10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

OR

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

For the transition period from                      to                     

Commission File No. 0-24607

Actuate Corporation

(Exact name of Registrant as specified in its charter)

Delaware	94-3193197
(State of incorporation)	(I.R.S. Employer Identification No.)

951 Mariners Island Boulevard,

San Mateo, California 94404

(650) 645-3000

(including area code, of Registrant’s principal executive offices)

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  x    No  ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	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  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Title of Class	Outstanding as of July 31, 2014
Common Stock, par value $0.001 per share	46,367,938

Actuate Corporation

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive (loss) Income for the three and six months ended June 30, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	38
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Proceeds	52
Item 4.	Submission of Matters to a Vote of Security Holders	52
Item 6.	Exhibits	53
Signatures		54

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Part I. Financial Information

Item 1. Financial Statements

ACTUATE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

	June 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	29,601		$	41,750
Short-term investments		29,822			38,150
Accounts receivable, net of allowances of $165 and $418 at June 30, 2014 and December 31, 2013, respectively		16,217			27,418
Other current assets		9,617			8,251
Total current assets		85,257			115,569
Property and equipment, net		5,241			6,119
Goodwill		56,392			51,962
Purchased intangibles, net		11,479			8,588
Non-current deferred tax assets, net		12,834			13,019
Other assets		928			824
	$	172,131		$	196,081
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	157		$	—
Accounts payable		1,051			1,586
Current portion of restructuring liabilities		183			262
Accrued compensation		5,457			5,795
Other accrued liabilities		6,027			5,420
Deferred revenue		38,204			46,293
Total current liabilities		51,079			59,356
Long-term liabilities:
Notes payable		268			889
Other liabilities		3,096			3,177
Long-term deferred revenue		1,050			1,640
Long-term income taxes payable		2,381			2,177
Total long-term liabilities		6,795			7,883
Stockholders’ equity:
Preferred stock, $0.001 par value, issuable in series; 5,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized; issued 91,102,175 and 92,286,427 shares, respectively; outstanding 46,086,570 and 47,710,244 shares, respectively		46			48
Additional paid-in capital		261,011			260,060
Treasury stock, at cost; 45,015,605 and 44,576,183 shares, respectively		(207,574	)		(198,531	)
Accumulated other comprehensive income		1,695			2,204
Retained earnings		59,079			65,061
Total stockholders’ equity		114,257			128,842
	$	172,131		$	196,081

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

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ACTUATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues:
License fees	$	7,335		$	16,155		$	13,553		$	31,635
Services		19,178			18,747			37,046			38,185
Total revenues		26,513			34,902			50,599			69,820
Costs and expenses:
Cost of license fees		512			551			996			1,124
Cost of services		3,869			4,431			7,436			9,414
Sales and marketing		11,538			14,316			22,901			28,090
Research and development		6,218			6,382			13,279			12,942
General and administrative		6,344			6,168			12,037			12,048
Amortization of other purchased intangibles		364			301			707			564
Restructuring charges		201			523			307			591
Total costs and expenses		29,046			32,672			57,663			64,773
(Loss) Income from operations		(2,533	)		2,230			(7,064	)		5,047
Interest income and other income/(expense), net		401			17			315			317
Interest expense		(15	)		(60	)		(28	)		(120	)
(Loss) Income before income taxes		(2,147	)		2,187			(6,777	)		5,244
Provision for (benefits from) income taxes		185			874			(1,075	)		912
Net (loss) income	$	(2,332	)	$	1,313		$	(5,702	)	$	4,332
Basic net (loss) income per share	$	(0.05	)	$	0.03		$	(0.12	)	$	0.09
Shares used in basic net (loss) income per share calculation		46,692			47,781			47,224			47,980
Diluted net (loss) income per share	$	(0.05	)	$	0.03		$	(0.12	)	$	0.09
Shares used in diluted net (loss) income per share calculation		46,692			50,471			47,224			50,593

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

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ACTUATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands, unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net (loss) income	$	(2,332	)	$	1,313		$	(5,702	)	$	4,332
Other comprehensive income/(loss), before tax:
Foreign currency translation	$	(533	)	$	(250	)	$	(523	)	$	(1,585	)
Net unrealized gain (loss) on securities		3			(55	)		14			(79	)
Total comprehensive (loss) income	$	(2,862	)	$	1,008		$	(6,211	)	$	2,668

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

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ACTUATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Six Months Ended June 30,
	2014			2013
Operating activities
Net (loss) income	$	(5,702	)	$	4,332
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Share-based compensation expense		3,325			4,091
Excess tax benefit from exercise of stock options		(82	)		(814	)
Amortization of other purchased intangibles		1,537			1,274
Amortization of debt issuance cost		10			40
Bad debt expense		(103	)		(114	)
Write-off of unamortized debt issuance costs		—			188
Depreciation		962			1,085
Change in valuation allowance on deferred tax assets		230			(89	)
Impairments and write-offs		66			155
Gain on liquidation of subsidiary		—			(416	)
Accretion/amortization on short-term debt securities		(12	)		(225	)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable, net of allowance		12,424			6,584
Other current assets		(743	)		(415	)
Accounts payable		(606	)		(637	)
Accrued compensation		(615	)		565
Other accrued liabilities		(861	)		(80	)
Deferred tax assets, net of liabilities		(359	)		(53	)
Income taxes receivable/payable		(266	)		1,009
Other deferred liabilities		(40	)		(30	)
Restructuring liabilities		(120	)		(173	)
Deferred revenue		(9,062	)		(2,152	)
Net cash (used in) provided by operating activities		(17	)		14,125
Investing activities
Purchases of property and equipment		(91	)		(356	)
Proceeds from sale and maturity of investments		21,169			20,432
Purchases of short-term investments		(12,816	)		(24,427	)
Acquisitions, net of cash acquired		(3,945	)		—
Security deposits and other		(63	)		36
Net cash provided by (used in) investing activities		4,254			(4,315	)
Financing activities
Pay-down of other loan obligations		(4,771	)		—
Credit facility related payments		—			(12	)
Excess tax benefit from exercise of stock options		82			814
Proceeds from issuance of common stock		1,609			3,809
Stock repurchases		(12,896	)		(10,000	)
Tax related to net share settlements of restricted stock awards and units		(94	)		(50	)
Net cash used in financing activities		(16,070	)		(5,439	)
Effect of exchange rates on cash and cash equivalents		(316	)		(970	)
Net (decrease) increase in cash and cash equivalents		(12,149	)		3,401
Cash and cash equivalents at the beginning of the period		41,750			37,483
Cash and cash equivalents at the end of the period	$	29,601		$	40,884
Supplemental cash flow disclosures:
Cash paid for interest	$	23		$	102
Cash paid for income taxes	$	76		$	559

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

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ACTUATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

The Company

Actuate Software Corporation was incorporated in November 1993 in the State of California and reincorporated in the State of Delaware in July 1998 as Actuate Corporation (“We”, “Actuate” or the “Company”). Actuate enabled solutions help its enterprise customers maximize revenue, cut costs, create more effective customer communications, streamline operations and create competitive advantage. Applications built using Actuate’s products have delivered personalized analytics and insights to more than 200 million people. More than 3.5 million developers have downloaded open source BIRT, the open source Eclipse interactive development environment (IDE)-based project founded and co-led by Actuate. Many of these BIRT developers use commercial, value-added products from Actuate to enhance and deploy BIRT-based applications to deliver personalized analytics and insights to customers, partners and employees.

Enterprises use Actuate products to create customer-facing, Big Data analytics and customer communications management (CCM) applications with intuitive and visually-engaging experiences. These applications provide unique insights from multiple data sources, delivered securely across high volume of users and devices with proven scalability to millions of users. Developers use BIRT and BIRT iHub™, (Actuate’s commercial deployment platform for BIRT-based applications), to develop and deploy high scale applications that deliver information personalized for each user to enrich the brand experience and gain competitive advantage. BIRT iHub further ensures organizations can gain effective insights from Big Data and take advantage of mobile touch devices. Actuate’s BIRT Analytics™ delivers self-service predictive analytics to enhance customer engagement from Big Data. BIRT Content Services™ empowers ECM architects to easily transform, personalize and archive high volume content and customer correspondences. Actuate’s goal is to ensure that its customers can seamlessly incorporate information and business analysis into their day-to-day activities and decision-making, enabling organizations to explore new avenues for improving the bottom line. Actuate’s principal executive offices are located at the BayCenter Campus at 951 Mariners Island Boulevard, in San Mateo, California. Actuate’s telephone number is 650-645-3000. Actuate maintains Web sites at www.actuate.com, developer.actuate.com, www.birtondemand.com, www.quiterian.com and www.legodo.com. The information posted on our Web sites is not incorporated into this Form 10-Q.

Basis of Presentation

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in Actuate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 7, 2014.

To prepare financial statements in conformity with GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and may result in material effects on the Company’s operating results and financial position.

The condensed consolidated financial statements include the accounts of Actuate and its wholly-owned subsidiaries. Actuate has offices throughout North America, Europe and Asia including offices in the United States, Canada, Switzerland, United Kingdom, Germany, Spain, Singapore, Japan and Australia. All intercompany balances and transactions have been eliminated.

Revisions of Prior Period Reported Amounts

During the second quarter of 2014, we identified and recorded adjustments associated with certain equity accounts reported in prior periods. The adjustments related entirely to the classification of accounts within shareholders’ equity. Specifically, it affected the classification amongst additional paid-in-capital (“APIC”), retained earnings and Treasury stock

7

accounts for Employee Stock Purchase Plan (ESPP) shares that were previously reissued from Treasury. The reissuance resulted in a cumulative increase of approximately $3.75 million to Treasury stock account for the weighted average cost of the treasury shares reissued, a decrease of approximately $3.47 million to APIC for the reissuance price over cost (net gain) of the ESPP shares and an decrease of approximately $280,000 to retained earnings for the cost over price (net loss) from reissuance of the ESPP shares. Since these accounts are separate components within Stockholders equity, the net overall impact on the Consolidated Balance Sheet was zero for the period presented.

Pursuant to the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatement in the Current Year Financial Statements, we concluded that the adjustments were not material to any of our annual or interim periods or the current period.

Revenue Recognition

Actuate generates revenues from the sales of software licenses and related services. The Company receives software license revenues from licensing its products directly to end-users and indirectly through resellers, system integrators and original equipment manufacturers (OEMs). The Company receives service revenues from maintenance contracts, consulting services and training that Actuate performs for customers.

For sales to end-user customers, Actuate recognizes license revenues when a license agreement has been signed by both parties or a definitive agreement has been received from the customer, the product has been physically shipped or electronically made available, there are no unusual uncertainties surrounding the product acceptance, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence (VSOE) of fair value exists to allocate the fee to the undelivered elements of the arrangement. Vendor-specific objective evidence of fair value of sales to end users is based on the price charged when an element is sold separately.

Actuate has not established vendor-specific objective evidence of fair value for its licenses. Therefore, the Company recognizes revenues from software arrangements with multiple elements involving software licenses under the residual method, which means the fair value of the undelivered elements is deferred while the remaining value of the arrangement is allocated to the delivered elements. If we are unable to determine the fair value of the undelivered elements, it is not possible to allocate revenues separately to the undelivered elements in the arrangement and consequently, the entire amount of the arrangement fee is recognized ratably over the performance period of that undelivered element, assuming all other revenue recognition criteria are satisfied. If the license agreement contains payment terms that would indicate that the fee is not fixed or determinable, revenues are recognized as the payments become due and payable, assuming that all other revenue recognition criteria are met.

Actuate enters into reseller and distributor arrangements that typically give such distributors and resellers the right to distribute its products to end-users headquartered in specified territories. Actuate recognizes license revenues from arrangements with U.S. resellers and distributors when there is persuasive evidence of an arrangement with the reseller or distributor, the product has been shipped, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement. Actuate recognizes license revenues from arrangements with international resellers and distributors upon receipt of evidence of sell-through and when all other revenue recognition criteria have been met. If it is not practical to obtain evidence of sell-through, the Company defers revenues until the end-user has been identified and cash has been received. In some instances there is a timing difference between when a reseller completes its sale to the end-user and the period in which Actuate receives the documentation required for revenue recognition. Because Actuate delays revenue recognition until the reporting period in which the required documentation is obtained, it may recognize revenue in a period subsequent to the period in which the reseller completes the sale to its end-user.

Actuate also enters into OEM arrangements that provide for license fees based on the bundling or embedding of its products with the OEM’s products. These arrangements generally provide for fixed, irrevocable royalty payments. Actuate recognizes license fee revenues from U.S. and international OEM arrangements when a license agreement has been executed by both parties, the product has been shipped, there are no unusual uncertainties surrounding the product acceptance, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement.

In addition to licenses sold on perpetual basis, Actuate also sells its products on a time-based arrangement. The time-based licenses are sold either as on-premise time-based offerings or as hosted Software-as-a-Service (SaaS). The time-based transactions are typically broken down into separate license and maintenance components. The license component is

8

recognized ratably over the term of the underlying arrangement as license revenue while the maintenance component is recognized ratably over the term of the underlying arrangement in services revenue in the Company’s Condensed Consolidated Statement of Operations. Our SaaS offerings consist of BIRT Performance Analytics onDemand and BIRT onDemand. Actuate recognizes revenue on these licenses ratably over the term of the underlying arrangement. Revenues from Actuate’s SaaS offerings are reported as services revenue in the Company’s Condensed Consolidated Statement of Operations.

The Company establishes vendor specific objective evidence of fair value for maintenance and support using a “bell-shaped curve” approach for certain types of license transactions, and uses a “stated maintenance renewal” approach for other categories of license transactions. When applying the “bell-shaped curve” approach the Company analyzes all maintenance renewal transactions over the past twelve months for that category of license and plots those data points on a bell-shaped curve to ensure that a high percentage of the data points are within an acceptable margin of the established VSOE rate. This analysis is performed quarterly.

When applying the “stated renewal rate” approach, the Company ensures that the individual license transaction includes a clear and substantive renewal rate explicitly stated in the documentation for the transaction. Furthermore, the Company ensures that it has a practice of consistently renewing those transactions at the contractual rate. This is done by reviewing maintenance renewals on these contracts and making sure that a very high percentage are renewed at the renewal rates stipulated in the contract.

The Company assesses the collectability of fees from end-users based on payment history and current credit profile. When a customer is not deemed credit-worthy, revenues are deferred and recognized upon cash receipt.

Actuate recognizes maintenance revenues, which consist of fees for ongoing support and unspecified product updates, ratably over the term of the contract, typically one year. Consulting revenues are primarily related to standard implementation and configuration. Training revenues are generated from classes offered at the Company’s offices and customer locations. Revenues from consulting and training services are typically recognized as the services are performed. When a contract includes both license and service elements, the license fee is typically recognized on delivery of the software, assuming all other revenue recognition criteria are met, provided services do not include significant customization or modification of the product and are not otherwise essential to the functionality of the software.

Share-Based Compensation

The Company has various types of share-based compensation plans. These plans are administered by the compensation committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. Readers should refer to Note 9 of the Company’s consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for additional information related to these share-based compensation plans. Share-based compensation expense and the related income tax benefit reflected in the Condensed Consolidated Statements of Operations in connection with stock options, restricted stock units, performance-based stock units and the Employee Stock Purchase Plan (“ESPP”) for three and six months ended June 30, 2014 and 2013 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Stock options	$	414	$	1,214	$	1,005	$	2,185
Restricted stock units		1,238		498		1,752		834
Performance-based stock units (1)		160		297		337		500
ESPP		95		336		231		572
Total share-based compensation	$	1,907	$	2,345	$	3,325	$	4,091
Income tax benefit	$	603	$	689	$	1,061	$	1,214

(1) Includes Performance Stock Units (“PSUs”) and market-performance based units (“MSUs”).

In May 2012, MSUs were granted to the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company. Each MSU represents the right to one share of Actuate’s common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Actuate’s stock price relative to the performance of the Standard

9

& Poor’s (“S&P”) Small Cap 600 Index over a two-year vesting period, up to 200% of the MSUs initially granted. After the initial performance period, 50% of the earned award vests immediately and the remaining 50% is subject to an additional one year service period. We valued the MSUs using the Monte Carlo simulation model and amortize the compensation expense over the three year performance and service period.

In April 2013, additional MSUs were granted to the CEO and the CFO of the Company. The actual number of MSUs which will be eligible to vest will be based on the performance of Actuate’s stock price relative to the performance of the Russell 2000 Index over the vesting period, up to 200% of the MSUs initially granted. The award is divided into two tranches. The first tranche has a two year performance period and the second has a three year performance period.

In April 2014, the CEO and CFO were each granted two PSU awards, each with its own distinct internal, company-wide performance metric. The metric for the first award has a one year performance period to determine number of earnable shares, up to 100% of the initial grant, followed by a three-year vesting period with one-third vesting at the end of each calendar year. The metric for the second award has a one year performance period to determine number of earnable shares, up to 150% of the initial grant, followed by a two-year vesting period with half vesting at the end of each calendar year. Vesting for both grants is subject to continued employment with the Company. The PSU awards have a fair value equal to the stock price on the grant date. We amortize the compensation expense over the three or four year performance and service periods if and when achievement of the performance metrics are determined probable.

We estimate the expected term of options granted by analyzing actual historical experience of exercises and cancellations under our plans. We also look at the average length of time in which our current outstanding options are expected to be exercised or cancelled based on past experience and the vesting and contractual term. We estimate the volatility of our common stock by using historical volatility over the expected term. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those previously estimated. Management’s estimate of forfeitures is based on historical experience; however actual forfeitures could differ as a result of employee terminations which may impact future share-based compensation expense. We base the risk-free interest rate used in the option valuation model on the daily Treasury yield curve interest rate published by the U.S. Department of the Treasury. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. The assumptions used to estimate the fair value of stock options granted and stock purchase rights granted under our Employee Stock Purchase Plan (the “Purchase Plan”) for the six months ended June 30, 2014 and 2013 are as follows:

	Options Six Months Ended		ESPP Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Volatility	45.92 - 49.94%	53.19 - 53.58%	21.4 – 30.09%	34.3 - 41.52%
Expected term (years)	5.54 - 5.57	5.66 - 5.67	1.25	1.25
Risk free interest rate	1.62 - 1.73%	0.77 - 1.38%	0.07 - 0.30%	0.11 - 0.27%
Expected dividend yield	0%	0%	0%	0%

Beginning January 2010, restricted stock units (“RSUs”) were granted to senior management as part of the Company’s annual incentive compensation program under the Amended and Restated 1998 Equity Incentive Plan. RSUs are valued based on the closing price of the Company’s common stock on the grant date. In general, restricted stock units vest over four years with annual cliff vesting and are subject to the employees’ continuing service to the Company. For each restricted stock unit granted under the 1998 Plan, a share reserve ratio is applied for the purpose of determining the remaining number of shares reserved for future grants under the plan. The share reserve ratio is 1:1 for each restricted stock unit granted, and an equivalent of 1 share will be deducted from the share reserve for each restricted stock unit issued. Likewise, each forfeited restricted stock unit increases the number of shares available for issuance by the applicable rate at the time of forfeiture.

In the first quarter of 2014 the Company expanded its equity incentive program to grant RSUs in-lieu of stock options to its employees across all levels based on performance. Stock options will continue to be granted as part of the Company’s new hire program.

Performance stock units (“PSUs”) were also granted for the first time to select key employees of the Company. PSU vesting is contingent upon meeting certain company-wide performance goals.

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As of June 30, 2014, a total of 3,028,750 RSUs and performance-based awards have been granted to the Company’s senior management, employees and non-employee Board of Directors.

Net (loss) Income Per Share

The Company computes basic net (loss) income per share using the weighted-average number of common shares outstanding during the period, less weighted average shares subject to repurchase. The Company computes diluted net (loss) income per share using the weighted-average number of common shares and dilutive share-based awards during the period determined by using the treasury stock method.

The table below reconciles the weighted-average common shares used to calculate basic net (loss) income per share with the weighted-average common shares used to calculate diluted net (loss) income per share (in thousands).

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Weighted-average common shares outstanding		46,692		47,781		47,224		47,980
Weighted-average dilutive common equivalent shares under the treasury stock method		—		2,690		—		2,613
Weighted-average common shares used in computing diluted net (loss) income per share		46,692		50,471		47,224		50,593

Under the treasury stock method, stock options with exercise prices exceeding the average share price of the Company’s common stock during the applicable period are excluded from the diluted earnings per share computation. The following table sets forth all potentially dilutive securities excluded from the computation in the table above because their effect would have been anti-dilutive (shares in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014(1)		2013(2)		2014(1)		2013(2)
Stock Options:
Weighted-average excluded shares		8,556		2,013		8,597		3,242
Weighted-average exercise price	$	5.25	$	5.98	$	5.24	$	6.13
Awards:
Weighted-average excluded shares		1,617		118		1,158		103

(1) Common equivalent shares are excluded from the calculation of net loss per share for the three and six months ended June 30, 2014.

(2) Anti-dilutive common equivalent shares are excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2013.

Income Taxes

We provide for the effect of income taxes in our Condensed Consolidated Financial Statements using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryovers, and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We also apply a two-step approach to determining the financial statement recognition and measurement of uncertain tax positions.

Income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year, and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We must make significant assumptions, judgments and estimates to determine our current provision (benefit) for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our deferred tax assets. Our judgments, assumptions and estimates relating to the current provision (benefit) for income taxes include the geographic mix and amount of income (loss), our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Our judgments also include anticipating the tax positions we will record in the financial statements before actually preparing and filing the tax returns. Our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments

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when they are identified or resolved. Changes in our business, tax laws or our interpretation of tax laws, and developments in current and future tax audits, could significantly impact the amounts provided for income taxes in our results of operations, financial position, or cash flows.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry-forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. To make this assessment, we take into account predictions of the amount and category of taxable income from various sources and all available positive and negative evidence about these possible sources of taxable income. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified. Based on the analysis of positive and negative factors noted above, we have no valuation allowance against U.S. federal deferred tax assets. For U.S. states, we have determined that it is more likely than not that the Company’s California research credits will not be realized as we continue to generate credits significantly in excess of our yearly California tax liability. As such, we continue to maintain a full valuation allowance against our excess deferred tax asset for California research credit carry forwards. We maintain a full valuation allowance against deferred tax assets in foreign jurisdictions with a history of losses and a partial valuation allowance in foreign jurisdictions where operating results beyond a certain time frame are less reliable. If, in the future, we determine that these deferred tax assets are more likely than not to be realized, a release of all or part, of the related valuation allowance could result in an income tax benefit in the period such determination is made.

