##### 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 September 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
    
    98-0355777(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 September 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007
and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4.
    
    Controls and Procedures
    
    
    39PART II.
    
    OTHER INFORMATION
    
    
    40Item 1.
    
    Legal Proceedings
    
    
    40Item 1A.
    
    Risk Factors
    
    
    42Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    61Item 5.
    
    Other Information
    
    
    61Item 6.
    
    Exhibits
    
    
    62SIGNATURES
    
    
    63EXHIBIT 3.1EXHIBIT 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)
 September 30,
    
    
    December 31,2007
    
    
    2006(1)(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    923,923
    
    
    $
    506,792Short-term investments
    
    
    6,919
    
    
    
    5,736Restricted cash
    
    
    37,190
    
    
    
    42,997Accounts receivable, net
    
    
    337,397
    
    
    
    334,387Deferred tax assets
    
    
    17,599
    
    
    
    15,189Prepaid and other current assets
    
    
    85,588
    
    
    
    59,462Total current assets
    
    
    1,408,616
    
    
    
    964,563Goodwill
    
    
    1,571,830
    
    
    
    1,266,057Other intangible assets, net
    
    
    253,844
    
    
    
    128,635Property and equipment, net
    
    
    107,462
    
    
    
    91,091Deposits and other assets
    
    
    23,806
    
    
    
    20,897Long-term restricted cash
    
    
    44,380
    
    
    
    11,131Long-term deferred tax assets
    
    
    15,228
    
    
    
    12,616Total assets
    
    $
    3,425,166
    
    
    $
    2,494,990LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    43,394
    
    
    $
    36,070Accrued payroll and related expenses
    
    
    105,166
    
    
    
    105,967Income taxes payable
    
    
    67,444
    
    
    
    96,088Deferred revenues
    
    
    325,471
    
    
    
    283,631Other current liabilities
    
    
    147,399
    
    
    
    106,776Escrows payable
    
    
    34,632
    
    
    
    34,539Total current liabilities
    
    
    723,506
    
    
    
    663,071Long-term escrows payable
    
    
    40,903
    
    
    
    7,654Convertible long-term debt
    
    
    639,945
    
    
    
    Other long-term liabilities
    
    
    8,381
    
    
    
    7,077Long-term income taxes payable
    
    
    61,081
    
    
    
    Long-term deferred tax liabilities
    
    
    51,187
    
    
    
    4,597Long-term deferred revenues
    
    
    13,634
    
    
    
    9,772Total liabilities
    
    
    1,538,637
    
    
    
    692,171Commitments and contingenciesShareholders equity:Ordinary shares, 0.10 nominal value ($0.14
at September 30, 2007 and $0.13 at December 31,
2006): authorized 267,647 and 263,533; issued
97,505 and 97,424; issued and outstanding
95,258 and 94,932, respectively at September
30, 2007 and December 31, 2006
    
    
    10,758
    
    
    
    10,707Additional paid-in capital
    
    
    1,331,752
    
    
    
    1,320,993Treasury, Business Objects Option LLC, and
Employee Benefit Sub-Plan Trust shares 2,247
shares at September 30, 2007 and 2,492 shares
at December 31, 2006
    
    
    (7,645
    )
    
    
    (5,247
    )Retained earnings
    
    
    449,224
    
    
    
    417,709Accumulated other comprehensive income
    
    
    102,440
    
    
    
    58,657Total shareholders equity
    
    
    1,886,529
    
    
    
    1,802,819Total liabilities and shareholders equity
    
    $
    3,425,166
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)
    
    
    (unaudited)Revenues:Net license fees
    
    $
    139,009
    
    
    $
    131,602
    
    
    $
    425,453
    
    
    $
    380,606Services
    
    
    229,974
    
    
    
    178,833
    
    
    
    641,102
    
    
    
    502,584Total revenues
    
    
    368,983
    
    
    
    310,435
    
    
    
    1,066,555
    
    
    
    883,190Cost of revenues:Net license fees
    
    
    20,463
    
    
    
    10,870
    
    
    
    45,818
    
    
    
    29,122Services
    
    
    86,429
    
    
    
    67,607
    
    
    
    229,156
    
    
    
    194,397Total cost of revenues
    
    
    106,892
    
    
    
    78,477
    
    
    
    274,974
    
    
    
    223,519Gross profit
    
    
    262,091
    
    
    
    231,958
    
    
    
    791,581
    
    
    
    659,671Operating expenses:Sales and marketing
    
    
    145,651
    
    
    
    121,451
    
    
    
    426,472
    
    
    
    362,074Research and development
    
    
    62,356
    
    
    
    50,633
    
    
    
    168,962
    
    
    
    147,014General and administrative
    
    
    37,907
    
    
    
    30,379
    
    
    
    110,187
    
    
    
    89,707Legal contingency reserve (reduction) and settlement
    
    
    (3,050
    )
    
    
    
    
    
    
    22,650
    
    
    
    Restructuring costs (reductions)
    
    
    (1,320
    )
    
    
    
    
    
    
    4,151
    
    
    
    Total operating expenses
    
    
    241,544
    
    
    
    202,463
    
    
    
    732,422
    
    
    
    598,795Income from operations
    
    
    20,547
    
    
    
    29,495
    
    
    
    59,159
    
    
    
    60,876Interest and other income, net
    
    
    2,084
    
    
    
    4,726
    
    
    
    10,110
    
    
    
    10,589Income before provision for income taxes
    
    
    22,631
    
    
    
    34,221
    
    
    
    69,269
    
    
    
    71,465Provision for income taxes
    
    
    (10,204
    )
    
    
    (14,652
    )
    
    
    (29,654
    )
    
