<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period ended ________________ to ________________
Commission File No. 0-16096
BORLAND INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2895440
(STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 BORLAND WAY, SCOTTS VALLEY, CALIFORNIA 95066-3249
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 431-1000
(Former name, former address and former fiscal year, if changed since last
report) N/A
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
--- ---
The number of shares of common stock outstanding as of
July 31, 1996 was 31,358,628.
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BORLAND INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1996 and
March 31, 1996............................................... 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1996 and 1995.................... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1996 and 1995.................... 5
Notes to Unaudited Condensed Consolidated
Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 7
PART II - OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K................................ 14
Signatures.............................................................. 15
2
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PART I - FINANCIAL INFORMATION
BORLAND INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
---------- ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............. $ 78,724 $ 74,682
Short-term investments................ 7,956 15,464
Accounts receivable, net.............. 18,649 34,151
Inventories........................... 1,735 1,599
Other................................. 7,973 7,321
--------- ---------
Total current assets............... 115,037 133,217
Property and equipment, net.............. 112,046 114,612
Other non-current assets................. 7,724 7,758
--------- ---------
Total assets....................... $ 234,807 $ 255,587
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 14,689 $ 21,151
Accrued expenses...................... 19,862 18,728
Short-term restructuring.............. 2,264 2,684
Income taxes payable.................. 8,036 9,244
Other................................. 16,197 17,647
--------- ---------
Total current liabilities.......... 61,048 69,454
Long-term debt and other................. 14,315 14,555
--------- ---------
Total liabilities.................. 75,363 84,009
--------- ---------
Stockholders' equity:
Common stock; $.01 par value;
100,000 shares authorized;
31,356 and 31,168 issued and
outstanding.......................... 314 312
Additional paid-in capital............ 281,354 279,083
Accumulated deficit................... (126,143) (112,015)
Cumulative translation adjustment..... 3,919 4,198
--------- ---------
Total stockholders' equity......... 159,444 171,578
--------- ---------
$ 234,807 $ 255,587
========= =========
</TABLE>
See accompanying notes
3
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BORLAND INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenues.............................. $ 34,537 $53,766
Cost of revenues.......................... 6,483 8,070
-------- -------
Gross profit.............................. 28,054 45,696
-------- -------
Selling, general and administrative....... 33,650 32,772
Research and development.................. 11,680 10,230
-------- -------
Total operating expenses............... 45,330 43,002
-------- -------
Operating profit (loss)................... (17,276) 2,694
Interest income, net and other............ 1,747 812
-------- -------
Income (loss) before income taxes......... (15,529) 3,506
Income tax provision (benefit)............ (1,401) 701
-------- -------
Net income (loss)........................ $(14,128) $ 2,805
======== =======
Net income (loss) per common and common
equivalent share......................... $(.45) $.10
======== =======
Weighted average number of common and
common equivalent shares outstanding..... 31,307 29,127
======== =======
</TABLE>
See accompanying notes
4
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BORLAND INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(14,128) $ 2,805
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,621 4,483
Changes in assets and liabilities:
Accounts receivable 15,231 572
Inventories (136) 5,025
Accounts payable, accrued
expenses and short-term
restructuring (5,519) (20,699)
Income taxes payable (1,208) 829
Other (2,416) (6,349)
-------- --------
Cash used by operating activities (4,555) (13,334)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (992) (333)
Sale of fixed assets and assets held
for sale 21 3,602
Net change in short-term investments 7,508 --
-------- --------
Cash provided by investing
activities 6,537 3,269
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 2,251 6,768
Repayment of capital lease (28) (300)
obligations and other debt activity -------- --------
Cash provided by financing
activities 2,223 6,468
-------- --------
Effect of exchange rate changes on cash (163) 938
-------- --------
Net change in cash and cash equivalents 4,042 (2,659)
Beginning cash and cash equivalents 74,682 68,193
-------- --------
Ending cash and cash equivalents $ 78,724 $ 65,534
======== ========
</TABLE>
See accompanying notes
5
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BORLAND INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results for the periods shown. The results of
operations for such periods are not necessarily indicative of the results
expected for the entire fiscal year, which ends on March 31, 1997.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of Borland International, Inc. for the year ended March 31, 1996 included in the
Registrant's Form 10-K.
