BORL Borland Software (MM)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2009

OR

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

For the transition period from                      to                     

001-10824
(Commission File Number)

 

Borland Software Corporation

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		94-2895440
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8310 NORTH CAPITAL OF TEXAS HIGHWAY, BUILDING 2, SUITE 100
AUSTIN, TEXAS 78731
(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (512) 340-2200

Former address: 8303 N. MO-PAC EXPRESSWAY, SUITE A-300, AUSTIN, TEXAS 78759
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of April 30, 2009, the most recent practicable date prior to the filing of this report, was 73,115,736.

 

 

BORLAND SOFTWARE CORPORATION FORM 10-Q

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			3
Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008 (As Adjusted, See Note 1 and Note 5)			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 (As Adjusted, See Note 1 and Note 5)			4
Condensed Consolidated Statements of Comprehensive Income Loss) for the three months ended March 31, 2009 and 2008 (As Adjusted, See Note 1 and Note 5)			5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (As Adjusted, See Note 1 and Note 5)			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults upon Senior Securities			43
Item 4. Submission of Matters to a Vote of Security Holders			43
Item 5. Other Information			43
Item 6. Exhibits			44
Signatures			45
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts, unaudited)

						(As Adjusted)
		March 31, 2009				December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents		$	93,942			$	108,132
Investments, at fair value			40,653				59,575
Accounts receivable, net of allowance of $1,044 and $1,174, respectively			39,133				33,159
Prepaid expenses			5,643				7,642
Assets of discontinued operation			3,734				443
Other assets			1,941				2,098
Total current assets			185,046				211,049
Property and equipment, net of accumulated depreciation of $18,185 and $30,663, repectively			7,943				8,494
Intangible assets, net of accumulated amortization of $47,280 and $45,236, respectively			22,452				24,520
Non current assets of discontinued operation			—				3,734
Other assets			3,676				4,112
Total assets		$	219,117			$	251,909
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	3,997			$	5,045
Accrued expenses			13,731				13,956
Accrued restructuring			2,707				3,990
Deferred revenue			50,583				40,720
Liabilities of discontinued operation			5,611				4,208
Other liabilities			2,444				5,371
Total current liabilities			79,073				73,290
Long-term liabilities:
Convertible senior notes, net of discount of $16,436, and $24,513, respectively			98,548				134,787
Accrued restructuring			576				911
Deferred revenue			2,038				2,298
Income taxes payable			16,532				17,157
Liabilities of discontinued operation			—				2,382
Other liabilities			5,751				5,707
Total liabilities			202,518				236,532
Commitments and Contingencies
Stockholders’ equity:
Preferred stock; $.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding			—				—
Common stock, $.01 par value, 200,000,000 shares authorized (2009: 94,652,702 issued and 73,115,736 outstanding; 2008: 94,552,738 issued and 73,015,772 outstanding)			731				730
Additional paid-in capital			717,616				717,141
Accumulated deficit			(567,527	)			(569,415	)
Accumulated other comprehensive income			6,188				7,330
Treasury stock at cost, (2009 and 2008: 21,536,966 shares)			(140,409	)			(140,409	)
Total stockholders’ equity			16,599				15,377
Total liabilities and stockholders’ equity		$	219,117			$	251,909

The accompanying notes are an integral part of these condensed consolidated financial statements.

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts, unaudited)

		Three Months Ended
		March 31,
		2009				2008
						(As Adjusted)
Revenues:
License and other revenues		$	13,724			$	18,537
Service revenues			21,326				27,522
Total revenues			35,050				46,059
Costs of revenues:
Cost of license and other revenues			945				677
Cost of service revenues			5,918				8,864
Amortization of acquired intangibles			1,929				2,100
Cost of revenues			8,792				11,641
Gross profit			26,258				34,418
Selling, general and administrative			20,128				33,061
Research and development			10,564				11,787
Restructuring and other charges			1,544				1,463
Total operating expenses			32,236				46,311
Operating loss			(5,978	)			(11,893	)
Interest income			745				1,752
Interest expense (includes non-cash debt discount amortization of $1,627 for 2009 and $2,007 for 2008)			(2,883	)			(3,658	)
Gain on debt repurchase			9,942				—
Other income, net			157				582
Income (loss) from continuing operations before income taxes			1,983				(13,217	)
Income tax provision			385				1,274
Income (loss) from continuing operations		$	1,598			$	(14,491	)
Discontinued operations:
Income (loss) from operation of discontinued operations (net of applicable taxes of $0 for 2009 and $242 for 2008)		$	187			$	(10,728	)
Gain on disposal of discontinued operations (net of applicable tax of $0 for 2009)			103				—
Income (loss) from discontinued operations		$	290			$	(10,728	)
Net income (loss)		$	1,888			$	(25,219	)
Net income (loss) per share — basic:
Continuing operations		$	0.02			$	(0.20	)
Discontinued operations			0.01				(0.15	)
Net income (loss) per share		$	0.03			$	(0.35	)
Shares used in computing basic net income (loss) per share			72,953				72,751
Net income (loss) per share — diluted:
Continuing operations		$	0.02			$	(0.20	)
Discontinued operations			0.01				(0.15	)
Net income (loss) per share		$	0.03			$	(0.35	)
Shares used in computing diluted net income (loss) per share			73,010				72,751

The accompanying notes are an integral part of these condensed consolidated financial statements.

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, unaudited)

		Three Months Ended
		March 31,
		2009				2008
						(As Adjusted)
Net income (loss)		$	1,888			$	(25,219	)
Other comprehensive income (loss):
Foreign currency translation adjustments			(1,174	)			1,870
Fair market value adjustment for available-for-sale securities, net of tax			32				(80	)
Comprehensive income (loss)		$	746			$	(23,429	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

		Three Months Ended
		March 31,
		2009				2008
						(As Adjusted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	1,888			$	(25,219	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization of assets			2,984				3,353
Stock-based compensation			477				1,579
Provision for accounts receivable allowance			118				(250	)
Impairment of goodwill			—				13,300
Gain on disposal of discontinued operations			(103	)			—
Write-off of fixed assets			(18	)			4
Amortization of debt discount			1,627				2,007
Gain on debt repurchase			(9,942	)			—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable			(3,243	)			3,741
Prepaid expenses and other assets			1,195				(806	)
Accounts payable and accrued expenses			(688	)			(2,691	)
Income taxes payable			(1,004	)			506
Restructuring			(1,371	)			(2,394	)
Deferred revenues			5,107				824
Other liabilities			(1,239	)			773
Cash used in operating activities			(4,212	)			(5,273	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(319	)			(570	)
Proceeds from sale of fixed assets			22				—
Acquisition of Simunication, net of cash acquired			—				(1,970	)
Proceeds from disposal of discontinued operations			350				—
Sales of long-term investments			—				8,101
Purchases of short-term investments			(7,065	)			(26,600	)
Sales and maturities of short-term investments			26,050				19,991
Cash provided by (used in) investing activities			19,038				(1,048	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of convertible senior notes, net			(27,391	)			—
Lessor financed capital expenditures			503				—
Repurchase of common stock and others			—				(29	)
Cash used in financing activities			(26,888	)			(29	)
Effect of exchange rate changes on cash			(2,128	)			2,087
Net change in cash and cash equivalents			(14,190	)			(4,263	)
Beginning cash and cash equivalents			108,132				90,805
Ending cash and cash equivalents		$	93,942			$	86,542

The accompanying notes are an integral part of these condensed consolidated financial statements.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1. DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

Description of the Company

Borland Software Corporation (the “Company”) is the leading vendor of Open Application Lifecycle Management (“ALM”) solutions. The Company’s Open ALM Platform provides process-driven integration across all lifecycle assets, activities and tools so that its customers can collaborate, share information and track the entire software development lifecycle from planning to delivery.

