Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (02-11-13 02:14 AM)

Description

Filed with the SEC from Jan 31 to Feb 6:

BMC Software (BMC)
Elliott Management increased its holding to 13,692,000 shares (9.6%) by purchasing 390,000 shares from Dec. 4 through Jan. 30 at $40.36 to $41.58 per share. Elliott also disclosed selling 77,700 shares from Dec. 19 through Jan. 14 at prices ranging from $41.76 to $43.45.
BUSINESS OVERVIEW

Overview
BMC Software, Inc. (collectively, we, us, our, the Company or BMC) is one of the world’s largest software companies. We provide IT management solutions for large, mid-sized and small enterprises and public sector organizations around the world. 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 IT management solutions that simplify and automate 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 more intelligently, 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 business management.
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 universal platform for simplifying and automating the management of IT. Our BSM approach resonates powerfully with large enterprise 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 deployed at once as a full, comprehensive solution or over time as a series of modules. 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 methods, including on-premise delivery and software-as-a-service (SaaS).
At the core of our BSM platform, we provide a family of shared foundational technologies called BMC Atrium that provides the enabling architecture to unify information and processes from disparate management tools and to allow IT teams to focus on delivering 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 are delivered 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 provide ITIL education and certification to customers and partners through our professional services organization.

As part of our BSM strategy, we also differentiate our approach by supporting mainframe environments. A substantial portion of the world’s 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.
We continue to expand our offerings to further our vision for Dynamic BSM which enables 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 industry’s most comprehensive and robust Dynamic BSM platform.
With the acquisition of Numara Software Holdings, Inc. (Numara) in February 2012, we are now extending the power and benefits of BSM to mid-sized and small business organizations. Anchored by Numara’s award-winning IT service management and IT asset management solutions, BMC can position our network automation, discovery and dependency mapping, and end user experience management solutions to meet the IT management needs of organizations of this size. Our strategy reflects the belief that one-size IT management offerings do not meet all customer needs, and BMC is committed to providing tailored solutions that address specific market requirements, including the need for ease of use and rapid time to value that is paramount to mid-sized and small business IT organizations.

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. We also maintain a sales team with a dedicated focus on mid-sized and small business customers.

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.
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. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources .
Our license revenue comprised 40.4%, 41.8% and 39.6% of our total revenue in fiscal 2012, 2011 and 2010, respectively. For a discussion of our revenue recognition policies and the impact of our licensing models on revenue, see Item 7. Management’s 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.
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 49.8%, 49.6% and 53.6% of our total revenue in fiscal 2012, 2011 and 2010, respectively.
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. SaaS subscription revenue is recorded within maintenance revenue in our consolidated financial statements and to date has not represented a significant percentage of our total revenue.
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 9.8%, 8.6% and 6.8% of our total revenue in fiscal 2012, 2011 and 2010, respectively.

Research and Development
We conduct research and development activities in various locations throughout the world. During fiscal 2012, 2011 and 2010, we incurred research and development expenses of $165.2 million, $181.6 million and $195.9 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. Management’s 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. However, general economic conditions also have an impact on our business and financial results.
Competition
The enterprise management software business is highly competitive. Both our ESM and MSM businesses compete against a number of enterprises, including large vendors who compete with us at a strategic solution level and across multiple product lines as well as smaller, niche companies 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 integrated 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. With the acquisition of Numara, we now more regularly compete with smaller-sized competitors as well. In addition, the software industry is experiencing continued consolidation which may change both the number of and specific companies with which we compete.
Customers
Our solutions are used by some of the largest, most demanding IT organizations in the world including over 20,000 companies and over 95% of the Forbes Global 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 20% or less of our total revenue in each of fiscal 2012, 2011 and 2010. 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 customer’s 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 product’s 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, 2012, we had approximately 6,900 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.
ITEM 1A. Risk Factors
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.

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 customer’s 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.

CEO BACKGROUND

Robert E. Beauchamp. Mr. Beauchamp has served as Chairman of the Board since October 2008 and has served as our President and Chief Executive Officer and a member of the Board since January 2001. He brings to these positions a thorough understanding of our business with experience in key areas, including business strategy, research and development, marketing and sales. Mr. Beauchamp joined us in May 1988, dedicating six years to the sales organization and progressing from senior account representative to sales manager. While in sales he gained a solid understanding of the business issues our customers face on a daily basis. He joined our marketing organization in 1994, becoming Vice President, Strategic Marketing & Development in 1996, and subsequently assumed responsibility for our mergers and acquisitions efforts. Prior to his selection as President and Chief Executive Officer, he further developed his knowledge of our Company and the software business as Senior Vice President of Product Management and Development. Mr. Beauchamp currently serves on the board of National Oilwell Varco, Inc., a public company, and is active in the Houston business community, serving on several civic and not-for-profit boards.

As the Company's Chief Executive Officer for the past 10 years and an employee of the Company with increasing levels of responsibility for over 20 years, Mr. Beauchamp brings to the Board extensive knowledge of the software industry and an in-depth understanding of all aspects of the Company, including its customers, operations, competitive landscape and key business drivers.

Jon E. Barfield. Mr. Barfield has served as our Lead Director since January 2010 and has been a director since 2001. Mr. Barfield has served as the President since 1981 and as Chairman and President since 1995 of the Bartech Group, Inc., a privately held provider of outsourced talent acquisition programs that are effective in managing the procurement and administration of non-employee staff and professional services for regional, national and global corporations. He practiced corporate and securities law at Sidley Austin from 1977 to 1981. Mr. Barfield is a director of CMS Energy Corporation and Motorola Mobility Holdings, Inc., both public companies. Within the past five years, Mr. Barfield also served as a director of the following public companies: Dow Jones & Company, Granite Broadcasting Corp., National City Corporation, and Tecumseh Products Company.

As the Chief Executive Officer of The Bartech Group, Inc., Mr. Barfield brings to the Board a wealth of business management and operational experience. The Board also values and benefits from his significant experience on other public company boards of directors and board committees, including in the areas of legal risk oversight and risk management, financial reporting, human resources, corporate governance, and mergers and acquisitions.

Gary L. Bloom. Mr. Bloom has been a director since 2007. Mr. Bloom has served since March 2010 as Chief Executive Officer of eMeter, Inc., a privately held software company. From December 2009 to March 2010, Mr. Bloom was a business consultant, and from December 2006 to December 2009, Mr. Bloom was a consultant of Texas Pacific Group, a global private investment firm. Mr. Bloom served as Vice Chairman and President of Symantec Corporation from July 2005 to March 2006. Mr. Bloom joined Symantec through its merger with VERITAS Software Corporation, where he served as President and Chief Executive Officer from November 2000 to January 2002, and Chairman, President and Chief Executive Officer from January 2002 to July 2005. Mr. Bloom joined VERITAS after a 14-year career with Oracle Corporation, rising to the rank of Executive Vice President. Mr. Bloom also serves on the board of Taleo Corporation, a public company.

Through his more than 20 years of software company experience, including as a former Chief Executive Officer of a publicly traded software company, and service on other public software company boards, Mr. Bloom brings to the Board extensive knowledge of the software industry and specific insights into the operational and strategic issues facing the Company.

