Borland 2002 revenues increase 10%

Revenues Rise 14% in 2002 Fourth Quarter
Including $4.4 million in revenue attributable to Starbase, revenues for the 2002 fourth quarter increased 14% to $67.1 million from $59.0 million for the fourth quarter of 2001, and license revenues rose 13% to $56.4 million from $50.1 million a year ago. Revenue growth for the quarter reflects Borland’s cross-platform leadership in software application development and deployment.

"As a result of our ongoing commitment to excellence and execution, we are pleased to report that Borland delivered its 12th consecutive quarter of positive cashflow from operations and 11th consecutive quarter of profitability," said Borland President and Chief Executive Officer Dale L. Fuller. Borland Senior Vice President and Chief Financial Officer Kenneth R. Hahn commented, "Despite a cash outflow of approximately $18.8 million for the acquisition of 79% of the outstanding shares of Starbase, at quarter end, we had cash and cash equivalents of $296 million and no long-term debt. Cashflow from operations remained positive, at $5.4 million, reflecting the ongoing cash-generating strength of our core business."

Strong Operating Performance
Gross margins for the 2002 fourth quarter increased to 86% from 84% in the fourth quarter of 2001. Gross margins improved due to lower license fees to third parties and lower packaging costs. Using Generally Accepted Accounting Principles (GAAP), operating income for the fourth quarter was $4.9 million compared with $6.0 million for the fourth quarter of 2001. On a GAAP basis, fourth quarter 2002 net income was $3.1 million, or $0.04 per diluted share, on 75.0 million weighted average shares outstanding. This compares with net income of $6.2 million, or $0.08 per diluted share, on 75.6 million weighted average shares outstanding for the 2001 fourth quarter. Pro forma operating income rose 19% year over-year to $7.4 million, excluding restructuring, amortisation of intangibles, and acquisition-related expenses of $2.5 million in the 2002 fourth quarter. This compares with pro forma operating income of $6.2 million, excluding restructuring, amortisation of intangibles, and acquisition-related expenses of $0.2 million in the 2001 fourth quarter. Pro forma non-operating income for the fourth quarter excludes a benefit of $1.6 million for a reversal of accruals established in prior periods that, due to changes in facts and circumstances, have been determined to be no longer necessary. Additionally, it excludes a one-time charge of $3.2 million for the write-down of certain investments and long-term assets. The 11.1% pro forma operating margin this past quarter represents the company’s strongest quarterly operating performance in the last two years. The effective tax rate for the 2002 fourth quarter was 35%, roughly 10 percentage points higher than anticipated. This difference resulted from profitability mix across jurisdictions and negatively impacted quarterly earnings per share by one cent. Excluding restructuring, amortisation of intangibles, and acquisition-related expenses, and excluding a non-recurring benefit and loss for the write-down of investments and long-term assets, pro forma net income for the 2002 fourth quarter was $5.8 million, or $0.08 per diluted share, on 75.0 million weighted average shares outstanding. This compares with pro forma net income of $6.4 million, or $0.08 per diluted share, on 75.6 million weighted average shares outstanding for the fourth quarter of 2001.

Borland Accelerates Application Lifecycle
"We employed the strength of our balance sheet to acquire TogetherSoft and Starbase, which we announced in the fourth quarter and closed earlier this month," stated Mr. Fuller. "Through these acquisitions, we are extending Borland’s footprint across the application lifecycle and further accelerating the development process. Time-to-market pressures continue to compress the development cycle, so businesses must seek software solutions that deliver the speed, flexibility and freedom they need to solve real-world problems," added Mr. Fuller. "When it comes to software, packaged solutions only go so far. The most successful businesses customise their software to gain competitive advantage and differentiation. The faster they can customise software, the greater the business advantage. We help customers gain a competitive advantage by enabling them to create and deploy better software faster." Continued Mr. Fuller, "Competitive market pressures are also driving the trend toward agile development and team development across disciplines, geographies, and network boundaries. With the completion of the acquisitions of TogetherSoft and Starbase, we’re tightly integrating all phases of the lifecycle process to create a single, cohesive application lifecycle solution. Borland’s solutions help improve the productivity of the team — architects, programmers, testers, implementers, business users, and managers — regardless of platform. As a result, customers continue to be drawn to Borland’s platform-neutral, best-in-class solutions that accelerate time to market and lower the total cost of ownership.