Basis of Presentation

The accompanying condensed consolidated financial statements at March 31, 2009 and December 31, 2008, and for the three months ended March 31, 2009 and 2008, are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments (except as discussed below), necessary for a fair statement of the Company’s financial position at March 31, 2009 and its results of operations and cash flows for the three months ended March 31, 2009 and 2008.

The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending December 31, 2009.

Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for any subsequent quarter or for the full year. The condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission (“SEC”) on March 6, 2009.

Credit Risks

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and trade accounts receivable. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We place our cash, cash equivalents and short-term investments in a variety of financial instruments, including but not limited to government and corporate securities, time deposits and money market funds. These securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive loss, net of estimated taxes.

The Company offers credit terms on the sale of the software products to distributors, retail dealers and certain end-user customers. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from our customers. The Company maintains an allowance for uncollectible accounts receivable based upon the expected collectability of all accounts receivable. A specific bad debt reserve of up to 100% of the invoice value is provided for balances deemed uncollectable. A reserve is established for all other accounts based on the age of the invoices. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable. As of March 31, 2009, the Company had one single customer that represents greater than 10% of total accounts receivable, net of allowances, and 10% of total revenues.

Reclassification and Correction of Previously Issued Financial Statements

Effective January 1, 2009, the Company adopted Financial Accounting Standard Board (“FASB”) Statement of Position No. Accounting Principles Board (“APB”) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), which impacts the accounting treatment of the Company’s 2.75% Convertible Senior Notes due February 15, 2012 (the “Senior Notes”). Upon adopting the provisions of FSP APB 14-1, the Company retroactively applied its provisions and restated its condensed consolidated financial statements for prior periods. Refer to Note 5 of the Notes to the condensed consolidated financial statements for additional details and the impacts of retroactive application of FSP APB 14-1 on the Company’s condensed consolidated financial statements.

Certain prior year amounts were reclassified to conform to the current year presentation, including reclassifications related to discontinued operations of the Company’s CodeGear division, which was sold on June 30, 2008. Refer to Note 6 of the Notes to condensed consolidated financial statements for additional information regarding CodeGear.

During the quarter ended June 30, 2008 and as reported in the Company’s Form 10-Q for such period, management identified certain accounting errors related to the December 31, 2007 financial statements. Although these adjustments together with other adjustments recorded in the first quarter of 2008 related to the 2007 year are not considered material to the loss from continuing operations for the year ended December 31, 2007 and net loss for the year ended December 31, 2007, when aggregated, as assessed during the quarter ended June 30, 2008, these amounts were expected to be material to the full year loss from continuing operations for the year ended December 31, 2008. As a result the Company revised its unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2008. These adjustments increased the net loss for the three months ended March 31, 2008 by approximately $966,000, and were included in the condensed consolidated financial statements presented in the Form 10-Q for the quarter ended June 30, 2008.

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP FAS 141(R)-1 which amends SFAS 141(R) by establishing a model to account for certain pre-acquisition contingencies. Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss — an interpretation of FASB Statement No. 5. FSP FAS 141(R)-1 is effective for the Company beginning April 1, 2009. This FSP will be applied to future transactions as appropriate.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly , (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements (“SFAS No. 157”), and emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. This FSP is effective for the Company beginning April 1, 2009. This FSP is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments , (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 provides guidance to determine whether the holder of an investment in a debt security for which changes in fair value are not regularly recognized in earnings should recognize a loss in earnings when the investment is impaired. This FSP also improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the consolidated financial statements. This FSP is effective for the Company beginning April 1, 2009. This FSP is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2008, the FASB issued FSP APB 14-1, which impacts the accounting treatment for convertible debt instruments that allow for either mandatory or optional cash settlements. FSP APB 14-1 impacts the accounting associated with the Company’s outstanding Senior Notes in the amount of $115.0 million par value. Effective January 1, 2009, the Company adopted FSP APB 14-1, which impacts the accounting treatment of the Senior Notes since they allow for either mandatory or optional cash settlements. FSP APB 14-1 requires the Company to separately account for the liability (debt) and equity (conversion option) components of the Senior Notes in a manner that reflects the Company’s non-convertible debt borrowing rate, resulting in additional non-cash interest expense based on the market rate for similar debt instruments without the conversion feature. Upon the original issuance of the debt instruments in 2007, the Company recorded the net debt obligation as long-term debt in accordance with applicable accounting standards at that time. To adopt FSP APB 14-1, effective January 1, 2009, the Company estimated the fair value, as of the date of issuance, of the Senior Notes as if they were issued without the conversion options. The difference between the fair value and the principal amounts of the Senior Notes was $46.0 million. This amount was retrospectively applied to the Company’s financial statements from the issuance date of the Senior Notes in 2007, and was retrospectively recorded as debt discount and as a component of stockholders’ equity. The discount is being amortized until the Senior Notes mature in February 2012, resulting in a non-cash increase to interest expense in historical and future periods. Refer to Note 5 of the Notes to the condensed consolidated financial statements for additional details.

In June 2008, FASB ratified EITF Issue No. 08-4, Transition Guidance for Conforming Changes to Issue No. 98-5 (“EITF No. 08-4”). Per EITF No. 08-4, conforming changes made to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, that result from EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, and SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity , is effective beginning after January 1, 2009. Since the Company’s convertible debt instruments fall outside of the scope of this pronouncement, it had no impact over the condensed consolidated financial statements.

In April 2008, the FASB issued Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”). FSP No. 142-3 amends the guidance in FASB Statement No. 142, Goodwill and Other Intangible Assets , for estimating useful lives of recognized intangible assets and requires additional disclosures related to renewing or extending the terms of a recognized intangible asset. In estimating the useful life of a recognized intangible asset, FSP No. 142-3 requires companies to consider their historical experience in renewing or extending similar arrangements together with the asset’s intended use, regardless of whether the arrangements have explicit renewal or extension provisions. FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008, and is to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements are applied prospectively to all intangible assets. The Company adopted this FSP effective January 1, 2009. This FSP will be applied prospectively to intangible assets acquired after the effective date.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations , a revision of SFAS No. 141 (“SFAS 141 (R)”). Under SFAS 141(R), an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) changes the accounting treatment for certain specific items, including acquisition costs, acquired contingent liabilities, restructuring costs, deferred tax asset valuation allowances and income tax uncertainties after the acquisition date. SFAS 141(R) is effective for the Company beginning January 1, 2009. SFAS 141(R) will be applied as appropriate to future business combinations and the impact on the condensed consolidated financial statements will depend on the assets and liabilities acquired.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures related to fair value measurements that are included in a company’s financial statements. SFAS No. 157 does not expand the use of fair value measurements in financial statements. It emphasizes that fair value is a market-based measurement and not an entity-specific measurement, and that it should be based on an exchange transaction in which a company sells an asset or transfers a liability. SFAS No. 157 also establishes a fair value hierarchy in which observable market data would be considered the highest level, while fair value measurements based on an entity’s own assumptions would be considered the lowest level. The Company has applied SFAS 157 to all financial assets and liabilities that are being measured and reported at fair value on a recurring basis value effective January 1, 2008. In accordance with FSP FAS 157-2, Effective Date of FASB Statement No. 157, (“FSP FAS 157-2”) the Company elected to defer application of SFAS No. 157 to nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the consolidated financial statements on a recurring basis until January 1, 2009. The adoption of SFAS 157 for nonfinancial assets and liabilities on January 1, 2009 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. See Note 3 for information and related disclosure regarding our fair value measurements.

