
During fiscal 2011, 2010 and 2009, we incurred research and development expenses of $176.5 million,
$195.6 million and $222.0 million, respectively. These costs relate primarily to personnel and
related costs incurred to conduct product development activities. Although we develop many of our
products internally, we may acquire technology through business combinations or through licensing
from third parties when appropriate. Our expenditures on research and development activities during
the last three fiscal years are further discussed under Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations Research and Development Expenses.
Seasonality
We tend to experience a higher volume of transactions and associated revenue in the quarter
ended December 31, which is our third fiscal quarter, and the quarter ended March 31, which is our
fourth fiscal quarter, as a result of our customers spending patterns and our annual sales quota
incentives. As a result of this seasonality for license transactions and timing of related
payments, we tend to have greater operating cash flow in our fourth fiscal quarter.
Competition
The enterprise management software business is highly competitive. Both our ESM and MSM
businesses compete against a number of competitors, including large vendors who compete with us at
a strategic solution level and across multiple product lines as well as smaller, niche competitors
who compete against individual products of ours. Our largest competitors are International Business
Machines Corporation (IBM), CA, Inc. (CA) and Hewlett-Packard Company (HP). Although we believe we
are uniquely positioned to offer BSM solutions to customers, several of our major competitors also
market BSM-like solutions and we anticipate continued competition in the BSM marketplace. There are
currently between 50 and 100 companies we consider to be directly competitive with
one or more of our software solutions. Some of these companies have substantially larger
operations than ours in the specific markets in which we compete. In addition, the software
industry is experiencing continued consolidation which may change both the number of and specific
companies we compete with.
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Customers
Our solutions are used by some of the largest, most demanding IT organizations in the world
including approximately 15,000 companies and 90% of the Fortune 100. Our software products are
generally used in a broad range of industries, businesses and applications. Our most significant
customers include banks and financial service providers, government agencies and other service
providers. Our remaining customer base includes manufacturers, telecommunication companies,
educational institutions, retailers, distributors, hospitals and other industries, as well as
channel partners including resellers, distributors and systems integrators. Our ten largest
customers comprised 15% or less of our total revenue in each of fiscal 2011, 2010 and 2009. No
single customer accounted for a material portion of our revenue during any of the past three fiscal
years.
Intellectual Property
We primarily distribute our products in object code form and rely upon contract, trade secret,
copyright and patent laws to protect our intellectual property. The license agreements under which
customers use our products restrict the customers use to its own operations and prohibit
disclosure to third parties. We distribute certain of our products on a shrink-wrap basis and the
enforceability of such restrictions in a shrink-wrap license is unproven in certain jurisdictions.
Also, notwithstanding these restrictions, it is possible for other persons to obtain copies of our
products in object code form. We expect that obtaining such copies would have limited value without
access to the products source code, which we keep highly confidential. In addition, for certain of
our solutions, we employ protective measures such as CPU-dependent passwords, expiring passwords
and time-based software trials.
Employees
At March 31, 2011, we had approximately 6,200 full-time employees. We expect that our
continued success will depend in part on our ability to attract and retain highly skilled
personnel, including technical, sales and management resources.
We operate in a dynamic environment that involves numerous risks and uncertainties. The
following section describes some of the risks that may adversely affect our business, financial
condition, operating results and cash flows; these are not necessarily listed in terms of their
importance or level of risk.
Weakened economic conditions and uncertainty could adversely affect our operating results.
Our overall performance depends in part on worldwide economic conditions. As a result of the
recent major global recession and government responses to such recession, the United States and
other key international economies continue to experience significant uncertainty, stock market
volatility, tightened credit markets, significant unemployment, volatility in commodity prices and
concerns about inflation. The severity or length of time these economic and financial market
conditions may persist is unknown, and the rate and pace of recovery in individual economies is
also uncertain. During challenging and uncertain economic times and in tight credit markets, many
customers may delay or reduce technology purchases. Contract negotiations may become more
protracted or difficult if customers institute additional internal approvals for software purchases
or require more negotiation of contract terms and conditions. These economic conditions could
result in reductions in sales of our products, longer sales cycles, difficulties in collection of
accounts receivable or delayed payments, slower adoption of new technologies and increased price
competition. In addition, continued deterioration of the global credit markets could adversely
impact our ability to complete sales of our solutions and services, including maintenance and
support renewals, or the value of our financial assets. Any of these events would likely harm our
business, financial condition, operating results and cash flows.
We may announce lower than expected revenue, bookings, earnings or operating cash flows.
Our ability to accurately and consistently predict revenue, bookings, earnings and operating
cash flows within narrow ranges is weakened by two principal factors:
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first, a significant portion of our transactions close during the final days of each
quarter; this pattern is evident across product lines and among all sales channels; and |
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second, even after contracts have been executed, extensive analysis is required before
the timing of revenue recognition can
be reliably determined; this timing reflects both the complexity of the revenue recognition
rules applicable to software and the effect that the various license types and other terms
and conditions can have when these rules are applied. |
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Numerous other factors, some listed below, also have potential to adversely affect our
financial results:
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customers may defer or limit purchases as a result of reduced
information technology budgets or reduced data processing capacity demand; |
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customers may require additional levels of internal approval prior to finalizing
software purchases or renewals, which could lengthen the sales cycle and delay bookings and
the resultant cash flows; |
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we may lose customers to our competitors or due to customer
consolidation; |
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we may be required to defer more license revenue than we anticipate if our mix of
complex transactions or contracts with terms and conditions requiring deferral of license
revenue is greater than we plan for; |
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we may be unable to adapt our solutions to customers needs in a market space defined by
constant technological change; |
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we may be unable to satisfy increased customer demands for our technical support services which
may adversely affect our relationships with our customers; |
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the timing of orders and delivery of products to our customers and channel
partners is uncertain; |
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we may experience losses on investments, foreign currency exchange contracts or other losses
from financial instruments we hold that are exposed to market losses; |
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we may experience unexpected changes or significant fluctuations in foreign currency exchange rates; |
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tax rates in jurisdictions in which we operate may change; |
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we may experience higher than expected operating expenses; |
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weighted average shares outstanding may increase unexpectedly due to much higher than
expected exercises of stock options or a sudden and significant increase in our stock price
causing our fully diluted weighted average shares outstanding to increase, either of which
could cause reported earnings per share to decline; |
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we may be affected by the timing of large, multi-product transactions or become
dependent upon such transactions; |
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our pricing and distribution terms and/or those of our competitors may change; and |
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our business may 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
proportionally reduce our operating expenses for that quarter in response to such a shortfall.
Therefore, any significant shortfall in revenue will likely have an immediate adverse effect on our
operating results for that quarter and could cause our stock price to decline. In addition, our
ability to maintain or expand our operating margins may be limited given economic and competitive
conditions, and we therefore could be reliant upon our ability to continually identify and
implement operational improvements in order to maintain or reduce expense levels. There can be no
assurance that we will be able to maintain or expand our current operating margins in the future.
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Our cloud offerings bring new business and operational risks.
We have introduced multiple new products and technology initiatives to provide systems
management solutions in the emerging area of cloud computing. We include in this category our SaaS
offerings. Our SaaS offerings provide our customers with existing and new software management
through a hosted service as opposed to traditional software deployments. There can be no assurance
that SaaS revenue will be significant in the future despite our levels of investment. There is a
risk that our SaaS offerings may reduce demand for licenses and maintenance of our traditional
software products which could impact our revenue and/or operating margins. There is also a risk
that our internal development and customer support teams could find it difficult or costly to
support both traditional software installed by customers and software delivered as a service. To
the extent that our new SaaS offerings are defective or there are disruptions to our services,
demand for our SaaS offerings could diminish and we could be subject to substantial liability. In
addition, interruptions or delays in service from our third party service delivery hosts could
impair the delivery of our services and harm our business. If we or our third party service
delivery hosts experience security breaches and unauthorized access is obtained to a customers
data or our data, our services may be perceived as not being secure, customers may curtail or stop
using our services and we may incur significant legal and financial exposure and liabilities.
Our success in the emerging area of cloud computing depends on organizations and customers
perceiving technological and operational benefits and cost savings associated with the increasing
adoption of virtual infrastructure solutions for on-premise data centers as well as for cloud
computing and end-user computing. Concerns about security, privacy, availability, data integrity,
retention and ownership may negatively impact the rate of adoption of cloud computing.
Cloud computing
environments are complex and the deployment of our systems management solutions in the cloud may
require additional professional services and implementation services for which we may
not have the ability to provide at an appropriate margin.
In the
cloud, our products are dependent upon third party hardware, software and cloud hosting vendors,
all of which must interoperate for end users to achieve their computing goals.
Since the cloud computing market is in
the early stages of development, we expect other companies to enter this market and to introduce
their own initiatives that may compete with, or not be compatible with, our cloud solutions.
Additionally, operating margins on our new initiatives may be lower than those we have achieved
in our more mature product markets, and our new initiatives may not generate sufficient revenue to
recoup our investments in them. If any of these events were to occur, it could adversely affect
our business, results of operations and financial condition.
We may have difficulty achieving our cash flow from operations goals.
Our quarterly cash flow from operations is and has been volatile. If our cash generated from
operations in some future period is materially less than the market expects, our stock price could
decline. Factors that could adversely affect our cash flow from operations in the future include:
lengthening sales cycles; a reduction in the size of transactions; the timing of transaction
completion, billings and associated cash collections within a particular period; longer customer
payment terms; an increase in late payments by customers; an increase in uncollectible accounts
receivable; increased expenses; reduced net earnings; a significant shift from multi-year committed
contracts to short-term contracts; a reduced ability to transfer finance receivables to third
parties; an increase in contracts where internal costs such as sales commissions are paid upfront
but payments from customers are collected over time; reduced renewal rates for maintenance; an
increase in cash taxes; payments for legal actions, costs, fees or settlements; restructuring
payments; the impact of changing foreign currency exchange rates; and reduced yields on investments
and cash equivalents.
Maintenance revenue could decline.
Maintenance revenue is an important source of recurring revenue, and we invest significant
resources to provide maintenance and support services to our customers. Maintenance fees generally
increase as the licensed capacity increases; consequently, we generally receive higher absolute
maintenance fees with new license and maintenance agreements and as existing customers license our
products for additional processing capacity. Price competition on enterprise transactions can lead
to increased discounting for higher levels of supplemental processing capacity; the maintenance
fees on a per unit of capacity basis are typically reduced in enterprise license agreements. In
addition, customers are generally entitled to reduced annual maintenance fees for entering into
long-term maintenance contracts. Declines in our license bookings, increases in the proportion of
long-term maintenance contracts and/or increased discounting could lead to declines in our
maintenance revenue growth rates. Should customers migrate from systems and applications which our
products support, utilize alternatives to our products, including maintenance-free solutions such
as on demand, or become dissatisfied with our maintenance services, increased cancellations could
lead to declines in our maintenance revenue. As maintenance revenue makes up a substantial portion
of our total revenue, any decline in our maintenance revenue could have a material adverse effect
on our business, financial condition, operating results and cash flows.
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Our professional services business is growing but could impact our overall margins.
Our professional services business has been growing as our overall bookings have grown and
customers have contracted with us to
provide implementation and other value-adding services. There are a number of risks associated with
our professional services business which could impact our ability to deliver high quality services
and which could impact our overall profit margin. These include the availability and our ability
to engage quality labor resources, both as employees and as third party contractors, incremental
costs associated with third party contractors, the complexity of services engagements, contractual
risks, pricing and bidding risks and potential cost overruns. If we are not able to effectively
manage the growth of our professional services business, it could have a material adverse effect on
our reputation and our operating results, including our profit margin.
Competition from large, powerful multi-line and small, agile single-line competitors could have a
negative impact on our business and financial results.
Some of our largest competitors, including IBM, CA and HP, have significant scale advantages.
With scale comes a large installed base of customers in particular market niches, as well as the
ability to develop and market software competitive with ours. Some of these competitors can also
bundle hardware, software and services together, which is a disadvantage for us since we do not
provide hardware and have fewer services offerings. Competitive products are also offered by
numerous independent software companies that specialize in specific aspects of the highly
fragmented software industry. Some, like Microsoft Corporation (Microsoft), Oracle Corporation
(Oracle), and SAP AG (SAP) are the leading developers and vendors in their
specialized markets. In addition, new companies enter the market on a frequent and regular basis,
offering products that compete with some individual products offered by us. Market entrants
utilizing alternative business models such as software-as-a-service, cloud computing or open source
software also compete against us. As the use of open source software becomes more widespread,
certain open source technology could become competitive with our proprietary technology, which
could cause sales of our products to decline or force us to reduce the fees we charge for our
products. Other data center vendors may expand into systems management to complement their
existing offerings. Additionally, many customers historically have developed their own products
that compete with those offered by us. Competition from any of these sources can result in price
reductions or displacement of our products, which could have a material adverse effect on our
business, financial condition, operating results and cash flows.
Industry consolidation could affect prices or demand for our products.
The IT industry and the market for our systems management products are very competitive due to
a variety of factors. As the enterprise systems software market matures, it is consolidating. This
trend could create opportunities for larger companies, such as IBM, HP, Microsoft, Oracle and other
large enterprise software and hardware companies, to increase their market share through the
acquisition of companies that dominate certain lucrative market niches or that have loyal installed
customer bases. In doing so, these competitors may be able to reduce prices on software that
competes with our solutions, in part by leveraging their larger economies of scale. Consolidation
also may permit competitors to offer a broader suite of products and more comprehensive bundled
solutions, including hardware, software and services. We expect this trend towards consolidation
to continue as companies attempt to maintain or extend their market and competitive positions in
the rapidly changing software industry and as companies are acquired or are unable to continue
operations. This industry consolidation may result in stronger competitors that are better able to
compete as sole-source vendors for customers. This could lead to more variability in our operating
results due to lengthening of the customer evaluation process, increased pricing pressure and/or
loss of business to these larger competitors, which may materially and adversely affect our
business, financial condition, operating results and cash flows.
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 some 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. There can be no assurance that we will be able to adapt our products and our
business to changes introduced by hardware manufacturers and operating and database system software
developers. Operating and database system software developers have in the past provided us with
early access to versions of their software, before making such software generally available, 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. Failure to adapt our products in a
timely manner to changes in operating and database systems, or any product quality and performance
issues with the underlying databases or operating systems resulting in degradation of our products
quality and performance, could influence customer decisions to forego the use of our products in
favor of those with comparable functionality offered by competitors or within the operating system
and database functionality itself which could result in a material adverse effect on our business,
financial condition, operating results and cash flows.
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Future product development is dependent upon access to and reliability of third party software
products and open source software.
Certain of our software products contain components developed and maintained by third party
software vendors. We expect that we may have to incorporate software from third party vendors in
our future products. We also incorporate open source software in certain of our software products.
We may not be able to replace the functionality provided by the third party or open source
software currently offered with our products if that software becomes obsolete, defective or
incompatible with future versions of our products or is not adequately maintained or updated, or if
our relationship with the third party vendor terminates.
In addition, we must carefully monitor and manage our use of, and compliance with the licensing requirements of, open source software.
Any significant interruption in the
availability of these third party software products on commercially acceptable terms, defects in
these products
or our inability to comply with the licensing terms of either third party commercial software or open source software
could delay development of future products or enhancement of future products and
could have a material adverse effect on our business, financial condition, operating results and
cash flows.
Future product development is dependent on adequate research and development resources.
In order to remain competitive, we must continue to develop new products and enhancements to
our existing products. This is particularly true as we further expand our BSM capabilities.
Maintaining adequate research and development resources to meet the demands of the market is
essential. Failure to do so could present an advantage to our competitors. Furthermore, if we are
unable to develop products internally due to certain constraints, such as high employee turnover,
lack of management ability or a lack of other development resources, it may force us to expand into
a certain market or strategy via an acquisition for which we could potentially pay too much or
unsuccessfully integrate into our operations.
Discovery of errors in our software could adversely affect our earnings.
The software products we offer are inherently complex. Despite testing and quality control, we
cannot be certain that errors will not be found in current versions, new versions or enhancements
of our products after commencement of commercial delivery. If new or existing customers have
difficulty deploying our products or require significant amounts of customer support, our operating
margins could be harmed. Moreover, we could face possible claims and higher development costs if
our software contains undetected errors or if we fail to meet our customers expectations. With our
BSM strategy, these risks increase because we are combining already complex products to create
solutions that are even more complicated than the aggregation of their product components.
Significant technical challenges could also arise with our products because our customers purchase
and deploy our products across a variety of computer platforms and integrate them with a number of
third party software applications and databases. These combinations increase our risk further
because in the event of a system-wide failure, it may be difficult to determine which product is at
fault; thus, we may be harmed by the failure of another suppliers products.
As a result of the
foregoing, we could experience loss of or delay in revenue and loss of market share;
loss of customers;
damage to our reputation;
failure to achieve market acceptance;
diversion of development resources;
increased service and warranty costs;
legal actions by customers against us which could, whether or not successful, increase
costs and distract our management; and
increased insurance costs.
We are subject to risks associated with our indirect distribution channels.
A portion of our revenue is derived from the sale of our products and services through
indirect distribution channels such as resellers, systems integrators and strategic partners. In
addition, we maintain strategic agreements with hardware vendors permitting them to sell our
software solutions as part of their hardware systems. Conducting business through indirect
distribution channels presents a number of risks, including:
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our indirect channel partners typically can cease marketing our products and services
with limited or no notice and with little or no penalty; |
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we may not be able to replace existing or recruit additional indirect channel partners
if we lose any of our existing ones; |
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our existing indirect channel partners may not be able to effectively sell new
products and services that we may introduce; |
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we do not have direct control over the business practices, compliance programs and
processes or risk management policies adopted by our indirect channel partners and they
may engage in inappropriate practices without our knowledge which could result in
penalties and/or reputational damage to us; |
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our indirect channel partners may not be able to deliver the same quality or standard
of services that we do which may require us to engage with their customers at a direct
cost to us to protect our product and services standards and reputation; |
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our indirect channel partners may also offer competitive products and services through
acquisition or internal development and as such, may not give priority to the marketing
of our products and services as compared to our competitors products; |
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we may face conflicts between the activities of our indirect channels and our direct
sales and marketing activities; |
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our indirect channel partners may experience financial difficulties that may impact
their ability to market our products and may lead to delays, or even default, in their
payment obligations to us; and |
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we also depend on our indirect channel partners for accurate and timely reporting of
our channel sales; any disruption, delay or under-reporting by our indirect channel
partners could have an adverse effect on our bookings, revenues and cash flows. |
Changes to our sales organization can be disruptive and may negatively impact our results of
operations.
From time to time, we make significant changes in the organizational structure and
compensation plans of our sales organizations. To the extent that we experience turnover within our
direct sales force or sales management, there is a risk that the productivity of our sales force
would be negatively impacted which could lead to revenue declines. Turnover within our sales force
can require significant severance expense and cause disruption in sales cycles leading to delay or
loss of business. In addition, it can take time to implement new sales management plans and to
effectively recruit and train new sales representatives. We review and modify our compensation
plans for the sales organization periodically. As in most years, we have made changes for fiscal
2012 that are intended to align with our business objectives. Changes to our sales compensation
plans could make it difficult for us to attract and retain top sales talent.
We are subject to risks related to business combinations.
As part of our overall strategy, we have acquired or invested in, and likely will continue to
acquire or invest in, complementary companies, products and technologies. Risks commonly
encountered in such transactions include:
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we may not retain and integrate key technical, sales and managerial personnel; |
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we may not assimilate the personnel, culture and operations of the combined
companies, including back-office functions and systems, such as accounting, human
resources and others, into our own back-office functions and systems; |
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we may not be able to integrate the acquired technologies or products
with our current products and technologies; |
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our ongoing business could be disrupted, including
management being distracted from other objectives, opportunities and risks; |
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we may not maximize our financial and strategic position through
the successful integration of acquired businesses; |
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our policies, procedures and controls may not be applied to the
acquired entity in a timely manner following the acquisition; |
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relationships with the acquired entitys customers,
partners or vendors might degrade, creating challenges for us to meet the objectives of the
acquisition; |
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our pre-acquisition due diligence may fail to identify technology
issues, such as problems with software code, architecture or functionality, intellectual
property ownership issues, employment or management issues, customer or partner issues,
errors or irregularities in the accounting or financial reporting of the target, unknown
liabilities of the target, legal contingencies, compliance failures or other issues; |
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revenue from acquired companies, products and technologies may not meet
our expectations; |
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our use of cash to pay for acquisitions may limit other potential uses
of our cash, including stock repurchases; similarly, existing stockholders
could be diluted and earnings per share may decrease if we were to issue a significant
amount of equity securities as full or partial consideration in future acquisitions; and |
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our chosen strategy leading to the acquisition may not be the appropriate
strategy or our resources may be better utilized developing technology via
internal product development. |
In order for us to maximize the return on our investments in acquired companies, the products
of these entities must be integrated with our existing products and strategies. These integrations
can be difficult and unpredictable, especially given the complexity of software and that acquired
technology is typically developed independently and may not have been designed to integrate with
our products. 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.
Changes in tax law, changes in our effective tax rate or exposure to additional income tax
liabilities could affect our profitability and financial condition.
We carry out our business operations through entities in the United States and multiple
foreign jurisdictions. As such, we are required to file corporate income tax returns that are
subject to United States, state and foreign tax laws. The United States, state and foreign tax
liabilities are determined, in part, by the amount of operating profit generated in these different
taxing jurisdictions. Our effective tax rate, earnings and operating cash flows could be adversely
affected by changes in the mix of operating profits generated in countries with higher statutory
tax rates as well as by the positioning of our cash balances globally. Our effective tax rate is
also impacted by the portion of our foreign earnings in jurisdictions having different corporate
tax rates than the United States when we deem such earnings to be indefinitely reinvested in such
jurisdictions. If we were to determine that these foreign earnings were not indefinitely
reinvested, our effective tax rate and earnings could be adversely impacted. Similarly, if
statutory tax rates or tax bases were to increase or if changes in tax laws, regulations or
interpretations were made that impact us directly, our effective tax rate, earnings and operating
cash flows could be adversely impacted. We are also required to evaluate the realizability of our
deferred tax assets. This evaluation requires that our management assess the positive and negative
evidence regarding sources of future taxable income. If managements assessment regarding the
realizability of our deferred tax assets changes, we will be required to increase our valuation
allowance, which will negatively impact our effective tax rate and earnings. We are also subject to
routine corporate income tax audits in multiple jurisdictions. Our provision for income taxes
includes amounts intended to satisfy income tax assessments that may result from the examination of
our corporate tax returns that have been filed in these jurisdictions. The amounts ultimately paid
upon resolution of these examinations could be materially different from the amounts included in
the provision for income taxes and result in additional tax expense and operating cash outflows.
We must protect our intellectual property rights.
We rely on a combination of copyrights, patents, trademarks, 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 misappropriate, copy or pirate 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 as to their
validity or provide significant protection for us, and any such legal actions could become costly.
In addition, the laws or practices 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 and revenue.
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Third parties may claim that our software products or services infringe on their intellectual
property rights, exposing us to litigation that, regardless of merit, may be costly to defend.
Our success and ability to compete are also dependent upon our ability to operate without
infringing upon the proprietary rights of others. Third parties may claim that our current or
future products or services infringe upon their intellectual property rights. Any such claim, with
or without merit, could have a significant effect on our business and financial results. Any future
third party claim could be time consuming, divert managements attention from our business
operations and result in substantial litigation costs, including any monetary damages and customer
indemnification obligations, which may result from such claims. In addition, parties making these
claims may be able to obtain injunctive or other equitable relief affecting our ability to license
the products that incorporate the challenged intellectual property. As a result of such claims, we
may be required to obtain licenses from third parties, develop alternative technology or redesign
our products. We cannot be sure that such licenses would be available on terms acceptable to us, if
at all. If a successful claim is made against us and we are unable to develop or license
alternative technology, our business, financial condition, operating results and cash flows could
be materially adversely affected.
We are subject to risks related to global operations.
We are a global company
that conducts sales, sales support, professional services, product development and support, marketing
and product distribution services from numerous offices throughout the world. We are subject to a variety of risks and challenges in managing an organization operating in
various countries, including:
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difficulties in staffing and managing international operations, including compliance
with local labor and employment laws; |
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non-compliance with our professional conduct policy and code of ethics or
other corporate policies; |
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increased financial accounting and reporting burdens and complexities; |
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adverse tax consequences; |
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adverse impact of inflation; |
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changes in foreign currency exchange rates; |
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impact from volatile or sluggish local economies or global macroeconomic
conditions; |
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loss of proprietary information, including intellectual property, due to piracy,
misappropriation or weaker laws regarding intellectual property protection; |
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the need to localize our products; |
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lack of appropriate local infrastructure to carry out operations; |
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political unrest or terrorism, particularly in areas in which we have employees and
facilities; |
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potential vulnerability to computer system, internet or other systemic attacks, such
as denial of service, viruses or other malware which may be caused by criminals,
terrorists or other sophisticated organizations; |
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compliance with a wide variety of complex laws, regulations and treaties including
unexpected changes in (or new) legislative or regulatory requirements, early termination
of contracts with government agencies, audits, investigations, sanctions or penalties; |
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licenses, tariffs and other trade barriers; and |
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natural disaster, disease or other extraordinary events impacting business continuity. |
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U.S. and international laws and regulations that apply to our global operations are
complex and increase our cost of doing business. U.S. laws and
regulations applicable to our international operations include the Foreign Corrupt Practices Act
and export control laws. International laws and regulations include local laws which also prohibit
bribery (including the anticipated UK Bribery Act), including commercial bribery, and corrupt payments to governmental officials, data privacy
requirements, labor relations laws, tax laws, anti-competition regulations, import and trade
restrictions and export requirements. We have adopted and implemented policies and procedures
designed to promote compliance with U.S. laws and the laws of the jurisdictions in which we
operate. Violations of these laws and regulations could result in criminal or civil fines against
us, our officers or our employees; restrictions on the conduct of our business; harm to our brand
or reputation; and delays in potential acquisitions. Such violations could result in penalties and
other restrictions that may, under certain circumstances, materially and adversely impact our
operating results and financial condition.
The unique risks of operating in a particular country may require us to adopt a different
business approach or strategy in that particular country which could increase our cost of doing
business or limit the type of business activities we can perform in such country. In addition, if
we suffer a business disruption due to any of the risks listed above and do not have in place or
are not able to implement adequate response plans, our ability to support customers and maintain
normal business operations for a significant length of time could be hindered such that our
competitive position could be significantly impacted. Furthermore, our financial condition could be
adversely impacted if our costs to recover escalate due to such recovery occurring over a
protracted period.
We maintain a significant presence in India, Israel and other emerging market countries,
conducting substantial software development and support, marketing operations, IT operations and
certain financial operations in those locations. Accordingly, we are directly affected by economic,
political, physical and electrical infrastructure and military conditions in these countries. Any
major hostilities or the interruption or curtailment of trade between these countries and their
present trading partners could materially adversely affect our business, financial condition,
operating results and cash flows. We maintain contingency and business continuity plans for all
significant locations, and to date, various regional conflicts or other local economic or political
issues have not caused any major adverse impact on our operations in these countries. Should we be
unable to conduct operations in these regions in the future, and our contingency and business
continuity plans are unsuccessful, our business could be adversely affected. Furthermore, as the
software and technology labor market in these countries has developed at a rapid pace, with many
multi-national companies competing for talent, there is a risk that wage and attrition rates will
rise faster than we have anticipated which could lead to operational issues.
We face exposure to foreign currency exchange rates.
We conduct significant transactions, including intercompany transactions, in currencies other
than the United States dollar or the functional operating currency of the transactional entities,
and our global subsidiaries maintain significant net assets that are denominated in currencies
other than the functional operating currencies of these entities. Accordingly, changes in the value
of foreign currencies relative to the United States dollar can significantly affect our revenues and
operating results due to transactional and translational remeasurement that is reflected in our
earnings. While we maintain a hedging program to hedge certain transactional exposures in foreign
currencies in an attempt to mitigate foreign currency exchange rate risks, this program may not
fully mitigate all such risk. We may also experience foreign currency exchange rate gains and
losses where it is not cost effective to hedge foreign currencies in part or in full. Additionally,
our efforts under this program may not be successful if we were to fail to properly detect or
manage foreign currency exchange rate exposures, which could also adversely impact our operating
results.
We may lose key personnel, may not be able to hire enough qualified personnel or may fail to
integrate replacement personnel.
Much of our future success depends on the continued service and availability of skilled
personnel, including sales, technical and management resources and the availability of skilled
contract labor. Experienced personnel in the information technology industry are in high demand and
competition for their talents is intense. Changing demographics and labor work force trends may
result in a loss of knowledge and skills as experienced workers retire. Effective succession
planning is also important to our long-term success. Failure to ensure effective transfer of
knowledge and smooth transitions involving key employees could hinder our strategic planning and
execution. In addition, acquisitions could cause us to lose key personnel of the acquired companies
or our personnel. With rare exceptions, we do not have long-term employment agreements with our
employees. Further, certain of our key personnel receive a total compensation package that includes
equity awards. New regulations, volatility in the stock market and other factors could diminish our
use, and/or the value, of our equity awards, putting us at a competitive disadvantage or forcing us
to use more cash compensation.
In addition, we continually focus on improving our cost structure. We have been hiring
personnel in countries where advanced technical expertise is available at lower costs and we
frequently utilize contract labor for short-term needs. When we make adjustments to our workforce,
we may incur expenses associated with workforce reductions that delay the benefit of a more
efficient workforce structure. We may also experience increased competition for employees in these
countries as the trend toward globalization continues which may affect our employee retention
efforts, increase our dependence on contract labor and/or increase our expenses in an effort to
offer a competitive compensation program for full-time employees.
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We have also undertaken restructuring actions over the past several years to improve our cost
structure involving significant reductions in our workforce, relocation of job functions to
overseas locations and changes to our organizational structure. We will continue to make
organizational changes aimed at improving our operating margins and driving operating efficiencies.
Some of these changes may result in future workforce reductions or rebalancing actions. These
efforts place a strain on our management, administrative, technical, operational and financial
infrastructure.
If we fail to manage these changes effectively, it could adversely affect our ability to
manage our business and our operating results.
Our business and products are dependent on the use of IT systems.
Our IT systems and related software applications are integral to our business.
We rely on controls and systems to ensure data integrity of critical business information.
Lack of data integrity could create inaccuracies and hinder our ability to perform meaningful
business analysis and make informed business decisions.
