##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 001-10824
(Commission File Number)
 
 Borland Software Corporation
 (Exact Name of Registrant as Specified in its Charter)
 
 Delaware
    
    94-2895440(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 8310 NORTH CAPITAL OF TEXAS HIGHWAY, BUILDING 2, SUITE 100
AUSTIN, TEXAS 78731
(Address of Principal Executive Offices) (Zip Code)
 Registrants Telephone Number, Including Area Code: (512) 340-2200
 Former address: 8303 N. MO-PAC EXPRESSWAY, SUITE A-300, AUSTIN, TEXAS 78759
(Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 YES o NO þ




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##### 



BORLAND SOFTWARE CORPORATION FORM 10-Q
 TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008 (As
Adjusted, See Note 1 and Note 5)
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2009
and 2008 (As Adjusted, See Note 1 and Note 5)
    
    
    4Condensed Consolidated Statements of Comprehensive Income Loss) for the three months
ended March 31, 2009 and 2008 (As Adjusted, See Note 1 and Note 5)
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009
and 2008 (As Adjusted, See Note 1 and Note 5)
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    44Signatures
    
    
    45Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except par value and share amounts, unaudited)
 (As Adjusted)March 31, 2009
    
    
    December 31, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    93,942
    
    
    $
    108,132Investments, at fair value
    
    
    40,653
    
    
    
    59,575Accounts receivable, net of allowance of $1,044 and $1,174, respectively
    
    
    39,133
    
    
    
    33,159Prepaid expenses
    
    
    5,643
    
    
    
    7,642Assets of discontinued operation
    
    
    3,734
    
    
    
    443Other assets
    
    
    1,941
    
    
    
    2,098Total current assets
    
    
    185,046
    
    
    
    211,049Property and equipment, net of accumulated depreciation of $18,185 and $30,663, repectively
    
    
    7,943
    
    
    
    8,494Intangible
assets, net of accumulated amortization of $47,280 and $45,236, respectively
    
    
    22,452
    
    
    
    24,520Non current assets of discontinued operation
    
    
    
    
    
    
    3,734Other assets
    
    
    3,676
    
    
    
    4,112Total assets
    
    $
    219,117
    
    
    $
    251,909LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,997
    
    
    $
    5,045Accrued expenses
    
    
    13,731
    
    
    
    13,956Accrued restructuring
    
    
    2,707
    
    
    
    3,990Deferred revenue
    
    
    50,583
    
    
    
    40,720Liabilities of discontinued operation
    
    
    5,611
    
    
    
    4,208Other liabilities
    
    
    2,444
    
    
    
    5,371Total current liabilities
    
    
    79,073
    
    
    
    73,290Long-term liabilities:Convertible senior notes, net of discount of $16,436, and $24,513, respectively
    
    
    98,548
    
    
    
    134,787Accrued restructuring
    
    
    576
    
    
    
    911Deferred revenue
    
    
    2,038
    
    
    
    2,298Income taxes payable
    
    
    16,532
    
    
    
    17,157Liabilities of discontinued operation
    
    
    
    
    
    
    2,382Other liabilities
    
    
    5,751
    
    
    
    5,707Total liabilities
    
    
    202,518
    
    
    
    236,532Commitments and ContingenciesStockholders 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 (2009: 94,652,702 issued and
73,115,736 outstanding; 2008: 94,552,738 issued and 73,015,772 outstanding)
    
    
    731
    
    
    
    730Additional paid-in capital
    
    
    717,616
    
    
    
    717,141Accumulated deficit
    
    
    (567,527
    )
    
    
    (569,415
    )Accumulated other comprehensive income
    
    
    6,188
    
    
    
    7,330Treasury stock at cost, (2009 and 2008: 21,536,966 shares)
    
    
    (140,409
    )
    
    
    (140,409
    )Total stockholders equity
    
    
    16,599
    
    
    
    15,377Total liabilities and stockholders equity
    
    $
    219,117
    
    
    $
    251,909
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts, unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008(As Adjusted)Revenues:License and other revenues
    
    $
    13,724
    
    
    $
    18,537Service revenues
    
    
    21,326
    
    
    
    27,522Total revenues
    
    
    35,050
    
    
    
    46,059Costs of revenues:Cost of license and other revenues
    
    
    945
    
    
    
    677Cost of service revenues
    
    
    5,918
    
    
    
    8,864Amortization of acquired intangibles
    
    
    1,929
    
    
    
    2,100Cost of revenues
    
    
    8,792
    
    
    
    11,641Gross profit
    
    
    26,258
    
    
    
    34,418Selling, general and administrative
    
    
    20,128
    
    
    
    33,061Research and development
    
    
    10,564
    
    
    
    11,787Restructuring and other charges
    
    
    1,544
    
    
    
    1,463Total operating expenses
    
    
    32,236
    
    
    
    46,311Operating loss
    
    
    (5,978
    )
    
    
    (11,893
    )Interest income
    
    
    745
    
    
    
    1,752Interest expense (includes non-cash debt discount amortization of $1,627 for 2009 and $2,007 for
2008)
    
    
    (2,883
    )
    
    
    (3,658
    )Gain on debt repurchase
    
    
    9,942
    
    
    
    Other income, net
    
    
    157
    
    
    
    582Income (loss) from continuing operations before income taxes
    
    
    1,983
    
    
    
    (13,217
    )Income tax provision
    
    
    385
    
    
    
    1,274Income (loss) from continuing operations
    
    $
    1,598
    
    
    $
    (14,491
    )Discontinued operations:Income (loss) from operation of discontinued operations
(net of applicable taxes of $0 for 2009 and $242 for 2008)
    
    $
    187
    
    
    $
    (10,728
    )Gain on disposal of discontinued operations (net of applicable
tax of $0 for 2009)
    
    
    103
    
    
    
    Income (loss) from discontinued operations
    
    $
    290
    
    
    $
    (10,728
    )Net income (loss)
    
    $
    1,888
    
    
    $
    (25,219
    )Net income (loss) per share  basic:Continuing operations
    
    $
    0.02
    
    
    $
    (0.20
    )Discontinued operations
    
    
    0.01
    
    
    
    (0.15
    )Net income (loss) per share
    
    $
    0.03
    
    
    $
    (0.35
    )Shares used in computing basic net income (loss) per share
    
    
    72,953
    
    
    
    72,751Net income (loss) per share  diluted:Continuing operations
    
    $
    0.02
    
    
    $
    (0.20
    )Discontinued operations
    
    
    0.01
    
    
    
    (0.15
    )Net income (loss) per share
    
    $
    0.03
    
    
    $
    (0.35
    )Shares used in computing diluted net income (loss) per share
    
    
    73,010
    
    
    
    72,751
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (in thousands, unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008(As Adjusted)Net income (loss)
    
    $
    1,888
    
    
    $
    (25,219
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    (1,174
    )
    
    
    1,870Fair market value adjustment for
available-for-sale securities, net of
tax
    
    
    32
    
    
    