NOTE 2. NET INCOME (LOSS) PER SHARE

Under the provisions of SFAS No. 128, Earnings per Share (“SFAS 128”), the Company computes basic net income (loss) per share by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares, which consist of incremental shares issuable upon unexercised stock options that are “in the money”, unvested restricted stock and Employee Stock Purchase Plan awards, and shares issuable upon conversion of our Senior Notes (described in Note 5 below), are included in the earnings per share computation in the periods in which net income is reported, to the extent such shares are dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2009				2008
						(As Adjusted)
Numerator:
Income (loss) from continuing operations		$	1,598			$	(14,491	)
Income (loss) from discontinued operations			290				(10,728	)
Net income (loss)		$	1,888			$	(25,219	)
Denominator:
Weighted-average shares outstanding, basic (excluding unvested restricted stock)			72,953				72,751
Effect of dilutive securities:
Employee stock options, restricted stock awards and ESPP shares			57				—
Denominator for diluted net income (loss) per share - weighted-average shares and assumed conversions			73,010				72,751
Net income (loss) per share attributable to common shareholders:
Continuing operations — basic		$	0.02			$	(0.20	)
Discontinued operations — basic			0.01				(0.15	)
Net income (loss) per share — basic		$	0.03			$	(0.35	)
Continuing operations — diluted		$	0.02			$	(0.20	)
Discontinued operations — diluted			0.01				(0.15	)
Net income (loss) per share — diluted		$	0.03			$	(0.35	)

The diluted net income per share for the three months ended March 31, 2009 includes 57,000 of weighted average incremental shares related to restricted stock and Employee Stock Purchase Plan awards. The diluted net loss per share is the same as basic net loss per share for the three months ended March 31, 2008, due to the net losses from continuing operations.

Approximately 10.1 million and 12.3 million weighted average shares of common stock, respectively related unexercised stock options, and 62,500 and 216,000 unvested weighted average restricted common shares, respectively, were excluded from the net income (loss) per share computation for the three months ended March 31, 2009 and 2008 because such impact would be antidilutive due to being out-of-the-money.

Additionally, the Company excluded 26.5 million and 31.4 million, respectively, of dilutive shares issuable upon conversion of the Senior Notes, calculated using the “if converted method”, from the dilutive net income (loss) per share computation for the three months ended March 31, 2009 and 2008 as their effects would have been antidilutive. See Note 5 of the condensed consolidated financial statements for information on the Senior Notes.

NOTE 3. INVESTMENTS IN MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following tables summarize the Company’s investments in available-for-sale debt securities as of March 31, 2009, and December 31, 2008 (in thousands):

		March 31, 2009
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gain				Loss				Value
Corporate debt securities		$	13,084			$	1			$	(62	)		$	13,023
U.S. government debt securities			27,476				90				(2	)			27,564
Equity instruments			—				111				(45	)			66
		$	40,560			$	202			$	(109	)		$	40,653

		December 31, 2008
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gain				Loss				Value
Corporate debt securities		$	27,152			$	—			$	(250	)		$	26,902
U.S. government debt securities			32,363				241				—				32,604
Equity instruments			—				111				(42	)			69
		$	59,515			$	352			$	(292	)		$	59,575

Fixed income securities included in short-term investments above are summarized by their contractual maturities as follows (in thousands):

		March 31, 2009								December 31, 2008
		Amortized				Estimated Fair				Amortized				Estimated Fair
Due in		Cost				Value				Cost				Value
Less than one year		$	40,560			$	40,653			$	59,515			$	59,575
Total		$	40,560			$	40,653			$	59,515			$	59,575

Fair Value Measurements

On January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The Company has applied SFAS 157 to all financial assets and liabilities that are being measured and reported at fair value on a recurring basis value effective January 1, 2008. In accordance with FSP FAS 157-2, Effective Date of FASB Statement No. 157 , (“FSP FAS 157-2”) the Company elected to defer application of SFAS No. 157 to nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the consolidated financial statements on a recurring basis until January 1, 2009. The adoption of SFAS 157 for nonfinancial assets and liabilities on January 1, 2009 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Under SFAS 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability ( i.e. , the “exit price”) in an orderly transaction between market participants at the measurement date. This standard establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The fair value hierarchy is broken down into the three input levels summarized below:

	•		Level 1 — Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by the Company at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are: most U.S. Government securities; certain other sovereign government obligations; and exchange-traded equity securities and listed derivatives.
	•		Level 2 — Valuations based on inputs other than quoted prices included within Level 1 that are observable for asset or liability, either directly or indirectly. Examples of assets and liabilities utilizing Level 2 inputs are: U.S. agency securities; municipal bonds; corporate bonds; and certain residential and commercial mortgage-related instruments (including loans, securities and derivatives).
	•		Level 3 — Valuations based on inputs that are unobservable. Examples of assets and liabilities utilizing Level 3 inputs are: certain residential and commercial mortgage-related instruments; real estate and private equity investments; and long-dated or complex Over-the-counter derivatives.

The Company measures its available-for-sale securities at fair value on a recurring basis. Available-for-sale securities include money market funds, corporate debt securities, U.S. government debt securities and asset-backed securities. Where possible, the Company utilizes quoted market prices to measure fair value and such items are classified as Level 1 in the hierarchy and include some equity securities and U.S. government bonds. When quoted market prices for identical assets are unavailable, varying valuation techniques are used. Such assets are classified as Level 2 in the hierarchy and typically include asset-backed securities, corporate debt securities and other U.S. government debt securities.

The following tables provide the fair value measurements of applicable assets by level within the fair value hierarchy as of March 31, 2009 and December 31, 2008 (in thousands):

		Fair Value Measurement at Reporting Date Using
						Quoted Prices in
		Estimated Fair				Active Markets				Significant Other
		Value at				for Identical Assets				Observable Inputs
Description		March 31, 2009				(Level 1)				(Level 2)
Assets:
Money market funds (1)		$	42,463			$	42,463			$	—
Corporate debt securities (2)			13,023				—				13,023
U.S. government debt securities (2)			27,564				—				27,564
Equity instruments (2)			66				66				—
		$	83,116			$	42,529			$	40,587

		Fair Value Measurement at Reporting Date Using
						Quoted Prices in
		Estimated Fair				Active Markets				Significant Other
		Value at				for Identical Assets				Observable Inputs
Description		December 31, 2008				(Level 1)				(Level 2)
Assets:
Money market funds (1)		$	60,006			$	60,006			$	—
Corporate debt securities (2)			26,902				—				26,902
U.S. government debt securities (2)			32,604				—				32,604
Equity instruments (2)			69				69				—
		$	119,581			$	60,075			$	59,506

NOTE 4. INTANGIBLE ASSETS

The following table summarizes intangible assets at March 31, 2009 and December 31, 2008 (in thousands):