Meldon K. Gafner. Mr. Gafner has been a director since 1987. Mr. Gafner has served since 1998 as the Chief Executive Officer of the Farsight Group, a privately held company that specializes in advanced communications equipment and consulting. He was President, Chief Executive Officer and Chairman of the Board of Comstream Corporation, a privately held manufacturer of high-speed satellite earth stations for data distribution, from July 1988 to July 1997.

As a result of his professional experiences, Mr. Gafner possesses knowledge and experience in management of companies focusing on technology-driven innovation. Mr. Gafner has also served for more than 20 years on the Board affording institutional continuity and industry knowledge accumulated through various industry and economic cycles and through the Company's growth during that period.

Mark J. Hawkins. Mr. Hawkins has been a director since May 2010. Mr. Hawkins has served as Executive Vice President and Chief Financial Officer of Autodesk, Inc. since April 2009. Prior to joining Autodesk, Mr. Hawkins served as Chief Financial Officer and Senior Vice President of Finance and Information Technology at Logitech International S.A. from April 2006 to April 2009. He was employed by Dell Inc. in various finance roles from 2000 to 2006, most recently serving as Vice President of Finance for worldwide procurement and logistics. Prior to joining Dell, Mr. Hawkins was employed by Hewlett-Packard Company for 18 years in finance and business-management roles.

As a chief financial officer of a publicly traded software company, Mr. Hawkins brings to the Board global financial management expertise in the technology industry, including experience in the areas of accounting, capital markets and information technology management.

Stephan A. James. Mr. James has been a director since May 2010. Mr. James is the former Chief Operating Officer of Accenture Ltd., and served as Vice Chairman of Accenture Ltd. from 2001 to 2004. He also served in the advisory position of International Chairman of Accenture from August 2004 to 2006. Mr. James serves as a director of the following public companies: Fidelity National Information Services, Inc. and Navigant Consulting, Inc. Within the past five years, Mr. James also served as a director of the following public companies: CDW Corporation and Metavante Technologies, Inc.

Mr. James brings to the Board valuable and extensive business and strategic experience in the management and operations of a large, complex international technology-based professional services and outsourcing organization. In addition, Mr. James possesses significant public company board experience.

P. Thomas Jenkins. Mr. Jenkins has been a director since 2004. Mr. Jenkins currently serves as Executive Chairman of the Board and Chief Strategy Officer of Open Text Corporation, a publicly traded software company and a leader in providing enterprise content management. Mr. Jenkins was appointed Chief Strategy Officer of Open Text in August 2005. He served as Chief Executive Officer of Open Text from July 1997 to July 2005. From December 1994 to July 1997, Mr. Jenkins held progressive executive positions with Open Text.

Mr. Jenkins brings to the Board a wealth of executive knowledge and extensive business strategy, operational and management experience in the software industry.

Louis J. Lavigne, Jr. Mr. Lavigne has been a director since 2008. Mr. Lavigne is currently a management consultant specializing in the areas of corporate finance, accounting and strategy. Mr. Lavigne retired in March 2005 as Executive Vice President and Chief Financial Officer of Genentech, Inc. He served as Genentech's Chief Financial Officer from 1988 to 2005. Mr. Lavigne became the Controller in May 1983 and an officer of Genentech in February 1984. Mr. Lavigne serves as a director and as Chairperson of the board of Accuray Incorporated and as a director of Allergan, Inc., both public companies. Mr. Lavigne previously served on our Board from October 2004 to February 2007. Within the past five years, Mr. Lavigne also served as a director of the following public companies: Arena Pharmaceuticals, Inc., Equinix, Inc. and Kyphon, Inc. Mr. Lavigne also serves as a trustee of the California Institute of Technology (CalTech) and Babson College.

As a former chief financial officer of a large, complex publicly traded company and a current and former member of numerous public company boards, Mr. Lavigne brings to the Board financial expertise and extensive experience in business operations, strategy, accounting and public company governance.

Kathleen A. O'Neil. Ms. O'Neil has been a director since 2002. She is the President and Chief Executive Officer of Liberty Street Advisors, LLC, a company that she founded in 2001. Liberty Street Advisors, LLC advises public and private companies on corporate governance, risk management, strategy development, infrastructure needs, leadership alignment and execution of change initiatives. Prior to her work at Liberty Street Advisors, Ms. O'Neil was employed at IBM as General Manager of the company's Global Financial Markets Infrastructure Group from January 2001 to September 2001. Prior to joining IBM, Ms. O'Neil served for 24 years at the Federal Reserve Bank of New York in a series of executive roles including Chief Operations Officer, Chief Financial Officer, Chief Administrative Officer and Chief Risk Officer. Ms. O'Neil is a member of the board of directors of Guidance Software, a public company. Ms. O'Neil also serves on the board of trustees of the Motley Fool Funds and is a member of the board of directors of MetLife Bank, N.A., a subsidiary of MetLife, Inc.

As a result of Ms. O'Neil's professional experiences, she provides the Board with financial expertise, experience in risk management, executive managerial experience and extensive knowledge of corporate governance.

Tom C. Tinsley. Mr. Tinsley has been a director since 1997. He is an Advisory Director with General Atlantic Partners, a private equity investment firm. He previously served as a Partner of General Atlantic Partners from 2001 to December 2010 and as a Special Advisor to General Atlantic Partners from 1999 to 2001. Mr. Tinsley joined Baan Company N.V., in November 1995 as President and Chief Operating Officer and served in that position until June 1999. Prior to joining Baan, he was a Director at McKinsey & Company, Inc., where he was employed for eighteen years. Mr. Tinsley serves on the board of Net 1 UEPS Technologies, Inc., a public company. Mr. Tinsley also serves as a director of Critical Path, Inc., a privately held company which was publicly traded within the past five years.

Mr. Tinsley brings to the Board managerial experience in the software industry and, by virtue of his 14 years of service on the Board, extensive knowledge of the Company. The Board also values and benefits from Mr. Tinsley's experience in evaluating, investing in and acquiring technology companies.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview
Our fiscal 2012 financial performance was solid across most of our core financial metrics. However, year over year ESM license bookings declined and were below our original expectations; refer to the additional discussion regarding ESM license bookings below. Select operating metrics for fiscal 2012 include:

•Total bookings, which represent the contract value of transactions closed and recorded, were $2,196.8 million, essentially flat as compared to fiscal 2011. During fiscal 2012, one large transaction generated total bookings of over $100 million, principally related to our MSM business.


•Total license bookings were $882.4 million, representing a decrease of $44.0 million, or 4.7%, from fiscal 2011. During fiscal 2012, we closed 158 transactions with license values over $1 million (with total license bookings of $480.0 million) compared with 162 transactions with license values over $1 million (with total license bookings of $498.1 million) in fiscal 2011.


