##### 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, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from:  to
 Commission File Number 0-24720
 Business Objects S.A.
  Republic of France
(State or other jurisdiction of 
incorporation or organization)
    
    98-0355777
(I.R.S. Employer
Identification No.)
 157-159 rue Anatole France, 92300 Levallois-Perret, France
 (408) 953-6000
 þ o
  þ o o
 o þ
  




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##### 



Business Objects S.A.
Index
 PagePART I.
    
    FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    35PART II.
    
    OTHER INFORMATION
    
    
    35Item 1.
    
    Legal Proceedings
    
    
    35Item 1A.
    
    Risk Factors
    
    
    39Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    55Item 5.
    
    Other Information
    
    
    56Item 6.
    
    Exhibits
    
    
    57SIGNATURES
    
    
    
    
    58EXHIBIT 3.1EXHIBIT 10.35.5EXHIBIT 10.35.6EXHIBIT 10.84EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 BUSINESS OBJECTS S.A.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except nominal value per ordinary share)
 June 30,
    
    
    December 31,2007
    
    
    2006 (1)(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    922,362
    
    
    $
    506,792Short-term investments
    
    
    6,676
    
    
    
    5,736Restricted cash
    
    
    57,892
    
    
    
    42,997Accounts receivable, net
    
    
    354,174
    
    
    
    334,387Deferred tax assets
    
    
    16,251
    
    
    
    15,189Prepaid and other current assets
    
    
    77,663
    
    
    
    59,462Total current assets
    
    
    1,435,018
    
    
    
    964,563Goodwill
    
    
    1,503,635
    
    
    
    1,266,057Other intangible assets, net
    
    
    236,715
    
    
    
    128,635Property and equipment, net
    
    
    98,634
    
    
    
    91,091Deposits and other assets
    
    
    27,050
    
    
    
    20,897Long-term restricted cash
    
    
    37,321
    
    
    
    11,131Long-term deferred tax assets
    
    
    13,593
    
    
    
    12,616Total assets
    
    $
    3,351,966
    
    
    $
    2,494,990LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    46,711
    
    
    $
    36,070Accrued payroll and related expenses
    
    
    114,234
    
    
    
    105,967Income taxes payable
    
    
    16,560
    
    
    
    96,088Deferred revenues
    
    
    336,244
    
    
    
    283,631Other current liabilities
    
    
    151,319
    
    
    
    106,776Escrows payable
    
    
    55,344
    
    
    
    34,539Total current liabilities
    
    
    720,412
    
    
    
    663,071Long-term escrows payable
    
    
    33,844
    
    
    
    7,654Convertible long-term debt
    
    
    607,635
    
    
    
    Other long-term liabilities
    
    
    9,415
    
    
    
    7,077Long-term income taxes payable
    
    
    104,941
    
    
    
    Long-term deferred tax liabilities
    
    
    48,334
    
    
    
    4,597Long-term deferred revenues
    
    
    10,404
    
    
    
    9,772Total liabilities
    
    
    1,534,985
    
    
    
    692,171Commitments and contingenciesShareholders equity:Ordinary shares, 0.10 nominal value ($0.14
at June 30, 2007and $0.13 at December 31,
2006): authorized 267,408 and 263,533; issued
96,920 and 97,424; issued and outstanding
94,436 and 94,932; respectively at June 30,
2007 and December 31, 2006
    
    
    10,643
    
    
    
    10,707Additional paid-in capital
    
    
    1,298,842
    
    
    
    1,320,993Treasury, Business Objects Option LLC, and
Employee Benefit Sub-Plan Trust shares 2,484
shares at June 30, 2007 and 2,492 shares at
December 31, 2006
    
    
    (6,919
    )
    
    
    (5,247
    )Retained earnings
    
    
    436,797
    
    
    
    417,709Accumulated other comprehensive income
    
    
    77,618
    
    
    
    58,657Total shareholders equity
    
    
    1,816,981
    
    
    
    1,802,819Total liabilities and shareholders equity
    
    $
    3,351,966
    
    
    $
    2,494,990
 
 (1)
    
    The balance sheet at December 31, 2006 has been derived from the audited consolidated
financial statements at that date.  3




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##### Table of Contents



BUSINESS OBJECTS S.A.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per ordinary share and ADS data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)
    
    
    (unaudited)Revenues:Net license fees
    
    $
    149,051
    
    
    $
    123,110
    
    
    $
    286,444
    
    
    $
    249,004Services
    
    
    214,178
    
    
    
    171,374
    
    
    
    411,128
    
    
    
    323,751Total revenues
    
    
    363,229
    
    
    
    294,484
    
    
    
    697,572
    
    
    
    572,755Cost of revenues:Net license fees
    
    
    14,485
    
    
    
    10,276
    
    
    
    25,355
    
    
    
    18,252Services
    
    
    73,896
    
    
    
    66,023
    
    
    
    142,727
    
    
    
    126,790Total cost of revenues
    
    
    88,381
    
    
    
    76,299
    
    
    
    168,082
    
    
    
    145,042Gross profit
    
    
    274,848
    
    
    
    218,185
    
    
    
    529,490
    
    
    
    427,713Operating expenses:Sales and marketing
    
    
    143,480
    
    
    
    123,123
    
    
    
    280,821
    
    
    
    240,623Research and development
    
    
    54,265
    
    
    
    52,644
    
    
    
    106,606
    
    
    
    96,381General and administrative
    
    
    38,641
    
    
    
    28,965
    
    
    
    72,280
    
    
    
    59,328Legal contingency reserve
    
    
    
    
    
    
    
    
    
    
    25,700
    
    
    
    Restructuring costs
    
    
    5,471
    
    
    
    
    
    
    
    5,471
    
    
    
    Total operating expenses
    
    
    241,857
    
    
    
    204,732
    
    
    
    490,878
    
    
    
    396,332Income from operations
    
    
    32,991
    
    
    
    13,453
    
    
    
    38,612
    
    
    
    31,381Interest and other income, net
    
    
    3,897
    
    
    
    3,008
    
    
    
    8,026
    
    
    
    5,863Income before provision for income taxes
    
    
    36,888
    
    
    
    16,461
    
    
    
    46,638
    
    
    
    37,244Provision for income taxes
    
    
    (15,282
    )
    
    
    (8,512
    )
    
    
    (19,450
    )
    
    
    (16,958
    )Net income
    
    $
    21,606
    
    
    $
    7,949
    
    
    $
    27,188
    
    
    $
    20,286Basic net income per ordinary share and ADS
    
    $
    0.23
    
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.22Diluted net income per ordinary share and ADS
    
    $
    0.22
    
    
    $
    0.08
    
    
    $
    0.28
    
    
    $
    0.21Ordinary shares and ADSs used in computing
basic net income per ordinary share and ADS
    
    
    95,074
    
    
    
    93,310
    
    
    
    95,154
    
    
    
    92,946Ordinary shares and ADSs and equivalents
used in computing diluted net income per
ordinary share and ADS
    
    
    96,832
    
    
    
    95,083
    
    
    
    96,967
    
    
    
    95,162
  4




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##### Table of Contents



BUSINESS OBJECTS S.A.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Six Months EndedJune 30,2007
    
    
    2006(unaudited)Operating activities:Net income
    
    $
    27,188
    
    
    $
    20,286Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    17,505
    
    
    
    15,770Amortization of other intangible assets
    
    
    26,871
    
    
    
    19,146Amortization of debt issuance costs
    
    
    390
    
    
    
    Stock-based compensation expense
    
    
    23,862
    
    
    
    24,917Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    (2,422
    )Acquired in-processes research and development
    
    
    
    
    
    
    3,300Deferred income taxes
    
    
    (4,375
    )
    
    
    (5,789
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    12,199
    
    
    
    45,546Prepaid and other current assets
    
    
    (11,560
    )
    
    
    6,654Deposits and other assets
    
    
    6,462
    
    
    
    6,282Accounts payable
    
    
    4,828
    
    
    
    2,499Accrued payroll and related expenses
    
    
    (14,451
    )
    
    
    (21,645
    )Income taxes payable
    
    
    18,279
    
    
    
    16,937Deferred revenues
    
    
    42,942
    
    
    
