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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
COMMISSION FILE NUMBER 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 25th FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of November 11, 2003, the Company had 46,973,814 shares of Common Stock, no
par value, outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2003 2002
-------------- --------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 35,194 $ 37,760
Accounts receivable, net of allowance of $1,034 and $1,237 7,791 11,199
Other 2,300 2,052
-------------- --------------
Total current assets 45,285 51,011
Property and equipment, net 6,578 7,816
Investments and other 4,728 4,729
-------------- --------------
Total assets $ 56,591 $ 63,556
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,199 $ 1,990
Accrued liabilities 6,110 6,341
Accrued compensation 3,065 3,907
Deferred revenues 12,592 12,464
-------------- --------------
Total current liabilities 22,966 24,702
Deferred revenues 1,831 2,213
Other liabilities 950 1,215
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 100,000 shares authorized, 46,921
and 46,278 shares issued and outstanding 1 1
Additional paid-in capital 105,013 104,332
Accumulated deficit (74,388) (68,398)
Notes receivable from shareholder (601) (892)
Accumulated other comprehensive income 819 383
-------------- --------------
Total shareholders' equity 30,844 35,426
-------------- --------------
Total liabilities and shareholders' equity $ 56,591 $ 63,556
============== ==============
See notes to unaudited consolidated financial statements.
2
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Licenses $ 7,352 $ 8,455 $ 19,942 $ 25,620
Services 8,199 7,489 23,971 22,132
------------ ------------ ------------ ------------
15,551 15,944 43,913 47,752
------------ ------------ ------------ ------------
Cost of revenues:
Licenses 138 137 349 387
Services 1,955 1,439 5,092 4,367
------------ ------------ ------------ ------------
2,093 1,576 5,441 4,754
------------ ------------ ------------ ------------
Gross profit 13,458 14,368 38,472 42,998
Operating costs and expenses:
Sales and marketing 8,269 8,732 25,296 28,608
Research and development 4,563 4,951 13,365 14,920
General and administrative 1,867 1,950 5,600 5,768
Asset impairment -- 276 -- 276
Restructuring -- 1,608 549 1,608
------------ ------------ ------------ ------------
14,699 17,517 44,810 51,180
------------ ------------ ------------ ------------
Operating loss (1,241) (3,149) (6,338) (8,182)
Other income 95 208 348 1,913
------------ ------------ ------------ ------------
Loss before income taxes (1,146) (2,941) (5,990) (6,269)
Provision for income taxes -- -- -- 19,562
------------ ------------ ------------ ------------
Net loss $ (1,146) $ (2,941) $ (5,990) $ (25,831)
============ ============ ============ ============
Loss per common share - basic and
diluted $ (0.02) $ (0.06) $ (0.13) $ (0.50)
============ ============ ============ ============
Number of shares used to calculate per
share amounts, basic and diluted 46,816 51,050 46,623 51,314
============ ============ ============ ============
Reconciliation of net loss to comprehensive loss:
Net loss $ (1,146) $ (2,941) $ (5,990) $ (25,831)
Unrealized gain (loss) from currency translation (29) 125 436 99
------------ ------------ ------------ ------------
Comprehensive loss $ (1,175) $ (2,816) $ (5,554) $ (25,732)
============ ============ ============ ============
See notes to unaudited consolidated financial statements.
3
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2003 2002
-------------- --------------
Cash flows from operating activities:
Net loss $ (5,990) $ (25,831)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,759 3,108
Accrued stock compensation 79 --
Asset impairment -- 276
Deferred income tax expense -- 19,562
Other -- 48
Changes in operating assets and liabilities:
Accounts receivable 3,498 870
Other assets (201) (912)
Accounts payable (821) 565
Accrued liabilities (1,163) 6
Deferred revenues (277) 803
-------------- --------------
Net cash used in operating activities (2,116) (1,505)
-------------- --------------
Cash flows from investing activities:
Capital expenditures (1,506) (2,643)
Net proceeds from maturity of investments -- 3,253
Other -- 40
-------------- --------------
Net cash (used in) provided by investing activities (1,506) 650
-------------- --------------
Cash flows from financing activities:
Repurchase of common stock -- (1,765)
Net proceeds from sale of common stock 681 561
-------------- --------------
Net cash provided by (used in) financing activities 681 (1,204)
Effect of exchange rate changes on cash 375 524
-------------- --------------
Net decrease in cash and cash equivalents (2,566) (1,535)
Cash and cash equivalents at beginning of year 37,760 39,791
-------------- --------------
Cash and cash equivalents at end of period $ 35,194 $ 38,256
============== ==============
Non-cash financing and investing activities:
Reduction of shareholder note in lieu of guaranteed bonus $ 292 $ 326
See notes to unaudited consolidated financial statements.
