Borland Reports Fourth Quarter and Year End 2007 Financial Results

AUSTIN, Texas--(BUSINESS WIRE)--Borland Software Corporation (NASDAQ:BORL), the global leader in Open Application Lifecycle Management (ALM), today announced preliminary financial results for the fourth quarter and fiscal year ended December 31, 2007.

For the fourth quarter of 2007, Borland reported total revenue of $61.5 million, GAAP net loss of $41.7 million, or $0.57 per share, and non-GAAP net loss of $2.7 million, or $0.04 per share. GAAP net loss included an impairment charge of $26.5 million in CodeGear goodwill, $1.2 million in stock-based compensation, $2.2 million in amortization of intangibles and $9.1 million in restructuring and other related expenses.

Revenue for ALM products and services for the fourth quarter of 2007 was $35.7 million. Deployment (DPG) products and services revenue was $8.9 million and CodeGear (IDE) products and services revenue was $16.9 million.

For 2007, Borland reported total revenue of $268.8 million. The enterprise segment, which consists of ALM and DPG products, reported $211.8 million in total revenue for the year. The CodeGear segment reported $57 million in total revenue for the year. Borland reported a GAAP operating loss of $61 million for the year compared to a loss of $53.1 million in the prior year and a non-GAAP operating loss of $8.4 million compared to a loss of $14.9 million in the prior year.

“Borland is in the midst of a multi-year transformation aimed at creating a growing, profitable, innovative leader in the ALM market,” said Tod Nielsen, president and CEO of Borland. “It is important to judge 2007 in context of this transformation. Though ALM revenue did not show the growth of the prior year, Borland reached significant milestones each and every quarter.”

“Heading into what looks to be a difficult overall IT spending environment in 2008, we maintain our focus on developing a predictable and growing revenue stream, delivering innovative products, and driving cost reductions to achieve sustainable profitability by the second half of the year,” concluded Nielsen.

2008 Business Outlook

Management expects total revenue for 2008 to be in the range of $235 to $255 million. Of this, CodeGear is expected to contribute approximately $55 million in revenue. Non-GAAP net income is expected to range from a loss of $12 million to a profit of $3 million. The Non-GAAP net income excludes restructuring costs, any impairment charges, stock-based compensation, and amortization of intangibles in the period. GAAP net loss is expected to be between $26 million and $11 million.

Conference Call

Borland will host a conference call and live webcast at 7:00 a.m., Central Standard Time, today. To access the conference call, dial 800-867-0448 for the US or Canada and 303-262-2131 for international callers. The webcast will be available live on the Investor Relations section of the Company’s corporate website at www.borland.com, and via replay beginning approximately two hours after the completion of the call until the Company’s announcement of its financial results for the next quarter. Listeners are reminded to access the webcast at least 30 minutes prior to the scheduled time to download any necessary audio or plug-in software. An audio replay of the call will also be available beginning at approximately 9:00 a.m. Central Standard Time on February 28, 2008 until 11:59 p.m. Central Standard Time on March 6, 2008, by dialing 800-405-2236, or 303-590-3000 for international callers, and entering passcode 11109147#.

About Borland

Founded in 1983, Borland (NASDAQ:BORL) is the leading vendor of Open Application Lifecycle Management (ALM) solutions - open to customers' processes, tools and platforms - providing the flexibility to manage, measure and improve the software delivery process. To learn more about maximizing the business value of software, visit http://www.borland.com.

Borland and all other Borland brand and product names are service marks, trademarks or registered trademarks of Borland Software Corporation or its subsidiaries in the United States and other countries. All other marks are the property of their respective owners.

Forward-Looking Statements

Statements made in this release that are not historical facts are “forward-looking statements” and accordingly involve risk and uncertainties that could cause actual results to differ materially from those described in this release. Forward-looking statements include, for example, all statements relating to projected financial performance (including statements involving projection of revenue, income including income (loss), earnings including earnings (loss) per share, capital expenditures, dividends, capital structure, or other financial items), the plans and objectives of management for future operations, products or services; and future performance in economic terms or other any other measures.

The potential risks and uncertainties that could cause results to differ materially include, among others, our ability to predict revenue and control expenses, and our ability to grow our ALM business or achieve profitability as planned. These and other risks are detailed in Borland’s periodic reports filed with the Securities and Exchange Commission, including, its latest Annual Report on Form 10-K, and its latest quarterly report on Form 10-Q, copies of which may be obtained from www.sec.gov. Borland does not intend to update this information to reflect future events or circumstances unless required by law.