    45,860Other liabilities
    
    
    24,194
    
    
    
    (1,953
    )Short-term investments classified as trading
    
    
    (940
    )
    
    
    (390
    )Net cash provided by operating activities
    
    
    173,394
    
    
    
    174,998Investing activities:Purchases of property and equipment
    
    
    (16,881
    )
    
    
    (22,807
    )Business acquisitions, net of acquired cash
    
    
    (306,596
    )
    
    
    (55,482
    )Payments on escrows payable
    
    
    (2,723
    )
    
    
    Increase in escrows payable
    
    
    49,429
    
    
    
    12,099Transfer of cash to restricted cash accounts
    
    
    (41,085
    )
    
    
    (13,766
    )Net cash used in investing activities
    
    
    (317,856
    )
    
    
    (79,956
    )Financing activities:Proceeds from issuance of bonds, net of issuance costs
    
    
    592,702
    
    
    
    Purchase of treasury shares
    
    
    (79,884
    )
    
    
    Issuance of shares
    
    
    33,862
    
    
    
    25,361Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    2,422Net cash provided by financing activities
    
    
    546,680
    
    
    
    27,783Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    13,352
    
    
    
    13,888Net increase in cash and cash equivalents
    
    
    415,570
    
    
    
    136,713Cash and cash equivalents, beginning of the period
    
    
    506,792
    
    
    
    332,777Cash and cash equivalents, end of the period
    
    $
    922,362
    
    
    $
    469,490Supplemental schedule of non-cash investing and financing activities:Value of treasury shares cancelled
    
    $
    79,884
    
    
    $
    
  5




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##### Table of Contents



Business Objects S.A.
 
 Notes to Condensed Consolidated Financial Statements
June 30, 2007
 1. Basis of Presentation and Significant Accounting Policies
 Basis
of Presentation
   Use of Estimates
  Other Current Liabilities
  Ordinary Shares, Treasury Shares, Business Objects Option LLC Shares and Employee Benefit Sub Plan Trust Shares
 Treasury, Business
Objects Option LLC and Employee Benefit Sub-Plan Trust Shares.
  6




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##### Table of Contents



Recent
Pronouncements
 The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of SFAS No. 115
 2. Derivative Financial Instruments
      June 30, 2007
    
    December 31, 2006Notional Amount
    
    Fair Value
    
    Notional Amount
    
    Fair Value(in millions)
    
    (in millions)U.S. dollar equivalent of derivatives not designated as hedges
    
    $
    44.5
    
    
    $
    0.5
    
    
    $
    58.7
    
    
    $
    0.4U.S. dollar equivalent of derivatives designated as cash flow
hedges
    
    $
    70.8
    
    
    $
    1.6
    
    
    $
    67.9
    
    
    $
    1.9
  7




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##### Table of Contents



3. Accounts Receivable
  4. Shareholders Equity
     Stock
    
    
    
    
    
    
    2004For the three months ended on June 30, 2007
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8Cost of services
    
    
    
    
    
    
    978
    
    
    
    202
    
    
    
    140
    
    
    
    
    
    
    
    1,320Sales and marketing
    
    
    
    
    
    
    3,332
    
    
    
    936
    
    
    
    416
    
    
    
    
    
    
    
    4,684Research and development
    
    
    
    
    
    
    1,040
    
    
    
    107
    
    
    
    194
    
    
    
    
    
    
    
    1,341General and administrative
    
    
    518
    
    
    
    3,081
    
    
    
    1,237
    
    
    
    76
    
    
    
    
    
    
    
    4,912Total compensation expense
    
    
    518
    
    
    
    8,439
    
    
    
    2,482
    
    
    
    826
    
    
    
    
    
    
    
    12,265Income tax benefit
    
    
    
    
    
    
    (1,441
    )
    
    
    (552
    )
    
    
    
    
    
    
    
    
    
    
    (1,993
    )Total compensation expense, net of tax
    
    $
    518
    
    
    $
    6,998
    
    
    $
    1,930
    
    
    $
    826
    
    
    $
    
    
    
    $
    10,272
 Stock
    
    
    
    
    
    
    2004For the three months ended on June 30, 2006
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    9
    
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    10Cost of services
    
    
    
    
    
    
    1,240
    
    
    
    10
    
    
    
    203
    
    
    
    
    
    
    
    1,453Sales and marketing
    
    
    
    
    
    
    3,149
    
    
    
    66
    
    
    
    478
    
    
    
    
    
    
    
    3,693Research and development
    
    
    
    
    
    
    1,605
    
    
    
    12
    
    
    
    208
    
    
    
    
    
    
    
    1,825General and administrative
    
    
    263
    
    
    
    3,383
    
    
    
    798
    
    
    
    83
    
    
    
    
    
    
    
    4,527Total compensation expense
    
    
    263
    
    
    
    9,386
    
    
    
    886
    
    
    
    973
    
    
    
    
    
    
    
    11,508Income tax benefit
    
    
    
    
    
    
    (1,373
    )
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (1,418
    )Total compensation expense, net of tax
    
    $
    263
    
    
    $
    8,013
    
    
    $
    841
    
    
    $
    973
    
    
    $
    
    
    
    $
    10,090
 StockFor the six months ended on June 30, 2007
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    18
    
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    19Cost of services
    
    
    
    
    
    
    1,943
    
    
    
    326
    
    
    
    428
    
    
    
    11
    
    
    
    2,708
 8




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##### Table of Contents



StockFor the six months ended on June 30, 2007
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalSales and marketing
    
    
    
    
    
    
    6,410
    
    
    
    1,548
    
    
    
    1,046
    
    
    
    54
    
    
    
    9,058Research and development
    
    
    
    
    
    
    2,089
    
    
    
    158
    
    
    
    440
    
    
    
    84
    
    
    
    2,771General and administrative
    
    
    783
    
    
    
    5,945
    
    
    
    2,338
    
    
    
    212
    
    
    
    29
    
    
    
    9,307Total compensation expense
    
    
    783
    
    
    
    16,405
    
    
    
    4,370
    
    
    
    2,126
    
    
    
    179
    
    
    
    23,863Income tax benefit
    
    
    
    
    
    
    (2,453
    )
    
    
    (907
    )
    
    
    
    
    
    
    
    
    
    
    (3,360
    )Total compensation expense, net of tax
    
    $
    783
    
    
    $
    13,952
    
    
    $
    3,463
    
    
    $
    2,126
    
    
    $
    179
    
    
    $
    20,503
 StockFor the six months ended on June 30, 2006
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    20
    
    
    $
    
    
    
    $
    2
    
    
    $
    
    
    
    $
    22Cost of services
    
    
    
    
    
    
    2,406
    
    
    
    10
    
    
    
    369
    
    
    
    5
    
    
    
    2,790Sales and marketing
    
    
    
    
    
    
    6,118
    
    
    
    101
    
    
    
    971
    
    
    
    16
    
    
    
    7,206Research and development
    
    
    
    
    
    
    3,254
    
    
    
    22
    
    
    
    354
    
    
    
    32
    
    
    
    3,662General and administrative
    
    
    441
    
    
    
    6,671
    
    
    
    3,957
    
    
    
    159
    
    
    
    10
    
    
    
    11,238Total compensation expense
    
    
    441
    
    
    
    18,469
    
    
    
    4,090
    
    
    
    1,855
    
    
    
    63
    
    
    
    24,918Income tax benefit
    
    
    
    
    
    
    (2,663
    )
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (2,737
    )Total compensation expense, net of tax
    
    $
    441
    
    
    $
    15,806
    
    
    $
    4,016
    
    
    $
    1,855
    
    
    $
    63
    
    
    $
    22,181
  Assumptions used
    
    For the three months ended June 30, 2007
    
    
    For the three months ended June 30, 2006Restricted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RestrictedDirectors
    
    Stock
    
    Stock
    
    
    
    
    
    
    
    
    
    
    Directors
    
    Stock
    
    Stockwarrants
    
    options
    
    Units
    
    IESPP
    
    ESPP
    
    
    warrants
    
    options
    
    Units
    
    IESPP
    
    ESPPExpected volatility
    
    
    44
    %
    
    
    44
    %
    
    
    N/A
    
    
    