4
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements of BindView
Development Corporation, a Texas corporation (the "Company" or "BindView"),
included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted.
The Company believes that the presentations and disclosures herein are adequate
to make the information not misleading. The consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in its Annual
Report on Form 10-K, as amended, for the year ended December 31, 2002.
2. LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share (in thousands, except per share amounts):
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Numerator:
Net loss - numerator for
loss per share - basic and
diluted $ (1,146) $ (2,941) $ (5,990) $ (25,831)
============== ============== ============== ==============
Denominator:
Denominator for basic loss per
share - weighted-average shares 46,816 51,050 46,623 51,314
Effect of dilutive securities -- -- -- --
-------------- -------------- -------------- --------------
Total diluted shares 46,816 51,050 46,623 51,314
============== ============== ============== ==============
Loss per common share - basic and
diluted $ (0.02) $ (0.06) $ (0.13) $ (0.50)
============== ============== ============== ==============
Options and warrants to purchase 9.7 million shares of common stock for
the three and nine months ended September 30, 2003 and 8.7 million shares of
common stock for the three and nine months ended September 30, 2002 were
outstanding, but were not included in the computation of diluted loss per share
as their inclusion would have been anti-dilutive.
3. STOCK BASED COMPENSATION
The Company accounts for all stock-based employee compensation plans
under the recognition and measurement provisions of APB Opinion 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common shares at the date of
the grant over the amount an employee must pay to acquire the common shares. The
Company generally grants options at prices equal to the market price of common
shares on the date of the grant. However, if options are granted at a price
below fair market value, compensation expense is recorded in accordance with the
provisions of APB 25. Compensation expense may also be recognized
5
for certain options which are considered variable option grants. Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - an Amendment to FAS 123," requires companies that continue to
account for stock-based compensation in accordance with APB 25 to disclose
certain information using tabular presentation as presented below. This table
illustrates the effect on net loss and loss per share as if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation (in thousands,
except per share amounts):
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net loss as reported $ (1,146) $ (2,941) $ (5,990) $ (25,831)
Add: Stock-based employee
compensation expense included in
reported net loss, net of related
tax effects 79 -- 79 --
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all
awards, net of related tax effects (1,674) (2,041) (4,669) (5,933)
--------- --------- --------- ---------
Pro forma net loss $ (2,741) $ (4,982) $ (10,580) $ (31,764)
========= ========= ========= =========
Loss per common share (basic and
diluted):
- - As reported $ (0.02) $ (0.06) $ (0.13) $ (0.50)
- - Pro forma $ (0.06) $ (0.10) $ (0.23) $ (0.62)
4. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS
In January 2003, the Company approved a sales and marketing
reorganization plan (the "2003 Restructuring Plan"). The cost of this plan
totaled approximately $0.6 million and consisted primarily of (i) involuntary
employee separation for approximately 20 employees (a reduction in workforce of
approximately 4 percent), (ii) closing the Company's Netherlands sales office,
and (iii) reserves for leasehold abandonment.
The 2003 Restructuring Plan activity from January 1, 2003 to September
30, 2003 was as follows (in thousands):
REMAINING
RESTRUCTURING CASH ACCRUAL
CHARGES EXPENDITURES 9/30/2003
-------------- -------------- --------------
Employee severance ......... $ 442 $ (436) $ 6
Lease commitments .......... 27 (13) 14
Office closure costs ....... 80 (80) --
-------------- -------------- -------------
$ 549 $ (529) $ 20
============== ============== =============
The Company expects all actions under the 2003 Restructuring Plan to be
completed by December 2003.
