##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549


FORM 10-Q





þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 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. MO-PAC 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




o þ o o




o þ












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##### 



BORLAND SOFTWARE CORPORATION FORM 10-Q
 TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31,
2008 and 2007
    
    
    4Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2008 and 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    47Signatures
    
    
    48EXHIBIT 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)
 March 31, 2008
    
    
    December 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    86,542
    
    
    $
    90,805Short-term investments
    
    
    83,756
    
    
    
    68,061Accounts receivable, net of allowances of $5,508 and
$6,096, respectively
    
    
    48,898
    
    
    
    54,640Prepaid expenses
    
    
    8,728
    
    
    
    9,207Other current assets
    
    
    5,755
    
    
    
    5,106Total current assets
    
    
    233,679
    
    
    
    227,819Property and equipment, net
    
    
    9,322
    
    
    
    9,996Goodwill
    
    
    214,119
    
    
    
    226,688Intangible assets, net
    
    
    31,268
    
    
    
    31,658Long-term investments
    
    
    20,783
    
    
    
    37,970Other non-current assets
    
    
    9,615
    
    
    
    9,886Total assets
    
    $
    518,786
    
    
    $
    544,017LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,940
    
    
    $
    7,622Accrued expenses
    
    
    29,863
    
    
    
    31,605Short-term restructuring
    
    
    8,558
    
    
    
    9,867Income taxes payable
    
    
    2,958
    
    
    
    2,315Deferred revenue
    
    
    50,436
    
    
    
    51,390Other current liabilities
    
    
    6,173
    
    
    
    7,575Total current liabilities
    
    
    103,928
    
    
    
    110,374Convertible senior notes
    
    
    200,000
    
    
    
    200,000Long-term restructuring
    
    
    4,493
    
    
    
    5,823Long-term deferred revenue
    
    
    2,156
    
    
    
    1,774Other long-term liabilities
    
    
    25,134
    
    
    
    23,976Total liabilities
    
    
    335,711
    
    
    
    341,947Stockholders 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: 94,119,587 issued and 72,960,607
outstanding; 2007: 94,134,952 issued and 72,975,972
outstanding)
    
    
    730
    
    
    
    730Additional paid-in capital
    
    
    668,460
    
    
    
    666,910Accumulated deficit
    
    
    (357,812
    )
    
    
    (335,478
    )Cumulative other comprehensive income
    
    
    12,106
    
    
    
    10,317323,484
    
    
    
    342,479Treasury stock at cost, (2008 and 2007: 21,158,980 shares)
    
    
    (140,409
    )
    
    
    (140,409
    )Total stockholders equity
    
    
    183,075
    
    
    
    202,070Total liabilities and stockholders equity
    
    $
    518,786
    
    
    $
    544,017
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007License and other revenues
    
    $
    27,820
    
    
    $
    37,162Service revenues
    
    
    30,454
    
    
    
    33,804Total revenues
    
    
    58,274
    
    
    
    70,966Costs of revenues:Cost of license and other revenues
    
    
    1,296
    
    
    
    1,706Cost of service revenues
    
    
    9,142
    
    
    
    11,237Amortization of acquired intangibles and other charges
    
    
    2,100
    
    
    
    2,119Cost of revenues
    
    
    12,538
    
    
    
    15,062Gross profit
    
    
    45,736
    
    
    
    55,904Selling, general and administrative
    
    
    36,746
    
    
    
    47,831Research and development
    
    
    15,689
    
    
    
    15,924Restructuring, amortization of other intangibles, acquisition-related expenses and other
charges
    
    
    1,472
    
    
    
    874Impairment of goodwill
    
    
    13,300
    
    
    
    Total operating expenses
    
    
    67,207
    
    
    
    64,629Operating loss
    
    
    (21,471
    )
    
    
    (8,725
    )Interest income
    
    
    1,755
    
    
    
    1,669Interest expense
    
    
    (1,660
    )
    
    
    (885
    )Other income
(expense), net
    
    
    558
    
    
    
    (257
    )Loss before income taxes
    
    
    (20,818
    )
    
    
    (8,198
    )Income tax provision
    
    
    1,516
    
    
    
    1,020Net loss
    
    $
    (22,334
    )
    
    $
    (9,218
    )Net loss per share:Net loss per share  basic and diluted
    
    $
    (0.31
    )
    
    $
    (0.12
    )Shares used in computing basic and diluted loss per share
    
    
    72,751
    
    
    
    74,395
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Net loss
    
    $
    (22,334
    )
    
    $
    (9,218
    )Other comprehensive income:Foreign currency translation adjustments
    
    
    1,869
    
    
    
    (586
    )Fair market value adjustment for
available-for-sale securities, net of
tax
    
    
    (80
    )
    
    
    Comprehensive loss
    
    $
    (20,545
    )
    
    $
    (9,804
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Three Months Ended March 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (22,334
    )
    
    $
    (9,218
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    3,493
    
    
    
    4,109Stock-based compensation
    
    
    1,579
    
    
    
    1,230Provision for accounts receivable allowances
    
    
    (250
    )
    
    
    59Impairment of goodwill
    
    
    13,300
    
    
    
    Loss on sale of subsidiary
    
    
    
    
    
    
    226Write-off of fixed assets
    
    
    4
    
    
    
    304Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    3,741
    
    
    
    754Prepaid expenses and other assets
    
    
    (718
    )
    
    
    (6,975
    )Accounts payable and accrued expenses
    
    
    (3,399
    )
    
