##### 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 1934For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934For 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 20450 STEVENS CREEK BOULEVARD, SUITE 500
CUPERTINO, CALIFORNIA 95014
(Address of Principal Executive Offices) (Zip Code)
 Registrants Telephone Number, Including Area Code: (408) 863-2800
 Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 þ o
  o þ o
 o 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 June 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months ended June
30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Comprehensive Loss for the three months and six months
ended June 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    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
    
    
    32Item 4. Controls and Procedures
    
    
    34PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3. Defaults upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    47Item 6. Exhibits
    
    
    48Signatures
    
    
    49EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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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)
 June 30, 2007
    
    
    December 31, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    204,623
    
    
    $
    55,317Accounts receivable, net of allowances of $5,848 and $5,413,
respectively
    
    
    52,214
    
    
    
    62,154Prepaid expenses
    
    
    12,448
    
    
    
    13,341Other current assets
    
    
    2,068
    
    
    
    1,329Total current assets
    
    
    271,353
    
    
    
    132,141Property and equipment, net
    
    
    9,412
    
    
    
    11,176Goodwill
    
    
    253,359
    
    
    
    253,356Intangible assets, net
    
    
    36,023
    
    
    
    40,521Other non-current assets
    
    
    12,588
    
    
    
    6,705Total assets
    
    $
    582,735
    
    
    $
    443,899LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,597
    
    
    $
    15,591Accrued expenses
    
    
    26,963
    
    
    
    36,438Short-term restructuring
    
    
    6,122
    
    
    
    9,582Income taxes payable
    
    
    2,097
    
    
    
    14,925Deferred revenue
    
    
    55,863
    
    
    
    58,930Other current liabilities
    
    
    9,688
    
    
    
    7,264Total current liabilities
    
    
    114,330
    
    
    
    142,730Convertible senior notes
    
    
    200,000
    
    
    
    Long-term restructuring
    
    
    4,906
    
    
    
    6,231Long-term deferred revenues
    
    
    1,384
    
    
    
    1,610Other long-term liabilities
    
    
    24,185
    
    
    
    7,848Total liabilities
    
    
    344,805
    
    
    
    158,419Stockholders equity:Preferred stock; $.01 par value; 1,000,000 shares authorized; 0 shares
issued and outstanding
    
    
    
    
    
    
    Common stock; $.01 par value; 200,000,000 shares authorized;72,790,644 and 78,704,764 shares issued and outstanding, respectively
    
    
    728
    
    
    
    787Additional paid-in capital
    
    
    663,231
    
    
    
    659,932Accumulated deficit
    
    
    (294,271
    )
    
    
    (273,892
    )Cumulative other comprehensive income
    
    
    8,651
    
    
    
    9,121378,339
    
    
    
    395,948Less common stock in treasury at cost, 21,158,099 and 15,275,899 shares,
respectively
    
    
    (140,409
    )
    
    
    (110,468
    )Total stockholders equity
    
    
    237,930
    
    
    
    285,480Total liabilities and stockholders equity
    
    $
    582,735
    
    
    $
    443,899
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts, unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006License and other revenues
    
    $
    30,439
    
    
    $
    41,428
    
    
    $
    67,601
    
    
    $
    80,823Service revenues
    
    
    32,961
    
    
    
    35,522
    
    
    
    66,765
    
    
    
    65,699Total revenues
    
    
    63,400
    
    
    
    76,950
    
    
    
    134,366
    
    
    
    146,522Cost of license and other revenues
    
    
    1,364
    
    
    
    1,666
    
    
    
    3,070
    
    
    
    3,897Cost of service revenues
    
    
    10,333
    
    
    
    14,536
    
    
    
    21,570
    
    
    
    27,577Amortization of acquired intangibles and other charges
    
    
    2,119
    
    
    
    2,208
    
    
    
    4,238
    
    
    
    2,733Cost of revenues
    
    
    13,816
    
    
    
    18,410
    
    
    
    28,878
    
    
    
    34,207Gross profit
    
    
    49,584
    
    
    
    58,540
    
    
    
    105,488
    
    
    
    112,315Selling, general and administrative
    
    
    44,597
    
    
    
    50,406
    
    
    
    92,428
    
    
    
    96,610Research and development
    
    
    13,718
    
    
    
    18,300
    
    
    
    29,642
    
    
    
    33,705Restructuring , amortization of other intangibles, acquisition-related expenses and other charges
    
    
    2,213
    
    
    
    9,246
    
    
    
    3,087
    
    
    
    10,296Total operating expenses
    
    
    60,528
    
    
    
    77,952
    
    
    
    125,157
    
    
    
    140,611Operating loss
    
    
    (10,944
    )
    
    
    (19,412
    )
    
    
    (19,669
    )
    
    
    (28,296
    )Interest and other income, net
    
    
    811
    
    
    
    312
    
    
    
    1,338
    
    
    
    1,654Loss before income taxes
    
    
    (10,133
    )
    
    
    (19,100
    )
    
    
    (18,331
    )
    
    
    (26,642
    )Income tax provision (benefit)
    
    
    1,116
    
    
    
    (51
    )
    
    
    2,136
    
    
    
    1,346Net loss
    
    $
    (11,249
    )
    
    $
    (19,049
    )
    
    $
    (20,467
    )
    
    $
    (27,988
    )Net loss per share:Net loss per share  basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.25
    )
    
    $
    (0.28
    )
    
    $
    (0.36
    )Shares used in computing basic and diluted net loss per share
    
    
    72,201
    
    
    
    76,876
    
    
    
    73,298
    
    
    
    76,746
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (In thousands, unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (11,249
    )
    
    $
    (19,049
    )
    
    $
    (20,467
    )
    
    $
    (27,988
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    116
    
    
    
    1,508
    
    
    
    (470
    )
    
    
    1,277Fair market value adjustment for available-for-sale
securities, net of tax
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    72Comprehensive loss
    
    $
    (11,133
    )
    
    $
    (17,506
    )
    
    $
    (20,937
    )
    
    $
    (26,639
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands, unaudited)
 Six Months Ended June 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (20,467
    )
    
    $
    (27,988
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    8,574
    
    
    
    5,213Stock-based compensation
    
    
    2,850
    
    
    
    5,922Provision for accounts receivable allowances
    
    
    889
    
    
    
    (2,221
    )Acquired in-process research & development charge
    
    
    
    
    
    
    4,800Acquired developed technology impairment charge
    
    
    
    
    
    
    497Loss on sale of subsidiary
    
    
    226
    
    
    
    Write-off of fixed assets
    
    
    445
    
    
    
    Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    8,860
    
    
    