						As of March 31, 2009												As of December 31, 2008
						Gross												Gross
		Range of				Carrying				Accumulated				Net				Carrying				Accumulated				Net
Category		Useful Lives				Amount				Amortization				Amount				Amount				Amortization				Amount
Acquired Developed Technology		3 – 7 years				$	47,836			$	36,847			$	10,989			$	47,860			$	35,637			$	12,223
Maintenance Agreements		7 years					11,300				4,753				6,547				11,300				4,215				7,085
Tradenames and Trademarks		3 years					1,100				836				264				1,100				774				326
Customer Relationships		3 – 7 years					9,075				4,435				4,640				9,075				4,203				4,872
Other		1 – 3 years					421				409				12				421				407				14
Total						$	69,732			$	47,280			$	22,452			$	69,756			$	45,236			$	24,520

The Company does not maintain any indefinite live intangible assets. During the three months ended March 31, 2009 and 2008, the Company recorded total amortization expense of $2.1 million and $2.2 million, respectively, of which $1.9 million and $2.1 million were recorded to cost of revenues. The estimated future amortization expense related to intangible assets at March 31, 2009, is as follows (in thousands):

		Future
		Amortization
2009		$	5,496
2010			6,692
2011			5,483
2012			3,542
2013			1,239
Total		$	22,452

NOTE 5. CONVERTIBLE SENIOR NOTES

In February 2007, the Company issued 2.75% Convertible Senior Notes due February 15, 2012 (the “Senior Notes”), for an aggregate principal amount of $200.0 million in a private offering for resale to qualified institutional buyers pursuant to SEC Rule 144A under the Securities Act of 1933. The Senior Notes bear interest at 2.75% per annum. Interest is payable semiannually in arrears on February 15 and August 15, of each year. The Company received proceeds of approximately $194.2 million after the initial purchaser fees and the offering expenses of approximately $5.8 million were deducted. The fees and interest expense related to the offering are being recorded in interest expense over the term of the Notes using the effective interest method. Immediately following issuance of the Senior Notes, the Company used approximately $30.0 million of the net proceeds to repurchase approximately 5.9 million shares of the Company’s common stock. During 2008, following authorization by the Company’s Board of Directors, the Company redeemed $40.7 million of the outstanding Senior Notes for consideration of $30.0 million in cash, comprised of $0.2 million in accrued interest and $29.8 million in principal. The redeemed Senior Notes were retired and are no longer outstanding.

On February 27, 2009, the Company’s Board of Directors authorized the use of up to approximately $36.0 million of its available cash to repurchase a portion of its outstanding Senior Notes with an aggregate principal par value of $159.3 million in open market or privately negotiated transactions. During the three months ended March 31, 2009, the Company repurchased $44.3 million of the outstanding Senior Notes for consideration of $27.5 million in cash, comprised of $0.1 million in accrued interest and $27.4 million in principal. The redeemed Senior Notes were retired and are no longer outstanding.

Effective January 1, 2009, the Company adopted FSP APB 14-1, which impacts the accounting treatment of the Company’s Senior Notes since they allow for either mandatory or optional cash settlements. FSP APB 14-1 requires the Company to separately account for the liability (debt) and equity (conversion option) components of the Senior Notes in a manner that reflects the Company’s non-convertible debt borrowing rate, resulting in additional non-cash interest expense based on the market rate for similar debt instruments without the conversion feature. Upon the original issuance of the debt instruments in 2007, the Company recorded the net debt obligation as long-term debt in accordance with applicable accounting standards at that time. To adopt FSP APB 14-1, effective January 1, 2009, the Company estimated the fair value, as of the date of issuance, of the Senior Notes as if they were issued without the conversion options. The difference between the fair value and the principal amounts of the Senior Notes was $46.0 million. This amount was retrospectively applied to the Company’s financial statements from the issuance date of the Senior Notes in 2007, and was retrospectively recorded as debt discount and as a component of shareholders’ equity. The discount is being amortized until the Senior Notes mature in February 2012, resulting in a non-cash increase to interest expense in historical and future periods.

The following tables reflect the Company’s previously reported amounts, along with the adjusted amounts as required by FSP APB 14-1 (in thousands):

		Three Months Ended March 31, 2008
						FSP APB 14-1 Adjustments
Condensed Consolidated		As restated for								Debt Issuance
Statements of Operations		correction of				Debt Discount				Cost
(unaudited)		errors (1)				Amortization				Amortization				As Restated
Interest expense		$	(1,739	)		$	(2,007	)		$	88			$	(3,658	)
Loss from continuing operations		$	(12,572	)		$	(2,007	)		$	88			$	(14,491	)
Loss from discontinued operations		$	(10,728	)		$	—			$	—			$	(10,728	)
Net loss		$	(23,300	)		$	(2,007	)		$	88				(25,219	)
Loss per share from continuing operations — basic and diluted		$	(0.17	)		$	(0.03	)		$	—			$	(0.20	)
Loss per share from discontinued operation — basic and diluted		$	(0.15	)		$	—			$	—			$	(0.15	)
Net loss per share — basic and diluted		$	(0.32	)		$	(0.03	)		$	—			$	(0.35	)
Shares used in computing basic and diluted net loss per share			72,751				72,751				72,751				72,751

		As of December 31, 2008
						FSP APB 14-1 Adjustments
						Reclassify Debt
						Discount and				Debt Discount and
Condensed Consolidated						Debt Issuance				Issuance Cost				Debt				Deferred Tax
Balance Sheets (unaudited) (a)		As Reported				Costs to APIC				Amortization				Repurchase				Effect (1)				As Restated
Other assets — non current		$	5,185			$	(1,411	)		$	652			$	178			$	(492	)		$	4,112
Total assets		$	252,982			$	(1,411	)		$	652			$	178			$	(492	)		$	251,909
Other liabilities — current		$	5,863			$	—			$	—			$	—			$	(492	)		$	5,371
Convertible senior notes, net		$	159,300			$	(46,027	)		$	14,472			$	7,042			$	—			$	134,787
Total liabilities		$	261,537			$	(46,027	)		$	14,472			$	7,042			$	(492	)		$	236,532
Additional paid-in capital		$	672,525			$	44,616			$	—			$	—			$	—			$	717,141
Accumulated deficit		$	(548,731	)		$	—			$	(13,820	)		$	(6,864	)		$	—			$	(569,415	)
Total stockholders’ equity		$	(8,555	)		$	44,616			$	(13,820	)		$	(6,864	)		$	—			$	15,377

The following tables provide additional information about the Company’s Senior Notes that are subject to FSP APB 14-1 (dollars in thousands, except for conversion prices):

		March 31, 2009
Carrying amount of the equity component		$	44,617
Principal amount of the liability component			114,984
Unamortized discount of the liability component			16,436
Net carrying amount of the liability component			98,548
Remaining amortization period of discount		35 months
Conversion price		$	6.38
Number of shares to be issued upon conversion			18,036,701
Effective interest rate on liability component			8.46%
Non-cash interest cost recognized for 2009 period (a)			1,797
Cash interest recognized for 2009 period (a)			1,024

		December 31, 2008
Carrying amount of the equity component		$	44,617
Principal amount of the liability component			159,300
Unamortized discount of the liability component			24,513
Net carrying amount of the liability component			134,787

Conversion Process and Other Terms of the Senior Notes

On or after November 11, 2011, holders of the outstanding Senior Notes will have the right to convert their Senior Notes. Upon conversion, the Company will deliver a number of shares of its common stock equal to the conversion rate for each $1,000 of principal amount of Senior Notes converted, unless prior to the date of such conversion the Company has obtained stockholder approval to settle conversions of the Senior Notes in cash and shares of its common stock. If such approval is obtained, any Senior Notes converted after approval will be convertible into (i) cash equal to the lesser of the aggregate principal amount of the Senior Notes to be converted and the total conversion value and (ii) shares of the Company’s common stock for the remainder, if any, of the total conversion value. In addition, following specified corporate transactions, the Company will increase the conversion rate for holders who elect to convert their Senior Notes in connection with such corporate transactions, provided that in no event may the shares issued upon conversion, as a result of adjustment or otherwise, result in the issuance of more than approximately 22.5 million shares.