    
    (4,223
    )Income taxes payable
    
    
    506
    
    
    
    204Restructuring
    
    
    (2,394
    )
    
    
    (4,185
    )Deferred revenues
    
    
    824
    
    
    
    52Other liabilities
    
    
    375
    
    
    
    8,176Cash used in operating activities
    
    
    (5,273
    )
    
    
    (9,487
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (570
    )
    
    
    (1,253
    )Acquisition of Simunication, net of cash acquired
    
    
    (1,970
    )
    
    
    Proceeds from sale of subsidiary
    
    
    
    
    
    
    178Sales of long-term investments
    
    
    8,101
    
    
    
    Purchases of
short-term investments
    
    
    (26,600
    )
    
    
    Sales and maturities of short-term investments
    
    
    19,991
    
    
    
    Cash used in investing activities
    
    
    (1,048
    )
    
    
    (1,075
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of convertible senior notes, net
    
    
    
    
    
    
    194,230Proceeds from issuance of stock options, net
    
    
    
    
    
    
    220Repurchase of common stock and others
    
    
    (29
    )
    
    
    (29,941
    )Cash provided by (used in) financing activities
    
    
    (29
    )
    
    
    164,509Effect of exchange rate changes on cash
    
    
    2,087
    
    
    
    (333
    )Net change in cash and cash equivalents
    
    
    (4,263
    )
    
    
    153,614Beginning cash and cash equivalents
    
    
    90,805
    
    
    
    55,317Ending cash and cash equivalents
    
    $
    86,542
    
    
    $
    208,931
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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BORLAND SOFTWARE CORPORATION
 
 Notes to Condensed Consolidated Financial Statements (unaudited)
 NOTE 1. DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
 Description of the Company
  Basis of Presentation
  Estimates and Assumptions
  Reclassifications
  NOTE 2. STOCK-BASED COMPENSATION
 Share-Based Payment
 Stock-Based Compensation Expense
  Three Months EndedMarch 31,2008
    
    
    2007In ThousandsCost of sales
    
    $
    24
    
    
    $
    42Research and development
    
    
    358
    
    
    
    340Selling, general and administrative
    
    
    1,197
    
    
    
    848Stock-based compensation expense
    
    $
    1,579
    
    
    $
    1,230
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 Stock Options
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic Value(In Thousands)
    
    
    Price
    
    
    Term (Years)
    
    
    (In Thousands)Outstanding at December 31, 2007
    
    
    12,610
    
    
    $
    7.38Granted
    
    
    92
    
    
    $
    2.38Forfeited/expired
    
    
    (769
    )
    
    $
    7.49Outstanding at March 31, 2008
    
    
    11,933
    
    
    $
    7.33
    
    
    
    6.26
    
    
    $
    Vested and expected to vest at March 31, 2008
    
    
    10,251
    
    
    $
    7.61
    
    
    
    5.88
    
    
    $
    Exercisable at March 31, 2008
    
    
    7,135
    
    
    $
    8.48
    
    
    
    4.67
    
    
    $
    
   Options Outstanding
    
    
    Options ExercisableWeighted-Number
    
    
    Average
    
    
    Weighted-
    
    
    
    
    
    
    Number
    
    
    Weighted-Outstanding at
    
    
    Remaining
    
    
    Average
    
    
    Aggregate
    
    
    Exercisable at
    
    
    AverageMarch 31, 2008
    
    
    Contractual
    
    
    Exercise
    
    
    Intrinsic Value
    
    
    March 31, 2008
    
    
    Exercise(In Thousands)
    
    
    Life
    
    
    Price
    
    
    (In Thousands)
    
    
    (In thousands)
    
    
    Price$2.00 - $5.29
    
    
    2,412
    
    
    
    8.15
    
    
    $
    4.97
    
    
    
    
    
    
    
    886
    
    
    $
    5.14$5.31 - $5.73
    
    
    2,554
    
    
    
    4.96
    
    
    $
    5.56
    
    
    
    
    
    
    
    1,927
    
    
    $
    5.58$5.75 - $6.26
    
    
    2,475
    
    
    
    8.45
    
    
    $
    5.96
    
    
    
    
    
    
    
    463
    
    
    $
    5.98$6.28 - $8.43
    
    
    2,427
    
    
    
    6.52
    
    
    $
    6.93
    
    
    
    
    
    
    
    1,794
    
    
    $
    7.11$8.58 - $714.22
    
    
    2,065
    
    
    
    2.74
    
    
    $
    14.39
    
    
    
    
    
    
    
    2,065
    
    
    $
    14.39Outstanding at March 31, 2008
    
    
    11,933
    
    
    
    6.26
    
    
    $
    7.33
    
    
    $
    
    
    
    
    7,135
    
    
    $
    8.48Vested and expected to vest at March 31, 2008
    
    
    10,251
    
    
    
    5.88
    
    
    $
    7.61
    
    
    $
    
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
  Three Months EndedMarch 31,2008
    
    2007Expected life
    
    4.66 years
    
    4.84 yearsRisk-free interest rate
    
    
    2.46
    %
    
    
    4.50
    %Volatility
    
    
    48.5
    %
    
    
    41.1
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
 Restricted Stock
  Unvested
    
    
    WeightedRestricted
    
    
    AverageStock
    
    
    Grant DateOutstanding
    
    
    Fair(In Thousands)
    
