SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 0-16096
BORLAND SOFTWARE CORPORATION
(Exact name of Registrant as Specified in Its Charter)
| Delaware |
94-2895440 | |
| (State or Other Jurisdiction of |
(I.R.S. Employer Identification No.) |
100 Enterprise Way, Scotts Valley, California 95066-3249
(Address of Principal Executive Offices) (Zip code)
(831) 431-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
RIGHTS TO PURCHASE SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark 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. ¨
Indicate by check mark whether registrant is an accelerated filer. Yes x No ¨
The aggregate market value of the common stock held by non-affiliates of the registrant, based upon the closing sale price of our common stock on June 28, 2002 was approximately $726,548,765. Shares held by each executive officer and director of the registrant and by each person who owns ten percent or more of the outstanding common stock have been excluded from this computation because such persons may be deemed affiliates of the registrant. This determination of affiliate status for this purpose does not reflect a determination that any persons are affiliates for any other purposes.
The number of shares of our common stock outstanding as of February 28, 2003 was 80,305,375.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Form 10-K is incorporated therein from our definitive Proxy Statement for our 2003 Annual Meeting of Stockholders (“Proxy Statement”), to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after our fiscal year ended December 31, 2002.
BORLAND SOFTWARE CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 2002
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION |
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A CAUTION ABOUT FORWARD-LOOKING STATEMENTS
The statements made throughout this Annual Report on Form 10-K, or Form 10-K, that are not historical facts are forward-looking statements and, accordingly, involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in the forward-looking statements.
These forward-looking statements may relate to, but are not limited to, future capital expenditures, acquisitions, timing of the integration of acquired businesses, the ultimate cost of acquired businesses, revenue “pipeline,” revenues, including revenues from recently acquired businesses, cash flows, earnings, margins, costs, strategy, demand for our products, market and technological trends in the software industry, effective tax rates, interest rates, foreign currency exchange rates and inflation and various economic and business trends. Generally, you can identify forward-looking statements by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. Examples of sections containing forward-looking statements include the “Strategy,” “Strategy in Depth,” “Our Business and Its Evolution” and other sections of Part I, Item 1, entitled “Business,” and Item 7, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements involve substantial risks and uncertainties. Examples of such risks and uncertainties are described under “Factors That May Affect Future Results and Market Price of Stock” and elsewhere in this report, as well as in our other filings with the Securities and Exchange Commission, referred to herein as the SEC or the Commission, or in materials incorporated by reference herein or therein. You should be aware that the occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material and adverse effect on our business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for us to predict new factors, nor can we assess the potential effect of any new factors on us.
These forward-looking statements are found at various places throughout this Form 10-K. We caution you not to place undue reliance on these forward-looking statements, which unless otherwise indicated, speak only as of the date they were made. We do not undertake any obligation to update or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K.
GENERAL INFORMATION
We were incorporated in California in 1983, re-incorporated in Delaware in 1989 and have been a publicly-traded company since 1989. We maintain our executive offices at 100 Enterprise Way, Scotts Valley, California 95066-3249, and our main telephone number at that location is 831-431-1000. We also maintain a website on the Internet at www.borland.com and a community site at http://bdn.borland.com.
All Borland brand and product names are trademarks or registered trademarks of Borland Software Corporation in the United States and other countries. This Form 10-K also contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of, us by these other parties.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K that we may file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers (including us) at its website www.sec.gov. We make available free of charge on or through our Internet website located at www.borland.com our SEC filings on Forms 10-K, 10-Q and 8-K and any amendments to those filings as soon as reasonably practicable after electronic filing with the SEC.
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PART I
Overview
We are a leading global provider of software development and application infrastructure solutions. We provide our customers with a comprehensive solution designed to help them deliver better software faster by offering products that address the definition, design, development, testing and deployment phases of the application development lifecycle and that help customers manage software development projects from beginning to end, or software configuration management (SCM). Our standards-based solutions are designed to improve software quality, accelerate the delivery of software, lower the cost of ownership and reduce risk of errors. We have an installed base of over three million users worldwide, including leading enterprises in the following industries: high technology, telecommunications, government contractors in the fields of space and defense and financial services.
With the compression of business cycles and a challenging economic environment, corporations are increasingly demanding more speed, more reliability and a higher return on investment from the software that facilitates their operations. In this environment of heightened expectations, we believe existing “point solutions” that help developers only with a particular aspect of the application development lifecycle or solutions that rely exclusively on one technology platform are proving inadequate for the complex needs of development teams. To deliver the highest quality software quickly, development teams need a platform independent development solution that helps teams with the major phases of the application development lifecycle—definition, design, development, testing and deployment—and that helps teams manage software configuration.