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2. EARNINGS (LOSS) PER SHARE
Net income (loss) per common and common equivalent share for the three
months ended June 30, 1996 and 1995 was determined using the modified treasury
stock method.
NOTE 3. RESTRUCTURING CHARGES
There have been no changes to the Company's estimate of the total cost
of restructurings subsequent to March 31, 1996. During the three months ended
June 30, 1996, the restructuring reserves decreased by $.7 million primarily due
to cash payments related to noncancellable rent costs of excess facilities.
There were no non-cash charges during the quarter.
NOTE 4. INCOME TAXES
The income tax provision for the first quarter of fiscal 1997 reflects
a federal income tax benefit of approximately $2.0 million resulting from a
settlement reached with the Internal Revenue Service. The settlement resolved
differences regarding certain disputed deductions related to the tax years
ending in 1986 - 1991 for its former subsidiary Ashton Tate Corporation.
Additionally, the Company recorded interest income of $.9 million related to
this settlement.
Excluding the settlement benefit, the Company would have incurred
income tax expense of approximately $.6 million for the quarter ended June 30,
1996. The income tax expense, despite a pretax loss, is comprised of non-U.S.
withholding taxes, which are assessed without regard to the profitability of the
applicable operation, and income tax on the geographic distribution of income
and expenses.
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NOTE 5. SUBSEQUENT EVENTS
On July 2, 1996, the Company announced the resignation of Gary A.
Wetsel as president and chief executive officer. Dr. William F. Miller,
Chairman of the Company's Board of Directors will serve as acting chief
executive officer and president until a replacement is appointed.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion and analysis is designed to be read in conjunction
with the Management's Discussion and Analysis set forth in the Company's Form
10-K for the fiscal year ended March 31, 1996. Historical results and
percentage relationships should not be taken as necessarily indicative of the
operating results for any future period.
In addition to an analysis of recent and historical financial results,
the Form 10-K includes an analysis of certain risks of the Company's business,
including risks which are inherent to software development as well as specific
risks relating to the competitive environment in which the Company operates.
Although the Company has sought to identify the most significant risks to its
business, the Company cannot predict whether, or to what extent any of such
risks may be realized nor can there be any assurance that the Company has
identified all possible issues which the Company might face. In particular, the
Company has recently experienced substantial changes in its operations and
competitive environment and has suffered a significant loss from operations in
the quarter ended June 30, 1996 . Among other factors the challenges and
opportunities presented by the Company's recent focus on software development
tools, including tools for the client/server and Internet/Intranet market, the
announced agreement to merge with Open Environment Corporation (OEC), as well as
the market acceptance of Windows 95/NT and the emergence of the Internet as a
potentially important new computing paradigm, all contribute to future
uncertainties. Investors should carefully read the Company's filings with the
Securities and Exchange Commission, together with this 10-Q, and consider all
trends and uncertainties concerning the Company's business before making an
investment decision with respect to the Company's stock.
Although the Company realized operating profits in each of the four
quarters ended March 31, 1996, the Company experienced a substantial operating
loss for the quarter ended June 30, 1996 as well as operating losses for the
four prior fiscal years ended March 31, 1995. The Company expects to continue
to experience operating losses at least through the quarter ending December 31,
1996. Among other matters, the Company's ability to regain profitability will
be substantially dependent upon its ability to successfully complete and
introduce new products and to successfully integrate OEC. There can be no
assurance that the Company will be able to successfully accomplish the foregoing
or to regain proifitability in future periods.