    
    ValueBalance at December 31, 2007
    
    
    255
    
    
    $
    6.14Vested
    
    
    (99
    )
    
    $
    6.14Forfeited
    
    
    (4
    )
    
    $
    9.79Balance at March 31, 2008
    
    
    152
    
    
    $
    6.03
  Employee Stock Purchase Plan
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 NOTE 3. NET INCOME (LOSS) PER SHARE
 Earnings per Share
  Three Months EndedMarch 31,2008
    
    
    2007Numerator:Net loss
    
    $
    (22,334
    )
    
    $
    (9,218
    )Denominator:Weighted-average shares outstanding, excluding unvested restricted stock
    
    
    72,751
    
    
    
    74,395Effect of dilutive securities:Employee stock options, restricted stock awards and ESPP shares
    
    
    
    
    
    
    Denominator for diluted net loss per share-weighted-average shares and assumed conversions
    
    
    72,751
    
    
    
    74,395Net loss per share attributable to common stockholders:Net loss per share-basic and diluted
    
    $
    (0.31
    )
    
    $
    (0.12
    )
  NOTE 4. SENIOR NOTES OFFERING
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 Conversion Process and Other Terms of the Convertible Senior Notes
   Accounting for Derivative Instruments and Hedging Activities Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios Application
of Issue 98-5 to Certain Convertible Instruments
  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
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 NOTE 5. INVESTMENTS IN MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS
  March 31, 2008Gross Amortized
    
    
    Gross Unrealized
    
    
    Gross Unrealized
    
    
    Estimated FairCosts
    
    
    Gains
    
    
    Loss
    
    
    ValueCorporate debt securities
    
    $
    43,652
    
    
    $
    27
    
    
    $
    (539
    )
    
    $
    43,140U.S. government debt
securities
    
    
    34,169
    
    
    
    207
    
    
    
    
    
    
    
    34,376Asset-backed securities
    
    
    26,784
    
    
    
    266
    
    
    
    (27
    )
    
    
    27,023$
    104,605
    
    
    $
    500
    
    
    $
    (566
    )
    
    $
    104,539
  March 31, 2008Gross Amortized
    
    
    Estimated FairDue in
    
    Costs
    
    
    ValueLess than one year
    
    $
    83,579
    
    
    $
    83,7561 thru 5 years
    
    
    21,026
    
    
    
    20,783After 5 years
    
    
    
    
    
    
    Total
    
    $
    104,605
    
    
    $
    104,539
  March 31, 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
    
    $
    27,095
    
    
    $
    (269
    )
    
    $
    16,045
    
    
    $
    (270
    )
    
    $
    43,140
    
    
    $
    (539
    )U.S. government debt 
securities
    
    
    34,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,376
    
    
    
    Asset-backed securities
    
    
    22,285
    
    
    
    
    
    
    
    4,738
    
    
    
    (27
    )
    
    
    27,023
    
    
    
    (27
    )$
    83,756
    
    
    $
    (269
    )
    
    $
    20,783
    
    
    $
    (297
    )
    
    $
    104,539
    
    
    $
    (566
    )
 Fair Value Measurements
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 i.e.
  
    
    Level 1  Valuations are based on quoted prices in active markets for identical
assets or liabilities, and readily accessible by the Company at the reporting date.Examples of assets and liabilities utilizing Level 1 inputs are: most U.S. Government
securities; certain other sovereign government obligations; and exchange-traded equity
securities and listed derivatives 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
    
    March 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Money market funds
    
    $
    31,128
    
    
    $
    31,128
    
    
    $
    
    
    
    $
    Corporate debt securities
    
    
    43,140
    
    
    
    
    
    
    
    43,140
    
    
    
    U.S. government debt
securities
    
    
    34,376
    
    
    
    
    
    
    
    34,376
    
    
    
    Asset-backed securities
    
    
    27,023
    
    
    
    
    
    
    
    27,023
    
    
    
    $
    135,667
    
    
    $
    31,128
    
    
    $
    104,539
    
    
    $
    
 NOTE 6. ACQUISITIONS
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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
    NOTE 7. GOODWILL AND INTANGIBLE ASSETS
  GoodwillEnterprise
    
    
    CodeGear
    
    
    ConsolidatedBalance as of December 31, 2007
    
    $
    185,857
    
    
    
    40,831
    
    
    $
    226,688Impairment of goodwill
    
    
    
    
    
    
    (13,300
    )
    
    
    (13,300
    )Acquisitions
    
    
    502
    
    
    
    
    
    
    
    502Effect of exchange rates
    
    
    229
    
    
    
    
    
    
    
    229Balance as of March 31, 2008
    
    $
    186,588
    
    
    $
    27,531
    
    
    $
    214,119
  14




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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 Acquired
    
    
    
    
    
    
    TradenamesDeveloped
    
    
    Maintenance
    
    
    and
    
    
    CustomerTechnology
    
    
    Agreements
    
    
    Trademarks
    
    
    Relationships
    
    
    Others
    
    
    TotalEstimated Useful Lives
    
    3-7 years
    
    7 years
    
    4 years
    
    7 years
    
    1-3 yearsGross Carrying AmountAs of December 31, 2007
    
    $
    46,330
    
    
    $
    11,300
    
    
    $
    1,100
    
    
    $
    9,075
    
    
    $
    400
    
    
    $
    68,205Acquisitions
    
    
    1,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    1,844As of March 31, 2008
    
    
    48,149
    
    
    
    11,300
    
    
    