We believe that our customers turn to us because our products and services offer the following benefits:
| • | Comprehensive Solution. Following our recent acquisitions, we now offer our customers products and services for each of the key phases in the application development lifecycle. We believe this comprehensive solution helps our customers to rapidly and effectively create and implement applications critical to their businesses. Because we offer an integrated development solution that addresses each of the key phases in the application development lifecycle, we offer our customers a single vendor to resolve their technological issues. |
| • | Value Proposition. Our products are designed to allow companies to deploy their applications in environments that utilize a variety of technology platforms and to deploy web strategies for e-business applications integrated with legacy client-server software and hardware architecture. By doing so, our products enable businesses to increase the value of their existing infrastructure and minimize the need for new computing infrastructure investment. |
| • | Accelerated Application Development and Deployment. Our products are designed to maximize developer productivity by simplifying the process of defining, designing, developing, testing and deploying software applications and by providing teams with valuable SCM capabilities. As a result, our customers can create higher-quality applications and deliver their applications faster. |
| • | Quality Enhancement. Our products are designed to enhance the quality of the applications our customers produce. Various products in our comprehensive solution help developers audit the quality of the code that they produce, enhance the performance and efficiency of their code and assure higher-quality code by testing it for defects and against required parameters. |
| • | Freedom of Choice. Our products are designed to work with all major technology platforms. In addition, unlike software solutions from major system vendors that force customers to purchase all of their technology infrastructure on a particular platform, our products are designed to provide interoperability between competing technologies. This provides customers with the flexibility to choose the best solution, technology and vendors and still achieve a fully integrated solution for software implementation. |
| • | Superior User Experience. We believe customers turn to us because our solutions provide them with a high-quality user experience. Our products have won numerous awards, and we maintain an installed base of more than three million users worldwide. |
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Our goal is to become the leading provider of technology solutions for the rapid and effective creation and implementation of software applications, particularly in Java, .NET and C++. Key elements of our strategy to achieve this goal include:
| • | delivering our comprehensive application lifecycle management solutions to large enterprises; |
| • | increasing our leadership in Java solutions; |
| • | developing leading solutions for the .NET platform; |
| • | increasing the level of integration of our suite of products in a way that makes our solution more effective and easier to use; |
| • | promoting platform independence and interoperability by developing products for the development of applications spanning multiple platforms and heterogeneous environments; |
| • | capitalizing on the strength of the “Borland” brand and our worldwide distribution network to sell our new solutions to a broader base of potential customers; and |
| • | focusing on the needs of our installed base. |
We support our growth strategy through focused sales and marketing efforts and through particular attention to our research and development activities.
Industry Background
Businesses are utilizing technology to maximize the productivity of their companies. As a result, a company’s operational success can depend on the strength of its information technology assets, particularly its software. In such an environment, the ability to develop and implement productivity-enhancing software efficiently becomes increasingly important.
Traditionally, software developers designed, coded and deployed products without properly focusing on design parameters, without ensuring that the software was sufficiently well-coded for the task being addressed and without testing adequately to ensure that it was ready for deployment. As a result, many software implementations were never completed and attempts at implementation have resulted in a drain on developer resources as they attempt to fix these inherent deficiencies. We believe that such time-intensive, frustrating and costly processes are not practical in today’s economic environment. Speedy and effective development of applications becomes vital when productivity-enhancing applications are needed to counter the effects of changing business conditions or emerging competitive threats.
To assist in the development process, developers initially turned to multiple, non-integrated development tools that helped with discrete aspects of the definition, design, development, testing, change management and deployment of software. Unfortunately, software application development is growing increasingly complex due to shifting standards and increasing requirements, and enterprises are increasingly operating in heterogeneous computing environments. As a result, enterprises are demanding development software that simplifies these complexities, reduces the time-to-market of deploying applications across multiple platforms and causes minimal disruption to an organization. In this environment, we believe existing development software that focuses on a particular aspect of the application development lifecycle or a particular architecture will fail because it does not fully support the complex needs of an enterprise’s developers. We further believe that technology that simplifies and automates the application development lifecycle is invaluable because it allows enterprises to produce and install robust, productivity-enhancing applications in a timely and efficient manner.
