##### 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 June 30, 2008
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 8303 N. MOPAC EXPRESSWAY, SUITE A-300
AUSTIN, TEXAS 78759
(Address of Principal Executive Offices) (Zip Code)
 Registrants Telephone Number, Including Area Code: (512) 340-2200
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    

    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



BORLAND SOFTWARE CORPORATION FORM 10-Q
 TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets at June 30, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2008
and 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 3. Defaults upon Senior Securities
    
    
    50Item 4. Submission of Matters to a Vote of Security Holders
    
    
    50Item 5. Other Information
    
    
    50Item 6. Exhibits
    
    
    51Signatures
    
    
    52EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



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, 2008
    
    
    December 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    97,096
    
    
    $
    90,805Short-term investments
    
    
    93,771
    
    
    
    68,061Accounts receivable, net of allowances of $2,319 and
$6,096, respectively
    
    
    29,650
    
    
    
    54,640Prepaid expenses
    
    
    8,707
    
    
    
    9,207Current assets of discontinued operations
    
    
    3,631
    
    
    
    Other current assets
    
    
    4,883
    
    
    
    5,104Total current assets
    
    
    237,738
    
    
    
    227,817Property and equipment, net
    
    
    8,230
    
    
    
    9,978Goodwill
    
    
    186,941
    
    
    
    226,688Intangible assets, net
    
    
    29,055
    
    
    
    31,658Long-term investments
    
    
    4,225
    
    
    
    37,970Other non-current assets
    
    
    9,054
    
    
    
    9,886Total assets
    
    $
    475,243
    
    
    $
    543,997LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,611
    
    
    $
    7,622Accrued expenses
    
    
    25,068
    
    
    
    30,900Short-term restructuring
    
    
    3,020
    
    
    
    9,866Income taxes payable
    
    
    1,180
    
    
    
    2,315Deferred revenue
    
    
    40,252
    
    
    
    51,449Current liabilities of discontinued operations
    
    
    5,759
    
    
    
    Other current liabilities
    
    
    5,891
    
    
    
    7,176Total current liabilities
    
    
    85,781
    
    
    
    109,328Convertible senior notes
    
    
    179,100
    
    
    
    200,000Long-term restructuring
    
    
    1,685
    
    
    
    5,472Long-term deferred revenue
    
    
    1,709
    
    
    
    1,715Long-term liabilities of discontinued operations
    
    
    3,075
    
    
    
    Other long-term liabilities
    
    
    23,395
    
    
    
    22,944Total liabilities
    
    
    294,745
    
    
    
    339,459Stockholders 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 (2008: 94,367,818 issued and 73,208,838
outstanding; 2007: 94,134,952 issued and 72,975,972
outstanding)
    
    
    732
    
    
    
    730Additional paid-in capital
    
    
    669,941
    
    
    
    666,910Accumulated deficit
    
    
    (361,893
    )
    
    
    (333,010
    )Accumulated other comprehensive income
    
    
    12,127
    
    
    
    10,317320,907
    
    
    
    344,947Treasury stock at cost, (2008 and 2007: 21,158,980 shares)
    
    
    (140,409
    )
    
    
    (140,409
    )Total stockholders equity
    
    
    180,498
    
    
    
    204,538Total liabilities and stockholders equity
    
    $
    475,243
    
    
    $
    543,997
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts, unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:License and other revenues
    
    $
    15,265
    
    
    $
    21,308
    
    
    $
    33,802
    
    
    $
    48,730Service revenues
    
    
    26,602
    
    
    
    28,515
    
    
    
    54,124
    
    
    
    58,021Total revenues
    
    
    41,867
    
    
    
    49,823
    
    
    
    87,926
    
    
    
    106,751Costs of revenues:Cost of license and other revenues
    
    
    638
    
    
    
    704
    
    
    
    1,315
    
    
    
    1,651Cost of service revenues
    
    
    8,346
    
    
    
    9,148
    
    
    
    17,210
    
    
    
    19,449Amortization of acquired intangibles and other charges
    
    
    2,101
    
    
    
    2,119
    
    
    
    4,201
    
    
    
    4,238Cost of revenues
    
    
    11,085
    
    
    
    11,971
    
    
    
    22,726
    
    
    
    25,338Gross profit
    
    
    30,782
    
    
    
    37,852
    
    
    
    65,200
    
    
    
    81,413Selling, general and administrative
    
    
    26,935
    
    
    
    38,483
    
    
    
    59,996
    
    
    
    80,313Research and development
    
    
    11,653
    
    
    
    9,535
    
    
    
    23,437
    
    
    
    21,001Restructuring, amortization of other intangibles, acquisition-related expenses and other
charges
    
    
    268
    
    
    
    1,647
    
    
    
    1,731
    
    
    
    2,512Total operating expenses
    
    
    38,856
    
    
    
    49,665
    
    
    
    85,164
    
    
    
    103,826Operating loss
    
    
    (8,074
    )
    
    
    (11,813
    )
    
    
    (19,964
    )
    
    
    (22,413
    )Interest income
    
    
    1,426
    
    
    
    2,472
    
    
    
    3,178
    
    
    
    4,138Interest expense
    
    
    (1,755
    )
    
    
    (1,579
    )
    
    
    (3,494
    )
    
    
    (2,464
    )Gain on debt retirement
    
    
    5,646
    
    
    
    
    
    
    
    5,646
    
    
    
    Other expense
    
    
    (923
    )
    
    
    (344
    )
    
    
    (341
    )
    
    
    (582
    )Loss from continuing operations before income taxes
    
    
    (3,680
    )
    
    
    (11,264
    )
    
    
    (14,975
    )
    
    
    (21,321
    )Income tax provision
    
    
    959
    
    
    
    874
    
    
    
    2,233
    
    
    
    1,657Loss from continuing operations
    
    $
    (4,639
    )
    
    $
    (12,138
    )
    
    $
    (17,208
    )
    
    $
    (22,978
    )Discontinued operations:Income (loss) from operation of discontinued operations
(net of applicable taxes of $239, $242, $481, and $479)
    
    $
    607
    
    
    $
    1,295
    
    
    $
    (10,121
    )
    
    $
    2,919Loss on disposal of discontinued operations (net of applicable
tax of $955)
    
    
    (1,554
    )
    
    
    
    
    
    
    (1,554
    )
    
    
    Income (loss) from discontinued operations
    
    $
    (947
    )
    
    $
    1,295
    
    
    $
    (11,675
    )
    
    $
    2,919Net loss
    
    $
    (5,586
    )
    
    $
    (10,843
    )
    
    $
    (28,883
    )
    
    $
    (20,059
    )Net income
(loss) per share - basic and diluted:Continuing operations
    
    $
    (0.07
    )
    
    $
    (0.17
    )
    
    $
    (0.24
    )
    
    $
    (0.31
    )Discontinued operations
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.16
    )
    
    
    0.04Total net loss per share
    
    $
    (0.08
    )
    
    $
    (0.15
    )
    
    $
    (0.40
    )
    
    $
    (0.27
    )Shares used in computing basic and diluted net income
(loss) per share
    
    
    72,914
    
    
    
    72,201
    
    
    
    72,832
    
    
    
    73,298
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (in thousands, unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (5,586
    )
    
    $
    (10,843
    )
    
    $
    (28,883
    )
    
    $
    (20,059
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    49
    
    
    
    116
    
    
    
    1,918
    
    
    
    (470
    )Fair market value adjustment for
available-for-sale securities, net of
tax
    
    
    (29
    )
    
    
    
    
    
    
    (109
    )
    
    
    Comprehensive loss
    
    $
    (5,566
    )
    
    $
    (10,727
    )
    
    $
    (27,074
    )
    
    $
    (20,529
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands, unaudited)
 Six Months Ended June 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (28,883
    )
    
    $
    (20,059
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    6,751
    
    
    
    8,574Stock-based compensation
    
    
    2,755
    
    
    
    2,850Provision for accounts receivable allowances
    
    
    (2,026
    )
    
    
    889Loss on sale of subsidiary
    
    
    
    
    
    
    226Loss on sale of CodeGear assets
    
    
    599
    
    
    
    Loss on disposal of assets
    
    
    81
    
    
    