"It is clear Borland has reached the next stage in our evolution—expansion. While remaining disciplined around operational efficiency and effective execution of our business plan, we are highly focused on integrating our sales organisations, product technologies, and core operations. The success of these efforts will improve our competitive positioning and help drive our future revenues and operating profitability," concluded Mr. Fuller.

Diversified Product Mix Drives Revenue Growth
The business mix in the fourth quarter demonstrates Borland’s strength across the major areas of the software application lifecycle— from requirements management to design, develop, test, and deploy. The Java™ business increased 4% over the fourth quarter of 2001 and increased 19% sequentially. Growth in the quarter was fuelled in part by the launch of JBuilder® 8, which is tightly integrated with Borland Optimizeit™ Suite 5, widely recognised as one of the best performance assurance solutions for Java. JBuilder is ranked as the number-one development tool for Java, according to leading industry analysts. JBuilder 8 includes new enterprise-level enhancements that simplify and accelerate web and agile development. The Java business continues to be a key component of Borland’s revenue growth and represented 38% of both fourth quarter 2002 revenue and 2002 annual revenues. Borland’s Java business includes JBuilder, Enterprise Studio for Java, and OptimizeIt. The Enterprise business grew 39% sequentially and represented 21% of total 2002 fourth quarter revenues. The Enterprise business increased 12% from the 2001 fourth quarter to the 2002 fourth quarter and represented 19% of 2002 annual revenues. Growth in the Enterprise business was principally due to large transactions that closed in the quarter, primarily in the defence and government sectors. Revenues from the Enterprise business are generated from Borland VisiBroker® CORBA® solution, Borland Enterprise Server, AppServer Edition, and Web Edition application servers, and the company’s small-footprint databases, Interbase® and JDataStore™. Borland’s Rapid Application Development — or RAD — business represented 19% of total 2002 fourth quarter revenues and 24% of 2002 annual revenue. Year-over-year, revenues in the RAD business remained virtually unchanged. Sequentially, fourth quarter revenues declined 31%, as anticipated and consistent with the quarterly performance following a major release of Delphi™. Revenues from the RAD business come from sales of Delphi, C++Builder™, Enterprise Studio for Windows, and Kylix™. The newly formed Developer Services Platform (DSP), which includes the former Starbase product lines StarTeam and CaliberRM, represented 6% of fourth quarter 2002 revenue. Borland’s services business grew 19% over the 2001 fourth quarter and 2% sequentially. Services revenues represented 16% of both 2002 fourth quarter and 2002 annual revenues. Overall, growing strength in this area suggests Borland’s ongoing ability to penetrate the enterprise with Java and deployment solutions.

Geographic Breakout
Borland continues to benefit from a global geographic presence and multiple distribution channels. The addition of Starbase revenues caused a higher-than-normal mix of U.S. revenues. International revenues in the fourth quarter were 59% of revenues, which compares with 67% in the 2002 third quarter and 62% in the 2001 fourth quarter. In the fourth quarter of 2002, the Americas represented 47% of total revenues, EMEA 36%, and Asia/Pacific 17%. This compares with 41% in the Americas, 38% in EMEA, and 21% in Asia/Pacific in the 2002 third quarter.

