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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 JUNE 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 August 4, 2003, the Company had 46,865,976 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)
JUNE 30, DECEMBER 31,
ASSETS 2003 2002
----------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 37,657 $ 37,760
Accounts receivable, net of allowance of $1,041 and $1,237 7,800 11,199
Other 1,250 2,052
---------- ----------
Total current assets 46,707 51,011
Property and equipment, net 6,623 7,816
Other 4,743 4,729
---------- ----------
Total assets $ 58,073 $ 63,556
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,268 $ 1,990
Accrued liabilities 6,257 6,341
Accrued compensation 2,570 3,907
Deferred revenues 13,608 12,464
---------- ----------
Total current liabilities 23,703 24,702
Deferred revenues 1,605 2,213
Other liabilities 1,126 1,215
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, 20,000 shares authorized,
none issued
Common stock, no par value, 100,000 shares authorized, 46,651
and 46,278 shares issued and outstanding 1 1
Additional paid-in capital 104,697 104,332
Notes receivable from shareholders (665) (892)
Accumulated deficit (73,242) (68,398)
Accumulated other comprehensive income 848 383
---------- ----------
Total shareholders' equity 31,639 35,426
---------- ----------
Total liabilities and shareholders' equity $ 58,073 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ -------------------------
2003 2002 2003 2002
--------- --------- --------- ----------
Revenues:
Licenses $ 7,394 $ 7,623 $ 12,590 $ 17,165
Services 7,921 7,380 15,772 14,643
--------- --------- --------- ----------
15,315 15,003 28,362 31,808
--------- --------- --------- ----------
Cost of revenues:
Licenses 95 93 211 249
Services 1,705 1,358 3,137 2,928
--------- --------- --------- ----------
1,800 1,451 3,348 3,177
--------- --------- --------- ----------
Gross profit 13,515 13,552 25,014 28,631
Operating costs and expenses:
Sales and marketing 9,269 9,515 17,027 19,878
Research and development 4,567 4,949 8,802 9,968
General and administrative 1,956 1,909 3,733 3,818
Restructuring -- -- 549 --
--------- --------- --------- ----------
Operating loss (2,277) (2,821) (5,097) (5,033)
Other income 134 146 253 1,705
--------- --------- --------- ----------
Loss before income taxes (2,143) (2,675) (4,844) (3,328)
Provision for income taxes -- 19,791 -- 19,562
--------- --------- --------- ----------
Net loss $ (2,143) $ (22,466) $ (4,844) $ (22,890)
========= ========= ========= ==========
Loss per common share - basic and
diluted $ (0.05) $ (0.43) $ (0.10) $ (0.44)
========= ========= ========= ==========
Reconciliation of net loss to comprehensive loss:
Net loss $ (2,143) $ (22,466) $ (4,844) $ (22,890)
Gain (loss) from currency translation 276 508 465 (26)
--------- --------- --------- ----------
Comprehensive loss $ (1,867) $ (21,958) $ (4,379) $ (22,916)
========= ========= ========= ==========
See notes to unaudited consolidated financial statements.