    1,100
    
    
    
    9,075
    
    
    
    425
    
    
    
    70,049Accumulated AmortizationAs of December 31, 2007
    
    
    (30,187
    )
    
    
    (2,735
    )
    
    
    (499
    )
    
    
    (2,726
    )
    
    
    (400
    )
    
    
    (36,547
    )Current Period Amortization
    
    
    (1,419
    )
    
    
    (404
    )
    
    
    (71
    )
    
    
    (338
    )
    
    
    (2
    )
    
    
    (2,234
    )As of March 31, 2008
    
    
    (31,606
    )
    
    
    (3,139
    )
    
    
    (570
    )
    
    
    (3,064
    )
    
    
    (402
    )
    
    
    (38,781
    )Net Carrying Amount as of
March 31, 2008
    
    $
    16,543
    
    
    $
    8,161
    
    
    $
    530
    
    
    $
    6,011
    
    
    $
    23
    
    
    $
    31,268
  FutureAmortization2008 (9 months)
    
    $
    6,4992009
    
    
    7,5842010
    
    
    6,7342011
    
    
    5,5322012
    
    
    3,578Thereafter
    
    
    1,341Total
    
    $
    31,268
 NOTE 8. RESTRUCTURING
 Accounting for Costs Associated with Exit or Disposal Activities Employers
Accounting for Postemployment Benefitsan amendment of FASB Statement No. 5 and 43, Restructuring and Impairment Charges,
 Summary of Restructuring Activity for the First Quarter of 2008.
  15




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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 FY 2007 Restructuring
    
    
    FY 2006 RestructuringQuarter 4 Plan
    
    
    Quarter 2 PlanSeverance,
    
    
    
    
    
    
    Severance,
    
    
    Severance,Benefits and Other
    
    
    Facilities
    
    
    Benefits and Other
    
    
    Benefits and Other
    
    
    Facilities
    
    
    TotalAccrual at December 31, 2007
    
    $
    3,737
    
    
    $
    5,152
    
    
    $
    328
    
    
    $
    179
    
    
    $
    6,294
    
    
    $
    15,690Additional 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
    
    
    $
    4,528
    
    
    $
    42
    
    
    $
    
    
    
    $
    5,443
    
    
    $
    13,051
 FY 2007 4th Quarter Restructuring
   FY 2007 2 nd Quarter Restructuring
   FY 2006 Restructuring
    16




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 NOTE 9. INCOME TAXES
    NOTE 10. STOCK REPURCHASES
  Discretionary Repurchase Program
  Repurchase Following Senior Notes Offering
  NOTE 11. COMMITMENTS AND CONTINGENCIES
 Indemnification Obligations and Guarantees
 Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others.
   17




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
     Leases and Long Term Debt Obligations
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanYear
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalOperating leases
    
    $
    6,189
    
    
    $
    16,202
    
    
    $
    5,176
    
    
    $
    8,746
    
    
    $
    36,313Restructured operating leases
    
    
    6,041
    
    
    
    14,682
    
    
    
    4,663
    
    
    
    3
    
    
    
    25,389Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    200,000Capital lease
    
    
    39
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    145Gross commitments
    
    
    12,269
    
    
    
    30,990
    
    
    
    209,839
    
    
    
    8,749
    
    
    
    261,847Sublease income
    
    
    (1,727
    )
    
    
    (6,110
    )
    
    
    (3,334
    )
    
    
    
    
    
    
    (11,171
    )Net commitments
    
    $
    10,542
    
    
    $
    24,880
    
    
    $
    206,505
    
    
    $
    8,749
    
    
    $
    250,676
  18




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
   Litigation
 Accounting for
Contingencies
  Service Commitments
  NOTE 12. REPORTABLE SEGMENTS
 Disclosures about Segments of an Enterprise and Related Information
 Description of Segments
  Enterprise.
 19




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 CodeGear.
 Segment Data
   Three Months EndedMarch 31,2008
    
    
    2007Enterprise
    
    
    CodeGear
    
    
    Total
    
    
    Enterprise
    
    
    CodeGear
    
    
    TotalLicense and other revenues
    
    $
    18,537
    
    
    $
    9,283
    
    
    $
    27,820
    
    
    $
    27,422
    
    
    $
    9,740
    
    
    $
    37,162Service revenues
    
    
    27,521
    
    
    
    2,933
    
    
    
    30,454
    
    
    
    29,506
    
    
    
    4,298
    
    
    
    33,804Total revenues
    
    $
    46,058
    
    
    $
    12,216
    
    
    $
    58,274
    
    
    $
    56,928
    
    
    $
    14,038
    
    
    $
    70,966Operating income (loss)
    
    $
    (11,010
    )
    
    $
    (10,461
    )
    
    $
    (21,471
    )
    
    $
    (10,604
    )
    
    $
    1,879
    
    
    $
    (8,725
    )
  March 31, 2008
    
    
    December 31, 2007Enterprise
    
    
    CodeGear
    
    
    Total
    
    
    Enterprise
    
    
    CodeGear
    
    
    TotalLong-lived assets:Goodwill
    
    $
    186,588
    
    
    $
    27,531
    
    
    $
    214,119
    
    
    $
    185,857
    
    
    $
    40,831
    
    
    $
    226,688Other non-current assets
    
    
    70,398
    
    
    
    590
    
    
    
    70,988
    
    
    
    88,969
    
    
    
    541
    
    
    
    89,510Non-current assets
    
    
    256,986
    
    
    