    445Gain on debt repurchase
    
    
    (5,646
    )
    
    
    Impairment of CodeGear goodwill
    
    
    13,300
    
    
    
    Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    20,197
    
    
    
    8,860Prepaid expenses and other assets
    
    
    266
    
    
    
    (6,378
    )Accounts payable and accrued expenses
    
    
    (5,306
    )
    
    
    (11,761
    )Income taxes payable
    
    
    (406
    )
    
    
    845Restructuring accruals
    
    
    (6,523
    )
    
    
    (4,784
    )Deferred revenues
    
    
    (4,022
    )
    
    
    (3,581
    )Other liabilities
    
    
    394
    
    
    
    9,977Cash used in operating activities
    
    
    (8,469
    )
    
    
    (13,897
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (1,079
    )
    
    
    (2,836
    )Proceeds from sale of CodeGear assets
    
    
    20,706
    
    
    
    Acquisition of Simunication, net of cash acquired
    
    
    (1,970
    )
    
    
    Proceeds from sale of subsidiary
    
    
    
    
    
    
    178Purchase and sale of investments, net
    
    
    8,035
    
    
    
    Cash provided by (used in) investing activities
    
    
    25,692
    
    
    
    (2,658
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of convertible senior notes, net
    
    
    
    
    
    
    194,230Repurchase of convertible senior notes, net
    
    
    (14,787
    )
    
    
    Proceeds from issuance of stock
    
    
    290
    
    
    
    965Repurchase of common stock and others, net of related fees
    
    
    (29
    )
    
    
    (29,941
    )Cash provided by (used in) financing activities
    
    
    (14,526
    )
    
    
    165,254Effect of exchange rate changes on cash
    
    
    3,594
    
    
    
    607Net change in cash and cash equivalents
    
    
    6,291
    
    
    
    149,306Beginning cash and cash equivalents
    
    
    90,805
    
    
    
    55,317Ending cash and cash equivalents
    
    $
    97,096
    
    
    $
    204,623
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 6




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##### Table of Contents



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
  Recent Events  Disposition of CodeGear Assets and Discontinued Operations
   Accounting for the Impairment or Disposal of Long-Lived
Assets
 7




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Reclassification and Correction of Previously Issued Financial Statements
    June 30, 2007Three Months Ended
    
    Six Months EndedAdjustment
    
    As Adjusted
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment
    
    As AdjustedAs
    
    for
    
    for
    
    
    
    
    
    
    
    
    
    As
    
    for
    
    forPreviously
    
    Discontinued
    
    Discontinued
    
    Adjustment
    
    
    
    
    
    Previously
    
    Discontinued
    
    Discontinued
    
    AdjustmentReported
    
    Operations
    
    Operations
    
    for Errors
    
    As Restated
    
    Reported
    
    Operations
    
    Operations
    
    for Errors
    
    As RestatedStatement of Operations:Cost of service revenues
    
    $
    10,333
    
    
    $
    (778
    )
    
    $
    9,555
    
    
    $
    (407
    )
    
    $
    9,148
    
    
    $
    21,570
    
    
    $
    (1,714
    )
    
    $
    19,856
    
    
    $
    (407
    )
    
    $
    19,449Gross profit
    
    
    49,584
    
    
    
    (12,139
    )
    
    
    37,445
    
    
    
    407
    
    
    
    37,852
    
    
    
    105,488
    
    
    
    (24,482
    )
    
    
    81,006
    
    
    
    407
    
    
    
    81,413Selling, general and
administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring, amortization of
other
intangibles, acquisition-related
expenses and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    
    
    
    
    (12,545
    )
    
    
    (12,545
    )
    
    
    407
    
    
    
    (12,138
    )
    
    
    
    
    
    
    (23,385
    )
    
    
    (23,385
    )
    
    
    407
    
    
    
    (22,978
    )Net loss
    
    $
    (11,250
    )
    
    $
    
    
    
    $
    (11,250
    )
    
    $
    407
    
    
    $
    (10,843
    )
    
    $
    (20,466
    )
    
    $
    
    
    
    $
    (20,466
    )
    
    $
    407
    
    
    $
    (20,059
    )Net loss per
share - basic and
diluted:Continuing operations
    
    $
    
    
    
    $
    (0.18
    )
    
    $
    (0.18
    )
    
    $
    0.01
    
    
    $
    (0.17
    )
    
    $
    
    
    
    $
    (0.32
    )
    
    $
    (0.32
    )
    
    $
    0.01
    
    
    $
    (0.31
    )Discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    
    
    
    
    0.04Total net loss per share
    
    $
    (0.16
    )
    
    $
    
    
    
    $
    (0.16
    )
    
    $
    0.01
    
    
    $
    (0.15
    )
    
    $
    (0.28
    )
    
    $
    
    
    
    $
    (0.28
    )
    
    $
    0.01
    
    
    $
    (0.27
    )
 8




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##### Table of Contents



Three Months Ended March 31, 2008Adjustment
    
    As AdjustedAs
    
    for
    
    forPreviously
    
    Discontinued
    
    Discontinued
    
    AdjustmentReported
    
    Operations
    
    Operations
    
    for Errors
    
    As RestatedStatement of Operations:Cost of service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative
    
    
    36,746
    
    
    
    (4,569
    )
    
    
    32,177
    
    
    
    886
    
    
    
    33,063Restructuring, amortization of other
intangibles, acquisition-related
expenses and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    (1,660
    )
    
    
    
    
    
    
    (1,660
    )
    
    
    (78
    )
    
    
    (1,738
    )Loss from continuing operations
    
    
    
    
    
    
    (11,606
    )
    
    
    (11,606
    )
    
    
    (964
    )
    
    
    (12,570
    )Net loss
    
    $
    (22,334
    )
    
    $
    
    
    
    $
    (22,334
    )
    
    $
    (964
    )
    
    $
    (23,298
    )Net loss per share  basic and
diluted:Continuing operations
    
    $
    
    
    
    $
    (0.16
    )
    
    $
    (0.16
    )
    
    $
    (0.01
    )
    
    $
    (0.17
    )Discontinued operations
    
    
    
    
    
    
    (0.15
    )
    
    
    (0.15
    )
    
    
    
    
    
    
    (0.15
    )Total net loss per share
    
    $
    (0.31
    )
    
    $
    
    
    
    $
    (0.31
    )
    
    $
    (0.01
    )
    
    $
    (0.32
    )
  September 30, 2007Three Months Ended
    
    Nine Months EndedAs Previously Reported
    
    
    
    
    
    
    
    
    
    As Previously Reported(excluding
    
    
    
    
    
    
    
    
    
    (excludingDiscontinued
    
    Adjustment
    
    
    
    
    
    Discontinued
    
    AdjustmentOperations)
    
    for Errors
    
    As Restated
    
    Operations)
    
    for Errors
    
    As RestatedStatement of Operations:Cost of service revenues
    
    $
    9,955
    
    
    $
    407
    
    
    $
    10,362
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross profit
    
    
    59,274
    
    
    
    (407
    )
    
    
    58,867
    
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative
    
    
    43,387
    
    
    
    (120
    )
    
    
    43,267
    
    
    
    135,815
    
    
    
    (120
    )
    
    
    135,695Restructuring, amortization of other
intangibles, acquisition-related
expenses and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    500
    
    
    $
    (287
    )
    
    $
    213
    
    
    $
    (19,967
    )
    
    $
    120
    
    
    $
    (19,847
    )Net income (loss) per
share - basic
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.27
    )
    
    $
    
    
    
    $
    (0.27
    )Net income (loss) per
share - diluted
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.27
    )
    
    $
    
    
    
    $
    (0.27
    )
 9




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##### Table of Contents



December 31, 2007Three Months Ended
    
    Twelve Months EndedAs Previously Reported
    
    
    
    
    
    
    
    
    
    As  Previously Reported(excluding
    
    
    
    
    
    
    
    
    
    (excludingDiscontinued
    
    Adjustment
    
    
    
    
    
    Discontinued
    
    AdjustmentOperations)
    
    for Errors
    
    As Restated
    
    Operations)
    
    for Errors
    
    As RestatedStatement of Operations:Cost of service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative
    