    
    (31,610
    )Net income
    
    $
    12,427
    
    
    $
    19,569
    
    
    $
    39,615
    
    
    $
    39,855Basic net income per ordinary share and ADS
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.42
    
    
    $
    0.43Diluted net income per ordinary share and ADS
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.42Ordinary shares and ADSs used in computing basic net
income per ordinary share and ADS
    
    
    94,864
    
    
    
    93,685
    
    
    
    95,061
    
    
    
    93,204Ordinary shares and ADSs and equivalents used in
computing diluted net income per ordinary share and ADS
    
    
    96,757
    
    
    
    94,976
    
    
    
    96,903
    
    
    
    94,922
  4




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##### Table of Contents



BUSINESS OBJECTS S.A.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006(unaudited)Operating activities:Net income
    
    $
    39,615
    
    
    $
    39,855Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    28,308
    
    
    
    23,078Amortization of other intangible assets
    
    
    48,289
    
    
    
    29,937Amortization of debt issuance costs
    
    
    986
    
    
    
    Stock-based compensation expense
    
    
    37,312
    
    
    
    37,853Acquired in-processes research and development
    
    
    2,800
    
    
    
    3,600Loss on disposal of assets
    
    
    243
    
    
    
    244Deferred income taxes
    
    
    (5,032
    )
    
    
    (10,754
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    40,256
    
    
    
    33,453Prepaid and other current assets
    
    
    (16,791
    )
    
    
    (2,159
    )Deposits and other assets
    
    
    10,102
    
    
    
    10,492Accounts payable
    
    
    (1,540
    )
    
    
    (1,245
    )Accrued payroll and related expenses
    
    
    (28,989
    )
    
    
    (9,172
    )Income taxes payable
    
    
    23,933
    
    
    
    29,821Deferred revenues
    
    
    25,816
    
    
    
    34,517Other liabilities
    
    
    8,559
    
    
    
    1,196Short-term investments classified as trading
    
    
    (1,183
    )
    
    
    (543
    )Net cash provided by operating activities
    
    
    212,684
    
    
    
    220,173Investing activities:Purchases of property and equipment
    
    
    (30,629
    )
    
    
    (34,251
    )Business acquisitions, net of acquired cash
    
    
    (383,844
    )
    
    
    (65,233
    )Payments on escrows payable
    
    
    (26,280
    )
    
    
    (14,884
    )Increase in escrows payable
    
    
    59,142
    
    
    
    13,853Transfer of cash to restricted cash accounts
    
    
    (27,442
    )
    
    
    (694
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,625Net cash used in investing activities
    
    
    (409,053
    )
    
    
    (98,584
    )Financing activities:Proceeds from issuance of bonds, net of issuance costs
    
    
    592,702
    
    
    
    Purchase of treasury shares
    
    
    (79,884
    )
    
    
    Issuance of shares
    
    
    53,472
    
    
    
    32,411Net cash provided by financing activities
    
    
    566,290
    
    
    
    32,411Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    47,210
    
    
    
    12,351Net increase in cash and cash equivalents
    
    
    417,131
    
    
    
    166,351Cash and cash equivalents, beginning of the period
    
    
    506,792
    
    
    
    332,777Cash and cash equivalents, end of the period
    
    $
    923,923
    
    
    $
    499,128Supplemental 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
 September 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
      September 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
    
    $
    89.8
    
    
    $
    2.0
    
    
    $
    58.7
    
    
    $
    0.4U.S. dollar equivalent of derivatives designated as cash flow
hedges
    
    $
    99.9
    
    
    $
    2.8
    
    
    $
    67.9
    
    
    $
    1.9
  7




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##### Table of Contents



3. Accounts Receivable
  4. Shareholders Equity
      Stock
    
    
    
    
    
    
    2004For the three months ended September 30, 2007
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    10
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10Cost of services
    
    
    
    
    
    
    1,078
    
    
    
    287
    
    
    
    173
    
    
    
    36
    
    
    
    1,574Sales and marketing
    
    
    
    
    
    
    3,460
    
    
    
    1,142
    
    
    
    400
    
    
    
    103
    
    
    
    5,105Research and development
    
    
    
    
    
    
    1,032
    
    
    
    183
    
    
    
    178
    
    
    
    210
    
    
    
    1,603General and administrative
    
    
    457
    
    
    
    3,153
    
    
    
    1,377
    
    
    
    106
    
    
    
    64
    
    
    
    5,157Total compensation expense
    
    
    457
    
    
    
    8,733
    
    
    
    2,989
    
    
    
    857
    
    
    
    413
    
    
    
    13,449Income tax benefit
    
    
    
    
    
    
    (1,450
    )
    
    
    (694
    )
    
    
    
    
    
    
    
    
    
    
    (2,144
    )Total compensation expense, net of tax
    
    $
    457
    
    
    $
    7,283
    
    
    $
    2,295
    
    
    $
    857
    
    
    $
    413
    
    
    $
    11,305
 Stock
    
    
    
    
    
    
    2004For the three months ended September 30, 2006
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    11
    
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    12Cost of services
    
    
    
    
    
    
    1,198
    
    
    
    37
    
    
    
    164
    
    
    
    101
    
    
    
    1,500Sales and marketing
    
    
    
    
    
    
    3,371
    
    
    
    198
    
    
    
    397
    
    
    
    201
    
    
    
    4,167Research and development
    
    
    
    
    
    
    1,427
    
    
    
    29
    
    
    
    162
    
    
    
    176
    
    
    
    1,794General and administrative
    
    
    250
    
    
    
    3,921
    
    
    
    1,147
    
    
    
    65
    
    
    
    81
    
    
    
    5,464Total compensation expense
    
    
    250
    
    
    