3
BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2003 2002
---------- ----------
Cash flows from operating activities:
Net loss $ (4,844) $ (22,890)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 1,894 2,205
Deferred income tax expense -- 19,562
Other 148 48
Changes in operating assets and liabilities:
Accounts receivable 3,464 1,910
Other assets 817 186
Accounts payable (739) 1,516
Accrued liabilities (1,466) (2,036)
Deferred revenues 540 1,371
---------- ----------
Net cash provided by (used in) operating
activities (186) 1,872
---------- ----------
Cash flows from investing activities:
Capital expenditures (688) (2,086)
Net proceeds from maturity of investments -- 3,253
Other -- 25
---------- ----------
Net cash provided by (used in) investing
activities (688) 1,192
---------- ----------
Cash flows from financing activities:
Repurchase of common stock -- (40)
Net proceeds from sale of common stock under ESPP 366 374
---------- ----------
Net cash provided by financing activities 366 334
Effect of exchange rate changes on cash 405 473
---------- ----------
Net increase (decrease) in cash and cash equivalents (103) 3,871
Cash and cash equivalents at beginning of year 37,760 39,791
---------- ----------
Cash and cash equivalents at end of period $ 37,657 $ 43,662
========== ==========
Non-cash financing and investing activities:
Reduction of shareholder note in lieu of guaranteed bonus $ 226 $ 261
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- ------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Numerator:
Net loss - numerator for
loss per share - basic and
diluted $ (2,143) $(22,466) $ (4,844) $(22,890)
======== ======== ======== ========
Denominator:
Denominator for basic loss per
share - weighted-average shares 46,371 51,719 46,305 51,653
Effect of dilutive securities -- -- -- --
-------- -------- -------- --------
Total diluted shares 46,371 51,719 46,305 51,653
======== ======== ======== ========
Loss per common share - basic and
diluted $ (0.05) $ (0.43) $ (0.10) $ (0.44)
======== ======== ======== ========
Options and warrants to purchase 9.0 million shares of common stock for
the three and six months ended June 30, 2003 and 9.8 million shares of common
stock for the three and six months ended June 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. 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
5
using tabular presentation as presented below. This table illustrates the effect
on net loss and loss per share (in thousands, except per share amounts) 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:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------- ------------------------------
2003 2002 2003 2002
------------ ------------ ------------ -----------
Net loss as reported $ (2,143) $ (22,466) $ (4,844) $ (22,890)
Total stock-based employee
compensation expense determined under
fair value method for all awards, net
of related tax effects (1,529) (1,866) (2,970) (3,732)
------------- ------------- ----------- -------------
Pro forma net loss $ (3,672) $ (24,332) $ (7,814) $ (26,622)
============ ============ ============ =============
Loss per common share (basic and diluted):
- - As reported $ (0.05) $ (0.43) $ (0.10) $ (0.44)
- - Pro forma $ (0.08) $ (0.47) $ (0.17) $ (0.52)
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 December 31, 2002 to June 30,
2003 was as follows (in thousands):
RESTRUCTURING CASH REMAINING ACCRUAL
CHARGES EXPENDITURES 6/30/2003
------------- ------------ -----------------
Employee severance..................... $ 442 $ (430) $ 12
Lease commitments...................... 27 (10) 17
Office closure costs................... 80 (80) --
-------- -------- -------
$ 549 $ (520) $ 29
======== ======== =======
The Company expects all actions under the 2003 Restructuring Plan to be
completed by September 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 June 30,
2003 was as follows (in thousands):
REMAINING REMAINING
ACCRUAL CASH ACCRUAL
12/31/2002 EXPENDITURES 6/30/2003
---------- ------------ ---------
Employee severance......... $ 238 $ (150) $ 88
Lease commitments.......... 944 (243) 701
-------- -------- -------
$ 1,182 $ (393) $ 789
======== ======== =======
In 2001, we completed a corporate reorganization and implemented a
number of cost-cutting measures to
6
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 six months ended June 30, 2003, approximately $74
thousand 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. RECENT PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003, and should be applied prospectively. The provisions of SFAS No. 149
that relate to SFAS No. 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003 should continue to be applied
in accordance with their respective effective dates.
On May 31, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity
and requires that those instruments be classified as liabilities (or assets in
certain circumstances) in statements of financial position. For public
companies, SFAS No. 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.
The Company does not expect the impact of adoption of these
pronouncements to have a material effect on the Company's financial position or
results of operations.