    
    40,391
    
    
    
    (886
    )
    
    
    39,505
    
    
    
    176,206
    
    
    
    (1,006
    )
    
    
    175,200Restructuring, amortization of other
intangibles, acquisition-related
expenses and other charges
    
    
    9,259
    
    
    
    (1,384
    )
    
    
    7,875
    
    
    
    13,934
    
    
    
    (1,384
    )
    
    
    12,550Interest expense
    
    
    (1,489
    )
    
    
    78
    
    
    
    (1,411
    )
    
    
    (5,449
    )
    
    
    78
    
    
    
    (5,371
    )Net loss
    
    $
    (41,706
    )
    
    $
    2,348
    
    
    $
    (39,358
    )
    
    $
    (61,673
    )
    
    $
    2,468
    
    
    $
    (59,205
    )Net loss per
share - basic and
diluted
    
    $
    (0.57
    )
    
    $
    0.03
    
    
    $
    (0.54
    )
    
    $
    (0.85
    )
    
    $
    0.04
    
    
    $
    (0.81
    )
  As of December 31, 2007Adjustment forAs Previously Reported
    
    Errors
    
    As RestatedBalance sheet:Property and equipment, net
    
    $
    9,998
    
    
    $
    (20
    )
    
    $
    9,978Total assets
    
    $
    544,017
    
    
    $
    (20
    )
    
    $
    543,997Accrued expenses
    
    $
    31,606
    
    
    $
    (706
    )
    
    $
    30,900Other current liabilities
    
    
    7,574
    
    
    
    (398
    )
    
    
    7,176Long-term restructuring
    
    
    5,823
    
    
    
    (351
    )
    
    
    5,472Other long-term liabilities
    
    
    23,977
    
    
    
    (1,033
    )
    
    
    22,944Total liabilities
    
    $
    341,947
    
    
    $
    (2,488
    )
    
    $
    339,459Accumulated deficit
    
    $
    (335,478
    )
    
    $
    2,468
    
    
    $
    (333,010
    )
 NOTE 2. STOCK-BASED COMPENSATION
 Share-Based Payment
 Stock-Based Compensation Expense
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of sales
    
    $
    12
    
    
    $
    44
    
    
    $
    36
    
    
    $
    86Research and development
    
    
    298
    
    
    
    314
    
    
    
    637
    
    
    
    626Selling, general and
administrative
    
    
    853
    
    
    
    1,205
    
    
    
    2,027
    
    
    
    2,039Stock-based
compensation expense
    
    $
    1,163
    
    
    $
    1,563
    
    
    $
    2,700
    
    
    $
    2,751
 10




---



##### Table of Contents



Stock Options
  Weighted-Weighted-
    
    
    AverageShares
    
    
    Average
    
    
    RemainingSubject to
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateStock Options
    
    
    Price
    
    
    Term (Years)
    
    
    Intrinsic ValueOutstanding at December 31, 2007
    
    
    12,610
    
    
    $
    7.38Granted
    
    
    2,201
    
    
    
    1.47Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (2,823
    )
    
    
    7.12Outstanding at June 30, 2008
    
    
    11,988
    
    
    $
    6.35
    
    
    
    7.17
    
    
    $
    Vested and expected to vest at June 30, 2008
    
    
    9,921
    
    
    $
    6.78
    
    
    
    6.84
    
    
    $
    Exercisable at June 30, 2008
    
    
    6,098
    
    
    $
    8.53
    
    
    
    5.50
    
    
    $
    
      Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Expected life
    
    5.16 years
    
    4.87 years
    
    5.14 years
    
    4.87 yearsRisk-free interest rate
    
    
    3.34
    %
    
    
    4.92
    %
    
    
    3.30
    %
    
    
    4.85
    %Volatility
    
    
    53.3
    %
    
    
    42.1
    %
    
    
    53.1
    %
    
    
    41.9
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 11




---



##### Table of Contents



Restricted Stock
  WeightedNumber
    
    
    Averageof Shares
    
    
    Grant DateOutstanding
    
    
    Fair(In Thousands)
    
    
    ValueBalance at December 31, 2007
    
    
    255
    
    
    $
    6.14Vested
    
    
    (134
    )
    
    
    6.00Forfeited
    
    
    (10
    )
    
    
    9.05Balance at June 30, 2008
    
    
    111
    
    
    $
    6.05
  Employee Stock Purchase Plan
    NOTE 3. NET LOSS PER SHARE
 Earnings per Share
 12




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Loss from continuing operations
    
    $
    (4,639
    )
    
    $
    (12,138
    )
    
    $
    (17,208
    )
    
    $
    (22,978
    )Income (loss) from discontinued operations
    
    
    (947
    )
    
    
    1,295
    
    
    
    (11,675
    )
    
    
    2,919Net loss
    
    $
    (5,586
    )
    
    $
    (10,843
    )
    
    $
    (28,883
    )
    
    $
    (20,059
    )Denominator:Weighted-average shares outstanding, excluding unvested restricted stock
    
    
    72,914
    
    
    
    72,201
    
    
    
    72,832
    
    
    
    73,298Effect of dilutive securities:Employee stock options, restricted stock awards and ESPP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator
for basic and diluted net loss per share - weighted-average
shares and assumed conversions
    
    
    72,914
    
    
    
    72,201
    
    
    
    72,832
    
    
    
    73,298Net loss per share attributable to common stockholders:Loss per
share from continuing operations - basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.17
    )
    
    $
    (0.24
    )
    
    $
    (0.31
    )Income
(loss) per share from discontinued operations - basic and diluted
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.16
    )
    
    
    0.04Total net
loss per share - basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.15
    )
    
    $
    (0.40
    )
    
    $
    (0.27
    )
  NOTE 4. CONVERTIBLE SENIOR NOTES
   13




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##### Table of Contents



Conversion Process and Other Terms of the 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"
 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
  14




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##### Table of Contents



NOTE 5. INVESTMENTS IN MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS
  June 30, 2008Amortized
    
    
    Gross Unrealized
    
    
    Gross Unrealized
    
    
    Estimated FairCosts
    
    
    Gains
    
    
    Loss
    
    
    ValueCorporate debt securities
    
    $
    37,328
    
    
    $
    9
    
    
    $
    (235
    )
    
    $
    37,102U.S. government debt
securities
    
    
    37,130
    
    
    
    25
    
    
    
    (40
    )
    
    
    37,115Asset-backed securities
    
    
    23,633
    
    
    
    179
    
    
    
    (33
    )
    
    
    23,779Total
    
    $
    98,091
    
    
    $
    213
    
    
    $
    (308
    )
    
    $
    97,996
  June 30, 2008Amortized
    
    
    Estimated FairDue in
    
    Costs
    
    
    ValueLess than one year
    
    $
    93,877
    
    
    $
    93,7711 thru 5 years
    
    
    4,214
    
    
    
    4,225After 5 years
    
    
    
    
    
    
    Total
    
    $
    98,091
    
    
    $
    97,996
  June 30, 2008Less than twelve months
    
    
    Greater than twelve months
    
    
    TotalEstimated Fair
    
    
    Gross Unrealized
    
    
    Estimated Fair
    
    
    Gross Unrealized
    
    
    Estimated Fair
    
    
    Gross UnrealizedValue
    
    
    (Losses)
    
    
    Value
    
    
    (Losses)
    
    
    Value
    
    
    (Losses)Corporate debt securities
    
    $
    37,102
    
    
    $
    (235
    )
    
    $
    
    
    
    $
    
    
    
    $
    37,102
    
    
    $
    (235
    )U.S. government debt securities
    
    
    37,115
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    37,115
    
    
    
    (40
    )Asset-backed securities
    
    
    19,554
    
    
    
    
    
    
    
    4,225
    
    
    
    (33
    )
    
    
    23,779
    
    
    
    (33
    )Total
    
    $
    93,771
    
    
    $
    (275
    )
    
    $
    4,225
    
    
    $
    (33
    )
    
    $
    97,996
    
    
    $
    (308
    )
 Fair Value Measurements
 Fair Value Measurements 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
 15




---



##### Table of Contents



securities; certain other
sovereign government obligations; and exchange-traded equity securities and listed
derivatives that are actively traded.
    