    9,928
    
    
    
    1,411
    
    
    
    789
    
    
    
    559
    
    
    
    12,937Income tax benefit
    
    
    
    
    
    
    (1,540
    )
    
    
    (115
    )
    
    
    
    
    
    
    
    
    
    
    (1,655
    )Total compensation expense, net of tax
    
    $
    250
    
    
    $
    8,388
    
    
    $
    1,296
    
    
    $
    789
    
    
    $
    559
    
    
    $
    11,282
 8




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##### Table of Contents



Stock
    
    
    
    
    
    
    2004For the nine months ended September 30, 2007
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    27
    
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    28Cost of services
    
    
    
    
    
    
    3,021
    
    
    
    612
    
    
    
    601
    
    
    
    47
    
    
    
    4,281Sales and marketing
    
    
    
    
    
    
    9,869
    
    
    
    2,691
    
    
    
    1,446
    
    
    
    157
    
    
    
    14,163Research and development
    
    
    
    
    
    
    3,121
    
    
    
    341
    
    
    
    618
    
    
    
    294
    
    
    
    4,374General and administrative
    
    
    1,241
    
    
    
    9,098
    
    
    
    3,715
    
    
    
    318
    
    
    
    93
    
    
    
    14,465Total compensation expense
    
    
    1,241
    
    
    
    25,136
    
    
    
    7,359
    
    
    
    2,983
    
    
    
    592
    
    
    
    37,311Income tax benefit
    
    
    
    
    
    
    (3,903
    )
    
    
    (1,601
    )
    
    
    
    
    
    
    
    
    
    
    (5,504
    )Total compensation expense, net of tax
    
    $
    1,241
    
    
    $
    21,233
    
    
    $
    5,758
    
    
    $
    2,983
    
    
    $
    592
    
    
    $
    31,807
 Stock
    
    
    
    
    
    
    2004For the nine months ended September 30, 2006
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    TotalCost of license fees
    
    $
    
    
    
    $
    30
    
    
    $
    
    
    
    $
    4
    
    
    $
    
    
    
    $
    34Cost of services
    
    
    
    
    
    
    3,604
    
    
    
    48
    
    
    
    533
    
    
    
    107
    
    
    
    4,292Sales and marketing
    
    
    
    
    
    
    9,489
    
    
    
    298
    
    
    
    1,369
    
    
    
    216
    
    
    
    11,372Research and development
    
    
    
    
    
    
    4,682
    
    
    
    50
    
    
    
    516
    
    
    
    208
    
    
    
    5,456General and administrative
    
    
    691
    
    
    
    10,591
    
    
    
    5,103
    
    
    
    224
    
    
    
    90
    
    
    
    16,699Total compensation expense
    
    
    691
    
    
    
    28,396
    
    
    
    5,499
    
    
    
    2,646
    
    
    
    621
    
    
    
    37,853Income tax benefit
    
    
    
    
    
    
    (4,203
    )
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    (4,392
    )Total compensation expense, net of tax
    
    $
    691
    
    
    $
    24,193
    
    
    $
    5,310
    
    
    $
    2,646
    
    
    $
    621
    
    
    $
    33,461
  Assumptions used
    

For
the three months ended September 30, 2007
    
    
    

For the three months ended September 30, 2006Stock
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    
    2004Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPPExpected volatility
    
    
    N/A
    
    
    
    43
    %
    
    
    N/A
    
    
    
    22
    %
    
    
    N/A
    
    
    
    
    49
    %
    
    
    50
    %
    
    
    N/A
    
    
    
    32
    %
    
    
    N/ARisk-free interest rate (1)
    
    
    N/A
    
    
    
    4.48
    %
    
    
    N/A
    
    
    
    4.14
    %
    
    
    N/A
    
    
    
    
    3.86
    %
    
    
    3.73
    %
    
    
    N/A
    
    
    
    3.03
    %
    
    
    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
    %
    
    
    8
    %
    
    
    N/A
    
    
    
    
    0
    %
    
    
    14
    %
    
    
    14
    %
    
    
    8
    %
    
    
    N/ARest of the world
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    8
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    8
    %
    
    
    N/ADividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value in $
    
    
    N/A
    
    
    
    16.02
    
    
    
    43.14
    
    
    
    8.31
    
    
    
    9.95
    
    
    
    $
    12.51
    
    
    
    10.08
    
    
    
    23.80
    
    
    
    8.04
    
    
    
    11.00Expected life of options
(years)
    
    
    N/A
    
    
    
    4.03
    
    
    
    2.07
    
    
    
    0.50
    
    
    
    N/A
    
    
    
    
    5.28
    
    
    
    4.44
    
    
    
    2.00
    
    
    
    0.50
    
    
    
    N/A
 Assumptions used
    

For the nine months ended September 30, 2007
    
    
    

For the nine months ended September 30, 2006Stock
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    
    2004Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPP
    
    
    
    Warrants
    
    
    options
    
    
    RSUs
    
    
    IESPP
    
    
    ESPPExpected volatility
    
    
    44
    %
    
    
    46
    %
    
    
    N/A
    
    
    
    37
    %
    
    
    N/A
    
    
    
    
    49
    %
    
    
    48
    %
    
    
    N/A
    
    
    
    32
    %
    
    
    N/ARisk-free interest rate (1)
    
    
    4.50
    %
    
    
    4.35
    %
    
    
    N/A
    
    
    
    3.93
    %
    
    
    N/A
    
    
    
    
    3.86
    %
    
    
    3.71
    %
    
    
    N/A
    
    
    
    2.70
    %
    
    
    N/ATurnover rateFrance
    
    
    N/A
    
    
    
    12
    %
    
    
    12
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    12
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AOfficers/ Directors
    