Non-GAAP Financial Measures

The attached press release and tables include non-GAAP financial measures. Borland’s management uses non-GAAP financial measures in assessing the performance of Borland’s ability to develop, sell and market products and services (“Ongoing Operations”). They are also used for planning and forecasting in future periods. Non-GAAP financial measures also facilitate internal comparisons to Borland's historical operating results. Borland has historically reported similar non-GAAP financial measures and believes that the inclusion of comparative results provides consistency in its financial reporting that benefits investors. Non-GAAP financial measures are computed using consistent methods from quarter to quarter and year to year. These non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. They should be viewed in conjunction with the consolidated financial statements prepared in accordance with GAAP.

In presenting non-GAAP financial measures, Borland has excluded the following items:

A. Restructuring and severance charges. Borland has incurred restructuring charges eliminating certain duplicative activities, focusing Borland's resources on future growth opportunities and reducing Borland's cost structure. In connection with its restructuring, Borland has recognized costs related to termination benefits for former Borland employees whose positions were eliminated and for the closure of Borland facilities. Borland excludes these items because these expenses are not reflective of Ongoing Operations and Borland believes excluding these items from its measures of non-GAAP net income (loss) and non-GAAP net income (loss) per share facilitates comparisons with prior and subsequent reporting periods as well as comparisons to the operating results of competitors in Borland's industry. Expenses related to severance and restructuring have, in some cases, had a significant cash impact and effect on Borland's results of operations, including its net income (loss) as measured in accordance with GAAP.

B. Goodwill impairment charge. Borland recorded a non-cash goodwill impairment charge in the fourth quarter of 2007 relating to its CodeGear segment due to business performance and market conditions. This type of charge has not occurred frequently and Borland believes that excluding this charge will provide investors with a basis to compare the Company’s core operating results in different periods without this variability.

C. Stock compensation impact of SFAS 123R. These expenses consist of expenses for employee stock options and employee stock purchases under SFAS 123R. Prior to the adoption of SFAS 123R in fiscal 2006, Borland did not include expenses related to employee stock options and employee stock purchases directly in its financial statements, but elected, as permitted by SFAS 123R, to disclose such expenses in the footnotes to its financial statements. As Borland applies SFAS 123R, Borland believes that it is useful to investors to understand the impact of the application of SFAS 123R to Borland's operational performance in comparison to prior periods in which such expense was not included directly in its financial statements. In addition, while stock-based compensation expense calculated in accordance with SFAS 123R constitutes an ongoing and recurring expense, such expense is excluded from its measures of non-GAAP net income (loss) and non-GAAP net income (loss) per share because it is not an expense that typically requires or will require cash settlement by Borland and consequently is not used by management to assess the core profitability of Borland's Ongoing Operations. Borland believes it is useful to investors to understand the impact of the application of SFAS 123R to Borland's liquidity and its ability to invest in research and development and fund acquisitions and capital expenditures. Borland further believes its measures of non-GAAP net income (loss) and non-GAAP net income (loss) per share excluding this item are useful to investors in that excluding this item facilitates comparisons to the operating results of competitors in Borland's industry that may have different patterns of activity associated with equity compensation.

D. Amortization of purchased intangibles. In connection with its acquisitions, Borland has incurred amortization of purchased intangible assets. These purchased intangibles include: developed technology, customer lists and relationships, maintenance agreements, trade names, trademarks and service marks and non-compete agreements. For accounting purposes, Borland amortizes the fair value of the purchased intangibles based on the pattern in which the economic benefits of the intangible assets will be consumed as revenue is generated. Although these intangible assets generate revenue for Borland, Borland excludes the associated amortization expense because it is non-cash in nature and because Borland believes its measures of non-GAAP net income (loss) and non-GAAP net income (loss) per share excluding this item provides meaningful supplemental information regarding Borland's operational performance, liquidity and Borland's ability to invest in research and development and fund acquisitions and capital expenditures. In addition, excluding this item facilitates comparisons to Borland's historical operating results and comparisons to the operating results of competitors in Borland's industry which may have different acquisition histories.

E. Acquisition-related expenses. Borland has incurred significant acquisition-related expenses in connection with its prior acquisitions. Borland has also acquired in-process research and development that had not yet reached technological feasibility and had no alternative future use. Accordingly, these amounts were charged to operating expense upon consummation of the respective acquisitions. Borland excludes these items from its measures of non-GAAP net income (loss) and non-GAAP net income (loss) per share because these expenses are not reflective of Ongoing Operations in the current period and have no direct correlation to the operation of Borland's business either historically or on a future basis, as these are one-time charges. In addition, excluding this item facilitates comparisons to Borland's historical and future operating results and comparisons to the operating results of competitors in Borland's industry which may have different acquisition histories. Expenses related to acquisitions have, in some cases, had a significant cash impact and effect on Borland's results of operations, including its net income (loss) as measured in accordance with GAAP.