In July 2002, the Company approved a restructuring plan to improve
operating efficiency and improve sales and marketing productivity (the "2002
Restructuring Plan"). The cost of this plan totaled approximately $1.9 million
and consisted primarily of (i) involuntary employee separation for approximately
30 employees (a reduction in workforce of approximately 5 percent), (ii) closing
the Company's Boston development center and certain European sales offices,
(iii) reserves for leasehold abandonment, and (iv) various non-personnel related
cuts.
The 2002 Restructuring Plan activity from December 31, 2002 to
September 30, 2003 was as follows (in thousands):
6
REMAINING REMAINING
ACCRUAL CASH ACCRUAL
12/31/2002 EXPENDITURES 9/30/2003
-------------- -------------- --------------
Employee severance ..... $ 238 $ (194) $ 44
Lease commitments ...... 944 (366) 578
-------------- -------------- --------------
$ 1,182 $ (560) $ 622
============== ============== ==============
In 2001, we completed a corporate reorganization and implemented a
number of cost-cutting measures to improve operating efficiency and to
accelerate our return to profitability. The cost of this plan totaled
approximately $7.7 million and consisted primarily of: (i) involuntary employee
separation expenses for approximately 160 employees (a reduction in workforce of
approximately 21 percent), (ii) downsizing or closing of our Boston and
Arlington development centers and certain of our European sales offices, (iii)
reserves for leasehold abandonment, and (iv) various non-personnel related
costs. The restructuring costs included a $1.2 million charge related to asset
impairments of leasehold improvements, equipment and other assets of the closed
or downsized offices. At December 31, 2002, the remaining accrual totaled $1.4
million, which related to an accrual for lease commitments. During the nine
months ended September 30, 2003, approximately $0.1 million was charged against
that accrual.
5. INCOME TAXES
In 2002, the Company provided a full valuation allowance against
deferred tax assets of $19.6 million in accordance with Financial Accounting
Standard No. 109, "Accounting for Income Taxes". Management remains optimistic
about the future prospects of the Company's business and the industry and
continues to believe that over time, as the market improves, the Company should
generate sufficient taxable income to utilize a substantial portion of its net
operating loss carryforwards. Until such time as a consistent pattern of
sufficient profitability is established, no tax benefit will be recognized
associated with the Company's pre-tax accounting losses and a full income tax
provision will not be provided on any future pre-tax accounting income.
6. OPTION EXCHANGE PROGRAM
In July 2003, the Company completed a voluntary exchange program
whereby employees could surrender options to purchase the Company's common stock
having an option price of $3.00 or over for a lesser number of new options at a
price equal to the market price on the date of issuance. The program was
initiated in November 2002 and during 2003, extended in a manner that enabled
participants who previously surrendered their options with the opportunity to
rescind their participation. Under this program, the Company issued options to
purchase 0.3 million shares of common stock in exchange for approximately 0.7
million options which were surrendered by the employees and cancelled by the
Company. Additionally, the Company issued annual stock option grants to
employees who participated in the exchange program totaling 0.2 million options.
For accounting purposes, these options are variable and for the quarter ended
September 30, 2003, the company recognized a compensation charge of
approximately $0.1 million and at September 30, 2003, had deferred compensation
expense related to these options of approximately $0.3 million, which will be
amortized over the remaining vesting period of the options. Such amounts will
increase or decrease dependent upon the value of the Company's stock until the
related option is exercised or expires.
As part of its annual option awards to employees, the Company also
issued options to purchase approximately 0.3 million shares of the Company's
common stock to employees who had exercised their rescission right and opted out
of the exchange program referred to above. These options were issued in July
2003 at the same option price for employees who received their annual option
award earlier in the year. Since the exercise price of these options was lower
than the market price of the Company's stock at the date of issuance, the
Company will recognize compensation expense of approximately $0.3 million over
the four year vesting term, of which $0.1 million was recognized in the quarter
ended September 30, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results
of Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include those discussed in the "Cautionary Statements" set
forth in the Company's Annual Report on Form 10-K, as
7
amended, for the year ended December 31, 2002. The following discussion should
be read in conjunction with the Company's consolidated financial statements
included with this report and our consolidated financial statements and related
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 2002 included in our Annual Report on
Form 10-K, as amended.
OVERVIEW
See discussion under Item 1, "General" in our Annual Report on Form
10-K, as amended, for the year ended December 31, 2002 for an overview of our
business.