•Within our ESM segment, where we evaluate performance on the basis of license bookings, total license bookings decreased by $64.7 million, or 11.3%, from fiscal 2011. We attribute this decrease principally to sales-related factors, including a decline in productive sales capacity caused by sales force attrition as well as a decrease in productivity associated with a reduction in average sales force tenure and experience levels. ESM license bookings in the current year have also been adversely impacted by challenging economic and financial conditions in key geographic areas and market segments, particularly within certain European regions and the U.S. public sector.


•Within our MSM segment, where we evaluate performance based on total and annualized bookings, total bookings for the trailing twelve months ended March 31, 2012 increased by $51.9 million, or 6.2%, and on an annualized basis, after normalizing for contract length, decreased by $27.0 million, or 9.3%, as compared to the prior year period. Over the trailing 36 months ended March 31, 2012, total MSM bookings increased by $156.7 million, or 6.5%, and annualized bookings, after normalizing for contract length, were essentially flat as compared to the prior year period.


•Total revenue was $2,172.0 million, representing an increase of $106.7 million, or 5.2%, over fiscal 2011. This increase was reflective of license, maintenance and professional services revenue increases of $13.3 million, or 1.5%, $56.2 million, or 5.5%, and $37.2 million, or 21.1%, respectively. On a segment basis, total ESM revenue increased by $63.1 million, or 4.9%, and total MSM revenue increased by $43.6 million, or 5.5%, over fiscal 2011.


•Operating income was $543.9 million, representing an increase of $11.1 million, or 2.1%, over fiscal 2011. Non-GAAP operating income was $779.6 million, representing an increase of $46.9 million, or 6.4%, over fiscal 2011.


•Net earnings were $401.0 million, representing a decrease of $55.2 million, or 12.1%, from fiscal 2011. Included in net earnings for fiscal 2012 and 2011 were net tax benefits of $6.2 million and $57.2 million, respectively, associated with tax authority settlements related to prior years’ tax matters which were excluded from our non-GAAP results. Non-GAAP net earnings were $562.1 million, representing an increase of $15.9 million, or 2.9%, over fiscal 2011.


•Diluted earnings per share was $2.32, representing a decrease of $0.18, or 7.2%, from fiscal 2011. Included in diluted earnings per share for fiscal 2012 and 2011 were net tax benefits of $0.04 and $0.31 per share, respectively, associated with tax authority settlements related to prior years’ tax matters which were excluded from our non-GAAP results. Non-GAAP diluted earnings per share was $3.25, representing an increase of $0.26, or 8.7%, over fiscal 2011.

•Cash flows from operations were $800.3 million, representing an increase of $35.1 million, or 4.6%, over fiscal 2011. We closed out the year with a strong balance sheet at March 31, 2012, including $1.6 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 and SaaS. In addition to our ongoing product development efforts, we consummated multiple strategic acquisitions across both our ESM and MSM segments during fiscal 2012 for aggregate cash consideration of $474.0 million. In our ESM segment, we acquired Coradiant Inc., Aeroprise, Inc., StreamStep, Inc. and Numara Software Holdings, Inc., the latter of which we recently acquired in the fourth quarter and which expands our IT service management solution offerings to small and mid-sized businesses. In our MSM segment, we completed the purchase of Neon Enterprise Software, LLC’s IMS software portfolio and I/O Concepts Software Corporation.
We also continue to enhance shareholder value by returning cash to shareholders through our stock repurchase program. During fiscal 2012, we repurchased approximately 19.2 million shares for a total value of $780.5 million.
Our earnings are subject to volatility as 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 customers 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 customer spending, IT budgets, the competitiveness of the IT management software and solutions industry, the adoption rate for Business Service Management 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 2012 Acquisitions
During fiscal 2012, we completed the acquisitions of Numara Software Holdings, Inc., a provider of integrated IT service management solutions for mid-sized and small companies, for total cash consideration of $305.9 million, and Coradiant Inc., a global provider of end-to-end performance management of web applications, for total cash consideration of $130.0 million. Additionally, we completed the acquisitions of Aeroprise, Inc., a provider of mobile IT service management solutions, Neon Enterprise Software, LLC’s IMS software portfolio, StreamStep, Inc., a provider of application release process management solutions, and I/O Concepts Software Corporation, a provider of mainframe management and security solutions, for combined cash consideration of $38.1 million.
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.
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.

Software License Revenue
License revenue was $877.8 million, $864.5 million and $758.4 million for fiscal 2012, 2011 and 2010, respectively.
License revenue in fiscal 2012 increased by $13.3 million, or 1.5%, over fiscal 2011. This increase was attributable to a license revenue increase in our MSM segment, partially offset by a license revenue decrease in our ESM segment, as further discussed below. Recognition of license revenue in fiscal 2012 that was deferred in prior periods increased by $9.7 million over fiscal 2011. Of the license revenue transactions recorded, the percentage of license revenue recognized upfront increased to 54% for fiscal 2012 as compared to 51% in fiscal 2011.
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 ESM and MSM 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.
ESM license revenue was $543.3 million, or 61.9%, $550.9 million, or 63.7%, and $462.2 million, or 60.9%, of our total license revenue for fiscal 2012, 2011 and 2010, respectively. ESM license revenue in fiscal 2012 decreased by $7.6 million, or 1.4%, from fiscal 2011, due to a $13.4 million decrease in the recognition of previously deferred license revenue, partially offset by a $5.8 million increase in the amount of upfront license revenue recognized in connection with new transactions. ESM license revenue in fiscal 2011 increased by $88.7 million, or 19.2%, over fiscal 2010, primarily due to a $77.9 million increase in the amount of upfront license revenue recognized in connection with new transactions and a $10.8 million 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 higher percentage of license transaction bookings that were recognized as upfront revenue rather than ratably over the underlying contractual maintenance terms.

Domestic Maintenance Revenue
Domestic maintenance revenue was $581.7 million, or 53.8%, $556.8 million, or 54.4%, and $561.4 million, or 54.8%, of our total maintenance revenue for fiscal 2012, 2011 and 2010, respectively.
Domestic maintenance revenue in fiscal 2012 increased by $24.9 million, or 4.5%, over fiscal 2011, due to a $19.0 million increase in ESM maintenance revenue and a $5.9 million increase in MSM maintenance revenue.
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, partially offset by a $0.6 million increase in MSM maintenance revenue.
International Maintenance Revenue
International maintenance revenue was $498.7 million, or 46.2%, $467.4 million, or 45.6%, and $462.3 million, or 45.2%, of our total maintenance revenue for fiscal 2012, 2011 and 2010, respectively.
International maintenance revenue in fiscal 2012 increased by $31.3 million, or 6.7%, over fiscal 2011, due to a $14.4 million increase in ESM maintenance revenue and a $16.9 million increase in MSM maintenance revenue. The ESM maintenance revenue increase was attributable primarily to increases of $6.5 million, $5.9 million and $1.3 million in our Asia Pacific, EMEA and Canada markets, respectively. The MSM maintenance revenue increase was attributable primarily to increases of $8.7 million, $6.6 million and $2.0 million in our Latin America, EMEA and Asia Pacific markets, 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, partially 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, partially offset by increases of $4.2 million and $1.8 million in our Asia Pacific and Canada markets, respectively.

