Serena Software Reports Fourth Quarter and Fiscal 2006 Results

Total revenue was $70.1 million in the fourth quarter of fiscal2006 and represented a 7% increase over the fourth quarter of fiscal2005. Software license revenue was $27.0 million, maintenance revenuewas $34.6 million, up 14% year over year and service revenues were$8.5 million for the fourth quarter of fiscal 2006.

Net income and net income per diluted share computed in accordancewith generally accepted accounting principles ("GAAP") for the fourthquarter of fiscal 2006 was $9.1 million and $0.19 compared to $9.2million and $0.19 in the same quarter a year ago. Included in thefourth quarter fiscal 2006 results were $4.4 million of transactioncosts related to the pending acquisition by Silver Lake Partners.

Non-GAAP net income and net income per diluted share for thefourth quarter of fiscal 2006 increased to $19.7 million and $0.38from $19.5 million and $0.37 in the fourth quarter of fiscal 2005.

Non-GAAP net income and net income per share exclude amortizationof intangible assets and charges relating to the purchase accountingadjustments for the acquisition of Merant, stock-based compensation,amortization of acquired technology and other intangible assets,restructuring, acquisition and other charges, and acquired in-processresearch and development. For periods prior to the second quarter,reported non-GAAP net income and net income per share also exclude therevenue impact of the deferred maintenance write-down to fair value. Areconciliation of non-GAAP to GAAP financial results is included inthis press release.

Total cash and equivalents, restricted cash and investments as ofJanuary 31, 2006 was $226 million and cash flow from operations forthe fourth quarter was approximately $28 million. Total deferredrevenue was $77.9 million and days sales outstanding in the fourthfiscal quarter was 46 days.

Acquisition by Silver Lake Partners

On November 11, 2005 Serena Software announced that it will beacquired by Silver Lake Partners in a transaction valued atapproximately $1.2 billion. Under the terms of the agreement, Serenastockholders will receive $24.00 in cash in exchange for each share ofstock. Any of Serena's existing $220 million of convertible notes thatare not converted to Serena common stock prior to completion of theproposed transaction will be exchanged for cash in an amount of $24.00for each share of Serena common stock into which the notes wereconvertible. Douglas D. Troxel, founder of Serena and currently itschairman and largest shareholder, will receive $24.00 per share incash in exchange for one-third of his shares and will exchange thebalance of his equity interest in Serena for shares in the resultingprivately held company. Serena president and chief executive officerMark Woodward, chief financial officer Robert Pender, and other seniorexecutives will also exchange a portion of their Serena equityinterests for equity interests in the resulting privately heldcompany. Both the board of directors of Serena and a special committeeof the board comprised of independent directors have approved themerger agreement and have recommended to Serena's stockholders thatthey vote in favor of the transaction. In addition, Mr. Troxel hasagreed to vote his shares in favor of the transaction.

Shareholders Meeting

A special meeting of stockholders of Serena Software, Inc. will beheld on Thursday, March 9, 2005, beginning at 1:00 p.m. local time, atSerena's principal executive offices at 2755 Campus Drive, 3rd Floor,San Mateo, California 94403 to vote on the proposed acquisition.

GAAP to non-GAAP Reconciliation

Serena management evaluates and makes operating decisions usingvarious operating measures. These measures are generally based on therevenues of its product, maintenance and services operations andcertain costs of these operations, such as cost of revenues, researchand development, sales and marketing and general and administrativeexpenses. Such measures include non-GAAP net income and non-GAAP netincome per share. Collectively, we refer to these non-GAAP financialmeasures as "non-GAAP measures." We have outlined below the type andscope of the amounts excluded in calculating these non-GAAP measuresand the limitations on the use of these non-GAAP measures as a resultof these exclusions. These non-GAAP measures are not an alternative tonet income as calculated in accordance with GAAP. Investors andpotential investors in our securities should not rely on the use ofthese non-GAAP measures as a substitute for any GAAP financialmeasure. In addition, our calculation of these non-GAAP measures mayor may not be consistent with that of other companies. We stronglyurge investors and potential investors to review the reconciliationsto the comparable GAAP financial measures that are included below andnot to rely on any single financial measure to evaluate our business.

Serena views non-GAAP net income and non-GAAP earnings per shareas operating performance measures, and as such it believes that theGAAP financial measures most directly comparable to them are netincome and net income per share, respectively. Non-GAAP net income andnet income per share differ from comparable GAAP measures in that theyexclude the amortization of intangible assets and charges relating tothe purchase accounting adjustments for the acquisition of Merant,amortization of acquired technology and intangible assets, stock basedcompensation, restructuring, acquisition and other charges.