Computer
programmers and hackers may be able to penetrate our network security and misappropriate, copy or
pirate our confidential information or that of third parties, create system disruptions or cause
interruptions or shutdowns of our internal systems and services. A number of websites have been
subject to denial of service attacks, where a website is bombarded with information requests
eventually causing the website to overload, resulting in a delay or disruption of service. Also,
there is a growing trend of advanced persistent threats being launched by organized and coordinated
groups against corporate networks to breach security for malicious purposes. If successful, any of
these events could damage our computer systems or those of our customers and could disrupt or
prevent us from providing timely maintenance and support for our products. Computer programmers and
hackers also may be able to develop and deploy viruses, worms and other malicious software programs
that attack our products or otherwise exploit any security vulnerabilities of our products. The
costs to us to eliminate or alleviate security problems, bugs, viruses, worms, malicious software
programs and security vulnerabilities could be significant, and the efforts to address these
problems could result in interruptions, delays, cessation of service and loss of existing or
potential customers and may impede our sales, manufacturing, distribution and other critical
functions.
In the course of our regular business operations and providing maintenance support services to
our customers, we process and transmit proprietary information and sensitive or confidential data,
including personal information of employees, customers and others. Breaches in security could
expose us, our customers or the individuals affected to a risk of loss or misuse of this
information, resulting in potential regulatory actions, litigation and potential liability for us,
as well as the loss of existing or potential customers and damage to our brand and reputation.
Despite network security, disaster recovery and systems management measures in place, we may
encounter unexpected general systems outages or failures that may affect our ability to conduct
research and development, provide maintenance and support of our products, manage our contractual
arrangements, accurately and efficiently maintain our books and records, record our transactions,
provide critical information to our management and prepare our financial statements. Additionally,
these unexpected systems outages or failures may require additional personnel and financial
resources, disrupt our business or cause delays in the reporting of our financial results. We may
also be required to modify, enhance, upgrade or implement new systems, procedures and controls to
reflect changes in our business or technological advancements, which could cause us to incur
additional costs and require additional management attention, placing burdens on our internal
resources. We also outsource certain IT-related functions to third parties that are responsible for
maintaining their own network security, disaster recovery and systems management procedures. If
we, or our third party IT vendors, fail to manage our IT systems and related software applications
effectively, it could adversely affect our business operations, operating results and cash flows.
|
|
|
ITEM 1B. |
|
Unresolved Staff Comments |
None.
17
Our headquarters are located in Houston, Texas, where we lease approximately 570,000 square
feet of office space. We also maintain software development and sales organizations in various
locations around the world where we lease the necessary facilities. A summary of our principal
leased properties currently in use is as follows:
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
Location |
|
Area (sq. ft.) |
|
|
Lease Expiration |
Houston, Texas |
|
|
570,000 |
|
|
June 30, 2021 |
Pune, India |
|
|
162,000 |
|
|
September 30, 2014 |
Austin, Texas |
|
|
106,000 |
|
|
December 31, 2013 |
Tel Aviv, Israel |
|
|
69,000 |
|
|
July 10, 2012 |
San Jose, California |
|
|
62,000 |
|
|
May 31, 2019 |
Egham, United Kingdom |
|
|
47,000 |
|
|
April 26, 2019 |
Milan, Italy |
|
|
34,000 |
|
|
January 31, 2012 |
Lexington, Massachusetts |
|
|
32,000 |
|
|
February 28, 2013 |
Tel Hai, Israel |
|
|
30,000 |
|
|
October 31, 2014 |
McLean, Virginia |
|
|
28,000 |
|
|
November 30, 2013 |
|
|
|
ITEM 3. |
|
Legal Proceedings |
In December 2010, a lawsuit was filed against a number of software companies, including us, by
Uniloc USA, Inc. and Uniloc Singapore Private Limited in the United States District Court for the
Eastern District of Texas, Tyler Division. The complaint seeks monetary damages in unspecified
amounts and permanent injunction based upon claims for alleged patent infringement. While we intend
to vigorously defend this matter, we cannot predict the timing or ultimate outcome, nor estimate a
range of loss, if any, for this matter.
On July 15, 2004, we acquired Marimba, Inc., and Marimba is now a wholly-owned subsidiary of
BMC. In 2001, a class action complaint alleging violations of the federal securities laws was filed
in the United States District Court for the Southern District of New York (the Court) naming as
defendants Marimba, certain of Marimbas officers and directors, and certain underwriters of
Marimbas initial public offering. An amended complaint was filed on April 19, 2002. Marimba and
certain of its officers and directors are named in the suit pursuant to Section 11 of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 on the basis of an
alleged failure to disclose the underwriters alleged compensation and manipulative practices in
connection with Marimbas initial public offering. Similar complaints have been filed against over
300 other issuers that have had initial public offerings since 1998. The individual officer and
director defendants entered into tolling agreements and, pursuant to a Court Order dated October 9,
2002, were dismissed from the litigation without prejudice. On February 19, 2003, the Court granted
a Motion to Dismiss the Rule 10b-5 claims against 116 defendants, including Marimba. On June 30,
2003, the Marimba Board of Directors approved a proposed partial settlement with the plaintiffs in
this matter. The settlement would have provided, among other things, a release of Marimba and of
the individual officer and director defendants for the alleged wrongful conduct in the Amended
Complaint in exchange for a guarantee from Marimbas insurers regarding recovery from the
underwriter defendants and other non-monetary consideration. While the partial settlement was
pending approval, the plaintiffs continued to litigate against the underwriter defendants. The
Court directed that the litigation proceed within a number of focus cases rather than in
all of the 310 cases that have been consolidated. The Marimba case is not one of these focus cases.
On October 13, 2004, the Court certified the focus cases as class actions. The underwriter
defendants appealed that ruling, and on December 5, 2006, the Court of Appeals for the Second
Circuit (the Second Circuit) reversed the Courts class certification decision. On April
6, 2007, the Second Circuit denied plaintiffs petition for rehearing. In light of the Second
Circuit opinion, liaison counsel for all issuer defendants, including Marimba, informed the
Court that the settlement could not be approved, because the defined settlement class,
like the litigation class, could not be certified. On June 25, 2007, the Court entered an order
terminating the settlement agreement. On August 14, 2007, the plaintiffs filed their second
consolidated amended class action complaints against the focus cases and on
18
September 27, 2007, again moved for class certification. On November 12, 2007, certain of the defendants in the focus
cases moved to dismiss the second consolidated amended class action complaints. On March 26, 2008,
the Court denied the motions to dismiss except as to Section 11 claims raised by those plaintiffs
who sold their securities for a price in excess of the initial offering price and those who
purchased outside the previously certified class period. On October 3, 2008, plaintiffs submitted a
proposed order withdrawing the class certification motion without prejudice. On April 2, 2009, a
stipulation and agreement of settlement between the plaintiffs, issuer defendants and underwriter
defendants was submitted to the Court for preliminary approval. This settlement requires no
financial contribution from Marimba or us. The Court granted the plaintiffs motion for preliminary
approval and preliminarily certified the
settlement classes on June 10, 2009. The settlement fairness hearing was held on September
10, 2009. The Court granted the plaintiffs motion for final approval of the settlement and
certified the settlement classes on October 5, 2009. The Court determined that the settlement is
fair to the class members, approved the settlement and dismissed, with prejudice, the case against
Marimba and its individual defendants. Two appeals to the settlement are pending in the Second
Circuit, and motions to dismiss these appeals have been filed with the Court. The timing of
resolution of these appeals is uncertain. Due to the inherent uncertainties of litigation and
because the settlement remains subject to pending appeals, the ultimate outcome of the matter is
uncertain.
We are subject to various other 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
matters will have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
|
|
|
ITEM 4. |
|
(Removed and Reserved) |
19
PART II
|
|
|
ITEM 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is listed on the NASDAQ Stock Market and trades under the symbol BMC. On May 2, 2011, there were 603 holders of record of our common stock.
The following table sets forth the high and low intra-day sales prices per share of our common
stock for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Price Range of |
|
|
|
Common Stock |
|
|
|
High |
|
|
Low |
|
FISCAL 2011 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
51.03 |
|
|
$ |
46.31 |
|
Third Quarter |
|
$ |
49.11 |
|
|
$ |
38.95 |
|
Second Quarter |
|
$ |
41.51 |
|
|
$ |
34.24 |
|
First Quarter |
|
$ |
41.27 |
|
|
$ |
34.58 |
|
|
|
|
|
|
|
|
|
|
FISCAL 2010 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
40.87 |
|
|
$ |
35.55 |
|
Third Quarter |
|
$ |
40.73 |
|
|
$ |
35.65 |
|
Second Quarter |
|
$ |
39.00 |
|
|
$ |
31.00 |
|
First Quarter |
|
$ |
35.76 |
|
|
$ |
31.18 |
|
We have never declared or paid dividends to BMC Software stockholders. We do not intend to pay
any cash dividends in the foreseeable future. We currently intend to retain any future earnings
otherwise available for cash dividends on our common stock for use in our operations, for
acquisitions and for common stock repurchases. See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources.
The graph below shows the relative investment performance of our common stock, the S&P 500
Index and the S&P Systems Software Index for the last five years, assuming reinvestment of
dividends at date of payment into the common stock of the indices. The following graph is presented
pursuant to SEC rules and is not meant to be an indication of our future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among BMC Software, Inc., the S&P 500 Index
and the S&P Systems Software Index
|
|
|
* |
|
$100 invested on March 31, 2006 in stock or index, including reinvestment of dividends. |
20
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dollar Value |
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
of Shares Purchased |
|
|
Value of Shares that |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Purchased as Part of a |
|
|
as Part of a |
|
|
may yet be |
|
|
|
Shares |
|
|
Paid per |
|
|
Publicly Announced |
|
|
Publicly Announced |
|
|
Purchased Under |
|
Period |
|
Purchased (1) |
|
|
Share |
|
|
Program (2) |
|
|
Program (2) |
|
|
the Program (2) |
|
January 1 - 31, 2011 |
|
|
459,484 |
|
|
$ |
47.81 |
|
|
|
453,257 |
|
|
$ |
21,670,256 |
|
|
$ |
749,050,118 |
|
February 1 - 28, 2011 |
|
|
1,516,579 |
|
|
$ |
49.39 |
|
|
|
1,406,410 |
|
|
|
69,467,547 |
|
|
$ |
679,582,571 |
|
March 1 - 31, 2011 |
|
|
1,009,924 |
|
|
$ |
48.64 |
|
|
|
1,004,604 |
|
|
|
48,861,468 |
|
|
$ |
630,721,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Total |
|
|
2,985,987 |
|
|
$ |
48.88 |
|
|
|
2,864,271 |
|
|
$ |
139,999,271 |
|
|
$ |
630,721,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 Total |
|
|
11,163,384 |
|
|
$ |
41.59 |
|
|
|
10,555,470 |
|
|
$ |
439,043,180 |
|
|
$ |
630,721,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 121,716 and 607,914 shares of our common stock withheld
by us to satisfy employee tax withholding obligations during the
quarter and year ended March 31, 2011, respectively. |
|
(2) |
|
Our Board of Directors has authorized a total of $4.0 billion to
repurchase common stock. At March 31, 2011, approximately $630.7
million remains authorized in this stock repurchase program and
the program does not have an expiration date. |
Information regarding our equity compensation plans at March 31, 2011 is incorporated by
reference into Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
21
|
|
|
ITEM 6. |
|
Selected Financial Data |
The following selected consolidated financial data presented for, and at the end of, each of
the years in the five-year period ended March 31, 2011, are derived from our consolidated financial
statements. The following business combinations during the five-year period ended March 31, 2011
were accounted for under the acquisition method of accounting, and, accordingly, the financial
results of these acquired businesses have been included in our financial results below from the
indicated acquisition dates: GridApp Systems in November 2010, the software business of Neptuny
S.r.l. in October 2010, Phurnace Software, Inc. (Phurnace Software) in December 2009, Tideway
Systems Limited (Tideway Systems) in October 2009, MQSoftware, Inc. (MQSoftware) in August 2009,
BladeLogic, Inc. (BladeLogic) in April 2008, Emprisa Networks, Inc. in October 2007, RealOps, Inc.
in July 2007, ProactiveNet, Inc. in June 2007 and Identify Software Ltd. in May 2006.
The operating results for fiscal 2011, 2010, 2009, 2008 and 2007 below include severance, exit
costs and related charges of $14.3 million, $3.0 million, $33.5 million, $14.7 million and $44.6
million, respectively. During fiscal 2011 and 2010, we recorded net tax benefits of approximately
$57.2 million and $30.0 million, respectively, associated with tax authority settlements related to
prior years tax matters. During fiscal 2009, we wrote off acquired in-process research and
development (IPR&D) of $50.3 million in connection with our acquisition of BladeLogic, and we
recorded $6.8 million of tax expense associated with an intercompany transfer of the IPR&D.
The selected consolidated financial data should be read in conjunction with the consolidated
financial statements at March 31, 2011 and 2010, and for each of the three years in the period
ended March 31, 2011, the accompanying notes and the report of the independent registered public
accounting firm thereon, which are included elsewhere in this Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions, except per share data) |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
2,065.3 |
|
|
$ |
1,911.2 |
|
|
$ |
1,871.9 |
|
|
$ |
1,731.6 |
|
|
$ |
1,580.4 |
|
Operating income |
|
$ |
532.8 |
|
|
$ |
506.1 |
|
|
$ |
367.8 |
|
|
$ |
357.5 |
|
|
$ |
207.3 |
|
Net earnings |
|
$ |
456.2 |
|
|
$ |
406.1 |
|
|
$ |
238.1 |
|
|
$ |
313.6 |
|
|
$ |
215.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.55 |
|
|
$ |
2.21 |
|
|
$ |
1.27 |
|
|
$ |
1.59 |
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.50 |
|
|
$ |
2.17 |
|
|
$ |
1.25 |
|
|
$ |
1.56 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic earnings per share |
|
|
178.7 |
|
|
|
183.1 |
|
|
|
187.1 |
|
|
|
194.8 |
|
|
|
204.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted earnings per
share |
|
|
182.4 |
|
|
|
186.8 |
|
|
|
190.2 |
|
|
|
199.6 |
|
|
|
210.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
1,660.9 |
|
|
$ |
1,368.6 |
|
|
$ |
1,023.3 |
|
|
$ |
1,288.3 |
|
|
$ |
883.5 |
|
Investments |
|
|
95.6 |
|
|
|
127.9 |
|
|
|
145.9 |
|
|
|
186.9 |
|
|
|
623.6 |
|
Working capital |
|
|
877.1 |
|
|
|
561.2 |
|
|
|
239.4 |
|
|
|
532.7 |
|
|
|
578.0 |
|
Total assets |
|
|
4,485.4 |
|
|
|
4,137.6 |
|
|
|
3,697.5 |
|
|
|
3,345.5 |
|
|
|
3,260.0 |
|
Long-term borrowings |
|
|
335.6 |
|
|
|
340.9 |
|
|
|
313.6 |
|
|
|
9.2 |
|
|
|
3.3 |
|
Deferred revenue |
|
|
1,955.5 |
|
|
|
1,823.1 |
|
|
|
1,787.9 |
|
|
|
1,779.4 |
|
|
|
1,729.0 |
|
Stockholders equity |
|
|
1,662.9 |
|
|
|
1,387.7 |
|
|
|
1,048.5 |
|
|
|
994.5 |
|
|
|
1,049.1 |
|
22
|
|
|
ITEM 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
It is important that this Managements Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) be read in conjunction with our consolidated financial statements and
notes thereto which appear elsewhere in this Annual Report on Form 10-K. The following discussion
contains forward-looking statements that are subject to risks and uncertainties. Actual results may
differ substantially from those referred to herein due to a number of factors, including but not
limited to risks described in the section entitled Risk Factors and elsewhere in this Annual Report
on Form 10-K.
Unless indicated otherwise, results of operations data in this MD&A are presented in
accordance with United States generally accepted accounting principles (GAAP). Additionally, in an
effort to provide investors with additional information regarding our results of operations,
certain non-GAAP financial measures including non-GAAP operating income, non-GAAP net earnings and
non-GAAP diluted earnings per share are provided in this MD&A. See Non-GAAP Financial Measures and
Reconciliations below for an explanation of our use of non-GAAP financial measures and
reconciliations to their corresponding measures calculated in accordance with GAAP.
Overview
Our fiscal 2011 financial performance in terms of revenue, operating income, diluted earnings
per share and operating cash flows was in line with our annual expectations. Select operating
metrics for fiscal 2011 included:
|
|
|
Total bookings, which represent the contract value of new transactions that we closed and
recorded, were $2,197.7 million, representing an increase of $251.3 million, or 12.9%, over
fiscal 2010. Within our ESM segment, where we believe performance is best evaluated on the
basis of license bookings, total license bookings increased by $100.4 million, or 21.3%,
over fiscal 2010. Within our MSM segment, where we believe performance is best evaluated
based on total and annualized bookings on a trailing twelve months basis, total bookings for
the trailing twelve months ended March 31, 2011 increased by $29.8 million, or 3.7%, and on
an annualized basis, after normalizing for contract length, increased by $12.1 million, or
4.4%, as compared to the prior year period. |
|
|
|
Total revenue was $2,065.3 million, representing an increase of $154.1 million, or 8.1%,
over fiscal 2010. This increase was reflective of license and professional services revenue
increases of $106.1 million, or 14.0%, and $47.5 million, or 36.8%, respectively, while
maintenance revenue remained relatively flat with a $0.5 million increase. On a segment
basis, total ESM revenue increased by $136.8 million, or 12.0%, and total MSM revenue
increased by $17.3 million, or 2.2%, over fiscal 2010. |
|
|
|
Operating income was $532.8 million, representing an increase of $26.7 million, or 5.3%,
over fiscal 2010. Non-GAAP operating income was $732.7 million, representing an increase of
$58.2 million, or 8.6%, over fiscal 2010. |
|
|
|
Net earnings were $456.2 million, representing an increase of $50.1 million, or 12.3%,
over fiscal 2010. Non-GAAP net earnings were $546.2 million, representing an increase of
$50.2 million, or 10.1%, over fiscal 2010. |
|
|
|
Diluted earnings per share was $2.50, representing an increase of $0.33, or 15.2%, over
fiscal 2010. Non-GAAP diluted earnings per share was $2.99, representing an increase of
$0.33, or 12.4%, over fiscal 2010. |
|
|
|
Cash flows from operations were $765.2 million, representing an increase of $129.8
million, or 20.4%, over fiscal 2010. We closed out the year with a strong balance sheet at
March 31, 2011, including $1.8 billion in cash, cash equivalents and investments and $2.0
billion in deferred revenue. |
We continue to invest in our technology leadership, including in the areas of cloud computing,
virtualization and software-as-a-service. In addition to our ongoing product development efforts,
we consummated two strategic acquisitions within our ESM segment during fiscal 2011, by acquiring
GridApp Systems and the software business of Neptuny S.r.l. The former expands our ESM offerings
to include advanced database automation for physical, virtual and cloud environments while the
latter expands our capabilities in capacity management, enhancing our ESM portfolio and cloud
management capabilities.
We also continue to enhance shareholder value by returning cash to shareholders through our
stock repurchase program. During fiscal 2011, we repurchased approximately 10.6 million shares for
a total value of $439.0 million.
23
It is important for our investors to understand that a significant portion of our operating
expenses is fixed in the short-term and we plan a portion of our expense run-rate based on our
expectations of future revenue. In addition, a significant amount of our license transactions are
completed during the final weeks and days of each quarter, and therefore, we generally do not know
whether revenue has met our expectations until after the end of the quarter. If a shortfall in
revenue were to occur in any given quarter, there would be an immediate, and possibly significant,
impact to our overall earnings and, most likely, our stock price.
Because our software solutions are designed for and marketed to companies looking to improve
the management of their IT infrastructure and processes, demand for our products, and therefore our
financial results, are dependent upon corporations continuing to value such solutions and to invest
in such technology. There are a number of trends that have historically influenced demand for IT
management software, including, among others, business demands placed on IT, computing capacity
within IT departments, complexity of IT systems and IT operational costs. Our financial results are
also influenced by many economic and industry conditions, including, but not limited to, general
economic and market conditions in the United States and other economies in which we market
products, changes in foreign currency exchange rates, general levels of corporate spending, IT
budgets, the competitiveness of the IT management software and solutions industry, the adoption
rate for BSM and the stability of the mainframe market.
Acquisitions
We have consummated multiple acquisitions of businesses in recent years. Each of these
acquisitions has been accounted for using the acquisition method of accounting. Accordingly, the
financial results for these entities have been included in our consolidated financial results since
the applicable acquisition dates.
Fiscal 2011 Acquisitions
During fiscal 2011, we completed the acquisition of the software business of Neptuny S.r.l., a
leading provider of continuous capacity optimization software, and the acquisition of GridApp
Systems, a leading provider of comprehensive database provisioning, patching and administration
software, for combined purchase consideration of $51.5 million.
Fiscal 2010 Acquisitions
During fiscal 2010, we completed the acquisitions of MQSoftware, a leading provider of
middleware and enterprise application transaction management software, Tideway Systems, a leading
provider of IT discovery solutions, and Phurnace Software, a leading developer of software that
automates the deployment and configuration of business-critical Java EE applications, for combined
purchase consideration of $94.3 million.
Fiscal 2009 Acquisition
In April 2008, we acquired BladeLogic, a leading provider of data center automation software,
through the successful completion of a tender offer for approximately $834 million in cash,
excluding acquisition costs. The BladeLogic acquisition expands our offerings for server
provisioning, application release management, as well as configuration automation and compliance.
Historical Information
Historical performance should not be viewed as indicative of future performance, as there can
be no assurance that operating income or net earnings will be sustained at these levels. For a
discussion of factors affecting operating results, see the Risk Factors section above.
24
Results of Operations
The following table sets forth, for the fiscal years indicated, the percentages that selected
items in the accompanying consolidated statements of operations represent of total revenue. These
financial results are not necessarily indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total Revenue |
|
|
|
for the Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
License |
|
|
41.9 |
% |
|
|
39.7 |
% |
|
|
37.9 |
% |
Maintenance |
|
|
49.6 |
% |
|
|
53.6 |
% |
|
|
54.4 |
% |
Professional services |
|
|
8.6 |
% |
|
|
6.8 |
% |
|
|
7.7 |
% |
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license revenue |
|
|
6.3 |
% |
|
|
6.0 |
% |
|
|
6.3 |
% |
Cost of maintenance revenue |
|
|
8.2 |
% |
|
|
8.3 |
% |
|
|
8.9 |
% |
Cost of professional services revenue |
|
|
8.9 |
% |
|
|
7.2 |
% |
|
|
7.6 |
% |
Selling and marketing expenses |
|
|
29.4 |
% |
|
|
29.1 |
% |
|
|
28.9 |
% |
Research and development expenses |
|
|
8.5 |
% |
|
|
10.2 |
% |
|
|
11.9 |
% |
General and administrative expenses |
|
|
10.5 |
% |
|
|
10.8 |
% |
|
|
10.6 |
% |
In-process research and development |
|
|
|
|
|
|
|
|
|
|
2.7 |
% |
Amortization of intangible assets |
|
|
1.6 |
% |
|
|
1.7 |
% |
|
|
1.8 |
% |
Severance, exit costs and related
charges |
|
|
0.7 |
% |
|
|
0.2 |
% |
|
|
1.8 |
% |
Total operating expenses |
|
|
74.2 |
% |
|
|
73.5 |
% |
|
|
80.4 |
% |
Operating income |
|
|
25.8 |
% |
|
|
26.5 |
% |
|
|
19.6 |
% |
Other loss, net |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
|
|
(0.2 |
)% |
Earnings before income taxes |
|
|
25.7 |
% |
|
|
26.4 |
% |
|
|
19.4 |
% |
Provision for income taxes |
|
|
3.6 |
% |
|
|
5.1 |
% |
|
|
6.7 |
% |
Net earnings |
|
|
22.1 |
% |
|
|
21.2 |
% |
|
|
12.7 |
% |
25
Revenue
The following table provides information regarding software license and software maintenance
revenue for fiscal 2011, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Year Ended March 31, |
|
|
Compared to |
|
|
Compared to |
|
Software License Revenue |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Enterprise Service Management |
|
$ |
550.9 |
|
|
$ |
462.2 |
|
|
$ |
434.9 |
|
|
|
19.2 |
% |
|
|
6.3 |
% |
Mainframe Service Management |
|
|
313.6 |
|
|
|
296.2 |
|
|
|
274.8 |
|
|
|
5.9 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software license
revenue |
|
$ |
864.5 |
|
|
$ |
758.4 |
|
|
$ |
709.7 |
|
|
|
14.0 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Year Ended March 31, |
|
|
Compared to |
|
|
Compared to |
|
Software Maintenance Revenue |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Enterprise Service Management |
|
$ |
551.5 |
|
|
$ |
550.9 |
|
|
$ |
547.3 |
|
|
|
0.1 |
% |
|
|
0.7 |
% |
Mainframe Service Management |
|
|
472.7 |
|
|
|
472.8 |
|
|
|
470.5 |
|
|
|
(0.0 |
)% |
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software
maintenance revenue |
|
$ |
1,024.2 |
|
|
$ |
1,023.7 |
|
|
$ |
1,017.8 |
|
|
|
0.0 |
% |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Year Ended March 31, |
|
|
Compared to |
|
|
Compared to |
|
Total Software Revenue |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Enterprise Service
Management |
|
$ |
1,102.4 |
|
|
$ |
1,013.1 |
|
|
$ |
982.2 |
|
|
|
8.8 |
% |
|
|
3.1 |
% |
Mainframe Service
Management |
|
|
786.3 |
|
|
|
769.0 |
|
|
|
745.3 |
|
|
|
2.2 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software revenue |
|
$ |
1,888.7 |
|
|
$ |
1,782.1 |
|
|
$ |
1,727.5 |
|
|
|
6.0 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software License Revenue
License revenue was $864.5 million, $758.4 million and $709.7 million for fiscal 2011, 2010
and 2009, respectively.
License revenue in fiscal 2011 increased by $106.1 million, or 14.0%, over fiscal 2010. This
increase was attributable to license revenue increases in both our MSM and ESM segments, as further
discussed below. Recognition of license revenue in fiscal 2011 that was deferred in prior periods
increased by $4.3 million over fiscal 2010. Of the license revenue transactions recorded, the
percentage of license revenue recognized upfront increased to 51% for fiscal 2011 as compared to
48% in fiscal 2010. During fiscal 2011, we closed 162 transactions with license values over $1
million, with a total license value of $498.1 million, compared with 129 transactions with license
values over $1 million, with a total license value of $358.6 million, in fiscal 2010.
License revenue in fiscal 2010 increased by $48.7 million, or 6.9%, over fiscal 2009. This
increase was attributable to license revenue increases in both our MSM and ESM segments, as further
discussed below. Recognition of license revenue in fiscal 2010 that was deferred in prior periods
increased by $66.3 million over fiscal 2009. Of the license revenue transactions recorded, the
percentage of license revenue recognized upfront declined slightly to 48% for fiscal 2010 as
compared to 50% in fiscal 2009. During fiscal 2010, we closed 129 transactions with license values
over $1 million, with a total license value of $358.6 million, compared with 135 transactions with
license values over $1 million, with a total license value of $364.3 million, in fiscal 2009.
ESM license revenue was $550.9 million, or 63.7%, $462.2 million, or 60.9%, and $434.9
million, or 61.3%, of our total license revenue for fiscal 2011, 2010 and 2009, respectively. ESM
license revenue in fiscal 2011 increased by $88.7 million, or 19.2%, over fiscal 2010, primarily
due to an increase in the amount of upfront license revenue recognized in connection with new
transactions and an increase in the recognition of previously deferred license revenue. The
increase in upfront license revenue recognized was attributable to an increase in ESM license
transaction bookings, due primarily to increased demand for our BSM solutions and increased sales
productivity, and a lower percentage of license transaction bookings that were recognized
ratably over the underlying contractual maintenance terms rather than as upfront revenue. ESM
license revenue in fiscal 2010 increased by $27.3 million, or 6.3%, over fiscal 2009, primarily due
to an increase in the recognition of previously deferred
license revenue, partially offset by a decrease in the amount of upfront license revenue
recognized in connection with new transactions. The decrease in upfront license revenue recognized
in fiscal 2010 was attributable to a decrease in ESM license transaction bookings and a slightly
higher percentage of license transaction bookings that were recognized ratably over the underlying
contractual maintenance terms rather than as upfront revenue.
26
MSM license revenue was $313.6 million, or 36.3%, $296.2 million, or 39.1%, and $274.8
million, or 38.7%, of our total license revenue for fiscal 2011, 2010 and 2009, respectively. MSM
license revenue in fiscal 2011 increased by $17.4 million, or 5.9%, over fiscal 2010, primarily due
to an increase in the amount of upfront license revenue recognized in connection with new
transactions, partially offset by a decrease in the recognition of previously deferred license
revenue. MSM license revenue in fiscal 2010 increased by $21.4 million, or 7.8%, over fiscal 2009,
primarily due to an increase in the recognition of previously deferred license revenue and an
increase in the amount of upfront license revenue recognized in connection with new transactions.
For fiscal 2011, 2010 and 2009, our recognized license revenue was impacted by the changes in
our deferred license revenue balance as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Deferrals of license revenue |
|
$ |
454.1 |
|
|
$ |
398.9 |
|
|
$ |
383.2 |
|
Recognition from deferred license revenue |
|
|
(394.8 |
) |
|
|
(390.5 |
) |
|
|
(324.2 |
) |
Impact of foreign currency exchange rate
changes |
|
|
2.6 |
|
|
|
4.9 |
|
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase in deferred license revenue |
|
$ |
61.9 |
|
|
$ |
13.3 |
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred license revenue balance at end
of period |
|
$ |
686.1 |
|
|
$ |
624.2 |
|
|
$ |
610.9 |
|
The primary reasons for license revenue deferrals include, but are not limited to, customer
transactions that include products for which the maintenance pricing is based on a combination of
undiscounted license list prices, net license fees or discounted license list prices, certain
arrangements that include unlimited licensing rights, time-based licenses that are recognized over
the term of the arrangement, customer transactions that include products with differing maintenance
periods and other transactions for which we do not have or are not able to determine
vendor-specific objective evidence of the fair value of the maintenance and/or professional
services. The contract terms and conditions that result in deferral of revenue recognition for a
given transaction result from arms length negotiations between us and our customers. We anticipate
our transactions will continue to include such contract terms that result in deferral of the
related license revenue as we expand our offerings to meet customers product, pricing and
licensing needs.
