<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
AMENDMENT NO. 1
----------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended MARCH 31, 1996 or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-16096
BORLAND INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2895440
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF 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
Securities registered pursuant to Section 12(b) of the Act:
PREFERRED STOCK PURCHASE RIGHTS
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
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 aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 30, 1996 was $511,616,635.
The number of shares of the Registrant's common stock outstanding as of
April 30, 1996 was 31,248,261.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Borland International, Inc. (the "Company") develops software development
tools, including programming language software and database management
systems, for the business and independent software developer community. The
Company has several product lines and a series of additional complementary
products and services which are targeted to meeting the needs of software
developers for the desktop, local area network (LAN) and client/server and
Internet environments. The Company's current development efforts are primarily
focused upon products which operate under the Windows operating systems,
including Windows 95/NT, as well as products which operate on other platforms,
such as UNIX and emerging platforms related to the Internet. The Company's
strategy is to develop products designed to provide technically superior
solutions to customer needs.
In the fourth quarter of fiscal 1996, the Company announced a realignment of
its marketing and sales operations to better meet the needs of its customers
in two distinct market segments. The Desktop and LAN Development Tools Group
will provide products and services to meet the needs of small developers and
single users on stand-alone personal computers, as well as multiple users on
personal computers connected by local area networks. The Client/Server
Development Tools Group serves the developer working in a "client/server"
environment where data is generally stored on local and remote database server
software. The Company will also be focused on providing software development
tools for the Internet. The Company's research & development, technical
support and administration resources continue to be organized along functional
lines.
The Company's Desktop and LAN Development Tools Group product portfolio
includes the Desktop and Developer editions of the Delphi visual application
------
development software, as well as Borland C++, a programming language
-----------
development environment and compiler. This group also develops and markets the
Visual dBASE and Paradox desktop relational database management systems. The
- - ------ ----- -------
Company's Client/Server Development Tools Group product line includes the
client/server edition of Delphi, as well as InterBase, a relational database
------ ---------
management system that operates on personal computers, minicomputers and
workstations. This group also develops and markets ReportSmith, a
-----------
client/server database report writer. In addition, the Company is developing
several development tools products for application in the Internet software
tools market. The Company is planning and developing both Internet-enabled
versions of existing products, as well as future Internet-specific tools, for
use in both the desktop and LAN and the client/server computing environments.
The Company markets and distributes its products worldwide primarily through
independent distributors, dealers, value-added resellers ("VARs") and
independent software vendors ("ISVs") and also by direct marketing and sales
to corporate, governmental, educational and end user customers.
PRODUCTS
The Company is engaged in the single business segment of designing,
producing and marketing computer software and services, primarily programming
language and database management tools. The Company has several product lines
which are targeted to servicing the needs of software developers for the
desktop and LAN, as well as the client/server, computing environments.
Desktop and LAN Development Tools
---------------------------------
The Company's Desktop and LAN Development Tools Group includes both language
development tools and database management systems for developers working on
personal computers under the Windows and Windows 95/NT operating systems.
These products are designed for multiple users on personal computers connected
by local area networks, as well as single users on stand-alone personal
computers.
The Company's language development products, which serve the desktop and LAN
developer, include certain editions of Delphi and Borland C++. The Company's
------ -----------
programming language development software enables programmers to write
applications that run under the Windows and Windows 95/NT operating systems.
2
<PAGE>
Specifically, these products assist users in developing new programs in
certain computer languages and translating the computer language into machine
code or instructions in a binary form capable of being read and executed by a
computer. The language product line includes the Desktop and Developer
editions of Delphi, Borland's high performance, rapid application software
------
development tool. Combining the productivity benefits of visual development
and the performance benefits of an optimizing native code compiler, these
Delphi products are used by professional developers to visually build Windows
- - ------
applications more quickly. By integrating a native code compiler, Delphi is
------
designed to overcome the performance degradation encountered by applications
developed with interpreted languages. Through a combination of visual
development tools, a component architecture, and a rapid turnaround compiler,
Delphi provides the productivity offered by interpreted systems without
- - ------
sacrificing performance.
The desktop and LAN language product line also includes Borland C++ and
-----------
Turbo C++, the Company's programming language development environments and
- - ---------
compilers for the "C" and "C++" computer languages. "C" is a programming
language often used by professional programmers to write operating systems and
other systems software and commercial applications programs, and "C++" is an
enhanced version of "C" that embodies object-oriented extensions. The
Company's language tools are known for their high performance, fast
compilation speeds and reliability of generated code. These products are
primarily designed for advanced software developers, with special editions
geared toward novice programmers.
The Company's database management products, which serve the desktop and LAN
developer, include both Paradox and Visual dBASE. These relational database
------- ------------
management systems enable users to create, save, retrieve and manipulate
databases and create both standard and customized reports. Paradox contains a
-------
built-in application development language called ObjectPAL, which allows
---------
sophisticated users to generate custom applications software to meet their
specific information management needs. Visual dBASE features a built-in
------------
application development language called the dBASE programming language. These
-----
database products are employed by end users who create and use simple
databases, as well as by seasoned developers who use the software to create
sophisticated database applications.
In addition, the Company is developing Internet-enabled versions of existing
desktop products designed to allow developers to create client-side Internet
applications, and to create web server extensions for accessing databases. For
example, the Company included a Java Integrated Development Environment (IDE)
as an integral part of the Borland C++ Windows 95/NT product, released in
-----------
March, 1996. Also, the Company is developing an Internet Solutions Pack that
-----------------------
will allow developers to create applications written in Delphi that browse the
------
Internet and that use the other common protocols for Internet applications.
Future Internet-specific tools targeted at the Desktop and LAN developers are
also planned.
Client/Server Development Tools
-------------------------------
The Company's client/server product line serves professional developers who
are building and deploying client/server applications, specifically, Microsoft
Windows-based applications which are connected to remote database servers. The
Company's client/server products currently include the Delphi Client/Server
--------------------
Suite, a visual application development software product, the InterBase SQL-
- - ----- ---------
based relational database management system, and the ReportSmith client/server
reporting and query tool.
Delphi Client/Server Suite is an advanced developer tool that contains
--------------------------
software components that developers use to build and deliver high-performance,
client/server applications for Intel-based and compatible computers running
the Microsoft Windows operating system. Delphi offers an object-oriented
interface designed to maximize developer productivity. The suite also includes
copies of InterBase for the Windows NT operating system, ReportSmith, a set of
--------- -----------
database design and analysis tools, and software that provides direct links to
Oracle, Informix, Microsoft and InterBase database servers.
---------
InterBase is an SQL-based relational database management system that
---------
operates on the Windows and Windows NT operating systems, UNIX-based operating
systems and the Novell NLM network operating system,
3
<PAGE>
as well as on microcomputers and workstations manufactured by IBM, Digital
Equipment Corporation, Hewlett-Packard, Sun Microsystems, HP/Apollo Computers,
Data General, and Silicon Graphics. InterBase has the capability of storing
---------
data as large object types, including text, images, graphics and sound, and is
noted for its ability to execute multiple transactions upon the same data
files.
Borland develops and markets other products designed to increase the
productivity of the Company's client/server developer customers. For example,
ReportSmith is a program that facilitates the designing and production of
- - -----------
reports from data accessed from a variety of database management sources,
including data stored by the Company's Visual dBASE and Paradox software, as
------------ -------
well as data from SQL databases. A version of ReportSmith is also included
-----------
with Delphi Client/Server Suite as its reporting tool.
--------------------------
Internet and Intranet Development Tools
---------------------------------------
Within the Client/Server Development Tools Group, the Company will be
developing and marketing products which facilitate software development for
the emerging Internet environments. The Company believes that the advent of
Java, Sun Microsystems's Internet programming language, and the delivery of
software development tools, will make the Internet an attractive platform for
client/server development and collaborative application development. The
Company has recently released the AppAccelerator, a "just-in-time" dynamic
--------------
compiler for Java applications, which the Company has licensed to Netscape
Communications Corporation for use in its future versions of Netscape
Navigator. Borland's AppAccelerator reads the intermediate byte code produced
--------------
by Java development tools and translates it "on-the-fly" into machine-
executable instructions on the local client system. AppAccelerator is
--------------
available for Windows 95/NT clients. AppAccelerator is also included in the
--------------
Development Suite version of Borland C++. Also, the Company has announced it
-----------
is developing a visual development tool code-name Latte for Java. The Company
-----
plans to release this product in several stages, with an objective of
releasing a first edition toward the end of fiscal year 1997.
PRODUCT DEVELOPMENT STRATEGY
The Company's product development strategy is primarily aimed at servicing
the developer community for a broad range of application development.
Application development ranges from the development of shrink-wrap
applications, desktop database applications where data is generally stored on
personal computers and local area network file servers, to the "client/server"
environment, where data is generally stored on local and remote database
server software. Application development in each of these computing
environments is expected to be influenced by the emergence of the Internet as
a potentially important computing paradigm. The Company's current line of
language development tools, database management systems, and reporting tools,
including Delphi, Borland C++, Visual dBASE, Paradox, InterBase, and
------ ----------- ------------ ------- ---------
ReportSmith, all support the user's ability to create applications for use in
- - -----------
the stand-alone and networked personal computer and client/server
environments. The strategy is to enrich these development environments to
allow users to leverage their familiarity with the operation of these
products, along with their investment in existing applications, in their
development of more sophisticated client/server workgroup and Internet
applications, as well as to introduce new products specifically designed for
these markets.
Although the Company believes that its product development strategy enables
the Company to increase the functionality of its applications, simplify the
software development process and support client/server environments, due to
the inherent uncertainties of software development, there can be no assurance
that its development strategy will achieve these objectives or will result in
demand for the Company's products. Moreover, due to the uncertainties of
software development, new product announcements, pricing changes, strategic
alliances and other actions by the Company and its competitors, the Company's
ability to successfully implement this strategy could be adversely affected.
RESEARCH AND DEVELOPMENT
The Company believes that its success in developing innovative and
successful products depends in large part upon successfully executing its
product planning strategies and research and development activities and its
4
<PAGE>
ability to attract, hire and retain highly qualified development engineers.
During fiscal 1996, 1995 and 1994, the Company incurred $45.1 million, $61.8
million, and $65.7 million, respectively, of research and development costs
and expenses. At March 31, 1996, the Company employed approximately 306 people
in research and development as compared to a total of 323 persons as of March
31, 1995.
The Company has implemented a product development process aimed at improving
time to market, product quality, and the overall efficiency of its
development. The process emphasizes the importance of cross functional teams
and a phased review process involving senior management to direct the
Company's resources and strategy. The Company believes that these process
improvements should provide the Company a basis for continuous enhancement of
its development efforts and enable more efficient use of development
resources.
Most of the Company's products are designed to run on personal computers
under the Windows and Windows 95/NT operating systems. Although this has
historically represented the largest category of the personal computer market,
other computer platforms and operating environments are emerging and are
claiming or may claim an increasing share of the market, including future
versions of Windows, OS/2, Apple Macintosh and UNIX, as well as emerging
platforms related to the Internet. In fiscal year 1996, the Company introduced
versions of several of its major products for the Windows 95/NT operating
systems. Looking forward, the Company has announced that it is developing
Internet-enabled versions of certain of its existing products and future
Internet-specific tools such as a visual development tool for Java, code named
Latte.
- - -----
When the Company announces to customers estimates of the expected
availability of products under development, those announcements are based only
on estimates and are not predictions by the Company that such products will
ship in any particular fiscal quarter. Any estimates are subject to the
uncertainties inherent in software development, including, but not limited to,
a variety of circumstances arising from the complexity of the technologies
involved, as well as the rapidly changing nature of the technologies, customer
requirements and competitive pressures. The Company, like most other software
companies, has from time to time experienced delays in the introduction of new
products, some of which have been substantial. Such delays should be expected
from time to time in the ordinary course of business.
The Company continually reviews the level of its participation in other
operating environments and may attempt to develop new products or adapt
existing products for these environments. The Company's efforts to develop new
products for new operating systems or new computer languages are subject to
additional risks, including those of longer development time and errors in
development. Further, to the extent that the Company is unable to obtain
information regarding existing and future operating systems or languages from
the developers of such systems or languages, the release of the Company's
products for such environments may be delayed. Since the Company also
continually reviews its participation in existing and new product categories,
its plans regarding the development of new products, and the nature and scope
of its existing product lines, are subject to change.
Although the Company believes that its product planning strategy and
development processes will result in the successful development of other
technology innovations in the future, due to the inherent uncertainties of
software development, there can be no assurance that the Company will be
successful, or that if successful, such innovations will result in successful
products or increased revenues or profits.
MARKETING AND DISTRIBUTION
The Company's products are sold to and used by a broad developer customer
base, including businesses, educational institutions, government bodies and
individual developers. The Company distributes its products domestically and
internationally, primarily through distributors, dealers, ISVs and VARs. The
Company also sells directly to corporate, governmental and educational
customers, as well as to individual developers. Because the Company generally
ships products upon receipt of orders, backlog is neither significant nor an
important measure of revenue for any future period.
5
<PAGE>
The Company offers a number of marketing programs to assist its
distributors, retailers and resellers in their sales efforts. These programs
include corporate marketing and advertising and special sales incentives to
retailers. In addition, the Company permits its distributors to balance their
inventories by periodically returning contractually limited amounts of
products in exchange for other products of the Company. The Company includes
an estimate for returns in its accounts receivable reserves for the amount of
product which may be exchanged in accordance with this policy.
The Company also conducts sales seminars specifically aimed at corporate MIS
managers and at developers who are building client/server applications. The
primary purpose of these seminars is to generate sales leads, which will be
given to the Company's direct sales force for qualification and follow-up.
There can be no assurance that these efforts will be successful in generating
sales leads, or that, if successful, such leads will result in increased
revenue or profits. From time to time, the Company also utilizes direct
marketing programs which involve mailing directly to lists of prospective
developers. Such programs have generally been utilized in connection with the
sale of upgrades of the Company's products or otherwise as part of special
pricing programs. The effectiveness of such programs can be influenced by the
availability of productive customer lists, rates of response to mailing
programs, the use of similar programs by competitors and postal costs.
The Company also periodically introduces special promotions and incentive
offers, such as customer rebates and special pricing for the purchase of
upgrades.
The Company primarily uses its in-house advertising and corporate
communications departments for development of advertising, marketing and
promotional materials, relying on outside agencies when specific assistance is
needed. The Company's advertising department includes creative, typesetting
and media staff. The Company advertises regularly in selected trade magazines
and other periodicals.
With its focus on providing software tools to the developer community, the
Company is investing in communicating with its customers by electronic means.
