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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, 2001
[ ] 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, 21st 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 [ ]
As of November 5, 2001, the Company had 50,962,581 shares of Common Stock, no
par value, outstanding.
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1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2001 2000
------------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 31,560 $ 49,337
Short-term investments 10,499 9,247
Accounts receivable, net of allowance of $1,790 and $804 9,259 23,729
Other 1,079 1,428
--------- ---------
Total current assets 52,397 83,741
Property and equipment, net 9,619 14,150
Deferred income taxes 19,857 8,484
Investments and other 4,791 6,659
--------- ---------
Total assets $ 86,664 $ 113,034
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,182 $ 4,045
Accrued liabilities 6,518 2,421
Accrued compensation 4,618 2,826
Deferred revenues 9,541 9,966
--------- ---------
Total current liabilities 21,859 19,258
Deferred revenues 1,279 1,515
Other 400 --
Stockholders' equity:
Common stock, no par value, 100,000 shares authorized,
53,948 and 52,298 shares issued 1 1
Preferred stock, $0.01 par value, 20,000 shares authorized, none issued -- --
Treasury stock, at cost, 2,998 and 635 shares (12,738) (5,324)
Additional paid-in capital 121,632 117,816
Accumulated deficit (44,656) (19,819)
Notes receivable from stockholders (1,188) (144)
Accumulated other comprehensive income (loss) 75 (269)
--------- ---------
Total stockholders' equity 63,126 92,261
--------- ---------
Total liabilities and stockholders' equity $ 86,664 $ 113,034
========= =========
</Table>
See notes to unaudited consolidated financial statements.
2
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Licenses $ 9,749 $ 16,546 $ 29,798 $ 40,083
Services 6,914 6,987 21,400 19,825
-------- -------- -------- --------
16,663 23,533 51,198 59,908
Cost of revenues:
Licenses 207 487 843 1,615
Services 1,530 1,002 4,950 2,632
-------- -------- -------- --------
1,737 1,489 5,793 4,247
Gross profit 14,926 22,044 45,405 55,661
Operating costs and expenses:
Sales and marketing 11,371 11,977 39,165 31,320
Research and development 5,623 6,479 17,527 19,310
General and administrative 3,783 2,227 12,307 7,374
Asset impairment 1,979 -- 1,979 --
Transaction and restructuring 6,000 -- 6,594 5,581
-------- -------- -------- --------
Operating income (loss) (13,830) 1,361 (32,167) (7,924)
Other income (expense), net (4,525) 1,088 (3,176) 3,441
-------- -------- -------- --------
Income (loss) before income taxes (18,355) 2,449 (35,343) (4,483)
Provision (benefit) for income taxes (5,507) 662 (10,506) (124)
-------- -------- -------- --------
Net income (loss) $(12,848) $ 1,787 $(24,837) $ (4,359)
======== ======== ======== ========
Earnings (loss) per common share - basic and
diluted $ (0.25) $ 0.03 $ (0.48) $ (0.08)
======== ======== ======== ========
Reconciliation of net income (loss) to comprehensive income (loss):
Net income (loss) $(12,848) $ 1,787 $(24,837) $ (4,359)
Gain (loss) from foreign currency translation 287 93 344 (122)
-------- -------- -------- --------
Comprehensive income (loss) $(12,561) $ 1,880 $(24,493) $ (4,481)
======== ======== ======== ========
</Table>
See notes to unaudited consolidated financial statements.
3
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net loss $(24,837) $ (4,359)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,294 3,693
Bad debt expense 3,012 493
Asset impairments 8,148 --
Deferred income tax benefit (10,506) (201)
Other 123 --
Changes in operating assets and liabilities:
Accounts receivable 11,336 (2,632)
Other assets 62 (86)
Accounts payable (2,717) (423)
Accrued liabilities 6,370 (129)
Deferred revenues (633) 1,350
-------- --------
Net cash used in operating activities (5,348) (2,294)
-------- --------
Cash flows from investing activities:
Capital expenditures (2,308) (9,146)
Net proceeds from maturity (purchase) of investments (295) 1,568
Other -- (608)
-------- --------
Net cash used in investing activities (2,603) (8,186)
-------- --------
Cash flows from financing activities:
Payments on notes payable and long-term debt -- (260)
Restriction on cash under letter of credit (4,500) --
Repurchase of common stock (7,414) --
Net proceeds from sale of common stock 1,756 4,540
-------- --------
Net cash provided by (used in) financing activities (10,158) 4,280
Effect of exchange rate changes on cash 332 (314)
-------- --------
Net decrease in cash and cash equivalents (17,777) (6,514)
Cash and cash equivalents at beginning of year 49,337 72,150
-------- --------
Cash and cash equivalents at end of period $ 31,560 $ 65,636
======== ========
Non-cash financing and investing activities:
Conversion of convertible debentures and preferred
stock into common stock $ -- $ 23
Note receivable issued to shareholder in exchange for
400,000 shares of common stock $ 1,044 $ --
</Table>
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 for the year ended December 31, 2000.
2. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share amounts):
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Numerator:
Net income (loss) - numerator for
earnings (loss) per share -
basic and diluted $(12,848) $ 1,787 $(24,837) $ (4,359)
======== ======== ======== ========
Denominator:
Denominator for basic earnings
(loss) per share - 51,097 52,021 51,532 51,538
weighted-average shares
Effect of dilutive securities:
Effect of stock options -- 3,006 -- --
-------- -------- -------- --------
Total diluted shares 51,097 55,027 51,532 51,538
======== ======== ======== ========
Earnings (loss) per common share -
basic and diluted $ (0.25) $ 0.03 $ (0.48) $ (0.08)
======== ======== ======== ========
</Table>
Options and warrants to purchase 10.9 million shares of common stock
for the three and nine months ended September 30, 2001 and 11.7 million shares
of common stock for the nine months ended September 30, 2000 were outstanding,
but were not included in the computation of diluted loss per share as their
inclusion would have been anti-dilutive. Options and warrants to purchase 5.5
million shares of common stock were outstanding for the three months ended
September 30, 2000, but were not included in the computation of diluted earnings
per share because the exercise prices of those options exceeded the average
market price of the common shares.
3. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS
In March 2001, the Company implemented a restructuring plan primarily
involving a reduction of approximately seven percent of the Company's workforce.
This restructuring included involuntary employee separation expenses for
approximately 50 employees and other related expenses. The accrued restructuring
expenses and amounts charged against the provision as of September 30, 2001 were
as follows (in thousands):
5
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<Table>
<Caption>
BEGINNING CASH REMAINING ACCRUAL
ACCRUAL EXPENDITURES SEPTEMBER 30, 2001
--------- ------------ ------------------
Employee severance ........... $539 $539 $ --
Other restructuring .......... 55 45 10
---- ---- ----
Costs ...................... $594 $584 $ 10
==== ==== ====
</Table>
In July 2001, the Company implemented a corporate reorganization and
restructuring plan to improve its operating leverage and efficiency. This plan
included involuntary employee separation expenses for approximately 100
employees (a reduction in workforce of approximately 14 percent), the closing or
downsizing of certain development and sales offices, reserves for leasehold
abandonment, and other non-personnel expense reductions. The costs of the plan
were based on management's best estimate based on information available at that
time.
The accrued restructuring expenses and amounts charged against the
provision as of September 30, 2001 were as follows (in thousands):
<Table>
<Caption>
BEGINNING CASH REMAINING ACCRUAL
ACCRUAL EXPENDITURES WRITE-OFFS SEPTEMBER 30, 2001
--------- ------------ ---------- ------------------
Employee severance ................ $2,252 $1,658 $ -- $ 594
Lease commitments ................. 2,182 211 -- 1,971
Office closure costs .............. 111 -- -- 111
Asset impairments ................. 1,169 -- 1,169 --
Other restructuring costs ......... 286 79 -- 207
------ ------ ------ ------
$6,000 $1,948 $1,169 $2,883
====== ====== ====== ======
</Table>
In connection with the July 2001 corporate reorganization and
restructuring plan, the Company determined that certain equipment and leasehold
improvements related to the downsized or closed offices were impaired as of
September 30, 2001 and recognized an asset impairment, which is included in the
restructuring charge, totaling $1.2 million.