    (80
    )Comprehensive income (loss)
    
    $
    746
    
    
    $
    (23,429
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  5




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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands, unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008(As Adjusted)CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    1,888
    
    
    $
    (25,219
    )Adjustments to reconcile net income (loss) to net cash used
in operating activities:Depreciation and amortization of assets
    
    
    2,984
    
    
    
    3,353Stock-based compensation
    
    
    477
    
    
    
    1,579Provision for accounts receivable allowance
    
    
    118
    
    
    
    (250
    )Impairment of goodwill
    
    
    
    
    
    
    13,300Gain on disposal of discontinued operations
    
    
    (103
    )
    
    
    Write-off of fixed assets
    
    
    (18
    )
    
    
    4Amortization of debt discount
    
    
    1,627
    
    
    
    2,007Gain on debt repurchase
    
    
    (9,942
    )
    
    
    Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (3,243
    )
    
    
    3,741Prepaid expenses and other assets
    
    
    1,195
    
    
    
    (806
    )Accounts payable and accrued expenses
    
    
    (688
    )
    
    
    (2,691
    )Income taxes payable
    
    
    (1,004
    )
    
    
    506Restructuring
    
    
    (1,371
    )
    
    
    (2,394
    )Deferred revenues
    
    
    5,107
    
    
    
    824Other liabilities
    
    
    (1,239
    )
    
    
    773Cash used in operating activities
    
    
    (4,212
    )
    
    
    (5,273
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (319
    )
    
    
    (570
    )Proceeds from sale of fixed assets
    
    
    22
    
    
    
    Acquisition of Simunication, net of cash acquired
    
    
    
    
    
    
    (1,970
    )Proceeds from disposal of discontinued operations
    
    
    350
    
    
    
    Sales of long-term investments
    
    
    
    
    
    
    8,101Purchases of short-term investments
    
    
    (7,065
    )
    
    
    (26,600
    )Sales and maturities of short-term investments
    
    
    26,050
    
    
    
    19,991Cash provided by (used in) investing activities
    
    
    19,038
    
    
    
    (1,048
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchase of convertible senior notes, net
    
    
    (27,391
    )
    
    
    Lessor financed capital expenditures
    
    
    503
    
    
    
    Repurchase of common stock and others
    
    
    
    
    
    
    (29
    )Cash used in financing activities
    
    
    (26,888
    )
    
    
    (29
    )Effect of exchange rate changes on cash
    
    
    (2,128
    )
    
    
    2,087Net change in cash and cash equivalents
    
    
    (14,190
    )
    
    
    (4,263
    )Beginning cash and cash equivalents
    
    
    108,132
    
    
    
    90,805Ending cash and cash equivalents
    
    $
    93,942
    
    
    $
    86,542
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 Notes to Condensed Consolidated Financial Statements (unaudited)
 NOTE 1. DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
 Description of the Company
  Basis of Presentation
    Estimates and Assumptions
  Credit Risks
    7




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Reclassification and Correction of Previously Issued Financial Statements
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
   Recent Accounting Pronouncements
 Accounting for
Contingencies, Reasonable Estimation of the Amount of a Loss  an
interpretation of FASB Statement No. 5.
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly Fair Value Measurements
 Recognition and Presentation
of Other-Than-Temporary Impairments
   8




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Transition Guidance for Conforming Changes to
Issue No. 98-5 Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 Business Combinations a revision of SFAS
No. 141 141 (R)).
 Fair Value Measurements
 NOTE 2. NET INCOME (LOSS) PER SHARE
 Earnings per Share
  9




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Three Months EndedMarch 31,2009
    
    
    2008(As Adjusted)Numerator:Income (loss) from continuing operations
    
    $
    1,598
    
    
    $
    (14,491
    )Income (loss) from discontinued operations
    
    
    290
    
    
    
    (10,728
    )Net income (loss)
    
    $
    1,888
    
    
    $
    (25,219
    )Denominator:Weighted-average shares outstanding, basic (excluding unvested
restricted stock)
    
    
    72,953
    
    
    
    72,751Effect of dilutive securities:Employee stock options, restricted stock awards and ESPP shares
    
    
    57
    
    
    
    Denominator for diluted net income (loss) per share -
weighted-average shares and assumed conversions
    
    
    73,010
    
    
    
    72,751Net income (loss) per share attributable to common shareholders:Continuing operations  basic
    
    $
    0.02
    
    
    $
    (0.20
    )Discontinued operations  basic
    
    
    0.01
    
    
    
    (0.15
    )Net income (loss) per share  basic
    
    $
    0.03
    
    
    $
    (0.35
    )Continuing operations  diluted
    
    $
    0.02
    
    
    $
    (0.20
    )Discontinued operations  diluted
    
    
    0.01
    
    
    
    (0.15
    )Net income (loss) per share  diluted
    
    $
    0.03
    
    
    $
    (0.35
    )
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NOTE 3. INVESTMENTS IN MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS
  March 31, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueCorporate debt securities
    
    $
    13,084
    
    
    $
    1
    
    
    $
    (62
    )
    
    $
    13,023U.S. government debt securities
    
    
    27,476
    
    
    
    90
    
    
    
    (2
    )
    
    
    27,564Equity instruments
    
    
    
    
    
    
    111
    
    
    
    (45
    )
    
    
    66$
    40,560
    
    
    $
    202
    
    
    $
    (109
    )
    
    $
    40,653
 December 31, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueCorporate debt securities
    
    $
    27,152
    
    
    $
    
    
    
    $
    (250
    )
    
    $
    26,902U.S. government debt securities
    
    
    32,363
    
    
    
    241
    
    
    
    
    
    
    
    32,604Equity instruments
    
    
    
    
    
    
    111
    
    
    
    (42
    )
    
    
    69$
    59,515
    
    
    $
    352
    
    
    $
    (292
    )
    
    $
    59,575
  March 31, 2009
    
    
    December 31, 2008Amortized
    
    
    Estimated Fair
    
    
    Amortized
    
    
    Estimated FairDue in
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueLess than one year
    
    $
    40,560
    
    
    $
    40,653
    
    
    $
    59,515
    
    
    $
    59,575Total
    
    $
    40,560
    
    
    $
    40,653
    
    
    $
    59,515
    
    
    $
    59,575
 Fair Value Measurements
 Fair Value
Measurements Effective Date
of FASB Statement No. 157
 i.e.
  
    
    Level 1  Valuations are based on quoted prices in active markets for identical assets or
liabilities and readily accessible by the Company at the reporting date. Examples of assets
and liabilities utilizing Level 1 inputs are: most U.S. Government securities; certain other
sovereign government obligations; and exchange-traded equity securities and listed
derivatives.
    
    Level 2  Valuations based on inputs other than quoted prices included within Level 1
that are observable for asset or liability, either directly or indirectly. Examples of
assets and liabilities utilizing Level 2 inputs are: U.S. agency securities; municipal
bonds; corporate bonds; and certain residential and commercial mortgage-related instruments
(including loans, securities and derivatives).
    