We only recognize an income tax expense or benefit with respect to uncertain tax positions in our financial statements that we judge is more likely than not to be sustained solely on its technical merits in a tax audit, including resolution of any related appeals or litigation processes. To make this judgment, we must interpret complex and sometimes ambiguous tax laws, regulations and administrative practices. If an income tax position meets the more likely than not recognition threshold, then we must measure the amount of the tax benefit to be recognized by determining the largest amount of tax benefit that has a greater than a 50% likelihood of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible settlement outcomes. To determine if a tax position is effectively settled, we must also estimate the likelihood that a taxing authority would review a tax position after a tax examination has otherwise been completed. We must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end. These judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements. We must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision.

Sales Taxes

The Company presents its revenues net of sales tax in its Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance related to reporting discontinued operations. This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The new standard is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are evaluating the impact, if any, of adopting this new accounting standard on our financial statements.

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for Actuate beginning January 1, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the impact of adopting this new accounting standard on our financial statements.

In June 2014, the FASB issued new guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a

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performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

2. Acquisitions

legodo ag

On January 31, 2014, The Company acquired legodo ag, a privately held software company based in Karlsruhe, Germany, whose mission is to develop software for easy and rapid generation of personalized customer correspondence via any modern communication channel, including social media. Actuate acquired 100% of the outstanding shares held by legodo shareholders. At the time of the acquisition the Company paid $3.9 million in cash to legodo shareholders. This amount was net of $1.5 million in cash acquired. There is also $1.6 million in potential additional cash payments which may be required through December 2014. These additional payments are wholly dependent on the achievement of specific revenue contingencies. The initial estimated fair value of these performance-based payments of approximately $1.1 million was determined based on management’s estimate of fair value using a probability-weighted discounted cash flow model, which uses Level 3 inputs for fair value measurements. The fair value of the contingent consideration is remeasured on each reporting date, and changes to the fair value are recorded to acquisition related expenses on the consolidated statement of operations.

During the second quarter of 2014, we adjusted the estimated fair value of these performance-based payments due to a higher probability of meeting our annual revenue targets for legodo. As a result, we increased the fair value of these payments by $144,000 and increased the liability from $1.1 million to approximately $1.3 million at June 30, 2014. This second quarter 2014 adjustment of $144,000 was recorded to acquisition related expenses under general and administrative section of our Condensed Consolidated Statement of Operations.

Under the purchase accounting method, the total purchase price was allocated to legodo’s net tangible and intangible assets based upon their estimated fair values as of January 31, 2014. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill.

Direct transaction costs related to the legodo acquisition totaling approximately $145,000 were incurred during the first quarter of 2014. These costs include legal and accounting fees, and other external costs directly related to the acquisition. These acquisition related costs were directly charged to general and administrative expense on the Condensed Consolidated Statements of Operations as incurred.

The table below represents the allocation of the purchase price to the acquired net assets of legodo based on their estimated fair values as of January 31, 2014 and the associated estimated useful life at that date.

	Amount (in thousands)			Useful life (in years)
Net tangible assets and liabilities	$	(2,555	)		N/A
Existing technology		2,722			7
Customer contracts and relationships		1,769			7
Goodwill		4,582			N/A
Total purchase consideration	$	6,518

As with acquisitions that the Company has undertaken in the past, the Company has initiated structural changes in its corporate structure in order to incorporate legodo. These changes in Company’s organizational structure are ongoing and could affect future estimates and assumptions.

Net tangible assets and liabilities:

legodo’s tangible assets and liabilities as of January 31, 2014 were adjusted to their estimated fair value as necessary. Among the net tangible assets assumed were approximately $1.5 million in cash and cash equivalents, $1.1 million in trade receivables, and $4.3 million in notes payable. The notes payable was paid in full by Actuate immediately following acquisition.

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Identifiable intangible assets:

Existing technology—consists of legodo’s scalable communication solutions which maximize the capabilities of connecting to customers while being able to customize messages and platforms. legodo’s software suite helps its users to have more control over various customer communication channels, such as emails, letters, texting, Multimedia Messaging Service (MMS), and others. Its solution is also used in providing document generation and creation, quotations and contracts management, and digital processing solutions. The existing technology represents an intangible asset separate from goodwill. The existing technology was valued using a form of the income approach known as the excess earnings method. In the excess earnings method, value is estimated as the present value of the benefits anticipated from ownership of the subject intangible asset in excess of the returns required on the investment in the contributory assets necessary to realize those benefits. It is based on the theory that all operating assets contribute to the profitability of an enterprise. Therefore, if the estimated earnings associated with a specific asset of a company rely on the use of other company assets, then the estimated earnings of the subject asset must be reduced by appropriate charges for the use of these contributory assets.

Customer contracts and relationships— legodo provides customer contact software to customers, primarily to German corporations. Typically, the Company works directly with customers through licensing its products and continued maintenance and consulting. These relationships represent an intangible asset separate from goodwill. Similar to the existing technology, the fair value of the customer contracts and relationships was established using the excess earnings method. Discussions with legodo management and review of the business operations indicated that the typical market participant interested in acquiring legodo would view the Company’s current customer relationships as an asset of central importance. An income approach was selected as the best method to capture the subject customers’ expected contribution to future earnings.

We expect to amortize the fair value of these intangible assets on a straight-line basis over their respective estimated useful life.

Goodwill:

Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant. No amount of goodwill is expected to be deductible for tax purposes.

3. Fair Value Measurements of Financial Assets and Liabilities

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and other current liabilities the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

The Company has assets that are valued in accordance with the provisions of the authoritative guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

• Level 1—Valuations based on real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2—Valuations based on readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs.

• Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Assets Measured at Fair Value on a Recurring Basis

The following table represents information about the Company’s investments measured at fair value (in thousands).

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	Fair value of investments as of June 30, 2014
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds (1)	$	4,351	$	4,351	$	—	$	—
Term deposits (1)		800		800		—		—
Commercial paper (2)(3)		8,498		—		8,498		—
Corporate bonds (2)		24,824		—		24,824		—
	$	38,473	$	5,151	$	33,322	$	—
	Fair value of investments as of December 31, 2013
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds (1)	$	6,088	$	6,088	$	—	$	—
Term deposits (1)		7,122		7,122		—		—
Commercial paper (2)		4,498		—		4,498		—
Corporate bonds (2)		32,652		—		32,652		—
Federal and municipal obligations (4)		4,000		—		4,000		—
	$	54,360	$	13,210	$	41,150	$	—

(1) Included in cash and cash equivalents in the Company’s Condensed Consolidated Balance Sheet.

(2) Included in short-term investments in the Company’s Condensed Consolidated Balance Sheet.

(3) Of this amount, approximately $3.5 million was included in cash equivalents at June 30, 2014 and the remainder was included in the short-term investment in the Company’s Condensed Consolidated Balance Sheet.

(4) Of this amount, approximately $3 million was included in cash equivalents at December 31, 2013 and the remainder was included in short-term investments in the Company’s Condensed Consolidated Balance Sheet.

Certain items in the table above are classified as Level 2 items because quoted prices in an active market are not readily accessible for those specific financial assets, and the Company may have relied on alternative pricing methods that do not rely exclusively on quoted prices to determine the fair value of the investments.

The Company’s cash, cash equivalents, and short-term investments are as follows (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Balance at June 30, 2014
Classified as cash and cash equivalents:
Cash	$	20,950	$	—	$	—		$	20,950
Term deposits		800		—		—			800
Money market funds		4,351		—		—			4,351
Commercial paper		3,500		—		—			3,500
		29,601		—		—			29,601
Classified as short-term investments:
Commercial paper (5)		4,999		—		(1	)		4,998
Corporate bonds (5)		24,811		19		(6	)		24,824
		29,810		19		(7	)		29,822
Total	$	59,411	$	19	$	(7	)	$	59,423

(5) Securities totaling approximately $16 million were in an unrealized loss position at June 30, 2014. None of these securities were in a continuous unrealized loss position for greater than 12 months.

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	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Balance at December 31, 2013
Classified as cash and cash equivalents:
Cash	$	25,540	$	—	$	—		$	25,540
Term deposits		7,122		—		—			7,122
Money market funds		6,088		—		—			6,088
Federal and municipal obligations		3,000		—		—			3,000
		41,750		—		—			41,750
Classified as short-term investments:
Commercial paper (6)		4,498		—		—			4,498
Corporate bonds (6)		32,654		—		(2	)		32,652
Federal and municipal obligations		1,000		—		—			1,000
		38,152		—		(2	)		38,150
Total	$	79,902	$	—	$	(2	)	$	79,900

(6) Securities totaling approximately $18.1 million were in an unrealized loss position at December 31, 2013. None of these securities were in a continuous unrealized loss position for greater than 12 months.

Our cash equivalent and short-term investment portfolio as of June 30, 2014, consists of investment grade U.S. Government Agency securities, taxable money market mutual funds and taxable commercial paper and corporate notes. We follow an established investment policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer. As of June 30, 2014, we had no direct investments in structured investment vehicles, sub-prime mortgage-backed securities or collateralized debt obligations and no exposure to these financial instruments through our indirect holdings in money market mutual funds. During fiscal years 2014 and 2013 we had no impairment charge associated with our short-term investment portfolio. While we cannot predict future market conditions or market liquidity, we regularly review our investments and associated risk profiles, which we believe will allow us to effectively manage the risks of our investment portfolio.

Short-term investments are classified as available-for-sale and are recorded on the Company’s Consolidated Balance Sheet at fair market value with unrealized gains or losses reported as a separate component of Accumulated Other Comprehensive (loss) Income. At June 30, 2014, the Company has classified all of its securities with original maturities beyond 90 days as short-term investments, even though the stated maturity dates may be one year or more beyond the current balance sheet date as these investments remain highly liquid and available for use in current operations.

4. Restructuring Charges

During the first half of fiscal 2014, the Company incurred a restructuring charge of approximately $307,000 associated mainly with closure of its Shanghai, China operation, which was effective January 31, 2014. The closure resulted in termination of approximately 50 employees, mainly in research and development, and totaled approximately $1.2 million in employee severance and associated charges. Of the total $1.2 million in severance associated with the China restructuring, only the portion that constituted one-time employee termination benefits were deemed as restructuring while the remaining balance was classified as an on-going employee benefits arrangement. An ongoing benefit arrangement is presumed to exist if an entity has a past practice of providing similar termination benefits, including statutorily-required benefits, to be provided in the event of involuntary termination. The Company classified most of the on-going benefits arrangement portion of the Shanghai, China restructuring to research and development as compensation expense during the first six months of fiscal 2014.

Additionally, the Company recorded facility related charges associated with the Shanghai facility totaling approximately $112,000 which it incurred upon exiting the facility in the second quarter of 2014. The Company also updated its estimates of sublease income related to its idle facility in Toronto Canada resulting in approximately $89,000 in restructuring expense during the second quarter of 2014.

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The following table summarizes the restructuring accrual activity during the six months ended June 30, 2014 (in thousands):

	Severance & Benefits			Facility Related			Total
Balance at December 31, 2013	$	—		$	314		$	314
Restructuring charges (Q1)		106			—			106
Restructuring charges (Q2)		9			192			201
Reclassifications		96			(96	)		—
Cash payments, net of rents collected on sublease		(185	)		(152	)		(337	)
Other (1)		8			(98	)		(90	)
Balance at June 30, 2014:		34			160			194
Less: Current portion:		(34	)		(149	)		(183	)
Long-term balance at June 30, 2014 (2)	$	—		$	11		$	11

(1) Mainly relate to non-cash asset charges related to the closure of the Shanghai facility that were recorded to restructuring expense but not included in the restructuring accruals and therefore adjusted for presentation purposes. Also included are foreign currency translation adjustments.

(2) Included in “Other liabilities—long-term” section of the Condensed Consolidated Balance Sheet.

5. Segment and Geographic Information

Our primary operations are located in the United States. Revenues from international sources relate to export sales, primarily to Europe and Asia. Our revenues by geographic area were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Revenues:
North America	$	19,811	$	26,731	$	37,205	$	54,552
Europe, Middle East, and Africa (EMEA)		5,227		6,820		10,774		12,593
Asia Pacific and others		1,475		1,351		2,620		2,675
	$	26,513	$	34,902	$	50,599	$	69,820

As of June 30, 2014, we operated solely in one segment, which is the development, marketing and support of our enterprise reporting application platforms. There were no customers that accounted for more than 10% of total revenues in the six months ended June 30, 2014 or 2013.

6. Goodwill and Other Purchased Intangible Assets

Goodwill

Goodwill is not amortized, but is evaluated for impairment on an annual basis or when impairment indicators are present. The Company performs its annual impairment test of goodwill as of October 1st of each year. The potential impairment is identified if the fair value of the reporting unit to which goodwill applies is less than the recorded book value of the related reporting entity, including such goodwill. Where the book value of a reporting entity, including related goodwill, is greater than the reporting entity’s fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed on October 1, 2013. As a result, the Company did not record any impairment related to its goodwill for the period ended June 30, 2014.

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The following is a roll-forward of the activity that affected goodwill during the first half of 2014 (in thousands):

Goodwill as of December 31, 2013	$	51,962
Acquisition of legodo ag		4,582
Foreign currency translation		(152	)
Goodwill as of June 30, 2014	$	56,392

Other purchased intangible assets consist of the following (in thousands):

	June 30, 2014												December 31, 2013
	Gross Carrying Amount			Acquisition of legodo ag			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer lists	$	22,350		$	1,769		$	(19,239	)	$	4,880		$	22,350		$	(18,539	)	$	3,811
Purchased technologies		17,325			2,722			(13,354	)		6,693			17,325			(12,527	)		4,798
Leases		47			—			(39	)		8			47			(35	)		12
Foreign currency impact		(33	)		(63	)		(6	)		(102	)		(33	)		—			(33	)
	$	39,689		$	4,428		$	(32,638	)	$	11,479		$	39,689		$	(31,101	)	$	8,588

Amortization expense of purchased technology and other intangible assets was approximately $795,000 and $634,000 for the quarters ended June 30, 2014 and 2013, respectively. Of this total, approximately $431,000 and $333,000 was related to the amortization of purchased technology for the quarters ended June 30, 2014 and 2013, respectively. Purchased identifiable intangible assets are amortized on a straight-line basis over their useful lives. The estimated useful economic lives of the acquired customer lists and purchased technologies are seven years. The estimated economic useful life of favorable leases is five years. Amortization of purchased technology is included in cost of license fees in the accompanying condensed consolidated statements of income.

During the first quarter of 2014, the Company recorded additions to its purchased intangible assets of approximately $4.5 million related to the acquisition of legodo ag. For additional discussion, see Note 2 of this Form 10-Q.

The expected remaining annual amortization expense is summarized as follows (in thousands):

Fiscal Year (in thousands):	Purchased Technology and Intangibles
2014 (remainder of year)	$	1,584
2015		3,161
2016		3,158
2017		1,104
2018		917
2019 and thereafter		1,555
	$	11,479

7. Commitments and Contingencies

General

The Company is engaged in certain legal actions arising in the ordinary course of business. Although there can be no assurance as to the outcome of such litigation, the Company believes it has adequate legal defenses and it believes that neither the ultimate outcome of any of these actions nor ongoing litigation costs will not have a material effect on the Company’s consolidated financial position or results of operations.

Revolving credit line

During the second quarter of 2013, following a comparative evaluation of its credit facility, the Company decided to change to another vendor to service its borrowing needs. As a result, the Company terminated its existing credit agreement with Wells Fargo Capital Finance (“WFCF”) and on June 30, 2013 entered into a new revolving credit agreement with U.S. Bank National Association (“US Bank”) through and until June 29, 2017. The Company intends to use the proceeds from the Credit Agreement for working capital, acquisitions, issuance of commercial and standby letters of credit, stock repurchases, capital expenditures and other general corporate purposes.

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The new Credit Agreement with US Bank allows for cash borrowings and the issuance of letters of credit under a secured revolving credit facility up to a maximum of $50 million. Interest accrues based on, at the Company’s election, (i) LIBOR plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio or (ii) the greater of: (a) the Federal Funds Effective Rate plus one half of one percent, (b) one month LIBOR plus one percent, and (c) U.S. Bank’s prime rate, in each case plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio. The Company is required to make interest payments on a monthly basis.

Following the termination of its agreement with WFCF, the Company wrote-off all remaining unamortized costs related to the old credit facility totaling approximately $188,000 in the second quarter of 2013. Costs related to the new credit facility with US Bank were not significant.

As of June 30, 2014, there was no balance owed on the credit facility and the balance available under the revolving credit facility was $50 million.

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
(In thousands):
Amortization of debt issuance costs	$	5	$	20	$	10	$	40
Unused line fees		—		37		—		75
	$	5	$	57	$	10	$	115

The Credit Agreement with US Bank contains covenants, which, among other things, impose certain limitations with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens and encumbrances. The Company is also required to maintain the two financial covenants listed below:

• Consolidated total cash flow leverage ratio not to exceed 2.50 to 1.00, and

• A fixed charge coverage ratio of not less than 1.75 to 1.00.

The indebtedness under the Credit Agreement is secured by (i) substantially all of the personal property (whether tangible or intangible) of Actuate Corporation and Actuate International Holding Company (as guarantor) as well as the proceeds generated by that property and (ii) by a pledge of all of its stock and a portion of the stock of certain of its subsidiaries.

Notes payable

Associated with the acquisition of Quiterian on October 16, 2012, the Company inherited two loan agreements that were previously executed to finance the development of the Quiterian software. The loans were offered by the Spanish government subsidy programs and are restricted for use on development of the software. One of the loans is interest free and has a principal balance of approximately $0.5 million. This loan was repaid in March of 2014. The other loan is a variable rate loan with an average rate of approximately 5% and a principal balance of approximately $0.4 million. This loan is scheduled for repayment on a quarterly basis starting June 2014 and ending December 2016 and is classified as notes payable on the Company’s Condensed Consolidated Balance Sheet at June 30, 2014.

Operating Lease Commitments

On November 28, 2011, the Company entered into a ten year lease agreement with a third party for approximately 58,000 square feet of office space in the BayCenter Campus in San Mateo, California. This lease is operating in nature and commenced on June 1, 2012 and will end on May 31, 2022. In addition, the lease provides for four months of free rent (rent holiday) and approximately $2.6 million in landlord incentives to be applied towards construction of improvements. At June 30, 2014, the deferred rent liability balance related to the new lease totaled approximately $3.3 million and this balance declines through May 2022 when contractual cash payments exceed the straight-line lease expense. Of this total deferred rent liability balance, approximately $260,000 was classified as short term and $3.1 million was classified as other long term liabilities on the Company’s Condensed Consolidated Balance Sheet at June 30, 2014. Actuate is using the BayCenter Campus as its corporate headquarters.

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Upon the execution of the new lease, Actuate delivered to the new landlord two letters of credit totaling $225,300. These letters of credit guarantee Actuate’s contractual obligations related to the BayCenter Campus in San Mateo, California.

In fiscal 2012, the Company entered into a new lease agreement for one of its sales locations in Europe. Upon the execution of the new lease, Actuate delivered to the new landlord a letter of credit for approximately $88,000 in order to guarantee its contractual obligations related to this lease.

Actuate leases smaller office facilities in various locations in the United States and abroad. All facilities are leased under operating leases. Total rent expense for the second quarter and first six months of fiscal 2014 was approximately $1.1 million and $2.2 million, respectively, compared with rent expense of approximately $1.1 million in second quarter and $2.2 million in the first six months of fiscal 2013. In addition, the Company incurred facility related charges of approximately $157,000 and $360,000 in the second quarter and the first six months of fiscal 2014, respectively. During the same period last year, the Company incurred approximately $144,000 and $313,000 of facilities related charges in the second quarter and the first six months of fiscal 2013, respectively.

Stock Option Plans

An individual who first joins the Board of Directors as a non-employee director is awarded an option to purchase 25,000 shares of the Company’s Common Stock and a restricted stock unit award (“RSU”) covering 12,500 shares of the Company’s Common Stock. These options and RSUs each have a four year vesting period tied to continued Board service. Each option has an exercise price equal to the closing price of the Company’s Common Stock on the day of the grant, and 25% will vest upon the non-employee directors’ continued Board service through the first anniversary of the award date and on an equal, monthly basis over the next 3 years of service thereafter. The first 25% of each restricted stock unit award will vest 13 months following the award date and the remainder will vest in a series of three successive equal annual installments on each of the second, third and fourth anniversaries of the award date, provided that the non-employee director continues in Board service through each such vesting date. Each non-employee director receiving an initial 12,500-share RSU award is given the opportunity to elect to defer the receipt of the shares of Actuate Common Stock that vest and become issuable pursuant to the initial RSU award. If a non-employee director makes a timely deferral election, then the shares of Actuate Common Stock in which he or she vests under the initial RSU award will be issued upon termination of Board service. In the absence of an effective deferral election, any shares of the Company’s Common Stock in which the non-employee director vests under the initial RSU award will be issued as those shares vest.

Beginning in 2013 each continuing non-employee director is granted a RSU award covering 16,000 shares of the Company’s Common Stock at each annual stockholders meeting. Each restricted stock unit award granted to a continuing non-employee director will vest upon the non-employee director’s continued Board service through the first anniversary of the award date. Before the start of each calendar year, each of our non-employee directors is given the opportunity to elect to defer the receipt of any or all of the shares of Actuate Common Stock that vest and become issuable pursuant to the restricted stock unit award to be made to such non-employee director at the next annual stockholders meeting. If a non-employee director makes a timely deferral election, then the shares of Actuate Common Stock in which he or she vests under the RSU award will be issued upon his termination of Board service. In the absence of an effective deferral election, any shares of the Company’s Common Stock in which the non-employee director vests under the RSU award will be issued as those shares vest.

Each restricted stock unit award and each option award granted to a new or continuing non-employee director will vest in full on an accelerated basis upon (i) an approved acquisition of the Company by merger or consolidation, (ii) a sale of all or substantially all of the Company’s assets, (iii) the successful completion of a tender or exchange offer for securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities, or (iv) the death or disability of the optionee while serving as a member of the Board of Directors. Each restricted stock unit that vests will entitle the recipient to one share of the Company’s common stock on the designated issuance date for that share. All grants are made under the 1998 Plan.

All options are subject to the same vesting schedule (twenty-five percent of the option shares will vest on the one year anniversary of the option grant date and the remaining option shares will vest in thirty-six equal monthly installments over the thirty-six month period measured from the first anniversary of the option grant date, provided the optionee continues to provide services to the Corporation through each applicable vesting date) and all have ten year terms.