The Company also recorded asset impairment charges totaling $7.0
million for the third quarter consisting of: (i) a write off of a $5.0 million
equity investment in a UK-based software distribution and consulting firm and
(ii) an asset impairment charge of $2.0 million consisting of $1.5 million for
software and computer equipment primarily related to development offices that
were downsized as a result of the restructuring and a $0.5 million impairment of
certain intangible assets. The write-off of the $5.0 million equity investment,
which is in other income (expense) in the accompanying statement of operations,
was based on an independent appraisal of the current fair value of the
investment and management's assessment of the value that would be derived from a
future sale.
4. INCOME TAXES
The Company follows the liability method of accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The Company's interim
provisions for income taxes were computed using its estimated effective tax rate
for the year.
At September 30, 2001, the Company had net operating loss ("NOL")
carryforwards of approximately $82.0 million available to offset future taxable
income. These NOL carryforwards expire between 2003 and 2021. The Company has a
deferred tax asset of approximately $19.9 million for the estimated after-tax
benefit it expects to realize and has a valuation allowance of approximately
$11.0 million for the portion of the NOL carryforwards that it expects will
expire without being utilized.
6
BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY
Under terms of a share repurchase program approved by the Board of
Directors, the Company purchased approximately 2.4 million shares of common
stock during the nine months ended September 30, 2001, at an average price per
share of $3.14. Since inception of the program in August 2000, the Company has
repurchased approximately 3.0 million shares of common stock for approximately
$12.7 million, an average price per share of $4.25. Under terms of the program,
the Company can expend an additional $7.3 million to repurchase shares,
including up to $1.7 million over the remainder of 2001.
6. RESTRICTED CASH
Under terms of the Company's lease agreement covering its corporate
office that was amended in May 2001, the Company was required to post a $4.5
million irrevocable letter of credit to the lessor. The Company posted this
letter of credit in July 2001 and placed on deposit with the issuing financial
institution $4.5 million to secure that instrument. The letter of credit
requirement will be reduced to $2.25 million on November 1, 2004 and will expire
on November 1, 2005. The deposit of $4.5 million to secure the letter of credit
is included in other long-term assets in the accompanying consolidated balance
sheet at September 30, 2001.
7. RECENT PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, "Business
Combinations." The Company will be required to adopt SFAS No. 141 for all
business combinations completed after June 30, 2001. This standard requires that
business combinations completed after June 30, 2001, be accounted for under the
purchase method and further clarifies the criteria for recognition of intangible
assets separately from goodwill. The adoption of SFAS 141 is not expected to
have a material impact on the financial position and results of operations of
the Company.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The adoption of SFAS 142 is not expected to have a
material impact on the financial position and results of operations of the
Company.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The adoption of SFAS 143 is
not expected to have a material impact on the financial position and results of
operations of the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 supercedes SFAS 121, "Accounting for the Impairment
of Long-Lived Assets to Be Disposed Of" and the accounting and reporting
provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS 144 is not expected to
have a material impact on the financial position and results of operations of
the Company.
7
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 "Risk Factors" set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, as
well as other factors such as, for example: the risks associated with lower
customer demand in a weak economy; increased competition within the network
management software industry; the effects of recently-implemented cost
reductions on the Company's business; transitional inefficiencies that may arise
during the Company's implementation of recently-announced reorganization plans;
and the management challenges of implementing those plans while attempting to
maintain employee motivation and effectiveness. The following discussion should
be read in conjunction with the Company's Consolidated Financial Statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUES. Revenues for the current quarter decreased 28.9 percent to
$16.7 million, from $23.5 million for the third quarter of 2000. The decline in
revenues in the current quarter was primarily due to the global decline in IT
spending in 2001 and the general slowdown in sales activity following the
terrorist acts of September 11, 2001 as most of the Company's sales are closed
in the last two weeks of the quarter. Revenue for the quarter reflected lower
sales to large enterprise and European customers. License revenues decreased
41.2 percent to $9.7 million, from $16.5 million for the third quarter of 2000.
Service revenues decreased slightly to $6.9 million, from $7.0 million for the
third quarter of 2000.
GROSS PROFIT. Gross profit for the current quarter decreased 32.3
percent to $14.9 million, from $22.0 million in the third quarter of 2000. This
decline related to the decrease in license revenues. Gross margin for the
current quarter was 89.6 percent compared with 93.7 percent in the third quarter
of 2000. The decline in gross margin reflected a shift in business mix as
license revenue (which has a higher gross margin than services revenue)
accounted for a lower percentage of total revenues in the current quarter.