For example, the Company has established a presence on the Internet through
its Web site, called Borland Online. With the growth of the Internet, there
--------------
has been an increasing interest in the distribution of computer software by
electronic means. Commentators have suggested that these developments may
change the basic nature of the marketing and distribution of computer
software. While these changes may create opportunities to reduce the costs of
distribution, they also present significant challenges to the Company and
others engaged in the development and marketing of computer software.
The Company has historically offered free installation support to the
purchasers of its products, including access to the Company's trained
technical support personnel through a special telephone support line and
through national electronic bulletin board services. End users also receive
further support and information from the Company and dealers through their
local end user groups. Support requirements have increased in recent years as
product offerings have become more complicated. The Company has sought to
address increasing support requirements in numerous ways, including making its
products easier to use and offering multiple kinds of support programs,
including paid-for support programs. However, notwithstanding the Company's
efforts, the increasing support requirements may have an adverse impact on the
Company's results of operations.
INTERNATIONAL SALES AND OPERATIONS
The Company's products are available locally in most countries which have a
large personal computer installed base. The Company's non-U.S. net revenues
(including exports from the U.S.) accounted for approximately 53%, 45% and 52%
of net revenues in fiscal 1996, 1995 and 1994, respectively. The Company's
international distribution and its non-U.S. operations are subject to
customary restrictions on non-U.S. operations, including restrictions on
imports and exports, and, although not previously material, are also subject
to risks associated with fluctuations in foreign exchange rates.
6
<PAGE>
COMPETITION
The software industry is extremely competitive and has been subject to
continual and rapid change. Currently, the industry is characterized by many
small or medium-sized companies and a limited group of major independent
software companies (including Microsoft Corporation, IBM Corporation, Sybase,
Inc., Computer Associates International, Inc. and Oracle Corporation), certain
of which have substantially greater financial, management, marketing and
technical resources than the Company. Among these, Microsoft is the developer
of the Windows operating environment and a major competitor in applications
programs and development tools. Microsoft has been able to leverage the highly
profitable licensing of Windows, together with the technical advantages it
gets as the developer of widely-used operating systems, to attain a dominant
position in the software industry.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. Accordingly, it is possible that the new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional licenses and
maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against
current and future competition, and the failure to do so would have a material
adverse effect upon the Company's business, operating results and financial
condition.
The Company believes that the principal competitive factors in its industry
are price/performance, reliability, distribution capability, support and name
recognition. To remain competitive, a software company must continually
introduce new products and updates of existing products to counter advances in
competitive products, to meet the increasingly sophisticated demands of users
and to adapt to changes in hardware and operating systems and environments.
For example, the software industry is experiencing a shift in operating
systems from Windows to Windows 95/NT. The Company believes its products for
this new operating system will be competitive, however there can be no
assurances that such operating systems will be widely adopted, or that the
Company's products will be introduced timely and successfully. Although the
introduction of Windows 95/NT captured substantial attention of the software
industry, by the latter part of 1995 much of the attention had shifted to the
Internet and the Java programming language. The Company has made announcements
regarding research and development projects responsive to these developments.
However, new product announcements, pricing changes, strategic alliances and
other actions by competitors could adversely affect the Company's competitive
position.
MANUFACTURING
Beginning the first fiscal quarter of 1996, the Company began outsourcing
its manufacturing support with a primary third-party source. The Company's
products are principally composed of diskettes, CD ROMs and user manuals.
Certain of the Company's new products require more extensive documentation and
some require multiple user manuals and multiple diskettes. The Company
believes that there are adequate supplies of and sources for the raw materials
for its products and that there are multiple sources available for diskette
and CD replication and manual printing.
The Company has final quality-control tests performed on its products which
the Company believes effectively accomplish its product quality goals.
However, there can be no assurance that the Company's quality control efforts
will always be completely successful. Undetected material programming errors,
product tampering, and exposure to computer viruses in the product
development, duplication, assembly, or distribution process, whether performed
by the Company, its contractors, distributors, or resellers, could have a
material adverse impact on shipments of new and existing products. Assembly
and packaging of final products are performed by domestic and overseas
subcontractors of the Company.
7
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights as
fully as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights in the United States or
abroad will be adequate or that competition will not independently develop
similar technology.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights,
there can be no assurance that infringement claims will not be asserted by
third parties in the future. If any such claims are asserted, there can be no
assurance that the Company will be able to obtain licenses on reasonable
terms. The Company's involvement in any patent dispute or other intellectual
property dispute or action to protect trade secrets and know-how may have a
material adverse effect on the Company. Adverse determinations in any
litigation may subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties and prevent
the Company from manufacturing and selling its products. Any of these
situations can have a material adverse effect on the Company's business,
results of operations or financial condition.
EMPLOYEES
As of March 31, 1996, the Company employed 706 people domestically and 232
people internationally. Of the total, approximately 306 were employed in
research and development, 468 in sales, marketing and customer support and 164
in finance and administration.
The Company believes that its success is highly dependent upon its ability
to recruit, retain and motivate qualified employees and believes that it
provides competitive compensation and incentives to achieve this objective.
However, the Company is subject to regular and intense competition for such
employees. In particular, certain of the Company's competitors with greater
financial resources are in a position to offer substantial financial
incentives in an effort to lure the Company's employees away and/or adversely
affect the Company's ability to attract such employees. Likewise, other public
companies and many private companies are able to offer equity incentives which
may be difficult for the Company to match. While the Company believes it has
largely been able to take such actions as it has determined to be necessary or
appropriate to attract and retain such employees in light of such competition
and recruiting efforts, there can be no assurance that the Company will
continue to be successful in doing so in the future.
None of the Company's U.S. employees are represented by a labor union.
Employees of certain of the Company's subsidiaries may be represented by
worker's councils or other similar organizations as required by local
regulations. The Company believes that its relations with its employees are
good.
ITEM 2. PROPERTIES
The Company's executive offices and primary research and development
facilities are located at 100 Borland Way, Scotts Valley California, which
comprises 495,000 square feet of space, of which approximately 403,000 square
feet is currently being utilized by the Company. The executive offices were
constructed in 1993 and are owned by the Company. The Company also owns
additional office space located at 1700 and 1800 Green Hills Road, Scotts
Valley, California. Such facilities comprise 136,900 square feet of space and
were constructed in 1988. The Company also leases warehouse and additional
office space in other cities in the United States as well as locations in
Europe, Canada and the Pacific Rim.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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.
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 settlement. If the settlement is approved, there will not be any
material adverse effect on the Company's financial condition or results of
operations.
On January 16, 1996, in the case of Lotus Development Corp. v. Borland
----------------------------------
International, Inc., the U.S. Supreme Court affirmed the judgment of the U.S.
- - -------------------
Court of Appeals for the First Circuit that Borland did not infringe the
copyright of Lotus's spreadsheet product, Lotus 1-2-3. The Company intends to
initiate proceedings in the U.S. District Court in Massachusetts for a
determination of what attorneys fees, if any, Borland may recover.
At March 31, 1996, the Company had unresolved deficiency notices from the
IRS and various state governments for additional taxes and interest of
approximately $5 million. The Company is protesting these assessments with
appellate divisions of the respective tax authorities. Subsequently, on May
15, 1996, the U.S. Tax Court approved a settlement agreement entered into
between the Company and the IRS which reduced the unresolved deficiency
notices from the IRS and various state governments to approximately $3.1
million. The settlement agreement is also expected to result in a cash refund
of approximately $6.5 million, exclusive of interest. Additionally, the
Company has received a foreign tax assessment of approximately $18 million
including interest. The Company successfully appealed the assessment, yet the
foreign tax authority has appealed the court's decision. The Company believes
that the ultimate outcome of the above assessments will not have a material
adverse impact on the Company's financial position or results of operations.
However, it is possible that the Company may, as a result of these tax
disputes, be engaged in long-term administrative and judicial proceedings.
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.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the last quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information on the Company's stock prices is detailed in the table entitled
"Selected Quarterly Data" located within "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7.
As of April 30, 1996 there were approximately 3,406 holders of record of the
Company's Common Stock and 31,248,261 shares outstanding.
The Company paid no dividends during fiscal 1996, 1995 and 1994. The Company
intends to retain future earnings for use in its business and therefore does
not anticipate paying any cash dividends in the foreseeable future.
10
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
Company's consolidated financial statements. Historical results should not be
taken as necessarily indicative of the results that may be expected for any
future period. This data should be read in conjunction with the consolidated
financial statements and related notes which are included herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenues................. $215,206 $254,064 $393,519 $463,951 $ 482,510
Cost of revenues............. 31,228 53,418 107,685 123,280 103,745
-------- -------- -------- -------- ---------
Gross profit................. 183,978 200,646 285,834 340,671 378,765
Selling, general and
administrative.............. 125,258 198,720 262,966 282,421 304,216
Research and development..... 45,086 61,760 65,653 77,732 61,966
Restructuring and other non-
recurring charges........... -- 63,070 14,042 25,000 146,000
Write-down of real estate
held for sale............... -- -- 8,234 -- --
-------- -------- -------- -------- ---------
Total operating expenses..... 170,344 323,550 350,895 385,153 512,182
-------- -------- -------- -------- ---------
Operating income (loss)...... 13,634 (122,904) (65,061) (44,482) (133,417)
Interest income, net and
other....................... 3,787 3,589 1,799 3,822 8,865
Gain on sale of Quattro Pro.. -- 109,927 -- -- --
-------- -------- -------- -------- ---------
Income (loss) before income
taxes....................... 17,421 (9,388) (63,262) (40,660) (124,552)
Income tax provision
(benefit)................... 3,136 2,789 6,629 8,546 (14,118)
-------- -------- -------- -------- ---------
Net income (loss)............ $ 14,285 $(12,177) $(69,891) $(49,206) $(110,434)
-------- -------- -------- -------- ---------
Net income (loss) per common
and common equivalent share. $ .45 $ (.43) $ (2.62) $ (1.87) $ (4.29)
-------- -------- -------- -------- ---------
Weighted average number of
common and common equivalent
shares outstanding.......... 31,861 27,994 26,670 26,266 25,743
<CAPTION>
MARCH 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED BALANCE
SHEET DATA:
Working capital (deficit).... $ 63,763 $ 3,153 $(42,277) $ 44,974 $ 133,584
Total assets................. 255,587 244,996 298,148 341,683 364,768
Total long term obligations.. 14,555 20,895 19,943 23,271 29,597
Stockholders' equity......... 171,578 123,004 120,370 188,317 228,340
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. 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
following discussion includes an analysis of certain of the 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
11
<PAGE>
recently experienced substantial changes in its operations and competitive
environment. Among other factors the Company's recent organizational focus on
the desktop and LAN and client/server customer segments, as well as the
challenges and opportunities presented by the introduction of Windows 95/NT
and the emergence of the Internet as a potentially important new computing
paradigm, all contribute to substantial future uncertainties. Investors should
carefully consider all such risks before making an investment decision with
respect to the Company's stock.
The following tables set forth certain data derived from the Consolidated
Statements of Operations expressed as a percentage of net revenues for each of
the years ended March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Percentage of net revenues:
Net revenues..................................... 100.0% 100.0% 100.0%
Cost of revenues................................. 14.5 21.0 27.4
----- ----- -----
Gross margin..................................... 85.5 79.0 72.6
Selling, general and administrative.............. 58.2 78.2 66.8
Research and development......................... 21.0 24.3 16.7
Restructuring and other non-recurring charges.... 0.0 24.8 3.6
Write-down of real estate held for sale.......... -- -- 2.1
----- ----- -----
Total operating expenses....................... 79.2 127.3 89.2
----- ----- -----
Operating income (loss).......................... 6.3 (48.3) (16.6)
Interest income, net and other................... 1.8 1.4 .5
Gain on sale of Quattro Pro...................... -- 43.2 --
----- ----- -----
Income (loss) before income taxes................ 8.1 (3.7) (16.1)
Income tax provision............................. 1.5 1.1 1.7
----- ----- -----
Net income (loss).............................. 6.6% (4.8)% (17.8)%
===== ===== =====
Percentage of net revenues:
United States.................................... 47% 55% 48%
Non-US (includes US export sales)................ 53 45 52
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
OVERVIEW
Fiscal year 1996 was a time of rebuilding for the Company and for addressing
the opportunities arising from its decision to follow a strategy more focused
on providing products to the software development community. The restructuring
conducted in January, 1995 had the objective of aligning the Company's cost
structure with the revenues and related products associated with this new
strategy. In addition, the Company addressed several competitive challenges
during the year, including the introduction of several products for the
Windows 95/NT operating system, and the delivery of the Company's first
products for the Internet development tools market. Further, the Company has
begun to see benefits from its investment in the development of products for
the client/server market.
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 market, along with add-on
products and services, to the software developer community. The Company has
several product lines and a series of additional products which run primarily
on personal computers running under Windows and Windows 95/NT operating
systems.
12
<PAGE>
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, and
allowances for estimated future returns, exchanges and rebates are recorded as
a reduction of revenue at that time.
Net revenues were $215.2 million, $254.1 million and $393.5 million in
fiscal 1996, 1995 and 1994, respectively. Included in net revenues for fiscal
1996 and 1995 are revenues of $7.9 million and $27.1 million, respectively,
related to the sale of one million licenses of Paradox for Windows to Novell,
Inc. Exclusive of such Paradox for Windows license revenue in fiscal years
1996 and 1995, fiscal 1996 revenue declined from fiscal 1995 by $19.7 million.
Such revenues declined for several reasons, including an overall increasingly
competitive marketplace including offerings by competitors of product suites
at overall lower prices and ongoing declines in revenues from DOS product
versions which were not completely offset by an increase in revenues from
Windows product versions. In particular, revenue from desktop database
products declined due to lower volume and prices. Fiscal 1996 revenues,
however, were positively affected by growth in the Company's language and
client/server products which was consistent with the Company's strategy.
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. The
percentage of revenues associated with all of the Company's DOS products has
declined to 3% in the fourth quarter of fiscal 1996 from approximately 18% in
the same period of the prior year and, consistent with industry trends, is
expected to decline further. In addition, 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 several of 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 quarter of fiscal 1996, 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 DOS and
Windows products decline materially or at a more rapid rate than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially and adversely affected.
Net revenues for fiscal 1995 declined from fiscal 1994, principally as a
result of disruptions leading up to and following the actions which the
Company took in several operational reorganizations, the continued decline in
the demand for DOS products, lower average selling prices as a result of
increased competition from suite offerings, and market uncertainty about the
financial condition and strategic direction of the Company. In addition,
included in revenues for fiscal year ended March 31, 1994 were revenues of
approximately $101.6 million related to Quattro Pro.