    
    0
    %
    
    
    14
    %
    
    
    14
    %
    
    
    10
    %
    
    
    N/A
    
    
    
    
    0
    %
    
    
    14
    %
    
    
    14
    %
    
    
    11
    %
    
    
    N/ARest of the world
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    10
    %
    
    
    N/A
    
    
    
    
    N/A
    
    
    
    20
    %
    
    
    20
    %
    
    
    11
    %
    
    
    N/ADividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value in $
    
    $
    16.50
    
    
    
    15.86
    
    
    
    39.84
    
    
    
    9.65
    
    
    
    6.53
    
    
    
    $
    12.51
    
    
    
    12.60
    
    
    
    31.15
    
    
    
    8.23
    
    
    
    7.01Expected life of options
(years)
    
    
    5.01
    
    
    
    4.25
    
    
    
    2.01
    
    
    
    0.50
    
    
    
    N/A
    
    
    
    
    5.28
    
    
    
    4.74
    
    
    
    1.72
    
    
    
    0.50
    
    
    
    N/A
 
 (1)
    
    The Company used the five to seven years IBoxx Eurozone interest rate for the stock options
and warrants with exercise prices denominated in euros granted to French employees and
Directors, and the three to five years IBoxx Eurozone interest rate for the options with
exercise prices denominated in euros granted to rest of the world. The Company used the
Euribor six month interest rate for the IESPP with a subscription price denominated in euros. 9




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##### Table of Contents



Weighted-averageWeighted
    
    
    
    
    
    remainingNumber of awards
    
    average
    
    Aggregate
    
    contractualStock
    
    
    
    
    
    exercise
    
    intrinsic
    
    term (inWarrants
    
    options
    
    RSUs
    
    price(1)
    
    value (2)
    
    years)Outstanding at January 1, 2007
    
    
    405
    
    
    
    12,187
    
    
    
    690
    
    
    $
    31.86
    
    
    $
    137,011
    
    
    
    6.28Granted (3)
    
    
    210
    
    
    
    1,663
    
    
    
    519
    
    
    
    31.62
    
    
    
    20,691Cancelled / Expired
    
    
    
    
    
    
    (924
    )
    
    
    (68
    )
    
    
    35.61
    
    
    
    7,248Exercised / vested
    
    
    (30
    )
    
    
    (1,894
    )
    
    
    (163
    )
    
    
    20.87
    
    
    
    41,061Outstanding at September 30, 2007
    
    
    585
    
    
    
    11,032
    
    
    
    978
    
    
    
    35.80
    
    
    
    144,576
    
    
    
    5.72Exercisable at September 30, 2007
    
    
    330
    
    
    
    6,502
    
    
    
    
    
    
    
    38.96
    
    
    
    70,769
    
    
    
    5.50Unvested expected to vest at
September 30, 2007
    
    
    255
    
    
    
    3,738
    
    
    
    834
    
    
    
    30.39
    
    
    
    62,283
    
    
    
    6.24
 
 (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 the Nasdaq Global Select Market on
January 1, 2007, at the grant date, at the cancellation date, at the exercise date or at
September 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 Global Select Market.(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
    
    
    519
    
    
    
    39.84Cancelled/Expired
    
    
    (68
    )
    
    
    30.08Vested
    
    
    (163
    )
    
    
    33.64Unvested at September 30, 2007
    
    
    978
    
    
    
    37.77
     5. Acquisitions
  Acquisition of Inxight Software, Inc.
    Purchase
    
    Net Tangible
    
    
    
    
    
    In-ProcessConsideration
    
    Liabilities
    
    Fair Value of
    
    R&DAcquisition
    
    (1)
    
    Acquired
    
    Intangibles
    
    (IPR&D)
    
    GoodwillInxight
    
    $
    78
    
    
    
    ($7
    )
    
    $
    30
    
    
    $
    3
    
    
    $
    52
 
 (1)
    
    Purchase consideration under the purchase method of accounting included approximately $1
million in transaction costs. 11




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##### Table of Contents



MaintenanceDeveloped
    
    Contracts and
    
    License
    
    ConsultingTechnology
    
    Relationships
    
    Relationships
    
    Relationships
    
    Trade NameEstimated
    
    
    
    
    
    Estimated
    
    
    
    
    
    Estimated
    
    
    
    
    
    Estimated
    
    
    
    
    
    EstimatedUseful
    
    
    
    
    
    Useful
    
    
    
    
    
    Useful
    
    
    
    
    
    Useful
    
    
    
    
    
    UsefulFair
    
    Life (in
    
    Fair
    
    Life (in
    
    
    
    
    
    Life (in
    
    Fair
    
    Life (in
    
    Fair
    
    Life (inAcquisition
    
    Value
    
    Years)
    
    Value
    
    Years)
    
    Fair Value
    
    Years)
    
    Value
    
    Years)
    
    Value
    
    Years)
    
    TotalInxight
    
    $
    24.4
    
    
    
    4 to 5
    
    
    $
    2.9
    
    
    
    6
    
    
    $
    1.9
    
    
    
    3
    
    
    $
    0.1
    
    
    
    3
    
    
    $
    0.9
    
    
    
    5
    
    
    $
    30.2
  Acquisition of Cartesis S.A.
 