    33
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    48
    %
    
    
    N/A
    
    
    
    32
    %
    
    
    N/ARisk-free interest rate (1)
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    N/A
    
    
    
    3.98
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    3.80
    %
    
    
    N/A
    
    
    
    2.82
    %
    
    
    N/ATurnover rateFrance
    
    
    N/A
    
    
    
    12
    %
    
    
    12
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    12
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AOfficers/ Directors
    
    
    N/A
    
    
    
    14
    %
    
    
    14
    %
    
    
    9
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    14
    %
    
    
    14
    %
    
    
    10
    %
    
    
    N/ARest of the world
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    9
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    10
    %
    
    
    N/ADividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value in $
    
    
    16.50
    
    
    
    15.91
    
    
    
    40.31
    
    
    
    9.33
    
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    12.13
    
    
    
    29.49
    
    
    
    8.16
    
    
    
    N/AExpected life of options
(years)
    
    
    5.01
    
    
    
    4.38
    
    
    
    2.00
    
    
    
    0.50
    
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    4.96
    
    
    
    2.00
    
    
    
    0.50
    
    
    
    N/A
 Assumptions used
    
    For the six months ended June 30, 2007
    
    
    For the six months ended June 30, 2006Restricted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RestrictedDirectors
    
    Stock
    
    Stock
    
    
    
    
    
    
    
    
    
    
    Directors
    
    Stock
    
    Stockwarrants
    
    options
    
    Units
    
    IESPP
    
    ESPP
    
    
    warrants
    
    options
    
    Units
    
    IESPP
    
    ESPPExpected volatility
    
    
    44
    %
    
    
    47
    %
    
    
    N/A
    
    
    
    44
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    48
    %
    
    
    N/A
    
    
    
    32
    %
    
    
    N/ARisk-free interest rate (1)
    
    
    4.50
    %
    
    
    4.34
    %
    
    
    N/A
    
    
    
    3.84
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    3.70
    %
    
    
    N/A
    
    
    
    2.60
    %
    
    
    N/ATurnover rateFrance
    
    
    N/A
    
    
    
    12
    %
    
    
    12
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    12
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AOfficers/ Directors
    
    
    N/A
    
    
    
    14
    %
    
    
    14
    %
    
    
    11
    %
    
    
    N/A
    
    
    
    
    
    
    
    
    14
    %
    
    
    14
    %
    
    
    11
    %
    
    
    N/ARest of the world
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    11
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    11
    %
    
    
    N/ADividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value in
    
    $
    16.50
    
    
    
    15.84
    
    
    
    39.46
    
    
    
    10.28
    
    
    
    3.60
    
    
    
    
    N/A
    
    
    
    13.21
    
    
    
    33.12
    
    
    
    8.28
    
    
    
    7.01Expected life of options
(years)
    
    
    5.01
    
    
    
    4.28
    
    
    
    2.00
    
    
    
    0.50
    
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    4.82
    
    
    
    1.64
    
    
    
    0.50
    
    
    
    N/A
 9




---



##### Table of Contents



(1)
    
    The Company used the five to seven years IBoxx Eurozone interest rate for the stock
options and warrants with exercise prices denominated in Euro granted to French employees and
Directors, and the three to five years IBoxx Eurozone interest rate for the options with
exercise prices denominated in Euro granted to rest of the world. The Company used the Euribor
six month interest rate for the IESPP with a subscription price denominated in Euro.      Weighted-AverageWeighted
    
    
    
    
    
    remainingNumber of awards
    
    average
    
    Aggregate
    
    contractualStock
    
    
    
    
    
    exercise price
    
    intrinsic
    
    term (inWarrants
    
    options
    
    RSUs
    
    (1)
    
    value (2)
    
    years)Outstanding at January 1, 2007
    
    
    405
    
    
    
    12,187
    
    
    
    690
    
    
    $
    31.86
    
    
    $
    137,011
    
    
    
    6.28Granted (3)
    
    
    210
    
    
    
    1,502
    
    
    
    466
    
    
    
    31.49
    
    
    
    18,388Cancelled / Expired
    
    
    
    
    
    
    (695
    )
    
    
    (40
    )
    
    
    35.88
    
    
    
    4,386Exercised
    
    
    (30
    )
    
    
    (1,143
    )
    
    
    (115
    )
    
    
    19.69
    
    
    
    24,310Outstanding at June 30, 2007
    
    
    585
    
    
    
    11,851
    
    
    
    1,002
    
    
    
    33.39
    
    
    
    115,468
    
    
    
    5.95Exercisable at June 30, 2007
    
    
    315
    
    
    
    6,781
    
    
    
    
    
    
    
    36.12
    
    
    
    56,732
    
    
    
    5.50Unvested expected to vest at
June 30, 2007
    
    
    270
    
    
    
    4,099
    
    
    
    745
    
    
    
    30.39
    
    
    
    45,594
    
    
    
    6.62
 
 (1)
    
    translated to U.S. dollars based on the noon buying rate as published by the Federal Reserve
of Bank of New York for grants, exercises and cancellations and based on the closing rate for
the outstanding options.(2)
    
    computed as the difference between the closing quote on NASDAQ on January 1, 2007, at the
grant date, at the cancellation date, at the exercise date or at June 30, 2007 respectively,
and the option exercise price translated in U.S. dollars as per (1) above. The intrinsic value
cannot be negative and may equal zero when the option price exceeds the closing quote on the
NASDAQ.(3)
    
    as stock options are granted with an exercise price no less than the closing price on
Euronext on the grant date, the intrinsic value of grants is limited to RSUs.  10




---



##### Table of Contents



Number of
    
    Weighted-awards (in
    
    Average grantthousands)
    
    date fair valueUnvested at January 1, 2007
    
    
    690
    
    
    $
    34.93Granted
    
    
    466
    
    
    
    39.46Vested
    
    
    (115
    )
    
    
    34.72Forfeited
    
    
    (40
    )
    
    
    34.53Unvested at June 30, 2007
    
    
    1,002
    
    
    
    37.07
     5. Acquisitions
 Acquisition of Sistecar S.A.S.
 
    
  Purchase
    
    Net Tangible
    
    
    
    
    
    In-ProcessConsideration
    
    Liabilities
    
    Fair Value of
    
    R&DAcquisition
    
    (1)
    
    Assumed
    
    Intangibles
    
    (IPR&D)
    
    GoodwillCartesis
    
    $
    331
    
    
    
    ($32
    )
    
    $
    133
    
    
    $
    
    
    
    $
    230
 
 (1)
    
    Purchase consideration under the purchase method of accounting included approximately $6.0
million in transaction costs. 11




---



##### Table of Contents



MaintenanceDeveloped
    
    Contracts and
    
    License
    
    ConsultingTechnology
    
    Relationships
    
    Relationships
    
    ContractsEstimated
    
    
    
    
    
    Estimated
    
    
    
    
    
    Estimated
    
    
    
    
    
    EstimatedUseful
    
    
    
    
    
    Useful
    
    
    
    
    
    Useful
    
    
    
    
    
    UsefulFair
    
    Life (in
    
    Fair
    
    Life (in
    
    Fair
    
    Life (in
    
    Fair
    
    Life (inValue
    
    Years)
    
    Value
    
    Years)
    
    Value
    
    Years)
    
    Value
    
    Years)
    
    TotalCartesis
    
    $
    93.5
    
    
    
    3 to 5
    
    
    $
    18.6
    
    
    
    7
    
    
    $
    20.3
    
    
    
    5
    
    
    $
    0.4
    
    
    
    0.5
    
    
    $
    132.8
  6. Goodwill and Other Intangible Assets
  12




---



##### Table of Contents



Six MonthsEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2007
    
    
    2006Balance, beginning of the year
    
    $
    1,266.0
    
    
    $
    1,166.0Goodwill acquired during the period
    
    
    233.1
    
    
    
    90.6Goodwill adjustments relating to prior period acquisitions
    
    
    2.8
    
    
    
    6.2Impact of foreign currency fluctuations on goodwill
    
    
    1.7
    
    
    
    3.2Balance, end of the period
    
    $
    1,503.6
    
    
    $
    1,266.0
   June 30,
    
    
    December 31,2007
    
    
    2006Developed technology
    
    $
    270.7
    
    
    $
    173.5Maintenance and support contracts
    
    
    75.8
    
    
    