    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; certain residential and commercial mortgage-related instruments
(including loans, securities and derivatives); and most over-the-counter (OTC)
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 OTC derivatives.
   Fair Value Measurement at Reporting Date usingQuoted Prices inEstimated Fair
    
    
    Active Markets
    
    
    Significant Other
    
    
    SignificantValue at
    
    
    for Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    June 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Money market funds
    
    $
    19,559
    
    
    $
    19,559
    
    
    $
    
    
    
    $
    Corporate debt securities
    
    
    37,102
    
    
    
    
    
    
    
    37,102
    
    
    
    U.S. government debt securities
    
    
    37,115
    
    
    
    
    
    
    
    37,115
    
    
    
    Asset-backed securities
    
    
    23,779
    
    
    
    
    
    
    
    23,779
    
    
    
    Total
    
    $
    117,555
    
    
    $
    19,559
    
    
    $
    97,996
    
    
    $
    
 NOTE 6. DISPOSITIONS AND ACQUISITIONS
 Dispositions
   16




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Sales
    
    $
    10,815
    
    
    $
    13,578
    
    
    $
    23,030
    
    
    $
    27,615Income (loss) from operation of discontinued
operations (net of applicable
taxes of $239, $242,
$481, and $479)
    
    
    607
    
    
    
    1,295
    
    
    
    (10,121
    )
    
    
    2,919Loss on
disposal of discontinued operations (net of applicable tax of $955)
    
    
    (1,554
    )
    
    
    
    
    
    
    (1,554
    )
    
    
    Income (loss) from discontinued operations
    
    $
    (947
    )
    
    $
    1,295
    
    
    $
    (11,675
    )
    
    $
    2,919
  June 30,2008Accounts receivable, net of allowances of $1,626
    
    $
    3,631Current assets of discontinued operations
    
    
    3,631Accrued restructuring
    
    
    4,307Income taxes payable
    
    
    1,194Other
current liabilities
    
    
    258Current liabilities of discontinued operations
    
    
    5,759Accrued restructuring
    
    
    3,075Long-term liabilities of discontinued operations
    
    $
    3,075
  Acquisitions
 Business Combinations
   17




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##### Table of Contents



NOTE 7. GOODWILL AND INTANGIBLE ASSETS
  GoodwillBalance as of December 31, 2007
    
    $
    226,688Acquisition of Simunication
    
    
    889Effects of exchange rates
    
    
    195Discontinued operationImpairment of goodwill
    
    
    (13,300
    )Sale of CodeGear
    
    
    (27,531
    )Balance as of June 30, 2008
    
    $
    186,941
   As of June 30, 2008
    
    
    As of December 31, 2007Gross
    
    
    
    
    
    
    
    
    
    
    GrossRange of
    
    
    Carrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    NetCategory
    
    Useful Lives
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAcquired Developed Technology
    
    3 - 7 years
    
    $
    48,175
    
    
    $
    33,033
    
    
    $
    15,142
    
    
    $
    46,330
    
    
    $
    30,187
    
    
    $
    16,143Maintenance Agreements
    
    7 years
    
    
    11,300
    
    
    
    3,542
    
    
    
    7,758
    
    
    
    11,300
    
    
    
    2,735
    
    
    
    8,565Tradenames and Trademarks
    
    4 years
    
    
    1,100
    
    
    
    640
    
    
    
    460
    
    
    
    1,100
    
    
    
    499
    
    
    
    601Customer Relationships
    
    7 years
    
    
    9,075
    
    
    
    3,402
    
    
    
    5,673
    
    
    
    9,075
    
    
    
    2,726
    
    
    
    6,349Other
    
    1 - 3 years
    
    
    426
    
    
    
    404
    
    
    
    22
    
    
    
    400
    
    
    
    400
    
    
    
    Total
    
    
    
    
    
    $
    70,076
    
    
    $
    41,021
    
    
    $
    29,055
    
    
    $
    68,205
    
    
    $
    36,547
    
    
    $
    31,658
  18




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##### Table of Contents



FutureAmortization2008 (6 months)
    
    $
    4,2562009
    
    
    8,0792010
    
    
    7,8072011
    
    
    4,5802012
    
    
    2,946Thereafter
    
    
    1,387Total
    
    $
    29,055
 NOTE 8. 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,
 2006 Restructuring Plan
  2007 Restructuring Plans
 Quarter 4 Plan.
 Quarter 2 Plan .
 19




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##### Table of Contents



FY 2007 Restructuring
    
    
    FY 2006 RestructuringQuarter 4 Plan
    
    
    Quarter 2 PlanSeverance,
    
    
    
    
    
    
    Severance,
    
    
    Severance,Benefits and Other
    
    
    Facilities (1)
    
    
    Benefits and Other
    
    
    Benefits and Other
    
    
    Facilities (1)
    
    
    TotalAccrual at December 31, 2007
    
    $
    3,737
    
    
    $
    4,800
    
    
    $
    328
    
    
    $
    179
    
    
    $
    6,294
    
    
    $
    15,338Additional accruals
    
    
    1,492
    
    
    
    104
    
    
    
    21
    
    
    
    37
    
    
    
    84
    
    
    
    1,738Cash paid
    
    
    (2,191
    )
    
    
    (728
    )
    
    
    (213
    )
    
    
    (216
    )
    
    
    (935
    )
    
    
    (4,283
    )Reversal of previous restructuring
    
    
    
    
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    (94
    )Accrual at March 31, 2008
    
    $
    3,038
    
    
    $
    4,176
    
    
    $
    42
    
    
    $
    
    
    
    $
    5,443
    
    
    $
    12,699Additional accruals
    
    
    62
    
    
    
    363
    
    
    
    44
    
    
    
    
    
    
    
    78
    
    
    
    547Reclassification of related deferred rent
liabilities
    
    
    
    
    
    
    701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701Reclassification to discontinued operations
    
    
    (473
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,340
    )
    
    
    (5,813
    )Cash paid
    
    
    (873
    )
    
    
    (1,863
    )
    
    
    (59
    )
    
    
    
    
    
    
    (120
    )
    
    
    (2,915
    )Reversal of previous restructuring
    
    
    (524
    )
    
    
    54
    
    
    
    (27
    )
    
    
    
    
    
    
    (17
    )
    
    
    (514
    )Accrual at June 30, 2008
    
    $
    1,230
    
    
    $
    3,431
    
    
    $
    
    
    
    $
    
    
    
    $
    44
    
    
    $
    4,705
 
 (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. NOTE 9. INCOME TAXES
   Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement No. 109
  NOTE 10. REPURCHASES OF STOCK AND EQUITY SECURITIES
  20




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##### Table of Contents



Discretionary Repurchase Program
  Repurchase of Common Stock Following Convertible Senior Notes Offering
  Repurchase of Notes
  NOTE 11. COMMITMENTS AND CONTINGENCIES
 Indemnification Obligations and Guarantees
 Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others.
     21




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##### Table of Contents



Leases and Long Term Debt Obligations
  Payment due by period2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2013 and(6 months)
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    thereafter
    
    
    TotalOperating leases
    
    $
    3,503
    
    
    $
    5,747
    
    
    $
    4,820
    
    
    $
    3,957
    
    
    $
    3,482
    
    
    $
    14,149
    
    
    $
    35,658Restructured operating leases
    
    
    3,862
    
    
    
    7,413
    
    
    
    3,077
    
    
    
    1,759
    
    
    
    1,807
    
    
    
    1,231
    
    
    
    19,149Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,100
    
    
    
    
    
    
    
    179,100Interest payments (a)
    
    
    2,463
    
    
    
    4,925
    
    
    
    4,925
    
    
    
    4,925
    
    
    
    602
    
    
    
    
    
    
    
    17,840Gross commitments
    
    
    9,828
    
    
    
    18,085
    
    
    
    12,822
    
    
    
    10,641
    
    
    
    184,991
    
    
    
    15,380
    
    
    
    251,747Sublease rental income
    
    
    (713
    )
    
    
    (1,425
    )
    
    
    (384
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,522
    )Net commitments
    
    $
    9,115
    
    
    $
    16,660
    
    
    $
    12,438
    
    
    $
    10,641
    
    
    $
    184,991
    
    
    $
    15,380
    
    
    $
    249,225
 
 (a)
    