    6,685Prepaid expenses and other assets
    
    
    (6,378
    )
    
    
    4,293Accounts payable and accrued expenses
    
    
    (11,761
    )
    
    
    232Income taxes payable
    
    
    845
    
    
    
    (1,180
    )Short-term restructuring
    
    
    (3,459
    )
    
    
    1,027Deferred revenues
    
    
    (3,581
    )
    
    
    (1,502
    )Long-term restructuring
    
    
    (1,325
    )
    
    
    (1,622
    )Other liabilities
    
    
    10,385
    
    
    
    (1,722
    )Cash used in operating activities
    
    
    (13,897
    )
    
    
    (7,566
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (2,836
    )
    
    
    (2,518
    )Acquisition of Segue Software, net of cash acquired
    
    
    
    
    
    
    (102,457
    )Proceeds from sale of subsidiary
    
    
    178
    
    
    
    Acquisition of developed technology
    
    
    
    
    
    
    (497
    )Sales and maturities of short-term investments
    
    
    
    
    
    
    125,608Cash provided by (used in ) investing activities
    
    
    (2,658
    )
    
    
    20,136CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of convertible senior notes, net
    
    
    194,230
    
    
    
    Proceeds from issuance of stock options, net
    
    
    965
    
    
    
    2,014Repurchase of common stock
    
    
    (29,941
    )
    
    
    Cash provided by financing activities
    
    
    165,254
    
    
    
    2,014Effect of exchange rate changes on cash
    
    
    607
    
    
    
    1,292Net change in cash and cash equivalents
    
    
    149,306
    
    
    
    15,876Beginning cash and cash equivalents
    
    
    55,317
    
    
    
    49,075Ending cash and cash equivalents
    
    $
    204,623
    
    
    $
    64,951
 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. BASIS OF PRESENTATION
   NOTE 2. STOCK-BASED COMPENSATION
 Share-Based
Payment
 Stock-Based Compensation Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006In Thousands
    
    
    In ThousandsCost of sales
    
    $
    44
    
    
    $
    128
    
    
    $
    87
    
    
    $
    249Research and development
    
    
    346
    
    
    
    626
    
    
    
    686
    
    
    
    1,101Selling, general and administrative
    
    
    1,231
    
    
    
    2,318
    
    
    
    2,077
    
    
    
    4,572Stock-based compensation expense
    
    $
    1,621
    
    
    $
    3,072
    
    
    $
    2,850
    
    
    $
    5,922
 Stock Options
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Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    Intrinsic ValueOptions
    
    
    Price
    
    
    Term (Years)
    
    
    (thousands)Outstanding at December 31, 2006
    
    
    14,840
    
    
    $
    8.04Granted
    
    
    2,497
    
    
    $
    5.85Exercised
    
    
    (192
    )
    
    $
    5.34Forfeited/expired
    
    
    (3,668
    )
    
    $
    8.78Outstanding at June 30, 2007
    
    
    13,477
    
    
    $
    7.47
    
    
    
    6.98
    
    
    $
    2,911Vested and expected to vest at June 30, 2007
    
    
    11,104
    
    
    $
    7.84
    
    
    
    6.50
    
    
    $
    2,204Exercisable at June 30, 2007
    
    
    7,028
    
    
    $
    9.07
    
    
    
    4.91
    
    
    $
    986
   Options OutstandingWeighted-Number
    
    
    Average
    
    
    Weighted-Outstanding at
    
    
    Remaining
    
    
    Average
    
    
    AggregateJune 30,
    
    
    Contractual
    
    
    Exercise
    
    
    Intrinsic Value2007
    
    
    Life
    
    
    Price
    
    
    (thousands)$3.50 - $5.44
    
    
    2,730
    
    
    
    8.82
    
    
    $
    5.22$5.45 - $5.84
    
    
    2,863
    
    
    
    5.22
    
    
    $
    5.62$5.85 - $6.42
    
    
    4,179
    
    
    
    9.04
    
    
    $
    6.14$6.50 - $12.70
    
    
    2,701
    
    
    
    5.01
    
    
    $
    8.96$12.72 - $714.22
    
    
    1,004
    
    
    
    3.65
    
    
    $
    20.39Outstanding at June 30, 2007
    
    
    13,477
    
    
    
    6.98
    
    
    $
    7.47
    
    
    $
    2,911Vested and expected to vest at June 30, 2007
    
    
    11,104
    
    
    
    6.50
    
    
    $
    7.84
    
    
    $
    2,204
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Expected life
    
    4.87 years
    
    
   4.65 years
    
    
    4.87 years
    
    
    4.65 yearsRisk-free interest rate
    
    
    4.92
    %
    
    
    4.20
    %
    
    
    4.85
    %
    
    
    4.20
    %Volatility
    
    
    42.1
    %
    
    
    53.0
    %
    
    
    41.9
    %
    
    
    53.0
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Restricted Stock
  Unvested
    
    
    WeightedRestricted
    
    
    AverageStock
    
    
    Grant DateOutstanding
    
    
    Fair(In Thousands)
    
    
    ValueBalance at December 31, 2006
    
    
    850
    
    
    $
    5.94Vested
    
    
    (246
    )
    
    $
    6.09Forfeited
    
    
    (120
    )
    
    $
    5.73Balance at June 30, 2007
    
    
    484
    
    
    $
    5.93
  Employee Stock Purchase Plan
  NOTE 3. NET INCOME (LOSS) PER SHARE
 Earnings per Share.
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net loss
    
    $
    (11,249
    )
    
    $
    (19,049
    )
    
    $
    (20,467
    )
    
    $
    (27,988
    )Denominator:Weighted-average shares outstanding, excluding
unvested restricted stock
    
    
    72,201
    
    
    
    76,876
    
    
    
    73,298
    
    
    
    76,746Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted net loss per share  weighted-average shares and assumed conversions
    
    
    72,201
    
    
    
    76,876
    
    
    
    73,298
    
    
    
    76,746Net loss per share attributable to common stockholders:Net loss per share  basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.25
    )
    
    $
    (0.28
    )
    
    $
    (0.36
    )
  NOTE 4. SENIOR NOTES OFFERING
 General
  Conversion Process and Other Terms of the Convertible Senior Notes
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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
  Earnings per Share 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
 Registration Rights
  NOTE 5. ACQUISITIONS
 Segue Software, Inc.
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Cash paid for outstanding common shares
    
    $
    105,358Cash paid for outstanding vested common stock options
    
    
    8,130Direct transaction costs
    
    
    2,451Total purchase price
    
    $
    115,939
  Current assets and other tangible assets:Cash and short-term investments
    