    
 12




---



##### Table of Contents



Net Tangible
    
    
    
    
    
    In-ProcessPurchase
    
    Liabilities
    
    Fair Value of
    
    R&DAcquisition
    
    Consideration
    
    Acquired
    
    Intangibles
    
    (IPR&D)
    
    GoodwillCartesis
    
    $
    331
    
    
    
    ($32
    )
    
    $
    133
    
    
    $
    
    
    
    $
    230
 
 (1)
    
    Purchase consideration under the purchase method of accounting included approximately $6
million in transaction costs.    (in millions)Balance at April 1, 2007
    
    $
    Accrued
    
    
    10.0Payments
    
    
    (1.2
    )Balance at June 30, 2007
    
    $
    8.8Accrued
    
    
    1.0Payments
    
    
    (3.3
    )Adjustments
    
    
    0.4Balance at September 30, 2007
    
    $
    6.9
  (in millions)Balance at April 1, 2007
    
    $
    Charges
    
    
    5.5Payments
    
    
    (
    )Balance at June 30, 2007
    
    $
    5.5Reversals
    
    
    (1.3
    )Payments
    
    
    (0.8
    )Adjustments
    
    
    0.2Balance at September 30, 2007
    
    $
    3.6
 13




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##### 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 (inAcquisition
    
    Value
    
    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
   Nine MonthsEnded
    
    
    Year EndedSeptember 30,
    
    
    December 31,2007
    
    
    2006Balance, beginning of the year
    
    $
    1,266.0
    
    
    $
    1,166.0Goodwill acquired during the period
    
    
    286.5
    
    
    
    90.6Goodwill adjustments relating to prior period acquisitions
    
    
    3.7
    
    
    
    6.2Impact of foreign currency fluctuations on goodwill
    
    
    15.6
    
    
    
    3.2Balance, end of the period
    
    $
    1,571.8
    
    
    $
    1,266.0
   September 30,
    
    
    December 31,2007
    
    
    2006Developed technology
    
    $
    305.8
    
    
    $
    173.5Maintenance and support contracts
    
    
    79.9
    
    
    
    57.0Trade names
    
    
    10.7
    
    
    
    9.3License contracts and relationships
    
    
    26.3
    
    
    
    2.8Workforce
    
    
    1.7
    
    
    
    1.5Total other intangible assets, at cost
    
    
    424.4
    
    
    
    244.1Accumulated amortization on other intangible assets
    
    
    (170.6
    )
    
    
    (115.5
    )Other intangible assets, net
    
    $
    253.8
    
    
    $
    128.6
 14




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Amortization of:Developed technology (included in cost of net license fees)
    
    $
    15.5
    
    
    $
    7.9
    
    
    $
    34.4
    
    
    $
    20.9Maintenance and support contracts (included in cost of services revenues)
    
    
    3.7
    
    
    
    2.3
    
    
    
    9.6
    
    
    
    7.7Trade names (included in operating expenses)
    
    
    0.6
    
    
    
    0.4
    
    
    
    1.7
    
    
    
    1.1License contracts and relationships (included in cost of net license fees)
    
    
    1.5
    
    
    
    0.1
    
    
    
    2.4
    
    
    
    0.1Workforce (included in operating expenses)
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Total other intangibles amortization expense
    
    $
    21.4
    
    
    $
    10.8
    
    
    $
    48.3
    
    
    $
    29.9
  Remainder of 2007
    
    $
    21.92008
    
    
    84.42009
    
    
    54.02010
    
    
    45.92011
    
    
    31.3Thereafter
    
    
    16.3Total
    
    $
    253.8
 7. Net Income per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands, except per share data)Basic net income per share:Numerator:Net income
    
    $
    12,427
    
    
    $
    19,569
    
    
    $
    39,615
    
    
    $
    39,855Denominator:Weighted average ordinary shares and ADSs outstanding  basic
    
    
    94,864
    
    
    
    93,685
    
    
    
    95,061
    
    
    
    93,204Net income per share  basic
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.42
    
    
    $
    0.43Diluted net income per share:Numerator:Net income
    
    $
    12,427
    
    
    $
    19,569
    
    
    $
    39,615
    
    
    $
    39,855Denominator:Weighted average ordinary shares and ADSs outstanding  basic
    
    
    94,864
    
    
    
    93,685
    
    
    
    95,061
    
    
    
    93,204Incremental ordinary shares and ADSs attributable to shares
exercisable under employee stock option plans, warrants and
RSUs (treasury stock method)
    
    
    1,893
    
    
    
    1,291
    
    
    
    1,842
    
    
    
    1,718Weighted average ordinary shares and ADSs outstanding  diluted
    
    
    96,757
    
    
    
    94,976
    
    
    
    96,903
    
    
    
    94,922Net income per share  diluted
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.42
 15




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##### Table of Contents



8. Convertible Debt
 Autorité des
marchés 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).
   
    
    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.
  16




---



##### Table of Contents




    
    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.
     
  September 30,
    
    December 31,2007
    
    2006Bonds payable
    
    $
    639,945
    
    
    
    
 
   9. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    

September
30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Net income
    
    $
    12,427
    
    
    $
    19,569
    
    
    $
    39,615
    
    
    $
    39,855Other comprehensive income:Foreign currency translation adjustments
    
    
    24,086
    
    
    
    (1,470
    )
    
    
    40,066
    
    
    
    15,942Unrealized net gains (losses) on cash flow hedges, net of tax
    
    
    1,524
    
    
    
    319
    
    
    
    2,566
    
    
    
    (130
    )Realized net (gains) losses on cash flow hedges, net of tax,
reclassified into earnings
    
    
    (788
    )
    
    
    61
    
    
    
    768
    
    
    
    183Other
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    Total comprehensive income
    
    $
    37,249
    
    
    $
    18,479
    
    
    $
    83,398
    
    
    $
    55,850
 17




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##### Table of Contents



10. Business Segment Information
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006United States
    
    $
    180.3
    
    
    $
    165.3
    
    
    $
    519.3
    
    
    $
    457.9Europe, Middle East and Africa, excluding France
    
    
    103.0
    
    
    