CRITICAL ACCOUNTING POLICIES
There have been no significant changes to our critical accounting
policies during the nine months ended September 30, 2003 compared with those
disclosed in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K, as
amended, for the year ended December 31, 2002.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2002
REVENUES. Revenues for the current quarter were $15.6 million compared
with $15.9 million for the third quarter of 2002. The decline in revenues was
the result of a decrease in license revenues partially offset by a modest
increase in service revenues. License revenues for the quarter were $7.4
million, compared with $8.5 million for the third quarter of 2002. This decline
in license revenue was primarily due to lower productivity of certain sales
regions and the timing of large transactions. The regions where productivity was
lower were those in which significant personnel changes have been made in the
last three to four months. The company expects performance of these regions to
improve in the fourth quarter and to be on par with its other sales regions in
early 2004.
Service revenues for the quarter increased 9.5 percent to $8.2
million, from $7.5 million for the third quarter of 2002. The increase in
services revenues was primarily due to maintenance renewals on an increasing
base of licensed customers and an increase in professional services revenues.
During the quarter, we closed fewer transactions over $130 thousand
than the number closed in the third quarter of 2002. We consider transactions
over $130 thousand as large and at this level will generally result in license
revenues of $100 thousand or more. During the quarter, we closed 19 transactions
over $130 thousand, having an average sales price of $284 thousand, compared
with 24 transactions over $130 thousand in the third quarter of 2002, having an
average sales price of $296 thousand. The fewer number of large transactions was
due to the low productivity of certain sales regions and the timing of large
transactions mentioned above.
During the third quarter of 2003, revenues from our products for
Microsoft-based platforms totaled $10.1 million, a decrease of 8 percent over
the third quarter of 2002. Revenues from these products accounted for
approximately 65 percent of total revenues in the current quarter, down from 68
percent of total revenues for the same quarter in the prior year. Revenues from
our products for Novell-based platforms for the current quarter were $3.0
million, or 20 percent of total revenues, compared with $3.5 million in the
third quarter of 2002, or 22 percent of total revenues.
Sales of our security focused bv-Control product line accounted for
approximately 84 percent of our license revenue in the current quarter compared
with 79 percent in the third quarter of 2002. Sales of our system administration
focused bv-Admin product line accounted for approximately 16 percent of our
license revenue in the third quarter of 2003 compared with 21 percent in the
third quarter of 2002.
No customer accounted for more than 10 percent of our revenues in the
third quarter of 2003 or 2002. Revenues recognized from sales to customers
outside North America, primarily in Europe, accounted for approximately 8
percent of total revenues in the current quarter down from 9 percent in the
third quarter of 2002.
8
GROSS PROFIT. Gross profit for the current quarter totaled $13.5
million, which was down from $14.4 million in the third quarter of 2002. The
decrease in gross profit primarily related to the decline in license revenues.
Gross margin for the current quarter was 86.5 percent, down from 90.1 percent in
the third quarter of 2002. This decline primarily related to a shift in business
mix toward services revenues, which have a lower gross margin than license
revenues, and an increase in technical support staff to improve the level of
support provided to our customer base.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
current quarter totaled $14.7 million, down from $17.5 million for the third
quarter of 2002, which included a restructuring and asset impairment charge of
$1.9 million. Excluding the $1.9 million charge in the third quarter of 2002,
operating costs and expenses were approximately $0.9 million, or 6 percent,
lower in the third quarter of 2003 due to improvements in our operating
efficiency.
Sales and marketing expenses for the current quarter were $8.3 million,
down from $8.7 million for the third quarter of 2002. The reduction in sales and
marketing expenses primarily relates to actions taken to improve sales
efficiency and marketing effectiveness during the first quarter of 2003 and
lower commissions and incentive based compensation on lower sales volume. We
expect sales and marketing expenses as a percentage of revenues to be lower in
the fourth quarter of 2003 due to anticipated revenue growth.
Research and development expenses for the current quarter were $4.6
million, down from $5.0 million for the third quarter of 2002. This decrease
primarily related to the transferring of development responsibilities for
certain of our legacy products from Houston, Texas to our lower cost development
center in Pune, India.