The Company's non-U.S. revenues represented approximately 53%, 45%, and 52%
of total net revenues in fiscal 1996, 1995 and 1994, respectively. The
increase in the percentage of non-U.S. revenues in fiscal 1996 was related to
the timing of foreign language translation releases of products, the magnitude
of non-recurring U.S. license revenue from Novell in fiscal 1995, and the
slower decline in desktop database revenues in non-U.S. markets. As part of
the January, 1995 restructuring, the Company closed several international
offices. Sales in these territories were conducted through distributors in
fiscal 1996. Fluctuations in currency exchange rates did not have a material
impact on total net revenues or operating results in fiscal 1996, 1995 or
1994. However, there can be no assurance that fluctuations in currency
exchange rates will not have a material impact on the Company's future net
revenues or operating results or financial position.
The Company expects that revenues for the quarter ending June 30, 1996 will
decline from the quarter ended March 31, 1996. The Company also expects that
operating costs for the June quarter will be similar to those incurred in the
prior quarter. As a result, unless revenues for the June quarter are higher
than the Company currently expects, the Company anticipates that it will incur
an operating loss for the quarter ending June 30, 1996.
13
<PAGE>
Trends and Uncertainties
------------------------
The Company's quarterly operating results have varied significantly in the
past, and the Company expects that such results are likely to vary
significantly from time to time in the future. Such variations result from,
among other matters, the following: the size and timing of significant orders
and their fulfillment; demand for the Company's products; the number, timing
and significance of product introductions and new product announcements by the
Company and its competitors; changes in pricing policies by the Company or its
competitors; changes in the level of operating expenses; changes in the
Company's sales incentive plans; budgeting cycles of its customers; customer
order deferrals in anticipation of enhancements or new products offered by the
Company or its competitors; product life cycles; product defects and other
product quality problems; personnel changes; seasonal trends and general
domestic and international economic and political conditions. As an increasing
percentage of the Company's revenues are from client/server products, the
Company expects that an increasing percentage of its revenues will be from
large orders. The timing of such orders and their fulfillment may cause
material fluctuations in the Company's operating results, particularly on a
quarterly basis. In addition, the Company intends to continue to expand its
domestic and international direct sales force. The timing of such expansion
and the rate at which new sales people become productive could also cause
material fluctuations in the Company's quarterly operating results.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also increasingly difficult to forecast as
a greater portion of the Company's revenues derive from the client/server
market. The market for client/server application development software is
rapidly evolving, and the sales cycle for client/server products, from initial
evaluation to purchase and the provision of support services, is lengthy and
varies substantially from customer to customer. Because the Company normally
ships products within a short time after it receives an order, it typically
does not have any material backlog. As a result, to achieve its quarterly
revenue objectives, the Company is dependent upon obtaining orders in any
given quarter for shipment in that quarter. Furthermore, because many
customers place orders toward the end of a quarter, the Company generally
recognizes a substantial portion of its revenues at the end of a quarter. As
the Company's expense levels are based in significant part on the Company's
expectations as to future revenues and are therefore relatively fixed in the
short term, if revenue levels fall below expectations, net income is likely to
be disproportionately adversely affected.
Introductions of major new products and enhancements of existing products
can have a significant impact on the Company's quarterly and annual revenues.
Historically, most of the Company's products have tended to exhibit similar
revenue life cycles. Generally, sales volumes of new products increase rapidly
in the two to four months immediately following introduction due to the
purchase of upgrades by existing users and the purchase of initial inventory
by distribution channels. Thereafter, revenues have tended to decline and
stabilize at a relatively constant level. Historically, the impact of these
fluctuations on the Company's consolidated quarterly revenues has been
moderated by the number, variety and geographical distribution of the
Company's products, which have tended to be in different stages of their
revenue cycle at any given time. However, revenues can be higher in quarters
in which there are one or more introductions of new products or upgrades of
existing products, and can be lower in quarters in which no significant
product introductions are made. Due to the inherent uncertainties of software
development, the Company cannot accurately predict the exact quarter in which
a new product or version will be ready to ship.
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. Accordingly, the
Company's revenues may be adversely affected by
14
<PAGE>
delays in customer purchases in anticipation of the Company's Windows 95/NT
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.
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-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 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 products will meet the
Company's expectations due to various factors including the ongoing transition
of and investment in resources to this segment by the Company, the Company's
credibility in this arena, and the 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. 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 captured substantial attention during
most of calendar 1995, by the latter part of the year, much of the attention
of the 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 named Latte.
-----
However, the Company does not anticipate any significant revenues from any
such products until the latter half of fiscal 1997. Moreover, the Company is
unable to predict the impact of such developments on the markets for the
Company's existing products.
The Company is continually evaluating which existing and announced future
operating systems and hardware it should focus upon for the development of its
products. The choice of which operating systems and/or hardware to focus upon
is based upon evaluation of a number of factors, most of which are beyond the
15
<PAGE>
Company's control. Development of products for an operating system which
ultimately is less successful or not developing products for operating systems
which are successful can have a material adverse effect on the Company's
financial performance.
The Company's efforts to develop new products for new operating systems or
in new computer languages are subject to additional risks, including those of
longer development time and errors in development. In addition, to the extent
the Company is unable to obtain information regarding existing and future
operating systems or new languages from the developer of such systems or
languages, the release of the Company's products for such environments may be
delayed or its development efforts impaired. The Company's future results may
be adversely affected to the extent that other operating systems or languages
gain widespread acceptance before the Company has developed versions of its
products for such environments. Moreover, as the Company's principal revenue
sources are language and database development tools, the Company may be
adversely impacted to the extent that the developers of operating systems
increasingly incorporate database or tools functions or capabilities within
their operating systems and thereby reduce the market for stand-alone
applications products.
The Company has been adversely affected by the success of product suites
offered by Microsoft and IBM. Each of such companies includes a database
product in its suite offerings which products are or may be competitive with
database products offered by the Company. As the market for applications
products is increasingly dominated by sales of suite products and particularly
as such suites are aggressively priced, the Company has seen its share of the
database market decline and there can be no assurance that the Company can
maintain its current database market share while selling only stand-alone
versions of its database products.
Disposition of Products and Acquisitions
----------------------------------------
In June, 1994, the Company sold its Quattro Pro product line to Novell, Inc.
for $145 million in cash. The terms of the agreement also entitled Novell to
certain licensing rights to distribute up to one million copies of the
Company's Paradox for Windows database product over a three year period to be
sold in a suite of products also containing Quattro Pro for Windows and
WordPerfect for Windows. Of the $145 million, $110 million was attributed to
the sale of the Quattro Pro product line and $35 million to the Paradox
licenses.
In fiscal year 1995, the Company reported revenue of $27.1 million related
to the Paradox licenses and a net non-operating gain of $109.9 million related
to the sale of Quattro Pro, which reflected the costs and expenses of
disposing of the product line, the net book value of assets sold to Novell and
the operating profit of the Quattro Pro product line for the first fiscal
quarter. As a result of the Company's significant tax loss carry-forwards and
other tax benefits, the Company did not incur a significant tax expense
related to this gain. Following the closing of this transaction, the Company
no longer had revenues related to sales of the Quattro Pro and Borland Office
products. Combined Quattro Pro and Borland Office revenues were $101.6 million
and $87.3 million for the fiscal years 1994 and 1993, respectively. Such
revenues were 25.8% and 18.8% of fiscal 1994 and 1993 revenues, respectively.
During fiscal 1994, the cost of revenues and operating expenses directly
attributable to Quattro Pro and Borland Office were $44.7 million and $29.2
million, respectively, which costs have not continued subsequent to the
disposition of the product line. The proforma net revenues and related
operating loss of the Company for the year ended March 31, 1994, after giving
effect to the Novell transaction as if it had been consummated at April 1,
1993, were $291.9 million and $92.8 million, respectively.
The Company acquired ReportSmith, Inc. in May 1994 in exchange for
approximately 1.8 million shares of the Company's common stock and options.
Under the terms of the agreement, the former holders of ReportSmith stock had
the right to demand payment in cash for their stock, which election was made.
During the fiscal years ended March 31, 1996 and 1995, the Company has paid
out cash of approximately $.8 million and $16.0 million, respectively, to
redeem such shares. This acquisition was accounted for under the purchase
method. In connection with this transaction and based on an appraisal, the
Company recorded a write-off of $16.2 million at the time of the acquisition,
related to the estimated value of acquired research and development in
process.
16
<PAGE>
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. 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 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. 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 the Open Environment Corporation
shareholders and the receipt of all required governmental approvals. It is
anticipated that the transaction will be accounted for as a pooling of
interests.
Inflation
---------
Inflation has not had a significant impact on the Company's revenues or
operations.
GROSS MARGINS
Gross margins were 85.5%, 79.0% and 72.6% in fiscal 1996, 1995 and 1994,
respectively. Excluding the $7.9 million recognition of deferred license
revenue from the one million Paradox licenses sold to Novell, gross margins
for fiscal 1996 would have been 84.9%. Gross margins in fiscal 1996 benefited
from a reduction of the level of fixed costs achieved as a result of the
outsourcing of the Company's manufacturing operations which commenced in
April, 1995 in connection with the fiscal 1995 restructuring. In addition,
gross margins for the year were favorably affected as a higher percentage of
revenues were generated from products with relatively higher margins, due to
both higher pricing and lower direct costs. Specifically, the increased
business from site licenses and OEM arrangements contributed to this favorable
product mix. The Company's ability to maintain these improvements in gross
margins as a result of these changes is dependent upon its ability to
successfully manage its outsourcing arrangements and its ability to sustain a
higher percentage of revenues from products with relatively higher margins.
Gross margins in fiscal 1995 were favorably impacted by the $27.1 million of
license revenue from the one million Paradox licenses sold to Novell.
Excluding the effect of this sale, gross margins for fiscal 1995 would have
been 76.4%. Fiscal 1995 gross margins were negatively impacted by lower
revenues, partially the result of lower selling prices, which resulted in
certain fixed costs being spread across lower revenues, as well as by charges
related to the write-off of excess inventory.
Gross margins in fiscal 1994 benefited from certain licensing arrangements
and volume related reductions in the cost of diskettes and manuals. However,
the benefits were offset by a reduction in revenues which resulted in certain
fixed costs being spread across lower revenues, by royalties paid to
WordPerfect Corporation for sales of Borland Office and pricing strategies
related to the Quattro Pro and Borland Office product lines. Excluding Quattro
Pro revenues and costs, gross margins for fiscal year 1994 were 78.4%.
Amortization of acquired technology rights was $.5 million, $2.1 million,
and $3.2 million in fiscal 1996, 1995 and 1994, respectively.
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.
17
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $125.3 million, $198.7
million and $263.0 million in fiscal 1996, 1995 and 1994, respectively. Such
expenses were 58.2%, 78.2% and 66.8% of revenues in fiscal 1996, 1995 and
1994, respectively.
Selling, general and administrative expenses decreased in fiscal 1996 from
fiscal 1995 in the areas of marketing, employee costs, facilities and outside
services. These reductions primarily resulted from the actions taken in the
January, 1995 restructuring to reduce the Company's cost structure.
Selling, general and administrative expenses decreased in fiscal 1995 from
fiscal 1994 due to the restructuring efforts begun in March, 1994, as well as
the disposition of Quattro Pro. Excluding the costs associated with Quattro
Pro, the fiscal 1994 selling, general and administrative costs were $244.3
million, or 83.7% of 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, the Company generally is unable to take actions in the short term to
substantially reduce expenses.
The Company incurs substantial expenses in connection with the introductions
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.
The Company has historically offered technical support to the purchasers of
its products. Support requirements continue to increase as product offerings
increase in sophistication, the Company's client/server business increases and
the client/server market expands to more sophisticated users and developers.
The developer market requires an overall higher level of technical support
expertise which could translate into a higher level of personnel costs. The
Company has sought to address the increasing support requirements in numerous
ways, including making its products easier to use and offering multiple kinds
of support programs, including paid-for support programs. However,
notwithstanding the Company's efforts, the combination of increasing support
requirements and lower margins for the Company's support products may have an
adverse impact on the Company's operating results.
RESEARCH AND DEVELOPMENT
Research and development expenses for fiscal years 1996, 1995 and 1994 were
$45.1 million, $61.8 million and $65.7 million, respectively. Such expenses
were 21.0%, 24.3% and 16.7% of revenues in fiscal 1996, 1995 and 1994,
respectively. This investment in research and development in fiscal 1996
resulted in the release of a new version of dBASE for Windows, Paradox for
----------------- -------
Windows 95/NT, Borland C++ for Windows 95/NT, Delphi for Windows 95/NT and new
----------- ------
versions of InterBase. The decrease in research and development expenses from
---------
the prior year reflects the implementation of the January, 1995 restructuring
efforts which were aimed at centralizing the development organization to
improve efficiencies, as well as the elimination of development activities for
products which the Company sold.
Excluding costs associated with Quattro Pro, research and development costs
were $55.2 million, or 18.9% of revenues in fiscal 1994. On this basis,
research and development expenditures were higher in fiscal 1995 as compared
with the adjusted amount in fiscal 1994 due to addition of resources for
projects under development.
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
18
<PAGE>
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 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.
RESTRUCTURING AND OTHER CHARGES
In January, 1995, the Company announced a restructuring of its operations,
including a more focused strategy to provide products to the software
developer community. In connection with the restructuring, the Company reduced
its worldwide headcount by approximately 40%, centralized certain marketing
and development activities to improve efficiency and outsourced manufacturing
operations in the U.S. and in Europe. In addition, several international
operations were closed, and sales efforts in those areas were transitioned to
authorized distributors. In connection with the restructuring, the Company
recorded, in the fourth quarter of fiscal 1995, a $50 million pre-tax
restructuring charge related to the reduction of its workforce, the closing of
several international sales offices and the outsourcing of its manufacturing
operations, as well as the write-down of facilities and certain purchased
technology. During fiscal year 1995, $14.5 million was paid related to these
restructuring obligations. During fiscal year ended March 31, 1996, a total of
$8.1 million was paid to reduce the 1995 restructuring accrual to an ending
balance of $3.5 million as of March 31, 1996.
Also included in the results of operations for fiscal year 1995, is a $3.1
million reversal of a prior restructuring charge related to the favorable
resolution of certain lease obligations of Ashton-Tate Corporation. Such
obligations had been fully reserved as part of a restructuring charge at the
time of the Company's acquisition of Ashton-Tate in October, 1991. Further,
restructuring and other charges in fiscal 1995 includes the $16.2 million of
purchased technology related to the acquisition of ReportSmith.