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 2012, 2011 and 2010, cost of license revenue was $158.4 million, or 7.3%, $129.8 million, or 6.3%, and $115.5 million, or 6.0%, of total revenue, respectively, and 18.0%, 15.0% and 15.2% of license revenue, respectively.
Cost of license revenue in fiscal 2012 increased by $28.6 million, or 22.0%, over fiscal 2011. This increase was attributable primarily to an $18.6 million increase in the amortization of capitalized software development costs and a $10.0 million increase in the amortization of acquired technology. The increase in the amortization of capitalized software development costs is related to increases in the amount of costs capitalized in prior periods related to development activities, and represents an increased investment in software development due to the growth of our business.
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. The increase in the amortization of capitalized software development costs is related to increases in the amount of costs capitalized in prior periods related to development activities, and represents an increased investment in software development due to the growth of our business.
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, as well as internal and third party infrastructure hosting and support costs associated with our SaaS offerings. For fiscal 2012, 2011 and 2010, cost of maintenance revenue was $198.5 million, or 9.1%, $169.4 million, or 8.2%, and $158.3 million, or 8.3%, of total revenue, respectively, and 18.4%, 16.5% and 15.5% of maintenance revenue, respectively.
Cost of maintenance revenue in fiscal 2012 increased by $29.1 million, or 17.2%, over fiscal 2011. This increase was attributable to a $7.3 million increase in third party maintenance outsourcing costs, a $5.5 million increase in personnel costs, including third party subcontracting fees, a $5.4 million increase in share-based compensation expense, a $4.3 million increase related to the early exit of a long-term service contract, a $3.5 million increase in third party SaaS hosting and support costs and a $3.1 million net increase in other expenses.
Cost of maintenance revenue in fiscal 2011 increased by $11.1 million, or 7.0%, over fiscal 2010. This increase was attributable to a $6.2 million increase in personnel costs, including third party subcontracting fees, a $1.9 million increase in share-based compensation expense and a $3.0 million net increase in other expenses.

Cost of Professional Services Revenue
Cost of professional services revenue consists primarily of salaries, related personnel costs and third party subcontracting fees associated with implementation, consulting and education services that we provide to our customers and the related infrastructure to support this business. For fiscal 2012, 2011 and 2010, cost of professional services revenue was $212.0 million, or 9.8%, $186.0 million, or 9.0%, and $137.7 million, or 7.2%, of total revenue, respectively, and 99.2%, 105.3% and 106.7% of professional services revenue, respectively.
Cost of professional services revenue in fiscal 2012 increased by $26.0 million, or 14.0%, over fiscal 2011. This increase was attributable primarily to a $19.7 million increase in personnel and related costs and a $5.7 million increase in third party subcontracting fees, commensurate with increases in professional services revenue.
Cost of professional services revenue in fiscal 2011 increased by $48.3 million, or 35.1%, over fiscal 2010. This increase was attributable to a $31.3 million increase in third party subcontracting fees, a $13.9 million increase in personnel and related costs, a $1.2 million increase in share-based compensation expense and a $1.9 million net increase in other expenses, commensurate with increases in professional services revenue.
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 2012, 2011 and 2010, selling and marketing expenses were $634.0 million, or 29.2%, $611.4 million, or 29.6%, and $558.0 million, or 29.2%, of total revenue, respectively.
Selling and marketing expenses in fiscal 2012 increased by $22.6 million, or 3.7%, over fiscal 2011. This increase was attributable to a $14.2 million increase in sales personnel and related costs, principally due to an increase in variable compensation expense attributable to increased revenue as well as an increase in sales personnel headcount, a $9.1 million increase in marketing campaign expenditures, a $4.6 million increase in share-based compensation expense and a $1.5 million net increase in other expenses, partially offset by a $4.1 million decrease in third party consulting fees and a $2.7 million decrease in legal costs relating to a fiscal 2011 matter.
Selling and marketing expenses in fiscal 2011 increased by $53.4 million, or 9.6%, over fiscal 2010. This increase was attributable to a $50.4 million increase in sales personnel and related 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 and a $2.7 million increase in legal costs relating to a fiscal 2011 matter, partially offset by a $3.2 million net decrease in other expenses.
Research and Development Expenses
Research and development expenses consist primarily of salaries, related personnel costs and third party subcontracting fees 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 2012, 2011 and 2010, research and development expenses were $165.2 million, or 7.6%, $181.6 million, or 8.8%, and $195.9 million, or 10.3%, of total revenue, respectively.
Research and development expenses in fiscal 2012 decreased by $16.4 million, or 9.0%, from fiscal 2011. This decrease reflects a $19.8 million increase in capitalized research and development costs related to software development projects, due to the scope and timing of several key future product releases, a $1.8 million decrease in equipment expense, a $1.7 million decrease in facilities expenses and a $3.1 million net decrease in other expenses, partially offset by a $7.2 million increase in personnel and related costs and a $2.8 million increase in share-based compensation expense.
Research and development expenses in fiscal 2011 decreased by $14.3 million, or 7.3%, from fiscal 2010. This decrease was attributable primarily to a $35.7 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, partially offset by a $22.0 million increase in research and development personnel costs.
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 2012, 2011 and 2010, general and administrative expenses were $217.9 million, or 10.0%, $220.7 million, or 10.7%, and $207.0 million, or 10.8%, of total revenue, respectively.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

We continue to invest in our technology leadership, including in the areas of cloud computing and software-as-a-service (SaaS). In addition to our ongoing product development efforts, we consummated three strategic acquisitions in our ESM segment during the nine months ended December 31, 2012, acquiring Abydos Limited, a provider of workflow management solutions, VaraLogix, Inc., an application release automation provider, and my-eService, Inc., a provider of self-service IT support solutions.
We also continue to enhance shareholder value by returning cash to shareholders through our stock repurchase program. In October 2012, our Board of Directors approved a new $1 billion stock repurchase program, and in November 2012, we entered into an accelerated share repurchase agreement to repurchase $750 million of our common stock under this program. Initial shares received under this repurchase agreement were 13.1 million, for a total value of $525.0 million. During the quarter and nine months ended December 31, 2012, we repurchased a total of 14.3 million and 22.6 million shares, respectively, for a total value of $575.0 million and $925.0 million, respectively.
Our earnings are subject to volatility as 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 customers 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 customer spending, IT budgets, the competitiveness of the IT management software and solutions industry, the adoption rate for Business Service Management and the stability of the mainframe market.