    Level 3  Valuations based on inputs that are unobservable. Examples of assets and
liabilities utilizing Level 3 inputs are: certain residential and commercial
mortgage-related instruments; real estate and private equity investments; and long-dated or
complex Over-the-counter derivatives.
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Fair Value Measurement at Reporting Date UsingQuoted Prices inEstimated Fair
    
    
    Active Markets
    
    
    Significant OtherValue at
    
    
    for Identical Assets
    
    
    Observable InputsDescription
    
    March 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)Assets:Money market funds (1)
    
    $
    42,463
    
    
    $
    42,463
    
    
    $
    Corporate debt securities (2)
    
    
    13,023
    
    
    
    
    
    
    
    13,023U.S. government debt securities (2)
    
    
    27,564
    
    
    
    
    
    
    
    27,564Equity instruments (2)
    
    
    66
    
    
    
    66
    
    
    
    $
    83,116
    
    
    $
    42,529
    
    
    $
    40,587
 Fair Value Measurement at Reporting Date UsingQuoted Prices inEstimated Fair
    
    
    Active Markets
    
    
    Significant OtherValue at
    
    
    for Identical Assets
    
    
    Observable InputsDescription
    
    December 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)Assets:Money market funds (1)
    
    $
    60,006
    
    
    $
    60,006
    
    
    $
    Corporate debt securities (2)
    
    
    26,902
    
    
    
    
    
    
    
    26,902U.S. government debt securities (2)
    
    
    32,604
    
    
    
    
    
    
    
    32,604Equity instruments (2)
    
    
    69
    
    
    
    69
    
    
    
    $
    119,581
    
    
    $
    60,075
    
    
    $
    59,506
 
 (1)
    
    Included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.(2)
    
    Included in short-term investments in the Condensed Consolidated Balance Sheets. NOTE 4. INTANGIBLE ASSETS
  As of March 31, 2009
    
    
    As of December 31, 2008Gross
    
    
    
    
    
    
    
    
    
    
    GrossRange of
    
    
    Carrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    NetCategory
    
    Useful Lives
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAcquired Developed Technology
    
    3  7 years
    
    $
    47,836
    
    
    $
    36,847
    
    
    $
    10,989
    
    
    $
    47,860
    
    
    $
    35,637
    
    
    $
    12,223Maintenance Agreements
    
    7 years
    
    
    11,300
    
    
    
    4,753
    
    
    
    6,547
    
    
    
    11,300
    
    
    
    4,215
    
    
    
    7,085Tradenames and Trademarks
    
    3 years
    
    
    1,100
    
    
    
    836
    
    
    
    264
    
    
    
    1,100
    
    
    
    774
    
    
    
    326Customer Relationships
    
    3  7 years
    
    
    9,075
    
    
    
    4,435
    
    
    
    4,640
    
    
    
    9,075
    
    
    
    4,203
    
    
    
    4,872Other
    
    1  3 years
    
    
    421
    
    
    
    409
    
    
    
    12
    
    
    
    421
    
    
    
    407
    
    
    
    14Total
    
    
    
    
    
    $
    69,732
    
    
    $
    47,280
    
    
    $
    22,452
    
    
    $
    69,756
    
    
    $
    45,236
    
    
    $
    24,520
  12




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FutureAmortization2009
    
    $
    5,4962010
    
    
    6,6922011
    
    
    5,4832012
    
    
    3,5422013
    
    
    1,239Total
    
    $
    22,452
 NOTE 5. CONVERTIBLE SENIOR NOTES
     13




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Three Months Ended March 31, 2008FSP APB 14-1 AdjustmentsCondensed Consolidated
    
    As restated for
    
    
    
    
    
    
    Debt IssuanceStatements of Operations
    
    correction of
    
    
    Debt Discount
    
    
    Cost(unaudited)
    
    errors (1)
    
    
    Amortization
    
    
    Amortization
    
    
    As RestatedInterest expense
    
    $
    (1,739
    )
    
    $
    (2,007
    )
    
    $
    88
    
    
    $
    (3,658
    )Loss from continuing operations
    
    $
    (12,572
    )
    
    $
    (2,007
    )
    
    $
    88
    
    
    $
    (14,491
    )Loss from discontinued operations
    
    $
    (10,728
    )
    
    $
    
    
    
    $
    
    
    
    $
    (10,728
    )Net loss
    
    $
    (23,300
    )
    
    $
    (2,007
    )
    
    $
    88
    
    
    
    (25,219
    )Loss per share from continuing operations  basic and diluted
    
    $
    (0.17
    )
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.20
    )Loss per share from discontinued operation  basic and diluted
    
    $
    (0.15
    )
    
    $
    
    
    
    $
    
    
    
    $
    (0.15
    )Net loss per share  basic and diluted
    
    $
    (0.32
    )
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.35
    )Shares used in computing basic and diluted net loss per share
    
    
    72,751
    
    
    
    72,751
    
    
    
    72,751
    
    
    
    72,751
 
 (1)
    
    As previously reported in the Company Form 10-Q for the quarter ended June 30, 2008, the
Company revised its condensed consolidated statement of operations for the three months ended
March 31, 2008 to correct certain accounting errors. For additional details, refer to Note 1
of the Notes to condensed consolidated financial statements in the Company Form 10-Q for the
quarter ended June 30, 2008. As of December 31, 2008FSP APB 14-1 AdjustmentsReclassify DebtDiscount and
    
    
    Debt Discount andCondensed Consolidated
    
    
    
    
    
    Debt Issuance
    
    
    Issuance Cost
    
    
    Debt
    
    
    Deferred TaxBalance Sheets (unaudited) (a)
    
    As Reported
    
    
    Costs to APIC
    
    
    Amortization
    
    
    Repurchase
    
    
    Effect (1)
    
    
    As RestatedOther assets  non current
    
    $
    5,185
    
    
    $
    (1,411
    )
    
    $
    652
    
    
    $
    178
    
    
    $
    (492
    )
    
    $
    4,112Total assets
    
    $
    252,982
    
    
    $
    (1,411
    )
    
    $
    652
    
    
    $
    178
    
    
    $
    (492
    )
    
    $
    251,909Other liabilities  current
    
    $
    5,863
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (492
    )
    
    $
    5,371Convertible senior notes, net
    
    $
    159,300
    
    
    $
    (46,027
    )
    
    $
    14,472
    
    
    $
    7,042
    
    
    $
    
    
    
    $
    134,787Total liabilities
    
    $
    261,537
    
    
    $
    (46,027
    )
    
    $
    14,472
    
    
    $
    7,042
    
    
    $
    (492
    )
    
    $
    236,532Additional paid-in capital
    
    $
    672,525
    
    
    $
    44,616
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    717,141Accumulated deficit
    
    $
    (548,731
    )
    
    $
    
    
    
    $
    (13,820
    )
    
    $
    (6,864
    )
    
    $
    
    
    