    89.8
    
    
    
    316.2
    
    
    
    260.6France
    
    
    42.1
    
    
    
    22.8
    
    
    
    112.9
    
    
    
    71.1Americas, excluding the United States
    
    
    17.3
    
    
    
    9.9
    
    
    
    40.2
    
    
    
    31.9Asia Pacific
    
    
    26.3
    
    
    
    22.6
    
    
    
    78.0
    
    
    
    61.7Total revenues
    
    $
    369.0
    
    
    $
    310.4
    
    
    $
    1,066.6
    
    
    $
    883.2
 11. Commitments and Contingencies
 Legal matters
 Vedatech Corporation.
     18




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##### Table of Contents



Informatica Corporation
   19




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##### Table of Contents



Decision Warehouse Consultoria E Importacao Ltda
 Decision Warehouse
 Other Legal Proceedings
   20




---



##### Table of Contents



Commitments
  12. Escrows Payable and Restricted Cash
       13. Credit Agreement
   
  
 21




---



##### 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.
 15. Income Taxes
  22




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##### Table of Contents




    16. Subsequent Events
 Business Objects S.A. and SAP AG Tender Offer Agreement
 
 23




---



##### Table of Contents



société anonyme
     
  
 
 Acquisition of FUZZY! Informatik AG
  
 24




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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
 Business Objects S.A. and SAP AG Tender Offer Agreement
 
 société anonyme Autorité des marchés financiers
     
  25




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##### Table of Contents




 
 Acquisition of FUZZY! Informatik AG
  
 26




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##### Table of Contents



Key Performance Indicators
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(In millions, except for percentages and diluted net income per share)
    
    2007
    
    2006
    
    2007
    
    2006Revenues
    
    $
    369.0
    
    
    $
    310.4
    
    
    $
    1,066.6
    
    
    $
    883.2Growth in revenues (compared to prior year period)
    
    
    19
    %
    
    
    19
    %
    
    
    21
    %
    
    
    14
    %Income from operations
    
    $
    20.5
    
    
    $
    29.5
    
    
    $
    59.2
    
    
    $
    60.9Income from operations as percentage of total revenues
    
    
    5
    %
    
    
    10
    %
    
    
    6
    %
    
    
    7
    %Diluted net income per share
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.42
 Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net license fees
    
    
    38
    %
    
    
    42
    %
    
    
    40
    %
    
    
    43
    %Services revenues:Maintenance and technical support
    
    
    44
    
    
    
    41
    
    
    
    43
    
    
    
    41Professional services
    
    
    18
    
    
    
    17
    
    
    
    17
    
    
    
    16Total services revenues
    
    
    62
    
    
    
    58
    
    
    
    60
    
    
    
    57Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of net license fees
    
    
    6
    
    
    
    3
    
    
    
    4
    
    
    
    3Cost of services
    
    
    23
    
    
    
    22
    
    
    
    22
    
    
    
    22Total cost of revenues
    
    
    29
    
    
    
    25
    
    
    
    26
    
    
    
    25Gross margin
    
    
    71
    
    
    
    75
    
    
    
    74
    
    
    
    75Operating expenses:Sales and marketing
    
    
    39
    
    
    
    39
    
    
    
    40
    
    
    
    41Research and development
    
    
    17
    
    
    
    16
    
    
    
    16
    
    
    
    17General and administrative
    
    
    10
    
    
    
    10
    
    
    
    10
    
    
    
    10Legal contingency reserve
(reduction) and settlement
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Total operating expenses
    
    
    66
    
    
    
    65
    
    
    
    68
    
    
    
    68Income from operations (operating margin)
    
    
    5
    
    
    
    10
    
    
    
    6
    
    
    
    7Interest and other income (expense), net
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Income before provision for income taxes
    
    
    6
    
    
    
    11
    
    
    
    7
    
    
    
    8Provision for income taxes
    
    
    (3
    )
    
    
    (5
    )
    
    
    (3
    )
    
    
    (4
    )Net income
    
    
    3
    %
    
    
    6
    %
    
    
    4
    %
    
    
    4
    %
 Seasonality
  Impact of Foreign Currency Exchange Rate Fluctuations on Results of Operations
  27




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Total revenues
    
    $
    12.9
    
    
    $
    6.5
    
    
    $
    42.1
    
    
    $
    (7.1
    )Total cost of revenues
    
    
    4.4
    
    
    
    2.2
    
    
    
    11.6
    
    
    
    (0.9
    )Sales and marketing expenses
    
    
    5.4
    
    
    
    3.4
    
    
    
    15.0
    
    
    
    1.4Research and development expenses
    
    
    2.8
    
    
    
    1.7
    
    
    
    6.8
    
    
    
    0.8General and administrative expenses
    
    
    1.0
    
    
    
    0.8
    
    
    
    3.7
    
    
    
    (0.3
    )
   Revenues
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Net license fees
    
    $
    139.0
    
    
    $
    131.6
    
    
    $
    425.5
    
    
    $
    380.6Service revenues:Maintenance and technical support
    
    
    162.8
    
    
    
    128.5
    
    
    
    458.7
    
    
    
    360.6Professional services
    
    
    67.2
    
    
    
    50.3
    
    
    
    182.4
    
    
    
    142.0Total service revenues
    
    
    230.0
    
    
    
    178.8
    
    
    
    641.1
    
    
    
    502.6Total revenues
    
    $
    369.0
    
    
    $
    310.4
    
    
    $
    1,066.6
    
    
    $
    883.2
 Net License Fees
   28




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Services Revenues
    Geographic Revenues Mix
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Americas (1)
    