Software License Revenue
License revenue for the quarter ended December 31, 2012 was $232.3 million, an increase of $7.3 million, or 3.2%, over the prior year quarter. This increase was attributable to an increase in MSM license revenue, partially offset by a decrease in ESM license revenue, as further discussed below. Recognition of license revenue that was deferred in prior periods increased $2.3 million for the quarter ended December 31, 2012 as compared to the prior year quarter. Of the license revenue transactions recorded, the percentage of license revenue recognized upfront was 58% in the current quarter as compared to 55% in the prior year quarter.
License revenue for the nine months ended December 31, 2012 was $613.1 million, a decrease of $31.1 million, or 4.8%, from the prior year period. This decrease was attributable to a decrease in ESM license revenue, partially offset by an increase in MSM license revenue, as further discussed below. Recognition of license revenue that was deferred in prior periods decreased $16.2 million for the nine months ended December 31, 2012 as compared to the prior year period. Of the license revenue transactions recorded, the percentage of license revenue recognized upfront was 59% in the current nine month period as compared to 54% in the prior year period.
ESM license revenue was $131.3 million, or 56.5%, and $357.4 million, or 58.3%, of our total license revenue for the quarter and nine months ended December 31, 2012, respectively, and $133.7 million, or 59.4%, and $398.2 million, or 61.8%, of our total license revenue for the quarter and nine months ended December 31, 2011, respectively. ESM license revenue for the quarter ended December 31, 2012 decreased by $2.4 million, or 1.8%, from the prior year quarter, due to a $4.8 million reduction in upfront license revenue recognized in connection with new transactions, partially offset by a $2.4 million increase in the recognition of previously deferred license revenue. The decrease in upfront license revenue recognized in the quarter ended December 31, 2012 was attributable to a decrease in license transaction bookings, partially offset by a higher percentage of license transaction bookings that were recognized as revenue upfront rather than ratably over the underlying contractual maintenance terms. ESM license revenue for the nine months ended December 31, 2012 decreased by $40.8 million, or 10.2%, from the prior year period, due to a $19.7 million decrease in the recognition of previously deferred license revenue and a $21.0 million reduction in upfront license revenue in connection with new transactions. The decrease in upfront license revenue recognized in the nine months ended December 31, 2012 was attributable to a decrease in license transaction bookings along with a lower percentage of such bookings that were recognized as revenue upfront rather than ratably over the underlying contractual maintenance terms.

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 the quarter and nine months ended December 31, 2012, cost of license revenue was $41.1 million, or 7.1%, and $120.8 million, or 7.4%, of total revenue, respectively, and 17.7% and 19.7% of license revenue, respectively. For the quarter and nine months ended December 31, 2011, cost of license revenue was $38.6 million, or 7.0%, and $116.2 million, or 7.2%, of total revenue, respectively, and 17.2% and 18.0% of license revenue, respectively.
Cost of license revenue for the quarter ended December 31, 2012 increased by $2.5 million, or 6.5%, over the prior year quarter. This increase was attributable primarily to a $5.2 million increase in the amortization of capitalized software development costs, partially offset by a $3.2 million decrease in the amortization of acquired technology. Cost of license revenue for the nine months ended December 31, 2012 increased by $4.6 million, or 4.0%, over the prior year period. This increase was attributable to a $10.6 million increase in the amortization of capitalized software development costs and a $1.8 million increase in share-based compensation expense, partially offset by a $5.7 million decrease in the amortization of acquired technology and a $2.1 million net decrease in other expenses. The increases in the amortization of capitalized software development costs are related to increases in the amount of costs capitalized in prior periods related to development activities and represented an increased investment in software development. The decreases in amortization of acquired technology were attributable to a reduction in amortization associated with intangible assets acquired in connection with past acquisitions that became fully amortized, partially offset by an increase in amortization associated with intangible assets acquired in connection with our fiscal 2012 and 2013 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, as well as internal and third party infrastructure hosting and support costs associated with our SaaS offerings. For the quarter and nine months ended December 31, 2012, cost of maintenance revenue was $51.3 million, or 8.8%, and $155.1 million, or 9.5%, of total revenue, respectively, and 17.8% and 18.2% of maintenance revenue, respectively. For the quarter and nine months ended December 31, 2011, cost of maintenance revenue was $46.2 million, or 8.4%, and $139.5 million, or 8.7%, of total revenue, respectively, and 17.0% and 17.3% of maintenance revenue, respectively.
Cost of maintenance revenue for the quarter ended December 31, 2012 increased by $5.1 million, or 11.0%, over the prior year quarter. This increase was attributable to a $3.6 million increase in personnel costs and a $1.5 million net increase in other expenses.
Cost of maintenance revenue for the nine months ended December 31, 2012 increased by $15.6 million, or 11.2%, over the prior year period. This increase was attributable to a $7.8 million increase in personnel costs, a $3.3 million increase in third party SaaS hosting and support costs, a $1.3 million increase in share-based compensation expense, a $1.2 million increase in third party maintenance outsourcing costs and a $2.0 million net increase in other expenses.
Cost of Professional Services Revenue
Cost of professional services revenue consists primarily of salaries, related personnel costs and third party subcontracting fees associated with implementation, consulting and education services that we provide to our customers and the related infrastructure to support this business. For the quarter and nine months ended December 31, 2012, cost of professional services revenue was $56.3 million, or 9.7%, and $168.5 million, or 10.3%, of total revenue, respectively, and 95.1% and 101.1% of professional services revenue, respectively. For the quarter and nine months ended December 31, 2011, cost of professional services revenue was $52.8 million, or 9.6%, and $153.4 million, or 9.5%, of total revenue, respectively, and 103.7% and 98.5% of professional services revenue, respectively.
Cost of professional services revenue for the quarter ended December 31, 2012 increased by $3.5 million, or 6.6%, over the prior year quarter. This increase was attributable to a $2.3 million increase in personnel and related costs, due principally to an increase in professional services headcount, and a $1.2 million net increase in other expenses.
Cost of professional services revenue for the nine months ended December 31, 2012 increased by $15.1 million, or 9.8%, over the prior year period. This increase was attributable to a $13.2 million increase in personnel and related costs, due principally to an increase in professional services headcount, a $1.1 million increase in facilities expense and a $2.0 million net increase in other expenses, partially offset by a $1.2 million decrease in third party subcontracting fees.