    $
    (569,415
    )Total stockholders equity
    
    $
    (8,555
    )
    
    $
    44,616
    
    
    $
    (13,820
    )
    
    $
    (6,864
    )
    
    $
    
    
    
    $
    15,377
 
 (1)
    
    Approximately $9.7 million was recorded to noncurrent deferred tax liabilities. The Company
records a valuation allowance against majority of its net deferred tax assets. As a result of the
valuation allowance, the net deferred tax impact is zero.  14




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##### Table of Contents



March 31, 2009Carrying amount of the equity component
    
    $
    44,617Principal amount of the liability component
    
    
    114,984Unamortized discount of the liability component
    
    
    16,436Net carrying amount of the liability component
    
    
    98,548Remaining amortization period of discount
    
    35 monthsConversion price
    
    $
    6.38Number of shares to be issued upon conversion
    
    
    18,036,701Effective interest rate on liability component
    
    
    8.46%Non-cash interest cost recognized for 2009 period (a)
    
    
    1,797Cash interest recognized for 2009 period (a)
    
    
    1,024
 December 31, 2008Carrying amount of the equity component
    
    $
    44,617Principal amount of the liability component
    
    
    159,300Unamortized discount of the liability component
    
    
    24,513Net carrying amount of the liability component
    
    
    134,787
 
 (a)
    
    Interest cost relates to both the contractual interest coupon and amortization of the
discount on the liability component. Non cash interest costs recognized consists of $1.6
million for debt discount amortization and $0.2 million for debt issuance costs amortization. Conversion Process and Other Terms of the Senior Notes
    Accounting for Derivative Instruments and Hedging Activities Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios Application of Issue 98-5 to Certain Convertible
Instruments
  15




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##### Table of Contents



Accounting Issues Related to Certain Features of
Contingently Convertible Debt and the Effect on Diluted Earnings per Share Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock
 NOTE 6. DISPOSITIONS AND ACQUISITIONS
 Dispositions
  Accounting for the Impairment or Disposal of Long-Lived Assets
    Three Months EndedMarch 31,2009
    
    
    2008Net sales
    
    $
    16
    
    
    $
    12,215Income (loss) from operation of discontinued operations
(net of applicable taxes of $0
for 2009 and $242 for 2008)
    
    
    187
    
    
    
    (10,728
    )Gain on disposal of discontinued operations (net of applicable
tax of $0 for 2009)
    
    
    103
    
    
    
    Income (loss) from discontinued operations
    
    $
    290
    
    
    $
    (10,728
    )
  16




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##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008Deposits due to Borland from lessor
    
    $
    3,734
    
    
    $
    Other current assets
    
    
    
    
    
    
    346Income taxes receivable
    
    
    
    
    
    
    97Current assets of discontinued operation
    
    
    3,734
    
    
    
    443Deposits due to Borland from lessor
    
    
    
    
    
    
    3,734Non-current assets of discontinued operation
    
    
    
    
    
    
    3,734Accrued restructuring
    
    
    4,233
    
    
    
    4,162Deposits due to subtenant from Borland
    
    
    1,352
    
    
    
    Other current liabilities
    
    
    26
    
    
    
    46Current liabilities of discontinued operation
    
    
    5,611
    
    
    
    4,208Accrued restructuring
    
    
    
    
    
    
    1,030Deposits due to subtenant from Borland
    
    
    
    
    
    
    1,352Long-term liabilities of discontinued operation
    
    $
    
    
    
    $
    2,382
  Acquisitions
 Business Combinations
   NOTE 7. RESTRUCTURING AND OTHER CHARGES
 Accounting for Costs Associated with Exit or Disposal Activities, Employers
Accounting for Postemployment Benefitsan amendment of FASB Statement No. 5 and 43, Restructuring and Impairment Charges,
  FY 2008 Restructuring
    
    
    FY 2007 RestructuringSeverance,
    
    
    Severance,Benefits and Other
    
    
    Benefits and Other
    
    
    Facilities (1)
    
    
    TotalAccrual at December 31, 2008
    
    $
    1,810
    
    
    $
    868
    
    
    $
    2,223
    
    
    $
    4,901Additions/adjustments to accrual
    
    
    1,367
    
    
    
    33
    
    
    
    (4
    )
    
    
    1,396Payments and adjustments for non-cash write-offs
    
    
    (2,592
    )
    
    
    (92
    )
    
    
    (330
    )
    
    
    (3,014
    )Accrual at March 31, 2009
    
    $
    585
    
    
    $
    809
    
    
    $
    1,889
    
    
    $
    3,283
 
 (1)
    
    Facilities accruals represent the net present value of the Companys remaining lease payments
less anticipated sublease rental income plus lease incentives for prospective tenants and
other costs. The Company utilizes qualified third party consultants to evaluate current
market conditions and determine future estimates which serve as the basis for managements
assumptions.  17




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##### Table of Contents



FY 2008
  FY 2007
  NOTE 8. INCOME TAXES
     18




---



##### Table of Contents



NOTE 9. STOCK-BASED COMPENSATION
 Share-Based Payment
 Stock-Based Compensation Expense
  Three Months EndedMarch 31,2009
    
    

2008 (Restated)Cost of sales
    
    $
    10
    
    
    $
    24Research and development
    
    
    194
    
    
    
    339Selling, general and
administrative
    
    
    273
    
    
    
    1,174Stock-based
compensation expense
    
    $
    477
    
    
    $
    1,537
 Stock Options
  WeightedWeighted
    
    
    AverageShares
    
    
    Average
    
    
    RemainingSubject to
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateStock Options
    
    
    Price
    
    
    Term (Years)
    
    
    Intrinsic ValueOutstanding at December 31, 2008
    
    
    10,128
    
    
    $
    5.78Stock options:Granted
    
    
    3,207
    
    
    
    0.42Exercised
    
    
    Canceled
    
    
    (1,835
    )
    
    
    4.22Outstanding at March 31, 2009
    
    
    11,500
    
    
    $
    4.53
    
    
    
    7.25
    
    
    $
    118,007Vested and expected to vest at March 31, 2009
    
    
    8,865
    
    
    $
    5.24
    
    
    
    6.70
    
    
    $
    72,131Exercisable at March 31, 2009
    
    
    5,154
    
    
    $
    7.81
    
    
    
    4.82
    
    
    $
    
     Three Months EndedMarch 31,2009
    
    
    2008Expected life
    
    6.25 years
    
    
    4.66 yearsRisk-free interest rate
    
    
    1.67
    %
    
    
    2.46
    %Volatility
    
    
    51.5
    %
    
    
    48.5
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
  19




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##### Table of Contents



Restricted Stock
  WeightedAverageNumber
    
    
    Grant Dateof Shares
    
    
    FairOutstanding
    
    
    ValueBalance at December 31, 2008
    
    
    62,613
    
    
    $
    6.43Granted
    
    
    100,000
    
    
    
    0.46Vested
    
    
    (113
    )
    