Once it is determined that license revenue for a particular contract must be deferred, based
on the contractual terms and application of revenue recognition policies to those terms, we
recognize such license revenue either ratably over the term of the contract or when the revenue
recognition criteria are met. Because of this, we generally know the timing of the subsequent
recognition of license revenue at the time of deferral. Therefore, the amount of license revenue to
be recognized out of the deferred revenue balance in each future quarter is generally predictable.
At March 31, 2011, the deferred license revenue balance was $686.1 million. Estimated future
recognition from deferred license revenue at March 31, 2011 is (in millions):
|
|
|
|
|
Fiscal 2012 |
|
$ |
338.8 |
|
Fiscal 2013 |
|
|
174.2 |
|
Fiscal 2014 and thereafter |
|
|
173.1 |
|
|
|
|
|
|
|
$ |
686.1 |
|
|
|
|
|
Software Maintenance Revenue
Maintenance revenue was $1,024.2 million, $1,023.7 million and $1,017.8 million for fiscal
2011, 2010 and 2009, respectively. Maintenance revenue in fiscal 2011 increased by $0.5 million,
essentially flat as compared to fiscal 2010 for both ESM and MSM, as further discussed below.
Maintenance revenue in fiscal 2010 increased by $5.9 million, or 0.6%, over fiscal 2009 due to
increases in both ESM and MSM maintenance revenue, as discussed below.
27
ESM maintenance revenue was $551.5 million, or 53.8%, $550.9 million, or 53.8%, and $547.3
million, or 53.8%, of our total maintenance revenue for fiscal 2011, 2010 and 2009, respectively.
ESM maintenance revenue in fiscal 2011 increased by $0.6 million, or 0.1%, over fiscal 2010, and in
fiscal 2010 increased by $3.6 million, or 0.7%, over fiscal 2009. These year over year increases
were attributable primarily to the expansion of our installed ESM customer license base.
MSM maintenance revenue was $472.7 million, or 46.2%, $472.8 million, or 46.2%, and $470.5
million, or 46.2%, of our total maintenance revenue for fiscal 2011, 2010 and 2009, respectively.
MSM maintenance revenue remained relatively flat in fiscal 2011 as compared to fiscal 2010, and in
fiscal 2010 increased by $2.3 million, or 0.5%, over fiscal 2009 due to the expansion of our
installed MSM customer license base and increasing capacities of the current installed base.
At March 31, 2011, the deferred maintenance revenue balance was $1,234.4 million. Estimated
future recognition from deferred maintenance revenue at March 31, 2011 is (in millions):
|
|
|
|
|
Fiscal 2012 |
|
$ |
653.1 |
|
Fiscal 2013 |
|
|
312.1 |
|
Fiscal 2014 and thereafter |
|
|
269.2 |
|
|
|
|
|
|
|
$ |
1,234.4 |
|
|
|
|
|
Domestic vs. International Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Year Ended March 31, |
|
|
Compared to |
|
|
Compared to |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
License: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
420.4 |
|
|
$ |
390.3 |
|
|
$ |
361.7 |
|
|
|
7.7 |
% |
|
|
7.9 |
% |
International |
|
|
444.1 |
|
|
|
368.1 |
|
|
|
348.0 |
|
|
|
20.6 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license revenue |
|
|
864.5 |
|
|
|
758.4 |
|
|
|
709.7 |
|
|
|
14.0 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
556.8 |
|
|
|
561.4 |
|
|
|
555.5 |
|
|
|
(0.8 |
)% |
|
|
1.1 |
% |
International |
|
|
467.4 |
|
|
|
462.3 |
|
|
|
462.3 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total maintenance revenue |
|
|
1,024.2 |
|
|
|
1,023.7 |
|
|
|
1,017.8 |
|
|
|
0.0 |
% |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
85.9 |
|
|
|
59.8 |
|
|
|
62.8 |
|
|
|
43.6 |
% |
|
|
(4.8 |
)% |
International |
|
|
90.7 |
|
|
|
69.3 |
|
|
|
81.6 |
|
|
|
30.9 |
% |
|
|
(15.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total professional
services revenue |
|
|
176.6 |
|
|
|
129.1 |
|
|
|
144.4 |
|
|
|
36.8 |
% |
|
|
(10.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic revenue |
|
|
1,063.1 |
|
|
|
1,011.5 |
|
|
|
980.0 |
|
|
|
5.1 |
% |
|
|
3.2 |
% |
Total international revenue |
|
|
1,002.2 |
|
|
|
899.7 |
|
|
|
891.9 |
|
|
|
11.4 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
2,065.3 |
|
|
$ |
1,911.2 |
|
|
$ |
1,871.9 |
|
|
|
8.1 |
% |
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate that the effect of foreign currency exchange rate fluctuations on our
international revenue resulted in an approximate $4.2 million increase in total fiscal 2011 revenue
as compared to fiscal 2010 and an approximate $3.3 million increase in total fiscal 2010 revenue as
compared to fiscal 2009, on a constant currency basis.
Domestic License Revenue
Domestic license revenue was $420.4 million, or 48.6%, $390.3 million, or 51.5%, and $361.7
million, or 51.0%, of our total
license revenue for fiscal 2011, 2010 and 2009, respectively.
Domestic license revenue in fiscal 2011 increased by $30.1 million, or 7.7%, over fiscal 2010,
due to a $35.6 million increase in ESM license revenue, offset by a $5.5 million decrease in MSM
license revenue.
Domestic license revenue in fiscal 2010 increased by $28.6 million, or 7.9%, over fiscal 2009,
due to a $15.8 million increase in MSM license revenue and a $12.8 million increase in ESM license
revenue.
28
International License Revenue
International license revenue was $444.1 million, or 51.4%, $368.1 million, or 48.5%, and
$348.0 million, or 49.0%, of our total license revenue for fiscal 2011, 2010 and 2009,
respectively.
International license revenue in fiscal 2011 increased by $76.0 million, or 20.6%, over fiscal
2010, due to a $53.1 million increase in ESM license revenue and a $22.9 million increase in MSM
license revenue. The ESM license revenue increase was attributable to increases of $33.0 million
and $12.3 million in our Europe, Middle East and Africa (EMEA) and Asia Pacific markets,
respectively, and a combined $7.8 million net increase in our other international markets. The MSM
license revenue increase was attributable to increases of $13.1 million and $9.8 million in our
Canada and EMEA markets, respectively.
International license revenue in fiscal 2010 increased by $20.1 million, or 5.8%, over fiscal
2009, due to a $14.6 million increase in ESM license revenue and a $5.5 million increase in MSM
license revenue. The ESM license revenue increase was attributable to a $10.4 million increase in
our Asia Pacific market and a $6.5 million increase in our Canada market, offset by a combined $2.3
million net decrease in our other international markets. The MSM license revenue increase was
attributable primarily to increases of $4.5 million and $1.3 million in our Latin America and
Canada markets, respectively.
Domestic Maintenance Revenue
Domestic maintenance revenue was $556.8 million, or 54.4%, $561.4 million, or 54.8%, and
$555.5 million, or 54.6%, of our total maintenance revenue for fiscal 2011, 2010 and 2009,
respectively.
Domestic maintenance revenue in fiscal 2011 decreased by $4.6 million, or 0.8%, from fiscal
2010, due to a $5.2 million decrease in ESM maintenance revenue offset by a $0.6 million increase
in MSM maintenance revenue.
Domestic maintenance revenue in fiscal 2010 increased by $5.9 million, or 1.1%, over fiscal
2009, due primarily to a $5.7 million increase in MSM maintenance revenue.
International Maintenance Revenue
International maintenance revenue was $467.4 million, or 45.6%, $462.3 million, or 45.2%, and
$462.3 million, or 45.4%, of our total maintenance revenue for fiscal 2011, 2010 and 2009,
respectively.
International maintenance revenue in fiscal 2011 increased by $5.1 million, or 1.1%, over
fiscal 2010, due to a $5.8 million increase in ESM maintenance revenue, offset by a $0.7 million
decrease in MSM maintenance revenue. The ESM maintenance revenue increase was attributable
primarily to increases of $4.4 million and $1.7 million in our Asia Pacific and Canada markets,
respectively. The MSM maintenance revenue decrease was attributable to decreases of $5.3 million
and $1.4 million in our EMEA and Latin America markets, respectively, offset by increases of $4.2
million and $1.8 million in our Asia Pacific and Canada markets, respectively.
International maintenance revenue in fiscal 2010 was flat as compared to fiscal 2009,
reflective of a $3.5 million increase in ESM maintenance revenue, offset by a $3.5 million decrease
in MSM maintenance revenue. The ESM maintenance revenue increase was attributable to increases of
$2.2 million and $1.3 million in our Asia Pacific and Canada markets, respectively. The MSM
maintenance revenue decrease was attributable to a $9.1 million decrease in our EMEA market, offset
by an increase of $3.2 million in our Latin America market and a $2.4 million combined net increase
in our other international markets.
Professional Services Revenue
Professional services revenue in fiscal 2011 increased by $47.5 million, or 36.8%, over fiscal
2010, which is reflective of a $26.1 million, or 43.6%, increase in domestic professional services
revenue and a $21.4 million, or 30.9%, increase in international
professional services revenue. These increases were attributable to increases in
implementation, consulting and education services revenue period over period, principally due to
the expansion of our ESM business, including that related to our Dynamic BSM solutions.
Professional services revenue in fiscal 2010 decreased by $15.3 million, or 10.6%, from fiscal
2009, which is reflective of a $3.0 million, or 4.8%, decrease in domestic professional services
revenue and a $12.3 million, or 15.1%, decrease in international professional services revenue.
These decreases were attributable to decreases in implementation, consulting and education services
revenue period over period.
29
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Year Ended March 31, |
|
|
Compared |
|
|
Compared |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
to 2010 |
|
|
to 2009 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Cost of license revenue |
|
$ |
129.8 |
|
|
$ |
115.5 |
|
|
$ |
117.1 |
|
|
|
12.4 |
% |
|
|
(1.4 |
)% |
Cost of maintenance revenue |
|
|
169.4 |
|
|
|
158.3 |
|
|
|
166.3 |
|
|
|
7.0 |
% |
|
|
(4.8 |
)% |
Cost of professional services revenue |
|
|
184.4 |
|
|
|
137.4 |
|
|
|
141.6 |
|
|
|
34.2 |
% |
|
|
(3.0 |
)% |
Selling and marketing expenses |
|
|
608.1 |
|
|
|
556.2 |
|
|
|
541.5 |
|
|
|
9.3 |
% |
|
|
2.7 |
% |
Research and development expenses |
|
|
176.5 |
|
|
|
195.6 |
|
|
|
222.0 |
|
|
|
(9.8 |
)% |
|
|
(11.9 |
)% |
General and administrative expenses |
|
|
216.4 |
|
|
|
206.4 |
|
|
|
197.7 |
|
|
|
4.8 |
% |
|
|
4.4 |
% |
In-process research and development |
|
|
|
|
|
|
|
|
|
|
50.3 |
|
|
|
|
|
|
|
(100.0 |
)% |
Amortization of intangible assets |
|
|
33.6 |
|
|
|
32.7 |
|
|
|
34.1 |
|
|
|
2.8 |
% |
|
|
(4.1 |
)% |
Severance, exit costs and related
charges |
|
|
14.3 |
|
|
|
3.0 |
|
|
|
33.5 |
|
|
|
376.7 |
% |
|
|
(91.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
1,532.5 |
|
|
$ |
1,405.1 |
|
|
$ |
1,504.1 |
|
|
|
9.1 |
% |
|
|
(6.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate that the effect of foreign currency exchange rate fluctuations on our
international operating expenses resulted in an approximate $1.8 million reduction in fiscal 2011
operating expenses as compared to fiscal 2010 and an approximate $5.4 million reduction in fiscal
2010 operating expenses as compared to fiscal 2009, on a constant currency basis.
Cost of License Revenue
Cost of license revenue consists primarily of the amortization of capitalized software costs
for internally developed products, the amortization of acquired technology for products acquired
through business combinations, license-based royalties to third parties and production and
distribution costs for initial product licenses. For fiscal 2011, 2010 and 2009, cost of license
revenue was $129.8 million, or 6.3%, $115.5 million, or 6.0%, and $117.1 million, or 6.3%, of total
revenue, respectively, and 15.0%, 15.2% and 16.5% of license revenue, respectively.
Cost of license revenue in fiscal 2011 increased by $14.3 million, or 12.4%, over fiscal 2010.
This increase was attributable primarily to an $11.9 million increase in the amortization of
capitalized software development costs and a $1.7 million increase in the amortization of acquired
technology associated with fiscal 2010 and fiscal 2011 acquisitions.
Cost of license revenue in fiscal 2010 decreased by $1.6 million, or 1.4%, from fiscal 2009.
This decrease was attributable primarily to the reduction in the amortization of acquired
technology associated with past acquisitions that became fully amortized, partially offset by an
increase in the amortization of acquired technology associated with fiscal 2009 and fiscal 2010
acquisitions.
Cost of Maintenance Revenue
Cost of maintenance revenue consists primarily of the costs associated with customer support
and research and development personnel that provide maintenance, enhancement and support services
to our customers. For fiscal 2011, 2010 and 2009, cost of maintenance revenue was $169.4 million,
or 8.2%, $158.3 million, or 8.3%, and $166.3 million, or 8.9%, of total revenue, respectively, and
16.5%, 15.5% and 16.3% of maintenance revenue, respectively.
Cost of maintenance revenue in fiscal 2011 increased by $11.1 million, or 7.0%, over fiscal
2010. This increase was attributable to a $6.4 million increase in personnel and related costs,
including third party subcontracting fees, a $1.8 million increase in share-based compensation
expense and a net $2.9 million increase in other expenses.
Cost of maintenance revenue in fiscal 2010 decreased by $8.0 million, or 4.8%, from fiscal
2009. This decrease was attributable to a $2.9 million reduction in personnel and related costs,
including third party subcontracting fees, and a $1.3 million decrease in facility cost
allocations, both associated with a decrease in resources dedicated to maintenance projects and a
year over year decrease in customer support headcount, a $1.4 million decrease in share-based
compensation expense and a net $2.4 million decrease in other expenses.
30
Cost of Professional Services Revenue
Cost of professional services revenue consists primarily of salaries, related personnel costs
and third party fees associated with implementation, consulting and education services that we
provide to our customers and the related infrastructure to support this business. For fiscal 2011,
2010 and 2009, cost of professional services revenue was $184.4 million, or 8.9%, $137.4 million,
or 7.2%, and $141.6 million, or 7.6%, of total revenue, respectively, and 104.4%, 106.4% and 98.1%
of professional services revenue, respectively.
Cost of professional services revenue in fiscal 2011 increased by $47.0 million, or 34.2%,
over fiscal 2010. This increase was attributable to a $31.2 million increase in third party
subcontracting fees, a $9.1 million increase in professional services enablement personnel costs
and a $6.7 million net increase in other expenses, commensurate with increases in professional
services revenue.
Cost of professional services revenue in fiscal 2010 decreased by $4.2 million, or 3.0%, from
fiscal 2009. This decrease was attributable primarily to a $9.8 million decrease in third party
subcontracting fees, offset by a $5.8 million increase in professional services enablement
personnel costs.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries, related personnel costs, sales
commissions and costs associated with advertising, marketing, industry trade shows and sales
seminars. For fiscal 2011, 2010 and 2009, selling and marketing expenses were $608.1 million, or
29.4%, $556.2 million, or 29.1%, and $541.5 million, or 28.9%, of total revenue, respectively.
Selling and marketing expenses in fiscal 2011 increased by $51.9 million, or 9.3%, over fiscal
2010. This increase was attributable to a $41.0 million increase in sales personnel costs,
principally due to an increase in variable compensation expense attributable to increased revenue
as well as an increase in sales personnel headcount, a $3.5 million increase in share-based
compensation expense, a $4.3 million increase in marketing campaign expenditures and a $3.1 million
net increase in other expenses.
Selling and marketing expenses in fiscal 2010 increased by $14.7 million, or 2.7%, over fiscal
2009. This increase was attributable primarily to a $17.8 million increase in sales personnel
costs, principally due to an increase in variable compensation expense attributable to increased
revenue as well as an increase in sales personnel headcount, and a $2.8 million increase in
share-based compensation expense, offset by a $5.0 million decrease in marketing campaign
expenditures.
Research and Development Expenses
Research and development expenses consist primarily of salaries and personnel costs related to
software developers and development support personnel, including product management, software
programmers, testing and quality assurance personnel and writers of technical documentation, such
as product manuals and installation guides. These expenses also include computer hardware and
software costs, telecommunications costs and personnel costs associated with our development and
production labs. For fiscal 2011, 2010 and 2009, research and development expenses were $176.5
million, or 8.5%, $195.6 million, or 10.2%, and $222.0 million, or 11.9%, of total revenue,
respectively.
Research and development expenses in fiscal 2011 decreased by $19.1 million, or 9.8%, from
fiscal 2010. This decrease was attributable to a $37.4 million increase in capitalized research
and development costs resulting from additional internal investments made in new products, including the expansion of our BSM solution offerings, offset by a $14.5 million
increase in research and development personnel and related costs, including third party
subcontracting fees, and a $3.8 million net increase in other expenses.
Research and development expenses in fiscal 2010 decreased by $26.4 million, or 11.9%, from
fiscal 2009. This decrease was attributable to a $13.4 million increase in capitalized research
and development costs, a $6.3 million decrease in research and development personnel and related costs, including third
party subcontracting fees, and a $5.2 million decrease in facility cost allocations, both
associated primarily with lower average headcount levels and a higher percentage of headcount in
lower cost regions, and a $2.8 million decrease in share-based compensation expense, offset by a
net increase of $1.3 million in other expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related personnel costs
of executive management, finance and accounting, facilities management, legal and human resources.
Other costs included in general and administrative expenses include fees paid for outside
accounting and legal services, consulting projects and insurance. During fiscal 2011, 2010 and
2009, general and administrative expenses were $216.4 million, or 10.5%, $206.4 million, or 10.8%,
and $197.7 million, or 10.6%, of total revenue, respectively.
31
General and administrative expenses in fiscal 2011 increased by $10.0 million, or 4.8%, over
fiscal 2010. This increase was attributable primarily to a $9.8 million increase in share-based
compensation expense.
General and administrative expenses in fiscal 2010 increased by $8.7 million, or 4.4%, over
fiscal 2009. This increase was attributable to a $6.7 million increase in share-based compensation
expense and a $2.0 million net increase in other expenses.
In-Process Research and Development
The amounts allocated to in-process research and development represent the estimated fair
values, based on risk-adjusted cash flows and historical costs expended, related to acquired core
research and development projects that were incomplete and had neither reached technological
feasibility nor been determined to have an alternative future use pending achievement of
technological feasibility at the date of acquisition. During fiscal 2009, we expensed acquired
IPR&D totaling $50.3 million in connection with our acquisition of BladeLogic. Beginning in fiscal
2010, under the new accounting guidance for business combinations, acquired IPR&D is no longer
immediately expensed upon acquisition, but rather is capitalized as an indefinite-lived intangible
asset and evaluated for impairment during the development period.
Amortization of Intangible Assets
Amortization of intangible assets consists primarily of the amortization of finite-lived
acquired technology and customer relationships recorded in connection with our business
combinations. During fiscal 2011, 2010 and 2009, amortization of intangible assets was $33.6
million, $32.7 million and $34.1 million, respectively. Amortization of intangible assets in fiscal
2011 increased by $0.9 million, or 2.8%, over fiscal 2010. This increase was attributable to $12.5
million in additional amortization associated with intangible assets acquired in connection with
our fiscal 2011 and 2010 acquisitions, offset by an $11.6 million reduction in amortization
associated with intangible assets acquired in connection with past acquisitions that became fully
amortized. Amortization of intangible assets in fiscal 2010 decreased by $1.4 million, or 4.1%,
from fiscal 2009. This decrease was attributable to a $4.5 million reduction in amortization
associated with intangible assets acquired in connection with past acquisitions that became fully
amortized, offset by $3.1 million in additional amortization associated with intangible assets
acquired in connection with our fiscal 2010 and 2009 acquisitions.
Severance, Exit Costs and Related Charges
We have undertaken various restructuring and process improvement initiatives in recent years
through the realignment of resources to focus on growth areas and the simplification,
standardization and automation of key business processes and through general workforce reductions
as a result of macroeconomic conditions. Related to these collective actions, we recorded charges
of $14.3 million, $3.0 million and $33.5 million in fiscal 2011, 2010 and 2009, respectively. These
expenses were attributable primarily to identified workforce reductions and associated cash
separation packages paid or accrued by us. While we will reduce future operating expenses as a
result of these actions, we anticipate that these reductions will be substantially offset by
incremental personnel-related expenses due to headcount growth in strategic areas. We will continue
to evaluate additional actions that may be necessary in the future to achieve our business goals.
Other Income (Loss), Net
Other income (loss), net, consists primarily of interest earned, realized gains and losses on
investments and interest expense on our senior unsecured notes due 2018 (Senior Notes) and capital
leases.
Other income (loss), net, for fiscal 2011 and 2010 remained relatively flat, with losses of
$1.5 million and $1.9 million, respectively.
Other income (loss), net, for fiscal 2010 and 2009 were losses of $1.9 million and $3.9
million, respectively. This change was attributable primarily to an increase of $9.8 million
related to gains on investments in our deferred compensation program and the non-recurrence of $8.4
million in charges related to the write-down of certain non-marketable equity investments in the
prior year period, principally offset by a $15.0 million decrease in interest income resulting from
lower average investment yields on a slightly higher average investment balance.
Provision for Income Taxes
We recorded income tax expense of $75.1 million, $98.1 million and $125.8 million in fiscal
2011, 2010 and 2009, respectively, resulting in effective tax rates of 14.1%, 19.5% and 34.6%,
respectively. The effective tax rate is impacted primarily by the worldwide mix of consolidated
earnings before taxes and our policy of indefinitely re-investing earnings from certain low tax
jurisdictions, additional accruals, changes in estimates, releases and settlements with taxing authorities
related to our uncertain tax positions,
benefits associated with income attributable to both domestic production activities and the
extraterritorial income exclusion, a favorable impact in fiscal 2011 related to international business and operational structural changes and for fiscal 2009, the non-deductible write-off of IPR&D
expense associated with an acquisition. Additionally, during fiscal 2011 and 2010, we recorded net tax benefits of
approximately $57.2 million and $30.0 million associated with tax authority settlements related to prior years tax
matters, resulting in decreases in the effective tax rates in those years.
32
Non-GAAP Financial Measures and Reconciliations
In an effort to provide investors with additional information regarding our results as
determined by GAAP, we disclose various non-GAAP financial measures in our quarterly earnings press
releases and other public disclosures. The primary non-GAAP financial measures we focus on are: (i)
non-GAAP operating income, (ii) non-GAAP net earnings, and (iii) non-GAAP diluted earnings per
share. Each of these financial measures excludes the impact of certain items and therefore has not
been calculated in accordance with GAAP. These non-GAAP financial measures exclude share-based
compensation expense; the amortization of intangible assets; charges related to IPR&D; severance,
exit costs and related charges; as well as the related tax impacts of these items; and certain
discrete tax items. Each of the non-GAAP adjustments is described in more detail below. A
reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial
measure is also included below.
We believe that these non-GAAP financial measures provide meaningful supplemental information
regarding our operating results because they exclude amounts that BMC management and the Board of
Directors do not consider part of core operating results when assessing the performance of the
organization. In addition, we have historically reported similar non-GAAP financial measures, and
we believe that inclusion of these non-GAAP financial measures provides consistency and
comparability with past reports of financial results. Accordingly, we believe these non-GAAP
financial measures are useful to investors in allowing for greater transparency of supplemental
information used by management.
While we believe that these non-GAAP financial measures provide useful supplemental
information, there are limitations associated with the use of these non-GAAP financial measures.
These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a
comprehensive system of accounting and may not be completely comparable to similarly titled
measures of other companies due to potential differences in the exact method of calculation between
companies. Items such as share-based compensation expense; the amortization of intangible assets;
charges related to IPR&D; severance, exit costs and related charges; as well as the related tax
impacts of these items; and certain discrete tax items that are excluded from our non-GAAP
financial measures can have a material impact on net earnings. As a result, these non-GAAP
financial measures should not be considered in isolation from, or as a substitute for, net
earnings, cash flow from operations or other measures of performance prepared in accordance with
GAAP. We compensate for these limitations by using these non-GAAP financial measures as supplements
to GAAP financial measures and by reconciling the non-GAAP financial measures to their most
comparable GAAP financial measure. Investors are encouraged to review the reconciliations of these
non-GAAP financial measures to their most comparable GAAP financial measures below.
33
For a detailed explanation of the adjustments made to comparable GAAP financial measures, the
reasons why management uses these measures and the usefulness of these measures, see items (1)
(6) below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating income |
|
$ |
532.8 |
|
|
$ |
506.1 |
|
|
$ |
367.8 |
|
Share-based compensation expense (1) |
|
|
106.5 |
|
|
|
88.9 |
|
|
|
82.0 |
|
Amortization of intangible assets (2) |
|
|
79.1 |
|
|
|
76.5 |
|
|
|
78.7 |
|
Severance, exit costs and related charges (3) |
|
|
14.3 |
|
|
|
3.0 |
|
|
|
33.5 |
|
In-process research and development (4) |
|
|
|
|
|
|
|
|
|
|
50.3 |
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating income |
|
$ |
732.7 |
|
|
$ |
674.5 |
|
|
$ |
612.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net earnings |
|
$ |
456.2 |
|
|
$ |
406.1 |
|
|
$ |
238.1 |
|
Share-based compensation expense (1) |
|
|
106.5 |
|
|
|
88.9 |
|
|
|
82.0 |
|
Amortization of intangible assets (2) |
|
|
79.1 |
|
|
|
76.5 |
|
|
|
78.7 |
|
Severance, exit costs and related charges (3) |
|
|
14.3 |
|
|
|
3.0 |
|
|
|
33.5 |
|
In-process research and development (4) |
|
|
|
|
|
|
|
|
|
|
50.3 |
|
Provision for income taxes on above pre-tax non-GAAP adjustments (5) |
|
|
(52.7 |
) |
|
|
(48.5 |
) |
|
|
(58.2 |
) |
Certain discrete tax items (6) |
|
|
(57.2 |
) |
|
|
(30.0 |
) |
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net earnings |
|
$ |
546.2 |
|
|
$ |
496.0 |
|
|
$ |
431.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Diluted earnings per share*: |
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted earnings per share |
|
$ |
2.50 |
|
|
$ |
2.17 |
|
|
$ |
1.25 |
|
Share-based compensation expense (1) |
|
|
0.58 |
|
|
|
0.48 |
|
|
|
0.43 |
|
Amortization of intangible assets (2) |
|
|
0.43 |
|
|
|
0.41 |
|
|
|
0.41 |
|
Severance, exit costs and related charges (3) |
|
|
0.08 |
|
|
|
0.02 |
|
|
|
0.18 |
|
In-process research and development (4) |
|
|
|
|
|
|
|
|
|
|
0.26 |
|
Provision for income taxes on above pre-tax non-GAAP adjustments (5) |
|
|
(0.29 |
) |
|
|
(0.26 |
) |
|
|
(0.31 |
) |
Certain discrete tax items (6) |
|
|
(0.31 |
) |
|
|
(0.16 |
) |
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted earnings per share* |
|
$ |
2.99 |
|
|
$ |
2.66 |
|
|
$ |
2.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Non-GAAP diluted earnings per share is computed independently for each period presented. The
sum of GAAP diluted earnings per share and non-GAAP adjustments per share may not equal non-GAAP
diluted earnings per share due to rounding differences. |
|
(1) |
|
Share-based compensation expense. Our non-GAAP financial measures exclude the
compensation expenses required to be recorded by GAAP for equity awards to employees and
directors. Management and the Board of Directors believe it is useful in evaluating corporate
performance during a particular time period to review the supplemental non-GAAP financial
measures, excluding expenses related to share-based compensation, because these costs are
generally fixed at the time an award is granted, are then expensed over several years and
generally cannot be changed or influenced by management once granted. |
|
(2) |
|
Amortization of intangible assets. Our non-GAAP financial measures exclude costs associated
with the amortization of intangible assets, which are included in cost of license revenue and
amortization of intangible assets in our consolidated statements of operations. Management and
the Board of Directors believe it is useful in evaluating corporate performance during a
particular time period to review the supplemental non-GAAP financial measures, excluding
amortization of intangible assets, because these costs are fixed at the time of an
acquisition, are then amortized over a period of several years after the acquisition and
generally cannot be changed or influenced by management after the acquisition. |
34
|
|
|
(3) |
|
Severance, exit costs and related charges. Our non-GAAP financial measures exclude severance,
exit costs and related charges, and any subsequent changes in estimates, as they relate to our
corporate restructuring activities. Management and the Board of Directors believe it is useful
in evaluating corporate performance during a particular time period to review the supplemental
non-GAAP financial measures, excluding severance, exit costs and related charges, in order to
provide comparability and consistency with historical operating results. |
|
(4) |
|
In-process research and development. Our non-GAAP financial measures for fiscal 2009 exclude
IPR&D charges of $50.3 million associated with our acquisition of BladeLogic. This amount
represents the estimated fair value of core research and development projects that were
incomplete as of the date of acquisition and had neither reached technological feasibility nor
been determined to have alternative future uses pending achievement of technological
feasibility upon further development. The amount was required to be expensed by us as of the
date of the acquisition under the accounting rules in place in prior years. Management and the
Board of Directors believe it is useful in evaluating corporate performance during a
particular time period to review the supplemental non-GAAP financial measures, excluding IPR&D
charges, because these costs were fixed at the time of the acquisition and are not subject to
management influence. |
|
(5) |
|
Provision for income taxes on above pre-tax non-GAAP adjustments. Our non-GAAP financial
measures exclude the tax impact of the above pre-tax non-GAAP adjustments. This amount is
calculated using the tax rates of each country to which these pre-tax non-GAAP adjustments
relate. Management excludes the non-GAAP adjustments on a net-of-tax basis in evaluating our
performance. Therefore, we exclude the tax impact of these charges when presenting non-GAAP
financial measures. |
|
(6) |
|
Certain discrete tax items. Our non-GAAP financial measures exclude: (i) in fiscal 2011, a
$57.2 million net tax benefit associated with tax authority settlements related to prior
years tax matters, (ii) in fiscal 2010, a $30.0 million net tax benefit associated with an
IRS settlement related to prior years tax matters and (iii) in fiscal 2009, $6.8 million of
tax expense associated with an intercompany transfer of IPR&D in connection with the
acquisition of BladeLogic. Management excludes the impact of these items in evaluating our
performance. Therefore, we exclude these items when presenting non-GAAP financial measures. |
Liquidity and Capital Resources
At March 31, 2011, we had $1.8 billion in cash, cash equivalents and investments,
approximately 46% of which was held by our international subsidiaries and was largely generated
from our international operations. Our international operations have generated $479.3 million of
earnings that we have determined will be invested indefinitely in those operations. Were such
earnings to be repatriated, we would incur a United States federal income tax liability that is not
currently accrued in our financial statements. We also had outstanding letters of credit,
performance bonds and similar instruments at March 31, 2011 of approximately $44.2 million
primarily in support of performance obligations to various customers, but also related to
facilities and other obligations.