Shares issued as a result of the exercise of options under any of our plans would be fulfilled through shares currently in our existing pools. Total authorized but unissued shares were 20,956,493 as of June 30, 2014.

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Plan Summary	Available for Grant			Options and Awards Outstanding(2)		Total Authorized But Unissued
Amended and Restated 1998 Equity Incentive Plan		9,081,808			11,098,121		20,179,929
2001 Supplemental Stock Plan		714,487			19,366		733,853
1998 Non-Employee Director Option Plan		—			95,000		95,000
Total Stock Plans		9,796,295			11,212,487		21,008,782
Miscellaneous Stock Grant (1)		(52,289	)		—		(52,289	)
Total Stock Plans Balance at June 30, 2014		9,744,006			11,212,487		20,956,493

(1) Board approved stock grant on February 17, 2011 to the beneficiary of a deceased senior executive in recognition of services performed. Also included are 2,289 shares of stock granted to an employee in April 2013.

(2) Total outstanding at June 30, 2014 includes 8,451,045 of options and 2,841,812 of RSUs awards, net of 80,370 of forfeited MSUs in fiscal 2013.

The weighted average grant date fair value of options granted during the quarter ended June 30, 2014 was $2.12 per option. Upon the exercise of options, the Company issues new common stock from its authorized shares. The total intrinsic value of options exercised during the quarter ended June 30, 2014 was $151,000.

All vested stock options are exercisable. The following table summarizes information about stock options outstanding and exercisable as of June 30, 2014:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
$1.86-$3.56		953,795		3.48 years	$	3.32		953,795	$	3.32
$3.59-$4.65		878,618		2.49 years	$	3.90		834,350	$	3.88
$4.74-$4.80		722,454		5.28 years	$	4.80		714,633	$	4.80
$4.84-$5.31		1,098,931		3.21 years	$	5.14		1,071,959	$	5.14
$5.32-$5.48		978,261		6.27 years	$	5.48		828,746	$	5.48
$5.49-$6.08		1,213,823		8.50 years	$	5.63		382,880	$	5.58
$6.09-$6.28		1,178,790		4.01 years	$	6.11		1,093,251	$	6.11
$6.29-$7.91		1,426,373		7.34 years	$	6.46		813,441	$	6.42
$1.86-$7.91		8,451,045		5.26 years	$	5.24		6,693,055	$	5.07

	June 30, 2014		June 30, 2013
Options Outstanding – Vested and Expected to Vest
Vested and expected to vest, net of expected forfeitures		8,389,070		10,806,773
Aggregate intrinsic value (in thousands)	$	2,146	$	16,625
Weighted average exercise price per share	$	5.24	$	5.11
Weighted average remaining contractual term (in years)		5.24		5.92
Options Exercisable
Options currently exercisable		6,693,055		7,665,751
Aggregate intrinsic value of currently exercisable options (in thousands)	$	2,124	$	13,977
Weighted average exercise price per share	$	5.07	$	4.83
Weighted average remaining contractual term (in years)		4.46		4.79

As of June 30, 2014, the number of shares reserved for future grants under all option plans was 9,744,006. The number of shares available for future purchase under the Purchase Plan was 2,620,195.

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Summary of Restricted Stock Units

Restricted stock unit activity for the six months ended June 30, 2014 and 2013:

	June 30, 2014			June 30, 2013
Beginning outstanding balance		1,003,812			577,374
Awarded		1,257,500			447,500
Released		(55,500	)		(21,062	)
Forfeited		(49,000	)		—
Ending outstanding balance		2,156,812			1,003,812

The weighted average grant date fair value of restricted stock units granted during the quarter ended June 30, 2014 and 2013 were $5.51 and $6.55 per unit, respectively.

	Number of Units		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (thousands)
Restricted stock units outstanding (1)		2,156,812		1.85	$	10,288
Restricted stock units vested and expected to vest (2)		2,069,147		1.81	$	7,283
Restricted stock units vested and deferred (3)		542,375		—	$	2,587

(1) Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

(2) Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

(3) Vested awards with deferral elections to be released to the employee upon separation from service.

Summary of Performance-Based Restricted Stock Units

	June 30, 2014		June 30, 2013
Beginning outstanding balance		279,630		235,000
Awarded		325,000		125,000
Ending outstanding balance		604,630		360,000

The weighted average grant date fair value of performance-based RSUs granted during the quarter ended June 30, 2014 and 2013 were $5.74 and $5.60 per unit, respectively.

	Number of Units		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (thousands)
Performance-based units outstanding (1)		604,630		1.65	$	2,884
Performance-based units vested and expected to vest (2)		577,019		1.62	$	2,575
Performance-based units vested and deferred (3)		37,130		—	$	177

(1) Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

(2) Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

(3) Vested awards with deferral elections to be released to the employee upon separation from service.

Stockholder Rights Plan

On June 17, 2014, we adopted a stockholder rights plan and declared a dividend of one stock purchase right (a “Right”) for each outstanding share of common stock of the Company (“Common Shares”). Each Right entitles the registered holder to purchase from the Company one thousandth of a share of the Company’s Series A Junior Participating Preferred Stock (the “Preferred Shares”) at a price of $25 per one thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. In the event that any person or group owns more than 15% of the Company’s outstanding common stock and thereby becomes an “Acquiring Person”, each holder of a Right, other than Rights beneficially owned by the Acquiring Person, will thereafter have the right to receive upon exercise and payment of the exercise price that number of shares of common stock having a market value of two times the exercise price of the Right. In the event that any person or group becomes an Acquiring Person and the Company merges into or engages in certain other business combinations with any

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Person, or 50% or more of its consolidated assets or earning power are sold to any Person other than the Company or one of its wholly owned Subsidiaries, each holder of a Right, other than Rights owned by an Acquiring Person (and the affiliates, associates and certain transferees of such Acquiring Person), will thereafter have the right to receive, upon exercise and payment of the exercise price, that number of shares of common stock of the acquiring company that at the time of such transaction will have a market value of two times the exercise price of the Right; provided that, if the Company fails to meet such obligation within 30 days following the date a Person becomes an Acquiring Person, the Company must deliver, upon exercise of a Right but without requiring payment of the exercise price then in effect, Common Shares (to the extent available) and cash equal in value to the difference between the value of the Common Shares otherwise issuable upon the exercise of a Right and the exercise price then in effect. The company has determined the fair value of the dividend to be insignificant and therefore has recorded $0 on the date of declaration.

Further, some provisions of our charter documents, including provisions, eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or our management, which could have an adverse effect on the market price of our stock. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit an “interested stockholder” from engaging in a “business combination” with us for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner.

8. Deferred Revenue

Deferred revenue consists of the following (in thousands):

	June 30, 2014		December 31, 2013
Current portion
Maintenance and support	$	34,635	$	42,407
Other		3,569		3,886
Total current portion:	$	38,204	$	46,293
Long term portion:		1,050		1,640
Total deferred revenue	$	39,254	$	47,933

Maintenance and support consists primarily of first year maintenance and support services associated with the initial purchase of Actuate’s software, and the renewal of annual maintenance and support services from customers who purchased Actuate’s software in prior periods. The maintenance and support period is generally 12 months and revenues are typically recognized on a straight-line basis over the term of the maintenance and support period.

Other deferred revenue consists of deferred license, training and consulting fees generated from arrangements, which did not meet some or all of the revenue recognition criteria consistent with the Company’s revenue recognition policy, and are, therefore, deferred until all revenue recognition criteria have been met. Other deferred revenue also consists of deferred Software-as-a-Service (SaaS) fees which are recognized to revenue ratably over the term of the underlying arrangement.

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Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the historical financial information and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, the consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on March 7, 2014.

The statements contained in this Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including statements regarding Actuate’s expectations, beliefs, hopes, intentions, plans or strategies regarding the future. All forward-looking statements in this Form 10-Q are based upon information available to Actuate as of the date hereof, and Actuate assumes no obligation to update any such forward-looking statements. Actual results could differ materially from Actuate’s current expectations. Factors that could cause or contribute to such differences include, but are not limited to, the risks discussed in Part II, Item 1A–Risk Factors of this Form 10-Q, Part I, Item 1A–Risk Factors in our Annual Report for the year ended December 31, 2013 and in other filings made by the Company with the Securities and Exchange Commission.

Overview

Actuate Software Corporation was incorporated in November 1993 in the State of California and reincorporated in the State of Delaware in July 1998 as Actuate Corporation (“We”, “Actuate” or the “Company”). Actuate enabled solutions help its enterprise customers maximize revenue, cut costs, create more effective customer communications, streamline operations and create competitive advantage. Applications built using Actuate’s products have delivered personalized analytics and insights to more than 200 million people. More than 3.5 million developers have downloaded open source BIRT, the open source Eclipse interactive development environment (IDE)-based project founded and co-led by Actuate. Many of these BIRT developers use commercial, value-added products from Actuate to enhance and deploy BIRT-based applications to deliver personalized analytics and insights to customers, partners and employees.

Enterprises use Actuate products to create customer-facing, Big Data analytics and customer communications management (CCM) applications with intuitive and visually-engaging experiences that provide unique insights from multiple data sources, delivered securely across high volume of users and devices with proven scalability to millions of users. Developers use BIRT and BIRT iHub™, Actuate’s commercial deployment platform for BIRT-based applications, to develop and deploy high scale applications that deliver information personalized for each user to enrich the brand experience and gain competitive advantage. BIRT iHub further ensures organizations can gain effective insights from Big Data and take advantage of mobile touch devices. Actuate’s BIRT Analytics™ delivers self-service predictive analytics to enhance customer engagement from Big Data. BIRT Content Services™ empowers ECM architects to easily transform, personalize and archive high volume content. Actuate’s goal is to ensure that its customers can seamlessly incorporate information and business analysis into their day-to-day activities and decision-making, enabling organizations to explore new avenues for improving the bottom line. Actuate’s principal executive offices are located at the BayCenter Campus at 951 Mariners Island Boulevard, in San Mateo, California. Actuate’s telephone number is 650-645-3000. Actuate maintains Web sites at www.actuate.com, www.developer.actuate.com, www.birtondemand.com, www.quiterian.com and www.legodo.com. The information posted on our Web sites is not incorporated into this Form 10-Q.

We began shipping our first product in January 1996. We sell software products through two primary means: (i) directly to end-user customers through our direct sales force and (ii) through indirect channel partners such as OEMs, resellers and system integrators. OEMs generally integrate our products with their applications and either provide hosting services or resell them with their products. Our other indirect channel partners resell our software products to end-user customers. Our total revenues are derived from license fees for software products and fees for services relating to such products, including software maintenance and support, professional services and training.

Our business model and longer-term financial results are not immune to a sustained economic downturn. While the global economy appears to be improving, the future direction and relative strength of the global economy continues to be uncertain and makes it difficult for us to forecast operating results and to make decisions about future investments. During challenging and uncertain economic times and in tight credit markets, many customers delay or reduce technology purchases. Contract negotiations may become more protracted or difficult if customers institute additional internal approvals for technology purchases or require more negotiation of contract terms and conditions. Such economic conditions could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable or delayed payments, slower adoption of new technologies, increased price competition and reductions in the rate at which our customers renew their maintenance agreements and procure consulting services.

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We continue to transition from our legacy e.Reports/iServer product suite to our new BIRT iHub product offerings. As a consequence we are experiencing a decrease in license revenues generated by our e.Report/iServer products. We expect this decrease to be mitigated by increases in license revenue generated by our successor BIRT iHub offerings over time. During this transition we may experience delays in adoption of our BIRT iHub offerings by our customers which can adversely impact our license revenues. During the first six months of 2014, we experienced a significant reduction in our license revenues, partially driven by a sharp decline in license sales in excess of $1 million. In the mean-time, BIRT iHub is expected to soon become the dominant contributor to license and maintenance revenues.

Factors that may affect our operating results include the possibility of a prolonged period of limited economic growth or possible economic decline in and adverse effects of the ongoing sovereign debt crisis in Europe, including its expected negative impact on European economic growth versus the rest of the world; disruptions to the credit and financial markets in Europe, the U.S., and elsewhere; contractions or limited growth in corporate spending; and adverse economic conditions that may be specific to information technology and the software industry.

We continue to monitor market conditions and may make adjustments to our business in order to reduce the adverse impact that changes to the economic environment could have on our business.

In the past Actuate has principally priced and sold its products on a perpetual model. However, the Company is actively transitioning its primary pricing model to a subscription model. We are seeing a shift in customer’s purchasing behavior for enterprise software. This shift appears to favor a subscription model. Generally speaking, these subscription licenses will be recognized ratably over the subscription service period. The subscription model provides more flexibility for our customers to use our software and we believe is in line with current market trends. We believe subscription-based license should provide an easier adoption of commercial software for open source BIRT users and provide our customers with timely access to Actuate’s latest product releases. We are currently transitioning to the subscription model and expect this transition to be substantially complete by 2017.

On July 10, 2014, we announced the launch of BIRT iHub F-Type, which allows free access to the features and power of the commercial BIRT iHub enterprise-grade deployment platform, with metered output capacity. We believe BIRT iHub F-Type will be a key contributor to Actuate’s subscription business.

We expect to continue to explore both organic and strategic growth opportunities. In particular, we may acquire companies or technologies that can contribute to the strategic, operational and financial performance of our business. On January 31, 2014, we completed the acquisition of legodo ag, a privately held software company based in Karlsruhe, Germany whose mission is to develop software for easy and rapid generation of personalized customer correspondence via any modern communication channel, including social media. Legodo products will significantly expand the Accessible Customer Communications Management solution offered by our Content Services Group (formerly Xenos).

For the remainder of fiscal year 2014, we expect three additional trends to continue that would have a significant impact on the results of our operations. We currently believe that corporate IT budgets will grow only modestly if at all for the remainder of fiscal year 2014, particularly among financial services companies. Secondly, corporations are reluctant to buy software from new vendors and we continue to witness corporations consolidating their Business Analytics, Big Data, Performance Management and Customer Communications Management software purchases among fewer suppliers. Finally, we expect to experience vigorous competition in the market. Several of our competitors have released products that are marketed to be directly competitive with our offerings. We will continue to encounter customers choosing to develop information applications using programming languages such as Java. Actuate faces competition from large and well-established vendors including Microsoft, SAP, Oracle and IBM. The existence of these competitors may require additional sales and marketing efforts to differentiate our products, which could result in extended sales cycles.

For the remainder of fiscal year 2014, we will continue to pursue our strategic initiatives to improve revenue growth driven by BIRT, BIRT iHub, BIRT Customer Communications Management and BIRT Analytics. These initiatives are as follows:

• Investing in BIRT—We are continuing to make a significant investment in BIRT. BIRT has become widely adopted by developers and continues to drive demand for our BIRT-based commercially available products in the BIRT iHub platform. The BIRT project is a core, long-term initiative.

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• Selling to IT Management—We are re-focusing our sales efforts on selling our products to IT managers who we believe generally recognize the technical advantages of our products. We hope this initiative will result in increased license revenue in the short term.

• Selling to Line-of-Business Management—We are creating Business Analytics applications and software solutions to market to line-of-business managers. These offerings are in the areas of customer analytics and operational analytics. We hope these initiatives will result in increased license revenue over the medium-to-long term.

• Selling to Global 9000 Corporations in the Financial Services Sector—We continue to focus on selling our products to Global 9000 financial services companies in an effort to increase our substantive market share in this sector. We believe that once the issues with IT spending in Financial Services are resolved, the industry will once again lead in the adoption of information applications both inside and outside the firewall.

• Increasing subscription-based business both on premise and in the cloud.

• Continuing to build out and deliver on the roadmap of applying BIRT to additional data sources including hard to reach print stream data by investing in the development of BIRT based Content services offerings.

• Continuing to build out and deliver on the roadmap of Customer Communications Management capabilities by integrating Content Services offerings including those from legodo into BIRT iHub.

• Continuing to build out and deliver on the roadmap of BIRT Analytics capabilities by integrating Quiterian offerings into the BIRT iHub.

We have a limited ability to forecast future revenues and expenses, thus the prediction of future operating results is difficult. In addition, historical growth rates in our revenues and earnings should not be considered indicative of future revenue or earnings growth rates or operating results. There can be no assurance that any of our business strategies will be successful or that we will be able to achieve and maintain profitability on a quarterly or annual basis. It is possible that in some future quarter our operating results will be below the expectations of public market analysts and investors, and in such event the price of our common stock could decline.

Critical Accounting Policies, Judgments and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates, assumptions and judgments on historical experience, future expectations, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, stock-based compensation, accounting for income taxes, restructuring, allocation of purchase price of acquisitions, and the impairment of goodwill, have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies.

For further information about our significant accounting policies, see the discussion under Item 7 to the annual consolidated financial statements as of and for the year ended December 31, 2013, as filed with the SEC on Form 10-K on March 7, 2014.

	Three Months Ended June 30, (in thousands except per share data)
	2014			2013			$ Change			% Change
Financial Summary
Total revenues	$	26,513		$	34,902		$	(8,389	)		(24	)%
Total operating expenses		29,046			32,672			(3,626	)		(11	)%
(Loss) income from operations		(2,533	)		2,230			(4,763	)		(214	)%
Operating margins		(10	)%		6	%
Net (loss) income	$	(2,332	)	$	1,313		$	(3,645	)		(278	)%

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	Three Months Ended June 30, (in thousands except per share data)
	2014			2013		$ Change			% Change
Diluted net (loss) income per share	$	(0.05	)	$	0.03	$	(0.08	)
Shares used in diluted per share calculation		46,692			50,471

Financial Performance Summary for the quarter ended June 30, 2014 compared to June 30, 2013:

• Significant decrease in license revenues across all product groups and all geographies partially driven by a decrease in transactions greater than $1 million,

• Improving maintenance revenues from our BIRT business. Higher professional services revenues in EMEA due primarily to our acquisition of legodo that was completed at the end of January 2014.

• Continued momentum toward subscription-based transactions.

Results of Operations

The following table sets forth certain consolidated statement of operations data as a percentage of total revenues for the periods indicated.

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues:
License fees		28	%		46	%		27	%		45	%
Services		72			54			73			55
Total revenues		100			100			100			100
Costs and expenses:
Cost of license fees		2			2			2			2
Cost of services		15			13			15			14
Sales and marketing		44			41			45			40
Research and development		23			18			26			18
General and administrative		24			18			24			17
Amortization of other purchased intangibles		1			1			1			1
Restructuring charges		1			1			1			1
Total costs and expenses		110			94			114			93
(Loss) Income from operations		(10	)		6			(14	)		7
Interest income and other income/(expense), net		1			—			1			—
(Loss) Income before income taxes		(9	)		6			(13	)		7
Provision for (benefit from) income taxes		—			2			(2	)		1
Net (loss) income		(9	)%		4	%		(11	)%		6	%

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Revenues

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Revenues
License fees	$	7,335		$	16,155		$	(8,820	)		(55	)%	$	13,553		$	31,635		$	(18,082	)		(57	)%
Services		19,178			18,747			431			2	%		37,046			38,185			(1,139	)		(3	)%
Total Revenues	$	26,513		$	34,902		$	(8,389	)		(24	)%	$	50,599		$	69,820		$	(19,221	)		(28	)%
% of Revenue
License fees		28	%		46	%								27	%		45	%
Services		72	%		54	%								73	%		55	%
Total Revenues		100	%		100	%								100	%		100	%

License fees. The decrease in license revenues for the second quarter of fiscal 2014 over the same period in the prior year was due primarily to a significant decrease in license sales in North America and EMEA. This decrease was driven by a sharp reduction in the volume of transactions with a license component in excess of $1 million. In the second quarter of 2013, we closed three transactions with a license component in excess of $1 million, while no such transactions were completed during the second quarter of 2014. We believe that this reflects the change in customer’s purchasing behavior for enterprise software which appears to favor a subscription-based model. Subscriptions generally carry a higher lifetime value due to their recurring nature but possess a lower initial dollar value. Based on this shift and our recent improvements in subscription bookings, we have accelerated our adoption of a subscription based licensing model for our products. These subscription-based transactions are recognized to revenue in equal monthly installments over the term of the subscription agreement, which generally span between one to three years. We are currently transitioning to the subscription model and expect this transition to be substantially complete by 2017. As a result, we expect to derive an increasing portion of our future revenues from subscriptions for our products. We continue to experience a decrease in bookings associated with our legacy e.Report business, as we transition to newer BIRT based products along with a decrease in our BIRT iHub OEM transactions. Compliance related transactions which typically carry a significant license component also decreased during the quarter. Foreign currency exchange attributed to international license revenues was minimal during the second quarters of fiscal 2014 and fiscal 2013.

These negative trends in license revenues experienced during the quarter were partially offset by an increase in our subscription-based business in the second quarter of 2014 marked by a third consecutive quarter of over $1 million in subscription bookings. We are also seeing a shift in customer’s purchasing behavior for enterprise software which appears to favor a subscription-based model. Based on this shift and our recent improvements in subscription bookings, we have accelerated our adoption of a subscription based licensing model for our products. We are currently transitioning to the subscription model and expect this transition to be substantially complete by 2017. As a result, we expect to derive an increasing portion of our future revenues from subscriptions for our products. The subscription model provides more flexibility for our customers to use our software and we believe is in line with current market trends. We believe subscription-based license should provide an easier adoption of commercial software for open source BIRT users and provide our customers with timely access to Actuate’s latest product releases.

For the first half of 2014, license revenues decreased 57% or approximately $18.1 million compared to the first half of 2013. This decrease was driven by a 73% or approximately $9.2 million decrease in our legacy e.Report business, as we transition to newer BIRT based products along with a decrease in our BIRT iHub OEM transactions and our Content Service Group license revenues due to the transition of our business from iServer to iHub, the transition to a subscription model, and lower compliance related transactions, which typically carry a significant license component.

Fluctuations in foreign currency exchange rates positively impacted our license revenues by approximately $130,000 for the first half of fiscal 2014.