    57.0Trade names
    
    
    9.5
    
    
    
    9.3License contracts and relationships
    
    
    23.3
    
    
    
    2.8Workforce
    
    
    1.6
    
    
    
    1.5Total other intangible assets, at cost
    
    
    380.9
    
    
    
    244.1Accumulated amortization on other intangible assets
    
    
    (144.2
    )
    
    
    (115.5
    )Other intangible assets, net
    
    $
    236.7
    
    
    $
    128.6
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Amortization of:Developed technology (included in cost of net license fees)
    
    $
    10.4
    
    
    $
    7.0
    
    
    $
    18.9
    
    
    $
    13.0Maintenance and support contracts (included in cost of services revenues)
    
    
    3.1
    
    
    
    2.9
    
    
    
    5.8
    
    
    
    5.4Trade names (included in operating expenses)
    
    
    0.5
    
    
    
    0.4
    
    
    
    1.1
    
    
    
    0.7License contracts and relationships (included in cost of net license fees)
    
    
    0.7
    
    
    
    
    
    
    
    1.0
    
    
    
    Workforce (included in operating expenses)
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Total other intangibles amortization expense
    
    $
    14.8
    
    
    $
    10.3
    
    
    $
    26.9
    
    
    $
    19.1
  Remainder of 2007
    
    $
    39.32008
    
    
    75.12009
    
    
    45.82010
    
    
    38.32011
    
    
    26.3Thereafter
    
    
    11.9Total
    
    $
    236.7
 7. Net Income per Share
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands, except per share data)Basic net income per share:Numerator:Net income
    
    $
    21,606
    
    
    $
    7,949
    
    
    $
    27,188
    
    
    $
    20,286Denominator:Weighted average ordinary shares and ADSs outstanding  basic
    
    
    95,074
    
    
    
    93,310
    
    
    
    95,154
    
    
    
    92,946Net income per share  basic
    
    $
    0.23
    
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.22Diluted net income per share:Numerator:Net income
    
    $
    21,606
    
    
    $
    7,949
    
    
    $
    27,188
    
    
    $
    20,286Denominator:Weighted average ordinary shares and ADSs outstanding  basic
    
    
    95,074
    
    
    
    93,310
    
    
    
    95,154
    
    
    
    92,946Incremental ordinary shares and ADSs attributable to shares
exercisable under employee stock option plans, warrants and
RSUs (treasury stock method)
    
    
    1,758
    
    
    
    1,773
    
    
    
    1,813
    
    
    
    2,216Weighted average ordinary shares and ADSs outstanding  diluted
    
    
    96,832
    
    
    
    95,083
    
    
    
    96,967
    
    
    
    95,162Net income per share  diluted
    
    $
    0.22
    
    
    $
    0.08
    
    
    $
    0.28
    
    
    $
    0.21
      8. Convertible Debt
 Autorite des
Marches Financiers (  
  
    
    the right to cash for the nominal value of the bond (42.15);
    
    an annual interest payment of 2.25% (paid annually on January 1); and
    
    upon exercise of the conversion right, the right to a redemption premium payable in shares for a variable amount equal to the excess of the market value of the shares over the
nominal value (the conversion right).
   14




---



##### Table of Contents




    
    between May 11, 2009 (May 11, 2008 if an effective registration statement is on file
with the US Securities and Exchange Commission) and May 2, 2022 if certain conditions
are met (either the trading price of the bonds during any five consecutive trading day
period is less than 97% of the Volume Weighted Average Price (VWAP) of the Companys shares during that same period or the VWAP of the Companys shares is greater than 120%
of the nominal value of the bonds for at least 20 days over 30 consecutive trading
days);
    
    at specific dates, on any of May 11, 2012, May 11, 2017 or May 11, 2022;
    
    after May 11, 2022 until December 23, 2026 without any price condition; or
    
    in certain specific cases, e.g. acquisitions, change of control, default or a
specific transaction such as issuance of debt securities.
   
    
    if the stock price is greater than 42.15, the Company will settle in cash the
nominal value (42.15) and in its own shares a redemption premium equal to the
difference between the VWAP of its shares on Euronext and the principal amount of the
Bond; or
    
    if the stock price is equal to or lower than 42.15, the Company will settle in
cash an amount equal to the daily weighted average market price of its shares
immediately prior to the date of conversion.
     
  June 30,
    
    December 31,2007
    
    2006Bonds payable
    
    $
    607,635
    
    
    
    
 
   15




---



##### Table of Contents



9. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Net income
    
    $
    21,606
    
    
    $
    7,949
    
    
    $
    27,188
    
    
    $
    20,286Other comprehensive income:Foreign currency translation adjustments
    
    
    11,059
    
    
    
    14,386
    
    
    
    15,980
    
    
    
    17,412Unrealized net gains (losses) on cash flow hedges, net of tax
    
    
    959
    
    
    
    185
    
    
    
    1,042
    
    
    
    (449
    )Realized net losses on cash flow hedges, net of tax,
reclassified into earnings
    
    
    799
    
    
    
    252
    
    
    
    1,556
    
    
    
    122Other
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    Total comprehensive income
    
    $
    34,423
    
    
    $
    22,772
    
    
    $
    46,149
    
    
    $
    37,371
 10. Business Segment Information
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006United States
    
    $
    177.3
    
    
    $
    156.4
    
    
    $
    339.0
    
    
    $
    292.9Europe, Middle East and Africa (EMEA), excluding France
    
    
    105.4
    
    
    
    82.9
    
    
    
    213.6
    
    
    
    170.5France
    
    
    41.7
    
    
    
    23.9
    
    
    
    70.8
    
    
    
    48.3Americas, excluding the United States
    
    
    11.4
    
    
    
    11.3
    
    
    
    22.5
    
    
    
    22.0Asia Pacific
    
    
    27.4
    
    
    
    20.0
    
    
    
    51.7
    
    
    
    39.1Total revenues
    
    $
    363.2
    
    
    $
    294.5
    
    
    $
    697.6
    
    
    $
    572.8
 16




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##### Table of Contents



11. Commitments and Contingencies
 Legal matters
        17




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18




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##### Table of Contents



Decision Warehouse Consultoria E Importacao Ltda. Business Objects Do Brasil, Ltda
 Business Objects Do Brasil, Ltda. Decision
Warehouse.
   19




---



##### Table of Contents



Commitments
  12. Escrows Payable and Restricted Cash
       13. Credit Agreement
   
  
 20




---



##### Table of Contents



14. Accounting for and Disclosure of Guarantees
 Guarantors Accounting for Guarantees
    Product Warranties.
 Environmental Liabilities. Accounting for Asset Retirement Obligations
 Other Liabilities and Other Claims.
 21




---



##### Table of Contents



15. Income Taxes
      
   16. Subsequent Events
 Acquisition of Inxight
   22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis should be read together with our Condensed Consolidated
Financial Statements and the notes to those statements included elsewhere in this Quarterly Report
on Form 10-Q . This discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about Business Objects and our industry. These
forward-looking statements include, but are not limited to, statements concerning risks and
uncertainties. Our actual results could differ materially from those indicated in these
forward-looking statements as a result of certain factors, as more fully described in the Risk
Factors section of this Quarterly Report on Form 10-Q . We undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information becomes available
or other events occur.
 Overview
  Recent Developments
 Acquisition of Sistecar S.A.S.
 