    $
    13,482Accounts receivable
    
    
    4,199Other current assets
    
    
    1,210Property and equipment
    
    
    902Deferred tax assets
    
    
    17,835Goodwill
    
    
    65,528Amortizable intangible assets:Developed technology
    
    
    23,400In-process research and development
    
    
    4,800Customer relationships
    
    
    7,500Trademarks
    
    
    1,000Non-compete agreements
    
    
    300Maintenance agreements
    
    
    11,300Total assets acquired
    
    
    151,456Liabilities assumed:Deferred revenues
    
    
    (9,042
    )Current liabilities
    
    
    (7,276
    )Deferred tax liabilities
    
    
    (17,835
    )Other long-term liabilities
    
    
    (1,364
    )Net assets acquired
    
    $
    115,939
   Accounting for Income Taxes
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Pro Forma Financial Information
  Three Months Ended
    
    
    Six Months EndedJune 30, 2006Total revenues
    
    $
    78,377
    
    
    $
    156,713Net loss
    
    $
    (25,431
    )
    
    $
    (38,899
    )Net loss per share:Net loss per share  basic and diluted
    
    $
    (0.33
    )
    
    $
    (0.51
    )
 NOTE 6. GOODWILL AND INTANGIBLE ASSETS
  GoodwillBalance as of December 31, 2006
    
    $
    253,356Purchase accounting adjustments  Segue
    
    
    (171
    )Effect of exchange rates
    
    
    174Balance as of June 30, 2007
    
    $
    253,359
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June 30, 2007Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountAcquired technology
    
    $
    46,330
    
    
    $
    (27,457
    )
    
    $
    18,873Maintenance agreements
    
    
    11,300
    
    
    
    (1,929
    )
    
    
    9,371Trade names and trademarks
    
    
    1,100
    
    
    
    (357
    )
    
    
    743Customer relationship
    
    
    9,075
    
    
    
    (2,051
    )
    
    
    7,024Other
    
    
    400
    
    
    
    (388
    )
    
    
    12$
    68,205
    
    
    $
    (32,182
    )
    
    $
    36,023
 December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountAcquired technology
    
    $
    46,330
    
    
    $
    (24,701
    )
    
    $
    21,629Maintenance agreements
    
    
    11,300
    
    
    
    (1,121
    )
    
    
    10,179Trade names and trademarks
    
    
    1,100
    
    
    
    (215
    )
    
    
    885Customer relationship
    
    
    9,075
    
    
    
    (1,376
    )
    
    
    7,699Other
    
    
    400
    
    
    
    (271
    )
    
    
    129$
    68,205
    
    
    $
    (27,684
    )
    
    $
    40,521
  FutureAmortization2007 (6 months)
    
    $
    4,3612008
    
    
    8,4692009
    
    
    7,9672010
    
    
    6,4672011
    
    
    5,272Thereafter
    
    
    3,487Total
    
    $
    36,023
 NOTE 7. RESTRUCTURING
 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,
 Summary of Restructuring Activity for the First and Second Quarters of 2007.
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FY 2007 Restructuring
    
    
    FY 2006 RestructuringSeverance
    
    
    
    
    
    
    Severanceand Benefits
    
    
    Other
    
    
    and Benefits
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual at December 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    4,178
    
    
    $
    11,551
    
    
    $
    84
    
    
    $
    15,813Cash paid
    
    
    
    
    
    
    
    
    
    
    (2,666
    )
    
    
    (1,451
    )
    
    
    (79
    )
    
    
    (4,196
    )Accrual at March 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    1,512
    
    
    $
    10,100
    
    
    $
    5
    
    
    $
    11,617Additional accruals
    
    
    1,357
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,419Cash paid
    
    
    (156
    )
    
    
    
    
    
    
    (373
    )
    
    
    (1,348
    )
    
    
    (5
    )
    
    
    (1,882
    )Reversal of previous restructuring
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    
    
    
    
    (103
    )Fixed asset disposal
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )Accrual at June 30, 2007
    
    $
    1,201
    
    
    $
    39
    
    
    $
    1,036
    
    
    $
    8,752
    
    
    $
    
    
    
    $
    11,028
  FY 2007 Restructuring
   FY 2006 Restructuring
    NOTE 8. INCOME TAXES
   15




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##### Table of Contents



Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
    NOTE 9. STOCK REPURCHASES
 Discretionary Repurchase Program
  Repurchase Following Senior Notes Offering
   NOTE 10. COMMITMENTS AND CONTINGENCIES
 Indemnification Obligations and Guarantees
 Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others
 16




---



##### Table of Contents



Leases
   17




---



##### Table of Contents



In Thousands
 Remainderof 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalOperating Leases
    
    $
    5,867
    
    
    $
    9,226
    
    
    $
    8,223
    
    
    $
    5,419
    
    
    $
    3,923
    
    
    $
    14,611
    
    
    $
    47,269Restructured Operating Leases
    
    
    3,274
    
    
    
    5,534
    
    
    
    5,469
    
    
    
    3,407
    
    
    
    2,779
    
    
    
    4,845
    
    
    
    25,308Capital Lease
    
    
    242
    
    
    
    41
    
    
    
    43
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    367Gross Commitments
    
    
    9,383
    
    
    
    14,801
    
    
    
    13,735
    
    
    
    8,867
    
    
    
    6,702
    
    
    
    19,456
    
    
    
    72,944Sublease Income
    
    
    (1,086
    )
    
    
    (3,072
    )
    
    
    (2,951
    )
    
    
    (2,829
    )
    
    
    (2,819
    )
    
    
    (4,909
    )
    
    
    (17,666
    )Net Commitments
    
    $
    8,297
    
    
    $
    11,729
    
    
    $
    10,784
    
    
    $
    6,038
    
    
    $
    3,883
    
    
    $
    14,547
    
    
    $
    55,278
   Litigation
 Accounting for Contingencies,
  Service Commitments
  NOTE 11. REPORTABLE SEGMENTS
 Disclosures about Segments of an
Enterprise and Related Information
 Description of Segments
 18




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##### Table of Contents



Enterprise.
 CodeGear.
 Segment Data
   Three Months Ended June 30, 2007
    
    Enterprise
    
    
    CodeGear
    
    
    TotalLicense and other revenues
    
    $
    21,308
    
    
    $
    9,131
    
    
    $
    30,439Service revenues
    
    
    28,515
    
    
    
    4,446
    
    
    
    32,961Total revenues
    
    $
    49,823
    
    
    $
    13,577
    
    
    $
    63,400Operating income (loss )
    
    $
    (12,220
    )
    