In today’s difficult economic times, enterprises are also focused on maximizing the value that they can mine from their existing information technology investments. To do so, developers must integrate and enhance the scalability, reliability and manageability of existing information technology and utilize it when introducing new
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technology platforms. However, this process is among the most complex and costly parts of the software implementation. As a result, developers need application development software that re-purposes existing software code for deployment to these new platforms and that maintains and integrates legacy client-server software and hardware architecture. We believe that technology facilitating interoperability between new platforms and functioning legacy systems helps companies overcome these challenges.
Finally, the growth and expansion of the Internet has further increased the pressure on enterprises to implement new software applications quickly. The Internet has also increased the challenges involved in doing so. The Internet gives corporations the flexibility to revise their products and service offerings frequently and allows organizations to keep up with the growing and changing needs of their customers. However, applications that utilize the benefits of the Internet, known as e-business applications, need to be integrated with existing systems and data. Unfortunately, the programming languages best adapted for the creation of e-business applications, particularly modular or object-oriented programming languages such as Java, are sophisticated, and many developers lack the requisite skills and tools to use the power of these languages. As a result, to effectively exploit the promise of the Internet, enterprises need technology that simplifies and automates the process of creating and deploying e-business applications.
Several other emerging trends further highlight the need for technology that helps streamline the application development lifecycle for enterprises:
| • | The emergence of the .NET platform as Microsoft’s enterprise managed code platform alternative to Java and the adoption of C# as an important language for .NET development has created the need for software application development solutions for both the creation of new applications for, and the porting of existing applications to, the .NET platform. |
| • | Increasingly complex software components—such as pre-written, reusable, combinable building blocks of Java software code known as Enterprise JavaBeans, or EJB—have created a need for technology to ease testing, assembly and maintenance of these components. Development, testing and deployment of scalable enterprise-level applications using EJBs has significant potential benefits, but is challenging. |
| • | Shifting or evolving technology standards makes compliance challenging and creates a need for technology that automatically enables applications compliant with these latest industry standards. These standards include extensible markup language, or XML, for enabling applications in Java, the Microsoft .NET platform and the subtly varying approaches to these and other standards used by a host of different technology vendors. |
| • | The emergence of new technology platforms, including Linux, as open-sourced alternatives to proprietary operating systems has created the need for products to simplify these new technologies for use by developers unfamiliar with them. |
| • | With enterprises implementing mobile strategies, sophisticated software applications are being extended to mobile and wireless devices. The variety of these devices is substantial, creating a need for technology that permits companies to develop and deploy mobile and wireless applications efficiently without worrying about differing technical and physical characteristics. |
In this environment, we believe enterprises need application development solutions that:
| • | accelerate application development and deployment by providing technologies for each of the phases of the application development process; |
| • | are platform-neutral, facilitate interoperability and allow for maximum flexibility and freedom of choice in an increasingly cross-platform world; |
| • | lower the cost of ownership and enhance the return on investment from existing technology infrastructure by integrating it with new software applications; and |
| • | provide the simplicity and developer control needed to maximize developer productivity through our comprehensive integrated solution. |
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Our Integrated Solution
Our integrated suite of products is designed to assist in the rapid and effective development and deployment of software applications critical to our customers’ businesses. We believe our platform-independent solutions maximize development team productivity, ensure higher-quality code and increase the value that enterprises can mine from their existing technology infrastructure. Our integrated development solutions are designed to address the various dimensions of an application’s lifecycle—definition, design, development, testing and deployment—in one cohesive environment, and to provide valuable SCM capabilities.
Definition Products. CaliberRM is our web-based requirements management system that manages the evolution of product requirements as well as the relationship between requirements and documentation, tests, models and code. Once the requirements are captured in CaliberRM, the development, documentation, test creation and project management processes can begin in parallel.
Design Products. Our Borland Together family of products provides the modeling capabilities to help simplify the application development lifecycle. Borland Together ControlCenter’s, or TCC’s, simultaneous round-trip technology is designed to ensure that changes made to application code are immediately reflected in visual model designs. This enables developers to collaborate across modeling and code development disciplines, which we believe improves productivity, reduces development time and improves the quality of applications. Deployable on most leading platforms, including IBM WebSphere, BEA WebLogic, Sun Solaris, Apple Mac OS X and Jboss, TCC also performs integrated model-to-code audits that allow developers to build maintainable and higher-quality code.
Development Products. For the development phase, we offer our JBuilder, Delphi, Kylix and C++Builder integrated development environments, or IDEs, each focused on a different platform (Java, Windows/.NET, Linux and C++, respectively). Our IDEs are designed to provide easy-to-use aides, templates and utilities for developers to rapidly build and troubleshoot complex software applications.