    $
    197.6
    
    
    $
    175.1
    
    
    $
    559.5
    
    
    $
    489.8Europe, Middle East and Africa (EMEA) (2)
    
    
    145.1
    
    
    
    112.7
    
    
    
    429.1
    
    
    
    331.7Asia Pacific
    
    
    26.3
    
    
    
    22.6
    
    
    
    78.0
    
    
    
    61.7Total revenues
    
    $
    369.0
    
    
    $
    310.4
    
    
    $
    1,066.6
    
    
    $
    883.2
 
 (1)
    
    Includes revenues in the United States of $180.3 million and $165.3 million for the three
months ended September 30, 2007 and 2006, respectively. Includes revenues in the United States
of $519.3 million and $457.9 million for the nine months ended September 30, 2007 and 2006,
respectively.(2)
    
    Includes revenues in France of $42.1 million and $22.8 million for the three months ended
September 30, 2007 and 2006, respectively. Includes revenues in France of $112.9 million and
$71.1 million for the nine months ended September 30, 2007 and 2006, respectively. 29




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Cost of Revenues
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Cost of revenues:Net license fees
    
    $
    20.5
    
    
    $
    10.9
    
    
    $
    45.8
    
    
    $
    29.1Services
    
    
    86.4
    
    
    
    67.6
    
    
    
    229.2
    
    
    
    194.4Total cost of revenues
    
    $
    106.9
    
    
    $
    78.5
    
    
    $
    275.0
    
    
    $
    223.5
  30




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Cost of net license fees
   Cost of services revenues
    Operating Expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Sales and marketing
    
    $
    145.6
    
    
    $
    121.5
    
    
    $
    426.5
    
    
    $
    362.1Research and development
    
    
    62.4
    
    
    
    50.6
    
    
    
    169.0
    
    
    
    147.0General and administrative
    
    
    37.8
    
    
    
    30.4
    
    
    
    110.1
    
    
    
    89.7Legal contingency reserve (reduction) and settlement
    
    
    (3.0
    )
    
    
    
    
    
    
    22.7
    
    
    
    Restructuring costs (reductions)
    
    
    (1.3
    )
    
    
    
    
    
    
    4.1
    
    
    
    Total operating expenses
    
    $
    241.5
    
    
    $
    202.5
    
    
    $
    732.4
    
    
    $
    598.8
  31




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Sales and Marketing Expenses
   Research and Development Expenses
   General and Administrative Expenses
   Legal Contingency Reserve (Reduction) and Settlement
  32




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Microsoft v. AT&T Corp
     Restructuring
Costs (Reductions)
  Interest and Other Income, Net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in millions)
    
    
    (in millions)Net interest income
    
    $
    8.4
    
    
    $
    4.4
    
    
    $
    20.4
    
    
    $
    11.0Interest expense and amortization of debt issuance costs
    
    
    (4.4
    )
    
    
    (0.1
    )
    
    
    (7.0
    )
    
    
    (0.1
    )Net foreign exchange gain (loss)
    
    
    (1.5
    )
    
    
    0.3
    
    
    
    (3.5
    )
    
    
    (0.5
    )Other income (loss)
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2Interest and other income, net
    
    $
    2.1
    
    
    $
    4.7
    
    
    $
    10.1
    
    
    $
    10.6
 Net interest income
  33




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Interest expense and amortization of debt issuance costs
  Net foreign exchange losses
   Income Taxes
  Liquidity and Capital Resources
  Nine Months EndedSeptember 30,2007
    
    
    2006(in millions)Cash flow provided by operating activities
    
    $
    212.7
    
    
    $
    220.2Cash flow used in investing activities
    
    
    (409.1
    )
    
    
    (98.6
    )Cash flow provided by financing activities
    
    
    566.3
    
    
    
    32.4Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    47.2
    
    
    
    12.4Net increase in cash and cash equivalents from December 31
    
    $
    417.1
    
    
    $
    166.4
   Operating Activities
  34




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Investing Activities
  35




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Financing Activities
  36




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Future Liquidity Requirements
    Contractual Obligations
  Guarantees
 Guarantors Accounting for Guarantees
  37




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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
 38




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Managements Discussion and Analysis of Financial Condition and Results of Operations
 Recent and Pending Pronouncements
  Accounting for Convertible Debt Instruments That Require or Permit Partial Cash Settlement upon
Conversion
 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
   39




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Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Vedatech Corporation
         40




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Informatica Corporation
  Microsoft v. AT&T Corp
    41




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Decision Warehouse Consultoria E Importacao Ltda
 Decision Warehouse
 Other Legal Proceedings
   
 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 Proposed Acquisition by SAP
 Our business and results of operations are likely to be affected by our announced acquisition
by SAP.
  If the conditions to the proposed acquisition by SAP set forth in the Tender Offer Agreement
are not met, the acquisition may not occur and the market price of our securities could decline.
  42




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Failure to complete the proposed acquisition by SAP would negatively affect our future
business and operations. If the sale to SAP is not completed, we could suffer a number of
consequences that may adversely affect our business, results of operations and stock price.
  
    
    activities relating to the acquisition and related uncertainties may lead to a loss
of revenue and market position that we may not be able to regain if the acquisition does
not occur;
    
    we could be required to pay SAP a termination fee of 86.0 million (or approximately $122 million at then current exchange rates) or reimburse
SAP for its costs, including up to 5.0 million of financing commitment fees;
    
    we would remain liable for our costs related to the acquisition, such as legal and
accounting fees and a portion of our investment banking fees;
    
    we may not be able to take advantage of alternative business opportunities or respond
to competitive pressures effectively;
    
    the price of our ordinary shares, ADSs and Company Convertible Bonds may decline to
the extent that the current market price for our shares reflects the market assumption
that the acquisition will be completed;
    
    we may not be able to retain key employees; and
    
    we may not be able to maintain effective internal control over financial reporting
due to employee departures.
 The value of the cash consideration that our shareholders will be entitled to receive upon the
completion of the proposed tender offer with SAP is based on a fixed per security amount and may
therefore decrease in value relative to the market price of our ordinary shares, ADSs or Company
Convertible Bonds at the time the securities are tendered.
  43