General and administrative expenses for the current quarter were $1.9
million, down from $2.0 million for the third quarter of 2002. We expect future
general and administrative expenses to decrease as a percentage of revenues as a
result of our restructuring initiatives to date to improve operating
efficiencies, as well as anticipated revenue growth.
In January 2003, the Company approved a sales and marketing
reorganization plan (the "2003 Restructuring Plan"). The cost of this plan
totaled approximately $0.6 million and consisted primarily of (i) involuntary
employee separation for approximately 20 employees (a reduction in workforce of
approximately 4 percent), (ii) closing the Company's Netherlands sales office,
and (iii) reserves for leasehold abandonment.
The 2003 Restructuring Plan activity from January 1, 2003 to September
30, 2003 was as follows (in thousands):
REMAINING
RESTRUCTURING CASH ACCRUAL
CHARGES EXPENDITURES 9/30/2003
-------------- -------------- --------------
Employee severance ......... $ 442 $ (436) $ 6
Lease commitments .......... 27 (13) 14
Office closure costs ....... 80 (80) --
-------------- -------------- --------------
$ 549 $ (529) $ 20
============== ============== ==============
The Company expects all actions under the 2003 Restructuring Plan to be
completed by December 2003.
In July 2002, the Company approved a restructuring plan to improve
operating efficiency and improve sales and marketing productivity (the "2002
Restructuring Plan"). The cost of this plan totaled approximately $1.9 million
and consisted primarily of (i) involuntary employee separation for approximately
30 employees (a reduction in workforce of approximately 5 percent), (ii) closing
the Company's Boston development center and certain European sales offices,
(iii) reserves for leasehold abandonment, and (iv) various non-personnel related
cuts.
The 2002 Restructuring Plan activity from December 31, 2002 to
September 30, 2003 was as follows (in thousands):
9
REMAINING REMAINING
ACCRUAL CASH ACCRUAL
12/31/2002 EXPENDITURES 9/30/2003
-------------- -------------- -------------
Employee severance ..... $ 238 $ (194) $ 44
Lease commitments ...... 944 (366) 578
-------------- -------------- -------------
$ 1,182 $ (560) $ 622
============== ============== =============
In 2001, we completed a corporate reorganization and implemented a
number of cost-cutting measures to improve operating efficiency and to
accelerate our return to profitability. The cost of this plan totaled
approximately $7.7 million and consisted primarily of: (i) involuntary employee
separation expenses for approximately 160 employees (a reduction in workforce of
approximately 21 percent), (ii) downsizing or closing of our Boston and
Arlington development centers and certain of our European sales offices, (iii)
reserves for leasehold abandonment, and (iv) various non-personnel related
costs. The restructuring costs included a $1.2 million charge related to asset
impairments of leasehold improvements, equipment and other assets of the closed
or downsized offices. At December 31, 2002, the remaining accrual totaled $1.4
million, which related to an accrual for lease commitments. During the nine
months ended September 30, 2003, approximately $0.1 million was charged against
that accrual.
NET LOSS. Due to the factors described above, net loss for the quarter
ended September 30, 2003 was $1.1 million compared with $2.9 million for the
quarter ended September 30, 2002.
OUTLOOK. We expect revenues for the fourth quarter of 2003 to range
between $19.5 million and $23.5 million. At these revenue levels, the Company
expects to generate positive operating income and cash flows and net income
ranging between $0.5 million, or $0.01 per share, and $4.2 million, or $0.09 per
share. The Company's ability to achieve or exceed these estimates will depend on
continued improvement in the Company's sales execution and the timing of large
transactions currently in the working sales pipeline.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
REVENUES. Revenues for the first nine months of 2003 decreased 8.0
percent to $43.9 million, from $47.8 million for the first nine months of 2002.
The year-over-year decline related to the decrease in license sales, partially
offset by increased services revenues. License revenues for the first nine
months of 2003 were $19.9 million compared with $25.6 million in the first nine
months of 2002. This decline was due to: (i) lower overall sales efficiency
particularly in the first quarter due to the effects of major organizational and
go-to-market changes in our sales department, (ii) fewer large transactions
being closed during the first nine months of 2003, and (iii) customer budget and
spending sensitivities, which we believe were driven by the weak economic
outlook.