    $
    1,276
    
    
    $
    (10,944
    )
 Six Months Ended June 30, 2007
    
    Enterprise
    
    
    CodeGear
    
    
    TotalLicense and other revenues
    
    $
    48,730
    
    
    $
    18,871
    
    
    $
    67,601Service revenues
    
    
    58,021
    
    
    
    8,744
    
    
    
    66,765Total revenues
    
    $
    106,751
    
    
    $
    27,615
    
    
    $
    134,366Operating income (loss )
    
    $
    (22,824
    )
    
    $
    3,155
    
    
    $
    (19,669
    )
  19




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##### Table of Contents



TotalEnterprise
    
    
    CodeGear
    
    
    ConsolidatedLong-lived assets:Goodwill
    
    $
    186,019
    
    
    $
    67,340
    
    
    $
    253,359Other non-current assets
    
    
    57,603
    
    
    
    420
    
    
    
    58,023Non-current assets
    
    
    243,622
    
    
    
    67,760
    
    
    
    311,382Total assets
    
    $
    477,692
    
    
    $
    105,043
    
    
    $
    582,735
 Enterprise-wide disclosures
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006In Thousands
    
    
    In ThousandsTotal revenues from unaffiliated customers:Americas
    
    $
    33,628
    
    
    $
    40,811
    
    
    $
    73,182
    
    
    $
    74,245EMEA
    
    
    20,140
    
    
    
    26,124
    
    
    
    43,600
    
    
    
    52,338Asia Pacific
    
    
    9,632
    
    
    
    10,015
    
    
    
    17,584
    
    
    
    19,939Total revenues
    
    
    63,400
    
    
    
    76,950
    
    
    
    134,366
    
    
    
    146,522License and other revenues
    
    $
    30,439
    
    
    $
    41,428
    
    
    $
    67,601
    
    
    $
    80,823Technical support
    
    
    25,663
    
    
    
    25,957
    
    
    
    51,519
    
    
    
    47,385Consulting and education services
    
    
    7,298
    
    
    
    9,565
    
    
    
    15,246
    
    
    
    18,314Total revenues
    
    
    63,400
    
    
    
    76,950
    
    
    
    134,366
    
    
    
    146,522Inter-company revenue U.S.
    
    $
    (4,205
    )
    
    $
    1,307
    
    
    $
    (7,386
    )
    
    $
    1,507Elimination of inter-company-revenues
    
    
    4,205
    
    
    
    (1,307
    )
    
    
    7,386
    
    
    
    (1,507
    )Reported inter-company revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating income (loss):Americas
    
    $
    (16,823
    )
    
    $
    (28,982
    )
    
    $
    (30,480
    )
    
    $
    (50,032
    )EMEA
    
    
    2,993
    
    
    
    7,833
    
    
    
    6,818
    
    
    
    18,268Asia Pacific
    
    
    2,886
    
    
    
    1,737
    
    
    
    3,993
    
    
    
    3,468Operating loss
    
    
    (10,944
    )
    
    
    (19,412
    )
    
    
    (19,669
    )
    
    
    (28,296
    )Interest and other income, net
    
    
    811
    
    
    
    312
    
    
    
    1,338
    
    
    
    1,654Loss before income taxes
    
    $
    (10,133
    )
    
    $
    (19,100
    )
    
    $
    (18,331
    )
    
    $
    (26,642
    )
 20




---



##### Table of Contents



June 30, 2007
    
    
    December 31, 2006In ThousandsLong-lived assets:Americas
    
    $
    15,829
    
    
    $
    11,143EMEA
    
    
    2,970
    
    
    
    2,549Asia Pacific
    
    
    1,839
    
    
    
    4,190Long-lived assets:
    
    
    20,638
    
    
    
    17,882Other non-current assets
    
    
    290,744
    
    
    
    293,876Non-current assets
    
    
    311,382
    
    
    
    311,758Identifiable assets:Americas
    
    $
    329,885
    
    
    $
    339,424EMEA
    
    
    36,690
    
    
    
    38,308Asia Pacific
    
    
    11,537
    
    
    
    10,850Identifiable assets:
    
    
    378,112
    
    
    
    388,582General corporate assets (cash, cash equivalents and short-term investments)
    
    
    204,623
    
    
    
    55,317Total assets
    
    $
    582,735
    
    
    $
    443,899
 NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 Fair Value Measurements .
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109 Accounting for
Income Taxes.
 21




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##### Table of Contents



Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and
Hedging Activities Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Overview
  Enterprise
 22




---



##### Table of Contents



CodeGear
 Summary of key financial results
  
    
    Total revenues decreased 18% to $63.4 million for the three months ended June 30,
2007, from $77 million for the three months ended June 30, 2006 and decreased 8% to
$134.4 million for the six months ended June 30, 2007, from $146.5 million for the six
months ended June 30, 2006.
    
    License and other revenues decreased 27% to $30.4 million for the three months
ended June 30, 2007, from $41.4 million for the three months ended June 30, 2006 and
decreased 16% to $67.6 million for the six months ended June 30, 2007, from $80.8 million
for the six months ended June 30, 2006.
    
    Service revenues decreased 7% to $33 million for the three months ended June 30,
2007, from $35.5 million for the three months ended June 30, 2006 and increased 2% to
$66.8 million for the six months ended June 30, 2007, from 65.7 million for the six
months ended June 30, 2006.
    
    Gross profit as a percentage of revenue increased to 78% for the three months ended
June 30, 2007, compared to 76% in the three months ended June 30, 2006 and increased to
79% for the six months ended June 30, 2007, from 77% for the six months ended June 30,
2006.
    
    Operating expenses decreased 22% to $60.5 million for the three months ended June 30,
2007, from $78 million for the three months ended June 30, 2006 and decreased 11% to
$125.2 million for the six months ended June 30, 2007, from $140.6 million for the six
months ended June 30, 2006.
    
    Net loss was $11.2 million for the three months ended June 30, 2007, compared to
net loss of $19 million for the three months ended June 30, 2006 and was $20.5 million
for the six months ended June 30, 2007, compared to $28 million for the six months ended
June 30, 2006.
    