At March 31, 2011 and 2010, we held auction rate securities with a par value of $29.8 million
and $50.7 million, respectively, which were classified as available-for-sale, and at March 31,
2010, we also held auction rate securities with a par value of $16.6 million which were classified
as trading. The total estimated fair value of our auction rate securities was $27.2 million and
$60.5 million at March 31, 2011 and 2010, respectively. Our auction rate securities consist
entirely of bonds issued by public agencies that are backed by student loans with at least a 97%
guarantee by the federal government under the United States Department of Educations Federal
Family Education Loan Program. All of these bonds are currently rated investment grade by Moodys
or Standard and Poors. Auctions for these securities began failing in early 2008 and have
continued to fail, resulting in our continuing to hold such securities and the issuers paying
interest at the maximum contractual rates. We do not believe that any of the underlying issuers of
these auction rate securities are presently at risk of default or that the underlying credit
quality of the assets backing the auction rate security investments has been impacted by the
reduced liquidity of these investments. Based on our current ability to access cash and other
short-term investments, our expected operating cash flows, our available credit under our Credit
Facility (discussed below) and other sources of cash that we expect to be available, we do not
anticipate that the lack of liquidity of these investments will have a material impact on our
business strategy, financial condition, results of operations or cash flows. Periodically, the
issuers of certain of our auction rate securities have redeemed portions of our holdings at par
value plus accrued interest. During the years ended March 31, 2011 and 2010, issuers redeemed
available-for-sale holdings of $20.9 million par value and $3.7 million par value, respectively,
and trading holdings of $5.4 million par value and $1.2 million par value, respectively.
Additionally, in November 2008, we entered into a put agreement with a bank from which we
acquired certain auction rate securities. On July 1, 2010, we exercised our right under this
agreement to put the remaining securities subject to this agreement, with $11.2 million par value,
to the bank.
35
In November 2010, we entered into a credit agreement with certain institutional lenders
providing for an unsecured revolving credit facility in an amount up to $400.0 million which is
scheduled to expire on November 30, 2014 (the Credit Facility). Subject to certain conditions, at
any time prior to maturity, we may invite existing and new lenders to increase the size of the
Credit Facility up to a maximum of $600.0 million. The Credit Facility includes provisions for
swing line loans of up to $25.0 million and standby letters of credit of up to $50.0 million.
Revolving loans under the Credit Facility bear interest, at the Companys option, at a rate equal
to either (i) the base rate (as defined) plus a margin based on the credit ratings of BMCs Senior
Notes, or (ii) the LIBOR rate (as defined) plus a margin based on the credit ratings of BMCs
Senior Notes, for interest periods of one, two, three or six months. As of March 31, 2011 and
through May 5, 2011, we have not borrowed any funds under the Credit Facility.
We believe that our existing cash and investment balances, funds generated from operating
activities and available credit under the Credit Facility will be sufficient to meet our working
and other capital requirements for the foreseeable future. In the normal course of business, we
evaluate the merits of acquiring technology or businesses, or establishing strategic relationships
with or investing in these businesses. We may elect to use available cash and investments to fund
such activities in the future. In the event additional needs for cash arise, we might find it
advantageous to utilize third party financing sources based on factors such as our then available
cash and its source (i.e., cash held in the United States versus international locations), the cost
of financing and our internal cost of capital.
We may from time to time seek to repurchase or retire securities, including outstanding
borrowings and equity securities, in open market repurchases, unsolicited or solicited privately
negotiated transactions or in such other manner as will comply with the provisions of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations
thereunder. Such repurchases or exchanges, if any, will depend on a number of factors, including,
but not limited to, prevailing market conditions, our liquidity requirements and contractual
restrictions, if applicable. The amount of repurchases, which is subject to management discretion,
may be material and may change from period to period.
Our cash flows during fiscal 2011, 2010 and 2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Net cash provided by operating activities |
|
$ |
765.2 |
|
|
$ |
635.4 |
|
|
$ |
579.7 |
|
Net cash used in investing activities |
|
|
(147.6 |
) |
|
|
(159.3 |
) |
|
|
(851.9 |
) |
Net cash provided by (used in) financing activities |
|
|
(340.9 |
) |
|
|
(158.7 |
) |
|
|
57.4 |
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
15.6 |
|
|
|
27.9 |
|
|
|
(50.2 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
292.3 |
|
|
$ |
345.3 |
|
|
$ |
(265.0 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
Our primary method for funding operations and growth has been through cash flows generated
from operating activities. Net cash provided by operating activities in fiscal 2011 increased by
$129.8 million over fiscal 2010, attributable primarily to an increase in net earnings before
non-cash expenses (principally depreciation, amortization and share-based compensation expense) as
well as the net impact of working capital changes. Net cash provided by operating activities in
fiscal 2010 increased by $55.7 million over fiscal 2009, attributable primarily to an increase in
net earnings before non-cash expenses (principally depreciation, amortization, share-based
compensation expense and IPR&D), partially offset by the net impact of working capital changes.
Cash Flows from Investing Activities
Net cash used in investing activities in fiscal 2011 decreased by $11.7 million from fiscal
2010. This decrease was attributable primarily to a decrease in investment purchases and in cash
expended for acquisitions, offset by a decrease in proceeds from the maturities of investments and
an increase in capitalization of software development costs. Net cash used in investing activities
in fiscal 2010 decreased by $692.6 million from fiscal 2009. This decrease was attributable
primarily to cash expended in the prior year period
for our acquisition of BladeLogic and a year over year increase in proceeds from maturities
and sales of investments, partially offset by a year over year increase in investment purchases.
Cash Flows from Financing Activities
Net cash used in financing activities in fiscal 2011 increased by $182.2 million over fiscal
2010. This increase was attributable primarily to an increase in treasury stock acquired and a
decrease in proceeds from borrowings, offset by an increase in proceeds from stock option
exercises. Net cash used in financing activities in fiscal 2010 was $158.7 million as compared to
net cash provided by financing activities of $57.4 million in fiscal 2009. This difference was
attributable primarily to a net decrease in proceeds from borrowings related primarily to the
issuance of our Senior Notes in fiscal 2009, partially offset by a year over year decrease in
treasury stock purchases.
36
Trade Finance Receivables
We provide financing on a portion of our sales transactions to customers that meet our
specified standards of creditworthiness. Our practice of providing financing at reasonable market
interest rates enhances our competitive position. We participate in established programs with third
party financial institutions and sell a significant portion of our finance receivables to such
institutions on a non-recourse basis, enabling us to collect cash on a timely basis while fully
transferring credit risk of customer default to third party financial institutions. We record
transfers of finance receivables to third party financial institutions as sales of such finance
receivables when we have surrendered control of such receivables (including determining that such
assets have been isolated beyond our reach and the reach of our creditors) and when we do not have
significant continuing involvement in the generation of cash flows due the financial institutions.
During fiscal 2011, 2010 and 2009, we transferred $172.3 million, $208.8 million and $149.7
million, respectively, of such receivables through these programs.
Treasury Stock Purchases
Our Board of Directors has authorized a total of $4.0 billion to repurchase common stock.
During fiscal 2011, we repurchased 10.6 million shares for $439.0 million. From the inception of
the stock repurchase authorization through March 31, 2011, we have purchased 132.8 million shares
for $3.4 billion. At March 31, 2011, there was $630.7 million remaining in the stock repurchase
program, which does not have an expiration date. In addition, during fiscal 2011 we repurchased 0.6
million shares for $25.1 million to satisfy employee tax withholding obligations upon the vesting
of share-based awards. The repurchase of stock will continue to be funded primarily with cash
generated from domestic operations, and therefore, affects our overall domestic versus
international liquidity balances.
See Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities above for a monthly detail of treasury stock purchases for the
quarter ended March 31, 2011.
Contractual Obligations
The following is a summary of our contractual obligations at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
|
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
Total |
|
|
|
(In millions) |
|
Senior unsecured notes (1) |
|
$ |
21.8 |
|
|
$ |
43.5 |
|
|
$ |
43.5 |
|
|
$ |
347.1 |
|
|
$ |
455.9 |
|
Capital lease obligations (1) |
|
|
8.0 |
|
|
|
13.1 |
|
|
|
1.3 |
|
|
|
|
|
|
|
22.4 |
|
Operating lease obligations |
|
|
40.6 |
|
|
|
59.5 |
|
|
|
21.0 |
|
|
|
9.1 |
|
|
|
130.2 |
|
Purchase obligations (2) |
|
|
6.8 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
11.0 |
|
Other long-term liabilities
reflected on the balance sheet (1) |
|
|
13.5 |
|
|
|
25.3 |
|
|
|
|
|
|
|
|
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (3)(4) |
|
$ |
90.7 |
|
|
$ |
145.6 |
|
|
$ |
65.8 |
|
|
$ |
356.2 |
|
|
$ |
658.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents contractual amounts due, including interest. |
|
(2) |
|
Represents obligations under agreements with non-cancelable terms
to purchase goods or services. The agreements are enforceable and
legally binding, and contain specific terms, including quantities
to be purchased and the timing of the purchase. |
|
(3) |
|
Total does not include contractual obligations recorded on the
balance sheet as current liabilities, other than capital lease
obligations and other long-term liabilities above. |
|
(4) |
|
We are unable to make a reasonably reliable estimate as to when
cash settlement with taxing authorities will occur for our
unrecognized tax benefits due to the uncertainties related to
these tax matters. Therefore, our liability for unrecognized tax
benefits of $86.8 million, including interest and penalties, is
not included in the table above. |
37
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an
on-going basis, we make and evaluate estimates and judgments, including those related to revenue
recognition, capitalized software development costs, share-based compensation, goodwill and
intangible assets, valuation of investments and accounting for income taxes. We base our estimates
on historical experience and various other assumptions that we believe are reasonable under the
circumstances; the results of which form the basis for making judgments about amounts and timing of
revenue 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. We have discussed the
development and selection of the critical accounting policies with the Audit Committee of our Board
of Directors, and the Audit Committee has reviewed the related disclosures below.
Revenue Recognition
Software license revenue is recognized when persuasive evidence of an arrangement exists,
delivery of the product has occurred, the fee is fixed or determinable, collection is probable and
vendor-specific objective evidence (VSOE) of the fair value of undelivered elements exists. As
substantially all of our software licenses are sold in multiple-element arrangements that include
either maintenance or both maintenance and professional services, we use the residual method to
determine the amount of license revenue to be recognized. Under the residual method, consideration
is allocated to undelivered elements based upon VSOE of the fair value of those elements, with the
residual of the arrangement fee allocated to and recognized as license revenue. We have established
VSOE of the fair value of maintenance through independent maintenance renewals. These demonstrate a
consistent relationship of pricing maintenance as a percentage of either the net license fee or the
discounted or undiscounted license list price. VSOE of the fair value of professional services is
established based on daily rates when sold on a stand-alone basis, as well as management approved
pricing for certain new professional services offerings.
We are unable to establish VSOE of fair value for all undelivered elements in certain
arrangements that include multiple software products for which the associated maintenance pricing
is based on a combination of undiscounted license list prices, net license fees or discounted
license list prices. We are also unable to establish VSOE of fair value for all undelivered
elements in certain arrangements that include unlimited licensing rights and certain arrangements
that contain rights to future unspecified software products as part of the maintenance offering. If
VSOE of fair value of one or more undelivered elements does not exist, license revenue is deferred
and recognized upon delivery of those elements or when VSOE of fair value exists for all remaining
undelivered elements, or if the deferral is due to the factors described above, license revenue is
recognized ratably over the longest expected delivery period of undelivered elements in the
arrangement, which is typically the longest maintenance term.
In our time-based license agreements, we are unable to establish VSOE of fair value for
undelivered maintenance elements because the contractual maintenance terms in these arrangements
are the same duration as the license terms and VSOE of fair value of maintenance cannot be
established. Accordingly, license fees in time-based license arrangements are recognized ratably
over the term of the arrangements.
Maintenance revenue is recognized ratably over the terms of the maintenance arrangements,
which primarily range from one to three years.
Professional services revenue, which principally relates to implementation, integration and
training services associated with our products, is derived under both time-and-material and fixed
fee arrangements and in most instances is recognized on a proportional performance basis based on hours. If no
discernable customer deliverable exists until the completion of the professional services, we apply
the completed performance method and defer the recognition of professional services revenue until
completion of the services, which is typically evidenced by a signed completion letter from the
customer. Services that are sold in connection with software license arrangements generally qualify
for separate accounting from the license elements because they do not involve significant
production, modification or customization of our products and are not otherwise considered to be
essential to the functionality of such products. In arrangements where the professional services do
not qualify for separate accounting from the license elements, the combined software license and
professional services revenue are recognized based on contract accounting using either the
percentage-of-completion or completed-contract method.
We also execute arrangements through resellers, distributors and systems integrators
(collectively, channel partners) in which the channel partners act as the principals in the
transactions with the end users of our products and services. In license arrangements with
channel partners, title and risk of loss pass to the channel partners upon execution of our
arrangements with them and the delivery of our products to the channel partner. We recognize
revenue from transactions with channel partners on a net basis (the amount actually received by us
from the channel partners) when all other revenue recognition criteria are satisfied. We do not
offer right of return, product rotation or price protection to any of our channel partners.
Revenue from license and maintenance transactions that are financed are generally recognized
in the same manner as those requiring current payment, as we have a history of offering installment
contracts to customers and successfully enforcing original payment terms without making
concessions. In arrangements where the fees are not considered to be fixed or determinable, we
recognize revenue when payments become due under the arrangement. If we determine that a
transaction is not probable of collection or a risk of concession exists, we do not recognize
revenue in excess of the amount of cash received.
38
We are required to charge certain taxes on our revenue transactions. These amounts are not
included in revenue. Instead, we record a liability when the amounts are collected and relieve the
liability when payments are made to the applicable government agency.
In our consolidated statements of operations, revenue is categorized as license, maintenance
and professional services revenue. We allocate revenue from arrangements containing multiple
elements to each of these categories based on the VSOE of fair value for elements in each revenue
arrangement and the application of the residual method for arrangements in which we have
established VSOE of fair value for all undelivered elements. In arrangements where we are not able
to establish VSOE of fair value for all undelivered elements, we first allocate revenue to any
undelivered elements for which VSOE of fair value has been established, then allocate revenue to
any undelivered elements for which VSOE of fair value has not been established based upon
managements best estimate of fair value of those undelivered elements and apply a residual method
to determine the license fee. Managements best estimate of fair value of undelivered elements for
which VSOE of fair value has not been established is based upon the VSOE of similar offerings and
other objective criteria.
Capitalized Software Development Costs
Costs of internally developed software are expensed until the technological feasibility of the
software product has been established. Thereafter, software development costs are capitalized until
the product is generally available to customers in accordance with relevant accounting standards.
Judgment is involved in determining the point at which technological feasibility is reached. If
different judgments were made, they could result in a different amount of costs that are
capitalized. Capitalized software development costs are then amortized over the products estimated
economic life beginning at the date of general availability of the product to our customers. We
evaluate our capitalized software development costs at each balance sheet date to determine if the
unamortized balance related to any given product exceeds the estimated net realizable value of that
product. Any such excess is written off through accelerated amortization in the quarter in which it
is identified. Determining net realizable value requires that we make estimates and use judgment in
quantifying the appropriate amount to write off, if any. Actual amounts realized from the sales of
software products could differ from our estimates. Also, any future changes to our product
portfolio could result in significant increases to our cost of license revenue as a result of the
write-off of capitalized software development costs.
Share-Based Compensation
Share-based compensation expense is measured at the grant date based on the fair value of the
award and is recognized as expense on a straight-line basis over the requisite service period,
which is generally the vesting period.
We estimate the fair value of stock options and employee stock purchase plan shares using the
Black-Scholes option pricing model. We use the intrinsic value at the date of grant as an estimate
of fair value for nonvested stock units, and we utilize Monte Carlo simulation models to estimate
the fair value of certain market-based nonvested stock units. The fair values of share-based awards
determined on the date of grant using a fair value model are impacted by our stock price as well as
assumptions regarding a number of complex and subjective variables. These variables include our
expected stock price volatility, the risk-free interest rate over the expected term of the awards
and expected stock price volatilities of the NASDAQ-100 Index or a set of peer companies used in
our Monte Carlo simulation models.
We estimate the volatility of our common stock by using a combination of historical volatility
and implied volatility derived from market traded options for our stock, as we believe that the
combined volatility is more representative of future stock price trends than either historical or
implied volatility alone. We estimate the expected term of options granted using the simplified
method allowed by relevant accounting standards, due to changes in vesting terms and contractual
lives of our current options compared to our historical grants. We base the risk-free interest rate
on zero-coupon yields implied from United States Treasury issues with maturities similar to the
expected term of the options. We do not anticipate paying any cash dividends in the foreseeable
future and therefore use an expected dividend yield of zero in the option pricing model. We are
required to estimate forfeitures at the time of grant and revise those estimates in subsequent
periods if actual forfeitures differ from those estimates. We use historical data to estimate
prevesting
option forfeitures and record share-based compensation expense for those awards that are
expected to vest.
In addition, we estimate expected achievement of performance measures in determining the
expected timing of vesting of our performance-based nonvested stock units.
We record deferred tax assets for share-based awards that we believe will result in deductions on our income
tax returns, based on the amount of share-based compensation expense recognized and the statutory
tax rate in the jurisdiction in which we will receive a tax deduction. Differences between the
deferred tax assets recognized for financial reporting purposes and the actual tax deduction
reported on our income tax returns are recorded in additional paid-in capital. If the tax deduction
is less than the deferred tax asset, such shortfalls reduce our pool of excess tax benefits. If the
pool of excess tax benefits is reduced to zero, then subsequent shortfalls would increase our
income tax expense.
39
If we use different assumptions for estimating share-based compensation expense in future
periods or if actual forfeitures differ materially from our estimated forfeitures, the amount of
such expense recorded in future periods may differ significantly from what we have recorded in the
current period.
Goodwill and Intangible Assets
When we acquire a business, a portion of the purchase price is typically allocated to acquired
technology and other identifiable intangible assets, such as customer relationships. The excess of
our cost over the fair value of the net tangible and identifiable intangible assets acquired is
recorded as goodwill. The amounts allocated to acquired technology and other intangible assets
represent our estimates of their fair values at the acquisition date. The fair values are primarily
estimated using the expected present value of future cash flows method of applying the income
approach, which requires us to project the related future revenue and expenses and apply an
appropriate discount rate. We amortize the acquired technology and other intangible assets with
finite lives over their estimated useful lives. All goodwill is tested for impairment annually or
when events or changes in circumstances indicate that the fair value has been reduced below
carrying value. When conducting impairment assessments, we are required to estimate future cash
flows.
The estimates used in valuing all intangible assets are based upon assumptions believed to be
reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or
inaccurate, and unanticipated events and circumstances may occur. Accordingly, actual results may
differ from the projected results used to determine fair value and to estimate useful lives.
Incorrect estimates of fair value and/or useful lives could result in future impairment charges and
those charges could be material to our results of operations.
Valuation of Investments
Our investments consist of debt and equity securities. We classify our investments in equity
securities that have readily determinable fair values and all debt securities as held-to-maturity,
available-for-sale or trading at acquisition and reevaluate such classification at each subsequent
balance sheet date. We do not have any investments classified as held-to-maturity at March 31, 2011
or 2010. Our available-for-sale and trading securities are recorded at fair value in the
consolidated balance sheets. Unrealized gains or losses on available-for-sale securities are
recorded, net of tax, as a component of accumulated other comprehensive income (loss), unless an
impairment is considered to be other-than-temporary. Other-than-temporary unrealized losses on
available-for-sale securities are generally recorded in gain (loss) on investments, net, in the
consolidated statements of operations unless certain criteria are met. In addition, unrealized
gains and losses on trading securities and all realized gains and losses are recorded in gain
(loss) on investments, net, in the consolidated statements of operations. We account for our
investments in non-marketable equity securities where we do not have significant influence and that
do not have a readily determinable fair value under the cost method of accounting. We regularly
analyze our portfolio of available-for-sale and cost method investments for other-than-temporary
declines in fair value. This analysis requires significant judgment as well as the use of estimates
and assumptions. The primary factors considered when determining if a charge must be recorded
because a decline in the fair value of an investment is other-than-temporary include whether: (i)
the fair value of the investment is significantly below our cost basis; (ii) the financial
condition of the issuer of the security has deteriorated; (iii) if a debt security, it is probable
that we will be unable to collect all amounts due according to the contractual terms of the
security; (iv) the decline in fair value has existed for an extended period of time; (v) if a debt
security, such security has been downgraded by a rating agency; and (vi) whether we have the intent
and ability to retain the investment for a period of time sufficient to allow for any anticipated
recovery in fair value. We have investment policies which are designed to ensure that our assets
are invested in capital-preserving securities. However, from time to time, issuer-specific and
market-specific events could warrant a write down for an other-than-temporary decline in fair
value.
At March 31, 2011, we held auction rate securities with a par value of $29.8 million and an
estimated fair value of $27.2 million. Our auction rate securities consist entirely of bonds issued
by public agencies that are backed by student loans with at least a 97%
guarantee by the federal government under the United States Department of Educations Federal
Family Education Loan Program. All of these bonds are currently rated investment grade by Moodys
or Standard and Poors. Auctions for these securities began failing in early 2008 and have
continued to fail, resulting in our continuing to hold such securities and the issuers paying
interest at the maximum contractual rates. We do not believe that any of the underlying issuers of
these auction rate securities are presently at risk of default or that the underlying credit
quality of the assets backing the auction rate security investments has been impacted by the
reduced liquidity of these investments. Due to the illiquidity in the auction rate securities
market caused by failed auctions, we estimated the fair value of these securities using internally
developed models of the expected cash flows of the securities which incorporate assumptions about
the cash flows of the underlying student loans and estimates of the rate of return required by
investors, which includes an adjustment to reflect a lack of liquidity in the market for these
securities.
40
As the vast majority of our investments are investment-grade securities, we anticipate that
any future impairment charges related to these investments will not have a material adverse effect
on our financial position or results of operations. Investments in debt and equity securities with
a fair value below our cost at March 31, 2011 are discussed in greater detail in Note 3 to the
accompanying consolidated financial statements.
Accounting for Income Taxes
Income tax expense or benefit is recognized for the amount of taxes payable or refundable for
the current years results and for deferred tax assets and liabilities related to the future tax
consequences of events that have been recognized in our consolidated financial statements or tax
returns. Significant judgment is required in determining our worldwide income tax provision. In the
ordinary course of a global business, there are many transactions and calculations where the
ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue
sharing and cost reimbursement arrangements among related entities and the process of identifying
items of revenue and expense that qualify for preferential tax treatment. We are subject to
corporate income tax audits in multiple jurisdictions and our income tax expense includes amounts
intended to satisfy income tax assessments that may result from the examination of our tax returns
that have been filed in these jurisdictions. Although we believe that our estimates are reasonable,
the final tax outcome of these matters could be different from that which is reflected in our
historical income tax provisions and accruals. Such differences could have a material effect on our
income tax provision and net earnings in the period in which such determination is made.
Our effective tax rate includes the impact of certain undistributed foreign earnings for which
no United States taxes have been provided because such earnings are planned to be indefinitely
reinvested outside the United States. Remittances of foreign earnings to the United States are
planned based on projected cash flow, working capital and investment needs of foreign and domestic
operations. Based on these assumptions, we estimate the amount that will be distributed to the
United States and provide United States federal taxes on these amounts. Material changes in our
estimates could impact our effective tax rate.
In order for us to realize our deferred tax assets, we must be able to generate sufficient
taxable income in those jurisdictions where the deferred tax assets are located. We consider future
market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions
in which we operate and prudent and feasible tax planning strategies in determining the need for a
valuation allowance. In the event we were to determine that we would not be able to realize all or
part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would
be charged to earnings in the period in which we make such determination.
Recently Adopted Accounting Pronouncements
In July 2010, the Financial Accounting Standards Board (FASB) issued new disclosure guidance
related to finance receivables and the related allowances for credit losses. This guidance
introduces a greater level of disaggregation based on the underlying characteristics of the finance
receivables. The disclosure requirements include, based on the related disaggregation criteria, a
rollforward of the allowance for credit losses and the related balance of the finance receivables,
significant purchases and sales of finance receivables, and various qualitative disclosures
including credit quality, aging, nonaccrual status and impairments. The new guidance was effective
for us in the third quarter of fiscal 2011, and the applicable disclosures have been included in
our consolidated financial statements, where material.
New Accounting Pronouncements Not Yet Adopted
In December 2010, the FASB issued updated guidance for intangible assets, specifically related
to the goodwill impairment test. This guidance requires entities to perform a qualitative
evaluation of whether it is more likely than not that goodwill is impaired in situations where
reporting units have a carrying value that is zero or negative. If the qualitative evaluation
determines it is more likely than not that goodwill is impaired, step two of the goodwill
impairment test is required to be performed to measure the amount of impairment, if any. The new
guidance is effective for us beginning in fiscal 2012 and is not expected to have a material effect
on our financial position, results of operations or cash flows.
In October 2009, the FASB issued new revenue recognition guidance for arrangements that
include both software and non-software related deliverables. This guidance requires entities to
allocate the overall consideration to each deliverable by using a best estimate of the selling
price of individual deliverables in the arrangement in the absence of VSOE or other third party
evidence of the selling price. Additionally, the guidance modifies the manner in which the
transaction consideration is allocated across the separately identified deliverables by no longer
permitting the residual method of allocating arrangement consideration. The new guidance is
effective for us beginning in the first quarter of fiscal 2012 interim financial statements and is
not expected to have a material effect on our financial position, results of operations or cash
flows.
41
|
|
|
ITEM 7A. |
|
Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to a variety of risks, including foreign currency exchange rate fluctuations,
the impact of changes in interest rates on our investments and long-term borrowings and changes in
market prices of our debt and equity securities. In the normal course of business, we employ
established policies and procedures to manage these risks including the use of derivative
instruments.
The hypothetical changes noted in the sections immediately below are based on sensitivity
analyses performed at March 31, 2011. Actual results could differ materially.
Foreign Currency Exchange Rate Risk
We use derivatives to hedge those current net assets and liabilities that, when re-measured in
accordance with United States generally accepted accounting principles, impact our consolidated
statement of operations. Foreign currency forward contracts are utilized in these hedging programs.
All foreign currency forward contracts entered into by us are components of hedging programs and
are entered into for the sole purpose of hedging an existing exposure, not for speculation or
trading purposes. Gains and losses on these foreign currency forward contracts would generally be
offset by corresponding gains and losses on the net foreign currency assets and liabilities that
they hedge, with the goal of minimizing the net gains or losses overall on the hedged exposures.
When hedging balance sheet exposures, all gains and losses on foreign currency forward contracts
are recognized in other income (loss) in the same period as when the gains and losses on
re-measurement of the foreign currency denominated assets and liabilities occur. All settlements of
gains and losses related to foreign currency forward contracts are included in cash flows from
operating activities in the consolidated statements of cash flows. Our hedging programs reduce, but
do not always entirely eliminate, the impact of foreign currency exchange rate movements. If we did
not hedge against foreign currency exchange rate movement, a hypothetical increase or decrease of
10% in exchange rates would result in a corresponding increase or decrease in earnings before taxes
of approximately $4.1 million. This amount represents the impact of foreign currency exchange rate
fluctuations on exposures at March 31, 2011 related to balance sheet re-measurement only and
assumes that all currencies move in the same direction at the same time relative to the United
States dollar.
We do not currently hedge currency risk related to anticipated revenue or expenses denominated
in foreign currencies.
42
The notional amounts at contract exchange rates of our foreign currency forward contracts
outstanding were:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward
Contracts (receive United
States dollar/pay foreign
currency) |
|
|
|
|
|
|
|
|
Euro |
|
$ |
158.5 |
|
|
$ |
98.2 |
|
Australian dollar |
|
|
13.9 |
|
|
|
15.4 |
|
Chinese yuan renminbi |
|
|
7.6 |
|
|
|
4.6 |
|
Brazilian real |
|
|
5.6 |
|
|
|
24.9 |
|
British pound |
|
|
5.0 |
|
|
|
|
|
South Korean won |
|
|
4.6 |
|
|
|
6.0 |
|
Canadian dollar |
|
|
4.2 |
|
|
|
3.9 |
|
New Zealand dollar |
|
|
2.9 |
|
|
|
4.5 |
|
Swedish krona |
|
|
2.4 |
|
|
|
5.7 |
|
Other |
|
|
8.3 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
Total |
|
$ |
213.0 |
|
|
$ |
170.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward
Contracts (pay United States
dollar/receive foreign
currency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli shekel |
|
$ |
151.6 |
|
|
$ |
78.0 |
|
Mexican peso |
|
|
9.3 |
|
|
|
1.5 |
|
Indian rupee |
|
|
9.1 |
|
|
|
11.5 |
|
Other |
|
|
2.2 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
Total |
|
$ |
172.2 |
|
|
$ |
95.5 |
|
|
|
|
|
|
|
|
Interest Rate Risk
We adhere to a conservative investment policy, whereby our principal concern is the
preservation of liquid funds. Cash, cash equivalents and investments were approximately $1.8
billion at March 31, 2011, which consisted of $1.7 billion in cash and cash equivalents and the
remaining balance consisted primarily of different types of investment-grade debt securities.
Although our portfolio is subject to fluctuations in interest rates and market conditions, we
classify most of our investments as available-for-sale, which provides that no gain or loss on
any security would actually be recognized in earnings unless the instrument was sold or any loss in
value was deemed to be other-than-temporary. Due to the current interest rate environment and the
liquidity of our overall portfolio, any hypothetical decrease in annual interest rates would have
an immaterial impact on earnings before taxes.