Balance Sheet Remains Strong
Despite a cash outflow of approximately $18.8 million for the acquisition of 79% of the outstanding shares of Starbase, at December 31, 2002, Borland had cash, cash equivalents, and short-term investments of $296 million and no long-term debt. Days sales outstanding (DSOs) for the fourth quarter were 64, within the company’s target range of 60–65 days. Excluding Starbase, Borland’s DSOs were 60. This compares with DSOs of 59 in the fourth quarter of 2001 and 56 days for the third quarter of 2002. Compared with a year ago, deferred revenues rose 49% from $23.9 million to $35.6 million, of which $6.6 million is attributable to Starbase. On a sequential basis, deferred revenues rose 38% from $25.8 million in the third quarter of 2002. During the quarter, Borland utilised $168,000 to repurchase approximately 13,000 shares of Borland common stock. Since the $30 million repurchase program was authorised in September 2001, the company has used approximately $10.5 million to repurchase a total of approximately 1.2 million shares. The company expects to continue to employ cash to repurchase shares as appropriate and according to its established repurchase guidelines. Capital expenditures in the 2002 fourth quarter were $1.1 million, and depreciation and amortisation was $2.6 million. Operating cashflow performance for the fourth quarter remained healthy as the company added $5.4 million in cashflow from operations. Earnings before interest, taxes, amortisation, and depreciation (EBITDA) were $7.5 million compared with $9.4 million in the 2001 fourth quarter.

2002 Annual Revenues Increase 10%
For the year ended December 31, 2002, revenues increased 10% to $244.6 million from $221.8 million for the year ended December 31, 2001. License revenues for 2002 rose 9% to $204.5 million from $187.0 million in 2001. Gross margin for 2002 was 85% versus 84% for 2001. On a GAAP basis, 2002 operating income remained flat at $17.8 million. On a GAAP basis, net income for 2002 was $17.4 million, or $0.23 per diluted share, on 74.8 million weighted average shares outstanding. This compares with net income of $23.1 million, or $0.31 per diluted share, on 74.1 million weighted average shares outstanding for 2001. Excluding restructuring, amortisation of intangibles, and acquisition-related expenses of $7.0 million, pro forma operating income for 2002 increased 30% to $24.8 million. This compares with pro forma operating income of $19.0 million for 2001, excluding restructuring, amortisation of intangibles, and acquisition-related expenses of $1.2 million. Pro forma non-operating income for the year ended December 31, 2002 excludes a benefit of $1.6 million for a reversal of accruals established in prior periods that, due to changes in facts and circumstances, have been determined to be no longer necessary. Additionally, it excludes a one-time charge of $3.2 million for the write-down of certain investments and long-term assets. Pro forma net income for 2002 was $23.8 million, or $0.32 per diluted share, compared with pro forma net income of $24.1 million, or $0.32 per diluted share in 2001.

Forward Guidance for 2003 First Quarter and 2003 Full Year
Assuming that global economic conditions remain unchanged in the 2003 first quarter, Borland revenues are expected to range from $77-$83 million. Gross margins are expected to range from 84% to 86% in the 2003 first quarter. Because the company closed the acquisitions of TogetherSoft and Starbase in early January instead of December as previously anticipated, Borland expects to incur higher-than-anticipated transition costs. As a result, Borland expects pro forma earnings per diluted share to range from $0.00 to $0.04 in the first quarter of 2003. Pro forma earnings will exclude restructuring, amortisation of intangibles, and acquisition-related expenses. Based on anticipated profitability performance in certain jurisdictions, the company estimates an effective tax rate of 25% for 2003. Depending on Borland’s stock price performance, weighted average diluted shares outstanding could range from 83 million to 85 million, as determined by the treasury method. Borland expects that it will experience approximately $100 million of near-term cash outflows related to the recently completed acquisitions, the majority of which relates to purchase price consideration. The exact timing of such cashflows will be dependent upon specific execution of the integration of Starbase Corporation and TogetherSoft Corporation. Borland estimates 2003 year-end revenues to range from approximately $355 million to $370 million, gross margins to range from 84% to 87% range, and earnings per diluted share on a pro forma basis to range from $0.42 to $0.47.