    Cash, cash equivalents and short-term investments increased $149.3 million to
$204.6 million as of June 30, 2007, from $55.3 million as of December 31, 2006.
  Results of Operations
  23




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    % of Rev
    
    
    2006
    
    
    % of Rev
    
    
    2007
    
    
    % of Rev
    
    
    2006
    
    
    % of RevLicense and other revenues
    
    $
    30,439
    
    
    
    48
    %
    
    $
    41,428
    
    
    
    54
    %
    
    $
    67,601
    
    
    
    50
    %
    
    $
    80,823
    
    
    
    55
    %Service revenues
    
    
    32,961
    
    
    
    52
    %
    
    
    35,522
    
    
    
    46
    %
    
    
    66,765
    
    
    
    50
    %
    
    
    65,699
    
    
    
    45
    %Total revenues
    
    
    63,400
    
    
    
    100
    %
    
    
    76,950
    
    
    
    100
    %
    
    
    134,366
    
    
    
    100
    %
    
    
    146,522
    
    
    
    100
    %Cost of license and other revenues
    
    
    1,364
    
    
    
    2
    %
    
    
    1,666
    
    
    
    2
    %
    
    
    3,070
    
    
    
    2
    %
    
    
    3,897
    
    
    
    3
    %Cost of service revenues
    
    
    10,333
    
    
    
    16
    %
    
    
    14,536
    
    
    
    19
    %
    
    
    21,570
    
    
    
    16
    %
    
    
    27,577
    
    
    
    19
    %Amortization of acquired intangibles and other charges
    
    
    2,119
    
    
    
    3
    %
    
    
    2,208
    
    
    
    3
    %
    
    
    4,238
    
    
    
    3
    %
    
    
    2,733
    
    
    
    2
    %Total cost of revenues
    
    
    13,816
    
    
    
    22
    %
    
    
    18,410
    
    
    
    24
    %
    
    
    28,878
    
    
    
    21
    %
    
    
    34,207
    
    
    
    23
    %Gross profit
    
    
    49,584
    
    
    
    78
    %
    
    
    58,540
    
    
    
    76
    %
    
    
    105,488
    
    
    
    79
    %
    
    
    112,315
    
    
    
    77
    %Operating expenses:Selling, general and administrative
    
    
    44,597
    
    
    
    70
    %
    
    
    50,406
    
    
    
    66
    %
    
    
    92,428
    
    
    
    69
    %
    
    
    96,610
    
    
    
    66
    %Research and development
    
    
    13,718
    
    
    
    22
    %
    
    
    18,300
    
    
    
    24
    %
    
    
    29,642
    
    
    
    22
    %
    
    
    33,705
    
    
    
    23
    %Restructuring, amortization of other intangibles and
acquisition related expenses and other charges
    
    
    2,213
    
    
    
    3
    %
    
    
    9,246
    
    
    
    12
    %
    
    
    3,087
    
    
    
    2
    %
    
    
    10,296
    
    
    
    7
    %Total operating expenses
    
    
    60,528
    
    
    
    95
    %
    
    
    77,952
    
    
    
    101
    %
    
    
    125,157
    
    
    
    93
    %
    
    
    140,611
    
    
    
    96
    %Operating loss
    
    
    (10,944
    )
    
    
    (17
    %)
    
    
    (19,412
    )
    
    
    (25
    %)
    
    
    (19,669
    )
    
    
    (15
    %)
    
    
    (28,296
    )
    
    
    (19
    %)Interest and other income, net
    
    
    811
    
    
    
    1
    %
    
    
    312
    
    
    
    0
    %
    
    
    1,338
    
    
    
    1
    %
    
    
    1,654
    
    
    
    1
    %Loss before income taxes
    
    
    (10,133
    )
    
    
    (16
    %)
    
    
    (19,100
    )
    
    
    (25
    %)
    
    
    (18,331
    )
    
    
    (14
    %)
    
    
    (26,642
    )
    
    
    (18
    %)Income tax provision (benefit)
    
    
    1,116
    
    
    
    2
    %
    
    
    (51
    )
    
    
    (0
    %)
    
    
    2,136
    
    
    
    2
    %
    
    
    1,346
    
    
    
    1
    %Net loss
    
    $
    (11,249
    )
    
    
    (18
    %)
    
    $
    (19,049
    )
    
    
    (25
    %)
    
    $
    (20,467
    )
    
    
    (15
    %)
    
    $
    (27,988
    )
    
    
    (19
    %)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeAmount
    
    
    % of Total
    
    
    Amount
    
    
    % of Total
    
    
    $
    
    
    %
    
    
    Amount
    
    
    % of Total
    
    
    Amount
    
    
    % of Total
    
    
    $
    
    
    %License and other revenues
    
    $
    30,439
    
    
    
    48
    %
    
    $
    41,428
    
    
    
    54
    %
    
    $
    (10,989
    )
    
    
    (27
    %)
    
    $
    67,601
    
    
    
    50
    %
    
    $
    80,823
    
    
    
    55
    %
    
    $
    (13,222
    )
    
    
    (16
    %)Service revenues
    
    
    32,961
    
    
    
    52
    %
    
    
    35,522
    
    
    
    46
    %
    
    
    (2,561
    )
    
    
    (7
    %)
    
    
    66,765
    
    
    
    50
    %
    
    
    65,699
    
    
    
    45
    %
    
    
    1,066
    
    
    
    2
    %Total revenues
    
    $
    63,400
    
    
    
    100
    %
    
    $
    76,950
    
    
    
    100
    %
    
    $
    (13,550
    )
    
    
    (18
    %)
    
    $
    134,366
    
    
    
    100
    %
    
    $
    146,522
    
    
    
    100
    %
    
    $
    (12,156
    )
    
    
    (8
    %)
  Revenues by Product
  24




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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedJune 30, 2007
    
    
    June 30, 2006ALM
    
    
    DPG
    
    
    IDE
    
    
    Total
    
    
    ALM
    
    
    DPG
    
    
    IDE
    
    
    TotalLicense and other revenues
    
    $
    15,408
    
    
    $
    5,900
    
    
    $
    9,131
    
    
    $
    30,439
    
    
    $
    20,029
    
    
    $
    8,471
    
    
    $
    12,928
    
    
    $
    41,428Service revenues
    
    
    23,580
    
    
    
    4,935
    
    
    
    4,446
    
    
    
    32,961
    
    
    
    22,229
    
    
    
    6,798
    
    
    
    6,495
    
    
    
    35,522Total
    
    $
    38,988
    
    
    $
    10,835
    
    
    $
    13,577
    
    
    $
    63,400
    
    
    $
    42,258
    
    
    $
    15,269
    
    
    $
    19,423
    
    
    $
    76,950
 Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006ALM
    
    
    DPG
    
    
    IDE
    
    
    Total
    
    
    ALM
    
    
    DPG
    
    
    IDE
    
    
    TotalLicense and other revenues
    
    $
    34,531
    
    
    $
    14,199
    
    
    $
    18,871
    
    
    $
    67,601
    
    
    $
    35,581
    
    
    $
    14,666
    
    
    $
    30,576
    
    
    $
    80,823Service revenues
    
    
    47,796
    
    
    
    10,225
    
    
    
    8,744
    
    
    
    66,765
    
    
    
    39,574
    
    
    