Market Risk
The carrying value and fair value of our Senior Notes at March 31, 2011, were $298.7 million
and $348.9 million, respectively. The fair value was based upon market prices of our Senior Notes.
If market interest rates increased by 100 basis points and assuming all other variables were held
constant, we estimate the fair value of our Senior Notes would decrease by approximately $18.7
million.
At March 31, 2011, we held auction rate securities with a par value of $29.8 million and an
estimated fair value of $27.2 million. For further information, refer to Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital
Resources. We may incur additional temporary unrealized losses or other-than-temporary impairments
in the future if current market conditions were to persist and we no longer had the intent and
ability to retain the auction rate securities for a period of time sufficient to allow for any
recovery in fair value.
43
|
|
|
ITEM 8. |
|
Financial Statements and Supplementary Data |
The response to this item is submitted as a separate section of this Report. See Item 15.
Exhibits and Financial Statement Schedules.
|
|
|
ITEM 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
|
|
|
ITEM 9A. |
|
Controls and Procedures |
Disclosure Controls and Procedures
Based on managements evaluation (with the participation of our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and
CFO have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) under the Exchange Act), are effective.
Changes in Internal Control over Financial Reporting
There was no change to our internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rule 13a-15 and Rule 15d-15 under the Exchange Act
that occurred during our fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) to
provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with United States
generally accepted accounting principles.
Management assessed our internal control over financial reporting as of March 31, 2011, the
end of our fiscal year. Management based its assessment on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of elements such as the design and
operating effectiveness of key financial reporting controls, process documentation, accounting
policies and our overall control environment.
Based on our assessment, management has concluded that our internal control over financial
reporting was effective as of March 31, 2011, the end of our fiscal year. We reviewed the results
of managements assessment with the Audit Committee of our Board of Directors.
The effectiveness of our internal control over financial reporting at March 31, 2011 has been
audited by Ernst & Young LLP, the independent registered public accounting firm who has also
audited our consolidated financial statements. Ernst & Young LLPs report on our internal control
over financial reporting is included below.
44
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of BMC Software, Inc.
We have audited the internal control over financial reporting of BMC Software, Inc. (the
Company) as of March 31, 2011, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Companys management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of March 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company as of March 31, 2011
and 2010, and the related consolidated statements of operations, stockholders equity and
comprehensive income, and cash flows of the Company for each of the three years in the period ended
March 31, 2011, and our report dated May 5, 2011 expressed an unqualified opinion thereon.
Houston, Texas
May 5, 2011
45
|
|
|
ITEM 9B. |
|
Other Information |
None.
PART III
|
|
|
ITEM 10. |
|
Directors, Executive Officers and Corporate Governance |
The information required by this item will be included in our definitive Proxy Statement in
connection with our 2011 Annual Meeting of Stockholders (the 2011 Proxy Statement), which will be
filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2011, under the
headings Proposal One: Election of Directors, Executive Officers and Section 16(a) Beneficial
Ownership Reporting Compliance and is incorporated herein by reference.
|
|
|
ITEM 11. |
|
Executive Compensation |
The information required by this item will be set forth in the 2011 Proxy Statement under the
headings Compensation of Directors, Compensation Discussion and Analysis, Executive
Compensation and Compensation Committee Interlocks and Insider Participation and is incorporated
herein by reference.
|
|
|
ITEM 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
The information required by this item will be set forth in the 2011 Proxy Statement under the
headings Security Ownership of Certain Beneficial Owners, Security Ownership of Management and
Equity Compensation Plans and is incorporated herein by reference.
|
|
|
ITEM 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
The information required by this item will be set forth in the 2011 Proxy Statement under the
headings Independence of Directors and Related Person Transactions and Procedures and is
incorporated herein by reference.
|
|
|
ITEM 14. |
|
Principal Accountant Fees and Services |
The information required by this item will be set forth in the 2011 Proxy Statement under the
heading Fees Paid to Ernst & Young and is incorporated herein by reference.
46
PART IV
|
|
|
ITEM 15. |
|
Exhibits and Financial Statement Schedules |
Documents filed as a part of this Report
1. The following consolidated financial statements of BMC Software, Inc. and subsidiaries and
the related reports of the independent registered public accounting firm are filed herewith:
|
|
|
|
|
|
|
Page |
|
|
|
Number |
|
|
|
|
51 |
|
|
|
|
|
|
Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
56 |
|
2. All schedules have been omitted because they are inapplicable, not required, or the
information is included elsewhere in the consolidated financial statements or notes thereto.
3. The following Exhibits are filed with this Report or incorporated by reference as set forth
below:
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
Restated Certificate of Incorporation, as amended, of the
Company; incorporated by reference to Exhibit 3.1 to our
Quarterly Report on Form 10-Q for the quarter ended June
30, 2010. |
|
|
|
|
|
|
|
|
3.2 |
|
|
|
|
Amended and Restated Bylaws of the Company; incorporated
by reference to Exhibit 3.4 to our Current Report on Form
8-K filed November 12, 2010. |
|
|
|
|
|
|
|
|
4.1 |
|
|
|
|
Indenture, dated at June 4, 2008, between BMC Software,
Inc. and Wells Fargo Bank, N.A., as trustee; incorporated
by reference to Exhibit 4.1 to our Current Report on Form
8-K filed June 4, 2008. |
|
|
|
|
|
|
|
|
4.2 |
|
|
|
|
Supplemental Indenture, dated at June 4, 2008, between
BMC Software, Inc. and Wells Fargo Bank, N.A., as
trustee, including the form of the 7.25% Note due 2018;
incorporated by reference to Exhibit 4.2 to our Current
Report on Form 8-K filed June 4, 2008. |
|
|
|
|
|
|
|
|
10.1 |
(a) |
|
|
|
BMC Software, Inc. 1994 Employee Incentive Plan
(conformed version inclusive of amendments); incorporated
by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.1 |
(b) |
|
|
|
Second Amendment to the BMC Software, Inc. 1994 Employee
Incentive Plan; incorporated by reference to Exhibit
10.1(b) to our Annual Report on Form 10-K for the year
ended March 31, 2009 (the 2009 10-K). |
47
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
(a) |
|
|
|
BMC Software, Inc. 1994 Non-employee Directors Stock
Option Plan; incorporated by reference to Exhibit 10.8(a)
to our Annual Report on Form 10-K for the year ended
March 31, 1995 (the 1995 10-K). |
|
|
|
|
|
|
|
|
10.2 |
(b) |
|
|
|
Form of Stock Option Agreement employed under BMC
Software, Inc. 1994 Non-employee Directors Stock Option
Plan; incorporated by reference to Exhibit 10.8(b) to the
1995 10-K. |
|
|
|
|
|
|
|
|
10.3 |
|
|
|
|
Form of Indemnification Agreement among the Company and
its directors and executive officers; incorporated by
reference to Exhibit 10.11 to the 1995 10-K. |
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
BMC Software, Inc. 2000 Employee Stock Incentive Plan
(conformed version inclusive of amendments); incorporated
by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.5 |
|
|
|
|
Amended and Restated BMC Software, Inc. Executive
Deferred Compensation Plan; incorporated by reference to
Exhibit 10.5(d) to our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2008. |
|
|
|
|
|
|
|
|
10.6 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Robert E. Beauchamp; incorporated by reference to
Exhibit 10.6 to our Current Report on Form 8-K filed
November 24, 2008. |
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
BMC Software, Inc. 2002 Nonemployee Director Stock Option
Plan; incorporated by reference to Appendix B to our 2002
Proxy Statement filed with the SEC on Schedule 14A. |
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
BMC Software, Inc. 2002 Employee Incentive Plan
(conformed version inclusive of amendments); incorporated
by reference to Exhibit 10.9 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
BMC Software, Inc. Short-term Incentive Performance Award
Program (as amended and restated); incorporated by
reference to Exhibit 10.10 to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009. |
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
BMC Software, Inc. Long-term Incentive Performance Award
Program (as amended and restated); incorporated by
reference to Exhibit 10.11 to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009. |
|
|
|
|
|
|
|
|
10.11 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Stephen B. Solcher; incorporated by reference to
Exhibit 10.12 to our Current Report on Form 8-K filed
November 24, 2008. |
|
|
|
|
|
|
|
|
10.12 |
|
|
|
|
BladeLogic, Inc. 2007 Stock Option and Incentive Plan;
incorporated by reference to Exhibit 10.5 to the
BladeLogic, Inc. Registration Statement on Form S-1
(Registration No. 333-141915). |
|
|
|
|
|
|
|
|
10.13 |
|
|
|
|
First Amendment to BladeLogic, Inc. 2007 Stock Option and
Incentive Plan; incorporated by reference to Exhibit
10.34(b) to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.14 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Denise M. Clolery; incorporated by reference to
Exhibit 10.16 to our Quarterly Report on Form 10-Q for
the quarter ended December 31, 2008. |
48
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
10.15 |
|
|
|
|
Form of Stock Option Award Agreement employed under
BladeLogic, Inc. 2007 Stock Option and Incentive Plan
utilized for senior executive officers; incorporated by
reference to Exhibit 10.19 to the 2009 10-K. |
|
|
|
|
|
|
|
|
10.16 |
|
|
|
|
Form of Performance-Based Restricted Stock Award
Agreement employed under BMC Software, Inc. 1994 Employee
Incentive Plan utilized for senior executive officers;
incorporated by reference to Exhibit 10.20 to our Current
Report on Form 8-K filed on June 12, 2006. |
|
|
|
|
|
|
|
|
10.17 |
|
|
|
|
Form of Restricted Stock Unit Award Agreement employed
under BladeLogic, Inc. 2007 Stock Option and Incentive
Plan utilized for senior executive officers; incorporated
by reference to Exhibit 10.21 to the 2009 10-K. |
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and William Miller; incorporated by reference to Exhibit
10.22 to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
Form of Stock Option Agreement employed under BMC
Software, Inc. 2007 Incentive Plan utilized for senior
executive officers; incorporated by reference to Exhibit
10.23 to the Companys Quarterly Report on Form 10-Q for
the quarter ended December 31, 2007. |
|
|
|
|
|
|
|
|
10.20 |
|
|
|
|
Form of Performance-Based Restricted Stock Award
Agreement employed under BMC Software, Inc. 2007
Incentive Plan utilized for senior executive officers;
incorporated by reference to Exhibit 10.24 to our
Quarterly Report on Form 10-Q for the quarter ended
December 31, 2007. |
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
Form of Time-Based Restricted Stock Award Agreement
employed under BMC Software, Inc. 2007 Incentive Plan
utilized for senior executive officers; incorporated by
reference to Exhibit 10.25 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2007. |
|
|
|
|
|
|
|
|
10.22 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Hollie S. Castro; incorporated by reference to Exhibit
10.17 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009. |
|
|
|
|
|
|
|
|
10.23 |
|
|
|
|
Form of Performance-Based Restricted Stock Unit Award
Agreement employed under BMC Software, Inc. 2007
Incentive Plan utilized for senior executive officers;
incorporated by reference to Exhibit 10.28 to our Current
Report on Form 8-K filed June 12, 2008. |
|
|
|
|
|
|
|
|
10.24 |
|
|
|
|
Form of Time-Based Restricted Stock Unit Award Agreement
employed under BMC Software, Inc. 2007 Incentive Plan
utilized for senior executive officers; incorporated by
reference to Exhibit 10.29 to our Current Report on Form
8-K filed June 12, 2008. |
|
|
|
|
|
|
|
|
10.25 |
|
|
|
|
Performance-Based Restricted Stock Unit Award Agreement
for Robert E. Beauchamp; incorporated by reference to
Exhibit 10.30 to our Current Report on Form 8-K filed
August 20, 2008. |
|
|
|
|
|
|
|
|
10.26 |
|
|
|
|
BMC Software, Inc. 2007 Incentive Plan (as amended);
incorporated by reference to Annex A to our Definitive
Proxy Statement on Schedule 14A dated June 24, 2009. |
49
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
10.27 |
|
|
|
|
Amendment to Executive Employment Agreement between BMC Software, Inc. and Robert E. Beauchamp;
incorporated by reference to Exhibit 10.34 to our Current Report on Form 8-K filed May 3, 2010. |
|
|
|
|
|
|
|
|
10.28 |
|
|
|
|
Amendment to Executive Employment Agreement between BMC Software, Inc. and Stephen B. Solcher;
incorporated by reference to Exhibit 10.35 to our Current Report on Form 8-K filed May 3, 2010. |
|
|
|
|
|
|
|
|
10.29 |
|
|
|
|
Amendment to Executive Employment Agreement between BMC Software, Inc. and William D. Miller;
incorporated by reference to Exhibit 10.38 to our Current Report on Form 8-K filed May 3, 2010. |
|
|
|
|
|
|
|
|
10.30 |
|
|
|
|
Form of Performance-based market stock unit award agreement employed under BMC Software, Inc.
2007 Incentive Plan utilized for senior executive officers; incorporated by reference to Exhibit
10.41 to our Current Report on Form 8-K filed December 9, 2010. |
|
|
|
|
|
|
|
|
10.31 |
|
|
|
|
Credit Agreement Dated as of November 30, 2010; incorporated by reference to Exhibit 10.41 to the
Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2010. |
|
|
|
|
|
|
|
|
*21.1 |
|
|
|
|
Subsidiaries of the Company. |
|
|
|
|
|
|
|
|
*23.1 |
|
|
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
|
|
|
*31.1 |
|
|
|
|
Certification of Chief Executive Officer of BMC Software, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
*31.2 |
|
|
|
|
Certification of Chief Financial Officer of BMC Software, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
*32.1 |
|
|
|
|
Certification of Chief Executive Officer of BMC Software, Inc. pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
|
|
*32.2 |
|
|
|
|
Certification of Chief Financial Officer of BMC Software, Inc. pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
|
| *101.INS
|
|
|
|
XBRL Instance Document. |
|
|
|
|
|
|
|
| *101.SCH
|
|
|
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
|
|
| *101.CAL
|
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
|
|
| *101.LAB
|
|
|
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
|
|
| *101.PRE
|
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
|
|
| *101.DEF
|
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document. |
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of BMC Software, Inc.
We have audited the accompanying consolidated balance sheets of BMC Software, Inc. (the
Company) as of March 31, 2011 and 2010, and the related consolidated statements of operations,
stockholders equity and comprehensive income, and cash flows for each of the three years in the
period ended March 31, 2011. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company at March 31, 2011 and 2010,
and the consolidated results of its operations and its cash flows for each of the three years in
the period ended March 31, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of
March 31, 2011, based on criteria established in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 5,
2011 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Houston, Texas
May 5, 2011
51
BMC SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value data)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,660.9 |
|
|
$ |
1,368.6 |
|
Short-term investments |
|
|
27.8 |
|
|
|
65.5 |
|
Trade accounts receivable, net |
|
|
284.1 |
|
|
|
212.3 |
|
Trade finance receivables, net |
|
|
112.6 |
|
|
|
117.7 |
|
Deferred tax assets |
|
|
65.1 |
|
|
|
53.7 |
|
Other current assets |
|
|
116.9 |
|
|
|
87.2 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,267.4 |
|
|
|
1,905.0 |
|
Property and equipment, net |
|
|
94.2 |
|
|
|
95.0 |
|
Software development costs, net |
|
|
193.8 |
|
|
|
145.5 |
|
Long-term investments |
|
|
67.8 |
|
|
|
62.4 |
|
Long-term trade finance receivables, net |
|
|
110.8 |
|
|
|
122.6 |
|
Intangible assets, net |
|
|
100.9 |
|
|
|
158.8 |
|
Goodwill |
|
|
1,407.0 |
|
|
|
1,365.6 |
|
Other long-term assets |
|
|
243.5 |
|
|
|
282.7 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,485.4 |
|
|
$ |
4,137.6 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
30.8 |
|
|
$ |
37.5 |
|
Finance payables |
|
|
16.6 |
|
|
|
23.0 |
|
Accrued liabilities |
|
|
316.0 |
|
|
|
307.4 |
|
Deferred revenue |
|
|
1,026.9 |
|
|
|
975.9 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,390.3 |
|
|
|
1,343.8 |
|
Long-term deferred revenue |
|
|
928.6 |
|
|
|
847.2 |
|
Long-term borrowings |
|
|
335.6 |
|
|
|
340.9 |
|
Other long-term liabilities |
|
|
168.0 |
|
|
|
218.0 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,822.5 |
|
|
|
2,749.9 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 1.0 shares authorized, none issued and
outstanding |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 600.0 shares authorized, 249.1 shares issued |
|
|
2.5 |
|
|
|
2.5 |
|
Additional paid-in capital |
|
|
1,077.4 |
|
|
|
965.4 |
|
Retained earnings |
|
|
2,845.2 |
|
|
|
2,389.3 |
|
Accumulated other comprehensive income |
|
|
32.0 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
3,957.1 |
|
|
|
3,362.6 |
|
Treasury stock, at cost (71.9 and 67.2 shares) |
|
|
(2,294.2 |
) |
|
|
(1,974.9 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,662.9 |
|
|
|
1,387.7 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
4,485.4 |
|
|
$ |
4,137.6 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
52
BMC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
License |
|
$ |
864.5 |
|
|
$ |
758.4 |
|
|
$ |
709.7 |
|
Maintenance |
|
|
1,024.2 |
|
|
|
1,023.7 |
|
|
|
1,017.8 |
|
Professional services |
|
|
176.6 |
|
|
|
129.1 |
|
|
|
144.4 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
2,065.3 |
|
|
|
1,911.2 |
|
|
|
1,871.9 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license revenue |
|
|
129.8 |
|
|
|
115.5 |
|
|
|
117.1 |
|
Cost of maintenance revenue |
|
|
169.4 |
|
|
|
158.3 |
|
|
|
166.3 |
|
Cost of professional services revenue |
|
|
184.4 |
|
|
|
137.4 |
|
|
|
141.6 |
|
Selling and marketing expenses |
|
|
608.1 |
|
|
|
556.2 |
|
|
|
541.5 |
|
Research and development expenses |
|
|
176.5 |
|
|
|
195.6 |
|
|
|
222.0 |
|
General and administrative expenses |
|
|
216.4 |
|
|
|
206.4 |
|
|
|
197.7 |
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
50.3 |
|
Amortization of intangible assets |
|
|
33.6 |
|
|
|
32.7 |
|
|
|
34.1 |
|
Severance, exit costs and related charges |
|
|
14.3 |
|
|
|
3.0 |
|
|
|
33.5 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,532.5 |
|
|
|
1,405.1 |
|
|
|
1,504.1 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
532.8 |
|
|
|
506.1 |
|
|
|
367.8 |
|
|
|
|
|
|
|
|
|
|
|
Other income (loss), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net |
|
|
15.5 |
|
|
|
15.9 |
|
|
|
26.5 |
|
Interest expense |
|
|
(19.8 |
) |
|
|
(21.3 |
) |
|
|
(17.0 |
) |
Gain (loss) on investments, net |
|
|
2.8 |
|
|
|
3.5 |
|
|
|
(13.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (loss), net |
|
|
(1.5 |
) |
|
|
(1.9 |
) |
|
|
(3.9 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
531.3 |
|
|
|
504.2 |
|
|
|
363.9 |
|
Provision for income taxes |
|
|
75.1 |
|
|
|
98.1 |
|
|
|
125.8 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
456.2 |
|
|
$ |
406.1 |
|
|
$ |
238.1 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.55 |
|
|
$ |
2.21 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.50 |
|
|
$ |
2.17 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic earnings per share |
|
|
178.7 |
|
|
|
183.1 |
|
|
|
187.1 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted earnings per share |
|
|
182.4 |
|
|
|
186.8 |
|
|
|
190.2 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
53
BMC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
Years Ended March 31, 2011, 2010 and 2009
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
on Securities |
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Currency |
|
|
Available for |
|
|
Treasury |
|
|
Total |
|
|
|
Stock |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Translation |
|
|
Sale, Net of |
|
|
Stock, at |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Adjustment |
|
|
Taxes |
|
|
Cost |
|
|
Equity |
|
Balance, March 31, 2008 |
|
|
249.1 |
|
|
$ |
2.5 |
|
|
$ |
786.7 |
|
|
$ |
1,753.1 |
|
|
$ |
22.5 |
|
|
$ |
(2.8 |
) |
|
$ |
(1,567.5 |
) |
|
$ |
994.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238.1 |
|
Foreign currency translation adjustment, net of taxes of $9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.9 |
) |
|
|
|
|
|
|
|
|
|
|
(39.9 |
) |
Unrealized loss on securities available for sale, net of taxes of $4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.7 |
) |
|
|
|
|
|
|
(10.7 |
) |
Realized gain on securities available for sale, net of taxes of $0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4 |
|
|
|
|
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
. |
|
|
|
192.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346.2 |
) |
|
|
(346.2 |
) |
Shares issued/forfeited for share-based compensation |
|
|
|
|
|
|
|
|
|
|
(9.8 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
|
|
|
|
118.6 |
|
|
|
103.0 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
81.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81.0 |
|
Tax benefit of share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
23.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009 |
|
|
249.1 |
|
|
$ |
2.5 |
|
|
$ |
881.2 |
|
|
$ |
1,985.4 |
|
|
$ |
(17.4 |
) |
|
$ |
(8.1 |
) |
|
$ |
(1,795.1 |
) |
|
$ |
1,048.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406.1 |
|
Foreign currency translation adjustment, net of
taxes of $8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
27.8 |
|
Unrealized gain on securities available for sale, net of taxes of $1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(288.1 |
) |
|
|
(288.1 |
) |
Shares issued/forfeited for share-based compensation |
|
|
|
|
|
|
|
|
|
|
(16.9 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
108.3 |
|
|
|
89.2 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
89.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.3 |
|
Tax benefit of share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
249.1 |
|
|
$ |
2.5 |
|
|
$ |
965.4 |
|
|
$ |
2,389.3 |
|
|
$ |
10.4 |
|
|
$ |
(5.0 |
) |
|
$ |
(1,974.9 |
) |
|
$ |
1,387.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456.2 |
|
Foreign currency translation adjustment, net of
taxes of $9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
24.1 |
|
Unrealized gain on securities available for sale, net of taxes of $0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(464.1 |
) |
|
|
(464.1 |
) |
Shares issued/forfeited for share-based compensation |
|
|
|
|
|
|
|
|
|
|
(14.4 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
144.8 |
|
|
|
130.1 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
109.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109.2 |
|
Tax benefit of share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
17.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
249.1 |
|
|
$ |
2.5 |
|
|
$ |
1,077.4 |
|
|
$ |
2,845.2 |
|
|
$ |
34.5 |
|
|
$ |
(2.5 |
) |
|
$ |
(2,294.2 |
) |
|
$ |
1,662.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
54
BMC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
456.2 |
|
|
$ |
406.1 |
|
|
$ |
238.1 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
50.3 |
|
Depreciation and amortization |
|
|
190.0 |
|
|
|
175.8 |
|
|
|
182.8 |
|
Deferred income tax provision |
|
|
40.9 |
|
|
|
28.2 |
|
|
|
3.1 |
|
Share-based compensation expense |
|
|
106.5 |
|
|
|
88.9 |
|
|
|
82.0 |
|
Loss (gain) on investments, net |
|
|
(2.8 |
) |
|
|
(3.5 |
) |
|
|
13.4 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
(70.5 |
) |
|
|
7.9 |
|
|
|
17.3 |
|
Trade finance receivables |
|
|
22.9 |
|
|
|
(47.8 |
) |
|
|
(46.2 |
) |
Prepaid and other current assets |
|
|
(19.9 |
) |
|
|
(1.2 |
) |
|
|
5.2 |
|
Other long-term assets |
|
|
(6.5 |
) |
|
|
(3.8 |
) |
|
|
5.2 |
|
Accrued and other current liabilities |
|
|
(30.2 |
) |
|
|
(7.0 |
) |
|
|
28.8 |
|
Deferred revenue |
|
|
132.0 |
|
|
|
30.5 |
|
|
|
0.8 |
|
Other long-term liabilities |
|
|
(33.6 |
) |
|
|
9.0 |
|
|
|
(15.2 |
) |
Other operating assets and liabilities |
|
|
(19.8 |
) |
|
|
(47.7 |
) |
|
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
765.2 |
|
|
|
635.4 |
|
|
|
579.7 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of investments |
|
|
50.0 |
|
|
|
360.8 |
|
|
|
79.8 |
|
Proceeds from sales of investments |
|
|
47.8 |
|
|
|
9.2 |
|
|
|
114.4 |
|
Purchases of investments |
|
|
(57.6 |
) |
|
|
(333.8 |
) |
|
|
(173.5 |
) |
Cash paid for acquisitions, net of cash acquired, and other investments |
|
|
(51.0 |
) |
|
|
(92.3 |
) |
|
|
(783.7 |
) |
Capitalization of software development costs |
|
|
(115.8 |
) |
|
|
(81.0 |
) |
|
|
(67.3 |
) |
Purchases of property and equipment |
|
|
(22.0 |
) |
|
|
(22.1 |
) |
|
|
(28.0 |
) |
Other investing activities |
|
|
1.0 |
|
|
|
(0.1 |
) |
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(147.6 |
) |
|
|
(159.3 |
) |
|
|
(851.9 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired |
|
|
(439.0 |
) |
|
|
(275.1 |
) |
|
|
(330.0 |
) |
Repurchases of stock to satisfy employee tax withholding obligations |
|
|
(25.1 |
) |
|
|
(13.0 |
) |
|
|
(16.2 |
) |
Proceeds from stock options exercised and other |
|
|
130.2 |
|
|
|
89.2 |
|
|
|
101.8 |
|
Excess tax benefit from share-based compensation expense |
|
|
18.6 |
|
|
|
13.7 |
|
|
|
24.1 |
|
Repayments of borrowings and capital lease obligations |
|
|
(23.7 |
) |
|
|
(15.5 |
) |
|
|
(17.9 |
) |
Payments of debt issuance costs |
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
|
|
|
|
42.0 |
|
|
|
295.6 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(340.9 |
) |
|
|
(158.7 |
) |
|
|
57.4 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
15.6 |
|
|
|
27.9 |
|
|
|
(50.2 |
) |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
292.3 |
|
|
|
345.3 |
|
|
|
(265.0 |
) |
Cash and cash equivalents, beginning of period |
|
|
1,368.6 |
|
|
|
1,023.3 |
|
|
|
1,288.3 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
1,660.9 |
|
|
$ |
1,368.6 |
|
|
$ |
1,023.3 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
23.0 |
|
|
$ |
23.0 |
|
|
$ |
11.7 |
|
Cash paid for income taxes, net of amounts refunded |
|
$ |
107.4 |
|
|
$ |
89.8 |
|
|
$ |
69.3 |
|
The accompanying notes are an integral part of these consolidated financial statements.
55
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of Operations
BMC Software, Inc. (collectively, we, us, our, the Company or BMC) develops software that
provides system and service management solutions primarily for large enterprises. We market and
sell our products in most major world markets directly through our sales force and indirectly
through channel partners, including resellers, distributors and systems integrators. We also
provide maintenance and support for our products and perform software implementation, integration
and education services for our customers.
Basis of Presentation
The accompanying consolidated financial statements include our accounts and the accounts of
our subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation. We have evaluated subsequent events through the date the financial statements were
issued. Certain reclassifications have been made to the prior years financial statements to
conform to the current years presentation.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted
accounting principles (GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the reported amounts of revenue and expenses during the
reporting period and the disclosure of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider investments with an original maturity of ninety days or less when purchased to be
cash equivalents. At March 31, 2011 and 2010, our cash equivalents were comprised primarily of
money-market funds and United States Treasury securities. Our cash equivalents are subject to
potential credit risk. Our cash management and investment policies restrict investments to
investment grade, highly liquid securities. The carrying value of cash and cash equivalents
approximates fair value.
Investments
We classify our investments in equity securities that have readily determinable fair values
and all debt securities as held-to-maturity, available-for-sale or trading at acquisition and
reevaluate such classification at each subsequent balance sheet date. We do not have any
investments classified as held-to-maturity at March 31, 2011 or 2010. Our available-for-sale and
trading securities are recorded at fair value in the consolidated balance sheets. Unrealized gains
and losses on available-for-sale securities are recorded, net of tax, as a component of accumulated
other comprehensive income (loss), unless impairment is considered to be other-than-temporary.
Other-than-temporary unrealized losses on available-for-sale securities are generally recorded in
gain (loss) on investments, net, in the consolidated statements of operations unless certain
criteria are met. The primary factors considered when determining if a charge must be recorded
because a decline in the fair value of an investment is other-than-temporary include whether: (i)
the fair value of the investment is significantly below our cost basis; (ii) the financial
condition of the issuer of the security has deteriorated; (iii) if a debt security, it is probable
that we will be unable to collect all amounts due according to the contractual terms of the
security; (iv) the decline in fair value has existed for an extended period of time; (v) if a debt
security, such security has been downgraded by a rating agency; and (vi) whether we have the intent
and ability to retain the investment for a period of time sufficient to allow for any anticipated
recovery in fair value. In addition, unrealized gains and losses on trading securities and all
realized gains and losses are recorded in gain (loss) on investments, net, in the consolidated
statements of operations. Realized and unrealized gains and losses are calculated using the
specific identification method. Investments with maturities of twelve months or less are classified
as short-term investments. Investments with maturities of more than twelve months are classified as
long-term investments.
We account for investments in non-marketable equity securities in which we do not have
significant influence and that do not have a readily determinable fair value under the cost method
of accounting. These investments are included in other long-term assets. In fiscal 2009, we
recorded an $8.4 million impairment charge in connection with the write-down of certain
non-marketable equity investments to their estimated fair values.
Refer to Note 3 for further information regarding auction rate securities held by us.
56
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivables
In the ordinary course of business, we extend credit to our customers on both trade and
financed terms. Trade and finance receivables are recorded at their outstanding principal balances,
adjusted for interest receivable to date, if applicable, and adjusted by the allowance for doubtful
accounts. Interest income on finance receivables is recognized using the effective interest method
and is presented as interest and other income, net, in the consolidated statements of operations.