JBuilder is a leading cross-platform environment for building industrial-strength Java applications. JBuilder is designed to speed the development of Java 2 Enterprise Edition, or J2EE, applications, deliver web applications faster, increase code reliability and develop and deploy applications on Windows, Linux or Solaris platforms.
Delphi is our development environment that is designed to provide fast delivery of high quality Windows applications.
Kylix is a leading Linux IDE. Kylix is equipped with C++ and Delphi languages to allow developers to build rapid application development, or RAD, solutions and to port those applications cross-platform to Linux.
C++Builder is our C++ language development environment that is designed to provide American National Standards Institute, or ANSI, standard development of high-quality Windows applications.
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Testing Products. Our Optimizeit suite of performance management solutions is designed to improve the quality of the code developed by providing profiling and memory debugging to help eliminate performance bottlenecks, thread debugging to detect code deadlocks and stalls, and code coverage to locate untested code and identify and remove dead code. Recently, we have introduced Optimizeit ServerTrace, our pre-deployment phase testing solution, that is designed to allow customers to identify performance hazards before they impact business operations.
Software Configuration Management Products. To manage the particular tasks of the application lifecycle, we offer our customers StarTeam, a leading SCM and change management solution that brings the application development lifecycle into a single repository. It includes version control, branching, resource allocation, threaded conversations and defect tracking capabilities. With its web-based architecture, data encryption and compression capabilities, StarTeam is a scalable solution that we believe is well-suited for distributed development teams.
Deployment Products. We provide our customers with solutions that help them deploy and manage their e-business applications by providing them with embedded databases and allowing personal digital assistants, or PDAs, and other devices that incorporate embedded computers to be integrated with enterprise applications. Our deployment solutions include VisiBroker, our solution for distributed object computing, VisiBroker-RT, our Common Object Request Broker Architecture, or CORBA, solution for embedded applications, Borland Enterprise Server, our high-performance family of application servers for the deployment and integration of e-business applications within distributed networks, and JDataStore and InterBase, our small-footprint embedded databases.
Key strengths and benefits of our integrated solution include:
| • | Comprehensive Solution. We offer our customers integrated development solutions that are designed to address the major dimensions of the software application development lifecycle—defining, designing, developing, testing and deploying of large-scale applications in a cohesive environment. In addition, our solution includes valuable SCM capabilities that provide development teams with not only frameworks for the discrete parts of the development process, but an integrated solution in which our many component products are designed to synchronize with one another. We complement our solutions with on-going support and expert consulting and training. As a result, customers who purchase our offerings can efficiently design, create, debug, test and deploy applications, and can manage software configuration, with the added benefit of having a single vendor to train personnel and resolve technological problems as they arise. |
| • | Value Proposition. Our products are designed to allow companies to deploy their applications in environments that utilize multiple technology platforms and to deploy web strategies for e-business applications integrated with legacy client-server software and hardware architecture. By doing so, our products enable businesses to increase the value that they can mine from their existing infrastructure to minimize the need for new computing infrastructure investment. Finally, our small-footprint, highly-optimized products are designed to fit smoothly into our customer’s IT environments. |
| • | Accelerated Application Development and Deployment. Our products are designed to maximize developer productivity by simplifying the process of defining, designing, developing, testing and deploying software applications and by providing valuable SCM capabilities. As a result, our customers create higher-quality applications, are more efficient and deliver their applications faster. For example, utilizing a visual “drag and drop” interface, developers can use our IDEs to combine pre-built, reusable components from our extensive component libraries or even import them from outside sources. In addition, many of the frustrating and time consuming parts of the development process can be done automatically in our IDEs, including the creation and editing of complex code and documentation. Code that is required based on an application’s visual design or for particular platform deployments is generated automatically. Documenting the complexities of the development process is also automated. Finally, with a coherent visual console, our tightly-integrated Borland Enterprise Server in turn is designed to simplify deployment and integration of resulting applications, particularly those using complex components. |
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| • | Quality Enhancement. Our products are designed to enhance the quality of the applications our customers produce. Various products in our comprehensive solution help developers audit the quality of the code that they produce, enhance the performance and efficiency of their code and assure higher code quality by testing it against requirements and for defects. We are also committed to providing our customers with maximum flexibility and interoperability. For example, we introduced Delphi, the first IDE to provide integral and native support for the Web Services interoperability architecture and its associated standards, including XML and Simple Object Access Protocol, or SOAP. |