Service revenues increased to $24.0 million, from $22.1 million for the
first nine months of 2002. The increase in services revenues was primarily due
to maintenance renewals on an increasing base of licensed customers and an
increase in professional services revenues.
During the nine months ended September 30, 2003, we closed 49
transactions over $130 thousand, having an average sales price of $280 thousand,
compared with 57 transactions over $130 thousand during the nine months ended
September 30, 2002, having an average sales price of $301 thousand. The fewer
number of large transactions was due to the low productivity of certain sales
regions and the timing of large transactions mentioned above.
GROSS PROFIT. Gross profit for the first nine months of 2003 totaled
$38.5 million, which was down from $43.0 million in the first nine months of
2002. The decrease in gross profit primarily related to the decline in license
revenues. Gross margin for the first nine months was 87.6 percent, down from
90.0 percent in the first nine months of 2002. This decline primarily related to
a shift in business mix toward services revenues, which have a lower gross
margin than license revenues and an increase in technical support staff to
improve the level of support provided to our customer base.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
first nine months of 2003 totaled $44.8 million, down from $51.2 million for the
first nine months of 2002. Excluding the restructuring charge of $0.5 million in
2003 and the restructuring and asset impairment charge of $1.9 million in 2002,
operating costs and expenses were approximately $5.0 million, or 10 percent,
lower for the first nine months of 2003 due to improvements in our operating
efficiency.
10
Sales and marketing expenses for the nine months ended September 30,
2003 were $25.3 million, down from $28.6 million for the nine months ended
September 30, 2002 primarily related to actions taken to improve sales
efficiency and marketing effectiveness and lower commissions and incentive based
compensation. We expect sales and marketing expenses as a percentage of revenues
to be lower in the fourth quarter of 2003 due to anticipated revenue growth.
Research and development expenses for the nine months ended September
30, 2003 were $13.4 million, down from $14.9 million for the nine months ended
September 30, 2002. This decrease primarily related to the transferring of
development responsibilities for certain of our legacy products from Houston,
Texas to our lower cost development center in Pune, India.
General and administrative expenses for the nine months ended September
30, 2003 were $5.6 million, down from $5.8 million for the nine months ended
September 30, 2002. We expect future general and administrative expenses to
decrease as a percentage of revenues as a result of our restructuring
initiatives to date to improve operating efficiencies, as well as anticipated
revenue growth.
Restructuring and asset impairment charges were $0.5 and $1.9 million
for the nine months ended September 30, 2003 and 2002, respectively. (See
discussion above within Results of Operation for the three months ended
September 30, 2003 and 2002)
OTHER INCOME. Other income totaled $0.3 million and $1.9 million for
the nine months ended September 30, 2003 and 2002, respectively. In 2002, other
income was primarily comprised of a receipt of a $1.3 million settlement in the
first quarter of 2002 of a business interruption claim related to flooding that
occurred in June 2001.
PROVISION FOR INCOME TAXES. We provided a full valuation allowance
against the deferred tax assets of $19.6 million in the second quarter of 2002.
As required by Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes", we continued our assessments of the realization of our
deferred tax assets and as a result, concluded that a full valuation allowance
was appropriate at June 30, 2002. Until such time as a consistent pattern of
sufficient profitability is established, no tax benefit will be recognized
associated with our pre-tax accounting losses and a full income tax provision
will not be provided on any future pre-tax accounting income.
NET LOSS. Due to the factors described above, net loss for the nine
months ended September 30, 2003 was $6.0 million compared with $25.8 million for
the nine months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements have principally related to working capital
needs and capital expenditures. These requirements have been met through a
combination of issuances of securities and internally generated funds.
We had cash, cash equivalents and short-term investments of $35.2
million at September 30, 2003 compared with $37.8 million at December 31, 2002.
Our working capital has decreased $4.0 million since December 31, 2002 to $22.3
million at September 30, 2003 primarily due to our operating loss generated in
2003 and capital expenditures. At September 30, 2003, we had no outstanding
debt.
Cash flows used in operating activities were $2.1 million in the first
nine months of 2003 compared with $1.5 million in the first nine months of 2002.
The increase in cash used in operating activities in 2003 was primarily due to
an increase in our net operating loss before restructuring and asset impairment
charges.