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 the quarter and nine months ended December 31, 2012, selling and marketing expenses were $175.8 million, or 30.3%, and $503.7 million, or 30.8%, of total revenue, respectively. For the quarter and nine months ended December 31, 2011, selling and marketing expenses were $154.1 million, or 28.1%, and $452.3 million, or 28.1%, of total revenue, respectively.
Selling and marketing expenses for the quarter ended December 31, 2012 increased by $21.7 million, or 14.1%, over the prior year quarter. This increase was attributable to a $9.3 million increase in sales personnel and related costs, a $7.1 million increase in share-based compensation expense, both principally due to an increase in sales personnel headcount as well as sales retention efforts, a $2.7 million increase in bad debt expense, a $1.0 million increase in marketing campaign expenditures and a $1.6 million net increase in other expenses.
Selling and marketing expenses for the nine months ended December 31, 2012 increased by $51.4 million, or 11.4%, over the prior year period. This increase was attributable to a $25.0 million increase in sales personnel and related costs, a $15.9 million increase in share-based compensation expense, both principally due to an increase in sales personnel headcount as well as sales retention efforts, a $2.6 million increase in bad debt expense, a $2.5 million increase in marketing campaign expenditures, a $2.1 million increase in third party consulting fees, a $1.5 million increase in facilities expense and a $1.8 million net increase in other expenses.
Research and Development Expenses
Research and development expenses consist primarily of salaries and personnel costs and third party subcontracting fees 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 the quarter and nine months ended December 31, 2012, research and development expenses were $41.9 million, or 7.2%, and $116.5 million, or 7.1%, of total revenue, respectively. For the quarter and nine months ended December 31, 2011, research and development expenses were $38.5 million, or 7.0%, and $121.5 million, or 7.6%, of total revenue, respectively.
Research and development expenses for the quarter ended December 31, 2012 increased by $3.4 million, or 8.8%, over the prior year quarter. This increase was attributable to a $4.5 million decrease in capitalized research and development costs related to software development projects, a $1.9 million increase in share-based compensation expense, a $1.6 million increase in third party contractor fees and a $1.6 million net increase in other expenses, partially offset by a $6.2 million decrease in personnel costs.
Research and development expenses for the nine months ended December 31, 2012 decreased by $5.0 million, or 4.1%, from the prior year period. This decrease was attributable to a $15.1 million decrease in personnel costs, partially offset by a $4.6 million increase in third party contractor fees, a $2.4 million decrease in capitalized research and development costs related to software development projects, a $1.8 million increase in share-based compensation expense and a $1.3 million net increase 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. For the quarter and nine months ended December 31, 2012, general and administrative expenses were $56.2 million, or 9.7%, and $175.1 million, or 10.7%, of total revenue, respectively. For the quarter and nine months ended December 31, 2011, general and administrative expenses were $50.4 million, or 9.2%, and $160.0 million, or 10.0%, of total revenue, respectively.
General and administrative expenses for the quarter ended December 31, 2012 increased by $5.8 million, or 11.5%, over the prior year quarter. This increase was attributable primarily to a $4.8 million increase in personnel costs and a $2.2 million increase in professional fees, partially offset by a $1.3 million reduction in proxy contest costs.

General and administrative expenses for the nine months ended December 31, 2012 increased by $15.1 million, or 9.4%, over the prior year period. This increase was attributable to a $6.9 million increase in personnel costs, a $4.9 million increase in proxy contest costs, a $4.9 million increase in other professional fees and a $1.7 million increase in share-based compensation expense, partially offset by a $3.3 million net decrease in other expenses.
Amortization of Intangible Assets
Amortization of intangible assets consists of the amortization of customer relationships and other intangible assets recorded in connection with our business combinations. For the quarter and nine months ended December 31, 2012, amortization of intangible assets was $10.0 million and $33.5 million, respectively. For the quarter and nine months ended December 31, 2011, amortization of intangible assets was $5.8 million and $26.5 million, respectively.
Amortization of intangible assets for the quarter ended December 31, 2012 increased by $4.2 million, or 72.4%, over the prior year period. This increase was attributable primarily to an accounting correction made during the prior year quarter, related to the foreign currency impacts of certain intangible assets associated with a fiscal 2000 business combination, which had the effect of decreasing intangible asset amortization expense by $4.5 million for the quarter ended December 31, 2011.
Amortization of intangible assets for the nine months ended December 31, 2012 increased by $7.0 million, or 26.4%, over the prior year period. This increase was attributable primarily to the accounting correction recorded in the prior year period, as noted above, which had the effect of decreasing intangible asset amortization expense by $4.5 million for the nine months ended December 31, 2011. The remaining increase is due to amortization associated with intangible assets acquired in connection with our fiscal 2012 and 2013 acquisitions, partially offset by a reduction in amortization associated with intangible assets acquired in connection with past acquisitions that became fully amortized.
Other Income (Loss), Net
Other income (loss), net, consists primarily of interest earned, realized gains and losses on investments, interest expense on our outstanding borrowings and foreign currency gains and losses. Other income (loss), net, for the quarter and nine months ended December 31, 2012, was a loss of $10.6 million and $25.4 million, respectively. Other income (loss), net, for the quarter and nine months ended December 31, 2011, was a loss of $3.5 million and $9.9 million, respectively.
The change in other income (loss), net for the quarter ended December 31, 2012 was attributable primarily to an $8.2 million increase in interest expense, primarily due to the issuance of our senior unsecured notes due February 2022 and December 2022 and the execution of our unsecured term loan due November 2015 (the Term Loan), partially offset by an increase in net gains on investments of $1.6 million.
The change in other income (loss), net for the nine months ended December 31, 2012 was attributable primarily to an $18.4 million increase in interest expense, primarily due to the issuance of our senior unsecured notes due February 2022 and December 2022 and the execution of our Term Loan, partially offset by an increase in net gains on investments of $4.0 million.
Income Taxes
Income tax expense was $30.7 million and $75.9 million for the quarter and nine months ended December 31, 2012, respectively, resulting in effective tax rates of 22.4% and 22.7%, respectively. Income tax expense was $38.4 million and $97.7 million for the quarter and nine months ended December 31, 2011, respectively, resulting in effective tax rates of 24.3% and 22.8%, respectively. Our effective tax rate generally differs from the U.S. federal statutory rate of 35% due to favorable tax rates associated with earnings from lower tax rate jurisdictions throughout the world and our policy of indefinitely reinvesting earnings from certain jurisdictions (primarily in Europe), as well as due to additional accruals, changes in estimates, releases and settlements with taxing authorities related to our uncertain tax positions and benefits associated with income attributable to both domestic production activities and the extraterritorial income exclusion. During the quarter and nine months ended December 31, 2012, the overall favorable effect of foreign tax rates on our effective tax rate was 9.6% and 9.4% of pre-tax earnings, respectively. During the quarter and nine months ended December 31, 2011, the overall favorable effect of foreign tax rates on our effective tax rate was 7.3% and 8.6% of pre-tax earnings, respectively. During the nine months ended December 31, 2011, we also recorded discrete net tax benefits of $6.2 million associated with tax authority settlements related to prior years’ tax matters which favorably impacted our effective tax rate by 1.4% of pre-tax earnings. Our effective tax rate could fluctuate on a quarterly basis and could be adversely affected to the extent forecasted earnings for the year are lower than anticipated in countries with lower statutory rates and higher than anticipated in countries with higher statutory rates.

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; severance, exit costs and related charges; proxy contest costs; 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.

CONF CALL

Derrick Vializ - Vice President of Investor Relations
Good afternoon, everyone. I'm Derrick Vializ, Vice President of Investor Relations, and I would like to thank you for joining us this afternoon.

During our call, Bob Beauchamp, our Chairman and CEO, will provide an overview of the third quarter fiscal 2013 performance of both our company and business units and update you on recent initiatives. Steve Solcher, our CFO, will then provide additional financial and operational detail. Bob will conclude our prepared comments by discussing and providing you with an update of our expectations for fiscal 2013 before we open the call to questions. These prepared comments were previously recorded. This call is being webcast, and a complete record of the call will be made and posted to our website.

In addition to today's earnings press release, we have posted a presentation that we will refer to at various times during the call. Both of these documents are available on our Investor Relations website at investors.bmc.com.

Before we continue, I would like to remind you that statements in this discussion, including statements made during the question-and-answer session regarding BMC's future financial and operating results, particularly statements and views regarding fiscal 2013, the development of and demand for BMC's products, BMC's operating strategies, acquisitions and other statements that are not statements of historical facts are considered forward-looking statements.