    28,121
    
    
    
    285,107
    
    
    
    274,826
    
    
    
    41,372
    
    
    
    316,198Total assets
    
    $
    492,051
    
    
    $
    26,735
    
    
    $
    518,786
    
    
    $
    494,889
    
    
    $
    49,128
    
    
    $
    544,017
 Enterprise-wide disclosures
  20




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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007In ThousandsTotal revenues from unaffiliated customers:Americas
    
    $
    28,537
    
    
    $
    39,555EMEA
    
    
    16,369
    
    
    
    23,460Asia Pacific
    
    
    13,368
    
    
    
    7,951Total revenues
    
    
    58,274
    
    
    
    70,966License and other revenues
    
    $
    27,820
    
    
    $
    37,162Technical support
    
    
    23,772
    
    
    
    25,856Consulting and education services
    
    
    6,682
    
    
    
    7,948Total revenues
    
    
    58,274
    
    
    
    70,966Inter-company revenue U.S.
    
    $
    7,910
    
    
    $
    3,181Elimination of inter-company-revenues
    
    
    (7,910
    )
    
    
    (3,181
    )Reported inter-company revenues
    
    $
    
    
    
    $
    Operating income (loss):Americas
    
    $
    (26,625
    )
    
    $
    (13,656
    )EMEA
    
    
    (1,399
    )
    
    
    3,824Asia Pacific
    
    
    6,553
    
    
    
    1,107Operating loss
    
    
    (21,471
    )
    
    
    (8,725
    )Interest and other income, net
    
    
    653
    
    
    
    527Loss before income taxes
    
    $
    (20,818
    )
    
    $
    (8,198
    )
 March 31, 2008
    
    
    December 31, 2007In ThousandsLong-lived assets:Americas
    
    $
    35,801
    
    
    $
    53,559EMEA
    
    
    2,478
    
    
    
    2,621Asia Pacific
    
    
    1,469
    
    
    
    1,672Long-lived assets:
    
    
    39,748
    
    
    
    57,852Other non-current assets
    
    
    245,359
    
    
    
    258,346Non-current assets
    
    
    285,107
    
    
    
    316,198Identifiable assets:Americas
    
    $
    299,411
    
    
    $
    344,907EMEA
    
    
    32,438
    
    
    
    31,691Asia Pacific
    
    
    16,639
    
    
    
    8,553Identifiable assets:
    
    
    348,488
    
    
    
    385,151General corporate
assets (cash, cash
equivalents and
short-term
investments)
    
    
    170,298
    
    
    
    158,866Total assets
    
    $
    518,786
    
    
    $
    544,017
 21




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##### Table of Contents



BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
 NOTE 13. RECENT ACCOUNTING PRONOUNCEMENTS
   Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 Fair Value Measurements Partial Deferral of the Effective Date of Statement 157
 NOTE 14. SUBSEQUENT EVENTS
 Sale of CodeGear Assets
   New Lease Agreement
  22




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BORLAND SOFTWARE CORPORATION
 Notes to Condensed Consolidated Financial Statements  (Continued)
(unaudited)
   23




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 In this Quarterly Report on Form 10-Q , the terms the Company, we, our, and us refer to
Borland Software Corporation on a consolidated basis.
 Forward-Looking Statements
   Overview
  Enterprise
  CodeGear
 24




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##### Table of Contents



Sale of CodeGear Assets
   Acquisition of Simunication
   Summary of Key Financial Results
  
    
    Total revenues decreased 18% to $58.3 million for the three months ended March 31,
2008, from $71 million for the three months ended March 31, 2007.
    
    License and other revenues decreased 25% to $27.8 million for the three months
ended March 31, 2008, from $37.2 million for the three months ended March 31, 2007.
    
    Service revenues decreased 10% to $30.5 million for the three months ended March
31, 2008, from $33.8 million for the three months ended March 31, 2007.
    
    Gross profit as a percentage of revenue decreased to 78% for the three months ended
March 31, 2008, compared to 79% for the three months ended March 31, 2007.
    
    Operating expenses increased 4% to $67.2 million for the three months ended March
31, 2008, from $64.6 million for the three months ended March 31, 2007.
    
    Net loss was $22.3 million for the three months ended March 31, 2008, compared to
net loss of $9.2 million for the three months ended March 31, 2007.
    
    Cash, cash equivalents and short-term investments increased $11.4 million to $170.3
million as of March 31, 2008, from $158.9 million as of December 31, 2007.
 25




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##### Table of Contents



Results of Operations
  Three Months EndedMarch 31,2008
    
    
    % of Rev
    
    
    2007
    
    
    % of RevLicense and other revenues
    
    $
    27,820
    
    
    
    48
    %
    
    $
    37,162
    
    
    
    52
    %Service revenues
    
    
    30,454
    
    
    
    52
    %
    
    
    33,804
    
    
    
    48
    %Total revenues
    
    
    58,274
    
    
    
    100
    %
    
    
    70,966
    
    
    
    100
    %Cost of license and other revenues
    
    
    1,296
    
    
    
    2
    %
    
    
    1,706
    
    
    
    2
    %Cost of service revenues
    
    
    9,142
    
    
    
    16
    %
    
    
    11,237
    
    
    
    16
    %Amortization of acquired intangibles and other charges
    
    
    2,100
    
    
    
    4
    %
    
    
    2,119
    
    
    
    3
    %Total cost of revenues
    
    
    12,538
    
    
    