Holders may convert their Senior Notes prior to maturity if: (1) the price of the Company’s common stock reaches $8.29 during periods of time as specified in the agreement, (2) specified corporate transactions occur or (3) the trading price of the Senior Notes falls below a certain threshold.

Each $1,000 of principal of the Senior Notes will initially be convertible into 156.8627 shares of the Company’s common stock, which is the equivalent of $6.38 per share and, based on the Senior Notes outstanding as of March 31, 2009, with an aggregate principal par value of $115.0 million, would result in the issuance of an aggregate of approximately 26.5 million shares. The number of shares issuable upon conversion is subject to adjustment under the following circumstances: (1) during any fiscal quarter beginning after March 31, 2007, if the last reported sale price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediate preceding fiscal quarter is greater or equal to 130% of the applicable conversion price on the last day of such preceding fiscal quarter; (2) during the five business day period after any ten consecutive trading day period in which the trading price per Senior Notes for each day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for such day; and (3) upon the occurrence of specified corporate transactions.

The Company evaluated the embedded conversion feature in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and concluded that the embedded conversion feature contained within the agreement should not be accounted for separately because the conversion feature is indexed to the Company’s common stock and is classified as stockholders’ equity. Additionally, the Company evaluated the terms of the Senior Notes for a beneficial conversion feature in accordance with FASB Emerging Issue Task Force (“EITF”) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios and EITF No. 00-27, Application of Issue 98-5 to Certain Convertible Instruments , and concluded that there was no beneficial conversion feature at the commitment date based on the conversion rate of the Senior Notes relative to the commitment date stock price.

Based on SFAS 128 and EITF No. 04-08, Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share , the dilutive effect of the common shares issuable upon conversion of the Senior Notes would normally be reflected in the diluted earnings per share calculation. However, due to the net share settlement feature, the Senior Notes do not qualify as an Instrument C under EITF No. 90-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock . Therefore, the Company uses the “if-converted” method for calculating diluted earnings per share. Using the “if-converted” method, the shares issuable upon conversion of the Senior Notes were anti-dilutive for the three months ended March 31, 2009 and 2008. Accordingly, the impact has been excluded from the computation of diluted earnings per share as discussed in further detail in Note 2.

NOTE 6. DISPOSITIONS AND ACQUISITIONS

Dispositions

The Company accounts for its discontinued operations under the provisions of SFAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Accordingly, it classifies results of operations and the related charges for discontinued operations as “income (loss) from operations of discontinued operations, net of applicable taxes” in the accompanying Condensed Consolidated Statements of Operations. For comparative purposes, the Company restated all prior periods presented in the Form 10-Q to reflect the reclassifications on a consistent basis.

On June 30, 2008, the Company completed the sale of substantially all of the assets (excluding accounts receivable), operations and certain liabilities of its Integrated Development Environment (“IDE”) tools business to Embarcadero Technologies, Inc. (“Embarcadero”) for $20.7 million in cash, including post closing adjustments (“CodeGear Asset Sale”). The assets and operations were previously included in the Company’s CodeGear division.

Pursuant to the Purchase Agreement, the Company also entered into several ancillary agreements, including (i) a patent assignment agreement, assigning 34 patents which pertain solely or substantially to the CodeGear business; (ii) a patent license agreement, providing for a non-exclusive license to the Company’s patents that were not assigned, which license was restricted to a certain field of use; (iii) a technology cross-license agreement, which provides for licenses to and from Embarcadero and the Company for software and tools used in both the CodeGear and the Company’s retained business; (iv) a services agreement which obligates Embarcadero to provide software license management application services to the Company following the closing; (v) the sublease of the Company’s facilities previously used in the CodeGear business; and (vi) a transition services agreement to provide services to Embarcadero to assist with the transition of the CodeGear business. The Company evaluated the above arrangements and concluded they do not involve significant continuing involvement. In addition, no amounts of the purchase consideration were ascribed to the ancillary agreements as amounts exchanged under these agreements were deemed to be at fair value.

Discontinued operations are as follows (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Net sales		$	16			$	12,215
Income (loss) from operation of discontinued operations (net of applicable taxes of $0 for 2009 and $242 for 2008)			187				(10,728	)
Gain on disposal of discontinued operations (net of applicable tax of $0 for 2009)			103				—
Income (loss) from discontinued operations		$	290			$	(10,728	)

The following table sets forth the assets and liabilities of the CodeGear discontinued operations included in the Condensed Consolidated Balance Sheet of the Company (in thousands):

		March 31,				December 31,
		2009				2008
Deposits due to Borland from lessor		$	3,734			$	—
Other current assets			—				346
Income taxes receivable			—				97
Current assets of discontinued operation			3,734				443
Deposits due to Borland from lessor			—				3,734
Non-current assets of discontinued operation			—				3,734
Accrued restructuring			4,233				4,162
Deposits due to subtenant from Borland			1,352				—
Other current liabilities			26				46
Current liabilities of discontinued operation			5,611				4,208
Accrued restructuring			—				1,030
Deposits due to subtenant from Borland			—				1,352
Long-term liabilities of discontinued operation		$	—			$	2,382

Deposits on leased facilities and accrued restructuring are related to a subleased facility that was previously used in the CodeGear business. The lease will terminate on March 31, 2010.

Acquisitions

The Company accounted for acquisitions that took place prior to 2009 in accordance with SFAS No. 141, Business Combinations (“SFAS 141”).The results of operations attributable to acquisitions are included in the condensed consolidated financial statements from the date of acquisition.

On January 2, 2008, the Company executed a Share Purchase Agreement to purchase all of the outstanding shares of Simunication, Inc. (“Simunication”) for approximately $2.4 million, including $450,000 million of assumed liabilities. Simunication was a Canadian-based provider of leading edge software simulation technology for global organizations that develop software for external or internal use. The Company funded this acquisition with available cash. Pro forma financial information has not been provided as the acquisition did not have a material impact on the Company’s results of operations.

The purchase price of the transaction was allocated to the acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition, including identifiable intangible assets, with the remaining amount being recorded as goodwill. The estimated fair value of the net assets acquired was approximately $2.0 million, of which approximately $1.8 million was allocated to acquired developed technology. The acquired developed technology is being amortized over seven years.

NOTE 7. RESTRUCTURING AND OTHER CHARGES

The Company accounts for its restructuring activities in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, SFAS No. 112, Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statement No. 5 and 43, and SEC Staff Accounting Bulletin No. 100, Restructuring and Impairment Charges, as applicable.