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The following table represents our license revenues by region (in thousands):

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
License Revenues
North America	$	5,350		$	12,160		$	(6,810	)		(56	)%	$	9,573		$	24,900		$	(15,327	)		(62	)%
Europe Middle East, and Africa (EMEA)		1,331			3,545			(2,214	)		(62	)%		3,052			5,912			(2,860	)		(48	)%
Asia Pacific and others		654			450			204			45	%		928			823			105			13	%
Total	$	7,335		$	16,155		$	(8,820	)		(55	)%	$	13,553		$	31,635		$	(18,082	)		(57	)%
% of total revenue		28	%		46	%								27	%		45	%

Services. Services revenues are comprised of maintenance and support, professional services, and training. The 2% increase in services revenues was driven primarily by higher legodo related maintenance and professional services revenues in EMEA. Although our baseline maintenance renewals continue to strengthen, overall maintenance revenue declined from the previous year because second quarter of 2013 was positively impacted by transactions with customers that were not in full compliance with the provisions of their respective licensing agreements with Actuate. These transactions which typically include back maintenance, did not recur to the same degree in the second quarter of 2014. In addition, the cumulative impact effect of prior maintenance declines continues to depress the maintenance renewal revenues. Our maintenance renewal decline rate improved from 17% in the second quarter of 2013 to 9% in the second quarter of 2014.

It is important to note that we are transitioning from our legacy e.Reports product suite to our new BIRT based product offering. As our legacy products age, we have experienced higher than normal decline rates which may continue for the foreseeable future. In the meantime, BIRT is expected to become the dominant contributor to license and maintenance revenues. As this transition progresses, we have begun to see our maintenance renewal decline rate improve significantly which should result in stronger maintenance growth rates in the future.

The decrease in maintenance revenues were partially offset by higher subscription and hosting revenues in North America and EMEA.

For the first half of fiscal year 2014, the underlying reasons for the changes in the various components of our services revenues were similar to those experienced during the quarter as noted above. Fluctuations in foreign currency exchange rates positively impacted our services revenues by approximately $340,000 for the first half of fiscal 2014.

The following table represents our total services revenues by region (in thousands):

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Services Revenues
North America	$	14,461		$	14,571		$	(110	)		(1	)%	$	27,632		$	29,652		$	(2,020	)		(7	)%
EMEA		3,896			3,275			621			19	%		7,722			6,681			1,041			16	%
Asia Pacific and others		821			901			(80	)		(9	)%		1,692			1,852			(160	)		(9	)%
Total Services	$	19,178		$	18,747		$	431			2	%	$	37,046		$	38,185		$	(1,139	)		(3	)%
% of total revenue		72	%		54	%								73	%		55	%

By region, North America accounted for approximately 75% of the total services revenues in the second quarter of fiscal 2014 while EMEA and Asia Pacific accounted for 21% and 4% of the total services revenues, respectively. For the same period last year, North America accounted for approximately 78% of the total services revenues while the EMEA and Asia Pacific regions accounted for 17% and 5% of the total services revenues, respectively. The increase in international services revenues for the first half of 2014 was mostly due to service revenues from our acquisition of legodo that was completed at the end of January 3014. Fluctuations in foreign currency exchange rates positively impacted our services revenues by approximately $190,000 for the second quarter of fiscal 2014.

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Costs and Expenses

Cost of license fees
	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Cost of license fees	$	512		$	551		$	(39	)		(7	)%	$	996		$	1,124		$	(128	)		(11	)%
% of license revenue		7	%		3	%								7	%		4	%

Cost of license fees consists primarily of product packaging, documentation, production costs and the amortization of purchased technology. The decrease in cost of license fees for the second quarter and the first half of 2014, compared to the corresponding period was due to lower compensation cost due to a reduced average headcount as well as lower documentation and production cost during the second quarter and the first half of 2014 compared to the second quarter and the first half of 2013. These reductions in cost were partially offset by increased amortization of purchased technologies associated with the legodo acquisition, which we completed in January 31, 2014. We expect our cost of license fees, as a percentage of revenues from license fees, to remain between 6% and 8% of revenues from license fees for the remainder of fiscal 2014.

Cost of services

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Cost of services	$	3,869		$	4,431		$	(562	)		(13	)%	$	7,436		$	9,414		$	(1,978	)		(21	)%
% of services revenue		20	%		24	%								20	%		25	%

Cost of services consists primarily of personnel and related costs, share-based compensation, facilities costs incurred in providing software maintenance and support, training and consulting services, as well as third-party costs incurred in providing training and consulting services. The decrease in cost of services for the second quarter of 2014, compared to the same period last year was driven by lower employee compensation cost. Average headcount of support and consulting personnel was lower by approximately 24% or 24 employees in the second quarter of 2014 compared to the second quarter of 2013 as we continue to reduce costs and align to market conditions. This reduction was partially offset by the increased compensation associated with the addition of 6 employees in Europe from our acquisition of legodo. Currently we expect our cost of services expenses as a percentage of total services revenues to be in the range of 19% to 20% of total services revenues for the remainder of fiscal 2014.

For the six months ended June 30, 2014, the underlying reasons for the changes in the various components of our cost of services were similar to those experienced during the quarter as noted above. Currently we expect our cost of services expenses as a percentage of total services revenues to be in the range of 24% to 25% of total services revenues for the remainder of fiscal 2014.

Sales and marketing

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Sales and marketing	$	11,538		$	14,316		$	(2,778	)		(19	)%	$	22,901		$	28,090		$	(5,189	)		(18	)%
% of total revenue		44	%		41	%								45	%		40	%

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Sales and marketing expenses consist primarily of salaries, commissions, share-based compensation and bonuses earned by sales and marketing personnel, promotional expenses, travel, entertainment and facility costs. Our overall sales and marketing expense decreased in the second quarter of 2014 compared to the corresponding period in the prior year due to approximately $1.7 million decrease in commissions, bonuses and sales-related travel as we experienced a 55% reduction in global license sales in the second quarter of 2014 compared to the second quarter of 2013. We also experienced a decrease in employee salaries, benefits, and related costs of approximately $670,000 as our average sales and marketing headcount decreased by 12%, or 27 employees compared to the second quarter of 2013. These reductions in headcount were primarily in marketing and due to a reduction-in-force that we implemented in the second half of 2013 to better align our cost structure with market demand for our products. The headcount reductions as well as lower lead-generation and public relation campaigns accounted for approximately $460,000 of the second quarter 2014 decrease in marketing expense compared to the corresponding period in the prior year. Partially offsetting these decreases was an increase in expense driven by the acquisition of legodo, which resulted in the addition of 6 employees in Europe.

For the six months ended June 30, 2014, the underlying reasons for the changes in the various components of our sales and marketing expense were similar to those experienced during the quarter as noted above. We currently expect our sales and marketing expenses to increase as a percentage of total revenue from the current levels as we anticipate higher sales capacity for the remainder of fiscal 2014.

Research and development

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s		Variance %
Research and development	$	6,218		$	6,382		$	(164	)		(3	)%	$	13,279		$	12,942		$	337		3	%
% of total revenue		23	%		18	%								26	%		18	%

Research and development costs consist primarily of personnel and related costs, including share-based compensation, associated with the development of new products, enhancement of existing products, quality assurance and testing. The overall decrease in research and development expense compared to the corresponding period in the prior year was due primarily to the closure of our Shanghai, China product development facility that was effective January 31, 2014 and resulted in the termination of approximately 50 employees. As a result, in the second quarter of 2014, we did not incur research and development expenses associated with the Shanghai facility. This decrease was partially offset by higher employee compensation and related costs associated with our January 31, 2014 acquisition of legodo, which resulted in the addition of 15 research and development employees.

For the six months ended June 30, 2014, the overall increase in research and development expenses was driven primarily by the severance and termination payments associated with the China closure which were classified as on-going benefits arrangements and were thereby charged to research and development as employee compensation expense in the first quarter of 2014. Additionally, in the first half of 2014 we experienced higher employee compensation and related costs from our acquisition of legodo. These increases were partially offset by lower employee compensation and related expenses as our core research and development headcount decreased by an average of 8% or 11 employees during the first half of 2014 compared to the first half of 2013. We expect our research and development expenses as a percentage of total revenues to be in the range of 20% to 25% of total revenues for the remainder of fiscal 2014.

General and administrative

	Three Months Ended (In thousands)											Six Months Ended (In thousands)
	June 30,											June 30,
	2014			2013			Variance $’s		Variance %			2014			2013			Variance $’s			Variance %
General and administrative	$	6,344		$	6,168		$	176		3	%	$	12,037		$	12,048		$	(11	)		—	%
% of total revenue		24	%		18	%							24	%		17	%

General and administrative expenses consist primarily of personnel costs, share-based compensation costs and related costs for finance, human resources, information systems and general management, as well as legal, bad debt and accounting

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expenses. The increase in general and administrative expenses in the second quarter of 2014 compared to the corresponding period in the prior year was due primarily to higher legal fees related to contract compliance matters pursued during the quarter. These increases were offset by lower bonus and share-based compensation expenses.

For the six months ended June 30, 2014, the decrease in general and administrative expenses in absolute dollars compared to the corresponding period was not significant. We expect our general and administrative expenses as a percentage of total revenues to be in the range of 20% to 25% for the remainder of fiscal 2014.

Amortization of other purchased intangibles

	Three Months Ended (In thousands)											Six Months Ended (In thousands)
	June 30,											June 30,
	2014			2013			Variance $’s		Variance %			2014			2013			Variance $’s		Variance %
Amortization of other purchased intangibles	$	364		$	301		$	63		21	%	$	707		$	564		$	143		25	%
% of total revenue		1	%		1	%							1	%		1	%

The increase in amortization expense during the second quarter and six months of 2014 compared to the corresponding periods in the prior year was due to the amortization of legodo intangibles which we started amortizing effective February 2014. We continue to amortize the intangible assets purchased through the acquisitions of legodo, Quiterian and Xenos on a straight-line basis over their estimated useful lives of seven years. For the remainder of fiscal 2014, we expect amortization expense related to purchased intangible assets to remain within the same levels for the remainder of fiscal 2014.

Restructuring charges

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Restructuring	$	201		$	523		$	(322	)		(62	)%	$	307		$	591		$	(284	)		(48	)%
% of total revenue		1	%		1	%								1	%		1	%

The restructuring charges incurred during the second quarter and the first six months of 2014 were partially related to the closure of our Shanghai, China operation, which was effective January 31, 2014 as well as updates to our estimates of sublease income related to our idle facility in Toronto Canada.

The restructuring charges incurred during the second quarter and the first six months of 2013 were primarily related to the restructuring of our Performance Management Group in North America during the second quarter of 2013 which included employee severance and benefits charges as well as an idle facility write-off.

Historically, restructuring charges have included costs associated with reductions in workforce, exits of idle facilities and disposals of fixed assets. These restructuring charges were based on actual and estimated costs incurred including estimates of sublease income on portions of our idle facilities that we periodically update based on market conditions and in accordance with our restructuring plans. These estimates were impacted by the rules governing the termination of employees, especially those in foreign countries.

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Interest income and other income/(expense), net

	Three Months Ended (In thousands)											Six Months Ended (In thousands)
	June 30,											June 30,
	2014			2013			Variance $’s		Variance %			2014			2013			Variance $’s			Variance %
Interest income and other income (expense), net	$	40		$	(290	)	$	330		114	%	$	95		$	180		$	(85	)		(47	)%
Foreign exchange gain		361			307			54		18	%		220			137			83			61	%
Total interest income and other income (expense), net		401			17			384		2,259	%		315			317			(2	)		(1	)%
Interest expense	$	(15	)	$	(60	)	$	45		(75	)%	$	(28	)	$	(120	)	$	92			(77	)%

Interest income and other income/(expense), net increased during the second quarter of 2014 as a result of currency exchange gains related to favorable revaluation of net monetary balances in Europe and North America as the European currencies stabilized against the Swiss Franc and the U.S. Dollar strengthened against the Canadian Dollar.

For the six months ended June 30, 2014, the underlying reasons for the changes in the various components of interest income and other income/(expense), net were similar to those experienced during the quarter as noted above.

Provision for (Benefit from) income taxes

	Three Months Ended (In thousands)												Six Months Ended (In thousands)
	June 30,												June 30,
	2014			2013			Variance $’s			Variance %			2014			2013			Variance $’s			Variance %
Provision for (benefit from) income taxes	$	185		$	874		$	(689	)		(79	)%	$	(1,075	)	$	912		$	(1,987	)		(218	)%
Effective tax rate		(9	)%		40	%								16	%		17	%

For the three months ended June 30, 2014, we recorded an income tax provision of approximately $185,000, as compared to an income tax provision of approximately $874,000 for the same period last year. The decrease in the income tax provision for the second quarter of fiscal 2014 as compared to the second quarter of fiscal 2013 is mainly due to losses recorded for the quarter. During the second quarter of fiscal 2014 we recorded a valuation allowance of approximately $171,000 against our Singapore subsidiary’s deferred tax assets due to continued losses in the jurisdiction. This one-time discrete tax charge resulted in increased income tax expense for the second quarter of fiscal 2014. The effective rate for the three months ended June 30, 2014 was lower due to Company’s projected losses in the U.S. and foreign jurisdictions for fiscal 2014 as compared to projected earnings for the same period of fiscal 2013.

For the six months ended June 30, 2014, we recorded an income tax benefit of approximately $1.1 million as compared to an income tax provision of approximately $912,000 for the same period last year. The decrease in the income tax provision for the six months of fiscal 2014 as compared to the six months of fiscal 2013 is mainly due to losses sustained in fiscal 2014 as compared to profits during the same period in fiscal 2013. The effective rate for the six months ended June 30, 2014 was lower due to benefitting of projected worldwide losses through the second quarter of fiscal 2014. Also the first quarter 2013 tax provision was reduced due to a tax benefit from the extension of the federal research credit in the first quarter of 2013 and additional changes in the tax law that was not allowed in 2012 because the new tax law was not signed until January 2013. The federal research credit has again expired and is currently unavailable for calendar 2014 and as such, the Company is not benefiting any federal research credits in its estimated annual effective tax rate for 2014.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. The Company does not believe it is reasonably possible that its reserve for uncertain tax positions would materially change in the next 12 months.

Liquidity and Capital Resources

Our sources of cash, cash equivalents and short-term investments are funds generated from our business operations and funds that may be drawn down under our credit facility. The following sections discuss changes in our balance sheet and cash flows, and other commitments on our liquidity and capital resources during the first six months of 2014. This data should be read in conjunction with the Consolidated Statements of Cash Flows.

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	As of June 30, 2014		As of June 30, 2013		$ Change			% Change
(dollars in thousands)
Cash, cash equivalents and short-term investments	$	59,423	$	73,993	$	(14,570	)		(20	)%
Working capital	$	34,178	$	53,679	$	(19,501	)		(36	)%
Note payable	$	268	$	830	$	(562	)		(68	)%
Stockholders’ equity and non-controlling interest	$	114,257	$	126,562	$	(12,305	)		(10	)%

We hold our cash, cash equivalents and investments primarily in the United States, Switzerland, and Singapore. As of June 30, 2014, approximately $19.8 million of the total of $59.4 million of cash, cash equivalents and short term investments was held by our foreign subsidiaries. Currently, the foreign cash is not available to fund the U.S. operations. If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to indefinitely reinvest these funds outside of the U.S. and our current plans or cash requirements do not demonstrate a need to repatriate them to fund our U.S. operations.

Cash flows from operating activities: Net cash used in operating activities was $17,000 resulting from net loss of $5.7 million, adjusted for $5.9 million in non-cash charges and $249,000 net change in operating assets and liabilities. The non-cash charges included depreciation and amortization, stock-based compensation, and tax benefits related to stock benefit plans and other non-cash adjustments. Net change in operating assets and liabilities included a decrease in accounts receivables, accrued compensation and other liabilities primarily associated with payments of year-end bonuses and commissions, payments of income and sales tax, payment of annual 401(k) Plan match for fiscal 2013, and payments of accrued audit and legal fees. Days sales outstanding (“DSO”) which is calculated based on revenue for the most recent quarter and accounts receivable as of the balance sheet date remained relatively flat due to decreases in our revenue and accounts receivable balance. DSO decreased by 13 days from 69 days at June 30, 2013 to 56 days at June 30, 2014. This decrease in the DSO is primarily attributed to lower accounts receivable balance which resulted from strong collections and decreased billings at the end of second quarter 2014. Our cash flows were also negatively impacted by the decrease in deferred revenue balance during the first half of 2014. We continue to closely monitor the credit quality and payment history of our existing and new customers to better identify and minimize, in advance, the risk of our customers’ potential inability to make required payments.

Our primary source of operating cash flows is the collection of accounts receivable from our customers, including maintenance which is typically billed annually in advance. Our overall maintenance revenues comprised 66% of our total revenues in the first six months of fiscal 2014 and we believe that future proceeds from maintenance renewals will be one of our primary sources of operating cash flows. Our operating cash flows are also impacted by the timing of payments to our vendors for accounts payable and other liabilities. We generally pay our vendors and service providers in accordance with the invoice terms and conditions. The timing of cash payments in future periods will be impacted by the terms of accounts payable arrangements.

Cash flows from investing activities: The changes in cash flows from investing activities primarily relate to the timing of purchases, maturities and sales of our investments in marketable securities. We also use cash to invest in capital and other assets to support our growth. Cash provided by investing activities for the six months ended June 30, 2014 was approximately $4.3 million compared with cash used of $4.3 million for the same period in fiscal 2013. The increase in cash provided in the first six months of this year was mainly due to the timing of purchases and maturities of marketable securities, partially offset by cash used in the acquisition of legodo ag, which totaled $3.9 million, net of acquired cash.

Cash flows from financing activities: Cash used in financing activities was $16.1 million for the six months ended June 30, 2014 compared to $5.4 million used during the same period in fiscal 2013. This increase in cash outflows was driven by debt related payments totaling approximately $4.8 million during the first quarter of 2014. Approximately $4.3 million of the total debt payment was made in the first quarter of 2014 related to the legodo acquisition. The legodo debt was assumed by Actuate at the time of acquisition and was paid in full immediately following the completion of the acquisition. We also repaid one of the two loans which we inherited from our acquisition of Quiterian totaling approximately $0.5 million. The loans were previously executed to finance the development of the Quiterian software. Payments related to share buybacks increased by approximately $3 million as a result of additional buybacks in the second quarter of 2014, partially offset by lower proceeds from exercise of employee stock options and associated tax benefits during the first six months of 2014 compared with the first six months of 2013.

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We believe that our current cash balances, funds available under our credit facility, and cash generated from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. Thereafter, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may find it necessary to sell additional equity, or obtain additional credit facilities. The sale of additional equity could result in additional dilution to our current stockholders. A portion of our cash may be used to acquire or invest in complementary businesses or complementary products or to obtain the right to use complementary technologies.

Contractual Obligations and Commercial Commitments

General

The Company is engaged in certain legal actions arising in the ordinary course of business. Although there can be no assurance as to the outcome of such litigation, the Company believes it has adequate legal defenses and it believes that neither the ultimate outcome of any of these actions nor ongoing litigation costs will not have a material effect on the Company’s consolidated financial position or results of operations.

Revolving credit line

During the second quarter of 2013, following a comparative evaluation of its credit facility, the Company decided to change to another vendor to service its borrowing needs. As a result, the Company terminated its existing credit agreement with Wells Fargo Capital Finance (“WFCF”) and on June 30, 2013 entered into a new revolving credit agreement with U.S. Bank National Association (“US Bank”) through and until June 29, 2017. The Company intends to use the proceeds from the Credit Agreement for working capital, acquisitions, issuance of commercial and standby letters of credit, stock repurchases, capital expenditures and other general corporate purposes.

The new Credit Agreement with US Bank allows for cash borrowings and the issuance of letters of credit under a secured revolving credit facility up to a maximum of $50 million. Interest accrues based on, at the Company’s election, (i) LIBOR plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio or (ii) the greater of: (a) the Federal Funds Effective Rate plus one half of one percent, (b) one month LIBOR plus one percent, and (c) U.S. Bank’s prime rate, in each case plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio. The Company is required to make interest payments on a monthly basis.

Following the termination of its agreement with WFCF, the Company wrote-off all remaining unamortized costs related to the old credit facility totaling approximately $188,000 in the second quarter of 2013. Costs related to the new credit facility with US Bank were not significant.

As of June 30, 2014, there was no balance owed on the credit facility and the balance available under the revolving credit facility was $50 million.

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
(In thousands):
Amortization of debt issuance costs	$	5	$	20	$	10	$	40
Unused line fees		—		37		—		75
	$	5	$	57	$	10	$	115

The Credit Agreement with US Bank contains covenants, which, among other things, impose certain limitations with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens and encumbrances. The Company is also required to maintain the two financial covenants listed below:

• Consolidated total cash flow leverage ratio not to exceed 2.50 to 1.00, and

• A fixed charge coverage ratio of not less than 1.75 to 1.00.

The indebtedness under the Credit Agreement is secured by (i) substantially all of the personal property (whether tangible or intangible) of Actuate Corporation and Actuate International Holding Company (as guarantor) as well as the proceeds generated by that property and (ii) by a pledge of all of its stock and a portion of the stock of certain of its subsidiaries.

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Notes payable

Associated with the acquisition of Quiterian on October 16, 2012, the Company inherited two loan agreements that were previously executed to finance the development of the Quiterian software. The loans were offered by the Spanish government subsidy programs and are restricted for use on development of the software. One of the loans is interest free and has a principal balance of approximately $0.5 million. This loan was repaid in March of 2014. The other loan is a variable rate loan with an average rate of approximately 5% and a principal balance of approximately $0.4 million. This loan is scheduled for repayment on a quarterly basis starting June 2014 and ending December 2016 and is classified as notes payable on the Company’s Condensed Consolidated Balance Sheet at June 30, 2014.

Operating Lease Commitments

On November 28, 2011, the Company entered into a ten year lease agreement with a third party for approximately 58,000 square feet of office space in the BayCenter Campus in San Mateo, California. This lease is operating in nature and commenced on June 1, 2012 and will end on May 31, 2022. In addition, the lease provides for four months of free rent (rent holiday) and approximately $2.6 million in landlord incentives to be applied towards construction of improvements. At June 30, 2014, the deferred rent liability balance related to the new lease totaled approximately $3.3 million and this balance declines through May 2022 when contractual cash payments exceed the straight-line lease expense. Of this total deferred rent liability balance, approximately $260,000 was classified as short term and $3.1 million was classified as other long term liabilities on the Company’s Condensed Consolidated Balance Sheet at June 30, 2014. Actuate is using the BayCenter Campus as its corporate headquarters.

Upon the execution of the new lease, Actuate delivered to the new landlord two letters of credit totaling $225,300. These letters of credit guarantee Actuate’s contractual obligations related to the BayCenter Campus in San Mateo, California.

In fiscal 2012, the Company entered into a new lease agreement for one of its sales locations in Europe. Upon the execution of the new lease, Actuate delivered to the new landlord a letter of credit for approximately $88,000 in order to guarantee its contractual obligations related to this lease.