| • | Freedom of Choice. We design our platform-neutral solutions to give our customers maximum flexibility in their information technology decisions. Customers using Windows, Solaris, Linux and Mac OS X operating systems all have access to our IDEs. Databases from Oracle, Microsoft, Informix, IBM, Sybase and others are easily accessed through our development solutions along with our own JDataStore and InterBase databases. Applications can be developed for and deployed to web and application servers from BEA, Microsoft, Sun, Oracle, Sybase and Apache, or customers can choose the Borland Enterprise Server. In short, our customers have numerous choices for their system configurations and are not forced to purchase all of their technology infrastructure for a particular platform or from a particular vendor. In addition, with our VisiBroker technology, the foundation for Borland Enterprise Server, we allow client-server applications to communicate seamlessly across the competing hardware, operating systems and development languages. The result is both a highly-flexible and fully-integrated solution for software development and deployment. |
| • | Superior User Experience. We believe developers turn to us because our solutions provide developers with a high-quality user experience. As a result, our products have won numerous awards, and we maintain an installed base of more than three million users worldwide. A critical element of our enhanced user experience is its incorporation of new and emerging technologies. In 2002, we expanded our mobile device development strategy from Java solutions for Nokia, Siemens and Sprint PCS to include mobile C++ development for the Symbian operating system; we unveiled our first products for .NET and we integrated Web Services into all of our development products to enable customers to bridge the gap between Java and .NET. Our commitment to innovation, quality and performance has been honored by industry experts worldwide. |
Our Business and its Evolution
As a leading global provider of technology for the application development lifecycle, our goal is to provide enterprises with the tools to gain a competitive advantage by accelerating the time-to-market of their applications and reducing the cost of development. By delivering integrated technology solutions that are designed to bridge the technical gaps between development functions, we seek to enable our customers’ development teams to work in an iterative, collaborative style.
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Throughout our history we have shown a long-standing commitment to delivering effective and dependable application software development products. We have pioneered many new product categories and have continually refined our technology and offerings to meet the evolving demands of businesses. Below is a list of some of our major achievements in software development over the last twenty years:
| Year |
Achievement | |
| 1983 |
• As an early mover in the software development space, we led C and C++ development and launched one of the first full-featured IDEs for the personal computer, or PC—Turbo Pascal. Turbo Pascal made possible the commercial development of PC applications. | |
| 1993 |
• We introduced the first complete shrink-wrapped client-server development solution, the Borland Client/Server Pack. | |
| 1995 |
• We introduced Delphi, a pioneering technology for the Microsoft Windows operating system that combined the RAD benefit of visual component-based design with the power of a native code compiler and scalable database access. | |
| 1996 |
• We introduced C++Builder, a development tool that combined the benefits of RAD with our C/C++ compiler to create an enterprise C++ development platform. | |
| 1997 |
• We introduced JBuilder, our award-winning Java development environment, which has become an industry leader in all categories of Java development. • We acquired Visigenic Software, Inc., which enabled us to extend our application development expertise to enterprise application deployment. | |
| 2001 |
• We launched Kylix, the first IDE designed exclusively for the Linux operating system. Kylix simplifies the porting of Delphi-based applications to the Linux operating system. • We introduced JBuilder MobileSet, a Java-based IDE specifically designed for wireless applications and Web Services-enabled upgrades to Borland’s existing development technologies. | |
| 2002 |
• We introduced more than 15 new products and/or product releases, including Delphi 7 Studio Architect with preview capabilities for the Microsoft .NET Framework and Borland C++ Mobile Edition for developing wireless applications. • We acquired Redline Software, Inc., known as VMGear, which enabled us to extend our application lifecycle management expertise to performance assurance and testing solutions. • We acquired assets of BoldSoft MDE Aktiebolag, or BoldSoft, a leader in Model Driven Architecture, or MDA, a provider of products designed to increase developer productivity. • We acquired 79% of Starbase Corporation, which enables us to provide our customers with both critical requirements definition and SCM capabilities. We acquired the remaining 21% of Starbase Corporation in January 2003. | |
| 2003 (to date) |
• We introduced Optimizeit ServerTrace, which extends Borland’s presence in the testing space and is designed to provide Java testers with insights into the origins of performance hazards. • We shipped Borland Optimizeit Profiler for the Microsoft .NET Framework, which helps enterprises identify and remove performance hazards, speed the resolution of performance issues and increase developer productivity. • We acquired TogetherSoft Corporation, which allows us to offer cross-platform design and analysis during the development of complex software applications. |
We believe this history of technological leadership and our consequent relationship of trust with the development community provides us with an opportunity to provide enterprises with solutions that help interdisciplinary development teams to develop better software applications faster.