    
 Acquisition of Inxight
   Issuance of Convertible Bonds
 Autorite des
Marches Financiers (  
 23




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##### Table of Contents



Key Performance Indicators
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(In millions, except for percentages and diluted net income per share)
    
    2007
    
    2006
    
    2007
    
    2006Revenues
    
    $
    363.2
    
    
    $
    294.5
    
    
    $
    697.6
    
    
    $
    572.8Growth in revenues (compared to prior year period)
    
    
    23
    %
    
    
    12
    %
    
    
    22
    %
    
    
    12
    %Income from operations
    
    $
    33.0
    
    
    $
    13.5
    
    
    $
    38.6
    
    
    $
    31.4Income from operations as percentage of total revenues
    
    
    9
    %
    
    
    5
    %
    
    
    6
    %
    
    
    5
    %Diluted net income per share
    
    $
    0.22
    
    
    $
    0.08
    
    
    $
    0.28
    
    
    $
    0.21
 24




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Net license fees
    
    
    41
    %
    
    
    42
    %
    
    
    41
    %
    
    
    44
    %Services revenues:Maintenance and technical support
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    40Professional services
    
    
    17
    
    
    
    16
    
    
    
    17
    
    
    
    16Total services fees
    
    
    59
    
    
    
    58
    
    
    
    59
    
    
    
    56Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of net license fees
    
    
    4
    
    
    
    3
    
    
    
    4
    
    
    
    3Cost of services
    
    
    20
    
    
    
    23
    
    
    
    20
    
    
    
    22Total cost of revenues
    
    
    24
    
    
    
    26
    
    
    
    24
    
    
    
    25Gross margin
    
    
    76
    
    
    
    74
    
    
    
    76
    
    
    
    75Operating expenses:Sales and marketing
    
    
    40
    
    
    
    41
    
    
    
    40
    
    
    
    42Research and development
    
    
    15
    
    
    
    18
    
    
    
    15
    
    
    
    17General and administrative
    
    
    11
    
    
    
    10
    
    
    
    10
    
    
    
    10Legal contingency reserve
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    Restructuring costs
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Total operating expenses
    
    
    67
    
    
    
    69
    
    
    
    70
    
    
    
    69Income from operations (operating margin)
    
    
    9
    
    
    
    5
    
    
    
    6
    
    
    
    6Interest and other income (expense), net
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Income before provision for income taxes
    
    
    10
    
    
    
    6
    
    
    
    7
    
    
    
    7Provision for income taxes
    
    
    (4
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )Net income
    
    
    6
    %
    
    
    3
    %
    
    
    4
    %
    
    
    4
    %
 Seasonality
  Impact
of Foreign Currency Exchange Rate Fluctuations on Results of
Operations
    25




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Total revenues
    
    $
    13.0
    
    
    $
    0.3
    
    
    $
    29.2
    
    
    $
    (13.6
    )Total cost of revenues
    
    
    3.6
    
    
    
    0.1
    
    
    
    7.2
    
    
    
    (3.1
    )Sales and marketing expenses
    
    
    4.9
    
    
    
    1.0
    
    
    
    9.6
    
    
    
    (2.0
    )Research and development expenses
    
    
    2.2
    
    
    
    0.7
    
    
    
    4.0
    
    
    
    (0.8
    )General and administrative expenses
    
    
    1.6
    
    
    
    (0.4
    )
    
    
    2.7
    
    
    
    (1.0
    )
   Revenues
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Net license fees
    
    $
    149.1
    
    
    $
    123.1
    
    
    $
    286.4
    
    
    $
    249.0Service revenues:Maintenance and technical support
    
    $
    152.2
    
    
    $
    123.5
    
    
    $
    295.9
    
    
    $
    232.0Professional services
    
    
    61.9
    
    
    
    47.9
    
    
    
    115.3
    
    
    
    91.8Total service revenues
    
    
    214.1
    
    
    
    171.4
    
    
    
    411.2
    
    
    
    323.8Total revenues
    
    $
    363.2
    
    
    $
    294.5
    
    
    $
    697.6
    
    
    $
    572.8
 Net License Fees
    26




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Services Revenues
    Geographic Revenues Mix
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Americas (1)
    
    $
    188.7
    
    
    $
    167.7
    
    
    $
    361.5
    
    
    $
    314.9Europe, Middle East and Africa (EMEA) (2)
    
    
    147.1
    
    
    
    106.8
    
    
    
    284.4
    
    
    
    218.8Asia Pacific
    
    
    27.4
    
    
    
    20.0
    
    
    
    51.7
    
    
    
    39.1Total revenues
    
    $
    363.2
    
    
    $
    294.5
    
    
    $
    697.6
    
    
    $
    572.8
 
 (1)
    
    Includes revenues in the United States of $177.3 million and $156.4 million for the three
months ended June 30, 2007 and 2006, respectively. Includes revenues in the United States of
$339.0 million and $292.9 million for the six months ended June 30, 2007 and 2006,
respectively(2)
    
    Includes revenues in France of $41.7 million and $23.9 million for the three months ended
June 30, 2007 and 2006, respectively. Includes revenues in France of $70.8 million and $48.3
million for the six months ended June 30, 2007 and 2006, respectively.  27




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Cost of Revenues
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Cost of revenues:Net license fees
    
    $
    14.5
    
    
    $
    10.3
    
    
    $
    25.4
    
    
    $
    18.2Services
    
    
    73.9
    
    
    
    66.0
    
    
    
    142.7
    
    
    
    126.8Total cost of revenues
    
    $
    88.4
    
    
    $
    76.3
    
    
    $
    168.1
    
    
    $
    145.0
  Cost of net license fees
  28




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Cost of services revenues
    Operating Expenses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Sales and marketing
    
    $
    143.5
    
    
    $
    123.1
    
    
    $
    280.8
    
    
    $
    240.6Research and development
    
    
    54.3
    
    
    
    52.6
    
    
    
    106.6
    
    
    
    96.4General and administrative
    
    
    38.6
    
    
    
    29.0
    
    
    
    72.3
    
    
    
    59.3Legal contingency reserve
    
    
    
    
    
    
    
    
    
    
    25.7
    
    
    
    Restructuring costs
    
    
    5.5
    
    
    
    
    
    
    
    5.5
    
    
    
    Total operating expenses
    
    $
    241.9
    
    
    $
    204.7
    
    
    $
    490.9
    
    
    $
    396.3
   29




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Sales and Marketing Expenses
   Research and Development Expenses
   General and Administrative Expenses
   Legal Contingency Reserve
  30




---



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Restructuring Costs
  Interest and Other Income, Net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Net interest income
    
    $
    5.1
    
    
    $
    3.5
    
    
    $
    9.4
    
    
    $
    6.6Net foreign exchange losses
    
    
    (1.7
    )
    
    
    (0.4
    )
    
    
    (2.0
    )
    
    
    (0.8
    )Other income (losses)
    
    
    0.5
    
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    0.1Interest and other income, net
    
    $
    3.9
    
    
    $
    3.0
    
    
    $
    8.0
    
    
    $
    5.9
 Net interest income
  Net foreign exchange losses
   Income Taxes
  Liquidity and Capital Resources
  31




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Six Months EndedJune 30,2007
    
    
    2006(in millions)Cash flow provided by operating activities
    
    $
    173.4
    
    
    $
    175.0Cash flow used in investing activities
    
    
    (317.9
    )
    
    
    (80.0
    )Cash flow provided by financing activities
    
    
    546.7
    
    
    
    27.8Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    13.4
    
    
    
    13.9Net increase in cash and cash equivalents from December 31
    
    $
    415.6
    
    
    $
    136.7
   Operating Activities
    Investing Activities
   Financing Activities
   32




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Future Liquidity Requirements
    
  Contractual Obligations
  Guarantees
 Guarantors Accounting for Guarantees
  33




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Product Warranties
 Environmental Liabilities Accounting for Asset Retirement Obligations
 Other Liabilities and Other Claims
 Off-Balance Sheet Arrangements
  Critical Accounting Estimates
  
    
    Business combinations;
    
    Impairment of goodwill, intangible assets and long-lived assets;
    
    Contingencies and litigation;
    
    Accounting for income taxes; and
    
    Stock-based compensation
 34




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Managements
Discussion and Analysis of Financial Condition and Results of Operations
 Recent Pronouncements
  Factors Affecting Future Operating Results
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Quantitative and
Qualitative Disclosures About Market Risk
 
 Item 4. Controls and Procedures
   
 Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  35




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36




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Decision Warehouse Consultoria E Importacao Ltda. Business Objects Do Brasil, Ltda
 37




---



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Business Objects Do Brasil, Ltda. Decision
Warehouse.
   38