The following table sets forth the unaudited consolidated results of
operations as a percentage of net revenues for the three months ended June 30,
1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1996 1995
------- -------
<S> <C> <C>
Net revenues................................ 100.0% 100.0%
Cost of revenues............................ 18.8 15.0
------ ------
Gross margin................................ 81.2 85.0
------ ------
Selling, general and administrative......... 97.4 61.0
Research and development.................... 33.8 19.0
------ ------
Total operating expenses.................... 131.2 80.0
------ ------
Operating profit (loss)..................... (50.0) 5.0
Interest income, net and other.............. 5.0 1.5
------ ------
Income (loss) before income taxes........... (45.0) 6.5
Income tax provision (benefit).............. (4.1) 1.3
------ ------
Net income (loss)........................... (40.9)% 5.2%
====== ======
</TABLE>
7
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NET REVENUES
The Company is engaged in the single business segment of designing,
producing and marketing computer software, primarily programming language and
database management tools. The Company provides such software development tools,
including tools for the client/server and Internet/Intranet market, along with
add-on products and services, to the software developer community. The Company
has several product lines which run primarily on personal computers running
under Windows and Windows 95/NT operating systems.
The Company distributes its products domestically and internationally
through independent distributors, dealers, ISVs and VARs and also by direct
marketing and sales to corporate, governmental, educational and end-user
customers. The Company offers certain return privileges to some of its
customers, and also offers its distributors certain limited product exchange
privileges and rebates. The Company recognizes revenue upon shipment subject to
allowances for estimated future returns, exchanges and rebates.
Net revenues were $34.5 million for the first quarter of fiscal 1997
as compared to $62.9 million for the quarter ended March 31, 1996. Included in
the net revenues for the fourth quarter of fiscal 1996 was $4.4 million related
to the recognition of deferred revenue from the sale of one million licenses of
Paradox for Windows to Novell. Exclusive of such Paradox license revenues, total
net revenues decreased in the first fiscal quarter of 1997 from the fourth
fiscal quarter of 1996 by $24.0 million or 41%. Consistent with historical
patterns, first quarter revenues from the Delphi and Borland C++ product lines
declined following the introduction of these products in the fourth quarter.
However, the decrease from the prior quarter was more significant than
historical trends due to the performance of sales in the U.S., particularly in
the Delphi Desktop and Borland C++ 5.0 products. The Company believes this
incremental shortfall is primarily attributable to the adoption rate of Windows
95/NT, the failure thus far to attract a significant number of new customers for
the Delphi products due to premium pricing and the absence of trial versions,
and the delay in the inclusion of Microsoft's Foundation Class Libraries (a
standard framework for application development within large corporations) in the
Borland C++ package. Further, although first quarter revenues benefited from the
release of Paradox 7.0 for Windows 3.1, sales were less than anticipated for the
quarter in the U.S. In addition, unlike the fourth quarter, first quarter fiscal
1997 revenues in the U.S. did not benefit from any individually significant
InterBase or Delphi Client/Server corporate sales contracts.
Net revenues for the quarter ended June 30, 1996 were $34.5 million
compared to $53.8 million for the same quarter of the prior fiscal year. The
Company believes this decrease in revenues is attributable to the factors
discussed in the previous paragraph, as well as to unit volume declines in the
desktop database products and an overall increasingly competitive marketplace.
This decrease was partially offset by growth in revenues from the Company's
client/server products which is consistent with the Company's strategy.
The Company's non-U.S. net revenues represented approximately 84% and
57% of total net revenues in the first fiscal quarters ended June 30, 1996 and
1995, respectively. The percentage of non-U.S. net revenues was higher in the
three months ended June 30, 1996, primarily due to the shortfall in revenue in
the U.S. In addition, non-U.S. net revenues benefited from the Japanese releases
of Delphi 2.0 and Paradox 7.0 late in the quarter. In absolute dollars, non-U.S.
net revenues remained at approximately the same level for the first quarter
ending June 30, 1996 when compared to the same quarter of the previous fiscal
year. Similar to trends occurring in the U.S., non-U.S. net revenues experienced
a decline in desktop revenues which was offset by increases in client/server
revenues.