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 "Cautionary Statements" set
forth in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 2002, as well as other factors, such as: 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
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 and estimates during the six months ended June 30, 2003 compared to
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 JUNE 30, 2003 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 2002
REVENUES. Revenues for the current quarter were $15.3 million compared
with $15.0 million for the second quarter of 2002. This improvement reflected
higher services revenues, partially offset by a modest decline in license
revenue. Service revenues for the quarter increased 7.3 percent to $7.9 million,
from $7.4 million for the second quarter 2002. The increase in services revenues
was primarily due to high maintenance renewal rates and an increase in
professional services revenues. License revenues for the quarter were $7.4
million, compared with $7.6 million for the second quarter of 2002. This modest
decline in license revenue was primarily due to the deferral of certain large
transactions due to customer budget and spending sensitivities. License revenues
for the quarter were up 42 percent over the first quarter of 2003 reflecting the
benefits of a more robust working sales pipeline at the beginning of the quarter
and an increase in the number of large transactions closed during the quarter.
During the three months ended June 30, 2003, we closed 18 transactions
over $130 thousand, having an average sales price of $310 thousand, compared
with 16 transactions over $130 thousand in the second quarter of 2002, having an
average sales price of $232 thousand. During the current quarter, we closed 4
transactions over $400 thousand whereas in the preceding quarter we did not
close a single transaction over that amount.
During the second quarter of 2003, revenues from our products for
Microsoft-based platforms totaled $10.4 million, a increase of 7 percent over
the second quarter of 2002. Revenues from these products accounted for
approximately 68 percent of total revenues in the current quarter, up from 65
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 $2.9
million, or 19 percent of total revenues, compared with 3.7 million in the
second quarter of 2002, or 25 percent of total revenues. Revenues from these
products have been declining over the past year, reflecting both the maturity
and our penetration of the Novell market. We expect revenues from our software
products on Microsoft-based
8
platforms will continue to grow as a percentage of total revenues.
Sales of our security focused bv-Control product line accounted for
approximately 77 percent of our license revenue in the current quarter compared
with 76 percent in the second quarter of 2002. Sales of our system
administration focused bv-Admin product line accounted for approximately 23
percent of our license revenue in the first quarter of 2003 compared with 24
percent in the second quarter of 2002.
No customer accounted for more than 10 percent of our revenues in the
second quarter of 2003 or 2002. Revenues recognized from sales to customers
outside North America, primarily in Europe, accounted for approximately 16
percent of total revenues in the current quarter compared with 13 percent in the
second quarter of 2002.
GROSS PROFIT. Gross profit for the current quarter totaled $13.5
million, down slightly from $13.6 million in the second quarter of 2002. Gross
margin for the current quarter was 88.2 percent compared with 90.3 percent in
the second quarter of 2002. The decrease in gross margin related to a shift in
business mix toward services revenues, which have a lower gross margin than
license revenues. Additionally, the cost of services has increased as a result
of increases in the cost of technical support staff servicing our growing
customer base.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
current quarter totaled $15.8 million, down from $16.4 million for the second
quarter of 2002. Total operating costs for the current quarter reflect the
benefits of our expense reduction plans and improved operating efficiency.
Sales and marketing expenses for the current quarter were $9.3 million,
down from $9.5 million for the second 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. We
expect sales and marketing expenses as a percentage of revenues to be lower in
the second half of 2003 due to anticipated revenue growth.
Research and development expenses for the current quarter were $4.6
million, down from $4.9 million for the second 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 which we expect to continue to leverage in the future. As
a result of this initiative and anticipated revenue growth, we expect future
research and development expenses to decrease as a percentage of revenues.
General and administrative expenses for the current quarter were $2.0
million, up from $1.9 million for the second 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 December 31, 2002 to June 30,
2003 was as follows (in thousands):
RESTRUCTURING CASH REMAINING ACCRUAL
CHARGES EXPENDITURES 6/30/2003
------------- ------------ -----------------
Employee severance..................... $ 442 $ (430) $ 12
Lease commitments...................... 27 (10) 17
Office closure costs................... 80 (80) --
-------- ------- ------
$ 549 $ ( 520) $ 29
======== ======= ======
The Company expects all actions under the 2003 Restructuring Plan to be
completed by September 2003.