    22
    %
    
    
    15,062
    
    
    
    21
    %Gross profit
    
    
    45,736
    
    
    
    78
    %
    
    
    55,904
    
    
    
    79
    %Operating expenses:Selling, general and administrative
    
    
    36,746
    
    
    
    63
    %
    
    
    47,831
    
    
    
    67
    %Research and development
    
    
    15,689
    
    
    
    27
    %
    
    
    15,924
    
    
    
    22
    %Restructuring, amortization of other intangibles and acquisition related expenses and other charges
    
    
    1,472
    
    
    
    3
    %
    
    
    874
    
    
    
    1
    %Impairment of goodwill
    
    
    13,300
    
    
    
    23
    %
    
    
    
    
    
    
    0
    %Total operating expenses
    
    
    67,207
    
    
    
    115
    %
    
    
    64,629
    
    
    
    91
    %Operating loss
    
    
    (21,471
    )
    
    
    (37
    %)
    
    
    (8,725
    )
    
    
    (12
    %)Interest income
    
    
    1,755
    
    
    
    3
    %
    
    
    1,669
    
    
    
    2
    %Interest expense
    
    
    (1,660
    )
    
    
    (3
    %)
    
    
    (885
    )
    
    
    (1
    %)Other income
(expense), net
    
    
    558
    
    
    
    1
    %
    
    
    (257
    )
    
    
    (0
    %)Loss before income taxes
    
    
    (20,818
    )
    
    
    (36
    %)
    
    
    (8,198
    )
    
    
    (12
    %)Income tax provision
    
    
    1,516
    
    
    
    3
    %
    
    
    1,020
    
    
    
    1
    %Net loss
    
    $
    (22,334
    )
    
    
    (38
    %)
    
    $
    (9,218
    )
    
    
    (13
    %)
  Three Months EndedMarch 31,2008
    
    
    2007
    
    
    ChangeAmount
    
    
    % of Total
    
    
    Amount
    
    
    % of Total
    
    
    $
    
    
    %License and other revenues
    
    $
    27,820
    
    
    
    48
    %
    
    $
    37,162
    
    
    
    52
    %
    
    $
    (9,342
    )
    
    
    (25
    %)Service revenues
    
    
    30,454
    
    
    
    52
    %
    
    
    33,804
    
    
    
    48
    %
    
    
    (3,350
    )
    
    
    (10
    %)Total revenues
    
    $
    58,274
    
    
    
    100
    %
    
    $
    70,966
    
    
    
    100
    %
    
    $
    (12,692
    )
    
    
    (18
    %)
  26




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##### Table of Contents



Revenues by Product
   Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Enterprise
    
    
    CodeGear
    
    
    Enterprise
    
    
    CodeGearALM
    
    
    DPG
    
    
    IDE
    
    
    Total
    
    
    ALM
    
    
    DPG
    
    
    IDE
    
    
    TotalLicense and
other revenues
    
    $
    9,415
    
    
    $
    9,122
    
    
    $
    9,283
    
    
    $
    27,820
    
    
    $
    19,120
    
    
    $
    8,302
    
    
    $
    9,740
    
    
    $
    37,162Service revenues
    
    
    22,972
    
    
    
    4,549
    
    
    
    2,933
    
    
    
    30,454
    
    
    
    24,216
    
    
    
    5,290
    
    
    
    4,298
    
    
    
    33,804Total
    
    $
    32,387
    
    
    $
    13,671
    
    
    $
    12,216
    
    
    $
    58,274
    
    
    $
    43,336
    
    
    $
    13,592
    
    
    $
    14,038
    
    
    $
    70,966
 License and Other Revenues
  Service Revenues
   Three Months EndedMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %Technical support
    
    $
    23,772
    
    
    
    25,855
    
    
    $
    (2,083
    )
    
    
    (8
    %)Consulting and education
    
    
    6,682
    
    
    
    7,949
    
    
    $
    (1,267
    )
    
    
    (16
    %)$
    30,454
    
    
    $
    33,804
    
    
    $
    (3,350
    )
    
    
    (10
    %)
    27




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##### Table of Contents



International Revenues
  Three Months EndedMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %United States
    
    $
    22,547
    
    
    $
    32,390
    
    
    $
    (9,843
    )
    
    
    (30
    %)Japan
    
    
    9,644
    
    
    
    3,711
    
    
    
    5,933
    
    
    
    160
    %Germany
    
    
    4,755
    
    
    
    8,840
    
    
    
    (4,085
    )
    
    
    (46
    %)All other countries
    
    
    21,328
    
    
    
    26,025
    
    
    
    (4,697
    )
    
    
    (18
    %)Total revenues
    
    $
    58,274
    
    
    $
    70,966
    
    
    $
    (12,692
    )
    
    
    (18
    %)
  Regional Revenues
  Three Months EndedMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %Americas
    
    $
    28,537
    
    
    $
    39,555
    
    
    $
    (11,018
    )
    
    
    (28
    %)Europe, Middle East and Africa
    
    
    16,369
    
    
    
    23,460
    
    
    
    (7,091
    )
    
    
    (30
    %)Asia Pacific
    
    
    13,368
    
    
    
    7,951
    
    
    
    5,417
    
    
    
    68
    %Total revenues
    
    $
    58,274
    
    
    $
    70,966
    
    
    $
    (12,692
    )
    