    12,849
    
    
    
    13,276
    
    
    
    65,699Total
    
    $
    82,327
    
    
    $
    24,424
    
    
    $
    27,615
    
    
    $
    134,366
    
    
    $
    75,155
    
    
    $
    27,515
    
    
    $
    43,852
    
    
    $
    146,522
 License and Other Revenues
   Service Revenues
   25




---



##### Table of Contents



International Revenues
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %United States
    
    $
    27,844
    
    
    $
    35,601
    
    
    $
    (7,757
    )
    
    
    (22
    %)
    
    $
    60,234
    
    
    $
    63,743
    
    
    $
    (3,509
    )
    
    
    (6
    %)Germany
    
    
    5,446
    
    
    
    6,650
    
    
    
    (1,204
    )
    
    
    (18
    %)
    
    
    14,286
    
    
    
    14,327
    
    
    
    (41
    )
    
    
    (0
    %)All other countries
    
    
    30,110
    
    
    
    34,699
    
    
    
    (4,589
    )
    
    
    (13
    %)
    
    
    59,846
    
    
    
    68,452
    
    
    
    (8,606
    )
    
    
    (13
    %)Total revenues
    
    $
    63,400
    
    
    $
    76,950
    
    
    $
    (13,550
    )
    
    
    (18
    %)
    
    $
    134,366
    
    
    $
    146,522
    
    
    $
    (12,156
    )
    
    
    (8
    %)
  Regional Revenues
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    

June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Americas
    
    $
    33,628
    
    
    $
    40,811
    
    
    $
    (7,183
    )
    
    
    (18
    %)
    
    $
    73,182
    
    
    $
    74,245
    
    
    $
    (1,063
    )
    
    
    (1
    %)Europe, Middle East and Africa
    
    
    20,140
    
    
    
    26,124
    
    
    
    (5,984
    )
    
    
    (23
    %)
    
    
    43,600
    
    
    
    52,338
    
    
    
    (8,738
    )
    
    
    (17
    %)Asia Pacific
    
    
    9,632
    
    
    
    10,015
    
    
    
    (383
    )
    
    
    (4
    %)
    
    
    17,584
    
    
    
    19,939
    
    
    
    (2,355
    )
    
    
    (12
    %)Total revenues
    
    $
    63,400
    
    
    $
    76,950
    
    
    $
    (13,550
    )
    
    
    (18
    %)
    
    $
    134,366
    
    
    $
    146,522
    
    
    $
    (12,156
    )
    
    
    (8
    %)
  Americas.
  26




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EMEA.
  APAC.
  Cost of Revenues
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Cost of license and other revenues
    
    $
    1,364
    
    
    $
    1,666
    
    
    $
    (302
    )
    
    
    (18
    %)
    
    $
    3,070
    
    
    $
    3,897
    
    
    $
    (827
    )
    
    
    (21
    %)As a percentage of license and other revenues
    
    
    4
    %
    
    
    4
    %
    
    
    
    
    
    
    
    
    
    
    5
    %
    
    
    5
    %Cost of service revenues
    
    $
    10,333
    
    
    $
    14,536
    
    
    $
    (4,203
    )
    
    
    (29
    %)
    
    $
    21,570
    
    
    $
    27,577
    
    
    $
    (6,007
    )
    
    
    (22
    %)As a percentage of service revenues
    
    
    31
    %
    
    
    41
    %
    
    
    
    
    
    
    
    
    
    
    32
    %
    
    
    42
    %Amortization of acquired intangibles and other charges
    
    $
    2,119
    
    
    $
    2,208
    
    
    $
    (89
    )
    
    
    (4
    %)
    
    $
    4,238
    
    
    $
    2,733
    
    
    $
    1,505
    
    
    
    55
    %As a percentage of total revenues
    
    
    3
    %
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    3
    %
    
    
    2
    %
 Cost of License and Other Revenues
  Cost of Service Revenues
  Amortization of Acquired Intangibles and Other Charges
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Operating Expenses
 Selling, General and Administrative Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Selling, general and administrative expenses
    
    $
    44,597
    
    
    $
    50,406
    
    
    $
    (5,809
    )
    
    
    (12
    %)
    
    $
    92,428
    
    
    $
    96,610
    
    
    $
    (4,182
    )
    
    
    (4
    %)As a percentage of total revenues
    
    
    70
    %
    
    
    66
    %
    
    
    
    
    
    
    
    
    
    
    69
    %
    
    
    66
    %
   Research and Development Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Research and development expenses
    
    $
    13,718
    
    
    $
    18,300
    
    
    $
    (4,582
    )
    
    
    (25
    %)
    
    $
    29,642
    
    
    $
    33,705
    
    
    $
    (4,063
    )
    
    
    (12
    %)As a percentage of total revenues
    
    
    22
    %
    
    
    24
    %
    
    
    
    
    
    
    
    
    
    
    22
    %
    
    
    23
    %
   Restructuring, Amortization of Other Intangibles, Acquisition-Related Expenses and Other Charges
  28




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    

June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Restructuring
    
    $
    1,347
    
    
    $
    3,366
    
    
    $
    (2,019
    )
    
    
    (60%
    )
    
    $
    1,347
    
    
    $
    3,298
    
    
    $
    (1,951
    )
    
    
    (59
    %)Amortization of other intangibles
    
    
    99
    
    
    
    127
    
    
    
    (28
    )
    
    
    (22%
    )
    
    
    258
    
    
    
    240
    
    
    
    18
    
    
    
    8
    %Acquisition-related expenses
    
    
    767
    
    
    
    953
    
    
    
    (186
    )
    
    
    (20%
    )
    
    
    1,482
    
    
    
    1,958
    
    
    
    (476
    )
    
    
    (24
    %)Write-off of in-process research and development
    
    
    
    
    
    
    4,800
    
    
    
    (4,800
    )
    
    
    (100%
    )
    
    
    
    
    
    
    4,800
    
    
    
    (4,800
    )
    
    
    (100
    %)Total
    
    $
    2,213
    
    
    $
    9,246
    
    
    $
    (7,033
    )
    
    
    (76%
    )
    
    $
    3,087
    
    
    $
    10,296
    
    
    $
    (7,209
    )
    
    
    (70
    %)As a percentage of total revenues
    
    
    3
    %
    
    
    12
    %
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    7
    %
 Restructuring.
  FY 2007 Restructuring
    
    
    FY 2006 RestructuringSeverance
    
    
    
    
    
    
    Severanceand Benefits
    
    
    Other
    
    
    and Benefits
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual at December 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    4,178
    
    
    $
    11,551
    
    
    $
    84
    
    
    $
    15,813Cash paid
    
    
    