9
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 June 30,
2003 was as follows (in thousands):
REMAINING REMAINING
ACCRUAL CASH ACCRUAL
12/31/2002 EXPENDITURES 6/30/2003
----------- ------------ ---------
Employee severance..................... $ 238 $ (150) $ 88
Lease commitments...................... 944 (243) 701
-------- ------- --------
$ 1,182 $ (393) $ 789
======== ======= ========
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 six
months ended June 30, 2003, approximately $74 thousand was charged against that
accrual.
PROVISION FOR INCOME TAXES. We provided a full valuation allowance
against the deferred tax assets of $19.8 million in the second quarter of 2002.
As required by Statement of Financial Accounting Standards 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 quarter
ended June 30, 2003 was $2.1 million compared with $22.5 million for the quarter
ended June 30, 2002.
OUTLOOK. We expect revenues to exceed $67 million for the full year
2003, which would be an increase over revenues generated in 2002. We anticipate
that revenues for both the third and fourth quarters of 2003 will increase
compared with the corresponding quarters in 2002 and total at least $39 million.
We believe our ability to achieve our revenue expectations is dependent upon a
number of factors including execution of large transactions within our sales
pipeline, which we believe to be sufficient for accomplishing our financial
goals for the year. Operating income for the second half of 2003 is anticipated
to range between $2.7 million and $2.9 million and net income to range between
$2.9 million and $3.1 million, or between $0.06 and $0.07 per share.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2002
REVENUES. Revenues for the first six months of 2003 decreased 10.8
percent to $28.4 million, from $31.8 million for the first six 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 six months
of 2003 were $12.6 million compared with $17.2 million in the first six months
of 2002. This decline was due to: (i) fewer large transactions being closed
during the first six months of 2003, (ii) customer budget and spending
sensitivities, which we believe were driven by the weak economic outlook, and
(iii) the effects of major organizational and go-to-market changes in sales and
marketing that took place during the first quarter of 2003. Service revenues
increased to $15.8 million, from $14.6 million for the first six months of 2002.
The increase in services revenues was primarily due to high maintenance renewal
rates and an increase in professional services revenues.
10
During the six months ended June 30, 2003, we closed 30 transactions
over $130 thousand, having an average sales price of $278 thousand, compared
with 33 transactions over $130 thousand during the six months ended June 30,
2002, having an average sales price of $304 thousand.
GROSS PROFIT. Gross profit for the first six months of 2003 totaled
$25.0 million, which was down from $28.6 million in the first six months of 2002
primarily as a result of the decline in license revenues. Gross margin for the
first six months of 2003 was 88.2 percent compared with 90.0 percent in the
first six months of 2002. The decrease in gross profit and gross margin related
to the decline in license revenues noted above.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the six
months ended June 30, 2003 totaled $30.1 million, down from $33.7 million for
the six months ended June 30, 2002. The reduction in total operating costs
reflect the benefits of our expense reduction plans and improved operating
efficiency.
Sales and marketing expenses for the six months ended June 30, 2003
were $17.0 million, down from $19.9 million for the six months ended June 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 second half of 2003 due to anticipated revenue growth.
Research and development expenses for the six months ended June 30,
2003 were $8.8 million, down from $10.0 million for the six months ended June
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 which we expect to continue to
leverage in the future. As a result of this initiative and anticipated revenue
growth, we expect future research and development expenses to decrease as a
percentage of revenues.
General and administrative expenses for the six months ended June 30,
2003 were $3.7 million, down from $3.8 million for the six months ended June 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.
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 December 31, 2002 to June 30,
2003 was as follows (in thousands):
RESTRUCTURING CASH REMAINING ACCRUAL
CHARGES EXPENDITURES 6/30/2003
------------- ------------ -----------------
Employee severance..................... $ 442 $ (430) $ 12
Lease commitments...................... 27 (10) 17
Office closure costs................... 80 (80) --
-------- ------- ------
$ 549 $ (520) $ 29
======== ======= ======
The Company expects all actions under the 2003 Restructuring Plan to be
completed by September 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 June 30,
2003 was as follows (in thousands):
11
REMAINING REMAINING
ACCRUAL CASH ACCRUAL
12/31/2002 EXPENDITURES 6/30/2003
----------- ------------ ---------
Employee severance..................... $ 238 $ (150) $ 88
Lease commitments...................... 944 (243) 701
------ ------- ------
$1,182 $ (393) $ 789
====== ======= ======
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 six
months ended June 30, 2003, approximately $74 thousand was charged against that
accrual.