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Strategy
Our goal is to become the leading provider of technology solutions for the rapid and effective development and deployment of software applications, particularly in areas such as Java, .NET, C++ and wireless and mobile computing. Key elements of our strategy to achieve this goal include:
| • | delivering our comprehensive application lifecycle management solutions to large enterprises; |
| • | increasing our leadership in Java solutions; |
| • | developing leading solutions for the .NET platform; |
| • | increasing the level of integration of our suite of products in a way that makes our solution more effective and easier to use; |
| • | promoting platform independence and interoperability by developing products for the development of applications spanning multiple platforms and heterogeneous environments; |
| • | capitalizing on the strength of the “Borland” brand and our worldwide distribution network to sell our new solutions to a broader base of potential customers; and |
| • | focusing on the needs of our installed base. |
Strategy In Depth
The following is a detailed overview of our strategy:
Delivering comprehensive solutions to large enterprises. With comprehensive solutions designed to simplify and automate the critical phases of the application development lifecycle and provide valuable SCM capabilities, we believe we have a significant opportunity to market our solutions to major global enterprises. With our strong position in the IDE market together with the strength of the architecture of our products, we believe we have key strategic opportunities for capturing more of the enterprise customer development market. First, a number of major global enterprises are already using our IDEs. As a result, we already have strong relationships with various global enterprises. Second, as the application development lifecycle is increasingly compressed, the tight integration between our definition, design, development, testing, change management and deployment solutions is increasingly attractive to enterprises. Third, only a handful of our infrastructure competitors also offer high-performance IDEs. Relative to those few major competitors that do offer high-performance IDEs, we pride ourselves on our products’ ability to integrate smoothly into existing environments. As a result, we believe we are in a position to obtain a critical foothold through our IDEs, even if an enterprise is not yet prepared to upgrade their remaining application infrastructure software.
Elements of our comprehensive strategy to continue to successfully market the range of our products into large enterprises involve:
| • | tightly linking our products with one another, especially with our JBuilder products, to create a “pull through” effect, including demonstrating the performance advantages of our other development and deployment products to our loyal customers. For instance, JBuilder Enterprise includes a Borland Enterprise Server development license to enable developers to develop and test their applications in run time environments; |
| • | targeting vertical markets such as financial services, technology, telecommunications and aerospace and defense industries, where we have traditional strength and experience and where the performance advantages of our products—including reliability, security and scalability—are particularly important; |
| • | continuing to strengthen our direct sales force; |
| • | leveraging key relationships, including with major systems integrators, to obtain access to additional new enterprise accounts and verticals, including large local, state and federal government accounts and government contractors in the areas of space and defense; |
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| • | marketing through our own consulting engagements and professional services staff; |
| • | strategically utilizing customer feedback to improve our products; |
| • | marketing our aggressively-priced Borland Enterprise Server, Web Edition, to non-developer decision-makers in order to gain an entry to demonstrate to them the strengths of our deployment technologies; and |
| • | synchronizing the release cycles for our development and deployment products. |
Increasing our leadership in the Java market. We intend to grow our revenues by focusing on Java and Java-based development technologies. For some time, we have been a leading provider of development solutions for Java, specifically our JBuilder IDE. Recently, we strengthened our position in the Java market by integrating JBuilder with Together ControlCenter’s leading design capabilities. If we continue to enhance JBuilder’s performance and functionality and leverage our strong reputation in the developer community, we believe we can extend JBuilder’s leadership position in this market as well as capture additional Java developer seats. According to a Fall 2002 survey by Evans Data, an independent research firm, the number of Java developer seats is expected to increase to 61% of developers in North America and 52% of developers internationally. In addition, based on our experience, numerous existing Java developers often do not use any development technology at all. We believe these developers would experience dramatic improvements in efficiency and time-to-market using JBuilder’s integrated suite of productivity tools and wizards. We believe that our suite of tools helps solidify our Java development leadership relative to the current competition, none of whom we believe can deliver a solution that meets the needs of the entire application development lifecycle in the way that we can.