Interest income on these finance receivables was $10.4 million, $11.4 million and $9.6 million in
fiscal 2011, 2010 and 2009, respectively. In estimating the allowance for doubtful accounts, we
consider the length of time receivable balances have been outstanding, historical collection
experience, current economic conditions and customer-specific information. When we ultimately
conclude that a receivable is uncollectible, the balance is charged against the allowance for
doubtful accounts. At March 31, 2011 and 2010, the allowance for doubtful trade accounts receivable
was $3.6 million and $2.2 million and the allowance for doubtful trade finance receivables was $0.5
million and $0.4 million, respectively. During fiscal 2011, 2010 and 2009, the provision (recovery)
for bad debts was $1.7 million, $(0.3) million and $3.8 million and the amounts charged against the
allowance for doubtful accounts were $0.2 million, $1.3 million and $2.9 million, respectively.
Long-Lived Assets
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and equipment, with the
exception of leasehold improvements, is recorded using the straight-line method over the estimated
useful lives of the assets, which range from three to five years. Leasehold improvements are
depreciated using the straight-line method over the shorter of the lease term or the estimated
respective useful lives of the assets, which range from three to ten years.
Costs incurred to develop internal-use software during the application development stage are
capitalized, stated at cost, and amortized using the straight-line method over the estimated useful
lives of the assets, which range from three to seven years. Application development stage costs
generally include costs associated with internal-use software configuration, coding, installation
and testing. Costs of significant upgrades and enhancements that result in additional functionality
are also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements
are expensed as incurred.
Software Development Costs
Costs of software developed internally for licensing to third parties are expensed until the
technological feasibility of the software product has been established. Thereafter, software
development costs incurred through the general release of the
software products are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value. Capitalized
software development costs are amortized on a straight-line basis over the products respective
estimated economic lives, which are typically three years. The amortization of capitalized software
development costs, including any amounts accelerated for products that are not expected to generate
sufficient future revenue to realize their carrying values, is included in cost of license revenue
in the consolidated statements of operations. During fiscal 2011, 2010 and 2009, amounts
capitalized were $124.0 million, $85.9 million and $72.5 million, respectively, and amounts
amortized were $75.7 million, $63.1 million and $62.9 million, respectively. The change in foreign
currency exchange rates had no impact during fiscal 2011 but increased (decreased) capitalized
software development costs by $0.1 million and $(0.4) million, during fiscal 2010 and 2009,
respectively. Amounts capitalized during fiscal 2011, 2010 and 2009 included $4.4 million, $2.3
million and $1.7 million, respectively, of capitalized interest; and approximately $8.2 million, $4.9 million and $5.2 million, respectively, of share-based compensation costs.
Intangible Assets
Intangible assets consist principally of acquired technology and customer relationships
recorded in connection with our business combinations. The amounts allocated to these intangible
assets represent our estimates of their fair values at the acquisition date. The fair values are
primarily estimated using the expected present value of future cash flows method of applying the
income approach. Intangible assets are stated at cost and amortized on a straight-line basis over
their respective estimated economic lives ranging from one to four years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets
acquired, including identifiable intangible assets, in connection with our business combinations.
Upon acquisition, goodwill is assigned to the reporting unit that is expected to benefit from the
synergies of the business combination, which is the reporting unit to which the related acquired
technology is assigned. A reporting unit is the operating segment, or a business unit one level
below that operating segment, for which discrete financial information is prepared and regularly
reviewed by segment management. Each of our business segments is considered a reporting unit. We
test goodwill for impairment as of January 1 of each fiscal year or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Our impairment test is based
on a comparison of the estimated fair value of the reporting units, determined using a combination
of the income and market approaches on an invested capital basis, to their
respective carrying values (including goodwill) as of the date of the impairment test.
57
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment
In addition to our goodwill impairment testing, as noted above, we also review our other
long-lived assets for impairment whenever events or changes in business circumstances indicate that
the carrying amount of the assets may not be fully recoverable or that the useful lives of these
assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted
future cash flows to the recorded value of the asset. If an impairment is indicated, the asset is
written down to its estimated fair value.
Foreign Currency Translation and Risk Management
We operate globally and transact business in various foreign currencies. The functional
currency for many of our foreign subsidiaries is the respective local currency. Financial
statements of these foreign operations are translated into United States dollars using the currency
exchange rates in effect at the balance sheet dates. Revenue and expenses of these subsidiaries are
translated using rates that approximate those in effect during the period. Translation adjustments
are included in accumulated other comprehensive income (loss) within stockholders equity. The
substantial majority of our revenue derived from customers outside of the United States is billed
in local currencies from regional headquarters, for which the functional currency is the United
States dollar. Foreign currency transaction gains or losses are included in interest and other
income, net.
To minimize the risk from changes in foreign currency exchange rates, we have established a
program that utilizes foreign currency forward contracts to offset the risks associated with the
effects of certain foreign currency exposures. Gains or losses on our foreign currency exposures
are offset by gains or losses on the foreign currency forward contracts entered into under this
program. Our foreign currency exposures relate primarily to certain foreign currency denominated
assets and liabilities. Our foreign currency forward contracts generally have terms of one month or
less and are entered into at the prevailing market exchange rate at the end of each month. We do
not use foreign currency forward contracts for speculative purposes. While these foreign currency
forward contracts are utilized to hedge foreign currency exposures, they are not formally
designated as hedges for accounting purposes, and therefore, the changes in the fair values of
these contracts are recognized currently in earnings. We record these foreign currency forward
contracts at fair value as either assets or liabilities depending on the net settlement position of
the foreign currency forward contracts with each respective counterparty at the balance sheet date.
All settlements of gains and losses related to the foreign currency forward contracts are included
in cash flow from operating activities in the consolidated statements
of cash flows.
Revenue Recognition
Software license revenue is recognized when persuasive evidence of an arrangement exists,
delivery of the product has occurred, the fee is fixed or determinable, collection is probable and
vendor-specific objective evidence (VSOE) of the fair value of undelivered elements exists. As
substantially all of our software licenses are sold in multiple-element arrangements that include
either maintenance or both maintenance and professional services, we use the residual method to
determine the amount of license revenue to be recognized. Under the residual method, consideration
is allocated to undelivered elements based upon VSOE of the fair value of those elements, with the
residual of the arrangement fee allocated to and recognized as license revenue. We have established
VSOE of the fair value of maintenance through independent maintenance renewals. These demonstrate a
consistent relationship of pricing maintenance as a percentage of either the net license fee or the
discounted or undiscounted license list price. VSOE of the fair value of professional services is
established based on daily rates when sold on a stand-alone basis, as well as management approved
pricing for certain new professional services offerings.
We are unable to establish VSOE of fair value for all undelivered elements in certain
arrangements that include multiple software products for which the associated maintenance pricing
is based on a combination of undiscounted license list prices, net license fees or discounted
license list prices. We are also unable to establish VSOE of fair value for all undelivered
elements in certain arrangements that include unlimited licensing rights and certain arrangements
that contain rights to future unspecified software products as part of the maintenance offering. If
VSOE of fair value of one or more undelivered elements does not exist, license revenue is deferred
and recognized upon delivery of those elements or when VSOE of fair value exists for all remaining
undelivered elements, or if the deferral is due to the factors described above, license revenue is
recognized ratably over the longest expected delivery period of undelivered elements in the
arrangement, which is typically the longest maintenance term.
In our time-based license agreements, we are unable to establish VSOE of fair value for
undelivered maintenance elements because the contractual maintenance terms in these arrangements
are the same duration as the license terms, and VSOE of fair value of maintenance cannot be
established. Accordingly, license fees in time-based license arrangements are recognized ratably
over the term of the arrangements.
58
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maintenance revenue is recognized ratably over the terms of the maintenance arrangements,
which primarily range from one to
three years.
Professional services revenue, which principally relates to implementation, integration and
education services associated with our products, is derived under both time-and-material and fixed
fee arrangements and in most instances is recognized on a proportional performance basis based on hours. If no
discernable customer deliverable exists until the completion of the professional services, we apply
the completed performance method and defer the recognition of professional services revenue until
completion of the services, which is typically evidenced by a signed completion letter from the
customer. Services that are sold in connection with software license arrangements generally qualify
for separate accounting from the license elements because they do not involve significant
production, modification or customization of our products and are not otherwise considered to be
essential to the functionality of such products. In arrangements where the professional services do
not qualify for separate accounting from the license elements, the combined software license and
professional services revenue are recognized based on contract accounting using either the
percentage-of-completion or completed-contract method.
We also execute arrangements through resellers, distributors and systems integrators
(collectively, channel partners) in which the channel partners act as the principals in the
transactions with the end users of our products and services. In license arrangements with channel
partners, title and risk of loss pass to the channel partners upon execution of our arrangements
with them and the delivery of our products to the channel partner. We recognize revenue from
transactions with channel partners when all other revenue recognition criteria are satisfied. We do not offer right
of return, product rotation or price protection to any of our channel partners.
Revenue from license and maintenance transactions that are financed are generally recognized
in the same manner as those requiring current payment, as we have a history of offering installment
contracts to customers and successfully enforcing original payment terms without making
concessions. In arrangements where the fees are not considered to be fixed or determinable, we
recognize revenue when payments become due under the arrangement. If we determine that a
transaction is not probable of collection or a risk of concession exists, we do not recognize
revenue in excess of the amount of cash received.
We are required to charge certain taxes on our revenue transactions. These amounts are not
included in revenue. Instead, we record a liability when the amounts are collected and relieve the
liability when payments are made to the applicable government agency.
In our consolidated statements of operations, revenue is categorized as license, maintenance
and professional services revenue. We allocate revenue from arrangements containing multiple
elements to each of these categories based on the VSOE of fair value for elements in each revenue
arrangement and the application of the residual method for arrangements in which we have
established VSOE of fair value for all undelivered elements. In arrangements where we are not able
to establish VSOE of fair value for all undelivered elements, we first allocate revenue to any
undelivered elements for which VSOE of fair value has been established, then allocate revenue to
any undelivered elements for which VSOE of fair value has not been established based upon
managements best estimate of fair value of those undelivered elements and apply a residual method
to determine the license fee. Managements best estimate of fair value of undelivered elements for
which VSOE of fair value has not been established is based upon the VSOE of similar offerings and
other objective criteria.
Cost of License and Maintenance Revenue
Cost of license revenue is primarily comprised of the amortization of capitalized software
development costs for internally developed products, the amortization of acquired technology for
products acquired through business combinations, license-based royalties to third parties and
production and distribution costs for initial product licenses.
Cost of maintenance revenue is primarily comprised of the costs associated with the customer
support and research and development personnel that provide maintenance, enhancement and support
services to our customers.
Sales Commissions
We pay commissions, including sales bonuses, to our direct sales force related to revenue
transactions under sales compensation plans established annually. We defer the portion of
commissions that are direct and incremental costs of the license and maintenance revenue
arrangements and recognize them as selling and marketing expenses in the consolidated statements of
operations over the terms of the related customer contracts, in proportion to the recognition of
the associated revenue. The commission payments are typically paid in full in the month following
execution of the customer contracts. Deferred commissions as of March 31, 2011 and 2010 were $78.7
million and $61.6 million, respectively.
59
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation
Share-based compensation expense for share-based awards is recognized only for those awards
that are expected to vest. We use the straight-line attribution method to allocate share-based
compensation expense over the requisite service period of the award.
Refer to Note 9 for further information regarding share-based compensation.
Recently Adopted Accounting Pronouncements
In July 2010, the Financial Accounting Standards Board (FASB) issued new disclosure guidance
related to finance receivables and the related allowances for credit losses. This guidance
introduces a greater level of disaggregation based on the underlying characteristics of the finance
receivables. The disclosure requirements include, based on the related disaggregation criteria, a
rollforward of the allowance for credit losses and the related balance of the finance receivables,
significant purchases and sales of finance receivables, and various qualitative disclosures
including credit quality, aging, nonaccrual status and impairments. The new guidance was effective
for us in the third quarter of fiscal 2011, and the applicable disclosures have been included in
our consolidated financial statements, where material.
(2) Business Combinations
Fiscal 2011 Acquisitions
During fiscal 2011, we completed the acquisition of the software business of Neptuny S.r.l., a
provider of continuous capacity optimization software, and the acquisition of GridApp Systems,
Inc., a provider of comprehensive database provisioning, patching and administration software, for
combined purchase consideration of $51.5 million. The purchase consideration was allocated to
acquired assets and assumed liabilities consisting primarily of $20.7 million of acquired
technology, with weighted average economic lives of approximately three years, in addition to other
tangible assets and liabilities. These acquisitions resulted in a preliminary allocation of $34.2
million to goodwill assigned to our Enterprise Service Management (ESM) segment. The operating
results of the acquired companies have been included in our consolidated financial statements since
the respective acquisition dates. Pro forma information is not included because the acquired
companies operations would not have materially impacted our consolidated operating results.
Fiscal 2010 Acquisitions
During fiscal 2010, we completed the acquisitions of MQSoftware, Inc., a provider of
middleware and enterprise application transaction management software, Tideway Systems Limited, a
provider of IT discovery solutions, and Phurnace Software, Inc., a developer of software that
automates the deployment and configuration of business-critical Java EE applications, for combined
purchase consideration of $94.3 million. The purchase consideration was allocated to acquired
assets and assumed liabilities under the current accounting requirements for business combinations
adopted April 1, 2009, consisting primarily of approximately $36.3 million of acquired technology
and $9.4 million of customer relationships, with weighted average economic lives of approximately
three years, in addition to other tangible assets and liabilities. These acquisitions resulted in
an allocation of $61.3 million to goodwill, of which $12.8 million was assigned to the Mainframe
Service Management (MSM) segment and $48.5 million was assigned to the ESM segment. The operating
results of the acquired companies have been included in our consolidated financial statements since
the respective acquisition dates. Pro forma information is not included because the acquired
companies operations would not have materially impacted our consolidated operating results.
Fiscal 2009 Acquisition
In April 2008, we completed the acquisition of all of the outstanding common shares of
BladeLogic, Inc. (BladeLogic), a provider of data center automation software, for $28 per share. In
addition, outstanding and unvested options to acquire the common stock of BladeLogic and other
share-based awards were converted pursuant to the terms of the transaction into options to purchase
our common stock and other share-based awards, respectively. BladeLogics operating results have
been included in our consolidated financial statements since the acquisition date as part of our
ESM segment. This acquisition expanded our offerings for server provisioning, application release
management, automation and compliance.
60
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition of BladeLogics outstanding common stock and other equity instruments resulted
in total purchase consideration of $854.0 million, including approximately $19.9 million of direct
acquisition costs. The estimated fair values of the acquired assets and assumed liabilities at the
date of acquisition were:
|
|
|
|
|
|
|
April 18, |
|
|
|
2008 |
|
|
|
(In millions) |
|
Cash and cash equivalents |
|
$ |
73.3 |
|
Trade accounts receivable |
|
|
27.0 |
|
Deferred tax assets |
|
|
36.5 |
|
Other current assets |
|
|
1.5 |
|
Property and equipment |
|
|
1.4 |
|
Intangible assets |
|
|
214.8 |
|
In-process research and development |
|
|
50.3 |
|
Goodwill |
|
|
557.3 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
962.1 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
(14.3 |
) |
Deferred tax liabilities |
|
|
(86.8 |
) |
Deferred revenue |
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
(108.1 |
) |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
854.0 |
|
|
|
|
|
Factors that contributed to a purchase price that resulted in goodwill include, but are not
limited to, the retention of research and development personnel with the skills to develop future
BladeLogic technology, support personnel to provide maintenance services related to BladeLogic
products and a trained sales force capable of selling current and future BladeLogic products and
the opportunity to cross-sell our products and BladeLogic products to existing customers. We
believe that this acquisition will help us remain competitive in the Business Service Management
market and improve the results of operations for our ESM segment. The goodwill resulting from the
transaction was assigned to the ESM segment and is not deductible for tax purposes.
The acquired identifiable intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
|
|
Fair Value |
|
|
in Years |
|
|
|
(In millions) |
|
|
|
|
Customer contracts and relationships |
|
$ |
113.9 |
|
|
|
4 |
|
Developed product technology |
|
|
100.7 |
|
|
|
4 |
|
Trademarks and tradenames |
|
|
0.2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets |
|
$ |
214.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $50.3 million of the purchase price was allocated to purchased IPR&D and was
expensed at the acquisition date. The amounts allocated to IPR&D represent the estimated fair
values, based on risk-adjusted cash flows and historical costs expended, related to core research
and development projects that were incomplete and had neither reached technological feasibility nor
been determined to have an alternative future use pending achievement of technological feasibility
at the date of acquisition. The IPR&D relates primarily to the development of a major new release
to an existing core product that was released in the fourth quarter of fiscal 2009.
The results of operations of BladeLogic are included in our consolidated statements of
operations prospectively from April 18, 2008.
61
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Financial Instruments
We measure certain financial instruments at fair value on a recurring basis using the
following valuation techniques:
(A) Market approach Uses prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities.
(B) Income approach Uses valuation techniques to convert future estimated cash flows to a single
present amount based on current market expectations about those future amounts, using present value
techniques.
The fair values of our financial instruments were determined using the following input levels
and valuation techniques:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices in Active |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for Identical |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
|
|
Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Valuation |
March 31, 2011 |
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Technique |
|
|
(In millions) |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money-market funds |
|
$ |
684.7 |
|
|
$ |
684.7 |
|
|
$ |
|
|
|
$ |
|
|
|
A |
United States Treasury securities |
|
|
525.0 |
|
|
|
525.0 |
|
|
|
|
|
|
|
|
|
|
A |
Certificates of deposit |
|
|
38.4 |
|
|
|
38.4 |
|
|
|
|
|
|
|
|
|
|
A |
Short-term and long-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury securities |
|
|
49.9 |
|
|
|
49.9 |
|
|
|
|
|
|
|
|
|
|
A |
Auction rate securities |
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
|
27.2 |
|
|
B |
Mutual funds |
|
|
18.5 |
|
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
A |
Foreign currency forward contracts |
|
|
5.8 |
|
|
|
|
|
|
|
5.8 |
|
|
|
|
|
|
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,349.5 |
|
|
$ |
1,316.5 |
|
|
$ |
5.8 |
|
|
$ |
27.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
(3.3 |
) |
|
$ |
|
|
|
$ |
(3.3 |
) |
|
$ |
|
|
|
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3.3 |
) |
|
$ |
|
|
|
$ |
(3.3 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 classification is applied to any asset or liability that has a readily available
quoted market price from an active market where there is significant transparency in the
executed/quoted price.
Level 2 classification is applied to assets and liabilities that have evaluated prices where
the data inputs to these valuations are observable either directly or indirectly, but do not
represent quoted market prices from an active market.
Level 3 classification is applied to assets and liabilities when prices are not derived from
existing market data and requires us to develop our own assumptions about how market participants
would price the asset or liability.
62
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in Level 3 financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Auction |
|
|
|
|
|
|
|
|
|
|
Auction |
|
|
|
|
|
|
|
|
|
Rate |
|
|
Put |
|
|
|
|
|
|
Rate |
|
|
Put |
|
|
|
|
|
|
Securities |
|
|
Option |
|
|
Total |
|
|
Securities |
|
|
Option |
|
|
Total |
|
|
|
(In millions) |
|
Balance at the beginning of the period |
|
$ |
60.5 |
|
|
$ |
1.1 |
|
|
$ |
61.6 |
|
|
$ |
60.0 |
|
|
$ |
2.0 |
|
|
$ |
62.0 |
|
Redemptions and sales of auction rate
securities |
|
|
(37.5 |
) |
|
|
|
|
|
|
(37.5 |
) |
|
|
(4.9 |
) |
|
|
|
|
|
|
(4.9 |
) |
Change in unrealized gain (loss) included in
interest and other income, net |
|
|
1.1 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
0.9 |
|
|
|
(0.9 |
) |
|
|
|
|
Change in unrealized gain (loss) included in
other comprehensive income |
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
|
|
4.5 |
|
|
|
|
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
|
$ |
27.2 |
|
|
$ |
|
|
|
$ |
27.2 |
|
|
$ |
60.5 |
|
|
$ |
1.1 |
|
|
$ |
61.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
Our cash, cash equivalents and investments were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Cash and |
|
|
|
|
|
|
|
|
|
|
Cash and |
|
|
|
|
|
|
|
|
|
Cash |
|
|
Short-term |
|
|
Long-term |
|
|
Cash |
|
|
Short-term |
|
|
Long-term |
|
|
|
Equivalents |
|
|
Investments |
|
|
Investments |
|
|
Equivalents |
|
|
Investments |
|
|
Investments |
|
|
|
(In millions) |
|
Measured at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury securities |
|
$ |
525.0 |
|
|
$ |
27.8 |
|
|
$ |
22.1 |
|
|
$ |
200.0 |
|
|
$ |
50.0 |
|
|
$ |
|
|
Certificates of deposit |
|
|
38.4 |
|
|
|
|
|
|
|
|
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
Auction rate securities |
|
|
|
|
|
|
|
|
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
|
45.0 |
|
Trading |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
|
|
|
|
|
|
|
|
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
|
17.4 |
|
Auction rate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and equity investments
measured at fair value |
|
|
563.4 |
|
|
|
27.8 |
|
|
|
67.8 |
|
|
|
212.6 |
|
|
|
65.5 |
|
|
|
62.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash on hand |
|
|
412.8 |
|
|
|
|
|
|
|
|
|
|
|
398.4 |
|
|
|
|
|
|
|
|
|
Money-market funds |
|
|
684.7 |
|
|
|
|
|
|
|
|
|
|
|
757.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and
investments |
|
$ |
1,660.9 |
|
|
$ |
27.8 |
|
|
$ |
67.8 |
|
|
$ |
1,368.6 |
|
|
$ |
65.5 |
|
|
$ |
62.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other
comprehensive income from available-
for-sale securities (pre-tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses* |
|
$ |
|
|
|
$ |
|
|
|
$ |
2.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The unrealized losses on available-for-sale securities at March 31, 2011 and 2010 relate to the auction rate securities. |
63
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the underlying contractual maturities of our available-for-sale
investments in debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
(In millions) |
|
Due in one year or less |
|
$ |
591.2 |
|
|
$ |
591.2 |
|
|
$ |
262.6 |
|
|
$ |
262.6 |
|
Due between one and
two years |
|
|
22.1 |
|
|
|
22.1 |
|
|
|
|
|
|
|
|
|
Due after ten years |
|
|
29.8 |
|
|
|
27.2 |
|
|
|
50.7 |
|
|
|
45.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
643.1 |
|
|
$ |
640.5 |
|
|
$ |
313.3 |
|
|
$ |
307.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal 2009, proceeds from the sale of available-for-sale securities, gross realized gains
and gross realized losses were $153.2 million, $1.6 million and $2.6 million, respectively. The
amounts for fiscal 2010 and 2011 were not significant.
At March 31, 2011 and 2010, we held auction rate securities with a par value of $29.8 million
and $50.7 million, respectively, which were classified as available-for-sale, and at March 31,
2010, we also held auction rate securities with a par value of $16.6 million which were classified
as trading. The total estimated fair value of our auction rate securities was $27.2 million and
$60.5 million at March 31, 2011 and 2010, respectively. Our auction rate securities consist
entirely of bonds issued by public agencies that are backed by student loans with at least a 97%
guarantee by the federal government under the United States Department of Educations Federal
Family Education Loan Program. All of these bonds are currently rated investment grade by Moodys
or Standard and Poors. Auctions for these securities began failing in early 2008 and have
continued to fail, resulting in our continuing to hold such securities and the issuers paying
interest at the maximum contractual rates. We do not believe that any of the underlying issuers of
these auction rate securities are presently at risk of default or that the underlying credit
quality of the assets backing the auction rate security investments has been impacted by the
reduced liquidity of these investments. Due to the illiquidity in the auction rate securities
market caused by failed auctions, we estimated the fair value of these securities and the put
option discussed below using internally developed models of the expected cash flows of the
securities which incorporate assumptions about the expected cash flows of the underlying student
loans and estimates of the rate of return required by investors, which includes an adjustment to
reflect a lack of liquidity in the market for these securities. Periodically, the issuers of
certain of our auction rate securities have redeemed portions of our holdings at par value plus
accrued interest. During the years ended March 31, 2011 and 2010, issuers redeemed
available-for-sale holdings of $20.9 million par value and $3.7 million par value, respectively,
and trading holdings of $5.4 million par value and $1.2 million par value, respectively.
In November 2008, we entered into a put agreement with a bank from which we acquired certain
auction rate securities. On July 1, 2010, we exercised our right under this agreement to put the
remaining securities subject to this agreement, with $11.2 million par value, to the bank. The
auction rate securities subject to the put agreement were classified as short-term investments and trading securities and,
accordingly, any changes in the fair value of these securities were recognized in earnings. In
addition, we elected the option under GAAP to record the put option at fair value. The fair value
adjustments to these auction rate securities and the related put option resulted in minimal net
impact to the consolidated statements of operations for the years ended March 31, 2011, 2010 and
2009.
The unrealized loss on our available-for-sale auction rate securities, which have a fair value
of $27.2 million at March 31, 2011, was $2.6 million and was recorded in accumulated other
comprehensive income (loss) as we believe the decline in fair value of these auction rate
securities is temporary. In making this determination, we primarily considered the financial
condition and near-term prospects of the issuers, the probability scheduled cash flows will
continue to be made and the likelihood we would be required to sell the investments before recovery
of our cost basis. These available-for-sale auction rate securities have been in an unrealized loss
position for greater than twelve months. Because of the uncertainty related to the timing of
liquidity associated with these auction rate securities, these securities are classified as
long-term investments at March 31, 2011 and 2010.
64
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Financial Instruments
The fair value of our outstanding foreign currency forward contracts that closed in a gain
position at March 31, 2011 and 2010 was $5.8 million and $3.5 million, respectively, and was
recorded within other current assets in our consolidated balance sheets. The fair value of our
outstanding foreign currency forward contracts that closed in a loss position at March 31, 2011 and
2010 was $3.3 million and $1.0 million, respectively, and was recorded within accrued liabilities
in our consolidated balance sheets. The notional amounts at contract exchange rates of our foreign
currency forward contracts outstanding were:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward
Contracts (receive United
States dollar/pay foreign
currency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro |
|
$ |
158.5 |
|
|
$ |
98.2 |
|
Australian dollar |
|
|
13.9 |
|
|
|
15.4 |
|
Chinese yuan renminbi |
|
|
7.6 |
|
|
|
4.6 |
|
Brazilian real |
|
|
5.6 |
|
|
|
24.9 |
|
British pound |
|
|
5.0 |
|
|
|
|
|
South Korean won |
|
|
4.6 |
|
|
|
6.0 |
|
Canadian dollar |
|
|
4.2 |
|
|
|
3.9 |
|
New Zealand dollar |
|
|
2.9 |
|
|
|
4.5 |
|
Swedish krona |
|
|
2.4 |
|
|
|
5.7 |
|
Other |
|
|
8.3 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
Total |
|
$ |
213.0 |
|
|
$ |
170.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward
Contracts (pay United
States dollar/receive
foreign currency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli shekel |
|
$ |
151.6 |
|
|
$ |
78.0 |
|
Mexican peso |
|
|
9.3 |
|
|
|
1.5 |
|
Indian rupee |
|
|
9.1 |
|
|
|
11.5 |
|
Other |
|
|
2.2 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
Total |
|
$ |
172.2 |
|
|
$ |
95.5 |
|
|
|
|
|
|
|
|
Our use of foreign
currency forward exchange contracts is intended to principally offset gains and losses associated with foreign
currency exposures. Therefore, the notional amounts and currencies underlying our foreign currency
forward contracts will fluctuate period to period as they are principally dependent on the balances
and currency denomination of monetary assets and liabilities maintained by our global entities.
The effect of the foreign currency forward contracts for the years ended March 31, 2011, 2010
and 2009 was a gain of $3.3 million, a loss of $9.9 million and a gain of $26.4 million,
respectively, which, after including gains and losses on our foreign currency exposures, resulted
in net losses of $2.9 million, $2.2 million and $5.3 million, respectively, recorded in interest
and other income, net.
We are exposed to credit-related losses in the event of non-performance by counterparties to
derivative financial instruments, but we do not expect any counterparties to fail to meet their
obligations given their high credit ratings. In addition, we diversify this risk across several
counterparties and utilize netting agreements to mitigate the counterparty credit risk.
Trade Finance Receivables
A substantial portion of our trade finance receivables are transferred to financial
institutions on a non-recourse basis. We utilize wholly-owned finance subsidiaries in these finance
receivables transfers. These entities are consolidated into our financial position and results of
operations. We account for such transfers as sales in accordance with applicable accounting rules
pertaining to the transfer of financial assets and the sale of future revenue when we have
surrendered control of such receivables (including determining that such assets have been isolated
beyond our reach and the reach of our creditors) and when we do not have significant continuing
involvement in the generation of cash flows due the financial institutions. During fiscal 2011,
2010 and 2009, we transferred $172.3 million, $208.8 million and $149.7 million, respectively, of
such receivables through these programs. Finance receivables are typically transferred within
several months after origination and the outstanding principal balance at the time of transfer
typically approximates fair value.
For those finance receivables not transferred, we evaluate the credit risk of finance
receivables in our portfolio based on regional characteristics specific to the risk climate in each
of our geographic operations as well as based on internal credit quality indicators for individual
receivables. We evaluate the credit risk of finance receivables using an internal credit rating
system based on whether an individual receivable meets specific internal criteria including
counterparty credit rating and receivable maturity date and assign an internal credit rating of 1,
2 or 3, with a credit rating of 1 representing the best credit quality.
65
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For all regions and credit categories, a finance receivable will be specifically reserved once
deemed uncollectible. As of March 31, 2011, we held $223.4 million of finance receivables, net of
$0.5 million of specific receivables which have been fully reserved.
At March 31, 2011, our finance receivables balance, net of allowance, by region and by class
of internal credit rating is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Total |
|
|
|
(In millions) |
|
Class 1 |
|
$ |
102.2 |
|
|
$ |
41.0 |
|
|
$ |
13.2 |
|
|
$ |
2.0 |
|
|
$ |
158.4 |
|
Class 2 |
|
|
31.0 |
|
|
|
23.8 |
|
|
|
3.1 |
|
|
|
1.6 |
|
|
|
59.5 |
|
Class 3 |
|
|
1.9 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.4 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end
of the period |
|
$ |
135.1 |
|
|
$ |
65.9 |
|
|
$ |
17.4 |
|
|
$ |
5.0 |
|
|
$ |
223.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments
The fair value of our senior unsecured notes due 2018 at March 31, 2011 and 2010, based on
market prices, was $348.9 million and $338.1 million, respectively, compared to the carrying value
of $298.7 million and $298.5 million, respectively.