The Company has seen a significant decline in the sales of its DOS
products following the introduction of its Windows versions of the same
products. Similarly, as the Windows 95/NT operating system continues to be
adopted, the Company expects to experience a decline in both the DOS and Windows
3.1 versions for its products. The extent to which such decline will be offset
by revenues from the release of the Windows 95/NT versions of its products is
uncertain and subject to a number of risks. For example, due in part to slower
than expected migration to Windows 95/NT during the third and fourth quarters of
fiscal 1996 and the first quarter of fiscal 1997, revenues arising from the
release of Windows 95/NT applications, including Paradox 7.0 for Windows 95/NT,
have been lower than anticipated. If revenues from such Windows 3.1 products
decline materially or at a more rapid rate than
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the Company currently anticipates, the Company's business, operating results and
financial condition would be materially and adversely affected.
In light of the expected migration of customers to the Windows 95/NT
operating environment and an expected increase in revenues from client/server
products, it is uncertain whether the Company's historical product life cycle
will continue. Among other matters, the Company believes that a share in the DOS
or Windows market does not or will not automatically result in market share in
the Windows 95/NT market. As a result, the Company cannot predict the rate at
which owners of its current products are likely to upgrade to its products for a
different operating system. Also, to the extent that there are any
incompatibilities between the Company's products and Windows 95/NT, there could
be an adverse effect on the sale of the Company's products. In addition, the
Company has, in the past, experienced declining sales of certain of its products
in anticipation of the release of new products. Furthermore, the Company cannot
determine whether the increasing price competition in the industry, the timing
of competitors' product releases or other factors will have an adverse effect
upon the product upgrade revenue which has historically been a significant
component of the Company's revenue. Finally, a greater portion of the Company's
revenues are being derived from client/server sales which are characterized by
long sales cycles and increased transaction values. As a result, such revenues
may be subject to increased variability over time.
The Company expects that a significant portion of its fiscal 1997
revenues will come from new products and new versions of existing products,
including the release of products on the Windows 95/NT operating system, as well
as the release of products for Internet/Intranet-related development. There can
be no assurances that sales of such new products and versions will meet the
Company's expectations due to various factors. For example, the Company may
introduce certain of such products later to market than expected or later to
market than competitors' introductions, or competitors may introduce competitive
products at lower prices. In addition, overall questions regarding the
acceptance of new products or the acceptance of the Windows 95/NT operating
systems, the Internet as a new computing paradigm or Sun Microsystems Inc.'s
Java programming language, may adversely affect such sales.
The Company also expects that the current and new versions of its
client/server development tools products will contribute a significant portion
of its fiscal 1997 revenues. The Company's proposed acquisition of OEC is
consistent with its strategy to focus on software developers and the
opportunities associated with the client/server, multi-tier market. The
Company's relatively recent entry into this market is subject to a number of
risks, including that the Company has historically not competed in this market,
that the market itself is new and evolving, that the Company must make choices
regarding the operating systems to focus upon, and that there are several very
large and well entrenched businesses as well as a number of smaller, very
successful companies already competing in this market. There can be no
assurances that the sales of these client/server, multi-tier products will meet
the Company's expectations due to various factors including the ongoing
transition of and investment in resources for this segment by the Company, the
Company's credibility in this arena, and a competitive environment in which many
of the Company's competitors have greater financial resources which may be
leveraged to gain market share.