    The interest payments in the above table were based on a fixed rate of 2.75%.   22




---



##### Table of Contents



Litigation
 Accounting for
Contingencies
  Service Commitments
  NOTE 12. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
 Disclosures about Segments of an Enterprise and Related Information
  Enterprise-wide disclosures
  23




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Total revenues from unaffiliated customers:Americas
    
    $
    24,801
    
    
    $
    28,684
    
    
    $
    49,229
    
    
    $
    63,180Europe,
Middle East and Africa (EMEA)
    
    
    11,875
    
    
    
    14,172
    
    
    
    22,755
    
    
    
    31,183Asia Pacific
    
    
    5,191
    
    
    
    6,967
    
    
    
    15,942
    
    
    
    12,388Total revenues
    
    
    41,867
    
    
    
    49,823
    
    
    
    87,926
    
    
    
    106,751License and other revenues
    
    $
    15,265
    
    
    $
    21,308
    
    
    $
    33,802
    
    
    $
    48,730Technical support
    
    
    21,079
    
    
    
    21,614
    
    
    
    41,980
    
    
    
    43,231Consulting and education services
    
    
    5,523
    
    
    
    6,901
    
    
    
    12,144
    
    
    
    14,790Total revenues
    
    
    41,867
    
    
    
    49,823
    
    
    
    87,926
    
    
    
    106,751Inter-company revenue U.S.
    
    $
    4,297
    
    
    $
    1,620
    
    
    $
    12,207
    
    
    $
    1,900Elimination of inter-company-revenues
    
    
    (4,297
    )
    
    
    (1,620
    )
    
    
    (12,207
    )
    
    
    (1,900
    )Reported inter-company revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating income (loss):Americas
    
    $
    (6,080
    )
    
    $
    (12,976
    )
    
    $
    (17,845
    )
    
    $
    (23,955
    )EMEA
    
    
    (1,999
    )
    
    
    (447
    )
    
    
    (7,474
    )
    
    
    92Asia Pacific
    
    
    5
    
    
    
    1,610
    
    
    
    5,355
    
    
    
    1,450Operating loss
    
    
    (8,074
    )
    
    
    (11,813
    )
    
    
    (19,964
    )
    
    
    (22,413
    )Interest and other income, net
    
    
    4,394
    
    
    
    549
    
    
    
    4,989
    
    
    
    1,092Loss from continuing operations before income taxes
    
    $
    (3,680
    )
    
    $
    (11,264
    )
    
    $
    (14,975
    )
    
    $
    (21,321
    )
 June 30, 2008
    
    
    December 31, 2007Long-lived assets:
    
    (in thousands)Americas
    
    $
    17,639
    
    
    $
    53,541EMEA
    
    
    2,128
    
    
    
    2,621Asia Pacific
    
    
    1,465
    
    
    
    1,672Long-lived assets:
    
    
    21,232
    
    
    
    57,834Other non-current assets
    
    
    216,273
    
    
    
    258,346Non-current assets
    
    $
    237,505
    
    
    $
    316,180Identifiable assets:Americas
    
    $
    246,134
    
    
    $
    344,907EMEA
    
    
    26,874
    
    
    
    31,691Asia Pacific
    
    
    7,737
    
    
    
    8,533Assets of discontinued operations
    
    
    3,631
    
    
    
    Identifiable assets:
    
    
    284,376
    
    
    
    385,131General corporate assets (cash, cash equivalents and short-term investments)
    
    
    190,867
    
    
    
    158,866Total assets
    
    $
    475,243
    
    
    $
    543,997
 NOTE 13. RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting For Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 24




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##### Table of Contents



Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements  an Amendment of ARB No. 51
 Fair Value Option for Financial Assets
and Financial Liabilitiesincluding an amendment of FASB Statement No. 115
 Partial Deferral
of the Effective Date of Statement 157
 
 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
  25




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##### Table of Contents



Overview
   Disposition of CodeGear Assets
  Acquisition of Simunication
   26




---



##### Table of Contents



Summary of Key Financial Results
  
    
    Total revenues decreased 16% to $41.9 million for the three months ended June 30, 2008,
from $49.8 million for the three months ended June 30, 2007 and decreased 18% to
$87.9 million for the six months ended June 30, 2008, from $106.8 million for the six months
ended June 30, 2007.
 
    
    License and other revenues decreased 28% to $15.3 million for the three months ended
June 30, 2008, from $21.3 million for the three months ended June 30, 2007 and decreased 31%
to $33.8 million for the six months ended June 30, 2008, from $48.7 million for the six
months ended June 30, 2007.
    
    Service revenues decreased 7% to $26.6 million for the three months ended June 30, 2008,
from $28.5 million for the three months ended June 30, 2007 and decreased 7% to
$54.1 million for the six months ended June 30, 2008, from $58 million for the six months
ended June 30, 2007.
    
    Gross profit as a percentage of revenue decreased to 74% for the three months ended
June 30, 2008, compared to 76% in the three months ended June 30, 2007 and decreased to 74%
for the six months ended June 30, 2008, from 76% for the six months ended June 30, 2007.
    
    Operating expenses decreased 22% to $38.9 million for the three months ended June 30,
2008, from $49.7 million for the three months ended June 30, 2007 and decreased 18% to
$85.2 million for the six months ended June 30, 2008, from $103.8 million for the six months
ended June 30, 2007.
    
    Net loss was $5.6 million for the three months ended June 30, 2008, compared to net loss
of $10.8 million for the three months ended June 30, 2007 and was $28.9 million for the six
months ended June 30, 2008, compared to $20.1 million for the six months ended June 30,
2007.
    
    Cash, cash equivalents and short-term investments increased $32 million to $190.9 million
as of June 30, 2008, from $158.9 million as of December 31, 2007.
 27




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    % of
    
    
    2007
    
    
    % of
    
    
    2008
    
    
    % of
    
    
    2007
    
    
    % ofRevenues:License and other revenues
    
    $
    15,265
    
    
    
    36
    %
    
    $
    21,308
    
    
    
    43
    %
    
    $
    33,802
    
    
    
    38
    %
    
    $
    48,730
    
    
    
    46
    %Service revenues
    
    
    26,602
    
    
    
    64
    %
    
    
    28,515
    
    
    
    57
    %
    
    
    54,124
    
    
    
    62
    %
    
    
    58,021
    
    
    
    54
    %Total revenues
    
    
    41,867
    
    
    
    100
    %
    
    
    49,823
    
    
    
    100
    %
    
    
    87,926
    
    
    
    100
    %
    
    
    106,751
    
    
    
    100
    %Costs of revenues:Cost of license and other revenues
    
    
    638
    
    
    
    2
    %
    
    
    704
    
    
    
    1
    %
    
    
    1,315
    
    
    
    1
    %
    
    
    1,651
    
    
    
    2
    %Cost of service revenues
    
    
    8,346
    
    
    
    20
    %
    
    
    9,148
    
    
    
    18
    %
    
    
    17,210
    
    
    
    20
    %
    
    
    19,449
    
    
    
    18
    %Amortization of acquired intangibles and other charges
    
    
    2,101
    
    
    
    5
    %
    
    
    2,119
    
    
    
    4
    %
    
    
    4,201
    
    
    
    5
    %
    
    
    4,238
    
    
    
    4
    %Cost of revenues
    
    
    11,085
    
    
    
    26
    %
    
    
    11,971
    
    
    
    24
    %
    
    
    22,726
    
    
    
    26
    %
    
    
    25,338
    
    
    
    24
    %Gross profit
    
    
    30,782
    
    
    
    74
    %
    
    
    37,852
    
    
    
    76
    %
    
    
    65,200
    
    
    
    74
    %
    
    
    81,413
    
    
    
    76
    %Selling, general and administrative
    
    
    26,935
    
    
    
    64
    %
    
    
    38,483
    
    
    
    77
    %
    
    
    59,996
    
    
    
    68
    %
    
    
    80,313
    
    
    
    75
    %Research and development
    
    
    11,653
    
    
    
    28
    %
    
    
    9,535
    
    
    
    19
    %
    
    
    23,437
    
    
    