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##### Table of Contents



Item 1A. Risk Factors.
 We operate in a rapidly changing environment that involves numerous uncertainties and risks.
The following section describes some, but not all, of these risks and uncertainties that may
adversely affect our business, financial condition or results of operations. This section should be
read in conjunction with the unaudited condensed consolidated financial statements and the
accompanying notes thereto, and the other parts of Managements Discussion and Analysis of
Financial Condition and Results of Operations included in this Report on Form 10-Q . Additional
factors and uncertainties not currently known to us or that we currently consider immaterial could
also harm our business, operating results and financial condition.
 Risks Related to Our Business
 Our quarterly operating results have been and will continue to be subject to fluctuation.
  
    
    we typically record a substantial amount of our revenues in the last weeks of a quarter,
rather than evenly throughout the quarter;
    
    our customers typically wait until their fourth quarter, the end of their annual budget
cycle, before deciding whether to purchase new software;
    
    economic activity in Europe and certain other countries generally slows during the summer
months;
    
    customers may delay purchase decisions in anticipation of (i) changes to our product
line, (ii) new products or platforms, (iii) product enhancements or (iv) in response to
announced pricing changes by us or our competitors;
    
    the mix of products and services and the amount of consulting services that our customers
order, and the associated revenues, varies from quarter to quarter, and we expect this mix
of revenues to continue for the foreseeable future;
    
    we depend, in part, on large orders and any delay in closing a large order, such as the
delays we experienced in the three months ended June 30, 2006, may result in the realization
of potentially significant net license fees being postponed from one quarter to the next;
and
    
    we experience longer payment cycles for sales in certain foreign countries.
   If we overestimate revenues and are unable to reduce our expenses sufficiently in any quarter,
this could have a negative impact on our quarterly results of operations.
   Our market is highly competitive, which could harm our ability to sell products and services and
reduce our market share.
 39




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Some of our competitors may have greater financial, technical, sales, marketing and other
resources than we do. In addition, acquisitions of, or other strategic transactions by our
competitors could weaken our competitive position or reduce our revenues.
   We may pursue strategic acquisitions and investments that could have an adverse effect on our
business if they are unsuccessful.
  
    
    The acquisitions may not enhance our business strategy;
    
    We may apply overly optimistic valuation assumptions and models for the acquired
businesses, and we may not realize anticipated cost synergies and revenues as quickly as we
expected or at all;
    
    We may not integrate acquired businesses, technologies, products, personnel and operations effectively;
    
    Managements attention may be diverted from our day to day operations, resulting in disruption of our ongoing business;
    
    We may not adopt an appropriate business model for integrated businesses, particularly
with respect to our go to market strategy;
    
    Customer demand for the acquired companys products may not meet our expectations;
    
    We may incur higher than anticipated costs for the support and development of acquired products;
    
    The acquired products may not be compatible with our existing products, making
integration of acquired products difficult and costly and potentially delaying the release
of other, internally developed products;
    
    We may have insufficient revenues to offset the increased expenses associated with acquisitions;
 40




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
    
    We may not retain key employees, customers, distributors and vendors of the companies we acquire;
    
    Ineffective internal controls of the acquired company may require remediation as part of the integration process;
    
    We may be required to assume pre-existing contractual relationships, which would be
costly for us to terminate and disruptive for our customers;
    
    The acquisitions may result in infringement, trade secret, product liability or other
litigation: and
    
    If we are unable to acquire companies that facilitate our strategic objectives, we may
not have sufficient time to develop our own products and may not remain competitive.
  We are subject to frequent tax audits, where the ultimate resolution may result in additional
taxes.
 
   We are subject to claims and lawsuits that may result in adverse outcomes, which could harm our
results of operations or financial condition and cause our stock price to decline.
  41




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We may have long sales cycles and may have difficulty providing and managing large scale customer
deployments, which could cause a decline or delay in recognition of our revenues and an increase
in our expenses.
   The software market in which we operate is subject to rapid technological change and new product
introductions, which could negatively affect our product sales.
  
    
    adapting third party technology, including open source software;
    
    successful education and training of sales, marketing and consulting personnel;
    
    effective marketing and market acceptance;
    
    proper positioning and pricing; and
    
    product quality, including possible defects.
  Our revenues may be unpredictable if customers delay purchases of our products in anticipation
of new product releases or in connection with migrating to a new product platform.
  Our business and operations have grown rapidly and we expect this growth to continue in the
future. If we do not manage this growth effectively, our business and results of operations could
be harmed.
 42




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Our on demand offerings carry a number of risks, some of which may be harmful to our business.
  
    
    We have limited experience in the on demand market;
    
    We may not be able to deliver these solutions or any enhancements to these solutions in
the manner we have conveyed to customers;
    
    Customers may question the viability or security of our on demand offerings;
    
    We may not be able to provide sufficient, continuous customer support for our on demand offerings;
    
    We may incur higher than anticipated costs as we expand further into the on demand market;
    
    We could experience service interruptions with respect to our on demand offerings, which
could potentially impact our revenues and damage our customers businesses and result in
warranty claims or litigation;
    
    We may not be able to comply in a timely or cost effective manner with data privacy, data
security, export control and other regulatory requirements that apply to these offerings,
resulting in potential regulatory exposure as well as misappropriation of customer
confidential information and other claims;
    
    We may not realize anticipated market demand and acceptance of our on demand offerings;
and
    
    Sales of our on demand solutions bundled with license sales may delay the timing of
revenue recognition for license arrangements that would otherwise have been recorded at the
time of delivery.
  Failure to structure our business model properly for mid-market customers could have a material
adverse effect on our business and results of operations.
  The protection of our intellectual property rights is crucial to our business and, if third
parties use our intellectual property without our consent, our business could be damaged.
  
    
    policing unauthorized copying or use of our products is difficult and expensive;
    
    software piracy is a persistent problem in the software industry;
 43




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
    
    our patents may not cover the full scope of our product offerings and may be challenged,
invalidated or circumvented, or may be enforceable only in certain jurisdictions; and
    
    our shrink-wrap licenses may be unenforceable under the laws of certain jurisdictions.
      Third parties have asserted that our technology infringes upon their proprietary rights, and
others may do so in the future, which has resulted, and may in the future result, in costly
litigation and could adversely affect our ability to distribute our products.
   
    
    we would need to commit management resources in defense of the claim;
    
    we may incur substantial litigation costs in defense of the claim;
    
    we may have to expend significant development resources to redesign our products;
    
    we may be required to enter into royalty and licensing agreements with such third party under unfavorable terms; and
    
    we could be forced to cease selling or delay shipping our products should an adverse judgment be rendered against us.
  44




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Our loss of rights to use software licensed from third parties could harm our business.
  Changes in our stock-based compensation policy have adversely affected our ability to attract and
retain employees, and shareholder rejection of new equity plans could adversely affect our ability
to attract and retain employees.
    We depend on strategic relationships and business alliances for continued growth of our business.
  45




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Our software may have defects and errors that could lead to a loss of revenues or product
liability claims.
  
    
    potential customers may delay purchases;
    
    customers may react negatively, which could reduce future sales;
    
    our reputation in the marketplace may be damaged;
    
    we may have to defend product liability claims;
    
    we may be required to indemnify our customers, distributors, original equipment manufacturers or other resellers;
    
    we may incur additional service and warranty costs; and
    
    we may have to divert additional development resources to correct the defects and errors,
which may result in the delay of new product releases or upgrades.
  We cannot be certain that our internal control over financial reporting will be effective or
sufficient in the future.
   46




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Since we are required to report our consolidated financial results under both the U.S. GAAP and
International Financial Reporting Standards, or IFRS, rules, we may incur increased operating
expenses, we may not fulfill the reporting requirements of one or both of these reporting
standards, we may be subject to inconsistent determinations with respect to our accounting
policies under these standards and investors may perceive our operating results to be drastically
different under these regimes.
 Document de Référence 2006 Document de Référence 2006
  Changes to current accounting policies could have a significant effect on our reported financial
results or the way in which we conduct our business.
  