The Company also incurred restructuring charges in the quarter ended March
31, 1994 of $14 million related to significant changes to its sales and
marketing programs and a reduction in its workforce to decrease its operating
cost structure and change its product and distribution strategy. During fiscal
year ended March 31, 1996, a total of $2.7 million was paid to reduce these
restructuring accruals to an ending balance of $4.0 million. The Company's
fiscal 1994 operating results also include a charge of $8.2 million related to
the write down of real estate held for sale.
In total, approximately $2.7 million of the total restructuring accruals of
$7.5 million is classified as a current liability as of March 31, 1996. The
majority of the remaining restructuring accruals relate to costs associated
with facilities closings. No changes in estimates for restructuring accruals
were made during the year.
INCOME TAXES
On a consolidated basis, the Company generated pre-tax income of
approximately $17.4 million in fiscal year 1996 and pre-tax losses of
approximately $9.4 million and $63.3 million in fiscal years 1995 and 1994,
respectively. Income tax expense of $3.1 million, $2.8 million and $6.6
million in fiscal years 1996, 1995 and 1994, respectively, related primarily
to income and withholding taxes in certain non-U.S. jurisdictions.
For U.S. Federal income tax purposes, the Company has net operating loss
carry-forwards of approximately $100 million at March 31, 1996. There are also
available U.S. federal tax credit carry-forwards of approximately $22 million.
These loss and credit carry-forwards expire between 1997 and 2011, if not
utilized. Additionally, the Company has approximately $37 million of net
operating loss carry-forwards in various non-U.S. jurisdictions. Certain of
these loss carry-forwards will expire beginning in 1997, if not utilized.
At March 31, 1996, the Company had a net deferred tax asset of approximately
$109 million. This asset is comprised of the tax effect of the above described
loss carryforwards, plus the tax effect of future reversing temporary
differences. The Company believes sufficient uncertainty exists regarding
realizability of the net
19
<PAGE>
deferred asset such that a full valuation allowance has been provided.
Deferred tax assets and related valuation allowances of approximately $37
million relate to certain U.S. operating loss carryforwards resulting from the
exercise of employee stock options, the tax benefit of which, when recognized,
will be accounted for as a credit to additional paid-in-capital rather than a
reduction of the income tax provision.
At March 31, 1996, the Company had unresolved deficiency notices from the
IRS and various state governments for additional taxes and interest of
approximately $5 million. The Company is protesting these assessments with
appellate divisions of the respective tax authorities. Subsequently, on May
15, 1996, the U.S. Tax Court approved a settlement agreement entered into
between the Company and the IRS which reduced the unresolved deficiency
notices from the IRS and various state governments to approximately $3.1
million. The settlement agreement is also expected to result in a cash refund
of approximately $6.5 million, exclusive of interest. Additionally, the
Company has received a foreign tax assessment of approximately $18 million
including interest. The Company successfully appealed the assessment, yet the
foreign tax authority has appealed the court's decision. The Company believes
that the ultimate outcome of the above assessments will not have a material
adverse impact on the Company's financial position or results of operations.
However, it is possible that the Company may, as a result of these tax
disputes, be engaged in long-term administrative and judicial proceedings.
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.
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 settlement. If the settlement is approved, there will not be any
material adverse effect on the Company's financial condition or results of
operations.
On January 16, 1996, in the case of Lotus Development Corp. v. Borland
----------------------------------
International, Inc., the U.S. Supreme Court affirmed the judgment of the U.S.
- - -------------------
Court of Appeals for the First Circuit that Borland did not infringe the
copyright of Lotus's spreadsheet product, Lotus 1-2-3. The Company intends to
initiate proceedings in the U.S. District Court in Massachusetts for a
determination of what attorneys fees, if any, Borland may recover.
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.
20
<PAGE>
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 $90.1 million at
March 31, 1996, an increase of $20.3 million from a balance of $69.8 million
as of March 31, 1995. Working capital increased from $3.2 million as of March
31, 1995 to $63.8 million as of March 31, 1996.
Net cash used by the Company for operating activities during fiscal 1996 was
$16.5 million. The cash was used primarily to pay down accounts payable and
accrued expenses that originated in the quarter ended March, 1995, when
spending levels were generally higher than in the subsequent quarters. Also,
net cash paid for restructuring obligations such as severance and facilities
costs approximated $10.8 million. Another contributing factor was the increase
in accounts receivable related to the sales of Delphi and Borland C++ products
------ -----------
which were released in the fourth quarter of fiscal 1996.
Net cash used by investing activities of $11.9 million consisted of $3.1
million of acquisitions of property and equipment and an increase in short-
term investments of $13.8 million, offset by $5.0 million provided by the sale
of fixed assets and real estate held for sale. In particular, the Company
received $3 million in proceeds from the sale of its manufacturing facility in
Ireland. Financing activities, primarily exercises of employee stock options,
provided net cash of $35.1 million.
Currency fluctuations have had an insignificant impact on the Company's cash
flow during fiscal 1996. The Company cannot predict the impact such
fluctuations might have on its future cash flows and there can be no assurance
that exchange rates will not have a material impact on future cash flows.
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 fiscal 1997.
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
Open Environment Corporation by Borland. 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 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. 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
the OEC shareholders and the receipt of all required governmental approvals.
It is anticipated that the transaction will be accounted for as a pooling of
interests. Under the terms of the agreement, OEC shareholders will receive .51
shares of Borland common stock for each share of OEC common stock held by
them, provided that the shares issued by the Company have a market value of no
more than $25 and no less than $12.75. If the market value of the Company's
stock is within this range, it is anticipated that approximately four million
shares of Borland stock will be issued in exchange for OEC's approximately
eight million shares and vested options outstanding. If the market value of
the Company's stock is outside of this range, the exchange ratio of .51 will
change accordingly.
On May 15, 1996, the United States Tax Court approved a settlement agreement
entered into between the Company and the Internal Revenue Service for Ashton
Tate's tax years ended January 31, 1986, 1987 and
21
<PAGE>
December 31, 1987. The agreement is expected to result in a cash refund of
approximately $6.5 million, exclusive of interest. The Company expects that
receipt of the refund will result in a credit to income tax expense of
approximately $2 million.
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30
1996 1995 1995 1995 1995 1994 1994 1994
------- ------- -------- ------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, PERCENTAGES AND STOCK
PRICES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $62,861 $47,264 $51,315 $53,766 $ 55,502 $ 48,137 $81,285 $69,141
Cost of revenues........ 8,015 6,916 8,227 8,070 11,099 15,687 14,436 12,196
Gross profit............ 54,846 40,348 43,088 45,696 44,403 32,450 66,849 56,945
Selling, general and
administrative......... 33,570 29,531 29,385 32,772 43,854 50,439 52,998 51,430
Research and
development............ 12,977 10,507 11,372 10,230 10,795 15,733 18,200 17,032
Restructuring and other
non-recurring charges
(credits).............. -- -- -- -- 50,020 -- (3,108) 16,158
Operating profit (loss). 8,299 310 2,331 2,694 (60,266) (33,722) (1,241) (27,675)
Gain of sale of Quattro
Pro.................... -- -- -- -- -- 10,000 -- 99,927
Net income (loss)....... $ 7,987 $ 849 $ 2,644 $ 2,805 $(50,976) $(22,921) $ 350 $61,368
======= ======= ======= ======= ======== ======== ======= =======
Net income (loss) per
common and
common equivalent
share.................. $ .24 $ .03 $ 0.08 $ .10 $ (1.86) $ (0.80) $ 0.01 $ 1.88
======= ======= ======= ======= ======== ======== ======= =======
Weighted average number
of common and common
equivalent shares
outstanding............ 33,684 33,059 31,656 29,127 27,375 28,505 28,644 32,889
Percentage of net
revenues:
Gross profit........... 87.2% 85.4% 84.0% 85.0% 80.0% 67.4% 82.2% 82.4%
Operating profit
(loss)................ 13.2% .7%. 4.5% 5.0% (108.6)% (70.0)% (1.5)% (40.0)%
Net income (loss)...... 12.7% 1.8% 5.2% 5.2% ( 91.9)% (47.6)% 0.0% 88.8%
Stock prices:
High................... $ 21.25 $ 20.63 $ 17.25 $ 14.38 $ 9.88 $ 13.13 $ 14.13 $ 13.82
Low.................... 13.38 12.50 10.13 7.75 6.63 6.13 10.00 8.50
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements included with this Form 10-K are set
forth under Item 14 hereof.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on any matter of accounting principles,
financial statement disclosure, or auditing scope or procedure to be reported
under this Item.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors is divided into three classes. One class of directors
is elected each year for a three-year term. The term of the Company's Class I
directors will expire at the 1996 Annual Meeting ("Annual Meeting"). The
nominees for the Class I directors are George Hara and Stephen J. Lewis. The
Class I directors elected in 1996 will serve for a term of three years which
expires at the Company's 1999 Annual Meeting of Stockholders or when their
successors are elected and qualified. It is intended that the persons named as
Proxies will vote for Messrs. Hara and Lewis for election to the Board of
Directors as Class I directors.
BIOGRAPHICAL INFORMATION
Certain biographical information about the Company's directors is set forth
below:
DIRECTORS UP FOR ELECTION AT THE 1996 ANNUAL MEETING
GEORGE HARA, age 43. Mr. Hara has served as a director of the Company
since April 1990. Mr. Hara is a Partner of DEFTA Partners and Accel Japan,
L.P., venture capital firms with which he has been affiliated since 1985.
He is founder of Data Control Ltd., a computer network provider, for which
he has served as President since 1984. Mr. Hara is also a director of
PictureTel,Co. Ltd., a video conference system manufacturer; Pixera, a 3D
scanner and digital camera manufacturer and Unify Co., Ltd., a 4GL and UNIX
database company.
STEPHEN J. LEWIS, age 38. Mr. Lewis has served as a director of the
Company since October 1993. Mr. Lewis has been a managing director of
Generation Ventures, L.L.C., a China focused venture capital firm, since
November 1994. Mr. Lewis was a managing director of SCM International Ltd.,
an international investment bank, from 1993 to 1994. Mr. Lewis was employed
with Booz-Allen & Hamilton, Inc. a management consulting and technology
firm, from 1981 to 1993, most recently serving as a Vice President and
Partner in the operations management practice. Mr. Lewis is also a director
of Invision Interactive, Inc., a multimedia sound company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1997 ANNUAL MEETING
PHILIPPE KAHN, age 44. Mr. Kahn served as the Company's Chairman of the
Board from its inception in May 1983 until January 1996 and served as its
Chief Executive Officer and President from May 1983 to January 1995. Mr.
Kahn is also the President and Chairman of Starfish Software, Inc., a
software development company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
DAVID HELLER, age 51. Mr. Heller has served as a director of the Company
since April 1984. Mr. Heller is a founder, a director and the President of
Pacific Technology Capital Corporation, a financial advisory and investment
banking firm, a director of Tie Rack US, Inc., a clothing accessory
company, and a director of Power Computing Corporation, a computer
manufacturing company, and America West Golf Manufacturing, Inc., a golf
club manufacturing company.
WILLIAM F. MILLER, age 70. Mr. Miller has served as the Company's
Chairman since January 1996. He is currently professor of public and
private management, Graduate School of Business at Stanford University, and
president emeritus of SRI International, a research institute. He is also
professor of computer science, School of Engineering, and senior fellow,
Institute of International Studies. In 1990, Dr. Miller retired following
11 years as president and CEO of SRI International. He is a member of the
board of directors of Wells Fargo Bank and Co., an interstate bank, and has
served as director and chairman of the executive committee of Varian
Associates, and as a director of Pacific Gas and Electric Company, First
Interstate Bancorp and Fireman's Fund Insurance Company.
23
<PAGE>
HARRY J. SAAL, age 52. Dr. Saal has served as a director of the Company
since January 1996. Since 1986, Dr. Saal has been chairman of Network
General Corporation, a network management and analysis company. Prior to
founding Network General, Dr. Saal founded Nestar Systems, Inc. a local
area network systems company. Dr. Saal is also Chairman of Personal
Computer Products, Inc., a designer of controllers for laser printers and
related devices, and of AssureNet Pathways Inc., a network securities
products company. He is a director of GlobalNet Systems, Inc., an internet
service provider, and serves on the board of several non-profit
organizations.
EXECUTIVE OFFICERS
Officers are appointed annually by the Board of Directors and serve at the
discretion of the Board of Directors. Set forth below is information regarding
the current executive officers of the Company who are not directors of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Michael Greenbaum....... 54 Vice President and General Manager of
Client/Server Development Tools and Corporate
Marketing
Paul H. Gross........... 35 Senior Vice President, Research and Development
William H. Jordan....... 42 Vice President, Business Development
Robert H. Kohn.......... 39 Senior Vice President, Corporate Affairs and
Secretary
David McGlaughlin....... 58 Vice President, International Sales and
Operations
David Mullin............ 43 Vice President and Chief Financial Officer
Frank Vaculin........... 38 Vice President and General Manager of Desktop and
PC-LAN Development Tools
</TABLE>
Mr. Greenbaum joined the Company in March 1996 as Vice President of
Marketing and General Manager of the Client/Server Development Tools Group.
Prior to joining the Company, Mr. Greenbaum spent two years with Bell Atlantic
Corporation, a communications company, where he was Vice President of Media
Ventures and Vice President of Business Development for Small Business
Services. Before joining Bell Alantic, Mr. Greenbaum spent ten years with
Prodigy, an on-line network company, in a variety of general management and
marketing roles.
Mr. Gross joined the Company in 1989 as Product Manager for Turbo C++ and
the Paradox Engine and became the Director of Languages R&D in December 1992.
In August 1993, Mr. Gross was appointed Vice President and General Manager of
the Languages Division. In January 1995, Mr. Gross was appointed Vice
President of Research and Development and was designated as an executive
officer of the Company in June 1995. In August 1995, Mr. Gross was appointed
Senior Vice President of Research and Development. Prior to joining the
Company, Mr. Gross held positions in product management, sales and software
development at Gold Hill Computers, a software development company, and
Infocom, a software development company.
Mr. Jordan joined the Company in September 1990 as OEM Account Manager and
was appointed Director of Business Development in May 1992. He was appointed
Senior Director of Business Development in August 1993. Mr. Jordan was
appointed Vice President of Business Development in October 1993 and was
designated as an executive officer of the Company in June 1995. Prior to
joining the Company, Mr. Jordan held a variety of management positions with
Microrim, Inc., a software development company, and Ashton-Tate Corporation, a
software development company.