    
    (18
    %)
  Americas.
 EMEA.
 APAC.
 28




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##### Table of Contents



Cost of
Revenues
  Three Months EndedMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %Cost of license and other revenues
    
    $
    1,296
    
    
    $
    1,706
    
    
    $
    (410
    )
    
    
    (24
    %)As a percentage of license and other revenues
    
    
    5
    %
    
    
    5
    %Cost of service revenues
    
    $
    9,142
    
    
    $
    11,237
    
    
    $
    (2,095
    )
    
    
    (19
    %)As a percentage of service revenues
    
    
    30
    %
    
    
    33
    %Amortization of acquired intangibles and other charges
    
    $
    2,100
    
    
    $
    2,119
    
    
    $
    (19
    )
    
    
    (1
    %)As a percentage of total revenues
    
    
    4
    %
    
    
    3
    %
 Cost of License and Other Revenues
  Cost of Service Revenues
  Amortization of Acquired Intangibles and Other Charges
  29




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##### Table of Contents



Operating Expenses
 Selling, General and Administrative Expenses
  Three Months EndedMarch 31,
    
    Change2008
    
    2007
    
    $
    
    %Selling, general and administrative expenses
    
    $
    36,746
    
    
    $
    47,831
    
    
    $
    (11,085
    )
    
    
    (23
    %)As a percentage of total revenues
    
    
    63
    %
    
    
    67
    %
  Research and Development Expenses
  Three Months EndedMarch 31,
    
    Change2008
    
    2007
    
    $
    
    %Research and development expenses
    
    $
    15,689
    
    
    $
    15,924
    
    
    $
    (235
    )
    
    
    (1
    %)As a percentage of total revenues
    
    
    27
    %
    
    
    22
    %
  Restructuring, Impairment of Goodwill, Amortization of Other Intangibles, and
Acquisition-Related Expenses
  Three Months EndedMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %Restructuring
    
    $
    1,258
    
    
    $
    
    
    
    $
    1,258
    
    
    
    100
    %Impairment of goodwill
    
    
    13,300
    
    
    
    
    
    
    
    13,300
    
    
    
    100
    %Amortization of other intangibles
    
    
    142
    
    
    
    159
    
    
    
    (17
    )
    
    
    (11
    %)Acquisition-related expenses
    
    
    72
    
    
    
    715
    
    
    
    (643
    )
    
    
    (90
    %)Total
    
    $
    14,772
    
    
    $
    874
    
    
    $
    13,898
    
    
    
    1590
    %As a percentage of total revenues
    
    
    25
    %
    
    
    1
    %
 30




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##### Table of Contents



Restructuring:
 FY 2007 Restructuring
    
    
    FY 2006 RestructuringQuarter 4 Plan
    
    
    Quarter 2 PlanSeverance,
    
    
    
    
    
    
    Severance,
    
    
    Severance,Benefits and Other
    
    
    Facilities
    
    
    Benefits and Other
    
    
    Benefits and Other
    
    
    Facilities
    
    
    TotalAccrual at December 31, 2007
    
    $
    3,737
    
    
    $
    5,152
    
    
    $
    328
    
    
    $
    179
    
    
    $
    6,294
    
    
    $
    15,690Additional 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
    
    
    $
    4,528
    
    
    $
    42
    
    
    $
    
    
    
    $
    5,443
    
    
    $
    13,051
  Amortization of other intangibles.
 Impairment of goodwill
 Acquisition-related expenses.
 Interest Income, Interest Expense and Other Income (Expense),
net
  Three Months EndedMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %Interest income
    
    $
    1,755
    
    
    $
    1,669
    
    
    $
    86
    
    
    
    5
    %Interest expense
    
    
    (1,660
    )
    
    
    (885
    )
    
    
    (775
    )
    
    
    88
    %Other income
(expense), net
    
    
    558
    
    
    
    (257
    )
    
    
    815
    
    
    
    (317
    %)Total
    
    $
    653
    
    
    $
    527
    
    
    $
    126
    
    
    
    24
    %As a percentage of total revenues
    
    
    1
    %
    
    
    1
    %
  31




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Income Taxes
  Three Months EndedMarch 31,

    Change2008
    
    2007

    $
    
    %Income tax provision
    
    $
    1,516
    
    
    $
    1,020
    

    $
    496
    
    
    
    49
    %As a percentage of total revenues
    
    
    3
    %
    
    
    1
    %
   Liquidity and Capital Resources
 Three Months EndedMarch 31,2008
    
    
    2007In ThousandsNet cash provided by (used for):Operating activities
    
    $
    (5,273
    )
    
    $
    (9,487
    )Investing activities
    
    
    (1,048
    )
    
    
    (1,075
    )Financing activities
    
    
    (29
    )
    
    
    164,509Effect of exchange rate changes on cash
    
    
    2,087
    
    
    
    (333
    )Net change in cash and cash equivalents
    
    
    (4,263
    )
    
    
    153,614Beginning cash and cash equivalents
    
    
    90,805
    
    
    
    55,317Ending cash and cash equivalents
    
    $
    86,542
    
    
    $
    208,931
 Cash, cash equivalents and short-term investments.
  32




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Net cash used in operating activities. th th
 Net cash used in investing activities.
 Net cash used by financing activities.
 Currency.
 Contractual Obligations and Off-Balance Sheet Arrangements
 Leases and Long Term Debt Obligations.
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years
    
    
    TotalOperating leases
    
    $
    6,189
    
    
    $
    16,202
    
    
    $
    5,176
    
    
    $
    8,746
    
    
    $
    36,313Restructured operating
    
    
    6,041
    
    
    