The carrying values of all other financial instruments, consisting primarily of trade and
finance receivables, accounts payable and other borrowings, approximate their respective fair
values.
(4) Property and Equipment
Property and equipment at March 31, 2011 and 2010 consisted of:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Computers, software, furniture and equipment |
|
$ |
498.8 |
|
|
$ |
493.8 |
|
Leasehold improvements |
|
|
49.4 |
|
|
|
43.9 |
|
Projects in progress |
|
|
5.7 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
553.9 |
|
|
|
542.5 |
|
Less accumulated depreciation and amortization |
|
|
(459.7 |
) |
|
|
(447.5 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
94.2 |
|
|
$ |
95.0 |
|
|
|
|
|
|
|
|
Property and equipment includes computer equipment procured by us under capital lease
arrangements with net book values of $19.3 million and $13.7 million (net of $11.4 million and
$12.9 million in accumulated depreciation) at March 31, 2011 and 2010, respectively. Depreciation
of capital lease equipment is included in depreciation expense. Depreciation expense recorded
during fiscal 2011, 2010 and 2009 was $39.1 million, $38.2 million and $42.4 million, respectively.
66
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Intangible Assets and Goodwill
Intangible assets at March 31, 2011 and 2010 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Net Book |
|
|
Carrying |
|
|
Net Book |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
(In millions) |
|
Acquired technology |
|
$ |
572.4 |
|
|
$ |
64.2 |
|
|
$ |
548.4 |
|
|
$ |
88.7 |
|
Customer relationships |
|
|
255.6 |
|
|
|
36.7 |
|
|
|
254.3 |
|
|
|
70.1 |
|
Tradenames and
trademarks |
|
|
29.3 |
|
|
|
|
|
|
|
29.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
857.3 |
|
|
$ |
100.9 |
|
|
$ |
832.0 |
|
|
$ |
158.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired technology totaling $45.5 million, $43.8 million and $44.6 million
was included in cost of license revenue in the consolidated statements of operations for fiscal
2011, 2010 and 2009, respectively. Amortization of other intangible assets is included in
amortization of intangible assets in the consolidated statements of operations. The weighted
average remaining life of acquired technology and customer relationships is approximately 1.5 years
at March 31, 2011.
Future amortization expense associated with our intangible assets existing at March 31, 2011
is expected to be:
|
|
|
|
|
|
|
Year Ending |
|
|
|
March 31, |
|
|
|
(In millions) |
|
2012 |
|
$ |
78.5 |
|
2013 |
|
|
18.1 |
|
2014 |
|
|
4.3 |
|
|
|
|
|
|
|
$ |
100.9 |
|
|
|
|
|
The following table summarizes goodwill activity and ending goodwill balances by operating
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise |
|
|
Mainframe |
|
|
|
|
|
|
Service |
|
|
Service |
|
|
|
|
|
|
Management |
|
|
Management |
|
|
Total |
|
|
|
(In millions) |
|
Balance at March 31, 2009 |
|
$ |
1,216.7 |
|
|
$ |
72.0 |
|
|
$ |
1,288.7 |
|
Goodwill acquired/purchase accounting
adjustments during the year |
|
|
48.5 |
|
|
|
13.8 |
|
|
|
62.3 |
|
Effect of foreign currency exchange rate changes |
|
|
14.6 |
|
|
|
|
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
|
1,279.8 |
|
|
|
85.8 |
|
|
|
1,365.6 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired/purchase accounting
adjustments during the year |
|
|
32.6 |
|
|
|
(1.0 |
) |
|
|
31.6 |
|
Effect of foreign currency exchange rate changes |
|
|
9.8 |
|
|
|
|
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
1,322.2 |
|
|
$ |
84.8 |
|
|
$ |
1,407.0 |
|
|
|
|
|
|
|
|
|
|
|
67
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Long-Term Borrowings
Long-term borrowings at March 31, 2011 and 2010 consisted of:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Senior unsecured notes due 2018 (net of $1.3 million and $1.5 million of unamortized
discount at March 31, 2011 and 2010, respectively) |
|
$ |
298.7 |
|
|
$ |
298.5 |
|
Capital leases and other obligations |
|
|
56.2 |
|
|
|
62.6 |
|
|
|
|
|
|
|
|
Total |
|
|
354.9 |
|
|
|
361.1 |
|
Less current maturities of capital leases and other obligations (included in
accrued liabilities) |
|
|
(19.3 |
) |
|
|
(20.2 |
) |
|
|
|
|
|
|
|
Long-term borrowings |
|
$ |
335.6 |
|
|
$ |
340.9 |
|
|
|
|
|
|
|
|
In November 2010, we entered into a credit agreement with certain institutional lenders
providing for an unsecured revolving credit facility in an amount up to $400.0 million which is
scheduled to expire on November 30, 2014 (the Credit Facility). Subject to certain conditions, at
any time prior to maturity, we may invite existing and new lenders to increase the size of the
Credit Facility up to a maximum of $600.0 million. The Credit Facility includes provisions for
swing line loans of up to $25.0 million and standby letters of credit of up to $50.0 million.
Revolving loans under the Credit Facility bear interest, at the Companys option, at a rate equal
to either (i) the base rate (as defined) plus a margin based on the credit ratings of BMCs senior
unsecured notes due 2018 (the Senior Notes), or (ii) the LIBOR rate (as defined) plus a margin
based on the credit ratings of BMCs Senior Notes, for interest periods of one, two, three or six
months. As of March 31, 2011 and through May 5, 2011, we have not borrowed any funds under the
Credit Facility.
In June 2008, we issued $300.0 million of Senior Notes. Net proceeds to us after original
issuance discount and issuance costs amounted to $295.6 million, which were used for general
corporate purposes. The Senior Notes were issued at an original issuance discount of $1.8 million.
The Senior Notes bear interest at a rate of 7.25% per annum payable semi-annually in June and
December of each year. The Senior Notes are redeemable at our option at any time in whole or, from
time to time, in part at a redemption price equal to the greater of: (i) 100% of the principal
amount of the Senior Notes to be redeemed, or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest discounted at the applicable United States Treasury
rate plus 50 basis points, plus accrued and unpaid interest. The Senior Notes are subject to the
provisions of an indenture which includes covenants limiting, among other things, the creation of
liens securing indebtedness and sale-leaseback transactions.
At March 31, 2011, we were in compliance with all debt covenants.
68
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Deferred Revenue
Deferred revenue is comprised of deferred maintenance, license and professional services
revenue. Deferred maintenance revenue is not recorded on arrangements with trade payment terms
until the related maintenance fees have been collected. The components of deferred revenue at March
31, 2011 and 2010 were:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Current: |
|
|
|
|
|
|
|
|
Maintenance |
|
$ |
653.1 |
|
|
$ |
637.6 |
|
License |
|
|
338.8 |
|
|
|
319.0 |
|
Professional services |
|
|
35.0 |
|
|
|
19.3 |
|
|
|
|
|
|
|
|
Total current deferred revenue |
|
|
1,026.9 |
|
|
|
975.9 |
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
Maintenance |
|
|
581.3 |
|
|
|
542.0 |
|
License |
|
|
347.3 |
|
|
|
305.2 |
|
Professional services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term deferred revenue |
|
|
928.6 |
|
|
|
847.2 |
|
|
|
|
|
|
|
|
Total deferred revenue |
|
$ |
1,955.5 |
|
|
$ |
1,823.1 |
|
|
|
|
|
|
|
|
(8) Income Taxes
The income tax provision for fiscal 2011, 2010 and 2009 consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(14.4 |
) |
|
$ |
26.2 |
|
|
$ |
62.8 |
|
State |
|
|
7.7 |
|
|
|
(0.5 |
) |
|
|
11.3 |
|
Foreign |
|
|
40.9 |
|
|
|
44.2 |
|
|
|
48.6 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
34.2 |
|
|
|
69.9 |
|
|
|
122.7 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
37.7 |
|
|
|
24.6 |
|
|
|
33.3 |
|
State |
|
|
3.1 |
|
|
|
4.3 |
|
|
|
(4.0 |
) |
Foreign |
|
|
0.1 |
|
|
|
(0.7 |
) |
|
|
(26.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
40.9 |
|
|
|
28.2 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
75.1 |
|
|
$ |
98.1 |
|
|
$ |
125.8 |
|
|
|
|
|
|
|
|
|
|
|
The foreign income tax provision was based on foreign pre-tax earnings of $240.1 million,
$214.5 million and $173.0 million for fiscal 2011, 2010 and 2009, respectively. The federal income
tax provision includes the United States tax effects of certain foreign entities that are treated
as a branch of a United States entity for tax purposes and therefore their earnings are included
in the United States consolidated income tax return.
69
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of income tax computed at the United States federal statutory rate of 35% to
reported income tax expense for fiscal 2011, 2010 and 2009 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Expense computed at United States statutory rate |
|
$ |
186.0 |
|
|
|
35.0 |
% |
|
$ |
176.5 |
|
|
|
35.0 |
% |
|
$ |
127.4 |
|
|
|
35.0 |
% |
Effect of foreign rate differentials |
|
|
(54.6 |
) |
|
|
(10.3 |
)% |
|
|
(29.7 |
) |
|
|
(5.9 |
)% |
|
|
(21.9 |
) |
|
|
(6.0 |
)% |
Extraterritorial income and production activities deductions |
|
|
(24.7 |
) |
|
|
(4.6 |
)% |
|
|
(21.5 |
) |
|
|
(4.3 |
)% |
|
|
(22.3 |
) |
|
|
(6.1 |
)% |
State income taxes, net of federal benefit |
|
|
8.7 |
|
|
|
1.6 |
% |
|
|
3.1 |
|
|
|
0.6 |
% |
|
|
4.7 |
|
|
|
1.3 |
% |
Settlements with tax authorities |
|
|
(57.2 |
) |
|
|
(10.8 |
)% |
|
|
(30.0 |
) |
|
|
(5.9 |
)% |
|
|
|
|
|
|
|
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1 |
|
|
|
6.6 |
% |
Other, net |
|
|
16.9 |
|
|
|
3.2 |
% |
|
|
(0.3 |
) |
|
|
(0.0 |
)% |
|
|
13.8 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
75.1 |
|
|
|
14.1 |
% |
|
$ |
98.1 |
|
|
|
19.5 |
% |
|
$ |
125.8 |
|
|
|
34.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities recognized for financial reporting purposes and the related
amounts recognized for income tax purposes. The significant components of deferred tax assets and
liabilities at March 31, 2011 and 2010 were:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
53.7 |
|
|
$ |
60.4 |
|
Compensation plans |
|
|
46.5 |
|
|
|
49.2 |
|
Property and equipment, net |
|
|
4.6 |
|
|
|
7.8 |
|
Net operating loss carryforwards |
|
|
36.0 |
|
|
|
36.0 |
|
Tax credit carryforwards |
|
|
6.2 |
|
|
|
2.4 |
|
Other |
|
|
77.1 |
|
|
|
75.2 |
|
|
|
|
|
|
|
|
Total gross deferred tax asset |
|
|
224.1 |
|
|
|
231.0 |
|
Valuation allowance |
|
|
(10.1 |
) |
|
|
(9.1 |
) |
|
|
|
|
|
|
|
Total deferred tax asset |
|
|
214.0 |
|
|
|
221.9 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Software development costs |
|
|
(70.7 |
) |
|
|
(54.0 |
) |
Acquired intangible assets |
|
|
(13.5 |
) |
|
|
(5.5 |
) |
Other |
|
|
(59.4 |
) |
|
|
(49.0 |
) |
|
|
|
|
|
|
|
Total deferred tax liability |
|
|
(143.6 |
) |
|
|
(108.5 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
70.4 |
|
|
$ |
113.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported: |
|
|
|
|
|
|
|
|
Deferred tax assets |
|
$ |
65.1 |
|
|
$ |
53.7 |
|
|
|
|
|
|
|
|
Other long-term assets |
|
$ |
29.3 |
|
|
$ |
80.0 |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
(3.7 |
) |
|
$ |
(5.0 |
) |
|
|
|
|
|
|
|
Other long-term liabilities |
|
$ |
(20.3 |
) |
|
$ |
(15.3 |
) |
|
|
|
|
|
|
|
In evaluating our ability to realize our deferred tax assets, we consider all available
evidence, both positive and negative, including our past operating results, reversals of existing
temporary differences, tax planning strategies and forecasts of future taxable income. In
considering these sources of taxable income, we must make certain assumptions and judgments that
are based on the plans and estimates used to manage our underlying business. Changes in our
assumptions, plans and estimates may materially impact income tax expense.
We maintain a valuation allowance against certain tax credits and net operating losses that we
do not believe are more likely than not to be utilized in the future. The valuation allowance
increased (decreased) by $1.0 million, $(12.1) million and $(10.3) million during fiscal 2011, 2010
and 2009, respectively. At March 31, 2011, we have federal net operating loss carryforwards of
$68.0 million and foreign net operating
loss carryforwards of $9.4 million, which expire between 2015 and 2030. These tax credits and net
operating losses have arisen from various acquisitions as well as from net operating losses
generated in certain foreign jurisdictions. Certain of the net operating loss
carryforward assets are subject to an annual limitation under Internal Revenue Code Section 382,
but are expected to be fully realized.
Aggregate unremitted earnings of certain foreign subsidiaries for which United States federal
income taxes have not been provided are $479.3 million at March 31, 2011. Deferred income taxes
have not been provided on these earnings because we consider them to be indefinitely re-invested.
If these earnings were repatriated to the United States or they were no longer determined to be
indefinitely re-invested, we would have to record a tax liability for these earnings of
approximately $119.6 million, assuming full utilization of the foreign tax credits associated with
these earnings.
We carry out our business operations through legal entities in the United States and multiple
foreign jurisdictions. These jurisdictions require that we file corporate income tax returns that
are subject to United States, state and foreign tax laws. We are subject to routine corporate
income tax audits in these multiple jurisdictions.
71
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total amount of unrecognized tax benefits at March 31, 2011, 2010 and 2009 was $55.8
million, $106.4 million and $106.3 million, respectively, of which $49.7 million, $95.1 million and
$88.9 million, respectively, would impact our effective tax rate if recognized. We believe that it
is reasonably possible that net tax benefits of up to approximately $8 million may be recorded
during the next twelve months upon the closure of tax periods and effective settlements of prior
years tax matters with various federal, state and foreign jurisdictions.
Activity related to our unrecognized tax benefits consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Beginning of year |
|
$ |
106.4 |
|
|
$ |
106.3 |
|
|
$ |
111.6 |
|
Increases related to current year tax positions |
|
|
6.6 |
|
|
|
6.0 |
|
|
|
7.4 |
|
Decreases related to current year tax positions |
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
Increases related to prior year tax positions |
|
|
20.8 |
|
|
|
21.0 |
|
|
|
23.4 |
|
Decreases related to prior year tax positions |
|
|
(58.9 |
) |
|
|
(22.7 |
) |
|
|
(31.2 |
) |
Decreases related to lapses of statutes of limitations |
|
|
(19.0 |
) |
|
|
(3.9 |
) |
|
|
(1.4 |
) |
Impact of foreign currency exchange rate changes |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
55.8 |
|
|
$ |
106.4 |
|
|
$ |
106.3 |
|
|
|
|
|
|
|
|
|
|
|
We recognize interest and penalties related to uncertain tax positions in income tax expense.
To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will
be reduced and reflected as a reduction of the overall income tax provision in the period that such
determination is made. We recognized $7.7 million, $2.4 million and $11.5 million of interest and
penalties during fiscal 2011, 2010 and 2009, respectively. The total amount of accrued interest and
penalties related to uncertain tax positions was $31.0 million and $37.7 million at March 31, 2011
and 2010, respectively.
We file a federal income tax return in the United States as well as income tax returns in
various local, state and foreign jurisdictions. Our tax years are closed with the United States
Internal Revenue Service (IRS) through the tax year ended
March 31, 2005. During fiscal 2010 and
early fiscal 2011, we settled all open issues with the IRS resulting from the audit of our tax
years ended March 31, 2004 and 2005. During fiscal 2011, we settled all open issues but one with
the IRS resulting from the audit of our tax years ended March 31, 2006 and 2007. As a result of
these settlements, we recorded net tax benefits of $57.2 million and $30.0
million in fiscal 2011 and fiscal 2010, respectively. In April 2011,
we received a Notice of Deficiency from the IRS on the one remaining disputed
issue, relating to the tax year ended March 31, 2006, which we will
litigate accordingly. In April 2011, the IRS issued its Revenue Agent Report (RAR) for
its examination
of our federal income tax return for the tax year ended
March 31, 2008, and there are no unagreed
issues arising from this RAR. In addition, certain tax years related to local, state, and foreign
jurisdictions remain subject to examination. To provide for potential tax exposures, we maintain a
liability for unrecognized tax benefits which we believe is adequate.
(9) Share-Based Compensation
We have various share-based compensation plans that authorize, among other types of awards,
(i) the discretionary granting of stock options to purchase shares of our common stock, and (ii)
the discretionary issuance of nonvested common stock awards directly in the form of time-based,
market-based and performance-based nonvested stock units. Options granted to employees generally
vest monthly over four years and have a term of six years. Options granted to non-employee board
members become fully vested within one year from the date of grant and have terms of ten years with
respect to grants through fiscal 2008 and six years for all subsequent grants. Time-based nonvested
stock units vest in annual increments over one or three years; performance-based nonvested stock
units vest in one year increments, contingent upon us meeting certain profitability targets; and
market-based nonvested stock units vest in 50% increments over two- and three-year periods or in
annual increments over three years upon achievement of certain targets related to our relative total shareholder return as compared to a set of
peer companies or to the NASDAQ-100 Index over each performance period.
72
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We did not grant any stock options during fiscal 2011 and granted 0.2 million and 5.1 million
stock options during fiscal 2010 and 2009, respectively. We granted 3.3 million, 3.0 million and
3.5 million in nonvested stock units during fiscal 2011, 2010 and 2009, respectively. There were no
significant modifications made to any share-based grants during these periods. At March 31, 2011,
there were 9.6 million shares available for grant under our share-based compensation plans.
However, for certain types of awards, some of our plans require us to
reduce shares available for grant by a factor of 2.25 shares or 2.0 shares,
depending on the plan from which the awards are issued.
We also sponsor an employee stock purchase plan that permits eligible employees to acquire
shares of our stock at a 15% discount to the lower of the market price of our common stock at the
beginning or end of six-month offering periods.
Share-based compensation costs for stock options are based on the fair value calculated from
the Black-Scholes option-pricing model on the date of grant for stock options and on the first day
of the offering period for the employee stock purchase plan. The fair value of nonvested stock
equals the intrinsic value on the date of grant, except for certain market-based nonvested stock
units, for which the fair value is calculated using a Monte Carlo simulation model on the date of
grant. The fair values of share-based awards are recorded as compensation expense on a
straight-line basis over the requisite service period of the grants. Compensation expense
recognized is shown in the operating activities section in the consolidated statements of cash
flows.
We estimate the volatility of our stock price by using a combination of both historical
volatility and implied volatility derived from traded options on our common stock in the
marketplace. We believe that the combination of historical volatility and implied volatility
provides a better estimate of future stock price volatility. We base the estimate of the risk-free
interest rate on the United States Treasury zero-coupon yield curve in effect at the time of grant.
We have never paid cash dividends and do not currently intend to pay cash dividends; accordingly,
we have assumed a dividend yield of zero.
We are required to estimate potential forfeitures of share-based awards and adjust
compensation expense accordingly. The estimate of forfeitures is adjusted over the requisite
service period to the extent that actual forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment
in the period of change and thus impact the amount of share-based compensation expense to be
recognized in future periods. There were no significant changes in estimated forfeitures in fiscal
2011, 2010 or 2009 as compared to estimates when the related expenses were originally recorded.
73
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of share-based payments was estimated using the Black-Scholes option-pricing
model and the Monte Carlo simulation model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Expected volatility |
|
|
35 |
% |
|
|
35 |
% |
|
|
33 |
% |
Risk-free interest rate % |
|
|
0.6 |
% |
|
|
2.0 |
% |
|
|
2.9 |
% |
Expected term (in years) |
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
Dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
A summary of our share-based compensation activity for fiscal 2011 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Aggregate |
|
Stock Options |
|
Shares |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
|
|
(In millions) |
|
|
|
|
|
|
(In years) |
|
|
(In millions) |
|
Outstanding at March 31, 2010 |
|
|
12.1 |
|
|
$ |
29 |
|
|
|
4 |
|
|
$ |
114.9 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4.4 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
|
(0.5 |
) |
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
7.2 |
|
|
$ |
30 |
|
|
|
3 |
|
|
$ |
144.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at March 31, 2011 and
expected to vest |
|
|
7.1 |
|
|
$ |
30 |
|
|
|
3 |
|
|
$ |
143.7 |
|
Exercisable at March 31, 2011 |
|
|
5.8 |
|
|
$ |
28 |
|
|
|
3 |
|
|
$ |
125.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
Remaining |
|
Nonvested Stock Units |
|
Shares |
|
|
Fair Value |
|
|
Vesting Term |
|
|
|
(In millions) |
|
|
|
|
|
|
(In years) |
|
Outstanding at March 31, 2010 |
|
|
5.3 |
|
|
$ |
35 |
|
|
|
1 |
|
Granted |
|
|
3.3 |
|
|
|
42 |
|
|
|
|
|
Vested |
|
|
(1.9 |
) |
|
|
35 |
|
|
|
|
|
Cancelled or expired |
|
|
(0.4 |
) |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31,
2011 |
|
|
6.3 |
|
|
$ |
39 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in the table above were 0.2 million and 0.2 million performance-based nonvested stock
units and market-based nonvested stock units, respectively, outstanding at March 31, 2011 granted
to selected executives and other key employees. The performance-based nonvested stock units were
valued based on the fair value of our common stock on the date of grant. The vesting of the
market-based nonvested stock units is contingent on our relative total shareholder return as
compared to a set of peer companies or to the NASDAQ-100 Index over each performance period.
74
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes weighted average grant date fair value and additional intrinsic
value and vesting information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Weighted Average Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
Per grant of stock options |
|
$ |
|
|
|
$ |
10 |
|
|
$ |
11 |
|
Per grant of nonvested stock units |
|
$ |
42 |
|
|
$ |
37 |
|
|
$ |
33 |
|
|
|
Share-Based Payment and Stock Option Values |
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of stock options exercised (millions) |
|
$ |
75.5 |
|
|
$ |
63.0 |
|
|
$ |
70.4 |
|
Fair value of nonvested stock units that vested
(millions) |
|
$ |
79.7 |
|
|
$ |
38.9 |
|
|
$ |
55.3 |
|
Grant date fair value of nonvested stock units that vested |
|
$ |
35 |
|
|
$ |
32 |
|
|
$ |
23 |
|
Our outstanding options at March 31, 2011 were (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
|
Exercisable Options |
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
|
|
|
|
Average |
|
Range of Exercise Prices |
|
Shares |
|
|
Exercise Price |
|
|
Life |
|
|
Shares |
|
|
Exercise Price |
|
$0.00 17.40 |
|
|
1.1 |
|
|
$ |
15 |
|
|
|
3 |
|
|
|
1.1 |
|
|
$ |
15 |
|
$17.41 19.93 |
|
|
0.8 |
|
|
|
19 |
|
|
|
3 |
|
|
|
0.8 |
|
|
|
19 |
|
$19.94 25.41 |
|
|
0.4 |
|
|
|
23 |
|
|
|
3 |
|
|
|
0.4 |
|
|
|
22 |
|
$25.42 31.69 |
|
|
0.5 |
|
|
|
28 |
|
|
|
4 |
|
|
|
0.5 |
|
|
|
28 |
|
$31.70 32.15 |
|
|
1.5 |
|
|
|
32 |
|
|
|
2 |
|
|
|
1.3 |
|
|
|
32 |
|
$32.16 36.84 |
|
|
0.6 |
|
|
|
36 |
|
|
|
3 |
|
|
|
0.4 |
|
|
|
36 |
|
$36.85 39.30 |
|
|
2.3 |
|
|
|
39 |
|
|
|
3 |
|
|
|
1.3 |
|
|
|
39 |
|
We had approximately $205.2 million of total unrecognized compensation costs related to stock
options, nonvested stock and nonvested stock units at March 31, 2011 that is expected to be
recognized over a weighted-average period of 2 years.
We received cash of $119.6 million, $79.1 million and $92.2 million for the exercise of stock
options during fiscal 2011, 2010 and 2009, respectively. Cash was not used to settle any equity
instruments previously granted. We issue shares from treasury stock upon the exercise of stock
options and upon the vesting of nonvested stock units.
75
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-based compensation expense as recorded in our consolidated statements of operations is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
Cost of license revenue |
|
$ |
3.4 |
|
|
$ |
2.5 |
|
|
$ |
1.6 |
|
Cost of maintenance revenue |
|
|
9.8 |
|
|
|
7.9 |
|
|
|
9.3 |
|
Cost of professional services revenue |
|
|
5.1 |
|
|
|
3.9 |
|
|
|
3.2 |
|
Selling and marketing expenses |
|
|
35.1 |
|
|
|
31.6 |
|
|
|
28.8 |
|
Research and development expenses |
|
|
10.5 |
|
|
|
10.1 |
|
|
|
12.9 |
|
General and administrative expenses |
|
|
42.6 |
|
|
|
32.9 |
|
|
|
26.2 |
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
|
106.5 |
|
|
|
88.9 |
|
|
|
82.0 |
|
Income tax benefit |
|
|
(27.3 |
) |
|
|
(27.2 |
) |
|
|
(25.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
expense after taxes |
|
$ |
79.2 |
|
|
$ |
61.7 |
|
|
$ |
56.8 |
|
|
|
|
|
|
|
|
|
|
|
(10) Retirement Plans
We sponsor a 401(k) plan that is available to substantially all United States employees. The
plan provides for an employer match element with annual per-employee limitations that we have
changed and may change from time to time. The costs of our matching contributions amounted to $16.4
million, $14.5 million and $13.1 million during fiscal 2011, 2010 and 2009, respectively. Employees
become 100% vested in the employer match contributions upon reaching two years of service from date
of hire.
We also sponsor a non-qualified deferred compensation plan for certain eligible employees. At
March 31, 2011 and 2010, $18.5 million and $17.4 million, respectively, is included in other
long-term liabilities, with a corresponding amount included in long-term investments, related to
obligations under this plan and related investments held by us. Employees participating in this
plan receive distributions of their respective balances based on predetermined payout schedules or
other events, as defined by the plan.
(11) Stockholders Equity
Earnings Per Share
The two-class method is utilized for the computation of earnings per share (EPS). The
two-class method requires a portion of net income to be allocated to participating securities,
which are unvested awards of share-based payments with non-forfeitable rights to receive dividends
or dividend equivalents, if declared. Income allocated to these participating securities is
excluded from net earnings allocated to common shares, as shown in the table below.
Basic earnings per share is computed by dividing net income allocated to common shares by the
weighted average number of common shares outstanding during the period. Diluted earnings per share
is computed by dividing net income allocated to common shares by the weighted average number of
common shares outstanding during the period, plus the dilutive effect of outstanding stock options
and other dilutive securities using the treasury stock method.
76
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes our basic and diluted EPS computations for fiscal 2011, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions, except per share data) |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
456.2 |
|
|
$ |
406.1 |
|
|
$ |
238.1 |
|
Less earnings allocated to participating securities |
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shares |
|
$ |
455.9 |
|
|
$ |
405.3 |
|
|
$ |
237.0 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
178.7 |
|
|
|
183.1 |
|
|
|
187.1 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.55 |
|
|
$ |
2.21 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
456.2 |
|
|
$ |
406.1 |
|
|
$ |
238.1 |
|
Less earnings allocated to participating securities |
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shares |
|
$ |
455.9 |
|
|
$ |
405.3 |
|
|
$ |
237.0 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
178.7 |
|
|
|
183.1 |
|
|
|
187.1 |
|
Incremental shares from assumed conversions of share-based
awards |
|
|
3.7 |
|
|
|
3.7 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average number of common shares outstanding |
|
|
182.4 |
|
|
|
186.8 |
|
|
|
190.2 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.50 |
|
|
$ |
2.17 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
For the years ended March 31, 2011, 2010 and 2009, 1.4 million, 5.2 million and 10.5 million
weighted average potential common shares, respectively, have been excluded from the calculation of
diluted EPS as they were anti-dilutive.
Treasury Stock
Our Board of Directors has authorized a total of $4.0 billion to repurchase common stock.
During fiscal 2011, 2010 and 2009, we repurchased 10.6 million, 7.5 million and 10.7 million
shares, respectively, for $439.0 million, $275.1 million and $330.0 million, respectively, under
these authorizations. At March 31, 2011, approximately $630.7 million remains authorized in the
stock repurchase program, which does not have an expiration date. In addition, during fiscal 2011,
2010 and 2009, we repurchased 0.6 million, 0.4 million shares and 0.4 million shares, respectively,
for $25.1 million, $13.0 million and $16.2 million, respectively, to satisfy employee tax
withholding obligations upon the vesting of share-based awards.
(12) Guarantees, Commitments and Contingencies
Guarantees
Under our standard software license agreements, we agree to indemnify, defend and hold
harmless our licensees from and against certain losses, damages and costs arising from claims
alleging the licensees use of our software infringes the intellectual property rights of a third
party. Also, under these standard license agreements, we represent and warrant to licensees that
our software products operate substantially in accordance with published specifications.
Other guarantees include promises to indemnify, defend and hold harmless each of our executive
officers, non-employee directors and certain key employees from and against losses, damages and
costs incurred by each such individual in administrative, legal or investigative proceedings
arising from alleged wrongdoing by the individual while acting in good faith within the scope of
his or her job duties on our behalf.
We also had outstanding letters of credit, performance bonds and similar instruments at March
31, 2011 of approximately $44.2 million primarily in support of performance obligations to various
customers, but also related to facilities and other obligations.
Historically, we have not incurred significant costs related to such indemnifications,
warranties and guarantees. As such, and based on other factors, no provision or accrual for these
items has been made.
77
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Commitments
We lease office space and equipment under various non-cancelable operating leases. Rent
expense is recognized on a straight-line basis over the respective lease terms and amounted to
$53.0 million, $48.1 million and $57.5 million during fiscal 2011, 2010 and 2009, respectively.