The following table summarizes the Company’s restructuring activity for the three months ended March 31, 2009, which was related to the FY 2008 and FY 2007 restructuring plans (in thousands):

		FY 2008 Restructuring				FY 2007 Restructuring
		Severance,				Severance,
		Benefits and Other				Benefits and Other				Facilities (1)				Total
Accrual at December 31, 2008		$	1,810			$	868			$	2,223			$	4,901
Additions/adjustments to accrual			1,367				33				(4	)			1,396
Payments and adjustments for non-cash write-offs			(2,592	)			(92	)			(330	)			(3,014	)
Accrual at March 31, 2009		$	585			$	809			$	1,889			$	3,283

Of the $3.3 million in our restructuring accrual at March 31, 2009, $2.7 million was in our short-term accrual and $0.6 million was in our long-term accrual. The long-term accrual is related to facility operating leases.

During the three months ended March 31, 2009 and 2008, the Company recorded net restructuring expenses of $1.4 million and $1.2 million, respectively, to continuing operations.

The restructuring charges relating to operating leases have been recorded, net of assumed sublease income and present value factors. Substantially all of these restructuring costs have or will require the outlay of cash, although the timing of lease payments relating to leased facilities over the next five years will be unchanged by the restructuring actions. The following are descriptions of each of the separate restructuring actions taken. Additionally, upon the sale of the Company’s CodeGear division on June 30, 2008, the Company reclassified approximately $5.2 million in facilities related restructuring liabilities to liabilities of the discontinued operation. Included in the liabilities of discontinued operation at March 31, 2009 is $4.2 million of restructuring liabilities.

FY 2008

In December 2008, the Company’s Board of Directors approved a worldwide reduction in force of 118 employees, or approximately fifteen percent of our full-time regular work force prior to the reduction. The workforce reduction actions were primarily in the United States, Canada, and Europe, and to a lesser degree in other international locations. SFAS 112 and SFAS 88 require accrual for severance expenses prior to notification for termination benefits that are contractual, or required by regional labor laws, or under a substantive plan if they are probable and reasonably estimable. The Company recorded $1.4 million in applicable severance expenses related to this action in the first quarter of 2009 based on the date of employee notification. The FY 2008 restructuring plan did not include any consolidations or closures of facilities. During the three months ended March 31, 2009, the Company paid $2.6 million in severance to the terminated employees.

FY 2007

In December 2007, the Company announced a worldwide reduction in workforce in response to changing market conditions and as a part of its efforts to reduce costs. The worldwide reduction in workforce involved approximately 90 employees, or approximately eight percent of total headcount prior to the reduction, and the closing of facilities in approximately six locations. The workforce reduction and facility actions were primarily in the United States and Europe, and to a lesser degree in other international locations. During the three months ended March 31, 2009, the Company paid $334,000 in rent and other fees for its restructured facilities and $21,000 in severance to terminated employees related to this action.

NOTE 8. INCOME TAXES

For the three months ended March 31, 2009 and 2008, the Company recorded income tax expense of $385,000 and $1.3 million, respectively, related to continuing operations. The non-U.S. income tax provision is based on the Company’s estimated annualized foreign effective tax rate plus foreign income withholding taxes incurred. The U.S. tax is based on the Company’s actual results for the quarter.

The effective tax rates for the three months ended March 31, 2009 and 2008, differ from applying the U.S. federal statutory tax rate to the pre-tax loss principally because the Company does not currently benefit from the operating losses incurred in the U.S. and the fact that the Company incurs withholding and income taxes in a number of foreign jurisdictions. The Company also provides U.S. taxes on the un-remitted earnings of certain foreign subsidiaries.

At March 31, 2009, gross unrecognized tax benefits of between $7.7 and $8.0 million relate to tax positions and interest for which it is reasonably possible that audits will be closed or the statute of limitations will expire in various foreign jurisdictions within the next twelve months.

NOTE 9. STOCK-BASED COMPENSATION

The Company follows the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”). The Company currently has in effect certain stock purchase plans, stock award plans, and equity incentive plans as described in Note 12 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. There have been no material changes to such plans.

Stock-Based Compensation Expense

Total stock-based compensation expense associated with the Company’s employee stock-based compensation plans under SFAS 123R for the three months ended March 31, 2009 and 2008, is presented in the table below (in thousands). The information excludes stock-based compensation expense related to the CodeGear division for all periods presented, consistent with the presentation of discontinued operations in the Condensed Consolidated Statements of Operations (see Note 6).

		Three Months Ended
		March 31,
		2009				2008 (Restated)
Cost of sales		$	10			$	24
Research and development			194				339
Selling, general and administrative			273				1,174
Stock-based compensation expense		$	477			$	1,537

Stock Options

Stock option activity during the three months ended March 31, 2009, was as follows (in thousands):

										Weighted
						Weighted				Average
		Shares				Average				Remaining
		Subject to				Exercise				Contractual				Aggregate
		Stock Options				Price				Term (Years)				Intrinsic Value
Outstanding at December 31, 2008			10,128			$	5.78
Stock options:
Granted			3,207				0.42
Exercised			—
Canceled			(1,835	)			4.22
Outstanding at March 31, 2009			11,500			$	4.53				7.25			$	118,007
Vested and expected to vest at March 31, 2009			8,865			$	5.24				6.70			$	72,131
Exercisable at March 31, 2009			5,154			$	7.81				4.82			$	—

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of 2009 and the exercise price, multiplied by the number of in-the-money options on such date) that option holders would have received had all option holders exercised their options on March 31, 2009.

The weighted-average grant date fair value of stock options issued during the three months ended March 31, 2009 and 2008 were $0.21 and $1.03, respectively.

As of March 31, 2009, the Company expects to recognize $4.7 million of total unrecognized compensation cost related to stock options over a weighted-average period of approximately 3.11 years.

The Company estimates the fair value of share-based payment awards granted using the Black-Scholes option pricing model at the date of grant. The weighted-average assumptions used for the three months ended March 31, 2009 and 2008 are as follows:

		Three Months Ended
		March 31,
		2009				2008
Expected life		6.25 years				4.66 years
Risk-free interest rate			1.67	%			2.46	%
Volatility			51.5	%			48.5	%
Dividend yield			0	%			0	%

Restricted Stock

Unvested restricted stock awards as of December 31, 2008, and changes during the three months ended March 31, 2009, were as follows:

						Weighted
						Average
		Number				Grant Date
		of Shares				Fair
		Outstanding				Value
Balance at December 31, 2008			62,613			$	6.43
Granted			100,000				0.46
Vested			(113	)			9.79
Forfeited			—				0.00
Balance at March 31, 2009			162,500			$	2.75

The Company recognized stock-based compensation expense of $15,800 for the three months ended March 31, 2009 related to restricted stock awards. As of March 31, 2009, there was $79,000 in unrecognized stock-based compensation expense related to unvested restricted stock awards. The Company expects to recognize that cost over a weighted-average period of approximately 1.44 years.

NOTE 10. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments in a company’s financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker, (“CODM”), is its Chief Executive Officer.

On June 30, 2008, the Company completed the sale of all of the assets (excluding accounts receivable), operations and certain liabilities of its CodeGear division (see Note 6). In accordance with SFAS 144, the financial results of the Company’s CodeGear division have been reclassified as discontinued operations in its Condensed Consolidated Statements of Operations for all periods presented. Following the disposition, the Company operates in one operating and reportable segment.