Actuate leases smaller office facilities in various locations in the United States and abroad. All facilities are leased under operating leases. Total rent expense for the second quarter and first six months of fiscal 2014 was approximately $1.1 million and $2.2 million, respectively, compared with rent expense of approximately $1.1 million in second quarter and $2.2 million in the first six months of fiscal 2013. In addition, the Company incurred facility related charges of approximately $157,000 and $360,000 in the second quarter and the first six months of fiscal 2014, respectively. During the same period last year, the Company incurred approximately $144,000 and $313,000 of facilities related charges in the second quarter and the first six months of fiscal 2013, respectively.

The following table summarizes the Company’s contractual obligations as of June 30, 2014 (in thousands):

	Total		Less than 1 year		1 - 3 years		3 - 5 years		Thereafter
Obligations:
Operating leases (1)	$	29,492	$	4,161	$	7,292	$	6,834	$	11,205
Interest and loan obligations (2)		463		222		241		—		—
Obligations for uncertain tax positions (3)		2,386		—		2,386		—		—
Total	$	32,341	$	4,383	$	9,919	$	6,834	$	11,205

(1) The Company’s future contractual obligations include minimum lease payments under operating leases at June 30, 2014.

(2) Estimated interest and principal due on the notes payable funded by the Spanish government for the development of Quiterian software.

(3) Represents the tax liability associated with unrecognized tax benefits estimated to be payable between 1 to 3 years. In addition, as of June 30, 2014, our unrecognized tax benefits included $2 million which is netted against deferred tax assets. At this time, we are unable to make a reasonably reliable estimate of the timing of payments related to the amounts netted against deferred tax assets, if any, in individual years due to uncertainties in the timing or outcomes of either actual or anticipated tax audits. As a result, these amounts are not included in the table above. See discussion on the authoritative guidance issued by the FASB on obligations for uncertain tax positions in Note 12 of our Notes to these Consolidated Financial Statements of our Form 10-K for fiscal year 2013 filed with the SEC on March 7, 2014.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of credit risk, fluctuations in interest rates and foreign exchange rates.

Foreign Currency Exchange Risk. During the first six months of fiscal years 2014 and 2013 we derived 26% and 22% of our total revenues from sales outside of North America, respectively. We face exposure to market risk on the related receivables with respect to fluctuations in the relative value of currencies. Our international revenues and expenses are denominated in foreign currencies, principally the Euro and the British Pound Sterling. The functional currency of each of our foreign subsidiaries is the local currency. We are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, transaction gains and losses may vary from expectations and adversely impact overall expected profitability. Our realized gain due to foreign exchange rate fluctuations was approximately $220,000 during the first six months of fiscal 2014 compared to gains of approximately $137,000 for the first six months of fiscal 2013. During the first six months of fiscal 2014, exchange rate fluctuations on foreign revenue transactions positively impacted our total revenues by approximately $470,000 when compared to the same period in the prior year while expenses were negatively impacted by approximately $550,000.

We performed a sensitivity analysis on the net monetary accounts subject to revaluation that are held primarily by our international subsidiaries. We used the following steps to determine the approximate impact of currency exchange rate fluctuations:

• Identified material net monetary assets held in non-functional currencies. These primarily consist of the Euro, British Pound, Canadian Dollar, and the U.S. Dollar-based net assets held by our international subsidiaries.

• Applied hypothetical changes in exchange rates to these net monetary balances held by each subsidiary as identified above. The result was a hypothetical revaluation gain or (loss) in the subsidiary’s functional currency.

• We then translated the revaluation result as described above to U.S. Dollars using the latest quarter average exchange rate. This resulted in hypothetical revaluation gains or (losses) before income taxes. These hypothetical results are summarized in the table below as of June 30, 2014:

Estimated annual changes in currency exchange (in thousands)
–15%	–10%	–5%	+5%	+10%	+15%
$(1,067)	$(712)	$(356)	$356	$712	$1,067

Interest Rate Risk. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high quality debt securities. Due to the nature of our investments, we believe that there is limited risk exposure.

Credit Risk. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments in marketable securities, and trade accounts receivable. We have policies that limit investments in investment grade securities and the amount of credit exposure to any one issuer.

We sell primarily to customers in the financial services industry, predominantly in the United States and Europe. Accordingly, unfavorable economic conditions adversely impacting the financial services industry has had a material adverse effect on the Company’s business, financial condition and results of operations. For example, the financial services industry has experienced and may continue to experience cyclical fluctuations in profitability, which may affect timing of, or actual purchases of, our products which would have a material adverse effect on the our business, financial condition and results of operations. There were no customers that accounted for more than 10% of total revenues in the six months ended June 30, 2014 or 2013.

We perform ongoing credit evaluations of our customers and maintain an allowance for potential credit losses. We do not require collateral or other security to support customer receivables. Our credit risk is also mitigated because our customer base is diversified by geography. We generally do not use foreign exchange contracts to hedge the risk in receivables denominated in foreign currencies. We do not hold or issue derivative financial instruments for trading or speculative purposes.

We do not believe that future market equity or interest rate risks related to our marketable investments or debt obligations will have a material impact on our results of operations. The Company is not currently invested in any derivative securities.

European Debt Exposures. We actively monitor our exposure to the European markets, including the impact of sovereign debt issues associated with Greece, Ireland, Portugal, Italy and Spain. As of June 30, 2014, we do not have any direct or indirect investments in the sovereign debt, corporations, or financial institutions of these countries.

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ITEM 4. CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures

As of June 30, 2014 (the Evaluation Date), Actuate Corporation carried out an evaluation under the supervision and with the participation of Actuate’ management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Actuate’ disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. Our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2014, (1) Actuate’ disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, and (2) Actuate’ disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports Actuate files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required, and that such information is accumulated and communicated to Actuate’ management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding its required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

The Company is engaged in certain legal actions arising in the ordinary course of business, including international employment litigation arising out of restructuring activities. Although there can be no assurance as to the outcome of such litigation, the Company believes that it has adequate legal defenses and that the ultimate outcome of any of these actions will not have a material effect on the Company’s financial position or results of operations. However, expenses associated with certain of these legal actions could result in increased operating expenses that may adversely impact the Company’s future operating results and cash flow.

Item 1A. Risk Factors

Investors should carefully consider the following risk factors and warnings before making an investment decision. The risks described below are not the only ones facing Actuate. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the following risks, or the additional risks described in the preceding sentence, actually occurs, our business, operating results or financial condition could be materially harmed. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. Investors should also refer to the other information set forth in this Report on Form 10-K, including the financial statements and the notes thereto.

THE COMPANY’S OPERATING RESULTS MAY BE VOLATILE AND DIFFICULT TO PREDICT. IF IT FAILS TO MEET ITS ESTIMATES OF FUTURE OPERATING RESULTS OR IT FAILS TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF ITS STOCK MAY DECREASE SIGNIFICANTLY.

The susceptibility of the Company’s operating results to significant fluctuations makes any prediction, including the Company’s estimates of future operating results, difficult. In addition, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and investors should not rely on them as indications of the Company’s future performance. The Company’s operating results have in the past varied, and may in the future vary significantly due to factors such as the following:

• Demand for its products;

• The size and timing of significant orders for its products;

• A slowdown or a decrease in spending on information technology by its current and/or prospective customers;

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• Competition from products directly competitive with its products;

• Lost revenue from introduction or market acceptance of open source products directly competitive with its products;

• The management, performance and expansion of its international operations;

• Foreign currency exchange rate fluctuations;

• Customers’ desire to consolidate their purchases of software similar in functionality to the Company’s software to one or a very small number of vendors from which a customer has already purchased software;

• General domestic and international economic and political conditions, including war, terrorism, and the threat of war or terrorism;

• Sales cycles and sales performance of its indirect channel partners;

• Changes in the way it and its competitors price their respective products and services, including maintenance and transfer fees;

• Continued successful relationships and the establishment of new relationships with OEMs;

• Changes in its level of operating expenses and its ability to control costs;

• The cost, outcome or publicity surrounding any pending or threatened lawsuits;

• Ability to make new products and product enhancements commercially available in a timely manner;

• Ability to effectively launch new or enhanced products, including the timely education of the Company’s sales, marketing and consulting personnel with respect to such new or enhanced products;

• Customers delaying purchasing decisions in anticipation of new products or product enhancements;

• Budgeting cycles of its customers;

• Failure to successfully manage acquisitions and integrate acquired companies;

• Defects in products and other product quality problems;

• Failure to successfully meet hiring needs including for qualified professional services employees and unexpected personnel changes;

• Changes in the market segments and types of customers where it focuses sales and marketing efforts;

• Changes in perpetual licensing models to term-or subscription-based models with respect to which license revenue is not fully recognizable at the time of initial sale;

• Changes in service models with respect to which consulting services are performed on a fixed-fee, rather than variable fee, basis; and

• Potential impairments of goodwill, intangibles and other investments.

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Because the Company’s software products are typically shipped shortly after orders are received, total revenues in any quarter are substantially dependent on orders booked and shipped throughout that quarter. Furthermore, several factors may require the Company, in accordance with accounting principles generally accepted in the United States, to defer recognition of license fee revenue for a significant period of time after entering into a license agreement, including:

• Whether the license agreement includes both software products that are then currently available and software products or other enhancements that are still under development;

• Whether the license agreement relates entirely or partly to software products that are currently not available;

• Whether the license agreement requires the performance of services that may preclude revenue recognition until successful completion of such services;

• Whether the license agreement includes acceptance criteria that may preclude revenue recognition prior to customer acceptance;

• Whether the license agreement includes undelivered elements (including limited terms or durations) that may preclude revenue recognition prior to customer acceptance; and

• Whether the license agreement includes extended payment terms that may delay revenue recognition until the payment becomes due.

In addition, the Company may in the future experience fluctuations in its gross and operating margins due to changes in the mix of its domestic and international revenues, changes in the mix of its direct sales and indirect sales and changes in the mix of license revenues and service revenues, as well as changes in the mix among the indirect channels through which its products are offered.

A significant portion of the Company’s total revenues in any given quarter is derived from existing customers. The Company’s ability to achieve future revenue growth, if any, will be substantially dependent upon its ability to increase revenues from license fees and services from existing customers, to expand its customer base and to increase the average size of its orders. To the extent that such increases do not occur in a timely manner, the Company’s business, operating results and financial condition would be harmed.

The Company’s expense levels and any plans for expansion are based in significant part on its expectations of future revenues and are relatively fixed in the short-term. If revenues fall below expectations and the Company is unable to respond quickly by reducing its spending, the Company’s business, operating results, and financial condition could be harmed.

The Company often implements changes to its license pricing structure for all of its products including increased prices and modified licensing parameters. If these changes are not accepted by the Company’s current customers or future customers, its business, operating results, and financial condition could be harmed.

Based upon all of the factors described above, the Company has a limited ability to forecast the amount and mix of future revenues and expenses and, the Company’s actual operating results may from time to time fall below its estimates or the expectations of public market analysts and investors which is likely to cause the price of the Company’s common stock to decline.

IF WE FAIL TO SUCCESSFULLY MANAGE OUR BUSINESS MODEL TRANSITION TO SUBSCRIPTION-BASED LICENSING, OUR RESULTS OF OPERATIONS WILL BE MATERIALLY NEGATIVELY IMPACTED.

To address the industry transition from perpetual licensing to subscription licensing, and to fuel the growth of our business in the long term, we have accelerated our adoption of a subscription based licensing model for our products. We are currently transitioning to the subscription model and expect this transition to be substantially complete by 2017. As a result, we expect to derive an increasing portion of our revenues from subscriptions for our products. This subscription model prices and delivers our products in a way that differs from our historical pricing method, which was predominantly a perpetual sales model as our customers’ purchases trend away from perpetual licenses toward subscriptions. In the short-term we will experience a deferral of revenues and lower initial cash inflows from our customers as the timing of the revenue recognition for subscription licenses is ratable, as opposed to a primarily up-front revenue treatment for perpetual licenses. We could also potentially experience operating losses as a result of this transition. While we intend to increase our number of customers and projects over time as a result of this transition, our ability to achieve these objectives is subject to risks and uncertainties. The risks and uncertainties include the following, among others:

• The new offerings may require a considerable investment of financial, legal, sales and administrative resources, and a more scalable organization.

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• Market acceptance of subscription licensing may be affected by a variety of factors, including but not limited to license terms, customer preference and pricing.

• Renewal rates of our subscription contracts

• Channel acceptance

• Customer’s willingness to license our products on a subscriptions basis

• The ability of sales and other personnel to operate a subscription sales model.

The metrics we use to gauge the status of our business model transition may evolve over the course of the transition as significant trends emerge. If we are unable to successfully establish these new metrics and navigate our business model transition in light of the foregoing and other currently unknown risks and uncertainties, our results of operations will be materially negatively impacted.

OUR DEBT COVENANTS IN OUR CREDIT AGREEMENT RESTRICT OUR FINANCIAL AND OPERATIONAL FLEXIBILITY.

Our Credit Agreement contains a number of financial covenants, which, among other things, may require us to maintain specified financial ratios and impose certain limitations on us with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens and encumbrances. Our ability to meet the financial ratios can be affected by operating performance or other events beyond our control, and we cannot assure you that we will meet those ratios and failure to do so may cause an event of default under the Credit Agreement. Our indebtedness under the Credit Agreement is secured by a lien on substantially all of our assets and of our subsidiaries, by a pledge of our subsidiaries’ stock and by a guarantee of our subsidiaries. If the amounts outstanding under the Credit Agreement were accelerated due to an event of default, the lenders could proceed against such available collateral by forcing the sales of these assets.

THE COMPANY HAS MADE, AND MAY IN THE FUTURE MAKE, ACQUISITIONS, WHICH INVOLVE NUMEROUS RISKS.

The Company’s business is highly competitive, and as such, its growth is dependent upon its ability to expand its market, enhance its existing products, introduce new products on a timely basis and expand its distribution channels and professional services organizations. In order to achieve these objectives, the Company had pursued and will continue to pursue acquisitions of other companies.

Generally, acquisitions involve numerous risks, including the following:

• The benefits of the acquisition not materializing as planned or not materializing within the time periods or to the extent anticipated;

• The Company’s ability to manage acquired entities’ people and processes that are headquartered in separate geographical locations from the Company’s headquarters;

• The possibility that the Company will pay more than the value it derives from the acquisition;

• Difficulties in integration of the operations, technologies, and products of the acquired companies;

• The assumption of certain known and unknown liabilities of the acquired companies;

• Difficulties in retaining key relationships with customers, partners and suppliers of the acquired company, the loss of recurring revenue from multiple subsidiaries of one large multi-national organization or the ability to sell and support certain third party software.

• The risk of diverting management’s attention from normal daily operations of the business;

• The Company’s ability to issue new releases of the acquired company’s products on existing or other platforms;

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• Negative impact to the Company’s financial condition and results of operations and the potential write down of impaired goodwill and intangible assets resulting from the consolidation of financial statements;

• Risks of entering markets in which the Company has no or limited direct prior experience; and

• The potential loss of key employees of the acquired company.

Mergers and acquisitions of high-technology companies are inherently risky, and the Company cannot be certain that any acquisition will be successful and will not materially harm the Company’s business, operating results or financial condition.

INTELLECTUAL PROPERTY CLAIMS AGAINST THE COMPANY CAN BE COSTLY AND COULD RESULT IN THE LOSS OF SIGNIFICANT RIGHTS.

Third parties may claim that the Company’s current or future products infringe their intellectual property rights. The Company has been subject to infringement claims in the past and it expects that companies in the Business Intelligence, Analytics, Big Data, Performance Management and Customer Communications Management software market will increasingly be subject to infringement claims as the number of products and/or competitors in its industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming to defend, result in significant litigation and other expenses, divert management’s attention and resources, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all. A successful claim of product infringement against the Company and its failure or inability to license the infringed or similar technology could materially harm the Company’s business, operating results and financial condition.

COMPUTER “HACKERS” MAY DAMAGE OUR SYSTEMS, SERVICES AND PRODUCTS, AND BREACHES OF DATA PROTECTION COULD IMPACT OUR BUSINESS.

Computer programmers and hackers may be able to penetrate our network security and misappropriate our confidential information or that of third parties, create system disruptions or cause interruptions or shutdowns of our internal systems and services. If successful, any of these events could damage our computer systems or those of our customers and could disrupt or prevent us from providing timely maintenance and support for our software platform. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. The costs to us to eliminate or alleviate security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and the efforts to address these problems could result in interruptions, delays, cessation of service and loss of existing or potential customers and may impede our sales, manufacturing, distribution and other critical functions.

In the course of our regular business operations and providing maintenance and support services to our customers, we process and transmit proprietary information and sensitive or confidential data, including personal information of employees, customers and others. Breaches in security could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, which could result in potential regulatory actions, litigation and potential liability for us, as well as the loss of existing or potential customers and damage to our brand and reputation.

THE COMPANY MAY NOT BE ABLE TO PROTECT ITS SOURCE CODE FROM COPYING.

Source code, the detailed program commands for our operating systems and other software programs, is critical to our business. Although we take significant measures to protect the secrecy of large portions of our source code, unauthorized disclosure or reverse engineering of a significant portion of our source code could make it easier for third parties to compete with our products by copying functionality, which could adversely affect our revenue and operating margins.

IF THE COMPANY FAILS TO GROW REVENUE FROM INTERNATIONAL OPERATIONS AND EXPAND ITS INTERNATIONAL OPERATIONS ITS BUSINESS WOULD BE SERIOUSLY HARMED.

The Company’s total revenues derived from sales outside North America were 26%, 22% and 27% for the first six months of fiscal years 2014, 2013 and 2012, respectively. Its ability to achieve revenue growth in the future will depend in large part on its success in increasing revenues from international sales. The Company intends to continue to invest significant resources to expand its sales and support operations outside North America and to potentially enter additional international markets. In order to expand international sales, the Company must establish additional foreign operations, expand its international channel management and support organizations, hire additional personnel, recruit additional

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international resellers and increase the productivity of existing international resellers. If it is not successful in expanding international operations in a timely and cost-effective manner, the Company’s business, operating results and financial condition could be materially harmed.

IF THE COMPANY DOES NOT SUCCESSFULLY EXPAND ITS DISTRIBUTION CHANNELS AND DEVELOP AND MAINTAIN RELATIONSHIPS WITH OEMs, ITS BUSINESS WOULD BE SERIOUSLY HARMED.

To date, the Company has sold its products principally through its direct sales force, as well as through indirect sales channels, such as its OEMs, resellers and systems integrators. The Company’s revenues from license fees resulting from sales through indirect channel partners were approximately 19%, 43%, and 35% of total revenues from license fees for the first six months of fiscal years 2014, 2013 and 2012, respectively. The Company’s ability to achieve significant revenue growth in the future will depend in large part on the success of its sales force in further establishing and maintaining relationships with indirect channel partners. In particular, a significant element of the Company’s strategy is to embed its technology in products offered by OEMs for resale or as a hosted application to such OEMs’ customers and end-users. The Company also intends to establish and expand its relationships with resellers and systems integrators so that such resellers and systems integrators will increasingly recommend its products to their clients. The Company’s future success will depend on the ability of its indirect channel partners to sell and support its products. If the sales and implementation cycles of its indirect channel partners are lengthy or variable or its OEMs experience difficulties embedding the Company’s technology into their products, or if it fails to train the sales and customer support personnel of such indirect channel partners in a timely or effective fashion, the Company’s business, operating results and financial condition would be materially harmed.

Although the Company is currently investing, and plans to continue to invest, significant resources to expand and develop relationships with OEMs and resellers, it has at times experienced and continues to experience difficulty in establishing and maintaining these relationships. If the Company is unable to successfully expand this distribution channel and secure license agreements with additional OEMs and resellers on commercially reasonable terms, including significant up-front payments of minimum license fees, and extend existing license agreements with existing OEMs on commercially reasonable terms, the Company’s operating results would be adversely affected. Any inability by the Company to maintain existing or establish new relationships with indirect channel partners, including systems integrators and resellers, or, if such efforts are successful, a failure of the Company’s revenues to increase correspondingly with expenses incurred in pursuing such relationships, would materially harm the Company’s business, operating results and financial condition.

THE COMPANY MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST ITS CURRENT AND FUTURE COMPETITORS.

The Company’s market is intensely competitive and characterized by rapidly changing technology, evolving standards and product releases by the Company’s competitors that are marketed to compete directly with the Company’s products. The Company’s competition comes in five principal forms:

• Competition from current or future Business Intelligence, data discovery and Big Data software vendors such as Information Builders, Qlik Tech, Pentaho, Tibco/Jaspersoft, MicroStrategy and Tableau, each of which offers reporting products;

• Competition from other large software vendors such as IBM, Microsoft, Oracle and SAP, to the extent they sell BI, Analytics, Customer Communications Management, Big Data and Performance Management capabilities as separate products or include similar functionality with their applications or databases;

• Competition from other software vendors and software development tool vendors including providers of open-source software products that may develop scalable custom Business Analytics, Performance Management, Customer Communications Management, Big Data and Information Applications products;

• Competition from the IT departments of current or potential customers that may develop scalable custom Business Intelligence, Analytics, Big Data, Performance Management, Customer Communications Management and information applications products internally, which may be cheaper and more customized than the Company’s products; and

• Competition from Eclipse BIRT and freemium (F-Type). The Company expects that BIRT and F-Type software, which are free, may cannibalize some smaller sales of its custom Big Data, Performance Management and Business Intelligence and information applications products.

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Many of the Company’s current and potential competitors have significantly greater financial, technical, marketing and other resources than it does. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sales of their products than the Company. Also, most current and potential competitors have greater name recognition and the ability to leverage a significant installed customer base. These companies have released and can continue to release competing Business Intelligence, Analytics, Big Data, Performance Management and Customer Communications Management software products or significantly increase the functionality of their existing software products, either of which could result in a loss of market share for the Company. The Company expects additional competition as other established and emerging companies enter the Business Intelligence, Analytics, Big Data, Performance Management and Customer Communications Management software market and new products and technologies are introduced. Increased competition could result in price reductions, fewer customer orders, reduced gross margins, longer sales cycles and loss of market share, any of which would harm the Company’s business, operating results and financial condition.

Current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing their ability to address the needs of the Company’s customers. Also, the Company’s current or future channel partners may have established in the past, or may in the future, establish cooperative relationships with the Company’s current or potential competitors, thereby limiting the Company’s ability to sell its products through particular distribution channels. It is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. Such competition could reduce the Company’s revenues from license fees and services from new or existing customers on terms favorable to us. If the Company is unable to compete successfully against current and future competitors, the Company’s business, operating results and financial condition would be materially harmed.