    27
    %
    
    
    21,001
    
    
    
    20
    %Restructuring, amortization of other intangibles, acquisition-related expenses
and other charges
    
    
    268
    
    
    
    1
    %
    
    
    1,647
    
    
    
    3
    %
    
    
    1,731
    
    
    
    2
    %
    
    
    2,512
    
    
    
    2
    %Total operating expenses
    
    
    38,856
    
    
    
    93
    %
    
    
    49,665
    
    
    
    100
    %
    
    
    85,164
    
    
    
    97
    %
    
    
    103,826
    
    
    
    97
    %Operating loss
    
    
    (8,074
    )
    
    
    -19
    %
    
    
    (11,813
    )
    
    
    -24
    %
    
    
    (19,964
    )
    
    
    -23
    %
    
    
    (22,413
    )
    
    
    -21
    %Interest income
    
    
    1,426
    
    
    
    3
    %
    
    
    2,472
    
    
    
    5
    %
    
    
    3,178
    
    
    
    4
    %
    
    
    4,138
    
    
    
    4
    %Interest expense
    
    
    (1,755
    )
    
    
    -4
    %
    
    
    (1,579
    )
    
    
    -3
    %
    
    
    (3,494
    )
    
    
    -4
    %
    
    
    (2,464
    )
    
    
    -2
    %Gain on debt repurchase
    
    
    5,646
    
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    5,646
    
    
    
    
    
    
    
    
    
    
    
    0
    %Other expense
    
    
    (923
    )
    
    
    -2
    %
    
    
    (344
    )
    
    
    -1
    %
    
    
    (341
    )
    
    
    0
    %
    
    
    (582
    )
    
    
    -1
    %Loss from continuing operations before income taxes
    
    
    (3,680
    )
    
    
    -9
    %
    
    
    (11,264
    )
    
    
    -23
    %
    
    
    (14,975
    )
    
    
    -17
    %
    
    
    (21,321
    )
    
    
    -20
    %Income tax provision
    
    
    959
    
    
    
    2
    %
    
    
    874
    
    
    
    2
    %
    
    
    2,233
    
    
    
    3
    %
    
    
    1,657
    
    
    
    2
    %Loss from continuing operations
    
    $
    (4,639
    )
    
    
    -11
    %
    
    $
    (12,138
    )
    
    
    -24
    %
    
    $
    (17,208
    )
    
    
    -20
    %
    
    $
    (22,978
    )
    
    
    -22
    %Discontinued operations:Income (loss) from operation of discontinued operations (net of
applicable taxes of $239, $242, $481 and $479)
    
    $
    607
    
    
    
    1
    %
    
    $
    1,295
    
    
    
    3
    %
    
    $
    (10,121
    )
    
    
    -12
    %
    
    $
    2,919
    
    
    
    3
    %Loss on disposal of discontinued operations (net of
applicable tax of $955)
    
    
    (1,554
    )
    
    
    -4
    %
    
    
    
    
    
    
    0
    %
    
    
    (1,554
    )
    
    
    -2
    %
    
    
    
    
    
    
    0
    %Income (loss) from discontinued operations
    
    $
    (947
    )
    
    
    -2
    %
    
    $
    1,295
    
    
    
    3
    %
    
    $
    (11,675
    )
    
    
    -13
    %
    
    $
    2,919
    
    
    
    3
    %Net loss
    
    $
    (5,586
    )
    
    
    -13
    %
    
    $
    (10,843
    )
    
    
    -22
    %
    
    $
    (28,883
    )
    
    
    -33
    %
    
    $
    (20,059
    )
    
    
    -19
    %
 28




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %License and other
revenues
    
    $
    15,265
    
    
    
    36
    %
    
    $
    21,308
    
    
    
    43
    %
    
    $
    (6,043
    )
    
    
    (28
    %)
    
    $
    33,802
    
    
    
    38
    %
    
    $
    48,730
    
    
    
    46
    %
    
    $
    (14,928
    )
    
    
    (31
    %)Service revenues
    
    
    26,602
    
    
    
    64
    %
    
    
    28,515
    
    
    
    57
    %
    
    
    (1,913
    )
    
    
    (7
    %)
    
    
    54,124
    
    
    
    62
    %
    
    
    58,021
    
    
    
    54
    %
    
    
    (3,897
    )
    
    
    (7
    %)Total revenues
    
    $
    41,867
    
    
    
    100
    %
    
    $
    49,823
    
    
    
    100
    %
    
    $
    (7,956
    )
    
    
    (16
    %)
    
    $
    87,926
    
    
    
    100
    %
    
    $
    106,751
    
    
    
    100
    %
    
    $
    (18,825
    )
    
    
    (18
    %)
  Revenues by Product
   Three Months Ended
    
    
    Three Months EndedJune 30, 2008
    
    
    June 30, 2007ALM
    
    
    DPG
    
    
    Total
    
    
    ALM
    
    
    DPG
    
    
    TotalLicense and other revenues
    
    $
    10,012
    
    
    $
    5,253
    
    
    $
    15,265
    
    
    $
    15,408
    
    
    $
    5,900
    
    
    $
    21,308Service revenues
    
    
    21,915
    
    
    
    4,687
    
    
    
    26,602
    
    
    
    23,580
    
    
    
    4,935
    
    
    
    28,515Total
    
    $
    31,927
    
    
    $
    9,940
    
    
    $
    41,867
    
    
    $
    38,988
    
    
    $
    10,835
    
    
    $
    49,823
 Six Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007ALM
    
    
    DPG
    
    
    Total
    
    
    ALM
    
    
    DPG
    
    
    TotalLicense and other revenues
    
    $
    19,426
    
    
    $
    14,376
    
    
    $
    33,802
    
    
    $
    34,531
    
    
    $
    14,199
    
    
    $
    48,730Service revenues
    
    
    44,888
    
    
    
    9,236
    
    
    
    54,124
    
    
    
    47,796
    
    
    
    10,225
    
    
    
    58,021Total
    
    $
    64,314
    
    
    $
    23,612
    
    
    $
    87,926
    
    
    $
    82,327
    
    
    $
    24,424
    
    
    $
    106,751
 License and Other Revenues
   Service Revenues
  29




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    $
    
    
    %Technical support
    
    $
    21,079
    
    
    
    50
    %
    
    $
    21,614
    
    
    
    43
    %
    
    $
    (535
    )
    
    
    (2
    %)
    
    $
    41,980
    
    
    
    48
    %
    
    $
    43,231
    
    
    
    40
    %
    
    $
    (1,251
    )
    
    
    (3
    %)Consulting and education
    
    
    5,523
    
    
    
    13
    %
    
    
    6,901
    
    
    
    14
    %
    
    
    (1,378
    )
    
    
    (20
    %)
    
    
    12,144
    
    
    
    14
    %
    
    
    14,790
    
    
    
    14
    %
    
    
    (2,646
    )
    
    
    (18
    %)Total services revenues
    
    $
    26,602
    
    
    
    64
    %
    
    $
    28,515
    
    
    
    57
    %
    
    $
    (1,913
    )
    
    
    (7
    %)
    
    $
    54,124
    
    
    
    62
    %
    
    $
    58,021
    
    
    
    54
    %
    
    $
    (3,897
    )
    
    
    (7
    %)
    International Revenues
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %United States
    
    $
    20,308
    
    
    $
    24,206
    
    
    $
    (3,898
    )
    
    
    (16
    %)
    
    $
    39,739
    
    
    $
    52,874
    
    
    $
    (13,135
    )
    
    
    (25
    %)Japan
    
    
    2,386
    
    
    
    3,675
    
    
    
    (1,289
    )
    
    
    (35
    %)
    
    
    10,752
    
    
    
    6,137
    
    
    
    4,615
    
    
    
    75
    %Germany
    
    
    4,361
    
    
    
    4,038
    
    
    
    323
    
    
    
    8
    %
    
    
    7,753
    
    
    
    11,138
    
    
    
    (3,385
    )
    
    
    (30
    %)All other countries
    
    
    14,812
    
    
    
    17,904
    
    
    
    (3,092
    )
    
    
    (17
    %)
    
    
    29,682
    
    
    
    36,602
    
    
    