    
    9.79Forfeited
    
    
    
    
    
    
    0.00Balance at March 31, 2009
    
    
    162,500
    
    
    $
    2.75
  NOTE 10. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
 Disclosures about Segments of an Enterprise and Related Information,
  Enterprise-wide disclosures
  Three Months EndedMarch 31,2009
    
    
    2008(in thousands)Total revenues from unaffiliated customers:Americas
    
    $
    23,218
    
    
    $
    24,428Europe, Middle East and Africa
    
    
    7,547
    
    
    
    10,880Asia Pacific
    
    
    4,285
    
    
    
    10,751Total revenues
    
    
    35,050
    
    
    
    46,059
  20




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##### Table of Contents



March 31, 2009
    
    
    December 31, 2008(in thousands)Long-lived assets:Americas
    
    $
    28,403
    
    
    $
    30,574EMEA
    
    
    1,184
    
    
    
    1,396Asia Pacific
    
    
    808
    
    
    
    1,044Long-lived assets of discontinued operations
    
    
    
    
    
    
    3,734Long-lived assets:
    
    
    30,395
    
    
    
    36,748Other non-current assets
    
    
    3,676
    
    
    
    4,112Total non-current assets
    
    $
    34,071
    
    
    $
    40,860
 NOTE 11. SUBSEQUENT EVENTS
     Important Additional Information about the Proposed Merger
 http://www.sec.gov http://www.sec.gov http://www.borland.com
  21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 In this Quarterly Report on Form 10-Q , the terms the Company, we, our, and us refer to
Borland Software Corporation on a consolidated basis.
 Forward-Looking Statements
   Overview
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
    22




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##### Table of Contents



Impact of the Economic Climate on Our Operating Results and Market Capitalization
  Summary of Key Financial Results
  
    
    Total revenues decreased 24% to $35.1 million for the three months ended March 31, 2009,
from $46.1 million for the three months ended March 31, 2008.
    
    License and other revenues decreased 26% to $13.7 million for the three months ended
March 31, 2009, from $18.5 million for the three months ended March 31, 2008.
    
    Service revenues decreased 23% to $21.3 million for the three months ended March 31,
2009, from $27.5 million for the three months ended March 31, 2008.
    
    On March 31, 2009, we entered into an agreement with Hewlett Packard that provides them
with software licenses, related maintenance and support during 2009. In addition, the
agreement gives them the right to resell Borlands ALM products. The revenue for the three
months ended March 31, 2009 was approximately $6.6 million. Total revenue and cash receipts
related to the software, maintenance and support sale are expected to be approximately $18
million in 2009.
    
    Gross profit as a percentage of revenue is relatively flat for the three months ended
March 31, 2009, and 2008.
    
    Operating expenses decreased 30% to $32.2 million for the three months ended March 31,
2009, from $46.3 million for the three months ended March 31, 2008.
    
    Net income for the three months ended March 31, 2009 was $1.9 million, compared to a net
loss of $25.2 million for the three months ended March 31, 2008.
    
    Cash, cash equivalents and short-term investments decreased $33.1 million to $134.6
million as of March 31, 2009, from $167.7 million as of December 31, 2008 due primarily to
$27.5 million of cash used to repurchase $44.3 million of our outstanding Senior Notes.
Refer to Note 5 of the Notes to the condensed consolidated financial statements.
 Results of Operations
  Three Months EndedMarch 31,2009
    
    
    2008
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Total Rev
    
    
    Amount
    
    
    Total Rev
    
    
    $
    
    
    %License and other revenues
    
    $
    13,724
    
    
    
    39
    %
    
    $
    18,537
    
    
    
    40
    %
    
    $
    (4,813
    )
    
    
    (26
    %)Service revenues
    
    
    21,326
    
    
    
    61
    %
    
    
    27,522
    
    
    
    60
    %
    
    
    (6,196
    )
    
    
    (23
    %)Total revenues
    
    $
    35,050
    
    
    
    100
    %
    
    $
    46,059
    
    
    
    100
    %
    
    $
    (11,009
    )
    
    
    (24
    %)
  23




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##### Table of Contents



Revenues by Product
   Three Months Ended
    
    
    Three Months EndedMarch 31, 2009
    
    
    March 31, 2008ALM
    
    
    DPG
    
    
    Total
    
    
    ALM
    
    
    DPG
    
    
    TotalLicense and other revenues
    
    $
    10,171
    
    
    $
    3,553
    
    
    $
    13,724
    
    
    $
    9,415
    
    
    $
    9,122
    
    
    $
    18,537Service revenues
    
    
    17,564
    
    
    
    3,762
    
    
    
    21,326
    
    
    
    22,972
    
    
    
    4,550
    
    
    
    27,522Total
    
    $
    27,735
    
    
    $
    7,315
    
    
    $
    35,050
    
    
    $
    32,387
    
    
    $
    13,672
    
    
    $
    46,059
 License and Other Revenues
   Service Revenues
   Three Months EndedMarch 31,2009
    
    
    2008
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Total Rev
    
    
    Amount
    
    
    Total Rev
    
    
    $
    
    
    %Technical support
    
    $
    17,999
    
    
    
    51
    %
    
    $
    20,901
    
    
    
    45
    %
    
    $
    (2,902
    )
    
    
    (14
    %)Consulting and
education
    
    
    3,327
    
    
    
    10
    %
    
    
    6,621
    
    
    
    14
    %
    
    
    (3,294
    )
    
    
    (50
    %)Total services revenues
    
    $
    21,326
    
    
    
    61
    %
    
    $
    27,522
    
    
    
    59
    %
    
    $
    (6,196
    )
    
    
    (23
    %)
   24




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##### Table of Contents



International Revenues
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %United States
    
    $
    19,772
    
    
    $
    19,429
    
    
    $
    343
    
    
    
    2
    %Japan
    
    
    2,783
    
    
    
    8,366
    
    
    
    (5,583
    )
    
    
    (67
    %)All other countries
    
    
    12,495
    
    
    
    18,264
    
    
    
    (5,769
    )
    
    
    (32
    %)Total revenues
    
    $
    35,050
    
    
    $
    46,059
    
    
    $
    (11,009
    )
    
    
    (24
    %)
  Regional Revenues
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Americas
    
    $
    23,218
    
    
    $
    24,428
    
    
    $
    (1,210
    )
    
    
    (5
    %)Europe, Middle East
and Africa
    
    
    7,547
    
    
    
    10,880
    
    
    
    (3,333
    )
    
    
    (31
    %)Asia Pacific
    
    
    4,285
    
    
    
    10,751
    
    
    
    (6,466
    )
    
    
    (60
    %)Total revenues
    
    $
    35,050
    
    
    $
    46,059
    
    
    $
    (11,009
    )
    
    
    (24
    %)
  Americas.
 EMEA.
 APAC.
  25




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##### Table of Contents



Cost of revenues
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Cost of license and other revenues
    
    $
    945
    
    
    $
    677
    
    
    $
    268
    
    
    