Management believes it is useful in measuring Serena's operationsto exclude amortization of intangible assets and charges relating tothe purchase accounting adjustments for the acquisition of Merantbecause these costs are primarily fixed at the time of the acquisitionand generally cannot be changed by management in the short term, orrepresent significant costs not related to current operations.Non-GAAP net income and non-GAAP earnings per share are helpful inhighlighting trends in its core business that may not otherwise beapparent when relying solely on GAAP financial measures, because thesenon-GAAP measures eliminate from net income financial items that haveless bearing on Serena's operating performance. The Merant acquisitionwas a particularly large acquisition in Serena's history, andmanagement believes the impact of charges relating to the acquisitioncan make it more difficult to evaluate the trends of Serena'sunderlying business, including the performance of its products,maintenance and services operations. Serena believes it is useful toinvestors to see how management separates initial transaction costsfrom its view of Serena's current and future continuing operations.Management also believes that these non-GAAP measures facilitatecomparison of the current operating performance of the combined Serenaand Merant operations to the past performance of Serena and Merant asseparate companies, as it permits the comparison of operating resultsof the separate companies, viewed together, to Serena's currentoperating results without the impact of charges relating to theacquisition process rather than the underlying operations of the twocompanies.

Serena's management uses these non-GAAP measures as supplementalfinancial measures to evaluate the performance of Serena's businessbecause, when viewed with Serena's GAAP results and the accompanyingreconciliations, it believes they provide a more completeunderstanding of factors and trends affecting its business than GAAPresults alone. Serena uses these measures to make forecasting,budgeting and operating decisions such as establishment of operatingtargets, budgets and bonus compensation.

Serena communicates these non-GAAP measures to the public throughits earnings releases because we understand that they are financialmeasures commonly used by analysts that cover our industry and ourinvestor base to evaluate our performance. For example, based oncommunications with analysts and investors, Serena understands thatsome analysts and investors may value companies based on a measure ofdiscounted future cash flows and that Serena's non-GAAP financialmeasures can be useful to such analysts in performing such valuations.Management believes that presenting these non-GAAP measures providesinvestors and analysts with an additional base line for assessing thefuture earnings potential of Serena. Serena prefers to allow investorsto have these supplemental measures since, with reconciliation toGAAP; they may provide additional insight into its financial results.

Non-GAAP measures should not be considered a substitute formeasures of financial performance prepared in accordance with GAAP.Investors are encouraged to look at GAAP results as the best measureof financial performance. For example, amortization of acquiredtechnology and intangible assets are important to consider becausethey may represent initial expenditures that under GAAP are reportedacross future fiscal periods. Stock based compensation andrestructuring and acquisition related charges are important becausethey may represent obligations of Serena that should be considered.All of these metrics are important to financial performance generally.Investors and potential investors are encouraged to review thereconciliation of non-GAAP financial measures contained within thispress release with their most directly comparable GAAP financialresults.

Though Serena management finds its non-GAAP measures useful inevaluating the performance of its business, its reliance on thesemeasures is limited because items excluded from such measures oftenhave a material effect on its net income and net income per sharecalculated in accordance with GAAP. Management compensates for theabove-described limitations of using a non-GAAP measure by using thesenon-GAAP measures to supplement Serena's GAAP results to provide amore complete understanding of the factors and trends affecting ourbusiness.

Commentary Available

A conference call to discuss the preliminary results is scheduledfor 2:00 PM Pacific time today and may be accessed live via theInternet at www.companyboardroom.com or www.serena.com/Q406results.You can participate in the live conference call by dialing (866)322-0547 or (706) 748-0596, ID# 5751512 . Also, a replay of the callwill be available through March 7, 2006 by dialing (800) 642-1687 or(706) 645-9291, ID# 5751512.

About Serena Software, Inc.

With more than 25 years of experience in managing changethroughout the IT environment, Serena Software (NASDAQ: SRNA) providesChange Governance software to help global 2000 organizationsvisualize, orchestrate and enforce effective business processesthroughout the IT lifecycle. More than 15,000 organizations around theworld, including 96 of the Fortune 100, leverage Serena's integratedchange management framework to manage costs, ensure consistent qualityof service, mitigate business risks and ultimately profit from change.Serena is headquartered in San Mateo, California, with officesthroughout the U.S., Europe, and Asia Pacific. For more information,please visit www.serena.com.

Trademarks

Serena, TeamTrack, ChangeMan, Comparex and StarTool are registeredtrademarks of Serena Software Inc. SAFE is a trademark of SerenaSoftware Inc. All other products or company names mentioned are usedfor identification purposes only, and may be trademarks of theirrespective owners.