Mr. Kohn joined the Company in March 1987 as General Counsel, was appointed
Assistant Secretary in January 1988, Vice President, Corporate Affairs and
Secretary in July 1988 and Senior Vice President in April 1994.
24
<PAGE>
Mr. McGlaughlin joined the Company in October 1991 as Country Manager of
Borland Canada Software, Inc. In July 1994, Mr. McGlaughlin was appointed Vice
President of InterContinental Subsidiaries and, in December 1994, Vice
President of International Sales and Operations. Mr. McGlaughlin was
designated an executive officer of the Company in June 1995. Prior to joining
the Company, Mr. McGlaughlin was President of Ashton-Tate Canada, a software
development company.
Mr. Mullin joined the Company in 1995 as Vice President and Chief Financial
Officer. Prior to joining the Company, Mr. Mullin served in a variety of
positions for five years with Conner Peripherals, Inc., a manufacturer of
computer peripherals, most recently serving for two years in three concurrent
positions; Chief Financial Officer of Arcada Software Inc., a majority-owned
subsidiary; director of Corporate Financial Planning and Analysis, and group
controller of the Storage Systems Business. Mr. Mullin also served Conner
Peripherals as assistant corporate controller. Prior to joining Conner
Peripherals, Mr. Mullin was manager of Financial Planning and Analysis at Sun
Microsystems, Inc.
Mr. Vaculin joined the Company in October 1993 as Senior Director of Channel
Sales. In March 1994, Mr. Vaculin was appointed Vice President, U.S. Sales,
Technical Support and Customer Service and was designated an executive officer
of the Company in June 1995. In April 1996, Mr. Vaculin was appointed Vice
President and General Manager of Desktop Lan Tools. Prior to joining the
Company, Mr. Vaculin served as Senior Director of Software Sales for
Electronics For Imaging, a hardware and software development company. Between
1987 and 1993 Mr. Vaculin held a variety of positions with Software Publishing
Corporation, including management positions in marketing and sales, most
recently as Director of Developer and Solutions Marketing and Operations.
RECENT DEVELOPMENTS
On July 1, 1996, Mr. Wetsel resigned as President, Chief Executive Officer
and Director of the Company. The Company has initiated a search for a Chief
Executive Officer. Dr. William F. Miller, Chairman of the Company's Board of
Directors will serve as acting Chief Executive Officer until a replacement for
Mr. Wetsel is appointed. In addition, as an interim measure, the Company has
created an office of the President, reporting to Dr. Miller and consisting of
the following senior officers of the Company: Paul Gross, Senior Vice
President, Research and Development; Michael Greenbaum, Vice President of
Marketing and General Manager of Client/Server Tools; and David McGlaughlin,
Vice President, International Sales and Operations.
SECTION 16 FILINGS
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the SEC and NASDAQ. Directors, executive officers,
and greater than ten percent holders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received or written
representations from certain reporting persons, the Company believes that,
during fiscal 1996, all filing requirements under Section 16(a) applicable to
its directors and executive officers were met.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Compensation
- - -----------------------
The following table shows for fiscal 1996, 1995, and 1994 certain
compensation, including salary, bonuses, stock options, and certain other
compensation, paid by the Company to its Chief Executive Officer, and its four
other most highly compensated executive officers at March 31, 1996, while
serving in their capacities as executive officers, collectively, (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------ # OF STOCK
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) GRANTED GROUPS($)(1)
------------------ ---- --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Wetsel.......... 1996 $285,583 $ 99,300 -- $2,365
Former President and Chief 1995 100,000 245,000(3) -- 450,000 577
Executive Officer (2)
David McGlaughlin (4)... 1996 185,513 107,209 21,639(5) -- --
Vice President, International
Sales and Operations
Paul H. Gross (4)....... 1996 209,615 74,250 24,966(6) 75,000 2,296
Senior Vice President,
Research and Development
Frank Vaculin (4)....... 1996 164,711 100,000 -- 1,233
Vice President and General
Manager of Desktop Lan Tools
Robert H. Kohn.......... 1996 200,000 47,639 -- -- 1,984
Senior Vice President, 1995 197,577 40,750 -- 227,500(7) 1,864
Corporate Affairs and Secretary 1994 165,000 8,000 -- -- 1,360
</TABLE>
- - --------
(1) Unless otherwise noted, consists of the Company's matching payments under
its 401(k) Plan.
(2) Mr. Wetsel resigned as President and Chief Executive Officer on July 1,
1996.
(3) Includes a $150,000 relocation bonus.
(4) The person indicated was not an executive officer of the Company during
fiscal years 1995 and 1994.
(5) The person indicated is a resident of Canada and an employee of the
Company's subsidiary, Borland Canada Software, Inc. Consists of car and
housing allowance.
(6) Includes $24,966 of indebtedness forgiven by the Company.
(7) Includes the grant of options in consideration for the cancellation of
options.
26
<PAGE>
Stock Option Grants
- - -------------------
During fiscal 1996, only one Named Officer received a stock option grant.
The following table shows, as to such Named Officer, information concerning
stock options granted during the year ended March 31, 1996.
1996 OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
- - ---------------------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#)(1) YEAR(2) ($/SH) DATE(3) 5%($) 10%($)
---- ------------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul H. Gross........... 75,000(5) 3.523 13.00 8/23/05 1,588,172 2,528,899
</TABLE>
- - --------
(1) The Company's option plans are currently administered by the Compensation
Committee of the Board of Directors. The Committee determines the
eligibility of employees and consultants, the number of shares to be
granted, and the terms of such grants. All options granted in fiscal year
1996 have an exercise price equal to the fair market value on the date of
grant and unless otherwise noted, options vest over a four year period
with 25% vesting on the first anniversary of the grant date and 75%
vesting daily over three years thereafter or daily over a four year
period.
(2) The Company granted options to purchase an aggregate of 2,128,750 shares
to all employees and consultants in fiscal 1996.
(3) Options may terminate before their expiration date upon the termination of
optionee's status as an employee or consultant or upon the optionee's
death or disability.
(4) Under rules promulgated by the SEC, the amounts in these two columns
represent the hypothetical gain that would exsist for options in this
table based on assumed stock price appreciation from the date of grant
until the end of such options' ten-year term at assumed annual rates of 5%
and 10%. Annual compounding results in total appreciation of 63% (at 5%
per year) and 159% (at 10% per year). If the price of a share of the
Company's Common Stock were to increase at such rates from the price at
the end of fiscal 1996 ($18.00 per share) over the next 10 years, the
resulting stock price at 5% and 10% appreciation would be $22.97 and
$29.32, respectively. The 5% and 10% assumed annual rates of appreciation
do not represent the Company's estimate or projection of future stock
price growth.
(5) The options vest over four years on a daily basis and one-half of the
shares not yet vested vest upon acquisition of the Company and termination
(other than for cause) of Mr. Gross's employment within six months after
such acquisition.
27
<PAGE>
Option Exercises and Holdings
- - -----------------------------
The following table sets forth, as to the Named Officers, certain
information concerning stock options exercised during fiscal year 1996 and the
number of shares subject to both exercisable and unexercisable stock options
as of March 31, 1996. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Company's Common
Stock as of March 31, 1996.
1996 AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE STOCK OPTIONS OPTIONS
NAME EXERCISE(#) REALIZED($) HELD AT FY END(#) AT FY END($)(1)
---- ----------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Gary A. Wetsel.......... 15,000 $139,375 Exercisable 134,925 $1,216,948
Unexercisable 300,075 2,711,801
Paul H. Gross........... 40,000 325,894 Exercisable 122,137 1,057,879
Unexercisable 142,323 1,136,550
David McGlaughlin....... 45,518 384,096 Exercisable 9,694 103,366
Unexercisable 69,979 740,090
Frank Vaculin........... 43,139 323,522 Exercisable 10,350 111,006
Unexercisable 71,511 717,118
Robert H. Kohn.......... 30,000 302,048 Exercisable 137,471 1,253,604
Unexercisable 79,029 748,021
</TABLE>
- - --------
(1) Market value of underlying securities based on the closing price of
Company's Common Stock on March 29, 1996 (the last trading day of fiscal
1996) on the NASDAQ National Market System of $18.00 minus the exercise
price.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company entered into letter agreements dated February 6, 1995 with
Messrs. Gross, Jordan, Kohn and Vaculin which provide that in the event that
employment is terminated for any reason other than cause between the first and
second anniversary of each agreement, each shall be entitled to a severance
benefit of six months base salary. The Company's offer letter to Messrs.
Greenbaum and Mullin provides that each will be entitled to continue his base
salary for six months if his employment with the Company is terminated for any
reason other than cause. The Company's offer letter to Mr. McGlaughlin
provides that he will be entitled to continue his base salary for one year at
the end of his active assignment with the Company.
On July 1, 1996, Mr. Wetsel resigned as President, Chief Executive Officer
and Director of the Company. In connection with his resignation, the Company
modified its employment agreement with Mr. Wetsel and paid Mr. Wetsel a one
time severance payment of $600,000. Pursuant to the modified agreement, the
Company will employ Mr. Wetsel on a full time basis for three months following
July 1, 1996 with all compensation included within the one time severance
payment of $600,000. Thereafter, for the remaining nine months, the Company
will employ Mr. Wetsel part-time at the rate of $5,555 per month. Mr. Wetsel
will remain eligible for such general employee benefits as may be provided to
employees of the Company during such period and the continued vesting of stock
options previously granted to him.
28
<PAGE>
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Prior to January 1, 1996
each non-employee director (an "Eligible Director") received annual
compensation of $25,000 payable in January, less any amounts which such
directors otherwise received in compensation for services to the Company.
Effective January 1, 1996, each Eligible Director receives an annual retainer
of $20,000 payable in four equal quarterly installments. In addition, each
Eligible Director receives $500 for attending each meeting of the Board of
Directors, $250 for attending each Committee Meeting of the Board of Directors
on which he serves and $1,000 for serving as the chairman of a particular
Committee of the Board of Directors. An Eligible Director who serves as
Chairman of the Board of Directors of the Company receives an additional
$20,000 annual retainer and an Eligible Director who serves as Chairman of the
Board of Directors of Borland Company, Ltd. (Japan) receives an additional
$10,000 annual retainer, with such retainers payable in equal quarterly
installments. Mr. Hara also received $25,000 in director fees from Borland
Company, Ltd. (Japan) during fiscal year 1996.
In addition, Eligible Directors receive stock options under the Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides that upon their initial election or appointment to the Board of
Directors, Eligible Directors are automatically issued non-statutory options
to purchase 30,000 shares of the Company's Common Stock and at every annual
meeting of the stockholders of the Company each then-serving Eligible Director
will receive an additional option to purchase 7,500 shares. All options
granted under the Directors' Plan have a ten-year term and an exercise price
equal to 100% of the fair market value on the date of grant. The option may
not be exercised until the Eligible Director has served as a member of the
Board of Directors for one year from the date the option is granted. Subject
to stockholder approval, the Board of Directors has approved amendents to the
Directors' Plan which, among other things, would provide a further option of
30,000 shares to an Eligible Director upon his or her election as Chairman of
the Board.
On September 20, 1995, pursuant to the Directors' Plan options were granted
to George Hara, David Heller, and Stephen J. Lewis to purchase 7,500 shares of
the Company's Common Stock at an exercise price of $ 15.75 per share, the fair
market value on the date of grant. On January 2, 1996, upon their appointment
to the Board of Directors, the Company granted an initial option to William F.
Miller, an Eligible Director and Chairman, and to Harry J. Saal to purchase
60,000 shares and 30,000 shares, respectively, of the Company's Common Stock
at an exercise price of $16.25 per share. Of Mr. Miller's option grant, 30,000
shares are subject to stockholder approval of the amendments to the Directors'
Plan.
29
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of June
28, 1996 (i) by each person (or group of affiliated persons) who is known to
the Company to be a beneficial owner of more than five percent (5%) of the
Company's outstanding Common Stock, (ii) by each of the Company's directors,
(iii) by the Company's Chief Executive Officer and each of the Company's four
other most highly compensated executive officers at March 31, 1996; and (iv)
by all such directors and current executive officers as a group. Except as
indicated in the footnotes to this table, the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED PERCENT
---- ---------------- -------
<S> <C> <C>
Merrill Lynch & Co., Inc. (1)...................... 3,281,095 10.5%
Friese Associates, Inc. (2)........................ 2,000,000 6.4%
William F. Miller (3).............................. -- *
George Hara (3)(4)................................. 52,500 *
David Heller (3)(5)................................ 142,507 *
Philippe Kahn (3)(6)............................... 291,773 *
Stephen J. Lewis (3)(7)............................ 37,500 *
Harry J. Saal (3).................................. -- *
Paul H. Gross (3)(8)............................... 152,069 *
David McGlaughlin (3)(9)........................... 22,308 *
Frank Vaculin (3)(10).............................. 24,482 *
Robert H. Kohn (3)(11)............................. 161,272 *
All directors and executive officers as a group
(12) (14 persons)................................. 1,106,812 3.5%
</TABLE>
- - --------
* Less than 1%
(1) Information is based on a Schedule 13G filing dated June 10, 1996. Number
of shares which may be deemed beneficially owned includes shares held by
various funds related to or managed by Merrill Lynch & Co., Inc. The
address of Merrill Lynch & Co., Inc. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281.
(2) Information is based on a Schedule 13G filing dated February 5, 1996. The
address of Friese Associates, Inc. is 350 Broadway, Jackson, Wyoming
83001.
(3) The person indicated is an executive officer or director of the Company.
(4) Includes options exercisable within 60 days of June 28, 1996 to acquire
52,500 shares.
(5) Includes options exercisable within 60 days of June 28, 1996 to acquire
142,507 shares.
(6) Includes options exercisable within 60 days of June 28, 1996 to acquire
291,773 shares.
(7) Includes options exercisable within 60 days of June 28, 1996 to acquire
37,500 shares.
(8) Includes options exercisable within 60 days of June 28, 1996 to acquire
152,069 shares.
(9) Includes options exercisable within 60 days of June 28, 1996 to acquire
22,308 shares.
(10) Includes options exercisable within 60 days of June 28, 1996 to acquire
23,072 shares.
(11) Includes options exercisable within 60 days of June 28, 1996 to acquire
158,432 shares.
(12) Includes options exercisable within 60 days of June 28, 1996 to acquire
1,102,315 shares.