    40
    %As a percentage of license and
other revenues
    
    
    7
    %
    
    
    4
    %Cost of service revenues
    
    $
    5,918
    
    
    $
    8,864
    
    
    $
    (2,946
    )
    
    
    (33
    %)As a percentage of service revenues
    
    
    28
    %
    
    
    32
    %Amortization of acquired intangibles
    
    $
    1,929
    
    
    $
    2,100
    
    
    $
    (171
    )
    
    
    (8
    %)As a percentage of total revenues
    
    
    6
    %
    
    
    5
    %
 Cost of License and Other Revenues
  Cost of Service Revenues
  Amortization of Acquired Intangibles
  Operating Expenses
 Selling, General and Administrative Expenses
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Selling, general and
administrative expenses
    
    $
    20,128
    
    
    $
    33,061
    
    
    $
    (12,933
    )
    
    
    (39
    %)As a percentage of total revenues
    
    
    57
    %
    
    
    72
    %
   26




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##### Table of Contents



Research and Development Expenses
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Research and development expenses
    
    $
    10,564
    
    
    $
    11,787
    
    
    $
    (1,223
    )
    
    
    (10
    %)As a percentage of total revenues
    
    
    30
    %
    
    
    26
    %
  Impairment of Goodwill, Restructuring, Amortization of Other Intangibles, and Acquisition-Related
Expenses
 Impairment of Goodwill
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Restructuring
    
    $
    1,397
    
    
    $
    1,249
    
    
    $
    148
    
    
    
    12
    %Other charges
    
    
    147
    
    
    
    214
    
    
    
    (67
    )
    
    
    (31
    %)Total
    
    $
    1,544
    
    
    $
    1,463
    
    
    $
    81
    
    
    
    6
    %As a percentage of total revenues
    
    
    4
    %
    
    
    3
    %
 Restructuring:
   Other charges.
  27




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##### Table of Contents



Interest Income, Interest Expense, Gain on Debt Repurchase and Other Income, net
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Interest income
    
    $
    745
    
    
    $
    1,752
    
    
    $
    (1,007
    )
    
    
    (57
    %)Interest expense (includes
non-cash debt discount
amortization of $1,627 for 2009
and $2,007 for 2008)
    
    
    (2,883
    )
    
    
    (3,658
    )
    
    
    775
    
    
    
    (21
    %)Gain on debt repurchase
    
    
    9,942
    
    
    
    
    
    
    
    9,942
    
    
    
    Other income, net
    
    
    157
    
    
    
    582
    
    
    
    (425
    )
    
    
    (73
    %)Total
    
    $
    7,961
    
    
    $
    (1,324
    )
    
    $
    9,285
    
    
    
    -701
    %As a percentage of total revenues
    
    
    23
    %
    
    
    -3
    %
    Income Taxes
  Three Months EndedMarch 31,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %Income tax provision
    
    $
    385
    
    
    $
    1,274
    
    
    $
    (889
    )
    
    
    (70
    %)As a percentage of total revenues
    
    
    1
    %
    
    
    3
    %
    28




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Liquidity and Capital Resources
 Three Months EndedMarch 31,2009
    
    

2008 (Restated)(in Thousands)Net cash provided by (used for):Operating activities
    
    $
    (4,212
    )
    
    $
    (5,273
    )Investing activities
    
    
    19,038
    
    
    
    (1,048
    )Financing activities
    
    
    (26,888
    )
    
    
    (29
    )Effect of exchange rate changes on cash
    
    
    (2,128
    )
    
    
    2,087Net change in cash and cash equivalents
    
    
    (14,190
    )
    
    
    (4,263
    )Beginning cash and cash equivalents
    
    
    108,132
    
    
    
    90,805Ending cash and cash equivalents
    
    $
    93,942
    
    
    $
    86,542
 Net cash used in operating activities.
 Net cash provided by (used in) investing activities.
 Net
cash used in financing activities.
 Currency.
  Contractual Obligations and Off-Balance Sheet Arrangements
 Leases and Long Term Debt Obligations.
  29




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##### Table of Contents



2014 and2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    thereafter
    
    
    Other (e)
    
    
    TotalOperating leases (a)
    
    $
    5,371
    
    
    $
    5,875
    
    
    $
    4,663
    
    
    $
    3,936
    
    
    $
    3,720
    
    
    $
    10,064
    
    
    $
    
    
    
    $
    33,629Restructured operating leases (b)
    
    
    4,737
    
    
    
    2,627
    
    
    
    1,423
    
    
    
    1,461
    
    
    
    991
    
    
    
    
    
    
    
    
    
    
    
    11,239Non-current income tax payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,016
    
    
    
    17,016Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,984
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,984Interest payments (c)
    
    
    1,581
    
    
    
    3,162
    
    
    
    3,162
    
    
    
    1,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,486Lessor financed capital expediture (f)
    
    
    75
    
    
    
    108
    
    
    
    120
    
    
    
    132
    
    
    
    146
    
    
    
    294
    
    
    
    
    
    
    
    875Gross commitments
    
    
    11,764
    
    
    
    11,772
    
    
    
    9,368
    
    
    
    122,094
    
    
    
    4,857
    
    
    
    10,358
    
    
    
    17,016
    
    
    
    187,229Sublease rental income (d)
    
    
    (1,056
    )
    
    
    (414
    )
    
    
    (127
    )
    
    
    (127
    )
    
    
    (127
    )
    
    
    (610
    )
    
    
    
    
    
    
    (2,461
    )Net commitments
    
    $
    10,708
    
    
    $
    11,358
    
    
    $
    9,241
    
    
    $
    121,967
    
    
    $
    4,730
    
    
    $
    9,748
    
    
    $
    17,016
    
    
    $
    184,768
 
 (a)
    
    The Company leases its facilities under various cancellable and non-cancellable operating
leases. The payments for operating leases represent the Companys commitments under the
non-cancellable leases, which expire at various times through 2021.(b)
    
    The restructured operating leases represent total lease commitments that are not associated
with continuing operations and include facilities exited under the Companys restructuring
plans. All of these facilities are located in California.(c)
    
    The interest payments are based on a fixed rate of 2.75%.(d)
    
    The sublease rental income represents the future minimum lease payments under non-cancellable
operating subleases of facilities in the Companys various world-wide locations.(e)
    
    Represents the non-current tax payable obligation under FIN 48 (including interest and
penalties). We are unable to make a reasonably reliable estimate of the timing of payments in
individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.(f)
    
    Lessor financed capital
expenditure at an interest rate of 10%. Issues Relating to Accounting for
Leases
 FIN 48 Liability.
 Off-Balance Sheet Arrangements.
 Critical Accounting Policies and Estimates
    30