From time to time the Company makes announcements to its customers
with respect to the time frames within which the Company expects to ship new
products. For example, the Company has announced its goal to introduce a Java
development tool, code name Latte, and a WEB based database solution, named
IntraBuilder, in the latter half of the calendar year 1996. Such announcements
are for the purpose of providing its customers with a general idea of the
expected availability of products for planning purposes based only upon
estimates and are not a prediction by the Company of the exact availability of
such products. In the past, certain of the Company's products shipped later, and
in some cases substantially later, than the time frame within which the Company
originally anticipated that the products would be available. Due to the inherent
uncertainties of software development, it is likely that such situations will
occur from time to time in the future as well. Moreover, the loss of key
employees may increase the risk of delays in product availability from time
frames originally anticipated. Consequently, announcements regarding the
Company's expectations of when products may ship should not be considered a
prediction by the Company that the products will ship in any particular fiscal
quarter or otherwise be relied upon by investors as a basis for predicting the
Company's results for any future period.
The market for computer software products continues to evolve rapidly.
Although the introduction of Windows 95/NT captured substantial attention during
most of 1995, by the latter part of 1995, much of the attention of the
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software industry had shifted to the Internet and the Java programming language
as well as increasing attention on Windows NT. The Company has made
announcements regarding research and development projects responsive to these
developments, such as the Company's Java development tool, code name Latte and
its database solution for the WEB, named IntraBuilder. However, the Company does
not anticipate any material revenues from any such products until at least the
fourth quarter of fiscal 1997. Moreover, the Company is unable to predict the
impact of such developments on the markets for the Company's existing products.
GROSS MARGINS
Gross margins decreased to 81.2% of net revenues in the quarter ended
June 30, 1996 from 85.0% in the quarter ended June 30, 1995. The decline in the
gross margin percentage was due primarily to substantially lower U.S. revenues
which resulted in the fixed components of cost of revenues being spread across a
lower revenue base.
Gross margins can be affected by various factors, including price
changes, changes in the composition of sales by product or distribution channel,
sales volumes, special product promotions and return privileges, all of which
may be subject to other factors, including the timing of product releases,
actions taken by competitors, or other factors beyond the Company's control. In
particular, the Company's gross margins can be strongly affected in particular
periods by aggressive pricing strategies and return privileges employed in
connection with new product introductions and upgrades. The microcomputer
software industry continues to experience substantial price competition. The
extent to which price competition may require the Company to lower prices with
the result of lower margins remains uncertain.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $33.6 million and
$32.8 million for the quarters ended June 30, 1996 and 1995, and were 97.4% and
61.0% of net revenues, respectively. Although selling, general and
administrative expenses remained relatively flat year over year, these costs as
a percentage of revenues increased substantially due to the decline in U.S. net
revenues.
Although certain selling, general and administrative expenses can be
managed or controlled on a short term basis, a substantial portion of such
expenses are essentially fixed on a quarter to quarter basis. As a result, when
the Company suffers adverse effects to its net revenues or margins because of
delays in new product introductions, price competition or other competitive
factors, in the short term the Company generally is unable to take actions to
substantially reduce expenses.
The Company incurs substantial expenses in connection with the
introduction of new products and generally a significant portion of such costs
are incurred prior to the release of the new products. As a result, in addition
to the general risks associated with the ultimate success of the Company's new
products, results for any quarter may be materially and adversely affected to
the extent significant expenses are incurred, but significant revenues from the
new product are not recognized until the following quarter.
RESEARCH AND DEVELOPMENT
Research and development expenses were $11.7 million and $10.2 million
in the quarters ended June 30, 1996 and 1995, and were 33.8% and 19.0% of net
revenues, respectively. The increase in research and development expenses is
principally due to efforts associated with the development of future
Internet/Intranet-specific tools such as a visual development tool for Java,
code named Latte.
The Company's focus on providing products to the software developer
community is subject to a number of uncertainties including, but not limited to,
the Company's ability to make timely product introductions, the market's
acceptance of the Windows 95/NT operating platform, the increasing importance of
Internet technologies, and competitive responses to the Company's strategic
actions. The Company believes that it is necessary to continue to
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invest in research and development efforts to remain competitive. Because of the
inherent uncertainties of software development projects, there can be no
assurance that the Company's research and development efforts will result in
successful product introductions or increased revenue.