IF THE MARKET FOR BUSINESS INTELLIGENCE, ANALYTICS, BIG DATA, PERFORMANCE MANAGEMENT AND CUSTOMER COMMUNICATIONS MANAGEMENT SOFTWARE DOES NOT GROW AS THE COMPANY EXPECTS, ITS BUSINESS WOULD BE SERIOUSLY HARMED.

The Company cannot be certain that the market for Business Intelligence, Analytics, Customer Communications Management, Big Data and Performance Management software products will continue to grow or that, even if the market does grow, businesses will purchase the Company’s products. If the market for Business Intelligence, Analytics, Customer Communications Management, Big Data and Performance Management software products declines, fails to grow or grows more slowly than the Company expects, its business, operating results and financial condition would be harmed. To date, all of the Company’s revenues have been derived from licenses for its Business Intelligence, Analytics, Customer Communications Management, Big Data and Performance Management related products and services, and it expects this to continue for the foreseeable future. The Company has spent, and intends to continue to spend, considerable resources educating potential customers and indirect channel partners about Business Intelligence, Analytics, Customer Communications Management, Big Data and Performance Management software and products. However, if such expenditures do not enable its products to achieve any significant degree of market acceptance, the Company’s business, operating results and financial condition would be materially harmed.

BECAUSE THE SALES CYCLES OF THE COMPANY’S PRODUCTS ARE LENGTHY AND VARIABLE, ITS QUARTERLY RESULTS MAY FLUCTUATE.

The purchase of the Company’s products by its end-user customers for deployment within the customer’s organization typically involves a significant commitment of capital and other resources, and is therefore subject to delays that are beyond the Company’s control. These delays can arise from a customer’s internal procedures to approve large capital expenditures, budgetary constraints, the testing and acceptance of new technologies that affect key operations and general economic and political events. The sales cycle for initial orders and larger follow-on orders for the Company’s products can be lengthy and variable. Additionally, sales cycles for sales of the Company’s products to OEMs tend to be longer, ranging from 6 to 24 months or more, and may involve convincing the OEMs’ entire organization that the Company’s products are the appropriate software for their applications. This time period does not include the sales and implementation cycles of such OEMs’ own products, which can be longer than the Company’s sales and implementation cycles. Certain of the Company’s customers have in the past, or may in the future, experience difficulty completing the initial implementation of the Company’s products. Any difficulties or delays in the initial implementation by the Company’s end-user customers or indirect channel partners could cause such customers or partners to reject the Company’s software or lead to the delay or non-receipt of future orders for the large-scale deployment of its products, in which case the Company’s business, operating results and financial condition would be materially harmed.

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ADVANCES IN HARDWARE AND SOFTWARE TECHNOLOGY MAY CAUSE OUR SOFTWARE REVENUE TO DECLINE.

In the past, the Company has licensed software for a certain number of “processors” or “CPUs” to many of its customers. Advances in hardware technology, including, but not limited to, greater CPU clock speeds, multiple-core processors and virtualization, have afforded software performance gains to some customers, causing them to defer additional software purchases from the Company. The occurrence of any of these events, and other future advances, could seriously harm the Company’s business, operating results and financial condition. Use of the Company’s software on more advanced hardware than the hardware on which the software was originally installed, without payment of a fee, is prohibited by the terms of applicable license agreements or Company policies. The Company intends to require compliance with such terms. As a result of its enforcement efforts, customers may defer or cease purchasing additional software or maintenance and support. The occurrence of any of these events could materially harm the Company’s business, operating results and financial condition.

DECLINING RENEWAL OF MAINTENANCE SERVICES ON OUR OLDER SOFTWARE SALES PRODUCTS

The Company has historically experienced a high maintenance renewal rate across its various product lines. As certain of the Company’s products age, these renewal rates have not sustained and will continue to decline unless the Company is successful in providing its customers with more advanced functionality and the levels of support that they require. If this trend continues, the Company’s business, operating results and financial condition could be materially harmed.

IF THE COMPANY IS UNABLE TO FAVORABLY ASSESS THE EFFECTIVENESS OF ITS INTERNAL CONTROL OVER FINANCIAL REPORTING IN FUTURE PERIODS OR IF THE COMPANY’S INDEPENDENT AUDITORS ARE UNABLE TO PROVIDE AN UNQUALIFIED ATTESTATION REPORT ON SUCH ASSESSMENT, THE COMPANY’S STOCK PRICE COULD BE ADVERSELY AFFECTED.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), the Company’s management is required to report on, and its independent auditors are required to attest to, the effectiveness of the Company’s internal controls over financial reporting on an annual basis. The Company’s assessment, testing and evaluation of the design and operating effectiveness of its internal control over financial reporting are ongoing. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013, and has concluded that our internal control over financial reporting was effective. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework.

There were no significant changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

If in future periods the Company concludes that its internal control over financial reporting is not effective, it may be required to change its internal control over financial reporting to remediate deficiencies. The Company cannot predict the outcome of its testing in future periods as risks exist that present controls may not be effective in the future periods and consequently investors may lose confidence in the reliability of the Company’s financial statements, causing the Company’s stock price to decline.

SECTION 404 AND REGULATORY CHANGES HAVE CAUSED THE COMPANY TO INCUR INCREASED COSTS AND OPERATING EXPENSES, INCLUDING ADDITIONAL COST AND EXPENSES ASSOCIATED WITH HIRING QUALIFIED PERSONNEL TO COMPLY WITH SUCH REGULATORY REQUIREMENT.

The Sarbanes-Oxley Act of 2002 and regulatory changes by the SEC and NASDAQ have caused the Company to incur significant increased costs. In particular, the rules governing the standards that must be met for management to assess its internal controls over financial reporting under Section 404 are complex, and require significant documentation, testing and possible remediation. This ongoing process of reviewing, documenting and testing the Company’s internal controls over financial reporting has resulted in, and will likely continue to result in ongoing cost to the Company. Furthermore, achieving and maintaining compliance with Sarbanes-Oxley and other new rules and regulations has and will continue to require the Company to hire additional personnel and to use additional outside legal, accounting and advisory services.

In addition, any acquisitions made by the Company will also put a significant strain on its management, information systems and resources. Any expansion of the Company’s international operations will lead to increased financial and administrative demands associated with managing its international operations and managing an increasing number of relationships with foreign partners and customers and expanded treasury functions to manage foreign currency risks, all of which will require the Company to incur additional cost to implement necessary changes to maintain effective internal controls over financial reporting.

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IF THE COMPANY DOES NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, ITS PRODUCTS COULD BECOME OBSOLETE.

The market for the Company’s products is characterized by rapid technological changes, frequent new product introductions and enhancements, changing customer demands, and evolving industry standards. Any of these factors can render existing products obsolete and unmarketable. The Company believes that its future success will depend in large part on its ability to support current and future releases of popular operating systems and computer programming languages, databases and software applications, to timely develop new products that achieve market acceptance and to meet an expanding range of customer requirements. If the announcement or introduction of new products by the Company or its competitors or any change in industry standards causes customers to defer or cancel purchases of existing products, the Company’s business, operating results and financial condition would be harmed.

As a result of the complexities inherent in Business Intelligence, Analytics, Customer Communications Management, Big Data and Performance Management software, major new products and product enhancements can require long development and testing periods. In addition, customers may delay their purchasing decisions in anticipation of the general availability of new or enhanced versions of the Company’s products. As a result, significant delays in the general availability of such new releases or significant problems in the installation or implementation of such new releases could harm the Company’s business, operating results and financial condition. If the Company fails to successfully develop, on a timely and cost effective basis, product enhancements or new products that respond to technological change, evolving industry standards or customer requirements or such new products and product enhancements fail to achieve market acceptance, the Company’s business, operating results and financial condition would be harmed.

IF THE COMPANY DOES NOT RELEASE NEW PRODUCTS AND ENHANCEMENTS TO EXISTING PRODUCTS IN A TIMELY MANNER OR IF SUCH NEW PRODUCTS AND ENHANCEMENTS, INCLUDING THE COMPANY’S OPEN SOURCE PROJECT, FAIL TO ACHIEVE MARKET ACCEPTANCE, THE COMPANY’S BUSINESS COULD BE SERIOUSLY HARMED.

The Company believes that its future success will depend in large part on the success of new products and enhancements to its products that it makes generally available. Prior to the release of any new products or enhancements, the products must undergo a long development and testing period. To date, the development and testing of new products and enhancements have taken longer than expected. In the event the development and testing of new products and enhancements continue to take longer than expected, the release of new products and enhancements will be delayed. If the Company fails to release new products and enhancements in a timely manner, its business, operating results and financial condition would be harmed. In addition, if such new products and enhancements do not achieve market acceptance, the Company’s business, operating results and financial condition would be harmed.

The Company has developed a BIRT open source product through its involvement in the Eclipse Foundation. The Company believes that BIRT and a commercial version of BIRT will be widely adopted by Java developers and will result in such developers recommending to their employees and customers that they license the Company’s commercially available products. If BIRT does not achieve market acceptance and result in promoting sales of commercial products, the Company’s business, operating results and financial condition may be harmed.

THE SUCCESS OF THE COMPANY’S OPEN-SOURCE BIRT INITIATIVE IS DEPENDENT ON BUILDING A DEVELOPER COMMUNITY AROUND BIRT AND CONVERTING THEM TO COMMERCIAL OFFERINGS.

The success of the Company’s BIRT initiative is dependent on the open source contributions of third-party programmers and corporations, and if they cease to make these contributions to the Eclipse open source project, the BIRT project, or the general open source movement, the Company’s BIRT product strategy could be adversely affected. If key members, or a significant percentage, of this group of developers or corporations decides to cease development of Eclipse, BIRT or other open source applications, the Company would have to either rely on another party (or parties) to develop these technologies, develop them itself or adapt its open source product strategy accordingly. The Company must convert some open source BIRT developers to purchasing commercial products. This could increase the Company’s development expenses, delay its product releases and upgrades or adversely impact customer acceptance of open source offerings.

IF SECURITY MEASURES REGARDING OUR BIRT ONDEMAND AND BIRT PERFORMANCE ANALYTICS ONDEMAND SERVICES ARE BREACHED AND UNAUTHORIZED ACCESS IS OBTAINED TO A CUSTOMER’S DATA OR OUR DATA OR OUR INFORMATION TECHNOLOGY SYSTEMS, WE MAY INCUR SIGNIFICANT LEGAL AND FINANCIAL EXPOSURE AND LIABILITIES.

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Our BIRT onDemand and BIRT Performance Analytics onDemand services involve the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise, during transfer of data to additional data centers or at any time, and result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could lead to legal liability.

FROM TIME TO TIME, WE MAY BE INVOLVED IN LEGAL PROCEEDINGS ABOUT WHICH WE ARE UNABLE TO ASSESS OUR EXPOSURE AND WHICH COULD BECOME SIGNIFICANT LIABILITIES UPON JUDGMENT.

We are involved in legal proceedings from time to time. Companies in our industry have been subject to claims related to patent infringement, as well as contract and employment-related claims. At times, including now, we are also plaintiffs in litigation involving the Company’s intellectual property. We may not be able to accurately assess risk related to these suits including expenses and other potential liabilities.

THE COMPANY’S INTERNATIONAL OPERATIONS ARE SUBJECT TO SIGNIFICANT RISKS.

A substantial portion of the Company’s revenues are derived from international sales. International operations and sales are subject to a number of risks, any of which could harm the Company’s business, operating results and financial conditions. These risks include the following:

• Economic and political instability, including war and terrorism or the threat of war and terrorism;

• Difficulty of managing an organization spread across many countries;

• Multiple and conflicting tax laws and regulations;

• Costs of localizing products for foreign countries;

• Difficulty in hiring employees and difficulties and high costs associated with terminating employees and restructuring operations in foreign countries;

• Trade laws and business practices favoring local competition;

• Dependence on local vendors;

• Increasing dependence on resellers in certain geographies;

• Compliance with multiple, conflicting and changing government laws and regulations;

• Weaker intellectual property protection in foreign countries and potential loss of proprietary information due to piracy or misappropriation;

• Longer sales cycles;

• Import and export restrictions and tariffs;

• Difficulties in staffing and managing foreign operations;

• The significant presence of some of our competitors in certain international markets;

• Greater difficulty or delay in accounts receivable collection; and

• Foreign currency exchange rate fluctuations.

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The Company believes that, over time, an increasing portion of its revenues and costs will be denominated in foreign currencies. To the extent such denomination in foreign currencies does occur, gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in the Company’s results of operations. Although the Company may in the future decide to undertake foreign exchange hedging transactions to cover a portion of its foreign currency transaction exposure, it currently does not attempt to cover any foreign currency exposure. If it is not effective in any future foreign exchange hedging transactions in which it engages, the Company’s business, operating results and financial condition could be materially harmed.

THE COMPANY’S EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO ITS BUSINESS AND IT MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL IT NEEDS.

The Company’s future success depends upon the continued service of its executive officers and other key engineering, sales, marketing and customer support personnel. None of its executive officers or key employees is bound by an employment agreement for any specific term. If the Company loses the service of one or more of its executive officers or key employees, or if one or more of its executive officers or key employees decide to join a competitor or otherwise compete directly or indirectly with it, it could have a significant adverse effect on the Company’s business.

In addition, because experienced personnel in the Company’s industry are in high demand and competition for their talents is intense, the Company has relied on its ability to grant stock options as one mechanism for recruiting and retaining this highly skilled talent. Accounting standards require the expensing of stock options, which impairs the Company’s ability to provide these incentives without incurring significant compensation costs. There can be no assurance that the Company will continue to successfully attract and retain key personnel in the future.

CHANGES IN ACCOUNTING PRINCIPLES OR STANDARDS, OR IN THE WAY THEY ARE APPLIED, COULD RESULT IN UNFAVORABLE ACCOUNTING CHARGES OR EFFECTS AND UNEXPECTED FINANCIAL REPORTING FLUCTUATIONS, AND COULD ADVERSELY AFFECT OUR REPORTED OPERATING RESULTS.

We prepare our condensed consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in existing principles or guidance can have a significant effect on our reported results and may retroactively affect previously reported results. Additionally, proposed accounting standards could have a significant impact on our operational processes, revenues and expenses, and could cause unexpected financial reporting fluctuations.

For example, the Financial Accounting Standards Board (“FASB”) is currently working together with the International Accounting Standards Board (“IASB”) to converge certain accounting principles and facilitate more comparable financial reporting between companies who are required to follow GAAP and those who are required to follow International Financial Reporting Standards (“IFRS”). These efforts may result in different accounting principles under GAAP, which may have a material impact on the way in which we report financial results in areas including, but not limited to, revenue recognition, lease accounting, and financial statement presentation. We expect the SEC to make a determination in the near future regarding the incorporation of IFRS into the financial reporting system for U.S. companies. A change in accounting principles from GAAP to IFRS may have a material impact on our financial statements and may retroactively adversely affect previously reported transactions.

THE COMPANY MAY BE UNABLE TO SUSTAIN OR INCREASE ITS PROFITABILITY.

While the Company was profitable in its last ten fiscal years, it incurred net losses during the first half of fiscal 2014 as well as fiscal years 2003, 2002 and 2001. Its ability to sustain or increase profitability on a quarterly or annual basis will be affected by changes in its business. It expects its operating expenses to increase as its business grows, and it anticipates that it will make investments in its business. Therefore, the Company’s results of operations will be harmed if its revenues do not increase at a rate equal to or greater than increases in its expenses or are insufficient for it to sustain profitability. Due to the Company’s decision to accelerate the transition to a subscription license model, it is likely we will incur operating losses in future periods.

IF THE COMPANY OVERESTIMATES REVENUES, IT MAY BE UNABLE TO REDUCE ITS EXPENSES TO AVOID OR MINIMIZE A NEGATIVE IMPACT ON ITS RESULTS OF OPERATIONS.

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The Company’s revenues are difficult to forecast and are likely to fluctuate significantly from period to period. The Company bases its operating expense budgets on expected revenue trends. The Company’s estimates of sales trends may not correlate with actual revenues in a particular quarter or over a longer period of time. Variations in the rate and timing of conversion of the Company’s sales prospects into actual licensing revenues could cause it to plan or budget inaccurately and those variations could adversely affect the Company’s financial results. In particular, delays, reductions in amount or cancellation of customers’ purchases would adversely affect the overall level and timing of the Company’s revenues and its business, results of operations and financial condition could be harmed. In addition, many of its expenses, such as office and equipment leases and certain personnel costs, are relatively fixed. It may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue may cause a material variation in operating results in any period.

IF THE COMPANY’S PRODUCTS CONTAIN MATERIAL DEFECTS, ITS REVENUES MAY DECLINE.

Software products as complex as those offered by the Company often contain errors or defects, particularly when first introduced, when new versions or enhancements are released and when configured to individual customer computing systems. The Company currently has known errors and defects in its products. Despite testing conducted by the Company, if additional defects and errors are found in current versions, new versions or enhancements of its products after commencement of commercial shipment, or if such errors or defects cannot be cured or repaired timely, it could result in the loss of revenues or a delay in market acceptance or an increase in the rate of return of the Company’s products. The occurrence of any of these events could materially harm the Company’s business, operating results and financial condition.

THE COMPANY MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.

Although license agreements with its customers typically contain provisions designed to limit the Company’s exposure to potential product liability claims, it is possible that such limitation of liability provisions may not be effective as a result of existing or future laws or unfavorable judicial decisions. The sale and support of the Company’s products may entail the risk of such claims, which are likely to be substantial in light of the use of its products in business-critical applications. A product liability claim brought against the Company could materially harm its business, operating results and financial condition.

THE PROTECTION OF OUR PROPRIETARY RIGHTS MAY BE INADEQUATE.

The Company has a small number of issued and pending U.S. patents expiring at varying times ranging from 2015 to 2030. The Company relies primarily on a combination of copyright and trademark laws, trade secrets, confidentiality procedures, contractual provisions and license keys to protect its proprietary technology. For example, the Company licenses its software pursuant to click-wrap or signed license agreements that impose certain restrictions on licensees’ ability to utilize the software. In addition, the Company seeks to avoid disclosure of its intellectual property, including by requiring those persons with access to its proprietary information to execute confidentiality agreements with the Company and by restricting access to its source code. The Company takes precautions to protect our software, certain documentation, and other written materials under trade secret and copyright laws, which afford only limited protection.

Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of its products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company’s products is difficult, and while it is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of many countries do not protect the Company’s proprietary rights to the same extent as the laws of the United States. If the Company’s means of protecting its proprietary rights is not adequate or its competitors independently develop similar technology, the Company’s business could be materially harmed.

IF SECURITIES OR INDUSTRY ANALYSTS DO NOT PUBLISH RESEARCH OR REPORTS OR PUBLISH UNFAVORABLE RESEARCH OR REPORTS ABOUT OUR BUSINESS, OUR STOCK PRICE AND TRADING VOLUME COULD DECLINE.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

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THE COMPANY’S COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR STOCKHOLDERS.

The market price of shares of the Company’s common stock has been and is likely to continue to be highly volatile and may be significantly affected by factors such as the following:

• Actual or anticipated fluctuations in its operating results;

• Changes in the economic and political conditions in the United States and abroad;

• Terrorist attacks, war or the threat of terrorist attacks and war;

• The announcement of mergers or acquisitions by the Company or its competitors;

• Developments in ongoing or threatened litigation;

• Announcements of technological innovations;

• Failure to comply with the requirements of Section 404 of the Sarbanes-Oxley Act;

• New products, including open source products, or new contracts announced by it or its competitors;

• Developments with respect to copyrights or proprietary rights;

• Price and volume fluctuations in the stock market;

• Changes in corporate purchasing of Business Intelligence, Analytics, Big Data, Performance Management and Customer Communications Management software;

• Adoption of new accounting standards affecting the software industry; and

• Changes in financial estimates by securities analysts.

In addition, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against such companies. If the Company is involved in such litigation, it could result in substantial costs and a diversion of management’s attention and resources and could materially harm the Company’s business, operating results and financial condition.

WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK, AND CONSEQUENTLY, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT IS IF THE PRICE OF OUR COMMON STOCK APPRECIATES AND YOU SELL YOUR SHARES AT A PRICE ABOVE YOUR COST.

We currently do not intend to declare or pay dividends on shares of our common stock in the foreseeable future. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a price above your cost. There is no guarantee that the price of our common stock will ever exceed the price that you pay. Investors seeking cash dividends should not purchase our common stock.

CHANGES IN CORPORATE INCOME TAX LAWS, INCOME TAX RATES OR NEGATIVE INCOME TAX RULINGS COULD ADVERSELY IMPACT THE COMPANY’S FINANCIAL RESULTS.

The Company is taxable principally in the United States, Canada and certain jurisdictions in Europe and Asia/Pacific. All of these jurisdictions have in the past and may in the future make changes to their corporate income tax laws and/or corporate income tax rates, which could increase or decrease the Company’s future income tax provision. While the Company believes that all material income tax liabilities are reflected properly in its Condensed Consolidated Balance Sheet, it has no assurance that it will prevail in all cases in the event the taxing authorities disagree with its interpretations of the tax law. Future levels of research and development spending will impact the Company’s entitlement to related tax credits, which generally lower its effective income tax rate. Future effective income tax rates could be adversely affected if tax laws are enacted that are targeted to eliminate the benefits of the Company’s tax structure and if its earnings are lower than anticipated in jurisdictions where the Company has statutory tax rates lower than tax rates in the United States or other higher tax jurisdictions.

CERTAIN OF THE COMPANY’S CHARTER PROVISIONS AND DELAWARE LAW MAY PREVENT OR DETER A CHANGE IN CONTROL OF THE COMPANY.

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The Company’s Certificate of Incorporation, as amended and restated (the “Certificate of Incorporation”), and Bylaws, as amended and restated (“Bylaws”), contain certain provisions that may have the effect of discouraging, delaying or preventing a change in control of the Company or unsolicited acquisition proposals that a stockholder might consider favorable, including provisions authorizing the issuance of “blank check” preferred stock, eliminating the ability of stockholder to act by written consent and requiring stockholders to provide advance notice for proposals and nomination of directors at the Annual Meeting of Stockholder. In addition, certain provisions of Delaware law and the Company’s stock option plans may also have the effect of discouraging, delaying or preventing a change in control or unsolicited acquisition proposals. The Company has also entered into change of control agreements with its executive officers, which agreements require payment to an executive upon termination of employment within 12 months after acquisition. The anti-takeover effect of these provisions may also have an adverse effect on the public trading price of the Company’s common stock.