OTHER INCOME. Other income totaled $0.3 million and $1.7 million for
the six months ended June 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 during the six months ended
June 30, 2002. As required by Statement of Financial Accounting Standards 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 first
six months ended June 30, 2003 was $4.8 million compared with $22.9 million for
the first six months ended June 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 $37.7
million at June 30, 2003 compared with $37.8 million at December 31, 2002.
Cash flows provided by (used in) operating activities were $(0.2)
million in the first six months of 2003 compared with $1.9 million in the first
six months of 2002. The decrease in cash provided by operating activities in
2003 was due to: (i) 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 and (ii) an increase in our operating loss during the first six months
of 2003 compared to the first six months of 2002.
Cash flows provided by (used in) investing activities were $(0.7)
million in the first six months of 2003 compared with $1.2 million in the first
six months of 2002. The change in cash flows associated with investing
activities primarily related to a reduction in proceeds generated from the
maturity of investments of $3.3 million. This decrease was partially offset by
lower capital expenditures. Capital expenditures for the first six months of
2003 were $0.7 million compared with $2.1 million for the first six months of
2002. Capital expenditures for the first six 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.
Cash flows provided by financing activities were $0.4 million in the
first six months of 2003 compared with $0.3 million in the first six months of
2002. Cash provided by financing activities during the first six months of
12
2003 and 2002 was the result of $0.4 million in cash provided primarily by
employee purchases of common stock through our Employee Stock Purchase Plan. The
cash provided by financing activities for the first six months of 2002 was
partially offset by the use of $0.1 million in cash to repurchase 0.1 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 June 30, 2003:
CONTRACTUAL OBLIGATION TOTAL 2003 2004 -- 2006 2007 - 2008 2009 AND BEYOND
---------------------- ----- ---- ------------ ----------- ----------------
Operating leases................... $ 33,143 $ 892 $ 11,769 $ 8,929 $ 11,553
Sub-leasing arrangements*.......... (1,106) (543) (563) -- --
-------- ------- --------- --------- ---------
$ 32,037 $ 349 $ 11,206 $ 8,929 $ 11,553
======== ======= ========= ========= =========
* 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 outflows on operating lease commitments.
Our expected principal cash requirements for the remainder of 2003 are:
(i) capital expenditures between $1.0 and $1.5 million, primarily for computer
and software equipment, (ii) working capital requirements, and (iii) net
payments on operating leases of approximately $0.4 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, have 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 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, 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
13
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.
In November 2002 the Company's Board of Directors approved a voluntary
option exchange program whereby employees (except senior management) with
options having existing exercise prices of $3.00 and above could surrender those
options for a lesser number of new options to be issued by the Company at least
six months and one day from the date of surrender. In May and June of 2003, the
Company made certain filings with the Securities and Exchange Commission to
comply with the position of the Division of Corporation Finance of the
Securities and Exchange Commission that compensatory exchange offers such as the
exchange offering are subject to the issuer tender offer rules of the Securities
and Exchange Commission. On July 21, 2003, eligible employees were granted their
new options pursuant to the exchange offer to purchase approximately 259,108
shares of common stock in exchange for qualifying old options. The last reported
sale price of the Company's common stock on July 21, 2003, the date the new
options were granted, was $2.07 per share.
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 May 8, 2003, the Company reported it had
issued a press release announcing financial results for the quarter ended March
31, 2003.
14
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
August 12, 2003 By: /s/ Kevin P. Cohn
----------------------------------------
Kevin P. Cohn
Vice President, Controller and Chief
Accounting Officer (Principal Accounting
Officer)
15
INDEX TO EXHIBIT
EXHIBIT NO. 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