In fiscal 2007, we sold our headquarters campus and three surrounding undeveloped land parcels
located in Houston, Texas for approximately $291.9 million in cash, net of closing costs. In
connection with the sale of the buildings, we entered into a 15 year lease agreement for the
occupied space which expires in June 2021, with the option to terminate the lease in June 2015 and
options to renew the lease through June 2041 at market rates. Accordingly, we deferred and are
amortizing the gain of approximately $24.2 million as a reduction to rent expense on a
straight-line basis over the lease term. The lease agreement includes five scheduled rent increases
over its term. Rent expense is being recognized on a straight-line basis over the lease term.
The following table summarizes future minimum lease payments to be made under non-cancelable
operating leases and minimum sublease payments to be received under non-cancelable subleases at
March 31, 2011:
|
|
|
|
|
|
|
Year Ending |
|
|
|
March 31, |
|
|
|
(In millions) |
|
2012 |
|
$ |
40.6 |
|
2013 |
|
|
32.8 |
|
2014 |
|
|
26.7 |
|
2015 |
|
|
15.4 |
|
2016 |
|
|
5.6 |
|
2017 and thereafter |
|
|
9.1 |
|
|
|
|
|
Total minimum lease payments |
|
|
130.2 |
|
Total minimum sublease payments |
|
|
(11.3 |
) |
|
|
|
|
Total net minimum lease payments |
|
$ |
118.9 |
|
|
|
|
|
We have procured certain equipment under non-cancelable capital lease arrangements. The
current and long-term portions of these capital lease obligations, which are included in accrued
liabilities and long-term borrowings, respectively, in our consolidated balance sheets, were $7.4
million and $13.9 million, respectively, at March 31, 2011, and $7.2 million and $8.0 million,
respectively, at March 31, 2010. At March 31, 2011, future minimum payments to be made under these
capital leases are $8.0 million, $6.7 million, $6.4 million and $1.3 million in fiscal 2012, 2013,
2014 and 2015, respectively.
Contingencies
We are subject to intellectual property claims and legal proceedings, including claims of
alleged infringement of patents asserted by third parties against us in the form of claim letters.
These claims are in various stages, may result in formal legal proceedings against us, and may not
be fully resolved in the near future. We cannot currently predict the timing or ultimate outcome,
nor estimate a range of loss, if any, for such claims.
In December 2010, a lawsuit was filed against a number of software companies, including us, by
Uniloc USA, Inc. and Uniloc Singapore Private Limited in the United States District Court for the
Eastern District of Texas, Tyler Division. The complaint seeks monetary damages in unspecified
amounts and permanent injunction based upon claims for alleged patent infringement. While we intend
to vigorously defend this matter, we cannot predict the timing or ultimate outcome, nor estimate a
range of loss, if any, for this matter.
We are party to various labor claims brought by certain former international employees
alleging that amounts are due to such employees for unpaid commissions and other compensation. The
claims are in various stages and are not expected to be fully resolved in the near future; however,
we intend to vigorously contest all of the claims. Taking into account accruals recorded by us, we
do not believe the resolution of these claims will have a material adverse effect on our financial
position or results of operations. However, we cannot predict the timing or ultimate outcome of
these matters.
78
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are currently litigating a matter in Brazilian courts as to whether a tax applies to the
remittance of software payments from our Brazilian operations. In February 2007, a law was enacted
that clarified that this particular tax did not apply to the remittance of software payments,
retroactive to January 1, 2006. We continue to pursue a favorable resolution on this matter for
years prior to January 1, 2006. While we believe we will ultimately prevail based on the merits of
our position, if we do not, we could incur a charge of up to approximately $13 million; however, we
cannot predict the timing or ultimate outcome of this matter.
We are subject to various other legal proceedings and claims, either asserted or unasserted,
which arise in the ordinary course of business. Taking into account accruals recorded by us, we do
not believe that the outcome of any of these matters will have a material adverse effect on our
financial position or results of operations.
(13) Segment Reporting
We are organized into two business segments, ESM and MSM. The ESM segment derives its revenue
from our service support, service assurance and service automation solutions, along with
professional services revenue derived from consulting, implementation, integration and educational
services related to our software products. The MSM segment derives its revenue from products for
mainframe database management, monitoring and automation, enterprise scheduling and output
management solutions.
Segment performance is measured based on segment operating income, reflecting segment revenue
less direct and allocated indirect segment operating expenses. Direct segment operating expenses
primarily include cost of revenue, selling and marketing, research and development and general and
administrative expenses that can be specifically identified to a particular segment and are
directly controllable by segment management, while allocated indirect segment operating expenses
primarily include indirect costs within these operating expense categories that are not
specifically identified to a particular segment or controllable by segment management. The indirect
operating expenses are allocated to the segments based on budgeted bookings, revenue and other
allocation methods that management believes to be reasonable. Our measure of segment operating
income does not include the effect of share-based compensation expenses, amortization of acquired
technology and other intangible assets, the write-off of purchased IPR&D or the costs associated
with severance, exit costs and related charges, which are collectively included in unallocated
operating expenses below. Assets and liabilities are reviewed by management at the consolidated
level only.
The following tables summarize segment performance for fiscal 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise |
|
|
Mainframe |
|
|
|
|
|
|
Service |
|
|
Service |
|
|
|
|
Year Ended March 31, 2011 |
|
Management |
|
|
Management |
|
|
Consolidated |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
License |
|
$ |
550.9 |
|
|
$ |
313.6 |
|
|
$ |
864.5 |
|
Maintenance |
|
|
551.5 |
|
|
|
472.7 |
|
|
|
1,024.2 |
|
Professional services |
|
|
176.6 |
|
|
|
|
|
|
|
176.6 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
1,279.0 |
|
|
|
786.3 |
|
|
|
2,065.3 |
|
Direct and allocated indirect segment operating expenses: |
|
|
998.8 |
|
|
|
333.8 |
|
|
|
1,332.6 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
280.2 |
|
|
|
452.5 |
|
|
|
732.7 |
|
|
|
|
|
|
|
|
|
|
|
Unallocated operating expenses |
|
|
|
|
|
|
|
|
|
|
(199.9 |
) |
Other loss, net |
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
|
$ |
531.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
79
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise |
|
|
Mainframe |
|
|
|
|
|
|
Service |
|
|
Service |
|
|
|
|
Year Ended March 31, 2010 |
|
Management |
|
|
Management |
|
|
Consolidated |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
License |
|
$ |
462.2 |
|
|
$ |
296.2 |
|
|
$ |
758.4 |
|
Maintenance |
|
|
550.9 |
|
|
|
472.8 |
|
|
|
1,023.7 |
|
Professional services |
|
|
129.1 |
|
|
|
|
|
|
|
129.1 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
1,142.2 |
|
|
|
769.0 |
|
|
|
1,911.2 |
|
Direct and allocated indirect
segment operating expenses: |
|
|
902.2 |
|
|
|
334.5 |
|
|
|
1,236.7 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
240.0 |
|
|
|
434.5 |
|
|
|
674.5 |
|
|
|
|
|
|
|
|
|
|
|
Unallocated operating expenses |
|
|
|
|
|
|
|
|
|
|
(168.4 |
) |
Other loss, net |
|
|
|
|
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
|
$ |
504.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise |
|
|
Mainframe |
|
|
|
|
|
|
Service |
|
|
Service |
|
|
|
|
Year Ended March 31, 2009 |
|
Management |
|
|
Management |
|
|
Consolidated |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
License |
|
$ |
434.9 |
|
|
$ |
274.8 |
|
|
$ |
709.7 |
|
Maintenance |
|
|
547.3 |
|
|
|
470.5 |
|
|
|
1,017.8 |
|
Professional services |
|
|
144.4 |
|
|
|
|
|
|
|
144.4 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
1,126.6 |
|
|
|
745.3 |
|
|
|
1,871.9 |
|
Direct and allocated indirect
segment operating expenses: |
|
|
938.0 |
|
|
|
321.6 |
|
|
|
1,259.6 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
188.6 |
|
|
|
423.7 |
|
|
|
612.3 |
|
|
|
|
|
|
|
|
|
|
|
Unallocated operating expenses |
|
|
|
|
|
|
|
|
|
|
(244.5 |
) |
Other loss, net |
|
|
|
|
|
|
|
|
|
|
(3.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
|
$ |
363.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers and long-lived assets (excluding financial instruments and
deferred tax assets) attributed to the United States, our corporate headquarters, and all other
countries are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,063.1 |
|
|
$ |
1,011.5 |
|
|
$ |
980.0 |
|
International |
|
|
1,002.2 |
|
|
|
899.7 |
|
|
|
891.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,065.3 |
|
|
$ |
1,911.2 |
|
|
$ |
1,871.9 |
|
|
|
|
|
|
|
|
|
|
|
80
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Long-lived assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
1,143.6 |
|
|
$ |
1,125.3 |
|
International |
|
|
725.7 |
|
|
|
701.0 |
|
|
|
|
|
|
|
|
|
|
$ |
1,869.3 |
|
|
$ |
1,826.3 |
|
|
|
|
|
|
|
|
We do business with customers in a broad range of industries, including significant business
with financial service providers, government agencies and service providers. Our ten largest
customers comprised 15% or less of our total revenue in each of fiscal 2011, 2010 and 2009 and
represented various industries. No single customer accounted for a material portion of our revenue
during any of the past three fiscal years. At March 31, 2011 and 2010, approximately 46% and 42%,
respectively, of our cash, cash equivalents and investments was held by our international
subsidiaries.
(14) Severance, Exit Costs and Related Charges
We have undertaken various restructuring and process improvement initiatives in recent years
through the realignment of resources to focus on growth areas and the simplification,
standardization and automation of key business processes. These process and realignment initiatives
include workforce reductions across all functions and geographies, and the affected employees were,
or will be, provided cash separation packages. As part of these initiatives, we have also exited
certain leases, reduced the square footage required to operate certain locations and relocated some
operations to lower cost facilities. During fiscal 2009, as a result of these initiatives, we
identified for termination approximately 140 employees.
Additionally, as a result of economic conditions, we undertook a general workforce reduction
of approximately 80 and 380 employees during fiscal 2010 and 2009, respectively. This general
reduction was across all functions and geographies, and the affected employees were
provided cash separation packages.
Activity related to the above initiatives during fiscal 2011, 2010 and 2009 is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged |
|
|
Adjustments |
|
|
Foreign |
|
|
|
|
|
|
Cash Payments, |
|
|
Balance at |
|
|
|
April 1, |
|
|
to |
|
|
to |
|
|
Currency Exchange |
|
|
|
|
|
|
Net of Sublease |
|
|
March 31, |
|
|
|
2010 |
|
|
Expense |
|
|
Estimates |
|
|
Adjustments |
|
|
Accretion |
|
|
Income |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities costs |
|
$ |
1.3 |
|
|
$ |
3.7 |
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2.2 |
) |
|
$ |
3.0 |
|
Severance and
related costs |
|
|
0.9 |
|
|
|
10.4 |
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
(7.6 |
) |
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued |
|
$ |
2.2 |
|
|
$ |
14.1 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
(9.8 |
) |
|
$ |
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged |
|
|
Adjustments |
|
|
Foreign |
|
|
|
|
|
|
Cash Payments, |
|
|
Balance at |
|
|
|
April 1, |
|
|
to |
|
|
to |
|
|
Currency Exchange |
|
|
|
|
|
|
Net of Sublease |
|
|
March 31, |
|
|
|
2009 |
|
|
Expense |
|
|
Estimates |
|
|
Adjustments |
|
|
Accretion |
|
|
Income |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Process and realignment
initiatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs |
|
$ |
1.2 |
|
|
$ |
0.2 |
|
|
$ |
(0.6 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.8 |
) |
|
$ |
|
|
Facilities costs |
|
|
7.7 |
|
|
|
0.5 |
|
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(6.6 |
) |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.9 |
|
|
|
0.7 |
|
|
|
(0.9 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(7.4 |
) |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General workforce
reduction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs |
|
|
7.6 |
|
|
|
4.9 |
|
|
|
(1.7 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
(10.2 |
) |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued |
|
$ |
16.5 |
|
|
$ |
5.6 |
|
|
$ |
(2.6 |
) |
|
$ |
0.2 |
|
|
$ |
0.1 |
|
|
$ |
(17.6 |
) |
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged |
|
|
Adjustments |
|
|
Foreign |
|
|
|
|
|
|
Cash Payments, |
|
|
Balance at |
|
|
|
April 1, |
|
|
to |
|
|
to |
|
|
Currency Exchange |
|
|
|
|
|
|
Net of Sublease |
|
|
March 31, |
|
|
|
2008 |
|
|
Expense |
|
|
Estimates |
|
|
Adjustments |
|
|
Accretion |
|
|
Income |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Process and realignment
initiatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs |
|
$ |
8.6 |
|
|
$ |
12.3 |
|
|
$ |
(3.6 |
) |
|
$ |
(0.6 |
) |
|
$ |
|
|
|
$ |
(15.5 |
) |
|
$ |
1.2 |
|
Facilities costs |
|
|
7.6 |
|
|
|
6.0 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
0.3 |
|
|
|
(5.8 |
) |
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.2 |
|
|
|
18.3 |
|
|
|
(4.0 |
) |
|
|
(0.6 |
) |
|
|
0.3 |
|
|
|
(21.3 |
) |
|
|
8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General workforce
reduction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs |
|
|
|
|
|
|
20.3 |
|
|
|
(1.1 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
(11.7 |
) |
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued |
|
$ |
16.2 |
|
|
$ |
38.6 |
|
|
$ |
(5.1 |
) |
|
$ |
(0.5 |
) |
|
$ |
0.3 |
|
|
$ |
(33.0 |
) |
|
$ |
16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accruals for severance and related costs at March 31, 2011 represent the amounts to be
paid to employees that have been terminated or identified for termination as a result of the
initiatives described above. These amounts are expected to be paid during fiscal 2012. We continue
to review the impact of these actions and will determine if, based on future operating results,
additional actions to reduce operating expenses are necessary. The amount of any potential future
charges for such actions will depend upon the nature, timing and extent of those actions.
The accruals for facilities costs at March 31, 2011 represent the remaining fair value of
lease obligations for exited locations, as determined at the cease-use dates or lease modification
dates of those facilities, net of estimated sublease income that could be reasonably obtained in
the future, and will be paid out over the remaining lease terms, the last of which ends in fiscal
2016. Projected sublease income is based on managements estimates, which are subject to change. We
may incur additional facilities charges subsequent to March 31, 2011 as a result of the initiatives
described above. Accretion, representing the increase in the present value of facilities accruals
over time, is included in our operating expenses.
(15) New Accounting Pronouncements Not Yet Adopted
In December 2010, the FASB issued updated guidance for intangible assets, specifically related
to the goodwill impairment test. This guidance requires entities to perform a qualitative
evaluation of whether it is more likely than not that goodwill is impaired in situations where
reporting units have a carrying value that is zero or negative. If the qualitative evaluation
determines it is more likely than not that goodwill is impaired, step two of the goodwill
impairment test is required to be performed to measure the amount of impairment, if any. The new
guidance is effective for us beginning in fiscal 2012 and is not expected to have a material effect
on our financial position, results of operations or cash flows.
In October 2009, the FASB issued new revenue recognition guidance for arrangements that
include both software and non-software related deliverables, where certain of those deliverables
are non-software related. This guidance requires entities to allocate the overall consideration to
each deliverable by using a best estimate of the selling price of individual deliverables in the
arrangement in the absence of VSOE or other third party evidence of the selling price.
Additionally, the guidance modifies the manner in which the transaction consideration is allocated
across the separately identified deliverables by no longer permitting the residual method of
allocating arrangement consideration. The new guidance is effective for us in the first quarter of
fiscal 2012 interim financial statements, and is not expected to have a material effect on our
financial position, results of operations or cash flows.
(16) Quarterly Results
(Unaudited)
The following table sets forth certain unaudited quarterly financial data for fiscal 2011 and
2010. This information has been prepared on the same basis as the accompanying consolidated
financial statements and all necessary adjustments have been included in the amounts below to
present fairly the selected quarterly information when read in conjunction with the accompanying
consolidated financial statements and notes thereto.
82
BMC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
Quarter Ended |
|
|
Quarter Ended |
|
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Mar. 31, |
|
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
|
(In millions, except per share data) |
|
Total revenue |
|
$ |
460.9 |
|
|
$ |
502.3 |
|
|
$ |
539.9 |
|
|
$ |
562.2 |
|
|
$ |
450.0 |
|
|
$ |
461.8 |
|
|
$ |
508.1 |
|
|
$ |
491.3 |
|
Gross profit |
|
$ |
352.6 |
|
|
$ |
391.6 |
|
|
$ |
409.0 |
|
|
$ |
428.5 |
|
|
$ |
351.4 |
|
|
$ |
366.8 |
|
|
$ |
403.7 |
|
|
$ |
378.1 |
|
Operating income |
|
$ |
108.1 |
|
|
$ |
143.5 |
|
|
$ |
139.4 |
|
|
$ |
141.8 |
|
|
$ |
108.2 |
|
|
$ |
134.8 |
|
|
$ |
147.6 |
|
|
$ |
115.5 |
|
Net earnings |
|
$ |
92.8 |
|
|
$ |
131.8 |
|
|
$ |
109.1 |
|
|
$ |
122.5 |
|
|
$ |
82.4 |
|
|
$ |
94.2 |
|
|
$ |
110.7 |
|
|
$ |
118.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
0.51 |
|
|
$ |
0.74 |
|
|
$ |
0.61 |
|
|
$ |
0.69 |
|
|
$ |
0.45 |
|
|
$ |
0.51 |
|
|
$ |
0.60 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
0.50 |
|
|
$ |
0.73 |
|
|
$ |
0.60 |
|
|
$ |
0.67 |
|
|
$ |
0.44 |
|
|
$ |
0.50 |
|
|
$ |
0.59 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computing
basic EPS |
|
|
180.3 |
|
|
|
178.3 |
|
|
|
178.2 |
|
|
|
178.1 |
|
|
|
184.3 |
|
|
|
183.5 |
|
|
|
182.8 |
|
|
|
182.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computing
diluted EPS |
|
|
183.8 |
|
|
|
181.4 |
|
|
|
182.3 |
|
|
|
182.3 |
|
|
|
187.9 |
|
|
|
187.0 |
|
|
|
186.5 |
|
|
|
185.7 |
|
|
|
|
|
|
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|
We recorded net tax benefits related to the settlement of certain tax matters of $14.0
million, $18.0 million and $25.2 million during the quarters ended June 30, 2010, September 30,
2010 and March 31, 2011, respectively, and $30.0 million during the quarter ended March 31, 2010 as
further discussed in Note 8.
(17) Subsequent Event
In April 2011, we acquired all of the outstanding capital stock of Coradiant Inc., a provider
of end-user experience and web application performance monitoring solutions, for cash consideration
of approximately $125 million, net of cash acquired.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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BMC SOFTWARE, INC. |
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By:
|
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/s/ ROBERT E. BEAUCHAMP
Robert E. Beauchamp
|
|
|
|
|
Chairman of the Board, President and |
|
|
|
|
Chief Executive Officer |
|
|
Date: May 5, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signatures |
|
Title |
|
Date |
|
|
|
|
|
/s/ ROBERT E. BEAUCHAMP
Robert E. Beauchamp
|
|
Chairman of the Board,
President and
Chief Executive
Officer
|
|
May 5, 2011 |
|
|
|
|
|
/s/ STEPHEN B. SOLCHER
Stephen B. Solcher
|
|
Senior Vice President and
Chief Financial Officer
|
|
May 5, 2011 |
|
|
|
|
|
/s/ T. CORY BLEUER
T. Cory Bleuer
|
|
Vice President, Controller and
Chief Accounting Officer
|
|
May 5, 2011 |
|
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|
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/s/ JON E. BARFIELD
Jon E. Barfield
|
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Director
|
|
May 5, 2011 |
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|
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/s/ GARY L. BLOOM
Gary L. Bloom
|
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Director
|
|
May 5, 2011 |
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|
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/s/ MELDON K. GAFNER
Meldon K. Gafner
|
|
Director
|
|
May 5, 2011 |
|
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|
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/s/ MARK J. HAWKINS
Mark J. Hawkins
|
|
Director
|
|
May 5, 2011 |
|
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|
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/s/ STEPHAN A. JAMES
Stephan A. James
|
|
Director
|
|
May 5, 2011 |
|
|
|
|
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/s/ P. THOMAS JENKINS
P. Thomas Jenkins
|
|
Director
|
|
May 5, 2011 |
|
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|
|
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/s/ LOUIS J. LAVIGNE, JR.
Louis J. Lavigne, Jr.
|
|
Director
|
|
May 5, 2011 |
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|
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/s/ KATHLEEN A. ONEIL
Kathleen A. ONeil
|
|
Director
|
|
May 5, 2011 |
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|
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/s/ TOM C. TINSLEY
Tom C. Tinsley
|
|
Director
|
|
May 5, 2011 |
84
|
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|
|
Exhibit |
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|
|
Number |
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3.1 |
|
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|
|
Restated Certificate of Incorporation, as amended, of the
Company; incorporated by reference to Exhibit 3.1 to our
Quarterly Report on Form 10-Q for the quarter ended June
30, 2010. |
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|
|
|
|
|
|
3.2 |
|
|
|
|
Amended and Restated Bylaws of the Company; incorporated
by reference to Exhibit 3.4 to our Current Report on Form
8-K filed November 12, 2010. |
|
|
|
|
|
|
|
|
4.1 |
|
|
|
|
Indenture, dated at June 4, 2008, between BMC Software,
Inc. and Wells Fargo Bank, N.A., as trustee; incorporated
by reference to Exhibit 4.1 to our Current Report on Form
8-K filed June 4, 2008. |
|
|
|
|
|
|
|
|
4.2 |
|
|
|
|
Supplemental Indenture, dated at June 4, 2008, between
BMC Software, Inc. and Wells Fargo Bank, N.A., as
trustee, including the form of the 7.25% Note due 2018;
incorporated by reference to Exhibit 4.2 to our Current
Report on Form 8-K filed June 4, 2008. |
|
|
|
|
|
|
|
|
10.1 |
(a) |
|
|
|
BMC Software, Inc. 1994 Employee Incentive Plan
(conformed version inclusive of amendments); incorporated
by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.1 |
(b) |
|
|
|
Second Amendment to the BMC Software, Inc. 1994 Employee
Incentive Plan; incorporated by reference to Exhibit
10.1(b) to our Annual Report on Form 10-K for the year
ended March 31, 2009 (the 2009 10-K). |
85
|
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|
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|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
(a) |
|
|
|
BMC Software, Inc. 1994 Non-employee Directors Stock
Option Plan; incorporated by reference to Exhibit 10.8(a)
to our Annual Report on Form 10-K for the year ended
March 31, 1995 (the 1995 10-K). |
|
|
|
|
|
|
|
|
10.2 |
(b) |
|
|
|
Form of Stock Option Agreement employed under BMC
Software, Inc. 1994 Non-employee Directors Stock Option
Plan; incorporated by reference to Exhibit 10.8(b) to the
1995 10-K. |
|
|
|
|
|
|
|
|
10.3 |
|
|
|
|
Form of Indemnification Agreement among the Company and
its directors and executive officers; incorporated by
reference to Exhibit 10.11 to the 1995 10-K. |
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
BMC Software, Inc. 2000 Employee Stock Incentive Plan
(conformed version inclusive of amendments); incorporated
by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.5 |
|
|
|
|
Amended and Restated BMC Software, Inc. Executive
Deferred Compensation Plan; incorporated by reference to
Exhibit 10.5(d) to our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2008. |
|
|
|
|
|
|
|
|
10.6 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Robert E. Beauchamp; incorporated by reference to
Exhibit 10.6 to our Current Report on Form 8-K filed
November 24, 2008. |
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
BMC Software, Inc. 2002 Nonemployee Director Stock Option
Plan; incorporated by reference to Appendix B to our 2002
Proxy Statement filed with the SEC on Schedule 14A. |
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
BMC Software, Inc. 2002 Employee Incentive Plan
(conformed version inclusive of amendments); incorporated
by reference to Exhibit 10.9 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
BMC Software, Inc. Short-term Incentive Performance Award
Program (as amended and restated); incorporated by
reference to Exhibit 10.10 to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009. |
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
BMC Software, Inc. Long-term Incentive Performance Award
Program (as amended and restated); incorporated by
reference to Exhibit 10.11 to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009. |
|
|
|
|
|
|
|
|
10.11 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Stephen B. Solcher; incorporated by reference to
Exhibit 10.12 to our Current Report on Form 8-K filed
November 24, 2008. |
|
|
|
|
|
|
|
|
10.12 |
|
|
|
|
BladeLogic, Inc. 2007 Stock Option and Incentive Plan;
incorporated by reference to Exhibit 10.5 to the
BladeLogic, Inc. Registration Statement on Form S-1
(Registration No. 333-141915). |
|
|
|
|
|
|
|
|
10.13 |
|
|
|
|
First Amendment to BladeLogic, Inc. 2007 Stock Option and
Incentive Plan; incorporated by reference to Exhibit
10.34(b) to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.14 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Denise M. Clolery; incorporated by reference to
Exhibit 10.16 to our Quarterly Report on Form 10-Q for
the quarter ended December 31, 2008. |
86
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
10.15 |
|
|
|
|
Form of Stock Option Award Agreement employed under
BladeLogic, Inc. 2007 Stock Option and Incentive Plan
utilized for senior executive officers; incorporated by
reference to Exhibit 10.19 to the 2009 10-K. |
|
|
|
|
|
|
|
|
10.16 |
|
|
|
|
Form of Performance-Based Restricted Stock Award
Agreement employed under BMC Software, Inc. 1994 Employee
Incentive Plan utilized for senior executive officers;
incorporated by reference to Exhibit 10.20 to our Current
Report on Form 8-K filed on June 12, 2006. |
|
|
|
|
|
|
|
|
10.17 |
|
|
|
|
Form of Restricted Stock Unit Award Agreement employed
under BladeLogic, Inc. 2007 Stock Option and Incentive
Plan utilized for senior executive officers; incorporated
by reference to Exhibit 10.21 to the 2009 10-K. |
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and William Miller; incorporated by reference to Exhibit
10.22 to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008. |
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
Form of Stock Option Agreement employed under BMC
Software, Inc. 2007 Incentive Plan utilized for senior
executive officers; incorporated by reference to Exhibit
10.23 to the Companys Quarterly Report on Form 10-Q for
the quarter ended December 31, 2007. |
|
|
|
|
|
|
|
|
10.20 |
|
|
|
|
Form of Performance-Based Restricted Stock Award
Agreement employed under BMC Software, Inc. 2007
Incentive Plan utilized for senior executive officers;
incorporated by reference to Exhibit 10.24 to our
Quarterly Report on Form 10-Q for the quarter ended
December 31, 2007. |
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
Form of Time-Based Restricted Stock Award Agreement
employed under BMC Software, Inc. 2007 Incentive Plan
utilized for senior executive officers; incorporated by
reference to Exhibit 10.25 to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2007. |
|
|
|
|
|
|
|
|
10.22 |
|
|
|
|
Executive Employment Agreement between BMC Software, Inc.
and Hollie S. Castro; incorporated by reference to Exhibit
10.17 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009. |
|
|
|
|
|
|
|
|
10.23 |
|
|
|
|
Form of Performance-Based Restricted Stock Unit Award
Agreement employed under BMC Software, Inc. 2007
Incentive Plan utilized for senior executive officers;
incorporated by reference to Exhibit 10.28 to our Current
Report on Form 8-K filed June 12, 2008. |
|
|
|
|
|
|
|
|
10.24 |
|
|
|
|
Form of Time-Based Restricted Stock Unit Award Agreement
employed under BMC Software, Inc. 2007 Incentive Plan
utilized for senior executive officers; incorporated by
reference to Exhibit 10.29 to our Current Report on Form
8-K filed June 12, 2008. |
|
|
|
|
|
|
|
|
10.25 |
|
|
|
|
Performance-Based Restricted Stock Unit Award Agreement
for Robert E. Beauchamp; incorporated by reference to
Exhibit 10.30 to our Current Report on Form 8-K filed
August 20, 2008. |
|
|
|
|
|
|
|
|
10.26 |
|
|
|
|
BMC Software, Inc. 2007 Incentive Plan (as amended);
incorporated by reference to Annex A to our Definitive
Proxy Statement on Schedule 14A dated June 24, 2009. |
87
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
10.27 |
|
|
|
|
Amendment to Executive Employment Agreement between BMC Software, Inc. and Robert E. Beauchamp;
incorporated by reference to Exhibit 10.34 to our Current Report on Form 8-K filed May 3, 2010. |
|
|
|
|
|
|
|
|
10.28 |
|
|
|
|
Amendment to Executive Employment Agreement between BMC Software, Inc. and Stephen B. Solcher;
incorporated by reference to Exhibit 10.35 to our Current Report on Form 8-K filed May 3, 2010. |
|
|
|
|
|
|
|
|
10.29 |
|
|
|
|
Amendment to Executive Employment Agreement between BMC Software, Inc. and William D. Miller;
incorporated by reference to Exhibit 10.38 to our Current Report on Form 8-K filed May 3, 2010. |
|
|
|
|
|
|
|
|
10.30 |
|
|
|
|
Form of Performance-based market stock unit award agreement employed under BMC Software, Inc.
2007 Incentive Plan utilized for senior executive officers; incorporated by reference to Exhibit
10.41 to our Current Report on Form 8-K filed December 9, 2010. |
|
|
|
|
|
|
|
|
10.31 |
|
|
|
|
Credit Agreement Dated as of November 30, 2010; incorporated by reference to Exhibit 10.41 to the
Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2010. |
|
|
|
|
|
|
|
|
*21.1 |
|
|
|
|
Subsidiaries of the Company. |
|
|
|
|
|
|
|
|
*23.1 |
|
|
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
|
|
|
*31.1 |
|
|
|
|
Certification of Chief Executive Officer of BMC Software, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
*31.2 |
|
|
|
|
Certification of Chief Financial Officer of BMC Software, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
*32.1 |
|
|
|
|
Certification of Chief Executive Officer of BMC Software, Inc. pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
|
|
*32.2 |
|
|
|
|
Certification of Chief Financial Officer of BMC Software, Inc. pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
|
| *101.INS
|
|
|
|
XBRL Instance Document. |
|
|
|
|
|
|
|
| *101.SCH
|
|
|
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
|
|
| *101.CAL
|
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
|
|
| *101.LAB
|
|
|
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
|
|
| *101.PRE
|
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
|
|
| *101.DEF
|
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document. |
88