We have also adopted a stockholder rights plan and declared a dividend of one stock purchase right (a “Right”) for each outstanding share of common stock of the Company (“Common Shares”). Each Right entitles the registered holder to purchase from the Company one thousandth of a share of the Company’s Series A Junior Participating Preferred Stock (the “Preferred Shares”) at a price of $25 per one thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. In the event that any person or group owns more than 15% of the Company’s outstanding common stock and thereby becomes an “Acquiring Person”, each holder of a Right, other than Rights beneficially owned by the Acquiring Person, will thereafter have the right to receive upon exercise and payment of the exercise price that number of shares of common stock having a market value of two times the exercise price of the Right. In the event that any person or group becomes an Acquiring Person and the Company merges into or engages in certain other business combinations with any Person, or 50% or more of its consolidated assets or earning power are sold to any Person other than the Company or one of its wholly owned Subsidiaries, each holder of a Right, other than Rights owned by an Acquiring Person (and the affiliates, associates and certain transferees of such Acquiring Person), will thereafter have the right to receive, upon exercise and payment of the exercise price, that number of shares of common stock of the acquiring company that at the time of such transaction will have a market value of two times the exercise price of the Right; provided that, if the Company fails to meet such obligation within 30 days following the date a Person becomes an Acquiring Person, the Company must deliver, upon exercise of a Right but without requiring payment of the exercise price then in effect, Common Shares (to the extent available) and cash equal in value to the difference between the value of the Common Shares otherwise issuable upon the exercise of a Right and the exercise price then in effect.

DEPENDENCE ON THE FINANCIAL SERVICES INDUSTRY COULD SIGNIFICANTLY AFFECT THE COMPANY’S REVENUES.

A significant portion of the Company’s revenues are derived from customers in the financial services industry and the Company expects it will continue to derive a significant portion of its revenues from these customers for the foreseeable future. Accordingly, unfavorable economic conditions adversely impacting the financial services industry has had a material adverse effect on the Company’s business, financial condition and results of operations. For example, the financial services industry has experienced and may continue to experience cyclical fluctuations in profitability, which may affect timing of, or actual purchases of, the Company’s products which would have a material adverse effect on the Company’s business, financial condition and results of operations.

CATASTROPHIC EVENTS MAY DISRUPT OUR BUSINESS.

We rely on our network infrastructure and enterprise applications, internal technology systems and our Website for our development, marketing, operational, support, hosted services and sales activities. A disruption, infiltration or failure of these systems in the event of a major earthquake, fire, power loss, telecommunications failure, software or hardware malfunctions, cyber attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data and could prevent us from fulfilling our customers’ orders. Our corporate headquarters, a significant portion of our research and development activities, certain of our data centers, and certain other critical business operations are located in the San Francisco Bay Area, which is near major earthquake faults. We have developed certain disaster recovery plans and certain backup systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth information regarding repurchases of Actuate common stock by Actuate during the three months ended June 30, 2014.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average price paid per share		Total number of shares purchased as part of publicly announced programs (1)		Maximum dollar value of shares that may yet be purchased under the program (1)
Month #1
April 1, 2014 through April 30, 2014		550,641	$	5.81		550,641	$	14,135,040
Month #2
May 1, 2014 through May 31, 2014		28,000	$	5.61		28,000		13,977,969
Month #3
June 1, 2014 through June 30, 2014		—	$	—		—
Total		578,641	$	5.80		578,641

(1) The Company’s stock repurchase program was originally announced in September 2001 and has been extended from time to time by Actuate’s Board of Directors. On July 29, 2013, the Board of Directors approved a share repurchase program totaling $40 million over a twelve month period. The timing and amount of any shares repurchased are determined based on the Company’s evaluation of market conditions and other factors and the program may be discontinued or suspended at any time. Repurchases are made in compliance with all Securities Exchange Commission (SEC) rules and other legal requirements and are made in part under a Rule 10b5-1 plan, a rule established by the SEC which permits stock repurchases when the Company might otherwise be precluded from doing so. Actuate started purchasing shares under this program effective September 1, 2013.

These repurchased shares were recorded as treasury stock and were accounted for under the cost method. No repurchased shares have been retired.

Subsequent to the May 1, 2014 buyback, the Company announced a temporary suspension of its share repurchase program.

Item 4. Submission of Matters to a Vote of Security Holders

At our Annual Meeting of Stockholders held on May 21, 2014, our stockholders approved the following items:

1. Election of Directors: Our shareholders re-elected the following seven (7) directors to each serve a one-year term expiring on the date of the 2015 annual meeting of shareholders or until his or her successor has been duly chosen and qualified.

	For		Withheld		Broker Non- Votes
Peter I. Cittadini		28,402,979		1,453,639		11,485,050
Kenneth E. Marshall		26,535,511		3,321,107		11,485,050
Nicolas C. Nierenberg		28,449,317		1,407,301		11,485,050
Raymond L. Ocampo Jr.		27,041,159		2,815,459		11,485,050
Arthur C. Patterson		28,545,662		1,310,956		11,485,050
Steven D. Whiteman		26,556,431		3,300,187		11,485,050
Timothy B. Yeaton		27,040,959		2,815,659		11,485,050

2. Advisory Vote on Executive Compensation Matters (Say on Pay): Our shareholders approved the advisory say on pay proposal.

For	Against		Abstain		Broker Non-Votes
28,799,293		1,007,741		49,583		11,485,051

3. Ratification of Appointment of Independent Registered Public Accounting Firm: Our shareholders ratified the selection of Grant Thornton, LLP as our independent auditors for the year ended December 31, 2014.

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For	Against		Abstain
40,938,833		355,952		46,883

Item 6. Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32.1	Section 1350 Certifications
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Filed with this 10-Q.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Actuate Corporation (Registrant)
Dated: August 7, 2014	By:	/s/    DANIEL A. GAUDREAU
		Daniel A. Gaudreau
		Senior Vice President, Operations and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-31.1

Exhibit 31.1

Certification

I, Peter I. Cittadini, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Actuate Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 7, 2014

/s/ Peter I. Cittadini

Peter I. Cittadini

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, Daniel A. Gaudreau, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Actuate Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 7, 2014

/s/ Daniel A. Gaudreau

Daniel A. Gaudreau

Senior Vice President, Operations and Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Section 1350 Certifications

In connection with the Quarterly Report on Form 10-Q of Actuate Corporation (the “Company”) for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer of the Company and the Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge on the date hereof, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 7, 2014

/s/ Peter I. Cittadini

Peter I. Cittadini

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Daniel A. Gaudreau

Daniel A. Gaudreau

Senior Vice President, Operations

and Chief Financial Officer

(Principal Financial and Accounting Officer)

XML

Segment and Geographic Information - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2014 Segment
Segment Reporting Information [Line Items]
Number of operating segments	1

XML

Deferred Revenue (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Deferred Revenue Arrangement [Line Items]
Deferred revenue, current	$ 38,204	$ 46,293
Long term portion:	1,050	1,640
Deferred revenue	39,254	47,933
Maintenance and support
Deferred Revenue Arrangement [Line Items]
Deferred revenue, current	34,635	42,407
Other
Deferred Revenue Arrangement [Line Items]
Deferred revenue, current	$ 3,569	$ 3,886

XML

Summary of Stock Options Outstanding and Exercisable (Detail) (USD $)	6 Months Ended
	Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding, Number of Shares	8,451,045
$1.86-$3.56
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 1.86
Range of Exercise Prices, Upper Limit	$ 3.56
Options Outstanding, Number of Shares	953,795
Options Outstanding, Weighted Average Remaining Contractual Life	3 years 5 months 23 days
Options Outstanding, Weighted Average Exercise Price	$ 3.32
Options Exercisable, Number of Shares	953,795
Options Exercisable, Weighted Average Exercise Price	$ 3.32
$3.59-$4.65
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 3.59
Range of Exercise Prices, Upper Limit	$ 4.65
Options Outstanding, Number of Shares	878,618
Options Outstanding, Weighted Average Remaining Contractual Life	2 years 5 months 27 days
Options Outstanding, Weighted Average Exercise Price	$ 3.90
Options Exercisable, Number of Shares	834,350
Options Exercisable, Weighted Average Exercise Price	$ 3.88
$4.74-$4.80
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 4.74
Range of Exercise Prices, Upper Limit	$ 4.80
Options Outstanding, Number of Shares	722,454
Options Outstanding, Weighted Average Remaining Contractual Life	5 years 3 months 11 days
Options Outstanding, Weighted Average Exercise Price	$ 4.80
Options Exercisable, Number of Shares	714,633
Options Exercisable, Weighted Average Exercise Price	$ 4.80
$4.84-$5.31
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 4.84
Range of Exercise Prices, Upper Limit	$ 5.31
Options Outstanding, Number of Shares	1,098,931
Options Outstanding, Weighted Average Remaining Contractual Life	3 years 2 months 16 days
Options Outstanding, Weighted Average Exercise Price	$ 5.14
Options Exercisable, Number of Shares	1,071,959
Options Exercisable, Weighted Average Exercise Price	$ 5.14
$5.32-$5.48
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 5.32
Range of Exercise Prices, Upper Limit	$ 5.48
Options Outstanding, Number of Shares	978,261
Options Outstanding, Weighted Average Remaining Contractual Life	6 years 3 months 7 days
Options Outstanding, Weighted Average Exercise Price	$ 5.48
Options Exercisable, Number of Shares	828,746
Options Exercisable, Weighted Average Exercise Price	$ 5.48
$5.49-$6.08
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 5.49
Range of Exercise Prices, Upper Limit	$ 6.08
Options Outstanding, Number of Shares	1,213,823
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 6 months
Options Outstanding, Weighted Average Exercise Price	$ 5.63
Options Exercisable, Number of Shares	382,880
Options Exercisable, Weighted Average Exercise Price	$ 5.58
$6.09-$6.28
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 6.09
Range of Exercise Prices, Upper Limit	$ 6.28
Options Outstanding, Number of Shares	1,178,790
Options Outstanding, Weighted Average Remaining Contractual Life	4 years 4 days
Options Outstanding, Weighted Average Exercise Price	$ 6.11
Options Exercisable, Number of Shares	1,093,251
Options Exercisable, Weighted Average Exercise Price	$ 6.11
$6.29-$7.91
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 6.29
Range of Exercise Prices, Upper Limit	$ 7.91
Options Outstanding, Number of Shares	1,426,373
Options Outstanding, Weighted Average Remaining Contractual Life	7 years 4 months 2 days
Options Outstanding, Weighted Average Exercise Price	$ 6.46
Options Exercisable, Number of Shares	813,441
Options Exercisable, Weighted Average Exercise Price	$ 6.42
$1.86-$7.91
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices, Lower Limit	$ 1.86
Range of Exercise Prices, Upper Limit	$ 7.91
Options Outstanding, Number of Shares	8,451,045
Options Outstanding, Weighted Average Remaining Contractual Life	5 years 3 months 4 days
Options Outstanding, Weighted Average Exercise Price	$ 5.24
Options Exercisable, Number of Shares	6,693,055
Options Exercisable, Weighted Average Exercise Price	$ 5.07

XML

Deferred Revenue - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2014
Period of maintenance and support	12 months

XML

Schedule of Share Based Compensation Shares Issued as Result of Executive Option under Various Plans (Detail)	Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Based Compensation Arrangement By Share Based Payment Award Options Balance Stock Plan Balance Available For Grant	9,744,006
Share Based Compensation Arrangement By Share Based Payment Award Options Balance Stock Plan Balance Outstanding	11,212,487	[1]
Share Based Compensation Arrangement By Share Based Payment Award Options Balance Stock Plan Authorized But Unissued	20,956,493
Available for Grant	2,620,195
Options and Awards Outstanding, Number of Shares	8,451,045
Miscellaneous Stock Grant
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Available for Grant	(52,289)	[2]
Total Authorized But Unissued	(52,289)	[2]
Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Available for Grant	9,796,295
Options and Awards Outstanding, Number of Shares	11,212,487	[1]
Total Authorized But Unissued	21,008,782
Options | Amended and Restated 1998 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Available for Grant	9,081,808
Options and Awards Outstanding, Number of Shares	11,098,121	[1]
Total Authorized But Unissued	20,179,929
Options | 2001 Supplemental Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Available for Grant	714,487
Options and Awards Outstanding, Number of Shares	19,366	[1]
Total Authorized But Unissued	733,853
Options | 1998 Non-Employee Director Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options and Awards Outstanding, Number of Shares	95,000	[1]
Total Authorized But Unissued	95,000

[1] Total outstanding at June 30, 2014 includes 8,451,045 of options and 2,841,812 of RSUs awards, net of 80,370 of forfeited MSUs in fiscal 2013.

[2] Board approved stock grant on February 17, 2011 to the beneficiary of a deceased senior executive in recognition of services performed. Also included are 2,289 shares of stock granted to an employee in April 2013.

XML

Summary of Cash, Cash Equivalents and Short-Term Investments (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2013	Dec. 31, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	$ 29,601		$ 41,750		$ 40,884	$ 37,483
Cash and cash equivalents, Gross Unrealized Gains
Short-term investment, Gross Unrealized Gains	19
Gross Unrealized Gains	19
Cash and Cash equivalent, Gross Unrealized Losses
Short-term investment, Gross Unrealized (Losses)	(7)		(2)
Gross Unrealized Losses	(7)		(2)
Cash
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Gross Unrealized Gains
Cash and Cash equivalent, Gross Unrealized Losses
Term deposits
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Gross Unrealized Gains
Cash and Cash equivalent, Gross Unrealized Losses
Money market funds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Gross Unrealized Gains
Cash and Cash equivalent, Gross Unrealized Losses
Commercial paper
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Gross Unrealized Gains
Cash and Cash equivalent, Gross Unrealized Losses
Short-term investment, Gross Unrealized (Losses)	(1)	[1]
Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Short-term investment, Gross Unrealized Gains	19	[1]
Short-term investment, Gross Unrealized (Losses)	(6)	[1]	(2)	[2]
Federal and municipal obligations
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Gross Unrealized Gains
Cash and Cash equivalent, Gross Unrealized Losses
Estimated Fair Value
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Short-term investment, Cost	29,822		38,150
Total	59,423		79,900
Cash and cash equivalents, Estimated Fair Value	29,601		41,750
Estimated Fair Value | Cash
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Estimated Fair Value	20,950		25,540
Estimated Fair Value | Term deposits
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Estimated Fair Value	800		7,122
Estimated Fair Value | Money market funds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Estimated Fair Value	4,351		6,088
Estimated Fair Value | Commercial paper
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Short-term investment, Cost	4,998	[1]	4,498	[2]
Cash and cash equivalents, Estimated Fair Value	3,500
Estimated Fair Value | Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Short-term investment, Cost	24,824	[1]	32,652	[2]
Estimated Fair Value | Federal and municipal obligations
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Short-term investment, Cost			1,000
Cash and cash equivalents, Estimated Fair Value			3,000
Cost
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	29,601		41,750
Short-term investment, Cost	29,810		38,152
Total	59,411		79,902
Cost | Cash
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	20,950		25,540
Cost | Term deposits
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	800		7,122
Cost | Money market funds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	4,351		6,088
Cost | Commercial paper
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	3,500
Short-term investment, Cost	4,999	[1]	4,498	[2]
Cost | Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Short-term investment, Cost	24,811	[1]	32,654	[2]
Cost | Federal and municipal obligations
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost			3,000
Short-term investment, Cost			$ 1,000

[1] Securities totaling approximately $16 million were in an unrealized loss position at June 30, 2014. None of these securities were in a continuous unrealized loss position for greater than 12 months.

[2] Securities totaling approximately $18.1 million were in an unrealized loss position at December 31, 2013. None of these securities were in a continuous unrealized loss position for greater than 12 months.

XML

Share-Based Compensation Expense and Related Income Tax Benefit (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Schedule Of Employee Service Share Based Compensation Expense Allocation [Line Items]
Stock options	$ 414		$ 1,214		$ 1,005		$ 2,185
Restricted stock units	1,238		498		1,752		834
Performance-based stock units	160	[1]	297	[1]	337	[1]	500	[1]
ESPP	95		336		231		572
Total share-based compensation	1,907		2,345		3,325		4,091
Income tax benefit	$ 603		$ 689		$ 1,061		$ 1,214

[1] Includes Performance Stock Units ("PSUs") and market-performance based units ("MSUs").

XML

Summary of Restricted Stock Unit Activity (Detail)	6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013
Commitments and Contingencies [Line Items]
Ending outstanding balance	2,156,812	[1]
Restricted stock units
Commitments and Contingencies [Line Items]
Beginning outstanding balance	1,003,812		577,374
Awarded	1,257,500		447,500
Released	(55,500)		(21,062)
Forfeited	(49,000)
Ending outstanding balance	2,156,812		1,003,812

[1] Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

XML

Other Purchased Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 39,689	$ 39,689
Accumulated Amortization	(32,638)	(31,101)
Net Carrying Amount	11,479	8,588
Acquisition of legodo ag	4,428
Customer lists
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	22,350	22,350
Accumulated Amortization	(19,239)	(18,539)
Net Carrying Amount	4,880	3,811
Acquisition of legodo ag	1,769
Purchased technologies
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	17,325	17,325
Accumulated Amortization	(13,354)	(12,527)
Net Carrying Amount	6,693	4,798
Acquisition of legodo ag	2,722
Leases
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	47	47
Accumulated Amortization	(39)	(35)
Net Carrying Amount	8	12
Foreign currency impact
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	(33)	(33)
Accumulated Amortization	(6)
Net Carrying Amount	(102)	(33)
Acquisition of legodo ag	$ (63)

XML

Restructuring Accrual Activity (Detail) (USD $)	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Mar. 31, 2014	Jun. 30, 2013	Jun. 30, 2014		Jun. 30, 2013	Dec. 31, 2013
Beginning balance			$ 314,000		$ 314,000
Restructuring charges	201,000		106,000	523,000	307,000		591,000
Cash payments, net of rents collected on sublease					(337,000)
Other					(90,000)	[1]
Ending balance	194,000				194,000
Less: Current portion:	(183,000)				(183,000)			(262,000)
Long-term balance at June 30, 2014	11,000	[2]			11,000	[2]
Severance And Benefits
Restructuring charges	9,000		106,000
Reclassifications					96,000
Cash payments, net of rents collected on sublease					(185,000)
Other					8,000	[1]
Ending balance	34,000				34,000
Less: Current portion:	(34,000)				(34,000)
Long-term balance at June 30, 2014	0	[2]			0	[2]
Facility Related
Beginning balance			314,000		314,000
Restructuring charges	192,000
Reclassifications					(96,000)
Cash payments, net of rents collected on sublease					(152,000)
Other					(98,000)	[1]
Ending balance	160,000				160,000
Less: Current portion:	(149,000)				(149,000)
Long-term balance at June 30, 2014	$ 11,000	[2]			$ 11,000	[2]

[1] Mainly relate to non-cash asset charges related to the closure of the Shanghai facility that were recorded to restructuring expense but not included in the restructuring accruals and therefore adjusted for presentation purposes. Also included are foreign currency translation adjustments.

[2] Included in "Other liabilities-long-term" section of the Condensed Consolidated Balance Sheet.

XML

Performance Based Restricted Stock Units (Detail)	6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013
Commitments and Contingencies [Line Items]
Ending outstanding balance	2,156,812	[1]
Performance Stock Units
Commitments and Contingencies [Line Items]
Beginning outstanding balance	279,630		235,000
Awarded	325,000		125,000
Ending outstanding balance	604,630	[1]	360,000

[1] Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

XML

Schedule of Share Based Compensation Shares Issued as Result of Executive Option under Various Plans (Parenthetical) (Detail)	1 Months Ended			12 Months Ended
	Apr. 30, 2013	Jun. 30, 2014	Jun. 30, 2014 Restricted stock units	Dec. 31, 2013 Market Performance Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock granted to employee	2,289
Options Outstanding, Number of Shares		8,451,045	2,841,812
Options forfeitures, number of Shares				80,370

XML

Fair Value Measurements of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 2014

Fair Value Measurements of Financial Assets and Liabilities

3. Fair Value Measurements of Financial Assets and Liabilities

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and other current liabilities the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

The Company has assets that are valued in accordance with the provisions of the authoritative guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

• Level 1—Valuations based on real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2—Valuations based on readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs.

• Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Assets Measured at Fair Value on a Recurring Basis

The following table represents information about the Company’s investments measured at fair value (in thousands).

	Fair value of investments as of June 30, 2014
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds (1)	$	4,351	$	4,351	$	—	$	—
Term deposits (1)		800		800		—		—
Commercial paper (2)(3)		8,498		—		8,498		—
Corporate bonds (2)		24,824		—		24,824		—
	$	38,473	$	5,151	$	33,322	$	—
	Fair value of investments as of December 31, 2013
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds (1)	$	6,088	$	6,088	$	—	$	—
Term deposits (1)		7,122		7,122		—		—
Commercial paper (2)		4,498		—		4,498		—
Corporate bonds (2)		32,652		—		32,652		—
Federal and municipal obligations (4)		4,000		—		4,000		—
	$	54,360	$	13,210	$	41,150	$	—

(1) Included in cash and cash equivalents in the Company’s Condensed Consolidated Balance Sheet.

(2) Included in short-term investments in the Company’s Condensed Consolidated Balance Sheet.

(3) Of this amount, approximately $3.5 million was included in cash equivalents at June 30, 2014 and the remainder was included in the short-term investment in the Company’s Condensed Consolidated Balance Sheet.

(4) Of this amount, approximately $3 million was included in cash equivalents at December 31, 2013 and the remainder was included in short-term investments in the Company’s Condensed Consolidated Balance Sheet.

Certain items in the table above are classified as Level 2 items because quoted prices in an active market are not readily accessible for those specific financial assets, and the Company may have relied on alternative pricing methods that do not rely exclusively on quoted prices to determine the fair value of the investments.

The Company’s cash, cash equivalents, and short-term investments are as follows (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Balance at June 30, 2014
Classified as cash and cash equivalents:
Cash	$	20,950	$	—	$	—		$	20,950
Term deposits		800		—		—			800
Money market funds		4,351		—		—			4,351
Commercial paper		3,500		—		—			3,500
		29,601		—		—			29,601
Classified as short-term investments:
Commercial paper (5)		4,999		—		(1	)		4,998
Corporate bonds (5)		24,811		19		(6	)		24,824
		29,810		19		(7	)		29,822
Total	$	59,411	$	19	$	(7	)	$	59,423

(5) Securities totaling approximately $16 million were in an unrealized loss position at June 30, 2014. None of these securities were in a continuous unrealized loss position for greater than 12 months.