RESULTS OF RESTRUCTURING
There have been no changes to the Company's estimate of the total cost
of restructurings subsequent to March 31, 1996. During the three months ended
June 30, 1996, the restructuring reserves decreased by $.7 million primarily due
to cash payments related to noncancellable rent costs of excess facilities.
There were no non-cash charges during the quarter.
INTEREST INCOME, NET AND OTHER
Interest income, net and other was $1.7 million and $.8 million for
the quarters ended June 30, 1996 and 1995, and were 5.1% and 1.5% of net
revenues, respectively. The increase is primarily due to an increase in interest
income of $.9 million related to a tax settlement with Internal Revenue
Service.
INCOME TAXES
The income tax provision for the first quarter of fiscal 1997 reflects
a federal income tax benefit of approximately $2.0 million resulting from a
settlement reached with the Internal Revenue Service. The settlement resolved
differences regarding certain disputed deductions related to the tax years
ending in 1986 - 1991 for its former subsidiary Ashton Tate Corporation.
Excluding the settlement benefit, the Company would have incurred an
income tax expense of approximately $.6 million. The income tax expense, despite
a pretax loss, is comprised of non-U.S. withholding taxes, which are assessed
without regard to the profitability of the applicable operation, and income tax
on the geographic distribution of income and expenses.
LITIGATION
The Company is subject to a lawsuit, Kaplan et al v. Kahn et al,
--------------------------
originally brought in the United States District Court for the Northern District
of California in January, 1993, which alleges certain securities law violations
by the Company and certain of its officers and directors. The lawsuit, as
amended, purports to represent a class of investors who purchased or otherwise
acquired the Company's Common Stock between March 5, 1991 and December 9, 1992.
As of February 29, 1996 the parties entered into a stipulation to settle this
matter. This stipulation has been submitted to the Court for approval. Although
the Company expects the settlement will be approved, the Company cannot predict
at this time when or if the Court will approve such settlement. If the
settlement is approved, there will not be any material adverse effect on the
Company's financial condition or results of operations. In particular, the
Company has already recorded a charge reserving in full for the amount of the
agreed settlement to be paid by the Company. Further as such amount has been
deposited in an escrow account pending the approval of the settlement,
settlement on the terms agreed will not affect the Company's liquidity.
On February 28, 1995, the Company and certain of its officers and
directors were named as defendants in a lawsuit, Crook et al v. Kahn et al filed
-------------------------
in the U. S. District Court for the Northern District of California. The
complaint alleges certain violations of the federal securities laws and purports
to be brought as a class action on behalf of all persons other than the
defendants, who purchased or otherwise acquired the Common Stock of the Company
between June 6, 1994 and October 19, 1994. As of February 29, 1996 the parties
entered into a stipulation to settle this matter. This stipulation has been
submitted to the Court for approval. Although the Company expects the settlement
will be approved, the Company cannot predict at this time when or if the Court
will approve such
11
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settlement. If the settlement is approved, there will not be any material
adverse effect on the Company's financial condition or results of operations. In
particular, the Company has already recorded a charge reserving in full for the
amount of the agreed settlement to be paid by the Company. Further as such
amount has been deposited in an escrow account pending the approval of the
settlement, settlement on the terms agreed will not affect the Company's
liquidity.
The Company is involved in various other legal actions arising in the
normal course of business. The Company believes that the probability is remote
that the financial consequence of judgments, if any, arising from these actions
would have a materially adverse impact on its financial condition or results of
operations. However, due to the inherent uncertainties of litigation, the
outcome of any of these actions could be unfavorable and the Company may choose
to make payments, or enter into other arrangements, to settle such actions or
may be required to pay damages or other expenses. Such an outcome in certain of
these matters could have a material adverse effect on the Company's financial
condition or results of operations.