License revenues accounted for 58.5 percent of revenues in the current quarter
compared with 70.3 percent for the third quarter of 2000. Gross margin for the
quarter was up from the preceding quarter (89.6 percent compared with 87.4
percent in the second quarter of 2001) as a result of improved operating
leverage in the Company's technical support and professional services units.
This improvement reflected the benefits of certain company restructuring
initiatives to improve operating efficiencies.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
three months ended September 30, 2001 totaled $28.8 million, compared with $20.7
million for the three months ended September 30, 2000. The increase in operating
costs and expenses related primarily to non-recurring expenses of $8.0 million
comprised of (i) a $6.0 million charge for the estimated costs of the Company's
corporate reorganization and restructuring initiatives and (ii) an asset
impairment charge of $2.0 million consisting of $1.5 million for software and
computer equipment primarily related to development offices that were downsized
as a result of the restructuring and a $0.5 million impairment of certain
intangible assets. Excluding these non-recurring charges, the Company's
operating costs and expenses for the current quarter were approximately $20.8
million, which is approximately $6.0 million below the second quarter of 2001.
The reduction was the result of the Company's restructuring initiatives to
improve its operating leverage and efficiencies by lowering costs, which had
increased in the latter part of 2000 as a result of investments in
infrastructure to enhance the Company's growth rate.
The non-recurring restructuring charge of $6.0 million related to costs
of the Company's corporate reorganization and restructuring initiatives. The
major initiatives included: (i) involuntary employee separation expenses for
approximately 100 employees (a reduction in workforce of approximately 14
percent), (ii) downsizing of the Company's Boston and Arlington development
centers and certain of its European sales offices, (iii) reserves for leasehold
abandonment and (iv) various non-personnel related cuts. These actions are
expected to lower the Company's fourth quarter operating costs and expenses
(exclusive of costs of revenues) to $17.5 million or below. At this expense
level, quarterly revenues necessary to generate positive EBITDA (earnings before
interest, income taxes, depreciation and amortization) are estimated to be
approximately $18.5 million, before the benefit of investment income on the
Company's cash equivalents and short-term investments.
The accrued restructuring expenses and amounts charged against the
provision as of September 30, 2001 were as follows (in thousands):
8
<Table>
<Caption>
BEGINNING CASH REMAINING ACCRUAL
ACCRUAL EXPENDITURES WRITE-OFFS SEPTEMBER 30, 2001
-------- ------------ ---------- ------------------
Employee severance $2,252 $1,658 $ -- $ 594
Lease commitments ............ 2,182 211 -- 1,971
Office closure costs ......... 111 -- -- 111
Asset impairments ............ 1,169 -- 1,169 --
Other restructuring costs .... 286 79 -- 207
------ ------ ------ ------
$6,000 $1,948 $1,169 $2,883
====== ====== ====== ======
</Table>
In connection with the July 2001 corporate reorganization and
restructuring plan, the Company determined that certain equipment and leasehold
improvements related to the downsized or closed offices were impaired as of
September 30, 2001 and recognized an asset impairment, which is included in the
restructuring charge, totaling $1.2 million.
OTHER INCOME (EXPENSE). Other income (expense) totaled $(4.5) million
and $1.1 million for the three months ended September 30, 2001 and 2000,
respectively. The decline in other income was the result of (i) a non-recurring
(non-cash) impairment of a $5.0 million equity investment made by the Company in
a UK-based software distribution and consulting firm and (ii) lower investment
income due to lower interest rates and lower investment balances during the
period.
PROVISION (BENEFIT) FOR INCOME TAXES. The provision (benefit) for
income taxes for the current quarter was $(5.5) million (an effective tax rate
of 30.0% percent), compared with $0.7 million (an effective tax rate of 27.0%
percent) for 2000. The Company's effective tax rate includes the effects of
state and foreign income taxes and certain foreign losses for which no tax
benefits have been provided.
NET INCOME (LOSS). Due to the factors described above, net income
(loss) for the quarter ended September 30, 2001 was $(12.8) million compared
with $1.8 million for the quarter ended September 30, 2000.