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
    
    Effective January 1, 2009, the Company adopted FSP APB 14-1, which impacts the
accounting treatment of our Senior Notes since they allow for either mandatory or optional
cash settlements. FSP APB 14-1 requires the Company to separately account for the liability
(debt) and equity (conversion option) components of the Senior Notes in a manner that
reflects the Companys non-convertible debt borrowing rate, resulting in additional
non-cash interest expense based on the market rate for similar debt instruments without the
conversion feature. Upon the original issuance of the debt instruments in 2007, the
Company recorded the net debt obligation as long-term debt in accordance with applicable
accounting standards at that time. To adopt FSP APB 14-1, effective January 1, 2009, the
Company estimated the fair value, as of the date of issuance, of the Senior Notes as if
they were issued without the conversion options. The difference between the fair value and
the principal amounts of the Senior Notes was $46.0 million. This amount was
retrospectively applied to the Companys financial statements from the issuance date of
Senior Notes in 2007, and was retrospectively recorded as debt discount and as a component
of shareholders equity. The discount is being amortized until the Senior Notes mature in
February 2012, resulting in a non-cash increase to interest expense in historical and
future periods.
 Effect of New Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
    Interest Rate Risk
  Short-term investments
  31




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Credit Risks
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Our Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   32




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PART II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Accounting for Contingencies
  
 ITEM 1A. RISK FACTORS
  Risks relating to the Proposed Merger *
 There is no guarantee that the proposed acquisition of us by Micro Focus
will close.
  Risks Relating to Our Business
 We have evolved our business to focus on the enterprise market for application lifecycle
management, or ALM, software solutions, which is a complex and evolving market. If we are unable to
successfully achieve our strategic goals, our operating results could be harmed. The recent sale of
the CodeGear assets could increase this risk.
    33




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Our success is dependent upon our ability to develop effective products which meet our customers
complex and evolving needs and to integrate our products into effective ALM solutions.
   We may not be able to compete successfully against current and potential competitors.
  Our inability to forecast our revenue pipeline or convert revenue pipeline into contracts,
especially given our focus on enterprise customers, could increase fluctuations in our revenue and
financial results.
    34




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Adverse global economic conditions could adversely affect our customers and, in turn, our operating
results.
  The complexity of accounting regulations and related interpretations and policies, particularly
those related to revenue recognition, could limit our ability to predict our revenue and materially
affect our financial results for a given period.
 Software Revenue Recognition
 Our failure to implement systems to meet the requirements and manage the large service projects
necessary for our enterprise may result in delays in recognizing revenue on these projects and thus
could harm our profit and adversely affect our results of operations.
  We have recently made changes to our executive officers and management. There may be an adjustment
period which could cause inefficiencies in the management of our business and our operations. *
  We are in the process of making changes to our financial reporting systems, which may impact our
ability to comply with our financial reporting and accounting obligations.
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We are in the process of implementing plans for reducing expenses and if we fail to achieve the
results we expect, there will be a negative effect on our financial condition.
  Our common stock has declined over the past two years. If our stock price does not increase, we may
not attract as many investors. In addition, we may be at risk for satisfying the minimum listing
requirements of the Nasdaq Global Market. *
   We and our prior independent registered public accounting firm previously determined that we had a
material weakness in our internal control over financial reporting. There can be no assurance that
a material weakness will not arise in the future. As a result, current and potential stockholders
could lose confidence in our financial reporting and that would harm our business and the trading
price of our stock.
   In prior periods, we were unable to timely file our annual and quarterly reports as required by the
Securities Exchange Act of 1934, and our continued inability to file these reports on time could
result in your not having access to important information about us and the delisting of our common
stock from the Nasdaq Stock Market.
   36




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If we are unable to maintain revenue levels for our deployment, or application middleware,
products, our financial results may be harmed.
  Because competition for qualified technical and management personnel is intense, we may not be able
to recruit or retain qualified personnel, which could harm our business.
  Consolidation in our industry or fluctuation in our stock price may impede our ability to compete
effectively.
   We depend on technologies licensed to us by third-parties and the loss of or inability to maintain
these licenses could prevent or delay sales or shipments of certain of our products.
   37




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Failure to manage our international operations could harm our results.
  
    
    fluctuations in foreign currency exchange rates;
    
    the difficulty of staffing and managing an organization spread over various countries
and continents;
    
    potentially reduced or less certain protection for intellectual property rights than is
available under the laws of the United States;
    
    longer payment cycles in some countries and greater difficulty in collecting accounts
receivable;
    
    restrictions on the expatriation of currency; foreign taxes, export restrictions,
tariffs, duties and other trade barriers;
    
    changes in regulatory requirements and resulting costs;
    
    differing cultures and business practices not consistent with our regulatory obligations
in the United States;
    
    compliance with various conflicting laws and regulations, including employment laws, and
resulting costs; and
    
    war, threats of war, terrorist activity or political or economic instability in certain
parts of the world.
  Bundling arrangements or product give-aways by our competitors, including available, cost-free
development technologies, may diminish demand for our products or pressure us to reduce our prices.
  Our future success depends upon enhancing existing relationships and establishing new technology
alliances.
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Our products may contain unknown defects that could result in a loss of revenues, decreased market
acceptance, injury to our reputation and product liability claims.
  
    
    delayed shipping of the product;
    
    delay in or failure to ever achieve market acceptance;
    
    diversion of development resources; damage to our reputation;
    
    product liability claims; and
    
    increased service and warranty costs
  Third-party claims of intellectual property infringement may subject us to costly litigation or
settlement terms or limit the sales of our products.
  If we are unable to protect our intellectual property, we may lose valuable assets.
  Our debt obligations expose us to risks that could adversely affect our business, operating results
and financial condition. *
  
    
    require us to dedicate a portion of our expected cash flow or our existing cash to
service our indebtedness, which would reduce the amount of our cash available for other
purposes, including working capital, capital expenditures and research and development
expenditures;
    
    make it difficult for us to incur additional debt or obtain any necessary financing in
the future for working capital, capital expenditures, debt service, acquisitions or general
corporate purposes;
  39




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##### Table of Contents




    
    limit our flexibility in planning for or reacting to changes in our business; limit our
ability to sell ourselves or engage in other strategic transactions;
    
    make us more vulnerable in the event of a downturn in our business; or
    
    place us at a possible competitive disadvantage relative to less leveraged competitors
and competitors that have greater access to capital resources.
  Conversion of the Senior Notes would dilute the ownership interests of existing stockholders. *
    Under the terms of the Senior Notes, events that we do not control may trigger redemption rights
that, if exercised, may have an adverse effect on our liquidity.
  Our rights plan and our ability to issue additional preferred stock could harm the rights of our
common stockholders.
   40




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
    
    adversely affect the voting power of the stockholders of our common stock;
    
    make it more difficult for a third-party to gain control of us;
    
    discourage bids for our common stock at a premium;
    
    limit or eliminate any payments the stockholders of our common stock could expect to
receive upon our liquidation; or
    
    otherwise adversely affect the market price of our common stock.
  Provisions of our certificate of incorporation and bylaws might discourage, delay or prevent a
change of control of our company or changes in our management and, therefore, depress the trading
price of our common stock.
  