    
    
    
    
    
    
    
    (2,666
    )
    
    
    (1,451
    )
    
    
    (79
    )
    
    
    (4,196
    )Accrual at March 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    1,512
    
    
    $
    10,100
    
    
    $
    5
    
    
    $
    11,617Additional accruals
    
    
    1,357
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,419Cash paid
    
    
    (156
    )
    
    
    
    
    
    
    (373
    )
    
    
    (1,348
    )
    
    
    (5
    )
    
    
    (1,882
    )Reversal of previous restructuring
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    
    
    
    
    (103
    )Fixed asset disposal
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )Accrual at June 30, 2007
    
    $
    1,201
    
    
    $
    39
    
    
    $
    1,036
    
    
    $
    8,752
    
    
    $
    
    
    
    $
    11,028
  Amortization of other intangibles.
 Acquisition-related expenses.
 Interest and Other Income, Net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    
    
    
    
    2006
    
    
    $
    
    
    %Interest and other income, net
    
    
    811
    
    
    
    312
    
    
    $
    499
    
    
    
    160
    %
    
    
    1,338
    
    
    
    
    
    
    
    1,654
    
    
    $
    (316
    )
    
    
    (19%
    )As a percentage of total revenues
    
    
    1
    %
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %
 29




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Income Taxes
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Income tax provision (benefit)
    
    
    1,116
    
    
    
    (51
    )
    
    $
    1,167
    
    
    
    (2,288
    %)
    
    
    2,136
    
    
    
    1,346
    


    
    $
    790
    
    
  
    59

    %As a percentage of total revenues
    
    
    2
    %
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    1
    %
   Liquidity and Capital Resources
 Six Months EndedJune 30,2007
    
    
    2006In ThousandsNet cash provided by (used in):Operating activities
    
    $
    (13,897
    )
    
    $
    (7,566
    )Investing activities
    
    
    (2,658
    )
    
    
    20,136Financing activities
    
    
    165,254
    
    
    
    2,014Effect of exchange rate changes on cash
    
    
    607
    
    
    
    1,292Net change in cash and cash equivalents
    
    $
    149,306
    
    
    $
    15,876
 Cash, cash equivalents and short-term investments.
  30




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Net cash used in operating activities.
 Net cash used in investing activities.
 Net cash provided by financing activities.
 Currency.
 Contractual Obligations and Off-Balance Sheet Arrangements
 Leases.
  In Thousands
 Remainderof 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalOperating Leases
    
    $
    5,867
    
    
    $
    9,226
    
    
    $
    8,223
    
    
    $
    5,419
    
    
    $
    3,923
    
    
    $
    14,611
    
    
    $
    47,269Restructured Operating Leases
    
    
    3,274
    
    
    
    5,534
    
    
    
    5,469
    
    
    
    3,407
    
    
    
    2,779
    
    
    
    4,845
    
    
    
    25,308Capital Lease
    
    
    242
    
    
    
    41
    
    
    
    43
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    367Gross Commitments
    
    
    9,383
    
    
    
    14,801
    
    
    
    13,735
    
    
    
    8,867
    
    
    
    6,702
    
    
    
    19,456
    
    
    
    72,944Sublease Income
    
    
    (1,086
    )
    
    
    (3,072
    )
    
    
    (2,951
    )
    
    
    (2,829
    )
    
    
    (2,819
    )
    
    
    (4,909
    )
    
    
    (17,666
    )Net Commitments
    
    $
    8,297
    
    
    $
    11,729
    
    
    $
    10,784
    
    
    $
    6,038
    
    
    $
    3,883
    
    
    $
    14,547
    
    
    $
    55,278
   31




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Indemnification Obligations and Guarantees.
 Off-Balance Sheet Arrangements.
 Critical Accounting Estimates and Policies
 Goodwill and Purchased Intangible Assets
 Business Combinations Goodwill and Other Intangible Assets.
 Reportable Segments
 Disclosures about Segments of an Enterprise and Related Information,
  Effect of New Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
  32




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Weighted
    
    
    Net FairAverage
    
    
    Value atNotional
    
    
    Contracts
    
    
    June 30,Amount
    
    
    Rate
    
    
    2007Foreign currency forward exchange contracts:Russian Rouble
    
    
    1,088
    
    
    
    25.7300
    
    
    
    1,085United Kingdom Pound Sterling
    
    
    (2,636
    )
    
    
    1.9795
    
    
    
    (2,658
    )$
    (1,548
    )
    
    
    
    
    
    $
    (1,573
    )
 Interest Rate Risk
   33




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Credit Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
 Material Weakness in Prior Period
  Remediation Measures
  Evaluation of Our Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  34




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Accounting for Contingencies
  
 ITEM 1A. RISK FACTORS
  Risks Relating to Our Business
 We are re-focusing the company to primarily focus on the development and distribution of enterprise
software development solutions. If we are unable to successfully complete this change to the
business quickly and smoothly, our operating results could be harmed.
  
    
    Changes in go-to-market strategy.Our ALM offerings are sold to enterprises, whereas our
CodeGear offerings are primarily sold to individual software developers. As a result, to
achieve revenue growth with our ALM strategy, we must enhance our enterprise selling
capability, increase sales force productivity and generally complete more large revenue,
multi-product sales of our ALM solutions. We will also need to further define our product
roadmaps and generally continue to evolve our ALM offerings. To do so, we must coordinate
the efforts of our marketing, sales, services and research and development organizations to
focus on the needs of large enterprises. These tasks are complicated, involve many people
and processes, and require consistency and persistence in the market place to be effective.
In addition, this enterprise-focused strategy involves different skills, partners and
competencies than our historical IDE strategy, which focused principally on sales through
distribution channels. If we fail to coordinate our efforts and deliver broader value to
large enterprise customers, our operating results may suffer.
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
    
    Changes in our sales organization and sales leadership.Our ALM strategy requires us to
focus our sales effort on enterprise customers. To drive these changes, we will continue to
make changes throughout our global sales force balancing the sales people that focus on
larger deals and those that focus on acquiring new customers and smaller transactions.
While we believe these changes will enhance our leadership globally, these efforts may prove
unsuccessful in increasing our sales to enterprise customers.
    
    Changes in our sales cycles.Sales to large enterprises often involve long and
unpredictable sales cycles. We are becoming more dependent on large revenue, multi-product
transactions to meet our revenue expectations. These transactions often have long sales
cycles and we may be unable to accurately forecast revenues derived from these transactions.
If we fail to accurately forecast revenues, we may not achieve the anticipated financial
performance, which could harm our business and operating results.
    