OUTLOOK FOR THE FOURTH QUARTER. The Company anticipates that revenues
for fourth quarter of 2001 will range between $16.7 million and $19.0 million
and operating costs and expenses (exclusive of costs of revenues) will be at or
below $17.5 million. The Company expects that its net loss for the fourth
quarter will range between $1.6 million ($0.03 per share) and $0.2 million
($0.00 per share).
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUES. Revenues for the first nine months decreased 14.5 percent to
$51.2 million, from $59.9 million in revenues for the first nine months of 2000.
This decline in revenues was primarily due to the global decline in IT spending
in 2001. License revenues decreased 25.7 percent to $29.8 million, from $40.1
million for the first nine months of 2000. Service revenues increased slightly
to $21.4 million, from $19.9 million for the first nine months of 2000.
GROSS PROFIT. Gross profit for the first nine months decreased 18.5
percent to $45.4 million, from $55.7 million for the first nine months of 2000.
This decline related to the decrease in license revenues. Gross margin for the
first nine months was 88.7 percent, down from 92.9 percent in 2000. The decline
in gross margin reflects a change in business mix as license revenue (which has
a higher gross margin than services revenues) accounted for a lower percentage
of total revenues during the nine months ended September 30, 2001. License
revenues accounted for 58.2 percent of revenues in the first nine months of 2001
compared with 66.9 percent for the first nine months of 2000.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the nine
months ended September 30, 2001 totaled $77.6 million, compared with $63.6
million for the nine months ended September 30, 2000. The increase in operating
costs and expenses primarily related to (i) the increased sales and marketing
infrastructure investments (ii) restructuring charges of $6.6 million for the
estimated costs of the Company's corporate reorganization and restructuring
initiatives and (iii) an asset impairment charge of $2.0 million consisting of
$1.5 million for software and computer equipment primarily related to
development offices that were downsized as a result of the restructuring and a
$0.5 million impairment of certain intangible assets. The $6.6 million in
restructuring costs consisted of (i) $0.6 million incurred in connection with
the Company's March 2001 restructuring initiatives, which primarily related to
completed involuntary employee separation costs and (ii) $6.0 million incurred
in connection with the Company's July 2001 restructuring initiatives previously
discussed.
During the nine months ended September 30, 2000, the Company merged
with Entevo Corporation in a stock-for-stock transaction accounted for as a
pooling of interests. Transaction costs of $3.8 million and restructuring costs
of $1.8 million were incurred in the nine months ended September 30, 2000 as a
result of the merger. The transaction costs consisted of investment banking fees
of $2.5 million and professional fees and other miscellaneous expenses of $1.3
million. At the time of the merger, management
9
approved restructuring plans to eliminate duplicate positions and integrate
Entevo's and the Company's operations. These restructuring costs consisted of
employee severance and relocation costs of $1.5 million and other miscellaneous
integration and restructuring costs of $0.3 million. As of September 30, 2001,
there are no actions remaining under the plan.
OTHER INCOME (EXPENSE). Other income (expense) totaled $(3.1) million
and $3.4 million for the nine months ended September 30, 2001 and 2000,
respectively. The decline in other income was the result of (i) a non-recurring
(non-cash) impairment of a $5.0 million equity investment made by the Company in
a UK-based software distribution and consulting firm and (ii) lower investment
income due to lower interest rates and lower investment balances during the
period.
PROVISION (BENEFIT) FOR INCOME TAXES. The benefit for income taxes for
the first nine months was $10.5 million (an effective tax rate of 29.7 percent),
compared with $0.1 million (an effective tax rate of 2.8 percent) for 2000. The
Company's effective tax rate includes the effects of state and foreign income
taxes and certain foreign losses for which no tax benefits have been provided as
well as the portion of Entevo transaction costs incurred in the first quarter of
2000 which are not deductible for tax purposes.
NET INCOME (LOSS). Due to the factors described above, net loss for the
nine months ended September 30, 2001 was $24.8 million compared with $4.4
million for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's 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.