Cash flows (used in) provided by investing activities were $(1.5)
million used in the first nine months of 2003 compared with $0.7 million
generated in the first nine months of 2002. The change in cash flows associated
with investing activities primarily related to a $3.3 million decrease in
proceeds generated from the maturity of investments. Capital expenditures for
the first nine months of 2003 were $1.5 million compared with $2.6 million for
the first nine months of 2002. Capital expenditures for the first nine months of
2002 reflected investments in excess of $1.0 million in our customer
relationship management systems made in order to enhance sales force efficiency.
11
Cash flows provided by (used in) financing activities were $0.7 million
generated in the first nine months of 2003 compared with $(1.2) million used in
the first nine months of 2002. Cash provided by financing activities in the
first nine months of 2003 was due to $0.7 million in proceeds from employee
purchases of common stock under our Employee Stock Purchase Plan. Cash provided
by (used in) financing activities during the first nine months of 2002 was the
result of (i) $0.6 million in proceeds from employee purchases of common stock
through our Employee Stock Purchase Plan and (ii) $(1.8) million in cash used to
repurchase 1.9 million shares of our common stock.
We conduct operations in leased facilities under operating leases
expiring at various dates through 2011. The contractual obligations under these
lease commitments were comprised of the following as of September 30, 2003:
CONTRACTUAL
OBLIGATION TOTAL 2003 2004 -- 2006 2007 - 2008 2009 AND BEYOND
-------------- -------------- -------------- -------------- ---------------
Operating leases ................. $ 32,049 $ 1,343 $ 14,073 $ 8,930 $ 7,703
Sub-leasing arrangements* ........ (816) (253) (563) -- --
-------------- -------------- -------------- -------------- ---------------
$ 31,233 $ 1,090 $ 13,510 $ 8,930 $ 7,703
============== ============== ============== ============== ===============
* We have sub-leased portions of these facilities under operating leases.
Anticipated cash receipts from these sub-lease arrangements have been taken into
account when deriving expected cash outflow on operating lease commitments.
Our expected principal uses of cash for the remainder of 2003 are: (i)
capital expenditures between $0.1 million and $0.5 million, primarily for
computer and software equipment, (ii) working capital requirements, if any, and
(iii) net payments on operating leases of approximately $1.0 million. We believe
there is sufficient cash on hand to meet these cash requirements, as well as our
cash requirements for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 2002. See the
Company's Annual Report on Form 10-K, as amended.
ITEM 4. CONTROLS AND PROCEDURES
The management of the Company, including the Chief Executive Officer
and the Chief Financial Officer, has conducted an evaluation of the
effectiveness of the Company's disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934 as of a date (the
"Evaluation Date") within 90 days prior to the filing date of this report. Based
on that evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that, as of the Evaluation Date, the Company's disclosure controls and
procedures were effective in ensuring that all material information relating to
the Company, including our consolidated subsidiaries, required to be filed in
this quarterly report has been made known to them in a timely manner. There have
been no significant changes made in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the
Evaluation Date.
PART II. OTHER INFORMATION
ITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's future financial
position, revenue and expense projections, business strategy, planned products,
products under development, markets, budgets and plans and objectives of
management for future
12
operations, are forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot assure you that those expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed in statements set forth under "Cautionary
Statements" in our Annual Report on Form 10-K, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 31.1 Certification of Principal Executive Officer required by
rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Principal Financial Officer required by
rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certifications of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certifications of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
In a Report on Form 8-K dated July 23, 2003, the Company reported it had
issued a press release announcing financial results for the quarter ended June
30, 2003.
In a Report on Form 8-K dated October 13, 2003, the Company reported it had
issued a press release announcing preliminary revenue expectations for the
quarter ended September 30, 2003 and updated guidance for the second half of
2003.
In a Report on Form 8-K dated October 23, 2003, the Company reported it had
issued a press release announcing financial results for the quarter ended
September 30, 2003.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINDVIEW DEVELOPMENT CORPORATION
November 13, 2003 By: /s/ Kevin P. Cohn
----------------------------------------------
Kevin P. Cohn
Vice President, Controller and Chief Accounting
Officer (Principal Accounting Officer)
14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Principal Executive Officer required by
rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer required by
rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certifications of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32.2 Certifications of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002