These statements are subject to numerous important factors, risks and uncertainties, that could cause actual results to differ from the results implied by these or any other forward-looking statements. Cautionary statements relative to these forward-looking statements and BMC's operating results are described in today's earnings press release and in our annual report on Form 10-K. All of these documents are available on our website. These forward-looking statements are made as of today based on certain expectations, and we undertake no obligation to update these forward-looking statements.

I would also like to note that the company's use of non-GAAP financial measures is explained in today's earnings press release, and a full reconciliation between non-GAAP measures and the corresponding GAAP measures is provided in the tables accompanying the press release and at investors.bmc.com.

At this time, I will turn the call over to Bob.

Robert E. Beauchamp - Chairman, Chief Executive Officer and President
By now many of you have seen our third fiscal quarter results. While we had a record quarter for maintenance revenue, professional services revenue, total revenue and non-GAAP diluted EPS and saw many encouraging signs in our business, we did not meet our expectations for bookings, revenue or profitability. Most of our shortfall was a direct result of a number of large forecasted deals in our ESM business unit failing to close at the end of the quarter. In fact, we had a historically low proportion of large deals closed this quarter, as compared to the previous 15 quarters.

We believe this resulted from a combination of difficult macroeconomic conditions, some specific uncertainty related to press coverage surrounding our strategic review and the ongoing press coverage related to activist -- investor activity, as well as our own execution issues. A number of large transactions that we have booked this year and are currently pursuing are transformational in nature, fundamentally changing our clients' approaches to enterprise management and consolidation. And in the, process replacing a number of competitors products.

We continue to hear from our customers, prospects, partners, industry analysts and others, that our strategy is the right one and that our solutions are superior to our competitors. Our strategy, our market, our position in those markets and our technological leadership continued to offer what we believe are significant opportunities for our company and our shareholders. And while the macroeconomic environment will continue to be tight, we expect our performance to improve in the fourth quarter and the upcoming fiscal year.

Despite all this, the fact remains that we need to be more consistent and disciplined in how we execute and capture the opportunities we see in the addressable market. As we've demonstrated in the past, we are committed to consistently growing bookings, revenue and earnings in order to increase shareholder value.

Let me turn now to provide some additional insight in our business units, beginning with MSM. MSM continues to perform well overall, largely in line with our expectations with growth in both revenue and non-GAAP operating income. Third quarter MSM bookings were impacted by the timing of 2 large transactions that did not close during the period. Both of these transactions were with established customers we have contracts that are up for renewal in our fourth fiscal quarter. We now expect to close both transactions this quarter, as well as a number of other key renewals. It's shaping up to be a strong fourth quarter for MSM.

We're very pleased to note that our Control-M product line is doing very well among our customers and currently represents approximately 40% of MSM's total booking, as measured on a trailing 12-month basis.

In our top 15 MSM deals this quarter, we once again saw an increase in the spend rate, largely due to our success in selling more new products into those relationships. This is an indication of our solutions' continuing importance to and relevance to some of our most strategic customers. During the quarter, we added or expanded our relationships with 209 new MSM product placements, a 31% increase over a year ago. We also won a number of key competitive replacements against our major competitors. New product placements in both new and existing customers during the quarter included Amica Insurance Company, Thomson Reuters, China Construction Bank and NTT DATA.

Finally, we continue to maintain operating discipline with MSM with non-GAAP operating income increasing by 2% on a year-over-year basis. MSM non-GAAP operating margin is now 62%.

Let me now turn to ESM. As I noted upfront, our ESM license bookings were well below our expectations, directly related to slippage of a number of large deals. I'm happy to report, however, that we're off to a solid start in the fourth quarter and already closed several slip transactions, including a multimillion dollar license transaction. We are aggressively pursuing the other transactions that slipped and many of them are tracking well.

We remain positive on the underlying trends we're seeing in the marketplace and in the progress we've made in key metrics related to our sales force, including capacity, tenure and attrition rates.

During the quarter we continued to grow our SaaS business, which is now approaching 550 active customers. Over double the number of active customers we saw a year ago.

I am particularly pleased with the strong growth in our Remedyforce business, as our increased investment and strong partnership with salesforce.com is paying off. SaaS revenue more than doubled year-over-year, while our cloud business also continued to grow, with cloud licensed bookings up over 40% year-over-year. I'm also pleased to report that Remedy On-Premise total bookings were up 10% in the quarter, which is the second straight quarter of year-over-year growth.

During the quarter we won a number of ESM deals, including CARFAX, [indiscernible] Securities, DBS Bank, Deloitte and Pfizer. Additionally, after an extensive evaluation, one of the U.K.'s largest retail banks chose BMC's Remedy 8.0 On-Premise solution, over both the incumbent, HP, and ServiceNow's managed service SaaS offering.

Let me now turn to our professional services business. This business performed largely in line with expectations during the quarter, in terms of revenue and profitability. Revenues rose 16% on a year-over-year basis and non-GAAP gross margins improved substantially, growing by 9 percentage points year-over-year. The improvements we put in place in terms of process discipline, backlog scheduling and resource allocation are driving these stronger results. The healthy and growing professional service business directly supports the transformational projects we are involved with in our largest customers and it strengthens our competitive positioning. So that covers our business performance during the third quarter.

We are committed to taking the actions that are required to improve our performance and to increase shareholder value. Toward that end, I've asked Bill Miller, President of our MSM business, to oversee a company-wide operational review. Bill has done a great job of delivering consistent positive results with strong operational discipline for the past 6 years in his capacity as MSM BU leader.

This initiative will improve our operational discipline in pursuing this strategy we've set. BMC will move rapidly to sharpen our focus and improve our short-term execution, make the appropriate level of investment to grow our business and improve our operations and profitability. This review is currently underway and will position us well, as we enter fiscal year 2014.

I'll discuss our updated outlook for fiscal 2013 in a few minutes. First, let me turn it over to Steve Solcher, for a detailed financial review.

Stephen B. Solcher - Chief Financial officer and Senior Vice President
Thank you, Bob. As you've heard, our third quarter results were below our expectation, mainly with the decline in bookings in both our MSM and ESM businesses. Our MSM business is inherently lumpy. Two large transactions mentioned earlier that were originally expected to close during the third quarter are now anticipated to close in the fourth quarter.

As for the ESM business, we also experienced slip deals, particularly among larger transactions. We did, however, generate healthy growth in ESM maintenance revenues as well as an increase in the maintenance renewal rates during the quarter. We also saw solid increases in key ESM growth areas, such as cloud and SaaS, improved performance around the Remedy On-Premise product line and we're pleased with the performance of our professional services business. With that, let me review our financial results for the third quarter in more detail.

Non-GAAP operating income in the quarter was $210 million, down 1% from the third quarter of last year. Our third quarter non-GAAP operating margin was 36%, down 3 percentage points from the year ago quarter. Please refer to Slide 5 in our presentation for selected non-GAAP financial information, which includes information on our ESM and MSM business units.