    14,682
    
    
    
    4,663
    
    
    
    3
    
    
    
    25,389leases
Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    200,000Capital lease
    
    
    39
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    145Gross commitments
    
    
    12,269
    
    
    
    30,990
    
    
    
    209,839
    
    
    
    8,749
    
    
    
    261,847Sublease income
    
    
    (1,727
    )
    
    
    (6,110
    )
    
    
    (3,334
    )
    
    
    
    
    
    
    (11,171
    )Net commitments
    
    $
    10,542
    
    
    $
    24,880
    
    
    $
    206,505
    
    
    $
    8,749
    
    
    $
    250,676
      33




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##### Table of Contents



FIN 48 Liability.
 Indemnification Obligations and Guarantees.
 Off-Balance Sheet Arrangements.
 Critical Accounting Estimates and Policies
      
    
    Level 1  Valuations are based on quoted prices in active markets for identical assets
or liabilities, and readily accessible by us at the reporting date.Examples of assets and liabilities utilizing Level 1 inputs are: most U.S. Government
securities; certain other sovereign government obligations; and exchange-traded equity
securities and listed derivatives 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.
 34




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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.
  Effect of New Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
    Interest Rate Risk
  35




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Short-term investments
 Long-term investments.
 Credit Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Our Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  36




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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.
  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.
  37




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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.
   38




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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.
  39




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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.
   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.
 40




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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, such as Sun Microsystems and Microsoft,
and the loss of or inability to maintain these licenses could prevent or delay sales or shipments
of certain of our products.
  Failure to 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;
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
    
    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.
  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;
 42




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
    
    product liability claims; and
    
    increased service and warranty costs.
  Third-party claims of intellectual property infringement may subject us to costly litigation or
settlement terms or limit the sales of our products.
  If we are unable to protect our intellectual property, we may lose valuable assets.
  Our debt obligations expose us to risks that could adversely affect our business, operating results
and financial condition.
  
    
    require us to dedicate a portion of our expected cash flow or our existing cash to
service our indebtedness, which would reduce the amount of our cash available for other
purposes, including working capital, capital expenditures and research and development
expenditures;
    
    make it difficult for us to incur additional debt or obtain any necessary financing in
the future for working capital, capital expenditures, debt service, acquisitions or general
corporate purposes;
    
    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
 43




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##### Table of Contents




    
    place us at a possible competitive disadvantage relative to less leveraged competitors
and competitors that have greater access to capital resources.
  Conversion of the Convertible Senior Notes will dilute the ownership interests of existing
stockholders.
    Under the terms of the 2.75% Convertible Senior Notes due 2012, events that we do not control may
trigger conversion rights that, if exercised, may have an adverse effect on our liquidity.
  Our rights plan and our ability to issue additional preferred stock could harm the rights of our
common stockholders.
   44




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
    
    adversely affect the voting power of the stockholders of our common stock;
    
    make it more difficult for a third-party to gain control of us;
    
    discourage bids for our common stock at a premium;
    
    limit or eliminate any payments the stockholders of our common stock could expect to
receive upon our liquidation; or
    
    otherwise adversely affect the market price of our common stock.
  Provisions of our certificate of incorporation and bylaws might discourage, delay or prevent a
change of control of our company or changes in our management and, therefore, depress the trading
price of our common stock.
  
    
    authorize the issuance of blank check preferred stock by our board that could increase
the number of outstanding shares and discourage a takeover attempt;
    
    limit the ability of our stockholders to call special meetings of stockholders;
    
    prohibit stockholder action by written consent, which requires all stockholder actions to
be taken at a meeting of our stockholders;
    
    provide that our board is expressly authorized to amend our bylaws, or enact such other
bylaws as in their judgment may be advisable; and
    
    establish advance notice requirements for nominations for election to our board or for
proposing matters that can be acted upon by stockholders at stockholder meetings.
  45




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 SALES
OF UNREGISTERED SECURITIES
  ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number of
    
    
    Maximum Number (orAverage
    
    
    Shares (or Units)
    
    
    Approximate Dollar Value) ofTotal Number
    
    
    Price Paid
    
    
    Purchased as Part of
    
    
    Shares (or Units) that May Yetof Shares (or Units)
    
    
    per share
    
    
    Publicly Announced
    
    
    Be Purchased Under the PlansPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    Plans or Programs
    
    
    or Programs (1)Beginning dollar value
available to be
repurchased as of
March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    59,332January 1, 2008 -
January 31, 2008 (2)
    
    
    2,817
    
    
    $
    2.71
    
    
    
    
    
    
    
    February 1, 2008 -
February 28, 2008 (2)
    
    
    6,827
    
    
    $
    2.55
    
    
    
    
    
    
    
    March 1, 2008 -
March 31, 2008 (2)
    
    
    1,653
    
    
    $
    1.92
    
    
    
    
    
    
    
    Total shares repurchased
    
    
    11,297
    
    
    $
    2.50
    
    
    
    
    
    
    $
    59,332Ending dollar value available
to be repurchased under
the Discretionary Program
as of March 31, 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 three months ended March 31, 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. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  46




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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.  47




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SIGNATURES
  BORLAND SOFTWARE CORPORATION(Registrant)/s/ ERIK E. PRUSCHErik E. Prusch Principal Financial Officer(Principal Financial Officer and Duly Authorized Officer)
 48




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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. 49