The fact that Java and Java standards are still evolving is, we believe, a critical advantage for us as we target the broader Java implementation market. We plan to leverage our development expertise to spur demand throughout our comprehensive product line. While high-quality upgrades of JBuilder will be needed to allow developers to capture the benefits of the language’s evolving standards and usability, effectively using these new Java applications will require products and upgrades throughout the lifecycle, including tightly-linked deployment products facilitating front- and back-end integration. For example, the recent emergence of Jakarta Struts as an advanced web development paradigm gives us the opportunity to extend the appeal of JBuilder and license additional upgrades to JBuilder 8 Enterprise edition. We envision a future in which implementation technologies will be necessary to support Java development and deployment to a wide variety of future devices and appliances. We believe our active influence on Java’s evolution and direction through our participation in key Java industry groups, including as an executive member of the Java Community Process, or JCP, will help us shape this future and benefit from Java’s spread and proliferation through our product line.
Developing leading solutions for the .NET platform. A key part of our strategy is to develop solutions for the .NET platform. The emergence of the .NET platform as Microsoft’s enterprise managed code platform alternative to Java and the continued adoption of C# as an important language for .NET development has created the need for products that address each of the key steps in the software application development lifecycle for the .NET platform. Not only will development tools be required by enterprises, but so too will testing, design and modeling tools that increase efficiency and time-to-market. We are currently beta testing our C# development environment for the .NET platform. In addition, we have released Optimizeit Profiler for ..NET, a testing product for the .NET platform. To develop application lifecycle solutions for the .NET platform, we are focused on enhancing our strategic relationship with Microsoft, and we will continue to invest in research and development efforts related to solutions for the .NET platform.
Increasing the integration of our suite of products. We are committed to constantly improving the level of integration of our products to offer our customers a more deeply connected solution. Presently, we offer our customers solutions in which our products are aware of one another and to some extent automatically synchronize with one another. In the future, we intend to integrate our solutions so that the discrete projects appear to be one on the desktop, and ultimately, to integrate our solutions to a level that delivers new features not before possible. We believe our ability to constantly improve the level of integration of our products will create a
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superior user experience for our customers, and, as a result, create even greater loyalty among our customers and drive new customers to our solutions.
Promoting platform independence and interoperability. Our focus on Java development solutions underscores our commitment to technology independence, as Java applications run on most major operating systems with little additional configuration. In addition, we have designed and will continue to develop solutions for Linux and Microsoft’s .NET platform. By supporting all major platforms, we believe we maximize our opportunity for success regardless of which programming platforms or operating systems emerge as market leaders. Databases from Oracle, Microsoft, Informix, IBM, Sybase and others are accessed through our development solutions. Applications can be developed for, and deployed to, application servers from BEA Systems, Microsoft, Sun, Oracle, Sybase and Apache. By facilitating cross-platform development and interoperability, we are positioned to profit from applications that are developed and deployed on new platforms. We believe that products that facilitate cross-platform development and interoperability represent a key revenue opportunity in the future, and we intend to take advantage of this opportunity.
Capitalizing on the strength of the “Borland” brand and our worldwide distribution network to sell our new solutions to a broader base of potential customers. Constant attention to our installed developer base and their basic needs is the reason we believe the Borland brand is among the most respected brands known to software professionals worldwide. We believe that Borland stands for quality, performance and innovation. We believe our brand also stands for solutions that enable developers to increase productivity and deliver high-performance projects faster and on budget. A critical underpinning of all elements of our strategy—whether delivering high quality product upgrades to our installed base, selling new solutions that we recently introduced or providing comprehensive applications lifecycle management solutions to large global enterprises—is to capitalize on the “Borland” brand.
Specifically, we believe we have a significant and emerging opportunity to further capitalize on the strength of our brand in the international market. This is particularly true as our core vertical markets—trained professionals in industries such as high technology, financial services, telecommunications and government contractors in the areas of space and defense—naturally expand with growth and economic development and/or changes in the geopolitical environment. While our international sales were $152.8 million in 2002, accounting for 62% of our revenue, international sales of our newly-acquired products, StarTeam and CaliberRM in particular, have been low historically. We intend to continue to focus aggressively on global markets and to promote our newly-acquired products in these markets to grow our international sales. We are also seeking to develop close relationships with foreign governments that we believe view adoption of IDEs, such as JBuilder or Kylix, in their countries as important to increasing the productivity and size of their developing high technology industries. Finally, we are also proactively working to augment opportunities in potentially large international markets by providing key underlying infrastructure and professional training. To that end, in January 2002, we acquired Advanced Training Center Ltda., or ATC, a Brazilian IT training company, to enhance our software development presence in the Latin American market.