    
    Recognition of revenues;
    
    Business combinations;
    
    Impairment of goodwill, intangible assets and long-lived assets;
    
    Contingencies and litigation;
    
    Accounting for income taxes;
    
    Stock-based compensation; and
    
    Accounting for convertible debt instruments.
  47




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We sell products only in the business intelligence software market; if sales of our products in
this market decline, our operating results will be harmed.
  If the market in which we sell business intelligence software does not grow as anticipated, our
future profitability could be negatively affected.
  
    
    not fully value the benefits of using business intelligence products;
    
    not achieve favorable results using business intelligence products;
    
    experience technical difficulty in implementing business intelligence products; or
    
    decide to use other technologies, such as search engines, to obtain the required business intelligence for their users.
  Business disruptions could seriously harm our operations and financial condition and increase our
costs and expenses.
     Our executive officers and key employees are crucial to our business, and we may not be able to
recruit, integrate and retain the personnel we need to succeed.
  48




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We have multinational operations that are subject to risks inherent in international operations.
  
    
    technical difficulties and costs associated with product localization;
    
    challenges associated with coordinating product development efforts among geographically dispersed development centers;
    
    potential loss of proprietary information due to piracy, misappropriation or laws that
may be less protective of our intellectual property rights;
    
    lack of experience in certain geographic markets;
    
    the significant presence of some of our competitors in some international markets;
    
    potentially adverse tax consequences;
    
    import and export restrictions and tariffs may prevent us from shipping products to
particular jurisdictions or providing services to a particular market and may increase our
operating costs;
    
    failure to comply with foreign and domestic laws and other government controls applicable
to our multinational operations, such as trade and employment restrictions;
    
    potential fines and penalties resulting from failure to comply with laws and regulations
applicable to our international operations;
    
    management, staffing, legal and other costs of operating an enterprise spread over
various countries;
    
    the recent addition of a number of employees in offshore locations for which attrition
rates traditionally are believed to be higher than is generally true for North America and
Europe;
    
    political instability in the countries where we are doing business;
    
    fears concerning travel or health risks that may adversely affect our ability to sell our
products and services in any country in which the business sales culture encourages face to
face interactions; and
    
    different business practices and regulations, which may lead to the need for increased
employee education and supervision.
  Fluctuations in exchange rates between the euro, the U.S. dollar and the Canadian dollar, as well
as other currencies in which we do business, may adversely affect our operating results.
   Our effective tax rate may increase or fluctuate, which could increase our income tax expense and
reduce our net income.
  49




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
    
    changes in forecasted annual operating income;
    
    changes in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate;
    
    changes to the valuation allowance on net deferred tax assets;
    
    changes to actual or forecasted permanent differences between book and tax reporting,
including the tax effects of purchase accounting for acquisitions and non-recurring charges
which may cause fluctuations between reporting periods;
    
    impacts from any future tax settlements with state, federal or foreign tax authorities;
    
    impacts from changes in tax laws, regulations and interpretations in the jurisdictions in
which we operate, as well as the requirements of certain tax rulings;
    
    impacts from acquisitions and related integration activities; or
    
    impacts from new FASB or IFRS requirements.
  We have committed to undertake certain internal practices in connection with handling of employee
information.
  We increased our indebtedness substantially by the issuance of the Bonds.
 
 
    
    make it difficult for us to obtain any necessary future financing for working
capital, capital expenditures or debt service requirements;
    
    require us to dedicate a substantial portion of our expected cash flow from
operations to service our indebtedness, which would reduce the amount of our expected
cash flow available for other purposes, including working capital and capital
expenditures;
    
    limit our flexibility in planning for, or reacting to changes in, our business; and
    
    make us more vulnerable in the event of a downturn in our business, including but
not limited to a redemption at the option of the bond holders on the fifth, tenth or
fifteenth anniversary of the issuance of the Bonds.
  We may not be able to pay our debt and other obligations.
  50




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Risks Related to Ownership of Our Ordinary Shares, our ADSs or our Bonds
 Provisions of our articles of association and French law could have anti-takeover effects and
could deprive shareholders who do not comply with such provisions of some or all of their voting
rights.
 AMF 
    Holders of our shares have limited rights to call shareholders meetings or submit shareholder
proposals, which could adversely affect their ability to participate in governance of Business
Objects.
  51




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Interests of our shareholders will be diluted if they are not able to exercise preferential
subscription rights for our shares.
 (droits préférentiels de
souscription)
  It may be difficult for holders of our ADS, rather than our ordinary shares to exercise some of
their rights as shareholders.
  Fluctuation in the value of the U.S. dollar relative to the euro may cause the price of our
ordinary shares to deviate from the price of our ADSs.
  The market price of our shares is susceptible to changes in our operating results and to stock
market fluctuations.
  
    
    announcements of our quarterly operating results and expected results of the future periods;
    
    our failure to achieve the operating results anticipated by analysts or investors;
    
    announcements of technological innovations or new products by us, our customers or competitors;
    
    releases or reports by or changes in security and industry analysts recommendations;
    
    announcements of our competitors or customers quarterly operating results, and expected results of future periods;
    
    addition of significant new customers or loss of current customers;
    
    sales or the perception in the market of possible sales of a large number of our shares
by our directors, officers, employees or principal stockholders; and
    
    developments or disputes concerning patents or proprietary rights or other events.
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An active trading market for the Bonds may not develop, and holders may not be able to sell their
Bonds at attractive prices or at all.
    Bondholders will not be able to exercise their conversion right until the first anniversary of the
date of issuance of the Bonds, at the earliest, and in the event an effective registration
statement is not available to register the shares during the second year following issuance,
bondholders will have to wait until the second anniversary of issuance before they may exercise
their conversion right, provided other conditions are met.
  Bondholders may not be able to exercise their conversion right until May 11, 2022, and the value
of the Bonds could be less than the value of the underlying shares.
  We may not have the ability to redeem the Bonds for cash pursuant to their terms.
  Under the terms and conditions of the Bonds, a majority of the bondholders may commit all
bondholders, which may negatively affect the value of the Bonds in the future.
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Any change in the laws from those currently in effect may require the terms and conditions to be
modified, which may have a material adverse affect the value of the Bonds.
  Fluctuations in exchange rates may substantially affect the value of the Bonds.
  Any adverse rating of the Bonds may cause their trading price to fall.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered Sales of Equity Securities
   ISSUER PURCHASES OF EQUITY SECURITIES
 Maximum NumberTotal Number of Shares
    
    
    of Shares that MayAverage
    
    
    Purchased as Part of
    
    
    Yet Be PurchasedTotal Number of
    
    
    Price Paid
    
    
    Publicly Announced
    
    
    Under the ProgramShares Purchased
    
    
    per Share
    
    
    Program (1)
    
    
    (1)Balance at March
31, 2007
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    
    7,145,091April 1 to April
30, 2007
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    
    7,171,355May 1 to May 31,
2007
    
    
    2,000,000
    
    
    $
    39.55
    
    
    
    2,000,000
    
    
    
    7,346,131June 1 to June 30,
2007
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    
    7,207,794Total
    
    
    2,000,000
    
    
    $
    39.55
    
    
    
    2,000,000
    
    
    
    7,207,794
 54




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(1)
    
    On June 5, 2007, our shareholders approved a proposal authorizing our Board of Directors to
renew the existing repurchase program for the repurchase of up to 10% of our share capital, at a
price not to exceed 43.00 per share (excluding costs) or its U.S. dollar equivalent. This
authorization, which is valid for 18 months following June 5, 2007, also requires that the total
number of treasury shares may not exceed 10% of our share capital. 
 
 Item 4. Submission of Matters to a Vote of Security Holders
  Resolution
    
    
    For
    
    
    Against
    
    
    Abstention
    
    
    ResultWithin the authority of the Ordinary Shareholders Meeting1.      Approval of the Companys statutory
financial statements for the year
ended December 31, 2006.
    
    
    
    61,317,419
    
    
    
    
    1,876,133
    
    
    
    
    2,886
    
    
    
    Approved2.      Approval of the Companys
consolidated financial statements for
the year ended December 31, 2006.
    
    
    
    61,319,388
    
    
    
    
    1,873,899
    
    
    
    
    3,151
    
    
    
    Approved3.      Allocation of the Companys
earnings for the year ended December
31, 2006.
    
    
    
    62,761,197
    
    
    
    
    431,945
    
    
    
    
    3,296
    
    
    
    Approved4.      Renewal of the term of office of
Mr. Arnold Silverman, as a Director of
the Company.
    