(C) 2006 Serena Software, Inc. All Rights Reserved.
SERENA Software, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited GAAP)

Three Months Ended Year Ended
January 31, January 31,
------------------ ------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenue:
Software licenses $27,044 $27,971 $90,554 $85,350
Maintenance 34,639 30,437 136,009 98,558
Professional services 8,454 7,355 29,209 24,197
-------- -------- -------- --------
Total revenue 70,137 65,763 255,772 208,105
-------- -------- -------- --------
Cost of revenue:
Software licenses 843 869 3,210 3,149
Maintenance 3,194 3,561 13,208 11,420
Professional services 7,468 6,417 26,608 21,466
Amortization of acquired
technology 4,153 4,037 16,921 14,051
Stock-based compensation 7 14 36 44
-------- -------- -------- --------
Total cost of revenue 15,665 14,898 59,983 50,130
-------- -------- -------- --------
Gross profit 54,472 50,865 195,789 157,975
-------- -------- -------- --------
Operating expenses:
Sales and marketing 20,719 18,941 73,880 64,343
Research and development 8,419 8,827 34,534 31,043
General and administrative 4,398 5,776 17,587 18,587
Stock-based compensation 587 223 1,741 686
Amortization of intangible
assets 2,560 2,836 10,516 9,608
Acquired in-process research
and development -- -- -- 10,400
Restructuring, acquisition and
other charges 4,378 175 4,894 2,351
-------- -------- -------- --------
Total operating expenses 41,061 36,778 143,152 137,018
-------- -------- -------- --------
Operating income 13,411 14,087 52,637 20,957

Interest income 2,005 1,123 6,203 3,868
Interest expense (825) (825) (3,300) (3,300)
Amortization of debt issuance
costs (335) (335) (1,340) (1,466)
-------- -------- -------- --------
Income before income taxes 14,256 14,050 54,200 20,059
Income taxes 5,167 4,822 17,943 10,573
-------- -------- -------- --------
Net income $9,089 $9,228 $36,257 $9,486
======== ======== ======== ========
Net income per share:

Basic $0.22 $0.22 $0.88 $0.23
======== ======== ======== ========
Diluted $0.19 $0.19 $0.74 $0.23
======== ======== ======== ========
Weighted average shares used in per
share calculations:

Basic 41,306 42,360 41,338 42,074
======== ======== ======== ========
Diluted 52,462 53,264 52,502 52,713
======== ======== ======== ========

Net income $9,089 $9,228 $36,257 $9,486

After tax adjustment of
convertible related
expenses 698 694 2,788 2,852
-------- -------- -------- --------
Adjusted net income for diluted
net income per share
calculation $9,787 $9,922 $39,045 $12,338
======== ======== ======== ========

Serena Software, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited GAAP)
January January
31, 31,
2006 2005
--------- ---------
Assets

Current assets
Cash and cash equivalents $148,401 $133,330
Restricted cash 3,260 3,300
Short-term investments 60,837 16,778
Accounts receivable, net 35,464 40,988
Deferred taxes 8,658 12,267
Prepaid expenses and other current assets 4,838 4,964
--------- ---------
Total current assets 261,458 211,627
Long-term investments 13,626 39,095
Restricted cash, non-current -- 3,157
Property and equipment, net 5,927 5,722
Goodwill, net 300,551 323,671
Other intangible assets, net 87,359 107,790
Other assets 2,689 4,057
--------- ---------
Total assets $671,610 $695,119
========= =========
Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable $2,551 $3,415
Income taxes payable 12,591 27,667
Accrued expenses 24,267 26,103
Accrued interest on subordinated notes 413 413
Deferred revenue 67,305 63,152
--------- ---------
Total current liabilities 107,127 120,750
Deferred revenue, net of current portion 10,608 13,110
Long-term liabilities 1,953 2,660
Deferred taxes 29,926 40,983
Subordinated notes 220,000 220,000
--------- ---------
Total liabilities 369,614 397,503

Stockholders' equity:

Total stockholders' equity 301,996 297,616
--------- ---------
Total liabilities and stockholders' equity $671,610 $695,119
========= =========

The following table reconciles the GAAP financial measures to
Non-GAAP:

Three Months Year Ended
Ended January 31, January 31,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
GAAP net income $9,089 $9,228 $36,257 $9,486
Amortization of acquired
technology, intangible assets
and stock based compensation 7,307 7,110 29,214 24,389
Acquired in-process research and
development -- -- -- 10,400
Revenue impact of deferred
maintenance write-down, net of tax -- 2,359 953 10,634
Restructuring and acquisition
charges, net of tax 2,633 112 2,943 1,477
-------- -------- -------- --------
Non-GAAP net income 19,029 18,809 69,367 56,386
Add back:
After tax adjustment of
convertible related expenses 698 694 2,788 2,852
-------- -------- -------- --------
Non-GAAP net income for purposes
of computing diluted EPS $19,727 $19,503 $72,155 $59,238
======== ======== ======== ========
Diluted shares outstanding 52,462 53,264 52,502 52,713
======== ======== ======== ========
Non-GAAP net income per diluted
share $0.38 $0.37 $1.37 $1.12
======== ======== ======== ========