Enterprise-wide disclosures

The Company has various wholly-owned subsidiaries, which develop, market, and/or distribute its products in foreign countries. In certain international markets not covered by its international subsidiaries, the Company generally sells through independent distributors. For the geographic disclosures, inter-company transactions are recorded at either cost or applicable transfer price, as appropriate. Inter-company transactions and balances are eliminated upon consolidation. The geographical summary results of the Company’s operation for the three months ended March 31, 2009 and 2008 are as follows:

		Three Months Ended
		March 31,
		2009				2008
		(in thousands)
Total revenues from unaffiliated customers:
Americas		$	23,218			$	24,428
Europe, Middle East and Africa			7,547				10,880
Asia Pacific			4,285				10,751
Total revenues			35,050				46,059

The geographical summary of the Company’s long- lived assets at March 31, 2009 and December 31, 2008 are as follows:

		March 31, 2009				December 31, 2008
		(in thousands)
Long-lived assets:
Americas		$	28,403			$	30,574
EMEA			1,184				1,396
Asia Pacific			808				1,044
Long-lived assets of discontinued operations			—				3,734
Long-lived assets:			30,395				36,748
Other non-current assets			3,676				4,112
Total non-current assets		$	34,071			$	40,860

NOTE 11. SUBSEQUENT EVENTS

On May 5, 2009, Borland entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bentley Merger Sub, Inc. (“Merger Sub”), a Delaware corporation,Micro Focus International plc, a company organized under the laws of England and Wales (“PLC”) and Micro Focus (US), Inc., a Delaware corporation (“Parent” and together with Merger Sub and PLC, “Micro Focus”), pursuant to which Merger Sub is to merge with and into Borland (the “Merger”). As a result of the Merger, the separate corporate existence of Merger Sub will cease and Borland will continue as the surviving corporation. At the effective time of the Merger, each share of common stock of Borland (other than shares owned by Borland and Micro Focus and any dissenting shares) will be converted into the right to receive$1.00 per share and outstanding options to acquire Borland common stock having a per-share exercise price of less than $1.00 that are fully vested at the closing shall be converted into the right to receive $1.00 cash less the exercise price of such option. The aggregate value of the Merger is approximately $75 million. The boards of directors of both companies have unanimously approved the Merger.

The Merger is expected to be completed late in the second quarter or early in the third quarter of 2009. The proposed transaction is subject to the approval of Borland’s stockholders, the approval of PLC’s shareholders and other customary conditions to closing, including (i) Borland’s production of evidence that immediately prior to the Effective Time it has cash and cash equivalents of not less than $122,500,000 in the aggregate, and (ii) not more than the holders of 10% of Borland’s outstanding shares of common stock have exercised dissenter’s rights. Either party will have a right to terminate the Merger Agreement if the Merger is not closed on or prior to November 5, 2009.

The Merger Agreement contains a “no-shop” provision pursuant to which Borland is restricted in its ability to solicit, initiate, encourage or facilitate an acquisition proposal from a third party. Borland is permitted to provide information and participate in discussions with respect to acquisition proposals that the Board of Directors determines in good faith, after consultation with its outside legal counsel, are superior or reasonably likely to be superior to the terms of the Merger. Borland is obligated to provide Micro Focus with notification of any acquisition proposal or inquiry and Borland’s intention to take any action with respect to an acquisition proposal.

The Merger Agreement contains certain termination rights. Upon the termination of the Merger Agreement under specified circumstances, Borland may be required to pay Micro Focus a termination fee of $3.0 million. Borland will be obligated to reimburse the expenses of Micro Focus in connection with the Merger, up to $1.5 million, under certain circumstances if Borland’s stockholders do not approve the Merger. Borland’s aggregate obligation to pay a termination fee and reimburse the expenses of Micro Focus will in no event exceed $3.0 million. Micro Focus will be obligated to reimburse the expenses of Borland in connection with the Merger, up to $1.5 million, under certain circumstances if Micro Focus’s shareholders do not approve the Merger. The Merger Agreement also includes other representations, warranties, covenants and conditions that are customary for transactions of this type.

Important Additional Information about the Proposed Merger

All parties desiring details regarding the Merger are urged to review the definitive agreement as filed by us on May 6, 2009 in a Current Report on Form 8-K, which is available on the Securities and Exchange Commission’s website at http://www.sec.gov . In connection with the proposed transaction, Borland will file with the SEC a proxy statement, and Borland plans to file with the SEC other documents regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER FILED DOCUMENTS CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION . Shareholders will be able to obtain a free-of-charge copy of the proxy statement (when available) and other relevant documents filed with the SEC from the SEC’s website at http://www.sec.gov . Shareholders will also be able to obtain a free-of-charge copy of the proxy statement and other relevant documents (when available) by directing a request by mail or telephone to Borland, 8310 North Capital of Texas Highway, Building 2 Suite 100, Austin, TX 78731, Attention: Investor Relations, Telephone: (512) 340-1364, or from Borland’s website, http://www.borland.com . Borland and certain of its directors, executive officers and other members of management and employees may, under the rules of the SEC, be deemed to be “participants” in the solicitation of proxies from shareholders of Borland in favor of the proposed merger. Information regarding Borland’s directors and executive officers is contained in Borland’s annual proxy statement filed with the SEC on April 8, 2009. Additional information regarding the interests of such potential participants will be included in the proxy statement and the other relevant documents filed with the SEC (when available).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Quarterly Report on Form 10-Q , the terms the “Company”, “we”, “our”, and “us” refer to Borland Software Corporation on a consolidated basis.

Forward-Looking Statements

The statements made throughout this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements and accordingly, involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements may relate to, but are not limited to, revenues, composition of revenues, cash flows, earnings, margins, costs, expenses, strategy, research and development, customer service and relationships, demand for our products, market and technological trends in the software industry, licenses, developments in technology, the pending acquisition of the Company by Micro Focus effects of the sale of our CodeGear assets, effects of and timeframe for company restructuring actions, effects of our offering of Convertible Senior Notes, effects of new accounting pronouncements, product quality, competition, sales, cash resources, stock price, new management and personnel, interest rates, foreign currency exchange rates, financial systems, internal controls and disclosure controls and procedures and various economic and business trends. Generally, you can identify forward-looking statements by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. These forward-looking statements involve substantial risks and uncertainties. Examples of such risks and uncertainties are described under “Risk Factors” and elsewhere in this report, as well as in our other filings with the SEC or in materials incorporated by reference herein or therein. You should be aware that the occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements and have a material adverse effect on our business, results of operations and financial condition. New factors may emerge from time to time, and it may not be possible for us to predict new factors, nor can we assess the potential effect of any new factors on us.

These forward-looking statements are found in various places throughout this Form 10-Q, including the financial statement footnotes. We caution you not to place undue reliance on these forward-looking statements, which, unless otherwise indicated, speak only as of the date they were made. We do not undertake any obligation to update or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, except as required by law.

Overview

Effective January 1, 2009, the Company adopted Financial Accounting Standard Board (“FASB”) Statement of Position No. Accounting Principles Board (“APB”) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), which impacts the accounting treatment of our convertible senior notes. Upon adopting the provisions of FSP APB 14-1, the Company retroactively applied its provisions and restated its condensed consolidated financial statements for prior periods. Refer to Note 5 of the Notes to the condensed consolidated financial statements for additional details and the impacts of retroactive application of FSP APB 14-1 on the Company’s condensed consolidated financial statements.