Borland also excluded the common share equivalents that would have resulted from using the “if-converted” method of calculating the non-GAAP diluted income per share relating to the common shares issuable upon conversion of the convertible senior notes.

Borland believes that non-GAAP measures have significant limitations in that they do not reflect all of the amounts associated with Borland's financial results as determined in accordance with GAAP and that these measures should only be used to evaluate Borland's financial results in conjunction with the corresponding GAAP measures. In addition, the exclusion of the charges and expenses indicated above from the non-GAAP financial measures presented does not indicate an expectation by Borland management that similar charges and expenses will not be incurred in subsequent periods.

BORLAND SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except par value and share amounts, unaudited)
		ASSETS		December 31, 2007				December 31, 2006
	Current assets:
		Cash and cash equivalents		$	90,805			$	55,317
		Short-term investments			68,061				-
		Accounts receivable, net of allowances of $6,096 and $5,413, respectively			54,640				62,154
		Prepaid expenses			9,207				13,341
		Other current assets			5,106				1,329
		Total current assets			227,819				132,141
	Property and equipment, net				9,996				11,176
	Goodwill				226,688				253,356
	Intangible assets, net				31,658				40,521
	Long-term investments				37,970				-
	Other non-current assets				9,886				6,705
		Total assets		$	544,017			$	443,899
		LIABILITIES AND STOCKHOLDERS’ EQUITY
	Current liabilities:
		Accounts payable		$	7,622			$	15,591
		Accrued expenses			31,605				36,438
		Short-term restructuring			9,867				9,582
		Income taxes payable			2,315				14,925
		Deferred revenue			51,390				58,930
		Other current liabilities			7,575				7,264
		Total current liabilities			110,374				142,730
	Convertible senior notes				200,000				-
	Long-term restructuring				5,823				6,231
	Long-term deferred revenues				1,774				1,610
	Other long-term liabilities				23,976				7,848
		Total liabilities			341,947				158,419
	Stockholders' equity:
		Preferred stock; $.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding			-				-
		Common stock; $.01 par value; 200,000,000 shares authorized; 72,975,972 and 78,704,764 shares issued and outstanding, respectively			730				787
		Additional paid-in capital			666,910				659,932
		Accumulated deficit			(335,478	)			(273,892	)
		Cumulative other comprehensive income			10,317				9,121
					342,479				395,948
	Less common stock in treasury at cost, 21,158,980 and 15,275,899 shares, respectively				(140,409	)			(110,468	)
		Total stockholders’ equity			202,070				285,480
		Total liabilities and stockholders’ equity		$	544,017			$	443,899

BORLAND SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
			Three Months Ended								Twelve Months Ended
			December 31,								December 31,
				2007				2006				2007				2006
	License and other revenues		$	29,360			$	39,362			$	137,358			$	165,886
	Service revenues			32,097				36,410				131,423				138,774
		Total revenues		61,457				75,772				268,781				304,660
	Costs of revenues:
	Cost of license and other revenues			1,322				1,570				6,014				7,439
	Cost of service revenues			9,393				13,594				40,918				55,381
	Amortization of acquired intangibles and other charges			2,100				2,120				8,445				6,972
		Cost of revenues		12,815				17,284				55,377				69,792
	Gross profit			48,642				58,488				213,404				234,868
	Selling, general and administrative			40,391				46,582				176,206				195,710
	Research and development			14,158				16,505				57,795				70,178
	Restructuring, amortization of other intangibles, acquisition-related expenses and other charges			9,259				6,717				13,934				22,073
	Impairment of goodwill			26,509				-				26,509				-
		Total operating expenses		90,317				69,804				274,444				287,961
	Operating loss			(41,675	)			(11,316	)			(61,040	)			(53,093	)
	Gain on sale of fixed assets			-				-				-				1,658
	Interest income			2,243				586				8,742				3,168
	Interest expense and other income			(1,580	)			(171	)			(6,239	)			(1,164	)
	Total other income			663				415				2,503				3,662
	Loss before income taxes			(41,012	)			(10,901	)			(58,537	)			(49,431	)
	Income tax provision			694				(78	)			3,136				2,522
	Net loss		$	(41,706	)		$	(10,823	)		$	(61,673	)		$	(51,953	)
	Net loss per share:
		Net loss per share - basic and diluted	$	(0.57	)		$	(0.14	)		$	(0.85	)		$	(0.67	)
		Shares used in computing basic and diluted net loss per share		72,533				77,622				72,875				77,096

BORLAND SOFTWARE CORPORATION
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts, unaudited)
				Three Months Ended								Twelve Months Ended
				December 31,								December 31,
					2007				2006				2007				2006
	Net loss on a GAAP basis			$	(41,706	)		$	(10,823	)		$	(61,673	)		$	(51,953	)
		Stock-based compensation expenses			1,249