Focusing on the needs of our installed base. Our strategic focus on the large enterprise market does not mean we will overlook our core individual developer constituency. To the contrary, we intend to continue to nurture and grow this community—known as the Borland Developer Network—which we believe is among the most loyal and extensive installed bases in the software industry. The basic requirements of the Borland Developer Network are dependable high performance products that improve developer productivity and efficiency. In order to maintain and grow the Borland Developer Network, we listen carefully to its members and address their needs. We facilitate responsiveness to the Borland Developer Network through dedicated personnel—such as our Vice President of Developer Relations, David Intersimone—as well as through our community website and our annual user conference, “BorCon.” We also develop products centered around emerging technologies, as well as timely, dependable upgrades to our existing products, particularly Delphi and JBuilder. In 2002, we introduced 15 new products or upgrades, significantly enhancing the quality and flexibility of our existing technologies. We intend to continue to focus on improving the performance of our products in
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order to best serve these loyal customers and grow our revenues. For example, we have released Borland C++ Mobile Edition to support development to Symbian-based mobile phones, and we are currently beta testing a new C++ development solution to support the Microsoft .NET platform. In addition to giving us access to the ideas and creativity of a wide range of talented developers, we believe this focus on our installed base actually furthers our enterprise strategy. As members of the Borland Developer Network take positions in Fortune 1000 enterprises, our goal is for them to introduce the Borland products they are committed to and are trained on into the enterprise. We believe this “bottom-up” approach seeds the enterprise and provides a key advantage over our competitors as we simultaneously pursue a “top-down” enterprise-level direct sales strategy.
Recent Acquisitions and Other Initiatives
Our growth strategy depends on our ability to develop solutions that are increasingly integrated with one another, solutions that expand the breadth of support we provide to the development community and solutions for changing technology standards. To speed this growth, we have engaged in a number of acquisitions and continued our initiatives in support of wireless and mobile computing as well as Web Services.
Acquisitions. In 2002, we advanced our objective of providing our customers with more complete, more robust development solutions by acquiring companies whose products extend the breadth of our application lifecycle solutions. In 2002 and early 2003, we completed the acquisitions of VMGear, BoldSoft, Starbase and TogetherSoft. Through these acquisitions, we were able to broaden and strengthen our product suite in the areas of performance assurance, requirements management software modeling and SCM, and we believe that these acquisitions fit squarely within our value proposition of increasing developer efficiency and productivity.
TogetherSoft. With our acquisition of TogetherSoft Corporation, or TogetherSoft, in January 2003, we are able to provide interdisciplinary development teams critical software design and analysis technology. By combining these solutions with Borland’s development solutions, we believe our combined solutions will enable developers to create complex business applications more rapidly.
Starbase. With the acquisition of Starbase Corporation, or Starbase, completed in January 2003, we acquired a leading requirements management technology that provides development teams with the requirements definition and management capabilities at the earliest project phases. We also acquired a change and configuration management technology that provides the change, versioning, configuration and audit capabilities that we believe developers need.
BoldSoft. Our October 2002 acquisition of certain assets of BoldSoft MDE Aktiebolag, or BoldSoft, is designed to accelerate our position as an independent path to the Microsoft .NET platform by adding design-driven development products that map the business model to a relational database and intuitively link modeling to the applications design environment with the goal of reducing total cost of ownership, speeding delivery of software and maintaining design integrity throughout the development process.
VMGear. Our January 2002 acquisition of Redline Software, Inc., also known as VMGear, allowed us to extend our footprint into another phase of Java application lifecycle management—performance assurance tools—as well as strengthen our Java research and development capabilities. Performance assurance differs from de-bugging in that it provides real time interactive analysis of the developer’s code, and proactively searches for and addresses bottlenecks. By giving developers this capability, VMGear’s Optimizeit technology enhances the performance of our IDEs, and we believe, directly supports the enterprise penetration potential for JBuilder.
In the future, we intend to consider additional acquisitions of technologies that we believe improve the range and depth of our application lifecycle solutions. We intend to focus on those strategic acquisitions that will provide us access to promising and complementary new technologies, research and development talent and potentially large customer bases, as well as those which could leverage the “Borland” brand and meet our strategic objectives.
Wireless and Mobile. Through recent product introductions and relationships with leading technology companies, we have also extended our reach and expertise into the emerging field of mobile and wireless
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application development. While initially slow to grow, we believe that in the future wireless applications will grow in significance and impact. With increasingly sophisticated applications extended to mobile and wireless devices, we believe additional services and more compelling user experiences will increasingly be provided to consumers. In addition, enterprises are seeking to increase employee productivity by extending data and applications to mobile and wireless devices.
The complexity and variety of mobile devices now emerging is, we believe, an advantage for us, as we leverage our development expertise to provide the products that allow develope