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The public trading market for our shares may be limited after the completion of the initial Offers
and prior to the implementation of a squeeze-out of our remaining shares not tendered to SAP.
   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 (a) in anticipation of (i) changes to our or our
competitors product line, (ii) new products or platforms by us or our competitors or (iii)
product enhancements by us or our competitors, or (b) in response to announced pricing
changes by us or our competitors; or (c) until industry analysts have commented on the
products or customers have had an opportunity to evaluate competitors products;
    
    customers have generally delayed purchasing new incremental licenses or functionalities
of our products if they are in the process of migrating to a new product platform, such as
with our Business Objects XI product, and we expect this trend to continue in the future with
respect to Business Objects XI as there are still many customers who have not yet completed
the migration process and some that have not yet begun the process;
    
    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.
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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.
    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.
   45




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We may pursue strategic acquisitions and investments that could have an adverse effect on our business if they are unsuccessful.
  
    
    Our 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;
    
    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.
 
 46




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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.
  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.
   47




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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 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.
  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;
 48




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
    
    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 be able to maintain viable relationships with the owners of the Information
OnDemand content providers and thus be forced to interrupt the Information OnDemand service
to our customers;
    
    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;
    
    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.
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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.
   50




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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.
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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.
  52




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We cannot be certain that our internal control over financial reporting will be effective or
sufficient in the future.
    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;
 53




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
    
    Contingencies and litigation;
    
    Accounting for income taxes;
    
    Stock-based compensation; and
    
    Accounting for convertible debt instruments.
  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.
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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.
  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;
 55




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
    
    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.
  
    
    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;
 56




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
    
    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 Company Convertible 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.
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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.
 
    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.
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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.
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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.
  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
 
 
 Item 5. Other Information
  
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Item 6. Exhibits
 Exhibit 3.1
    
    Amended and Restated Bylaws of Business Objects, as amended November 2, 2007 (English translation).Exhibit 2.1 (1)
    
    Tender Offer Agreement dated October 7, 2007 by and among Business Objects S.A. and SAP AG.Exhibit 10.1 (2)
    
    French Employee Savings Plan, as amended June 28, 2007.Exhibit 10.2 (2)
    
    2004 International Employee Stock Purchase Plan, as amended June 5, 2007.Exhibit 10.3 (2)
    
    2006 Stock Plan, as amended June 5, 2007.Exhibit 10.4 (2)
    
    Form of Stock Subscription Warrant Agreement for each of Arnold Silverman, Bernard Charlès, Kurt
Lauk, Carl Pascarella and David Peterschmidt.Exhibit 10.5 (3)
    
    2001 Stock Incentive Plan  Subsidiary Stock Incentive Sub-Plan, as amended June 5, 2007.Exhibit 10.6 (3)
    
    Business Objects S.A. 2001 Stock Incentive Plan Subsidiary Stock Incentive Sub-Plan Restricted
Stock Award Agreement, as amended June 5, 2007.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).
 
 (1)
    
    Incorporated by reference from Exhibit 2.1 of our Current Report on Form 8-K filed with the SEC
on October 9, 2007.(2)
    
    Incorporated by reference from our Registration of Form S-8 (333-145037) filed with the SEC on
August 1, 2007.(3)
    
    Incorporated by reference from our Registration of Form S-3 (333-145039) filed with the SEC on
August 1, 2007. 62




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SIGNATURES
  Business Objects S.A.
(Registrant)Date: November 8, 2007
    
    By:
    
    /s/ John G. SchwarzJohn G. SchwarzChief Executive OfficerDate: November 8, 2007
    
    By:
    
    /s/ James R. TolonenJames R. TolonenChief Financial Officer and Senior GroupVice President
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EXHIBIT INDEX
 Exhibit 3.1
    
    Amended and Restated Bylaws of Business Objects, as amended November 2, 2007 (English translation).Exhibit 2.1 (1)
    
    Tender Offer Agreement dated October 7, 2007 by and among Business Objects S.A. and SAP AG.Exhibit 10.1 (2)
    
    French Employee Savings Plan, as amended June 28, 2007.Exhibit 10.2 (2)
    
    2004 International Employee Stock Purchase Plan, as amended June 5, 2007.Exhibit 10.3 (2)
    
    2006 Stock Plan, as amended June 5, 2007.Exhibit 10.4 (2)
    
    Form of Stock Subscription Warrant Agreement for each of Arnold Silverman, Bernard Charlès, Kurt
Lauk, Carl Pascarella and David Peterschmidt.Exhibit 10.5 (3)
    
    2001 Stock Incentive Plan  Subsidiary Stock Incentive Sub-Plan, as amended June 5, 2007.Exhibit 10.6 (3)
    
    Business Objects S.A. 2001 Stock Incentive Plan Subsidiary Stock Incentive Sub-Plan Restricted
Stock Award Agreement, as amended June 5, 2007.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).
 
 (1)
    
    Incorporated by reference from Exhibit 2.1 of our Current Report on Form 8-K filed with the SEC
on October 9, 2007.(2)
    
    Incorporated by reference from our Registration of Form S-8 (333-145037) filed with the SEC on
August 1, 2007.(3)
    
    Incorporated by reference from our Registration of Form S-3 (333-145039) filed with the SEC on
August 1, 2007. 64