    (6,920
    )
    
    
    (19
    %)Total revenues
    
    $
    41,867
    
    
    $
    49,823
    
    
    $
    (7,956
    )
    
    
    (16
    %)
    
    $
    87,926
    
    
    $
    106,751
    
    
    $
    (18,825
    )
    
    
    (18
    %)
  30




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##### Table of Contents



Regional Revenues
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %Americas
    
    $
    24,801
    
    
    $
    28,684
    
    
    $
    (3,883
    )
    
    
    (14
    %)
    
    $
    49,229
    
    
    $
    63,180
    
    
    $
    (13,951
    )
    
    
    (22
    %)Europe, Middle East
and Africa
    
    
    11,875
    
    
    
    14,172
    
    
    
    (2,297
    )
    
    
    (16
    %)
    
    
    22,755
    
    
    
    31,183
    
    
    
    (8,428
    )
    
    
    (27
    %)Asia Pacific
    
    
    5,191
    
    
    
    6,967
    
    
    
    (1,776
    )
    
    
    (25
    %)
    
    
    15,942
    
    
    
    12,388
    
    
    
    3,554
    
    
    
    29
    %Total revenues
    
    $
    41,867
    
    
    $
    49,823
    
    
    $
    (7,956
    )
    
    
    (16
    %)
    
    $
    87,926
    
    
    $
    106,751
    
    
    $
    (18,825
    )
    
    
    (18
    %)
  Americas.
 EMEA.
 APAC.
 Cost
of revenues
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %Cost of license and other revenues
    
    $
    638
    
    
    $
    704
    
    
    $
    (66
    )
    
    
    (9
    %)
    
    $
    1,315
    
    
    $
    1,651
    
    
    $
    (336
    )
    
    
    (20
    %)As a percentage of license and other
revenues
    
    
    4
    %
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    4
    %
    
    
    3
    %Cost of service revenues
    
    $
    8,346
    
    
    $
    9,148
    
    
    $
    (802
    )
    
    
    (9
    %)
    
    $
    17,210
    
    
    $
    19,449
    
    
    $
    (2,239
    )
    
    
    (12
    %)As a percentage of service revenues
    
    
    31
    %
    
    
    32
    %
    
    
    
    
    
    
    
    
    
    
    32
    %
    
    
    34
    %Amortization of acquired intangibles
and other charges
    
    $
    2,101
    
    
    $
    2,119
    
    
    $
    (18
    )
    
    
    (1
    %)
    
    $
    4,201
    
    
    $
    4,238
    
    
    $
    (37
    )
    
    
    (1
    %)As a percentage of total revenues
    
    
    5
    %
    
    
    4
    %
    
    
    
    
    
    
    
    
    
    
    5
    %
    
    
    4
    %
 31




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##### Table of Contents



Cost of License and Other Revenues
  Cost of Service Revenues
  Amortization of Acquired Intangibles and Other Charges
  Operating Expenses
 Selling, General and Administrative Expenses
  Three Months Ended
    
    Six Months EndedJune 30,
    
    Change
    
    June 30,
    
    Change2008
    
    2007
    
    $
    
    %
    
    2008
    
    2007
    
    $
    
    %Selling, general and
administrative expenses
    
    $
    26,935
    
    
    $
    38,483
    
    
    $
    (11,548
    )
    
    
    (30
    %)
    
    $
    59,996
    
    
    $
    80,313
    
    
    $
    (20,317
    )
    
    
    (25
    %)As a percentage of total revenues
    
    
    64
    %
    
    
    77
    %
    
    
    
    
    
    
    
    
    
    
    68
    %
    
    
    75
    %
   32




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##### Table of Contents



Research
and Development Expenses
  Three Months Ended
    
    Six Months EndedJune 30,
    
    Change
    
    June 30,
    
    Change2008
    
    2007
    
    $
    
    %
    
    2008
    
    2007
    
    $
    
    %Research and development expenses
    
    $
    11,653
    
    
    $
    9,535
    
    
    $
    2,118
    
    
    
    22
    %
    
    $
    23,437
    
    
    $
    21,001
    
    
    $
    2,436
    
    
    
    12
    %As a percentage of total revenues
    
    
    28
    %
    
    
    19
    %
    
    
    
    
    
    
    
    
    
    
    27
    %
    
    
    20
    %
  Restructuring, Amortization of Other Intangibles, and Acquisition-Related Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %Restructuring
    
    $
    58
    
    
    $
    772
    
    
    $
    (714
    )
    
    
    (92
    %)
    
    $
    1,307
    
    
    $
    772
    
    
    $
    535
    
    
    
    69
    %Amortization of other intangibles
    
    
    138
    
    
    
    99
    
    
    
    39
    
    
    
    39
    %
    
    
    280
    
    
    
    258
    
    
    
    22
    
    
    
    9
    %Acquisition-related expenses
    
    
    72
    
    
    
    776
    
    
    
    (704
    )
    
    
    (91
    %)
    
    
    144
    
    
    
    1,482
    
    
    
    (1,338
    )
    
    
    (90
    %)Total
    
    $
    268
    
    
    $
    1,647
    
    
    $
    (1,379
    )
    
    
    (84
    %)
    
    $
    1,731
    
    
    $
    2,512
    
    
    $
    (781
    )
    
    
    (31
    %)As a percentage of total revenues
    
    
    1
    %
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    2
    %
 Restructuring:
 FY 2007 Restructuring
    
    
    FY 2006 RestructuringQuarter 4 Plan
    
    
    Quarter 2 PlanSeverance,
    
    
    
    
    
    
    Severance,
    
    
    Severance,Benefits and Other
    
    
    Facilities (1)
    
    
    Benefits and Other
    
    
    Benefits and Other
    
    
    Facilities (1)
    
    
    TotalAccrual at December 31, 2007
    
    $
    3,737
    
    
    $
    4,800
    
    
    $
    328
    
    
    $
    179
    
    
    $
    6,294
    
    
    $
    15,338Additional accruals
    
    
    1,492
    
    
    
    104
    
    
    
    21
    
    
    
    37
    
    
    
    84
    
    
    
    1,738Cash paid
    
    
    (2,191
    )
    
    
    (728
    )
    
    
    (213
    )
    
    
    (216
    )
    
    
    (935
    )
    
    
    (4,283
    )Reversal of previous restructuring
    
    
    
    
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    (94
    )Accrual at March 31, 2008
    
    $
    3,038
    
    
    $
    4,176
    
    
    $
    42
    
    
    $
    
    
    
    $
    5,443
    
    
    $
    12,699Additional accruals
    
    
    62
    
    
    
    363
    
    
    
    44
    
    
    
    
    
    
    
    78
    
    
    
    547Reclassification of related
deferred rent liabilities
    
    
    
    
    
    
    701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701Reclassification to discontinued
operations
    
    
    (473
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,340
    )
    
    
    (5,813
    )Cash paid
    
    
    (873
    )
    
    
    (1,863
    )
    
    
    (59
    )
    
    
    
    
    
    
    (120
    )
    
    
    (2,915
    )Reversal of previous restructuring
    
    
    (524
    )
    
    
    54
    
    
    
    (27
    )
    
    
    
    
    
    
    (17
    )
    
    
    (514
    )Accrual at June 30, 2008
    
    $
    1,230
    
    
    $
    3,431
    
    
    $
    
    
    
    $
    
    
    
    $
    44
    
    
    $
    4,705
 
 (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. 33




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##### Table of Contents



Amortization of other intangibles.
 Acquisition-related expenses.
 Interest Income, Interest Expense and Other Expense, net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %Interest income
    
    $
    1,426
    
    
    $
    2,472
    
    
    $
    (1,046
    )
    
    
    (42
    %)
    
    $
    3,178
    
    
    $
    4,138
    
    
    $
    (960
    )
    
    
    (23
    %)Interest expense
    
    
    (1,755
    )
    
    
    (1,579
    )
    
    
    (176
    )
    
    
    11
    %
    
    
    (3,494
    )
    
    
    (2,464
    )
    
    
    (1,030
    )
    
    
    42
    %Gain on debt repurchase
    
    
    5,646
    
    
    
    
    
    
    
    5,646
    
    
    
    
    
    
    