ESM's non-GAAP operating income in the third quarter declined to $71 million, down 7% from the year ago quarter. ESM's non-GAAP operating margin decreased year-over-year by 3 percentage points to 20%. MSM's non-GAAP operating income in the third quarter was $140 million, up 2% from a year-ago quarter and MSM's non-GAAP operating margin decreased 1 percentage point to 62%. Our non-GAAP net earnings for the third quarter were $151 million, down 4% from the third quarter of fiscal 2012. Non-GAAP diluted EPS for the quarter was $0.99, up 6% year-over-year. This reflects a non-GAAP effective tax rate for the quarter of 25%.

GAAP operating income in the third quarter was $148 million, a decrease of 9% from the third quarter of fiscal 2012. GAAP net earnings and diluted earnings per share were $106 million and $0.70, respectively. Our results reflect diluted shares outstanding in the third quarter of $153 million versus $170 million in the respective prior year quarter.

Turning now to bookings. Total bookings for the third quarter were $514 million, a decrease of 2% compared to the year ago quarter, on both a reported and constant currency basis. Trailing 12-month bookings were $2.1 billion, down 6% as reported and down 5% in constant currency year-over-year.

The weighted average contract length for total bookings on a trailing 12-month basis was 2.1 years, down 8% from the year ago period. This reduction in contract length is attributable to MSM's contract went returning to its historical average of approximately 3 years.

After normalizing for contract length, trailing 12-month annualized bookings for the third quarter were $993 million, up 2% from the year ago period. Please refer to Slide 7 in our presentation.

Now let me turn to the performance of each of our business units. Total ESM license bookings were $116 million in the third quarter, down 8% from the year-ago quarter. As Bob mentioned earlier, cloud related license bookings were up 44% on a year-over-year basis. We also achieved solid growth in our SaaS business. Two key measures of our SaaS business, our monthly recurring revenue, our MRR, and SaaS subscription revenue. MRR represents the combined monthly value of subscription fees associated with our active customers.

As of December 31, our SaaS MRR totaled 3 million, a 114% increase compared to the year-ago quarter. SaaS subscription revenue for the third quarter was $7 million, which grew 166% over the year-ago quarter. SaaS subscription revenue is reflected within maintenance revenue in our income statement.

Turning to the MSM business unit. Trailing 12-month total MSM bookings decreased 17% to $769 million and had an average contract length of 3 years, down 5% compared to the year-ago period. After normalizing for contract length, total annualized MSM bookings for the trailing 12 months were $253 million, down 13%.

Moving on to revenue. Total revenue for the quarter was a record $580 million, up 6%, compared to the third quarter of fiscal 2012, on both a reported and constant currency basis. ESM total revenue was $355 million, up 7% compared to the year-ago quarter, and MSM total revenue for the quarter was up 4% to $225 million.

License revenue in the third quarter was $232 million, up 3% from a year ago. ESM license revenue was $131 million, down 2%, while MSM license revenue was $101 million, up 11% from last year. For the third quarter, maintenance revenue was a record $289 million, an increase of 6% compared to the year-ago quarter and up 1% sequentially. ESM maintenance revenue was $165 million, up 11% and MSM maintenance revenue was $124 million, flat compared to the third quarter of fiscal 2012.

This is the third straight quarter of 11% year-over-year growth in ESM maintenance revenue. Professional services revenue, which is included in our ESM business unit, grew 16% from the year ago quarter to a record $59 million. As Bob mentioned, we were pleased with professional services non-GAAP gross margins, which grew by 9 percentage points on a year-over-year basis.

Moving next to operating expenses. Non-GAAP operating expenses for the third quarter were $370 million, up 10% from the year-ago quarter. Looking in our business units, ESM's non-GAAP operating expenses for the third quarter were $284 million, up 11% from the year-ago quarter and MSM non-GAAP operating expenses were $86 million, up 8% from the year-ago quarter. Other income in the third quarter was a loss of $11 million compared with a loss of $4 million in the year-ago quarter.

Now turning to the balance sheet. Total deferred license revenue at the end of the third quarter was $622 million, down 1% sequentially and down 6% year-over-year. During the quarter, we deferred $95 million of license revenue, or 42% of licensed bookings, and recorded $98 million of deferred license revenue from the balance sheet. Total deferred revenue decreased by $66 million sequentially to $1.8 billion. The current portion of deferred revenue now stands at 55%.

Our software development cost as of December 31 were $268 million, as we capitalized $34 million and amortized $29 million during the quarter. Cash and investments totaled $1.3 billion, with 23% of our cash held domestically. And at December 31, we were in a net debt position of $79 million.

In November of this year, we issued $300 million of senior unsecured notes with a 10-year maturity. In the same month, we also entered into $200 million unsecured term loan agreement with an institutional lender. The term loan has a 3-year maturity.

For the quarter, cash flow from operations was $132 million. During the third quarter, we repurchased a total of 14.3 million shares. As part of the accelerated share repurchase agreement we announced in November, we received 13.1 million shares, which is in addition to the 1.2 million shares we repurchased for $50 million earlier in the quarter. Our current outstanding share repurchase authorization is $700 million.

With that, I'll turn the call back over to Bob for his concluding remarks and updated expectations for fiscal 2013.

Robert E. Beauchamp - Chairman, Chief Executive Officer and President
Let me now provide you with our updated full year fiscal 2013 expectation for non-GAAP diluted earnings per share. We expect non-GAAP diluted earnings per share in the range of $3.35 to $3.45 per share. At the midpoint, this would represent a 5% increase over fiscal 2012. This range excludes an estimated $1.13 to $1.18 per share for non-GAAP adjustments, including expenses related to the amortization of intangible assets, share-based compensation expense, severance, exit cost and related charges and proxy contest costs.

We expect full-year fiscal 2013 cash flow from operations to be between $735 million and $785 million, which at the midpoint represents a 5% decrease over fiscal 2012, including the adverse impact from foreign currency exchange rates.

I'd like to highlight certain risk, which could impact our ability to achieve these expectations. Uncertainty surrounding the broader macroeconomic environment, especially in Europe. Sales productivity related to tenure of our ESM sales organization and uncertainty related to press coverage surrounding our strategic review and ongoing press coverage related to activist investor activity.

The current assumptions underlying our full year fiscal 2013 expectations include: FX impact given today's rates; total bookings flat with the prior year, with growth on a constant currency basis of low single digits; ESM license bookings decline in the mid- to high-single digits and down low- to mid-single digits in constant currency; MSM total bookings decline in the low- to mid-single digits and flat to down low-single digits in constant currency; revenue growth in the low-single digits with growth on a constant currency basis in the low- to mid-single digits.

Non-GAAP operating margin slightly lower than the prior year, other income at a loss of around $40 million, weighted shares outstanding down high-single digits to low-double digits from the prior year and a non-GAAP tax rate of 25%.

As we look at the factors affecting our performance in our third quarter results, we recognize that we must deliver stronger financial performance and an operating plan that drives greater value for all our shareholders. On our next call with you, we will provide our fiscal 2014 expectations based on a strong operating plan. This plan will be focused on generating stronger operating margins, earnings growth and cash flow.

With that, we will now turn the call over for your questions.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

2491 Views