30
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS WITH MANAGEMENT
During fiscal 1996 the Company provided a guaranty to Comerica Bank-
California limited to an amount no greater than $550,000, in connection with a
bridge loan extended by said bank to Mr. Greenbaum. Mr. Greenbaum subsequently
borrowed $437,430 from said bank. The Company paid Mr. Greenbaum's loan
origination fee of $5,000 and pays the interest on the loan. The Company's
offer letter to Mr. Greenbaum provides that the Company shall reimburse Mr.
Greenbaum up to the lesser of $100,000 or the extent to which the gross
proceeds from the sale of his residence in Maryland are less than his basis in
such residence.
Philippe Kahn was employed part-time at an annual salary of $125,000,
pursuant to an employment agreement with the Company which expired in January
1996. Pursuant to the employment agreement, Mr. Kahn was eligible for such
health insurance (including disability to the extent available to part-time
employees) and other related benefits as was provided to employees of the
Company during the term of the agreement and the continued vesting of stock
options previously granted to him.
In fiscal 1994, the Company provided Paul Gross, Senior Vice President,
Research and Development, with a forgiveable personal loan for the principal
sum of $24,963.13 for a term of five and one-half (5 1/2) years (the "First
Loan" and with a forgiveable personal loan for the principal sum of $40,000
for a term of six and one-half (6 1/2) years (the "Second Loan"). During
fiscal 1996 the largest aggregate amount of indebtedness outstanding under the
First Loan and Second Loan was $61,526. As of April 1, 1996, the First Loan
has been forgiven in full and a principal balance of $36, 560 remained
outstanding under the Second Loan.
On July 1, 1996, Mr. Wetsel resigned as President, Chief Executive Officer
and Director of the Company. In connection with his resignation, the Company
modified its employment agreement with Mr. Wetsel and paid Mr. Wetsel a one
time severance payment of $600,000. Pursuant to the modified agreement, the
Company will employ Mr. Wetsel on a full time basis for three months following
July 1, 1996 with all compensation included within the one time severance
payment of $600,000. Thereafter, for the remaining nine months, the Company
will employ Mr. Wetsel part-time at the rate of $5,555 per month. Mr. Wetsel
will remain eligible for such general employee benefits as may be provided to
employees of the Company during such period and the continued vesting of stock
options previously granted to him.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
. Report of Independent Accountants
. Consolidated Balance Sheets at March 31, 1996 and 1995
. Consolidated Statements of Operations for fiscal years ended March
31, 1996, 1995 and 1994
. Consolidated Statements of Stockholders' Equity for the period
March 31, 1993 through March 31, 1996
. Consolidated Statements of Cash Flows for fiscal years ended March
31, 1996, 1995 and 1994
. Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule
. Report of Independent Accountants on Financial Statement Schedule
. Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
31
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------
<C> <S>
2.3 --Agreement and Plan of Merger among Borland International, Inc.,
Aspen Acquisition Corporation and Open Environment Corporation dated
May 11, 1996.
3.1(1) --Restated Certificate of Incorporation of the Registrant
3.2 --Bylaws of the Registrant
4.1 --Restated Certificate of Incorporation and Bylaws of the Registrant
are filed as Exhibits 3.1 and 3.2, respectively
4.2(3) --Rights Agreement dated as of December 23, 1991 between Borland
International, Inc. and Manufacturers Hanover Trust Company of
California
10.1(4) --Loan commitment secured by a mortgage entered into with Sanwa Bank
California, Wells Fargo Bank, and Pacific Trust Fund Company dated
September 17, 1987 and amendment thereto dated April 27, 1988
10.2(5) --Form of Indemnity Agreement
10.3(6) --1990 Employee Stock Purchase Plan
10.4(2) --Non-Employee Directors' Stock Option Plan
10.5(7) --1992 Stock Option Plan
10.6(8) --1993 Stock Option Plan
11.1 --Computation of Earnings (Loss) Per Share
22.1 --Subsidiaries of Registrant
23.1 --Consent of Price Waterhouse LLP, Independent Accountants
24.1 --Powers of Attorney
</TABLE>
- - --------
(1) Previously filed as Exhibit to Registrant's Registration Statement on Form
S-4 (filed with the Commission on July 18, 1989) and incorporated herein
by reference.
(2) Previously filed as Exhibit to Registrant's Current Report on Form 8-K
(filed with the Commission on December 27, 1991) and incorporated herein
by reference.
(3) Previously filed as Exhibit to Registrant's Annual Report on Form 10-K for
the year ended March 31, 1990 and incorporated herein by reference.
(4) Previously filed as Exhibit to Registrant's Amendment No. 1 to
Registration Statement on Form S-1 (filed with the Commission on December
12, 1989) and incorporated herein by reference.
(5) Previously filed as Exhibit to Registrant's Registration Statement on Form
S-8 (filed with the Commission on September 26, 1990) and incorporated
herein by reference.
(6) Previously filed as Exhibit to Registrant's Annual Report on Form 10-K for
the year ended March 31, 1993 and incorporated herein by reference.
(7) Previously filed as Exhibit to Registrant's Registration Statement on Form
S-8 (filed with the Commission on July 24, 1992) and incorporated herein
by reference.
(8) Previously filed as Exhibit to Registrant's Registration Statement on Form
S-8 (filed with the Commission on March 11, 1993) and incorporated herein
by reference.
A copy of any exhibit will be furnished (at a reasonable cost) to any
stockholder of the Company upon receipt of a written request therefor. Such
request should be sent to Borland International, Inc. 100 Borland Way, Scotts
Valley, CA 95066-3249, Attn: Secretary.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of the
fiscal year ended March 31, 1996.
32
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, IN THE CITY OF
SCOTTS VALLEY, CALIFORNIA, ON THE 29TH DAY OF JULY, 1996.
Borland International, Inc.
(Registrant)
*
By _________________________________________
David Mullin,
Vice President of Finance and Administration,
Chief Financial Officer, and
Principal Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AS INDICATED ON THE 29TH DAY OF JULY, 1996.
SIGNATURE TITLE
--------- -----
* Chairman, Acting Chief Executive
____________________________________ Officer
William F. Miller
* Vice President of Finance and
____________________________________ Administration, Chief Financial
David Mullin Officer, and Principal Accounting
Officer
* Director
____________________________________
George Hara
* Director
____________________________________
David Heller
* Director
____________________________________
Stephen Lewis
* Director
____________________________________
Harry Saal
* Director
____________________________________
Philippe Kahn
*By /s/ Robert H. Kohn
__________________________________
(Robert H. Kohn, Attorney in Fact)
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Borland International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Borland International, Inc. and its subsidiaries at March 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
San Jose, California
April 24, 1996, except for Note 14 which is as of May 15, 1996
34
<PAGE>
BORLAND INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
------------------
1996 1995
-------- --------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 74,682 $ 68,193
Short-term investments........................... 15,464 1,616
Accounts receivable, net of allowances of $22,156
and $30,640..................................... 34,151 18,646
Inventories...................................... 1,599 5,393
Other current assets............................. 7,321 10,402
-------- --------
Total current assets........................... 133,217 104,250
Property and equipment, net........................ 114,612 129,832
Other non-current assets........................... 7,758 10,914
-------- --------
Total assets................................... $255,587 $244,996
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................. $ 21,151 $ 24,654
Accrued expenses................................. 18,728 35,062
Short-term restructuring......................... 2,684 13,198
Income taxes payable............................. 9,244 7,220
Other current liabilities........................ 17,647 20,963
-------- --------
Total current liabilities...................... 69,454 101,097
Long-term debt and other........................... 14,555 20,895
-------- --------
Total liabilities.............................. 84,009 121,992
-------- --------
Commitments and contingencies
(Notes 8, 9, 12 and 14)
Stockholders' equity:
Preferred stock; $.01 par value; 1,000 shares
authorized; none issued or outstanding -- --
Common stock; $.01 par value; 100,000 shares
authorized; 31,168 and 27,405 issued and
outstanding..................................... 312 273
Additional paid-in-capital....................... 279,083 243,311
Accumulated deficit.............................. (112,015) (126,300)
Cumulative translation adjustment................ 4,198 5,720
-------- --------
Total stockholders' equity..................... 171,578 123,004
-------- --------
Total liabilities and stockholders' equity..... $255,587 $244,996
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
BORLAND INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenues...................................... $215,206 $254,064 $393,519
Cost of revenues.................................. 31,228 53,418 107,685
-------- -------- --------
Gross profit...................................... 183,978 200,646 285,834
-------- -------- --------
Selling, general and administrative............... 125,258 198,720 262,966
Research and development.......................... 45,086 61,760 65,653
Restructuring and other non-recurring charges..... -- 63,070 14,042
Write-down of real estate held for sale........... -- -- 8,234
-------- -------- --------
Total operating expenses........................ 170,344 323,550 350,895
-------- -------- --------
Operating income (loss)........................... 13,634 (122,904) (65,061)
Interest income, net and other.................... 3,787 3,589 1,799
Gain on sale of Quattro Pro....................... -- 109,927 --
-------- -------- --------
Income (loss) before income taxes................. 17,421 (9,388) (63,262)
Income tax provision.............................. 3,136 2,789 6,629
-------- -------- --------
Net income (loss)................................. $ 14,285 $(12,177) $(69,891)
======== ======== ========
Net income (loss) per common and common equivalent
share............................................ $ .45 $ ( .43) $ (2.62)
======== ======== ========
Weighted average number of common and common
equivalent shares
outstanding...................................... 31,861 27,994 26,670
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
BORLAND INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------
NUMBER ADDITIONAL CUMULATIVE
OF PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1993................... 26,460 $265 $234,865 $ (44,232) $(2,581) $188,317
Employee stock options,
employee stock purchase
plan and other, net.... 394 4 4,635 -- -- 4,639
Translation adjustment.. -- -- -- -- (2,695) (2,695)
Net loss................ -- -- -- (69,891) -- (69,891)
------ ---- -------- --------- ------- --------
Balance at March 31,
1994................... 26,854 269 239,500 (114,123) (5,276) 120,370
Employee stock options,
employee stock purchase
plan and other, net.... 472 3 3,402 -- -- 3,405
Issuance of ReportSmith
shares................. 1,681 17 16,372 -- -- 16,389
Redemption of
ReportSmith shares..... (1,602) (16) (15,963) -- -- (15,979)
Translation adjustment
(See Note 5)........... -- -- -- -- 10,996 10,996
Net loss................ -- -- -- (12,177) -- (12,177)
------ ---- -------- --------- ------- --------
Balance at March 31,
1995................... 27,405 273 243,311 (126,300) 5,720 123,004
Employee stock options,
employee stock
purchase plan and
other, net............. 3,842 40 36,560 -- -- 36,600
Redemption of
ReportSmith shares..... (79) (1) (788) -- -- (789)
Translation adjustment.. -- -- -- -- (1,522) (1,522)
Net income.............. -- -- -- 14,285 -- 14,285
------ ---- -------- --------- ------- --------
Balance at March 31,
1996................... 31,168 $312 $279,083 $(112,015) $ 4,198 $171,578
====== ==== ======== ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
BORLAND INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 14,285 $(12,177) $(69,891)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization................ 16,393 24,570 27,202
Non-cash restructuring costs and write-down
of real estate held
for sale.................................... -- 20,849 9,291
Write-off of purchased technology............ -- 16,158 --
Gain on sale of Quattro Pro.................. -- (109,927) --
Changes in assets and liabilities:
Accounts receivable.......................... (16,790) 9,870 41,755
Inventories.................................. 3,794 3,758 7,541
Other current assets......................... 442 1,839 2,412
Accounts payable, accrued expenses and short-
term restructuring.......................... (29,104) (25,333) 10,351
Income taxes payable......................... 2,024 161 (648)
Other (primarily deferred revenue and long-
term restructuring)......................... (7,584) 6,036 (244)
-------- -------- --------
Cash provided (used) by operating activities..... (16,540) (64,196) 27,769
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment, net..... (3,095) (7,045) (50,295)
Acquisition of product rights.................. -- (1,960) (1,560)
Sale of Quattro Pro to Novell.................. -- 110,000 --
Sale of fixed assets and real estate held for
sale.......................................... 5,041 7,200 --
Net change in short-term investments........... (13,849) (80) (41)
-------- -------- --------
Cash provided (used) by investing activities..... (11,903) 108,115 (51,896)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net.... 36,600 3,405 4,639
Redemption of ReportSmith stock................ (789) (15,978) --
Borrowings (repayment) of short term debt...... -- (30,000) 15,000
Repayment of capital lease obligations and
other debt activity........................... (728) (1,137) (582)
-------- -------- --------
Cash provided (used) by financing activities..... 35,083 (43,710) 19,057
-------- -------- --------
Effect of exchange rate changes on cash.......... (151) 1,827 (2,393)
-------- -------- --------
Net change in cash and cash equivalents.......... 6,489 2,036 (7,463)
Beginning cash and cash equivalents.............. 68,193 66,157 73,620
-------- -------- --------
Ending cash and cash equivalents................. $ 74,682 $ 68,193 $ 66,157
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest net of $597 capitalized in fiscal
1994........................................ $ 1,197 $ 1,982 $ 988
Income taxes................................. 1,918 5,463 4,165
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
--------
The Company develops and markets software development tools, including
programming language software and database management systems, to the business
and software developer community.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition
-------------------
Revenue from the sale of software products, including sales to distributors
and retail dealers, is recognized upon shipment when no significant vendor
obligations remain and collection of the receivable is probable. Allowances
for estimated future returns and exchanges are provided at that time based on
the Company's return policies. Revenue from corporate license agreements is
recognized when the product is accepted by the user.
Additionally, the Company offers technical support and product maintenance
contracts to customers of certain of its products. Revenues related to such
contracts are recognized ratably over the term of the contracts. The Company
has historically provided customers technical support services for which it is
not contractually obligated. Provision is made at the time of sale for the
cost of such services. Historically, the cost of providing these non-
contracted services has been insignificant.
Cash, Cash Equivalents and Short-Term Investments
-------------------------------------------------
Cash and cash equivalents primarily includes cash, money market funds and
commercial paper purchased with an original maturity of three months or less.
Investments purchased with an original maturity greater than three months and
less than one year are classified as short term investments.
The Company has classified all its investment securities as held to
maturity. Cash and cash equivalents at March 31, 1996 includes $51.3 million
invested primarily in commercial paper. Short term investments at March 31,
1996 consists of $15.5 million invested primarily in commercial paper and
other high quality corporate obligations. The estimated fair value of each
investment approximates cost due to the short period of time to effective
maturity.