On June 30, 2008, we completed the sale of our CodeGear division as further described below (see also Note 6 of the Notes to condensed consolidated financial statements). In accordance with SFAS 144, the financial results for our CodeGear division for all periods presented have been reclassified as discontinued operations in our Condensed Consolidated Statements of Operations. In addition, certain immaterial errors as discussed in Note 1 of the Notes to condensed consolidated financial statements have been corrected in the comparative data for the three months ended March 31, 2008.

Following the disposition of the Company’s CodeGear division, we now operate under one reporting segment. Our single segment focuses on our Open Application Lifecycle Management solutions, or ALM, which represents the segment of the ALM market in which vendors’ solutions are flexible enough to support a customer’s specific processes, tools and platforms. Open ALM is a new, customer-centric approach to helping IT organizations transform software delivery into a managed, efficient and predictable business process. We are a leading vendor of Open ALM solutions. Our solutions address five critical ALM processes: project & portfolio management, requirements definition & management, lifecycle quality management, software change management and model driven development. Open ALM products include Tempo, TeamFocus, CaliberRM, Caliber DefineIT, SilkCentral Test Manager, SilkPerformer, SilkTest, Gauntlet, Together and StarTeam. We also offer services aimed at streamlining the path to software process improvement, including technical support, consulting and education services. Our Deployment Products Group, or DPG, includes our VisiBroker and AppServer products. Our deployment products are application middleware for high-performance, low-latency, transaction-intensive applications.

Impact of the Economic Climate on Our Operating Results and Market Capitalization

We have experienced declines in our revenue over the past several quarters, as shown by our results above and the analysis below. We believe the continued deterioration of the global economy has contributed to our performance. In addition, the strengthening of the U.S. dollar against certain of the functional currencies of our significant subsidiaries also negatively impacted our revenues, although this impact was partially offset by similar reductions in operating expenses. The strength of the global economy has recently been in decline due to several factors, including difficulties in the residential real estate and mortgage markets, volatility in fuel and other energy costs and problems in the financial services and credit markets. We believe such macroeconomic factors affect the budgeting and purchasing behavior of our customers. In addition, we believe that the declines in our stock price and market capitalization have been adversely impacted by our performance and the global economy as well. We have engaged in cost cutting and cost saving initiatives with a goal of minimizing the impact of these factors to our overall results. However, we cannot predict when the economy, our operating results or our stock price may improve. Uncertainty about future economic conditions also makes it difficult for us to forecast operating results and to make decisions about future costs and investments.

Summary of Key Financial Results

The following is a summary of our key financial results for the three months ended March 31, 2009 and 2008:

	•		Total revenues decreased 24% to $35.1 million for the three months ended March 31, 2009, from $46.1 million for the three months ended March 31, 2008.
	•		License and other revenues decreased 26% to $13.7 million for the three months ended March 31, 2009, from $18.5 million for the three months ended March 31, 2008.
	•		Service revenues decreased 23% to $21.3 million for the three months ended March 31, 2009, from $27.5 million for the three months ended March 31, 2008.
	•		On March 31, 2009, we entered into an agreement with Hewlett Packard that provides them with software licenses, related maintenance and support during 2009. In addition, the agreement gives them the right to resell Borland’s ALM products. The revenue for the three months ended March 31, 2009 was approximately $6.6 million. Total revenue and cash receipts related to the software, maintenance and support sale are expected to be approximately $18 million in 2009.
	•		Gross profit as a percentage of revenue is relatively flat for the three months ended March 31, 2009, and 2008.
	•		Operating expenses decreased 30% to $32.2 million for the three months ended March 31, 2009, from $46.3 million for the three months ended March 31, 2008.
	•		Net income for the three months ended March 31, 2009 was $1.9 million, compared to a net loss of $25.2 million for the three months ended March 31, 2008.
	•		Cash, cash equivalents and short-term investments decreased $33.1 million to $134.6 million as of March 31, 2009, from $167.7 million as of December 31, 2008 due primarily to $27.5 million of cash used to repurchase $44.3 million of our outstanding Senior Notes. Refer to Note 5 of the Notes to the condensed consolidated financial statements.

Results of Operations

The following table presents our total revenues and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):

		Three Months Ended
		March 31,
		2009								2008								Change
						% of								% of
		Amount				Total Rev				Amount				Total Rev				$				%
License and other revenues		$	13,724				39	%		$	18,537				40	%		$	(4,813	)			(26	%)
Service revenues			21,326				61	%			27,522				60	%			(6,196	)			(23	%)
Total revenues		$	35,050				100	%		$	46,059				100	%		$	(11,009	)			(24	%)

We derive revenues from the license of our software and the sale of related services. We had one customer representing more than 10% of our total revenues in the three months ended March 31, 2009.

On March 31, 2009, we entered into an agreement with Hewlett Packard that provides them with software licenses, related maintenance and support. In addition, the agreement gives them the right to resell Borland’s ALM products. The revenue for the three months ended March 31, 2009 was approximately $6.6 million. Total revenue and cash receipts related to the software, maintenance and support sale are expected to be approximately $18 million in 2009.

Revenues by Product

We have two major product categories: the ALM product group includes products such as Tempo, TeamFocus, Caliber, Together, Silk and Gauntlet; and the Deployment Product Group (“DPG”) consists of VisiBroker, AppServer and other products.

The following table presents revenues by product group (in thousands):

		Three Months Ended												Three Months Ended
		March 31, 2009												March 31, 2008
		ALM				DPG				Total				ALM				DPG				Total
License and other revenues		$	10,171			$	3,553			$	13,724			$	9,415			$	9,122			$	18,537
Service revenues			17,564				3,762				21,326				22,972				4,550				27,522
Total		$	27,735			$	7,315			$	35,050			$	32,387			$	13,672			$	46,059

License and Other Revenues

License and other revenues represent amounts for license fees and royalties earned for granting customers the right to use and distribute our software products. Although revenue recognition for software licenses may be affected by numerous aspects of a contract, for the majority of our customer contracts, we recognize software license revenue upon shipment of the product. For the three months ended March 31, 2009, license and other revenues decreased $4.8 million or 26% as compared to the same period in the prior year, principally driven by decreases in DPG license and other revenues. DPG license and other revenues decreased 61% or $5.6 million for the three months ended March 31, 2009 compared to the same period in the prior year due to large deals in the year ago quarter that were not repeated this quarter. This decrease was partially offset by an increase in ALM license and other revenues of $0.8 million.

As of March 31, 2009, sales order backlog for license revenues was insignificant.

Service Revenues

Service revenues represent amounts earned for technical support, which includes call support, maintenance and upgrades and for consulting and education services for our software products. For the three months ended March 31, 2009, services revenue decreased to $21.3 million from $27.5 million, representing a 23% decrease as compared to the same period in the prior year.

The following table presents our service revenues (in thousands):

		Three Months Ended
		March 31,
		2009								2008								Change
						% of								% of
		Amount				Total Rev				Amount				Total Rev				$				%
Technical support		$	17,999				51	%		$	20,901				45	%		$	(2,902	)			(14	%)
Consulting and education			3,327				10	%			6,621				14	%			(3,294	)			(50	%)
Total services revenues		$	21,326				61	%		$	27,522				59	%		$	(6,196	)			(23	%)