    Changes in our marketing strategy.As part of our change in focus, we continue to
redefine our marketing strategy. We must increase lead generation and develop appropriate
marketing programs targeted at the enterprise customer. As an organization, we are
relatively new at this. If we are unable to develop effective marketing programs and
increase our pipeline of sales opportunities, or if our sales organization in turn is unable
to effectively convert leads into customers, our revenues will suffer.
    
    Changes in our services organization.In 2006, we consolidated our consulting services
and sales organizations to better focus on customer engagements. We also combined our
technical support organization with our field operations organization to more closely align
our efforts relating to customers. Further, we focused our consulting organizations on
working with customers that have or will purchase software licenses. We have de-emphasized
selling services when there is no software license opportunity. The implementation of these
changes will continue to require careful planning and coordination to ensure we maintain
customer satisfaction. In addition, such changes may result in the loss of key services
personnel. In the event customer satisfaction is harmed or we lose key personnel, our
business could be harmed.
  Our failure to efficiently complete the separation of our CodeGear division from our enterprise
business and effectively operate CodeGear could harm our operating
results.*
  We have experienced significant changes in our senior management team over the past two years and
if we are not able to effectively integrate new senior management members, our business could be
harmed. *
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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.
  Our inability to forecast our revenue pipeline or convert revenue pipeline into contracts,
especially given our increasing focus on enterprise customers, could increase fluctuations in our
revenue and financial results.
   Because competition for qualified finance, technical and management personnel is intense and
because we are in the process of moving headquarters, we may not be able to recruit or retain
qualified personnel quickly, which could harm our business.
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Our success is dependent upon our ability to enhance the quality and scalability of our various
products, improve the integration and overall functionality of these products, and evolve our
solutions toward our ALM strategy.
   If we are unable to maintain revenue levels for our deployment products, our financial results may
be harmed.
  We may not be able to compete successfully against current and potential competitors.
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The complexity of accounting regulations and related interpretations and policies, particularly
those related to revenue recognition, could materially affect our financial results for a given
period.
 Software Revenue Recognition
 We previously had material weaknesses in our internal control over financial reporting. While our
management has determined that we do not currently have any material weaknesses in our internal
control over financial reporting, there can be no assurance that we will maintain an effective
framework for internal control over financial reporting in the future, which would harm our
business and the trading price of our stock.*
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We have been 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 Global Market.
   We are in the midst of significant changes to our financial reporting and accounting team and
systems, which may impact our ability to comply with our financial reporting and accounting
obligations. *
  We are in the process of moving our headquarters and 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.*
  Consolidation in our industry or fluctuation in our stock price may impede our ability to compete
effectively.
   40




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We depend on technologies licensed to us by third parties, such as Sun Microsystems and Microsoft,
and the loss of or inability to maintain these licenses could prevent or delay sales or shipments
of certain of our products.
  Failure to effectively 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.
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Our future success depends upon enhancing existing relationships and establishing new technology
alliances.
  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.
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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;
    
    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 Convertible Senior Notes will dilute the ownership interests of existing
stockholders.
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Under the terms of the 2.75% Convertible Senior Notes due 2012, events that we do not control may
trigger conversion 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.
     
    
    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
 44




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
    
    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.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 SALES OF UNREGISTERED SECURITES
  ISSUER PURCHASES OF EQUITY SECURITIES
 45




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##### Table of Contents



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
March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    59,332April 1, 2007 -
April 30, 2007 (2)
    
    
    16,382
    
    
    $
    5.42
    
    
    
    
    
    
    
    May 1, 2007 -
May 31, 2007 (2)
    
    
    256
    
    
    $
    5.50
    
    
    
    
    
    
    
    June 1, 2007 -
June 30, 2007 (2)
    
    
    9,760
    
    
    $
    5.84
    
    
    
    
    
    
    
    Total shares repurchased
    
    
    26,398
    
    
    $
    5.58
    
    
    
    
    
    
    $
    59,332Ending dollar value available
to be
 repurchased under
the Discretionary
 Program
as of June 30, 2007 (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 June 30, 2007.(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. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (1)
    
    The following individuals were elected to serve as directors on our Board of Directors:
 Nominee:
    
    Votes For
    
    Votes WithheldTod Nielsen
    
    
    62,316,622
    
    
    
    2,076,476John F. Olsen
    
    
    59,793,677
    
    
    
    4,599,421
 46




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##### Table of Contents



Nominee:
    
    Votes For
    
    Votes WithheldWilliam K. Hooper
    
    
    61,716,888
    
    
    
    2,676,210Robert M. Tarkoff
    
    
    62,297,904
    
    
    
    2,095,194Mark Garrett
    
    
    59,715,893
    
    
    
    4,677,205T. Michael Nevens
    
    
    59,714,469
    
    
    
    4,678,629
  (2)
    
    Amendment to our 1999 Employee Stock Purchase Plan to authorize for
issuance an additional 2,500,000 shares of our common stock under such
plan.
 Votes For
    
    Votes Against
    
    Abstentions49,199,418
    
    2,077,427
    
    496,837
  (3)
    
    Ratification of the selection of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal year
ending December 31, 2007.
 Votes For
    
    Votes Against
    
    Abstentions63,956,788
    
    336,459
    
    99,851
  
 ITEM 5. OTHER INFORMATION
  47




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##### Table of Contents



ITEM 6. 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 Tod Nielsen, Chief Executive Officer of
Borland Software Corporation, pursuant to Rule 13a-14(a).
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Erik E. Prusch, Principal Financial
Officer of Borland Software Corporation, pursuant to Rule
13a-14(a).
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Tod Nielsen, Chief Executive Officer of
Borland Software Corporation, pursuant to Rule 13a-14(b)
and 18 U.S.C. Section 1350. +
    
    
    
    
    
    
    
    
    
    X32.2
    
    Certification of Erik E. Prusch, 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.  48




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##### Table of Contents



SIGNATURES
  BORLAND SOFTWARE CORPORATION
(Registrant)/s/ ERIK E. PRUSCHErik E. Prusch Principal Financial Officer(Principal Financial Officer and Duly Authorized Officer) 49




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##### Table of Contents



EXHIBIT INDEX
 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 Tod
Nielsen, Chief
Executive Officer of
Borland Software
Corporation, pursuant
to Rule 13a-14(a).
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Erik
E. Prusch, Principal
Financial Officer of
Borland Software
Corporation, pursuant
to Rule 13a-14(a).
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Tod
Nielsen, Chief
Executive Officer of
Borland Software
Corporation, pursuant
to Rule 13a-14(b) and
18 U.S.C. Section
1350. +
    
    
    
    
    
    
    
    
    
    X32.2
    
    Certification of Erik
E. Prusch, 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. 50