Financial Instruments
---------------------
The Company enters into foreign exchange option and forward contracts to
manage its exposure to currency fluctuations. The Company has outstanding
short term forward exchange contracts (principally yen and Canadian dollar) to
exchange various foreign currencies for U.S. dollars in the amount of $7.3
million and $11.2 million at March 31, 1996 and March 31, 1995, respectively.
The Company's accounting policy for these instruments is based on the
Company's designation of such instruments as hedging transactions. Gains and
losses on forward currency contracts and options, that are designated and
effective as hedges of existing transactions, for which a firm commitment has
been attained, are recognized in income in the same period as losses and gains
on the underlying transactions are recognized. By their nature, these
transactions generally offset. The net gain or loss on such foreign currency
contracts and underlying transactions were not material in fiscal 1996, 1995,
and 1994.
39
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and trade accounts receivable. The Company places its
cash, cash equivalents and short-term investments in a variety of financial
instruments such as commercial paper, certificates of deposits, bankers
acceptances and U.S. Government agency debt. The Company, by policy, limits
the amount of credit exposure to any one financial institution or commercial
issuer.
The Company offers credit terms on the sale of its software products to
distributors, retail dealers and certain end-user customers. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for uncollectible accounts receivable based upon the expected
collectibility of all accounts receivable.
The Company is exposed to credit loss in the event of non-performance by
counterparties to foreign exchange contracts, but the Company does not
anticipate non-performance by these counterparties.
Inventories
-----------
Inventories consist primarily of completed product and are stated at the
lower of cost or market value. Cost is determined on a first-in, first-out
basis.
Property and Equipment
----------------------
Property and equipment is stated at cost and depreciated using the straight-
line method based on the following estimated useful lives:
<TABLE>
<S> <C>
Building..................................................... 31.5 years
Computer equipment........................................... 3 to 5 years
Office and other furniture and equipment..................... 5 years
Leasehold improvements....................................... Lease term
</TABLE>
Depreciation expense for the years ended 1996, 1995 and 1994 was
$15,191,000, $21,730,000 and $23,207,000, respectively. Maintenance and
repairs are expensed as incurred. The cost of assets and related accumulated
depreciation are removed from the accounts upon retirement or other
disposition; any resulting gain or loss is reported as income or expense.
Impairment of Long-Lived Assets
-------------------------------
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of." This pronouncement requires that long-lived assets and
certain identifiable intangible assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is to be recognized when the
sum of undiscounted cash flows is less than the carrying amount of the asset.
Measurement of the loss for assets that the entity expects to hold and use is
to be based on the fair value of the asset. Adoption of this pronouncement is
not expected to have a material impact on the Company's financial condition or
results of operations.
Product Rights and Intangibles
------------------------------
The Company capitalizes certain product rights acquired from others and
internal software development costs incurred after technological feasibility
has been demonstrated. Such capitalized amounts are amortized
40
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
commencing with product introduction at the greater of the straight-line basis
utilizing the estimated economic lives, which range from two to four years, or
the ratio of actual revenues achieved to the total anticipated revenues over
the lives of the products.
No internal development costs were capitalized in fiscal 1996, 1995 and
1994. Amortization of product rights charged to cost of revenues during the
years ended in 1996, 1995, and 1994 was $500,000, $2,071,000 and $3,216,000,
respectively. At March 31, 1996 and 1995 unamortized product rights were
approximately $83,000 and $583,000.
Goodwill
--------
Goodwill represents the excess of the aggregate purchase price over the fair
market value of the tangible and intangible assets acquired in various
acquisitions and is being amortized over the estimated useful life of seven
years. Amortization of goodwill charged to operating expenses during the years
ended in 1996, 1995, and 1994 was $702,000, $769,000 and $779,000,
respectively. At March 31, 1996 and 1995 unamortized goodwill was
approximately $447,000 and $1,149,000.
Advertising Costs
-----------------
The Company expenses the production costs of advertising, including direct
response, the first time the advertising takes place. Advertising expense was
$12.2 million, $20.7 million and $33.9 million in fiscal year 1996, 1995 and
1994, respectively.
Income Taxes
------------
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities and are measured using
currently enacted tax rates and laws.
No U.S. federal income taxes are provided on undistributed earnings of the
non-U.S. subsidiaries as these earnings are considered to be permanently
invested in non-U.S. operations.
Foreign Currency Translation
----------------------------
The Company's non-U.S. subsidiaries' balance sheet accounts are translated
into U.S. dollars at the exchange rate as of the balance sheet date. Revenues,
costs and expenses are translated using an average rate. Resulting exchange
gains and losses are reported as a component of stockholders' equity, except
for certain fiscal 1995 restructuring write-offs of cumulative translation
adjustments related to subsidiaries that were liquidated.
Accounting for Stock-Based Compensation
---------------------------------------
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". The Company is not required to
adopt the provisions of SFAS No. 123 until fiscal year 1997. The adoption of
SFAS No. 123 must be made on a prospective basis. The Company plans to adopt
the disclosure only provisions of this statement for employee-based stock
plans, and believes the effect on its financial position and results of
operations, upon adoption, will not be significant.
Earnings (Loss) Per Share
-------------------------
Net income (loss) per common and common equivalent share for fiscal 1996,
1995 and 1994 was determined using the modified treasury stock method.
41
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management Estimates and Assumptions
------------------------------------
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. CONSOLIDATED BALANCE SHEET COMPONENTS
Details of certain balance sheet captions are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, including capitalized leases:
Building.................................................. $104,406 $105,003
Computer equipment........................................ 54,342 64,806
Office furniture and equipment............................ 24,370 23,847
Other..................................................... 4,839 13,286
-------- --------
187,957 206,942
Less accumulated depreciation and amortization............ (92,459) (96,344)
-------- --------
95,498 110,598
Land...................................................... 19,114 19,234
-------- --------
$114,612 $129,832
======== ========
Accrued expenses:
Employee related expenses................................. $ 6,496 $ 11,392
Advertising and customer sales incentives................. 2,778 5,145
Other..................................................... 9,454 18,525
-------- --------
$ 18,728 $ 35,062
======== ========
Other current liabilities:
Deferred revenue.......................................... $ 8,569 $ 10,570
Other..................................................... 9,078 10,393
-------- --------
$ 17,647 $ 20,963
======== ========
Long-term debt and other non-current liabilities:
Non-current portion of accrued restructuring charges...... $ 4,807 $ 4,479
Mortgage notes payable.................................... 9,468 9,576
Capital lease obligations, deferred revenue and other..... 280 6,840
-------- --------
$ 14,555 $ 20,895
======== ========
</TABLE>
NOTE 3. SALE OF QUATTRO PRO TO NOVELL, INC.
In June, 1994, the Company sold its Quattro Pro product line to Novell, Inc.
("Novell") for $145 million in cash. The terms of the agreement also entitled
Novell to certain licensing rights to distribute up to 1 million copies of the
Company's Paradox for Windows database product over a three year period to be
sold in a suite of products also containing Quattro Pro for Windows and
WordPerfect for Windows. Of the $145 million, $110 million was attributed to
the sale of the Quattro Pro product line and $35 million to the Paradox
licenses.
42
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In fiscal year 1995, the Company recorded a pre-tax non-operating gain
related to the sale of Quattro Pro of $109.9 million , which reflected the net
costs and expenses of disposing of the product line, the net book value of
assets sold to Novell and the operating profit of the Quattro Pro product line
for the quarter ending June 30, 1994. As a result of the Company's tax loss
carry-forwards and other tax benefits, the Company did not incur a significant
tax expense related to this gain.
In connection with the sale of its Quattro Pro product line, the Company
sold Novell the rights to distribute up to one million copies of its Paradox
for Windows database for $35 million. Under the terms of the agreement, Novell
could distribute such licenses over a three year period to be sold in a suite
of products also containing Quattro Pro for Windows and WordPerfect for
Windows. Of the $35 million related to the licensing rights, $24.5 million was
recognized upon sale and the remaining $10.5 million was deferred and
recognized ratably over the three year term.
In March 1996, Novell sold its Office suite of products to Corel Corporation
releasing Borland from any future liabilities or obligations to Novell
regarding the Paradox for Windows license agreement. Consequently, the Company
recognized the balance of $4.4 million of deferred revenue. During fiscal
years 1996 and 1995, the Company recognized a total of $7.9 million and $27.1
million of revenue, respectively, related to the Paradox licenses.
Quattro Pro and Borland Office Statement of Operations Data (Unaudited)
-----------------------------------------------------------------------
Following the sale of Quattro Pro to Novell, the Company no longer had
revenues related to sales of the Quattro Pro and Borland Office products.
Combined Quattro Pro and Borland Office revenues were $101.6 million for
fiscal year 1994. During fiscal 1994, cost of revenues and operating expenses
directly attributable to Quattro Pro and Borland Office were $44.7 million and
$29.2 million, respectively. Such revenues and expenses have not continued
subsequent to the disposition of the products. The proforma net revenues and
related operating loss of the Company for the year ended March 31, 1994, after
giving effect to the Novell transaction as if it had been consummated at April
1, 1993, were $291.9 million and $92.8 million, respectively.
NOTE 4. ACQUISITION OF REPORTSMITH, INC.
The Company acquired ReportSmith, Inc., a developer of client/server
reporting and data query tools for the Windows operating environment, in May
1994 in exchange for 1,680,789 shares of the Company's common stock.
Additionally, the Company exchanged options to purchase 118,228 shares of its
common stock to former employees of ReportSmith for their outstanding
ReportSmith options, ranging in price from $.206 to $.361 per share. Under the
terms of the agreement, and subject to certain conditions, the former holders
of ReportSmith shares could elect to receive payment in cash, commencing
December, 1994, which election was made, at a price per share of $9.96875.
During the fiscal years ended March 31, 1996 and 1995, the Company has paid
out cash of approximately $.8 million and $16.0 million, respectively, to
purchase all such shares.
The acquisition has been accounted for under the purchase method. Based on
an independent appraisal, the Company recorded a $4 million asset related to
certain intangibles. Additionally, the Company recorded the net value of
assets acquired and liabilities assumed, and a one-time write-off of in
process research and development of $16.2 million. As part of the January,
1995 restructuring, and resulting repositioning of certain products, the
Company reassessed the net realizability of the ReportSmith purchased
technology and recorded an additional write-down of $2 million.
43
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
In January, 1995, the Company announced a restructuring of its operations,
including a more focused strategy to provide products to the software
developer community. In connection with the restructuring, the Company reduced
its worldwide headcount by approximately 40%, centralized certain marketing
and development activities to improve efficiency and outsourced manufacturing
operations in the U.S. and in Europe. In addition, several international
operations were closed, and sales efforts in those areas will be conducted
through authorized distributors. In connection with the restructuring, the
Company recorded, in the fourth quarter of fiscal 1995, a $50 million pre-tax
restructuring charge related to the reduction of its workforce, the closing of
several international sales offices and the outsourcing of its manufacturing
operations, as well as the write-down of facilities and of certain purchased
technology costs.
The following is an analysis of the significant components of the
restructuring charge recorded in the fourth quarter of fiscal 1995 which
related to the January, 1995 restructuring:
<TABLE>
<CAPTION>
TOTAL
RESTRUCTURING NON-CASH CASH PAID IN ACCRUALS AS OF CASH PAID IN ACCRUALS AS OF
COSTS COSTS FISCAL 1995 MARCH 31, 1995 FISCAL 1996 MARCH 31, 1996
------------- -------- ------------ -------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Severance, taxes and
benefits............... $15,923 -- $11,343 $ 4,580 $4,278 $ 302
Facilities.............. 17,996 $12,290 1,028 4,678 2,437 2,241
Other................... 19,256 14,781 2,176 2,299 1,353 946
Reversal of prior
restructuring accruals. (3,154) (3,154) -- -- -- --
------- ------- ------- ------- ------ ------
Total................. $50,021 $23,917 $14,547 $11,557 $8,068 $3,489
======= ======= ======= ======= ====== ======
</TABLE>
The Company also incurred restructuring charges of $14 million for fiscal
1994 for personnel reductions and the closing of facilities related to
significant changes in its product and distribution strategy. During fiscal
year ended March 31, 1996, a total of $2.7 million was paid to reduce prior
restructuring accruals to an ending balance of $4.0 million.
Included in the results of operations for fiscal year 1995 is a $3.1 million
reversal of a prior restructuring charge related to the favorable resolution
of certain lease obligations of Ashton-Tate Corporation.
NOTE 6. WRITE-DOWN OF REAL ESTATE HELD FOR SALE
During fiscal year 1994, the Company recorded a charge of $8.2 million for
the write-down of unoccupied real estate held for sale. The write-downs were
determined based on independent appraisals obtained by the Company. Most of
the write-down related to certain real estate which became surplus as a result
of the restructuring actions undertaken by the Company in March, 1994. The
remaining write-down related to a decline in estimated realizability of an
unoccupied office building acquired in the Ashton-Tate merger, which had been
held for sale since March 31, 1992. This office building was sold in the third
quarter of fiscal year 1995 for $7.2 million, net of commissions. This
transaction did not result in a material gain or loss to the Company.
NOTE 7. LONG-TERM DEBT
Long-term debt at March 31, 1996 represents outstanding mortgage notes. The
10.75% mortgage notes, secured by certain land, buildings and improvements,
are repayable in equal monthly installments over a thirty-year term ending in
2018.
44
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minimum annual repayments of these notes at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal year:
1997..................................................... $ 108
1998..................................................... 120
1999..................................................... 134
2000..................................................... 149
2001..................................................... 166
Thereafter............................................... 8,899
------
9,576
Less current portion..................................... (108)
------
Long-term portion........................................ $9,468
======
</TABLE>
Interest expense for all obligations was $1,197,000, $1,739,000 and
$1,169,000 for the years ended in 1996, 1995 and 1994, respectively.