    5,646
    
    
    
    
    
    
    
    5,646
    
    
    
    Other expense, net
    
    
    (923
    )
    
    
    (344
    )
    
    
    (579
    )
    
    
    168
    %
    
    
    (341
    )
    
    
    (582
    )
    
    
    241
    
    
    
    (41
    %)Total
    
    $
    4,394
    
    
    $
    549
    
    
    $
    3,845
    
    
    
    700
    %
    
    $
    4,989
    
    
    $
    1,092
    
    
    $
    3,897
    
    
    
    357
    %As a percentage of total revenues
    
    
    10
    %
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    6
    %
    
    
    1
    %
  Income Taxes
  Three Months Ended
    
    Six Months EndedJune 30,
    
    Change
    
    June 30,
    
    Change2008
    
    2007
    
    $
    
    %
    
    2008
    
    2007
    
    $
    
    %Income tax provision
    
    $
    959
    
    
    $
    874
    
    
    $
    85
    
    
    
    10
    %
    
    $
    2,233
    
    
    $
    1,657
    
    
    $
    576
    
    
    
    35
    %As a percentage of total revenues
    
    
    2
    %
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    3
    %
    
    
    2
    %
   34




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##### Table of Contents



Liquidity and Capital Resources
 Six Months EndedJune 30,2008
    
    
    2007(in thousands)Net cash provided by (used in):Operating activities
    
    $
    (8,469
    )
    
    $
    (13,897
    )Investing activities
    
    
    25,692
    
    
    
    (2,658
    )Financing activities
    
    
    (14,526
    )
    
    
    165,254Effect of exchange rate changes on cash
    
    
    3,594
    
    
    
    607Net change in cash and cash equivalents
    
    $
    6,291
    
    
    $
    149,306
 Net cash used in operating activities.
 Net cash provided by (used in) investing activities.
 Net cash used by (provided by) financing activities.
 Currency.
 Contractual Obligations and Off-Balance Sheet Arrangements
 Leases and Long Term Debt Obligations.
 35




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##### Table of Contents



Payment due by period2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2013 and(6 months)
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    thereafter
    
    
    TotalOperating leases
    
    $
    3,503
    
    
    $
    5,747
    
    
    $
    4,820
    
    
    $
    3,957
    
    
    $
    3,482
    
    
    $
    14,149
    
    
    $
    35,658Restructured operating leases
    
    
    3,862
    
    
    
    7,413
    
    
    
    3,077
    
    
    
    1,759
    
    
    
    1,807
    
    
    
    1,231
    
    
    
    19,149Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,100
    
    
    
    
    
    
    
    179,100Interest
payments (a)
    
    
    2,463
    
    
    
    4,925
    
    
    
    4,925
    
    
    
    4,925
    
    
    
    602
    
    
    
    
    
    
    
    17,840Gross commitments
    
    
    9,828
    
    
    
    18,085
    
    
    
    12,822
    
    
    
    10,641
    
    
    
    184,991
    
    
    
    15,380
    
    
    
    251,747Sublease rental income
    
    
    (713
    )
    
    
    (1,425
    )
    
    
    (384
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,522
    )Net commitments
    
    $
    9,115
    
    
    $
    16,660
    
    
    $
    12,438
    
    
    $
    10,641
    
    
    $
    184,991
    
    
    $
    15,380
    
    
    $
    249,225
 
 (a)
    
    The interest payments in the above table were based on a
fixed rate of 2.75%.    FIN 48 Liability.
 Indemnification Obligations and Guarantees.
 Off-Balance Sheet Arrangements.
 Critical Accounting Policies and Estimates
   36




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##### Table of Contents



Effect of New Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
    Interest Rate Risk
  Short-term investments
 37




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##### Table of Contents



Long-term
investments.
 Credit Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Our Disclosure Controls and Procedures
   Reclassification and Correction of Previously Issued Financial Statements
  Changes in Internal Control over Financial Reporting
  38




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Accounting for Contingencies
  
 ITEM 1A. RISK FACTORS
  Risks Relating to Our Business
 We have limited experience in the enterprise market for application lifecycle management, or ALM,
software solutions. 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. *
   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.
  39




---



##### Table of Contents



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.
   40




---



##### Table of Contents



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 undergone significant changes to our financial reporting and accounting team and
systems and are still in the process of making changes to these systems in international regions,
which may impact our ability to comply with our financial reporting and accounting obligations.
  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.
  41




---



##### Table of Contents



Our common stock has declined over the past year. If our stock price does not increase, we may not
attract as many investors. In addition, if our stock price declines further, we could fail to meet
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, which 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.
   42




---



##### Table of Contents



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. *
  43




---



##### Table of Contents



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.
  44




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##### Table of Contents



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.
  45




---



##### Table of Contents



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 Notes will dilute the ownership interests of existing stockholders.
    46




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##### Table of Contents



Under the terms of the Notes, 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
    
    otherwise adversely affect the market price of our common stock.
  47




---



##### Table of Contents



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 SECURITIES
  48




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##### Table of Contents



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 June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    59,332April 1, 2008 -
April 30, 2008 (2)
    
    
    2,393
    
    
    $
    1.56
    
    
    
    
    
    
    
    May 1, 2008 -
May 31, 2008 (2)
    
    
    5,951
    
    
    $
    1.52
    
    
    
    
    
    
    
    June 1, 2008 -
June 30, 2008 (2)
    
    
    1,653
    
    
    $
    1.23
    
    
    
    
    
    
    
    Total shares repurchased
    
    
    9,997
    
    
    $
    1.48
    
    
    
    
    
    
    $
    59,332Ending dollar value available
to be repurchased under
the Discretionary Program
as of June 30, 2008 (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 six months ended June 30, 2008.(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. ISSUER REPURCHASES OF CONVERTIBLE SENIOR NOTES
  Total number of
    
    Maximum number (orAverage
    
    shares (or units)
    
    approximate dollarprice paid
    
    purchased as part of
    
    value) of shares (orTotal number of
    
    per share
    
    publicly announced
    
    units) that may yet beshares (or units)
    
    (or unit)
    
    plans or programs
    
    purchased under thePeriod
    
    purchased (a)
    
    (b)
    
    (c)
    
    plans or programs (c)April 1, 2008 - April 30, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    May 1, 2008 - May 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2008 - June 30, 2008
    
    
    20,900,000
    
    
    
    707.50
    
    
    
    20,900,000
    
    
    
    20,900,000Total
    
    $
    20,900,000
    
    
    $
    707.50
    
    
    $
    20,900,000
    
    
    $
    20,900,000
 
 (a)
    
    Notes in the aggregate principal amount of $20,900,000 were repurchased by the
Company.(b)
    
    The price the Company paid for the repurchase of the Notes was $707.50 per every
$1,000 of Notes repurchased.(c)
    
    The Company used approximately $14.8 million of available cash to repurchase the
Notes.  The Board authorized the Company to use up to $15.0 million for the repurchase. 49




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (1)
    
    Provide authority to the Companys Board of Directors to implement a reverse stock split
between the range of 1:2 to 1:5.
 Votes For
    
    Votes Against
    
    Abstentions33,047,009
    
    29,820,908
    
    60,836
  (2)
    
    The following individuals were elected to serve as directors on our Board of Directors:
 Nominee:
    
    Votes For
    
    Votes WithheldTod Nielsen
    
    
    59,277,487
    
    
    
    3,651,266John F. Olsen
    
    
    59,077,084
    
    
    
    3,851,669Charles F. Kane
    
    
    59,206,719
    
    
    
    3,722,034William K. Hooper
    
    
    59,059,506
    
    
    
    3,869,247Bryan LeBlanc
    
    
    59,245,281
    
    
    
    3,683,472T. Michael Nevens
    
    
    59,068,373
    
    
    
    3,860,380Robert Tarkoff
    
    
    59,237,575
    
    
    
    3,691,178
  (3)
    
    Ratification of the selection of KPMG as our independent registered public accounting firm
for the fiscal year ending December 31, 2008.
 Votes For
    
    Votes Against
    
    Abstentions61,740,790
    
    718,531
    
    419,436
  
 ITEM 5. OTHER INFORMATION
  50




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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.  51




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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) 52




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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. 53