The Company had cash and cash equivalents of $31.6 million at September
30, 2001 compared with $49.3 million at December 31, 2000. The decrease in the
Company's cash and cash equivalents primarily related to (i) cash used to fund
the Company's net operating loss in the first nine months of 2001, (ii) the
purchase of 2.4 million shares of the Company's common stock for $7.4 million,
(iii) capital expenditures of $2.3 million and (iv) the deposit of $4.5 million
to secure an irrevocable letter of credit required under the Company's amended
corporate office lease. The Company's expected principal cash requirements for
the fourth quarter 2001 are: (i) to fund its expected operating loss for the
quarter, which is expected to range between approximately $2.5 million and $0.5
million (ii) payment of certain restructuring expenses, (iii) purchases of
common stock authorized by the Board of Directors of up to $1.7 million and (iv)
capital expenditures of approximately $0.5 million. The Company believes that it
has sufficient cash on hand to meet these cash requirements, as well as its cash
requirements for the foreseeable future.
Cash flows used in operating activities were $5.3 million and $2.3
million for the nine months ended September 30, 2001 and 2000, respectively. The
increase in cash used in operating activities in 2001 reflected the higher net
operating losses during the period, which included cash used for the Company's
corporate reorganization and restructuring initiatives, partially offset by cash
generated from changes in net operating assets and liabilities.
Cash flows used in investing activities were $2.6 million and $8.2
million for the nine months ended September 30, 2001 and 2000, respectively
primarily related to capital expenditures related to business expansion. The
Company estimates that capital expenditures for the remainder of 2001 will be
approximately $0.5 million, which includes expenditures to enhance its customer
relationship and human resources information systems. The Company expects to
fund these capital expenditures out of its existing working capital.
Cash flows provided by (used in) financing activities were $(10.2)
million and $4.3 million for the nine months ended September 30, 2001 and 2000,
respectively. During the nine months ended September 30, 2001, the Company
repurchased 2.4 million shares of its common stock totaling $7.4 million. Under
terms of the program, the Company can expend an additional $7.3 million to
repurchase shares, including up to $1.7 million over the remainder of 2001. The
Company received proceeds on the sale of common stock in connection with its
stock option programs in the amount of $1.8 million and $4.5 million for the
nine months ended 2001 and 2000, respectively. Under terms of the Company's
lease agreement covering its corporate office that was amended in May 2001, the
Company was required to post a $4.5 million irrevocable letter of credit to the
lessor. The Company posted this letter of credit in July 2001 and placed on
deposit with the issuing financial institution $4.5 million to secure that
instrument. The letter of credit requirement will be reduced to $2.25 million on
November 1, 2004 and will expire on November 1, 2005. The deposit of $4.5
million to secure the letter of credit is included in other long-term assets in
the accompanying consolidated balance sheet at September 30, 2001.
10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
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, business strategy, planned products, products under development,
markets, budgets and plans and objectives of management for future 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 well as other factors such as, for
example: the risks associated with lower customer demand in a weak economy;
increased competition within the network management software industry; the
effects of recently-implemented cost reductions on the Company's business;
transitional inefficiencies that may arise during the Company's implementation
of recently-announced reorganization plans; and the management challenges of
implementing those plans while attempting to maintain employee motivation and
effectiveness. All subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by these Cautionary Statements, the other example factors listed
in the previous sentence, and such other statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed with this Quarterly Report.
Exhibit 10.1 Indemnification Agreement, July 18, 2001, between the Company
and Gary S. Margolis
Exhibit 10.2 Separation Agreement, dated August 1, 2001 to be effective
July 2, 2001, between the Company and Richard P. Gardner
Exhibit 10.3 Separation Agreement, dated August 3, 2001 to be effective
July 16, 2001, between the Company and Kevin M. Weiss
(b) Reports on Form 8-K.
In a Report on Form 8-K dated September 20, 2001, the Company reported that
its Board of Directors had approved a Shareholder Rights Plan (the "Plan").
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINDVIEW DEVELOPMENT CORPORATION
November 14, 2001 By: /s/ KEVIN P. COHN
----------------------------------------------------
Kevin P. Cohn
Vice President, Controller and Chief Accounting Officer
(Principal accounting officer)
12
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Indemnification Agreement, July 18, 2001, between the Company
and Gary S. Margolis
10.2 Separation Agreement, dated August 1, 2001 to be effective
July 2, 2001, between the Company and Richard P. Gardner
10.3 Separation Agreement, dated August 3, 2001 to be effective
July 16, 2001, between the Company and Kevin M. Weiss
</Table>