NOTE 8. INCOME TAXES
Income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
US............................................ $ 2,200 $ 28,362 $(49,601)
Non-US........................................ 15,221 (37,750) (13,661)
------- -------- --------
$17,421 $ (9,388) $(63,262)
======= ======== ========
The provision (benefit) for income taxes consisted of the following:
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $ -- $ 1,946 $ --
State....................................... 300 350 1,597
Non-US...................................... 2,836 493 5,032
------- -------- --------
Taxes on income............................... $ 3,136 $ 2,789 $ 6,629
======= ======== ========
</TABLE>
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision (benefit) computed by applying
the federal statutory tax rate on income (loss) before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) at US statutory
rate...................................... $ 6,097 $ (3,286) $(22,142)
Limitation/(benefit) on utilization of non-
US losses................................. (4,551) 12,342 7,986
Limitation/(benefit) on utilization of US
losses.................................... (770) (7,981) 17,360
State income taxes......................... 300 350 1,597
Non-US withholding taxes................... 2,060 1,364 1,828
------- -------- --------
Income tax provision....................... $ 3,136 $ 2,789 $ 6,629
======= ======== ========
</TABLE>
45
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under FAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of differences between the carrying amounts
of assets and liabilities and their respective tax bases using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses................................... $ 12,793 $ 25,849
Accounts receivable reserves....................... 4,526 3,340
Inventory valuation................................ 2,270 779
Depreciation, amortization and other............... 6,799 6,688
US federal and state loss and credit carryforwards. 64,641 53,039
Non-US loss carry-forwards......................... 18,109 22,061
--------- ---------
Gross deferred tax assets........................ 109,138 111,755
Deferred tax assets valuation allowance............ (109,138) (111,755)
--------- ---------
Total net deferred tax assets.................... $ 0 $ 0
========= =========
</TABLE>
At March 31, 1996 and March 31, 1995, the Company fully reserved its
deferred tax assets. The Company believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets such that a valuation
allowance is required. The net change in the total valuation allowance for the
year ended March 31, 1996, was a decrease of approximately $2.6 million.
Deferred tax assets and related valuation allowances of approximately $37
million relate to certain US operating loss carry-forwards resulting from the
exercise of employee stock options, the tax benefit of which, when recognized,
will be accounted for as a credit to additional paid-in capital rather than a
reduction of the income tax provision.
For US Federal income tax purposes, the Company has net operating loss
carry-forwards of approximately $100 million at March 31, 1996. There are also
available US Federal tax credit carry-forwards of approximately $22 million.
These loss and credit carry-forwards expire between 1997 and 2011, if not
utilized. Additionally, the Company has approximately $37 million of net
operating loss carry-forwards in various foreign jurisdictions. Certain of
these loss carry-forwards will expire beginning in 1997, if not utilized.
At March 31, 1996, the Company had unresolved deficiency notices from the
IRS and various state governments for additional taxes and interest of
approximately $5 million. The Company is protesting these assessments with
appellate divisions of the respective tax authorities. Subsequently, on May
15, 1996, the U.S. Tax Court approved a settlement agreement entered into
between the Company and the IRS which reduced the unresolved deficiency
notices from the IRS and various state governments to approximately $3.1
million. The settlement agreement is also expected to result in a cash refund
of approximately $6.5 million, exclusive of interest. Additionally, the
Company has received a foreign tax assessment of approximately $18 million
including interest. The Company successfully appealed the assessment, yet the
foreign tax authority has appealed the court's decision. The Company believes
that the ultimate outcome of the above assessments will not have a material
adverse impact on the Company's financial position or results of operations.
However, it is possible that the Company may, as a result of these tax
disputes, be engaged in long-term administrative and judicial proceedings.
Applicable US income and non-US withholding taxes have not been provided on
undistributed earnings of approximately $5 million of the Company's foreign
subsidiaries as such earnings are considered to be permanently invested in
foreign operations.
46
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LEASES
The Company leases certain of its office and operating facilities, and
certain furniture and equipment under various operating and capital leases.
Lease terms range from one to seventeen years.
Minimum annual lease commitments at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year:
1997.................................................. $ 2,181 $567
1998.................................................. 924 --
1999.................................................. 663 --
2000.................................................. 624 --
2001.................................................. 910 --
Thereafter............................................ 11,439 --
------- ----
$16,741 567
======= ====
Less amount representing interest..................... (14)
----
$553
====
</TABLE>
At March 31, 1996 the Company had an accrual for future lease commitments of
approximately $6 million (net of estimated sublease income of $4 million)
relating to elimination of certain duplicate facilities (see Note 5).
Rent expense for all operating leases was $3,280,000, $6,232,000 and
$12,977,000 for the years ended in 1996, 1995 and 1994, respectively.
NOTE 10. EMPLOYEE BENEFIT PLANS
Stock Option Plan
-----------------
The Company has a stock option plan (the Plan) for its employees. Options
granted under the Plan may be either incentive stock options or nonstatutory
options. The exercise price of options granted under the Plan may not be less
than 85% of the fair market value of the common stock at the date of the grant
for nonstatutory options, and 100% of the fair market value of the Company's
common stock on the date of grant for incentive stock options. However, in the
case of options granted to an optionee who owns stock representing more than
10% of the voting power of all classes of the Company's stock, the exercise
price must not be less than 110% of the fair market value on the date of grant
and the maximum term of such options may not exceed five years. Certain stock
option grants made in fiscal 1996 and 1995 have accelerated vesting features
that become effective under certain conditions in the event that there is a
change of control of the Company.
Options generally vest 25% one year from the date of grant and ratably
thereafter on a daily basis over three years. Options expire either three
months after termination of employment, or ten years after date of grant.
The Company also has a stock option plan which provides for the grant to
each non-employee director on the date of his election to the Board a stock
option covering 30,000 shares of the Company's common stock. Additionally, the
plan provides upon the election of a non-employee director as Chairman of the
Board such person shall be granted a further stock option covering 30,000
shares of the Company's common stock. The plan
47
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
further provides for the grant to each non-employee director at each annual
meeting options covering 7,500 additional shares (15,000 for the Chairman of
the Board). All such shares vest over a period of one year.
<TABLE>
<CAPTION>
SHARES
SUBJECT
TO OPTIONS
OUTSTANDING OPTION PRICE
(THOUSANDS) PER SHARE
----------- --------------
<S> <C> <C>
Balance, March 31, 1993........................... 11,357 $ 0.938-$72.25
Granted......................................... 3,956 $12.500-$22.50
Exercised....................................... (250) $ 0.938-$21.00
Canceled........................................ (4,294) $ 5.600-$51.75
-------
Balance, March 31, 1994........................... 10,769 $ 0.938-$51.75
Granted......................................... 10,199 $ 0.206-$13.50
Exercised....................................... (259) $ 0.206-$12.50
Canceled........................................ (10,296) $ 0.301-$50.00
-------
Balance, March 31, 1995........................... 10,413 $ 0.206-$50.00
Granted......................................... 2,241 $ 7.875-$19.06
Exercised....................................... (3,764) $ 0.206-$17.88
Canceled........................................ (2,313) $ 0.309-$42.50
-------
Balance, March 31, 1996........................... 6,577 $ 0.206-$42.50
=======
</TABLE>
At March 31, 1996, 1,881,423 shares were available for future grant under
the employee and directors option plans.
At March 31, 1996, options to purchase approximately 2,359,657 shares of
common stock were exercisable.
On June 7, 1994, the Board of Directors approved a proposal under which all
employees could elect to cancel certain options in exchange for grants of new
options with exercise prices equal to the fair value of the Company's common
stock on that date. The number of shares to be reissued was dependent upon,
among other factors, the price of the options being canceled. Additionally,
none of the repriced options could be exercised before April 30, 1995. Options
for the purchase of a total of 6,335,437 shares were canceled in exchange for
newly issued options for the purchase of 5,846,905 shares.
In fiscal 1994, the Board of Directors approved a proposal under which
employees, other than executive officers, could elect to cancel certain
options in exchange for grants of new options with exercise prices which were
the fair value of the Company's common stock on the date of the Board's
approval. Options for the purchase of a total of 2,205,216 shares were
canceled in exchange for newly issued options for the purchase of 1,102,608
shares.
Employee Stock Purchase Plan
----------------------------
In September 1990, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). A total of 850,000 shares of common stock have been reserved
for issuance under the Purchase Plan. Under the Purchase Plan shares may be
purchased by participants at the lower of 85% of the fair market value at the
beginning or end of each six month offering period. Shares are to be purchased
from payroll deductions which are limited to 15% of an employee's
compensation. At March 31, 1996, approximately 630,000 shares have been issued
under the Purchase Plan.
48
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Profit Sharing Plan and Bonus Plans
-----------------------------------
The Company has several bonus plans which provide for additional
compensation to most U.S. and certain non-U.S. employees. Charges to income
for the plans were approximately $2,941,000, $3,734,000, and $5,021,000 in
fiscal 1996, 1995 and 1994, respectively.
NOTE 11. STOCKHOLDER RIGHTS PLAN
In December, 1991, the Company implemented a Stockholder Rights Plan
("Rights Plan") to protect the stockholders in the event of a proposed
takeover of the Company which has not been recommended or approved by the
Board of Directors.
Under the Rights Plan, each share of the Company's outstanding common stock
carries one Preferred Share Purchase Right ("Right"). The Right entitles the
holder under certain circumstances, to purchase common stock of the Company at
a 50% discount from its then current market price. The Rights are redeemable
by the Company at a nominal price and expire in 2001.
NOTE 12. 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.
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 settlement. If the settlement is approved, there will not be any
material adverse effect on the Company's financial condition or results of
operations.
On January 16, 1996, in the case of Lotus Development Corp. v. Borland
----------------------------------
International, Inc., the U.S. Supreme Court affirmed the judgment of the U.S.
- - -------------------
Court of Appeals for the First Circuit that Borland did not infringe the
copyright of Lotus's spreadsheet product, Lotus 1-2-3. The Company intends to
initiate proceedings in the U.S. District Court in Massachusetts for a
determination of what attorneys fees, if any, Borland may recover.
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
49
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
NOTE 13. WORLDWIDE OPERATIONS
The Company operates in a single industry segment, and has various wholly
owned subsidiaries which develop and/or market the Company's products in other
countries. In certain international markets not covered by the Company's non-
U.S. subsidiaries, the Company generally sells through independent
distributors.
Summary information regarding the Company's geographic operations follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1996 1995 1994
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues from unaffiliated customers:
US operations................................. $110,604 $ 141,801 $200,602
European operations........................... 56,767 66,110 128,167
Japan operations.............................. 30,682 27,093 29,400
Other international operations................ 17,153 19,060 35,350
-------- --------- --------
Net revenues.................................... $215,206 $ 254,064 $393,519
======== ========= ========
Operating results:
US operations................................. $(14,142) $ (83,752) $(51,905)
European operations........................... 15,413 (33,602) (3,795)
Japan operations.............................. 6,706 1,812 (5,781)
Other international operations................ 5,657 (7,362) (3,580)
-------- --------- --------
Operating income (loss)......................... $ 13,634 $(122,904) $(65,061)
======== ========= ========
Identifiable assets:
US operations................................. $136,050 $ 135,694 $168,271
European operations........................... 14,081 19,619 38,699
Japan operations.............................. 8,693 14,360 10,549
Other international operations................ 6,617 5,514 12,936
-------- --------- --------
Identifiable assets............................. 165,441 175,187 230,455
General corporate assets (cash and short-term
investments)................................. 90,146 69,809 67,693
-------- --------- --------
Total assets.................................. $255,587 $ 244,996 $298,148
======== ========= ========
</TABLE>
Other international operations include activities of subsidiaries in
Australia, Canada and Hong Kong.
Revenues, operating results and identifiable assets are classified by
location of the Company's facilities rather than by customer location.
Revenues related to product transfers between geographic areas were not
significant. Export revenues from the US represented $8,852,000, $1,873,000
and $9,774,000 in fiscal 1996, 1995 and 1994, respectively.
50
<PAGE>
BORLAND INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1996 and 1995, foreign liabilities (excluding intercompany
balances) were $21,123,000 and $36,262,000, respectively.
For the years ended March 31, 1996 and 1994, sales to one customer, Ingram
Micro and its subsidiaries, accounted for approximately 15% and 14% of the
Company's net revenues, respectively. During the year ended March 31, 1995, no
single customer accounted for 10% or more of the Company's net revenues.
NOTE 14. SUBSEQUENT 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 approved by the board of
directors of both software companies, OEC will receive .51 shares of Borland
common stock for each share of OEC common stock held by them, provided that
the shares issued by the Company have a market value of no more than $25 and
no less than $12.75. If the market value of the Company's common stock is
outside of this range, the exchange ratio of .51 will change accordingly. 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 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.
On May 15, 1996, the United States Tax Court approved a settlement agreement
entered into between the Company and the Internal Revenue Service for Ashton
Tate's tax years ended January 31, 1986, 1987 and December 31, 1987. The
agreement is expected to result in a cash refund of approximately $6.5
million, exclusive of interest. The Company expects that receipt of the refund
will result in a credit to income tax expense of approximately $2 million.
51
<PAGE>
SCHEDULE II
BORLAND INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING STATEMENTS OF FROM END OF
OF PERIOD OPERATIONS RESERVES PERIOD
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
1994:
Allowance for sales returns,
rebates and doubtful
accounts.................... $20,722 $71,874 $57,403 $35,193
1995:
Allowance for sales returns,
rebates and doubtful
accounts.................... $35,193 $61,912 $66,465 $30,640
1996:
Allowance for sales returns,
rebates and doubtful
accounts.................... $30,640 $32,133 $40,617 $22,156
</TABLE>
52
<PAGE>
FORM 10-K
A copy of the Company's Form 10-K, as filed with the Securities and Exchange
Commission, is available upon request and without charge by contacting
Borland's Investor Relations Department at the corporate address, or by call-
ing 408-431-1550.
SHAREHOLDER INQUIRIES
Questions concerning shareholder accounts, change of address, or lost
certificate should be directed to: Chemical Mellon Shareholder Services
Washington Bridge Station P.O. Box 469 New York, NY 10003 or by calling 800-
356-2017
INVESTOR RELATIONS
Analysts, institutional investors, portfolio managers, brokers, and individu-
als should address inquiries to Borland's Investor Relations Department at the
corporate address or by calling 408-431-1525.
STOCK LISTING
The Company's common stock is traded on the NASDAQ Market System under the
symbol BORL.
CORPORATE HEADQUARTERS
100 Borland Way
Scotts Valley, CA 95066-3249
408-431-1000
WEB SITE
Financial information and corporate press releases are available by accessing
the Borland home page located at: http://www.borland.com
BOARD OF DIRECTORS
William F. Miller
Chairman
and Acting Chief Executive Officer
Harry J. Saal
Vice Chairman
George Hara
David Heller
Phillippe Kahn
Stephen J. Lewis
EXECUTIVE OFFICERS
Michael Greenbaum
Vice President and General Manager of Client/Server Development Tools and
Corporate Marketing
Paul H. Gross
Senior Vice President, Research and Development
William H. Jordan
Vice President, Business Development
Robert H. Kohn
Senior Vice President, Corporate Affairs and Secretary
David McGlaughlin
Vice President, International Sales and Operations
David Mullin
Vice President and Chief Financial Officer
Frank Vaculin
Vice President and General Manager of Desktop and PC-LAN Development Tools