    
    
    58,965,794
    
    
    
    
    4,227,477
    
    
    
    
    3,167
    
    
    
    Approved5.      Renewal of the term of office of
Mr. Bernard Charlès, as a Director of
the Company.
    
    
    
    59,149,713
    
    
    
    
    4,043,409
    
    
    
    
    3,316
    
    
    
    Approved6.      Renewal of the term of office of
Dr. Kurt Lauk, as a Director of the
Company.
    
    
    
    59,158,808
    
    
    
    
    4,033,139
    
    
    
    
    4,491
    
    
    
    Approved7.      Renewal of the term of office of
Mr. Carl Pascarella, as a Director of
the Company.
    
    
    
    59,240,362
    
    
    
    
    3,952,100
    
    
    
    
    3,976
    
    
    
    Approved8.      Approval of an additional aggregate
amount of authorized director fees.
    
    
    
    62,550,943
    
    
    
    
    642,389
    
    
    
    
    3,106
    
    
    
    Approved9.      Ratification of regulated
agreements.
    
    
    
    44,187,522
    
    
    
    
    19,005,139
    
    
    
    
    3,777
    
    
    
    Approved10.    Appointment of Constantin
Associés, as the Companys new second
alternate statutory auditors, as a
replacement for Rouer, Bernard,
Bretout, the Companys new second
regular statutory auditors.
    
    
    
    63,174,779
    
    
    
    
    17,671
    
    
    
    
    3,988
    
    
    
    Approved11.    Authorization granted to the Board
of Directors to repurchase shares of
the Company.
    
    
    
    46,452,688
    
    
    
    
    16,740,894
    
    
    
    
    2,856
    
    
    
    ApprovedWithin the authority of the Extraordinary Shareholders Meeting12.    Authorization granted to the Board
of Directors to reduce the Companys
share capital by cancellation of
treasury shares.
    
    
    
    62,557,089
    
    
    
    
    636,468
    
    
    
    
    2,881
    
    
    
    Approved13.    Authorization granted to the Board
of Directors to increase the Companys
share capital through the issuance of
Ordinary Shares, with subscription
reserved to the participants in the
Companys Employee Savings Plan.
    
    
    
    62,529,634
    
    
    
    
    663,878
    
    
    
    
    2,926
    
    
    
    Approved14.    Delegation of powers granted to
the Board of Directors to increase the
Companys share capital through the
issuance of Ordinary Shares, with
subscription reserved to the 2004
Business Objects S.A. Employee
Benefits Trust under the 2004
International Employee Stock Purchase
Plan;
    
    
    
    62,503,429
    
    
    
    
    689,923
    
    
    
    
    3,086
    
    
    
    Approved
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##### Table of Contents



Resolution
    
    
    For
    
    
    Against
    
    
    Abstention
    
    
    Result15.    Authorization granted to the Board
of Directors to grant options to
subscribe or to purchase Ordinary
Shares of the Company and approval of
the 2007 Stock Option Plan.
    
    
    
    41,893,344
    
    
    
    
    21,300,030
    
    
    
    
    3,064
    
    
    
    Rejected16.    Delegation of powers granted to
the Board of Directors to increase the
Companys share capital through the
issuance of Ordinary Shares, with
subscription reserved to the Business
Objects Employee Benefit Sub- Plan
Trust under the 2001 Stock Incentive
Sub-Plan.
    
    
    
    43,302,111
    
    
    
    
    19,890,195
    
    
    
    
    4,132
    
    
    
    Approved17.    Authorization granted to the Board
of Directors to allocate, free of
charge, existing Ordinary Shares, or
to issue, free of charge, new Ordinary
Shares, to the employees and certain
officers of the Company and its
subsidiaries.
    
    
    
    42,147,994
    
    
    
    
    21,045,158
    
    
    
    
    3,286
    
    
    
    Approved18.    Delegation of authority granted to
the Board of Directors to issue
warrants free of charge in the event
of a public tender offer/exchange
offer for the Company within the
framework of a legal reciprocity
clause.
    
    
    
    23,556,805
    
    
    
    
    39,636,432
    
    
    
    
    3,201
    
    
    
    Rejected19.    Approval of the amendments of the
Companys articles of association to
conform them to the new provisions of
the French Commercial Code, as amended
by French Decree° 2006-1566 dated
December 11, 2006, which modifies
French Decree n° 67-236 as of March
23, 1967 relating to Commercial
Companies.
    
    
    
    63,133,473
    
    
    
    
    59,910
    
    
    
    
    3,055
    
    
    
    Approved20.    Authorization granted to the Board
of Directors to issue warrants to
subscribe up to a maximum of 45,000
Ordinary Shares reserved for Mr.
Arnold Silverman.
    
    
    
    45,814,908
    
    
    
    
    17,378,127
    
    
    
    
    3,400
    
    
    
    Approved21.    Authorization granted to the Board
of Directors to issue warrants to
subscribe up to a maximum of 45,000
Ordinary Shares reserved for Mr.
Bernard Charlès.
    
    
    
    45,639,448
    
    
    
    
    17,498,786
    
    
    
    
    3,201
    
    
    
    Approved22.    Authorization granted to the Board
of Directors to issue warrants to
subscribe up to a maximum of 45,000
Ordinary Shares reserved for Dr. Kurt
Lauk.
    
    
    
    45,830,679
    
    
    
    
    17,362,203
    
    
    
    
    3,155
    
    
    
    Approved23.    Authorization granted to the Board
of Directors to issue warrants to
subscribe up to a maximum of 30,000
Ordinary Shares reserved for Mr. Carl
Pascarella.
    
    
    
    45,833,927
    
    
    
    
    17,359,310
    
    
    
    
    3,200
    
    
    
    Approved24.    Authorization granted to the Board
of Directors to            issue warrants to
subscribe up to a maximum of 45,000
Ordinary Shares reserved for Mr. David
Peterschmidt.
    
    
    
    45,830,178
    
    
    
    
    17,362,905
    
    
    
    
    3,355
    
    
    
    Approved
 
 Item 5. Other Information
  56




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##### Table of Contents



 
  
 Item 6. Exhibits
 Exhibit 3.1
    
    Amended and Restated Bylaws of Business Objects, as amended August 8, 2007 (English translation).Exhibit 10.35.5
    
    Amendment Letter, signed May 31, 2007, between Société Générale and Business Objects S.A.Exhibit 10.35.6
    
    Amendment Letter, signed July 31, 2007, between Société Générale and Business Objects S.A.Exhibit 10.83
    
    Board Charter, as amended June 5, 2007, is incorporated herein by reference to Exhibit 10.83 filed
with our Current Report on Form 8-K filed with the SEC on June 8, 2007 (File No. 000-24720).Exhibit 10.84
    
    Change of Control Severance Agreement dated July 23, 2007 between David Kennedy and Business
Objects Americas.Exhibit 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification of Chief Executive Officer and of Chief Financial Officer furnished pursuant to Rule
13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. 1350).
 57




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##### Table of Contents



SIGNATURES
  Business Objects S.A.
(Registrant)Date: August 9, 2007
    
    By:
    
    /s/ John G. SchwarzJohn G. SchwarzChief Executive OfficerDate: August 9, 2007
    
    By:
    
    /s/ James R. TolonenJames R. TolonenChief Financial Officer and Senior GroupVice President
 58




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##### Table of Contents



EXHIBIT INDEX
 Exhibit 3.1
    
    Amended and Restated Bylaws of Business Objects, as amended August 8, 2007 (English translation).Exhibit 10.35.5
    
    Amendment Letter, signed May 31, 2007, between Société Générale and Business Objects S.A.Exhibit 10.35.6
    
    Amendment Letter, signed July 31, 2007, between Société Générale and Business Objects S.A.Exhibit 10.83
    
    Board Charter, as amended June 5, 2007, is incorporated herein by reference to Exhibit 10.83 filed
with our Current Report on Form 8-K filed with the SEC on June 8, 2007 (File No. 000-24720).Exhibit 10.84
    
    Change of Control Severance Agreement dated July 23, 2007 between David Kennedy and Business
Objects Americas.Exhibit 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification of Chief Executive Officer and of Chief Financial Officer furnished pursuant to Rule
13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. 1350).