The computer industry has been subject to a substantial amount of
intra-industry litigation in recent years regarding, among other matters, the
extent of patent, copyright and intellectual property protection available for
software products. Such actions can require the expenditure of substantial
management time and financial resources and can adversely affect the financial
performance of the companies involved. There can be no assurance that the
Company will not be a party to other such litigation in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $86.7 million
at June 30, 1996 a decrease of $3.4 million from a balance of $90.1 million at
March 31, 1996. Working capital decreased from $63.8 million as of March 31,
1996 to $54.0 million as of June 30, 1996.
Net cash used by the Company for operating activities in the three
months ended June 30, 1996 was $4.6 million and was primarily comprised of the
Company's net loss of $14.1 million offset by a $15.2 million reduction in the
accounts receivable balance related to significant cash collections..
Additionally, $5.5 million was used to pay down accounts payable and accrued
expenses that originated in the quarter ended March 31, 1996, when spending
levels were generally higher than in the subsequent quarter. Net cash provided
by investing activities of $6.5 million consisted primarily of $7.5 million from
the maturity of short-term investments, less $1.0 million of equipment
purchases. Financing activities provided net cash of $2.2 million, primarily
from exercises of employee stock options.
The company believes that its existing cash balances and funds
expected to be provided by operations will be sufficient to finance its working
capital requirements at least through the next twelve months.
RECENT EVENTS
On May 11, 1996, the Company entered into a definitive merger
agreement with Open Environment Corporation (OEC) which provides for the
acquisition of OEC by Borland. Completion of the transaction is expected to
occur in the second quarter of fiscal year 1997 and is subject to, among other
requirements, approval of OEC's shareholders and the receipt of all required
governmental approvals.
Under the terms of the agreement, which was amended on July 31, 1996,
OEC stockholder's will receive 0.66 shares of Borland common stock for each
share of OEC common stock held by them. It is anticipated that the transaction
will be accounted for as a pooling of interests.
OEC develops, markets and supports software that enables companies to
create applications for distributed, client/server computing systems. OEC
develops three-tiered client/server software architecture that allows customers
12
<PAGE>
to develop, deploy and manage software applications which access information on
an enterprise-wide basis. OEC's product line includes Entera, an independent
framework for building, managing and deploying scaleable, client/server
applications, and OLEnterprise, an open, distributed object environment based on
Microsoft's OLE.
If this transaction is consummated, the financial position and results
of operations of the Company and OEC will be combined in fiscal 1997 retroactive
to April 1, 1996 and the fiscal year of OEC will be conformed to the Company's
fiscal year. In addition, all prior periods presented will be restated to give
effect to the merger. The Company's fiscal 1996 financial statements will be
combined with OEC's financial statements for the year ended December 31, 1995.
OEC's operating results for the period January 1, 1996 to March 31, 1996 will be
reflected as an adjustment to the combined Company's retained earnings on April
1, 1996.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
BORLAND INTERNATIONAL, INC.
----------------------------------
(Registrant)
Date: August 6, 1996
/s/ DAVID MULLIN
----------------------------------
DAVID MULLIN
Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10Q OF BORLAND
INTERNATIONAL, INC. THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 78,724
<SECURITIES> 7,956
<RECEIVABLES> 18,649
<ALLOWANCES> 0
<INVENTORY> 1,735
<CURRENT-ASSETS> 115,037
<PP&E> 112,046
<DEPRECIATION> 0
<TOTAL-ASSETS> 234,807
<CURRENT-LIABILITIES> 61,048
<BONDS> 0
0
0
<COMMON> 281,668
<OTHER-SE> (122,224)
<TOTAL-LIABILITY-AND-EQUITY> 234,807
<SALES> 34,537
<TOTAL-REVENUES> 34,537
<CGS> 6,483
<TOTAL-COSTS> 6,483
<OTHER-EXPENSES> 45,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,747)
<INCOME-PRETAX> (15,529)
<INCOME-TAX> (1,401)
<INCOME-CONTINUING> (14,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,128)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