    
    authorize the issuance of blank check preferred stock by our board that could increase
the number of outstanding shares and discourage a takeover attempt;
    
    limit the ability of our stockholders to call special meetings of stockholders;
    
    prohibit stockholder action by written consent, which requires all stockholder actions
to be taken at a meeting of our stockholders;
    
    provide that our board is expressly authorized to amend our bylaws, or enact such other
bylaws as in their judgment may be advisable; and
    
    establish advance notice requirements for nominations for election to our board or for
proposing matters that can be acted upon by stockholders at stockholder meetings.
   41




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 SALES OF UNREGISTERED SECURITIES
  ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number of
    
    
    Maximum Number (orAverage
    
    
    Shares (or Units)
    
    
    Approximate Dollar Value) ofTotal Number
    
    
    Price Paid
    
    
    Purchased as Part of
    
    
    Shares (or Units) that May Yetof Shares (or Units)
    
    
    per share
    
    
    Publicly Announced
    
    
    Be Purchased Under the PlansPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    Plans or Programs
    
    
    or Programs (1)Beginning dollar value
available to be
repurchased as of
December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    59,332January 1, 2009 
January 31, 2009 (2)
    
    
    36
    
    
    $
    0.92
    
    
    
    
    
    
    
    February 1, 2009 
February 28, 2009 (2)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    March 31, 2009 
March 31, 2009 (2)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total shares repurchased
    
    
    36
    
    
    $
    0.92
    
    
    
    
    
    
    $
    59,332Ending dollar value available
to be repurchased under
the Discretionary Program
as of March 31, 2009 (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    59,332
 
 (1)
    
    In September 2001, our Board of Directors authorized the use of up to $30 million to
repurchase shares of our outstanding common stock under a discretionary stock repurchase
program (Discretionary Program). In February 2004, our Board of Directors authorized an
additional $30 million of repurchases under the Discretionary Program, which was announced in
our Current Report on Form 8-K filed with the Securities and Exchange Commission, or SEC, on
February 4, 2004. In May 2005, our Board of Directors authorized an additional $75 million of
repurchases under the Discretionary Program, which was announced in our Current Report on Form
8-K filed with the SEC on May 20, 2005. No shares were repurchased through our Discretionary
Program during the three months ended March 31, 2009.(2)
    
    Consists of shares of restricted stock surrendered by Borland employees in order to meet tax
withholding obligations in connection with the vesting of an installment of their restricted
stock awards.  42




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ISSUER REPURCHASES OF CONVERTIBLE SENIOR NOTES
  Total Number of
    
    
    Maximum Number (orAverage
    
    
    Shares (or Units)
    
    
    Approximate Dollar Value) ofTotal Number
    
    
    Price Paid
    
    
    Purchased as Part of
    
    
    Shares (or Units) that May Yetof Shares (or Units)
    
    
    per share
    
    
    Publicly Announced
    
    
    Be Purchased Under the PlansPeriod
    
    Purchased (a)
    
    
    (or Unit) (b)
    
    
    Plans or Programs (c )
    
    
    or Programs (d)January 1, 2009 
January 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    February 1, 2009 
February 28, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    March 1, 2009 
March 31, 2009
    
    
    44,316
    
    
    $
    618.09
    
    
    
    44,316
    
    
    $
    8,608Total shares repurchased
    
    
    44,316
    
    
    $
    618.09
    
    
    
    44,316
    
    
    $
    8,608
 
 (a)
    
    Senior Notes in the aggregate principal amount of $44,316,000 were repurchased by the
Company.(b)
    
    The average price the Company paid for the repurchase of the Senior Notes was $618.09 per
every $1,000 of Senior Notes repurchased.(c)
    
    The Company used approximately $27.4 million of available cash to repurchase the Senior
Notes. The Board authorized the Company to use up to $36.0 million for the repurchase.(d)
    
    The Board authorized $36.0 million for the repurchase of the Senior Notes. After the
repurchase in March 2009, approximately $8.6 million is still available for future
repurchases.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 (a) Exhibits
  Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Description of Exhibit
    
    Form
    
    Date
    
    Number
    
    Herewith3.1
    
    
    Restated Certificate of Incorporation of Borland Software
Corporation.
    
    10-Q
    
    08/09/05
    
    
    3.13.2
    
    
    Amended and Restated Bylaws of Borland Software Corporation.
    
    10-Q
    
    08/09/05
    
    
    3.24.1
    
    
    Stockholder Rights Agreement, dated as of October 26, 2001,
between Borland Software Corporation and Mellon Investor
Services, L.L.C.
    
    8-A
    
    10/31/01
    
    
    14.2
    
    
    Specimen Stock Certificate of Borland Software Corporation.
    
    10-Q
    
    05/13/02
    
    
    4.131.1
    
    
    Certification of Erik E. Prusch, Chief Executive Officer of
Borland Software Corporation, pursuant to Rule 13a-14(a).
    
    
    
    
    
    
    
    
    
    X31.2
    
    
    Certification of Thomas P. Wilkas, Principal Financial
Officer of Borland Software Corporation, pursuant to Rule
13a-14(a).
    
    
    
    
    
    
    
    
    
    X32.1
    
    
    Certification of Erik E. Prusch, Chief Executive Officer of
Borland Software Corporation, pursuant to Rule 13a-14(b)
and 18 U.S.C. Section 1350. +
    
    
    
    
    
    
    
    
    
    X32.2
    
    
    Certification of Thomas P. Wilkas, Principal Financial
Officer of Borland Software Corporation, pursuant to Rule
13a-14(b) and 18 U.S.C. Section 1350. +
    
    
    
    
    
    
    
    
    
    X
 
 +
    
    The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly
Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are
not to be incorporated by reference into any filing of Borland Software Corporation under the
Securities Act of 1933 or the Securities Exchange Act of 1934 whether made before or after the
date of this Form 10-Q, irrespective of any general incorporation language contained in such
filing.
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SIGNATURES
  BORLAND SOFTWARE CORPORATION
(Registrant)/s/ ERIK E. PRUSCHErik E. Prusch(Chief Executive Officer and Duly Authorized Officer)/s/ THOMAS P. WILKASThomas P. Wilkas(Principal Financial Officer and Duly Authorized Officer)  45




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EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit31.1
    
    
    Certification of Erik E. Prusch, Chief Executive Officer of
Borland Software Corporation, pursuant to Rule 13a-14(a).31.2
    
    
    Certification of Thomas P. Wilkas, Principal Financial Officer of
Borland Software Corporation, pursuant to Rule 13a-14(a).32.1
    
    
    Certification of Erik E. Prusch, Chief Executive Officer of
Borland Software Corporation, pursuant to Rule 13a-14(b) and 18
U.S.C. Section 1350. +32.2
    
    
    Certification of Thomas P. Wilkas, Principal Financial Officer of
Borland Software Corporation, pursuant to Rule 13a-14(b) and 18
U.S.C. Section 1350. +
  46