	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Balance at December 31, 2013
Classified as cash and cash equivalents:
Cash	$	25,540	$	—	$	—		$	25,540
Term deposits		7,122		—		—			7,122
Money market funds		6,088		—		—			6,088
Federal and municipal obligations		3,000		—		—			3,000
		41,750		—		—			41,750
Classified as short-term investments:
Commercial paper (6)		4,498		—		—			4,498
Corporate bonds (6)		32,654		—		(2	)		32,652
Federal and municipal obligations		1,000		—		—			1,000
		38,152		—		(2	)		38,150
Total	$	79,902	$	—	$	(2	)	$	79,900

(6) Securities totaling approximately $18.1 million were in an unrealized loss position at December 31, 2013. None of these securities were in a continuous unrealized loss position for greater than 12 months.

Our cash equivalent and short-term investment portfolio as of June 30, 2014, consists of investment grade U.S. Government Agency securities, taxable money market mutual funds and taxable commercial paper and corporate notes. We follow an established investment policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer. As of June 30, 2014, we had no direct investments in structured investment vehicles, sub-prime mortgage-backed securities or collateralized debt obligations and no exposure to these financial instruments through our indirect holdings in money market mutual funds. During fiscal years 2014 and 2013 we had no impairment charge associated with our short-term investment portfolio. While we cannot predict future market conditions or market liquidity, we regularly review our investments and associated risk profiles, which we believe will allow us to effectively manage the risks of our investment portfolio.

Short-term investments are classified as available-for-sale and are recorded on the Company’s Consolidated Balance Sheet at fair market value with unrealized gains or losses reported as a separate component of Accumulated Other Comprehensive (loss) Income. At June 30, 2014, the Company has classified all of its securities with original maturities beyond 90 days as short-term investments, even though the stated maturity dates may be one year or more beyond the current balance sheet date as these investments remain highly liquid and available for use in current operations.

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Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
2014 (remainder of year)	$ 1,584
2015	3,161
2016	3,158
2017	1,104
2018	917
2019 and thereafter	1,555
Net Carrying Amount	$ 11,479	$ 8,588

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Acquisitions - Additional Information (Detail) (USD $)	6 Months Ended	1 Months Ended			3 Months Ended
	Jun. 30, 2014	Jan. 31, 2014 legodo ag	Jun. 30, 2014 legodo ag	Mar. 31, 2014 legodo ag	Jun. 30, 2014 legodo ag General and Administrative Expense [Member]
Business Acquisition [Line Items]
Percentage of shares acquired		100.00%
Acquisitions, net of acquired cash	$ 3,945,000	$ 3,900,000
Business acquisition, cash acquired		1,500,000
Business acquisition, Potential additional cash payments		1,600,000
Fair value of contingent consideration		1,100,000	1,300,000
Increase in contingent consideration due to subsequent re-measurement in fair value					144,000
Business acquisition, transaction costs				145,000
Business acquisition, cash		1,500,000
Business acquisition, trade receivables		1,100,000
Business acquisition, notes payable		$ 4,300,000

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Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted-average excluded shares	8,556	[1]	2,013	[2]	8,597	[1]	3,242	[2]
Weighted-average exercise price	$ 5.25	[1]	$ 5.98	[2]	$ 5.24	[1]	$ 6.13	[2]
Restricted Stock Units and Performance Stock Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted-average excluded shares	1,617	[1]	118	[2]	1,158	[1]	103	[2]

[1] Common equivalent shares are excluded from the calculation of net loss per share for the three and six months ended June 30, 2014.

[2] Anti-dilutive common equivalent shares are excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2013.

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Commitments and Contingencies - Additional Information (Detail) (USD $)	0 Months Ended		3 Months Ended		6 Months Ended						6 Months Ended	12 Months Ended			6 Months Ended			3 Months Ended		6 Months Ended		1 Months Ended	3 Months Ended		6 Months Ended
	Jun. 17, 2014 Right	Nov. 28, 2011	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 CreditFacility Agreement	Jun. 30, 2013	Jun. 17, 2014	Dec. 31, 2013	Dec. 31, 2012	Nov. 28, 2011 sqft	Jun. 30, 2014 Non-employee director option plan	Dec. 31, 2013 Continuing non-employee director option plan	Jun. 30, 2014 Interest free loan	Jun. 30, 2014 Variable Rate Term Loan	Jun. 30, 2014 Maximum	Jun. 30, 2014 Minimum	Jun. 30, 2014 New Revolving Credit Facility Agreement	Jun. 30, 2014 Restricted stock units	Jun. 30, 2013 Restricted stock units	Jun. 30, 2014 Restricted stock units	Jun. 30, 2014 Restricted stock units Non-employee director option plan	May 31, 2012 Performance Stock Units	Jun. 30, 2014 Performance Stock Units	Jun. 30, 2013 Performance Stock Units	Jun. 30, 2014 Amended and Restated 1998 Equity Incentive Plan	Jun. 30, 2014 Amended and Restated 1998 Equity Incentive Plan Non-employee director option plan	Jun. 30, 2014 Amended and Restated 1998 Equity Incentive Plan Continuing non-employee director option plan
Commitments and Contingencies [Line Items]
Secured revolving line of credit, principal amount																	$ 50,000,000
Write-off of unamortized costs related to old credit facility				188,000		188,000
Balance available under revolving credit facility			50,000,000		50,000,000
Balance owed under credit facility			0		0
Consolidated cash flow leverage ratio					250.00%
Consolidated cash flow leverage ratio					1.00
Fixed charged coverage ratio															1.75	1.00
Number of loan agreements					2
Frequency of loan repayment					Quarterly
Loan repayment period, start					2014-06
Loan repayment period, end					2016-12
Notes payable			268,000		268,000			889,000					500,000	400,000
Notes payable, variable interest rate														5.00%
Additional office space										58,000
Sublease agreement term (in years)					10 years
Lease rent holiday period		4 months
Landlord incentives										2,600,000
Deferred rent			3,300,000		3,300,000
Deferred tax liability classified as short term debt			260,000		260,000
Deferred tax liability classified as long term debt			3,100,000		3,100,000
Lease expiration date					May 31, 2022
Letters of Credit					2
Letter of credit amount			225,300		225,300				88,000
Lease rent			1,100,000	1,100,000	2,200,000	2,200,000
Facility related charges			157,000	144,000	360,000	313,000
Percentage of options vesting											25.00%														25.00%	25.00%
Option to purchase												16,000									12,500
Number of shares underlying options issued											25,000
Award vesting period											4 years									4 years		2 years				3 years	13 months
Minimum percentage of total combined voting power of outstanding securities required for RSU to vest in full					50.00%
Options, vesting terms					10 years
Share based compensation arrangement by share based payment award options balance stock plan authorized but unissued			20,956,493		20,956,493
Weighted average grant date fair value			$ 2.12
Total intrinsic value of options exercised			151,000
Number of shares reserved for future grants			9,744,006		9,744,006
Number of shares reserved for grants			2,620,195		2,620,195
Weighted average grant date fair value of equity instruments other than option																		$ 5.51	$ 6.55				$ 5.74	$ 5.60
Stock purchase right declared as dividend, per share	1
Number of preferred stock that can be purchased per Right							0.001
Stock purchase right, preferred stock purchase price per share							$ 25
Dividend	$ 0

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Purchase Price Allocation Related to Acquired Assets and Useful Life (Detail) (USD $) In Thousands, unless otherwise specified				1 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jan. 31, 2014 Quiterian S.L.	Jan. 31, 2014 Existing technology Quiterian S.L.	Jan. 31, 2014 Customer contracts and relationships Quiterian S.L.
Business Acquisition [Line Items]
Net tangible assets and liabilities			$ (2,555)
Purchase price allocated to intangible assets				2,722	1,769
Goodwill	56,392	51,962	4,582
Total purchase price allocation			$ 6,518
Weighted Average Useful life				7 years	7 years

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Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	$ 38,473		$ 54,360
Money market funds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	4,351	[1]	6,088	[1]
Term deposits
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	800	[1]	7,122	[1]
Commercial paper
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	8,498	[2],[3]	4,498	[2]
Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	24,824	[2]	32,652	[2]
Federal and municipal obligations
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value			4,000	[4]
Quoted Prices In Active Markets for Identical Assets (Level 1)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	5,151		13,210
Quoted Prices In Active Markets for Identical Assets (Level 1) | Money market funds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	4,351	[1]	6,088	[1]
Quoted Prices In Active Markets for Identical Assets (Level 1) | Term deposits
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	800	[1]	7,122	[1]
Significant Other Observable Inputs (Level 2)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	33,322		41,150
Significant Other Observable Inputs (Level 2) | Commercial paper
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	8,498	[2],[3]	4,498	[2]
Significant Other Observable Inputs (Level 2) | Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value	24,824	[2]	32,652	[2]
Significant Other Observable Inputs (Level 2) | Federal and municipal obligations
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Total, Estimated Fair Value			$ 4,000	[4]

[1] Included in cash and cash equivalents in the Company's Condensed Consolidated Balance Sheet.

[2] Included in short-term investments in the Company's Condensed Consolidated Balance Sheet

[3] Of this amount, approximately $3.5 million was included in cash equivalents at June 30, 2014 and the remainder was included in the short-term investment in the Company's Condensed Consolidated Balance Sheet.

[4] Of this amount, approximately $3 million was included in cash equivalents at December 31, 2013 and the remainder was included in short-term investments in the Company's Condensed Consolidated Balance Sheet.

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Acquisitions

6 Months Ended

Jun. 30, 2014

Acquisitions

2. Acquisitions

legodo ag

On January 31, 2014, The Company acquired legodo ag, a privately held software company based in Karlsruhe, Germany, whose mission is to develop software for easy and rapid generation of personalized customer correspondence via any modern communication channel, including social media. Actuate acquired 100% of the outstanding shares held by legodo shareholders. At the time of the acquisition the Company paid $3.9 million in cash to legodo shareholders. This amount was net of $1.5 million in cash acquired. There is also $1.6 million in potential additional cash payments which may be required through December 2014. These additional payments are wholly dependent on the achievement of specific revenue contingencies. The initial estimated fair value of these performance-based payments of approximately $1.1 million was determined based on management’s estimate of fair value using a probability-weighted discounted cash flow model, which uses Level 3 inputs for fair value measurements. The fair value of the contingent consideration is remeasured on each reporting date, and changes to the fair value are recorded to acquisition related expenses on the consolidated statement of operations.

During the second quarter of 2014, we adjusted the estimated fair value of these performance-based payments due to a higher probability of meeting our annual revenue targets for legodo. As a result, we increased the fair value of these payments by $144,000 and increased the liability from $1.1 million to approximately $1.3 million at June 30, 2014. This second quarter 2014 adjustment of $144,000 was recorded to acquisition related expenses under general and administrative section of our Condensed Consolidated Statement of Operations.

Under the purchase accounting method, the total purchase price was allocated to legodo’s net tangible and intangible assets based upon their estimated fair values as of January 31, 2014. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill.

Direct transaction costs related to the legodo acquisition totaling approximately $145,000 were incurred during the first quarter of 2014. These costs include legal and accounting fees, and other external costs directly related to the acquisition. These acquisition related costs were directly charged to general and administrative expense on the Condensed Consolidated Statements of Operations as incurred.

The table below represents the allocation of the purchase price to the acquired net assets of legodo based on their estimated fair values as of January 31, 2014 and the associated estimated useful life at that date.

	Amount (in thousands)			Useful life (in years)
Net tangible assets and liabilities	$	(2,555	)		N/A
Existing technology		2,722			7
Customer contracts and relationships		1,769			7
Goodwill		4,582			N/A
Total purchase consideration	$	6,518

As with acquisitions that the Company has undertaken in the past, the Company has initiated structural changes in its corporate structure in order to incorporate legodo. These changes in Company’s organizational structure are ongoing and could affect future estimates and assumptions.

Net tangible assets and liabilities:

legodo’s tangible assets and liabilities as of January 31, 2014 were adjusted to their estimated fair value as necessary. Among the net tangible assets assumed were approximately $1.5 million in cash and cash equivalents, $1.1 million in trade receivables, and $4.3 million in notes payable. The notes payable was paid in full by Actuate immediately following acquisition.

Identifiable intangible assets:

Existing technology—consists of legodo’s scalable communication solutions which maximize the capabilities of connecting to customers while being able to customize messages and platforms. legodo’s software suite helps its users to have more control over various customer communication channels, such as emails, letters, texting, Multimedia Messaging Service (MMS), and others. Its solution is also used in providing document generation and creation, quotations and contracts management, and digital processing solutions. The existing technology represents an intangible asset separate from goodwill. The existing technology was valued using a form of the income approach known as the excess earnings method. In the excess earnings method, value is estimated as the present value of the benefits anticipated from ownership of the subject intangible asset in excess of the returns required on the investment in the contributory assets necessary to realize those benefits. It is based on the theory that all operating assets contribute to the profitability of an enterprise. Therefore, if the estimated earnings associated with a specific asset of a company rely on the use of other company assets, then the estimated earnings of the subject asset must be reduced by appropriate charges for the use of these contributory assets.

Customer contracts and relationships— legodo provides customer contact software to customers, primarily to German corporations. Typically, the Company works directly with customers through licensing its products and continued maintenance and consulting. These relationships represent an intangible asset separate from goodwill. Similar to the existing technology, the fair value of the customer contracts and relationships was established using the excess earnings method. Discussions with legodo management and review of the business operations indicated that the typical market participant interested in acquiring legodo would view the Company’s current customer relationships as an asset of central importance. An income approach was selected as the best method to capture the subject customers’ expected contribution to future earnings.

We expect to amortize the fair value of these intangible assets on a straight-line basis over their respective estimated useful life.

Goodwill:

Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant. No amount of goodwill is expected to be deductible for tax purposes.

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Assets Measured at Fair Value on Recurring Basis (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Cash and cash equivalents, Cost	$ 3.5	$ 3.0

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Goodwill and Other Purchased Intangible Assets - Additional Information (Detail) (USD $)	3 Months Ended			6 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Goodwill, impairment loss				$ 0
Amortization of intangible assets	364,000		301,000	707,000	564,000
Additions to purchased intangible assets		4,500,000
Purchased technology and other intangibles
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	795,000		634,000
Purchased technologies
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 431,000		$ 333,000
Estimated useful economic life				7 years
Customer lists
Finite-Lived Intangible Assets [Line Items]
Estimated useful economic life				7 years
Leases
Finite-Lived Intangible Assets [Line Items]
Estimated useful economic life				5 years

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Summary of Performance Based Restricted Stock Units (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2014		Dec. 31, 2013	Jun. 30, 2013	Dec. 31, 2012
Performance-based units outstanding, Number of Units	2,156,812	[1]
Performance-based units vested and deferred, Number of Units	542,375	[2]
Performance-based units outstanding, Weighted Average Remaining Contractual Life (Years)	1 year 10 months 6 days	[1]
Performance-based units outstanding, Aggregate Intrinsic Value	$ 10,288	[1]
Performance-based units vested and expected to vest, Aggregate Intrinsic Value	7,283	[3]
Performance-based units vested and deferred, Aggregate Intrinsic Value	2,587	[2]
Performance Stock Units
Performance-based units outstanding, Number of Units	604,630	[1]	279,630	360,000	235,000
Performance-based units vested and expected to vest, Number of Units	577,019	[3]
Performance-based units vested and deferred, Number of Units	37,130	[2]
Performance-based units outstanding, Weighted Average Remaining Contractual Life (Years)	1 year 7 months 24 days	[1]
Performance-based units vested and expected to vest, Weighted Average Remaining Contractual Life (Years)	1 year 7 months 13 days	[3]
Performance-based units outstanding, Aggregate Intrinsic Value	2,884	[1]
Performance-based units vested and expected to vest, Aggregate Intrinsic Value	2,575	[3]
Performance-based units vested and deferred, Aggregate Intrinsic Value	$ 177	[2]

[1] Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

[2] Vested awards with deferral elections to be released to the employee upon separation from service.

[3] Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 29,601	$ 41,750
Short-term investments	29,822	38,150
Accounts receivable, net of allowances of $165 and $418 at June 30, 2014 and December 31, 2013, respectively	16,217	27,418
Other current assets	9,617	8,251
Total current assets	85,257	115,569
Property and equipment, net	5,241	6,119
Goodwill	56,392	51,962
Purchased intangibles, net	11,479	8,588
Non-current deferred tax assets, net	12,834	13,019
Other assets	928	824
Assets, Total	172,131	196,081
Current liabilities:
Notes payable	157
Accounts payable	1,051	1,586
Current portion of restructuring liabilities	183	262
Accrued compensation	5,457	5,795
Other accrued liabilities	6,027	5,420
Deferred revenue	38,204	46,293
Total current liabilities	51,079	59,356
Long-term liabilities:
Notes payable	268	889
Other liabilities	3,096	3,177
Long-term deferred revenue	1,050	1,640
Long-term income taxes payable	2,381	2,177
Total long-term liabilities	6,795	7,883
Stockholders' equity:
Preferred stock, $0.001 par value, issuable in series; 5,000,000 shares authorized; none issued or outstanding	0	0
Common stock, $0.001 par value, 100,000,000 shares authorized; issued 91,102,175 and 92,286,427 shares, respectively; outstanding 46,086,570 and 47,710,244 shares, respectively	46	48
Additional paid-in capital	261,011	260,060
Treasury stock, at cost; 45,015,605 and 44,576,183 shares, respectively	(207,574)	(198,531)
Accumulated other comprehensive income	1,695	2,204
Retained earnings	59,079	65,061
Total stockholders' equity	114,257	128,842
Liabilities and Equity, Total	$ 172,131	$ 196,081

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Cost Related to Credit Facility (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Amortization of debt issuance costs	$ 5	$ 20	$ 10	$ 40
Unused line fees		37		75
Interest Costs Incurred, Total	$ 5	$ 57	$ 10	$ 115

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Operating activities
Net (loss) income	$ (5,702)	$ 4,332
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Share-based compensation expense	3,325	4,091
Excess tax benefit from exercise of stock options	(82)	(814)
Amortization of other purchased intangibles	1,537	1,274
Amortization of debt issuance cost	10	40
Bad debt expense	(103)	(114)
Write-off of unamortized debt issuance costs		188
Depreciation	962	1,085
Change in valuation allowance on deferred tax assets	230	(89)
Impairments and write-offs	66	155
Gain on liquidation of subsidiary		(416)
Accretion/amortization on short-term debt securities	(12)	(225)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable, net of allowance	12,424	6,584
Other current assets	(743)	(415)
Accounts payable	(606)	(637)
Accrued compensation	(615)	565
Other accrued liabilities	(861)	(80)
Deferred tax assets, net of liabilities	(359)	(53)
Income taxes receivable/payable	(266)	1,009
Other deferred liabilities	(40)	(30)
Restructuring liabilities	(120)	(173)
Deferred revenue	(9,062)	(2,152)
Net cash (used in) provided by operating activities	(17)	14,125
Investing activities
Purchases of property and equipment	(91)	(356)
Proceeds from sale and maturity of investments	21,169	20,432
Purchases of short-term investments	(12,816)	(24,427)
Acquisitions, net of cash acquired	(3,945)
Security deposits and other	(63)	36
Net cash provided by (used in) investing activities	4,254	(4,315)
Financing activities
Pay-down of other loan obligations	(4,771)
Credit facility related payments		(12)
Excess tax benefit from exercise of stock options	82	814
Proceeds from issuance of common stock	1,609	3,809
Stock repurchases	(12,896)	(10,000)
Tax related to net share settlements of restricted stock awards and units	(94)	(50)
Net cash used in financing activities	(16,070)	(5,439)
Effect of exchange rates on cash and cash equivalents	(316)	(970)
Net (decrease) increase in cash and cash equivalents	(12,149)	3,401
Cash and cash equivalents at the beginning of the period	41,750	37,483
Cash and cash equivalents at the end of the period	29,601	40,884
Supplemental cash flow disclosures:
Cash paid for interest	23	102
Cash paid for income taxes	$ 76	$ 559

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Fair Value Measurements of Financial Assets and Liabilities - Additional Information (Detail) (USD $)	6 Months Ended			12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Short-term Investments	Dec. 31, 2013 Short-term Investments
Impairment charge	$ 66,000	$ 155,000	$ 0	$ 0
Maturity period of short term investments	Beyond 90 days
Stated maturity period of short term investments	One year or more

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2014

Costs Related to Credit Facility

As of June 30, 2014, there was no balance owed on the credit facility and the balance available under the revolving credit facility was $50 million.

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
(In thousands):
Amortization of debt issuance costs	$	5	$	20	$	10	$	40
Unused line fees		—		37		—		75
	$	5	$	57	$	10	$	115

Summary of Authorized but Unissued shares

Total authorized but unissued shares were 20,956,493 as of June 30, 2014.

Plan Summary	Available for Grant			Options and Awards Outstanding(2)		Total Authorized But Unissued
Amended and Restated 1998 Equity Incentive Plan		9,081,808			11,098,121		20,179,929
2001 Supplemental Stock Plan		714,487			19,366		733,853
1998 Non-Employee Director Option Plan		—			95,000		95,000
Total Stock Plans		9,796,295			11,212,487		21,008,782
Miscellaneous Stock Grant (1)		(52,289	)		—		(52,289	)
Total Stock Plans Balance at June 30, 2014		9,744,006			11,212,487		20,956,493

(1) Board approved stock grant on February 17, 2011 to the beneficiary of a deceased senior executive in recognition of services performed. Also included are 2,289 shares of stock granted to an employee in April 2013.

(2) Total outstanding at June 30, 2014 includes 8,451,045 of options and 2,841,812 of RSUs awards, net of 80,370 of forfeited MSUs in fiscal 2013.

Summary of Stock Options Outstanding and Exercisable

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2014:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
$1.86-$3.56		953,795		3.48 years	$	3.32		953,795	$	3.32
$3.59-$4.65		878,618		2.49 years	$	3.90		834,350	$	3.88
$4.74-$4.80		722,454		5.28 years	$	4.80		714,633	$	4.80
$4.84-$5.31		1,098,931		3.21 years	$	5.14		1,071,959	$	5.14
$5.32-$5.48		978,261		6.27 years	$	5.48		828,746	$	5.48
$5.49-$6.08		1,213,823		8.50 years	$	5.63		382,880	$	5.58
$6.09-$6.28		1,178,790		4.01 years	$	6.11		1,093,251	$	6.11
$6.29-$7.91		1,426,373		7.34 years	$	6.46		813,441	$	6.42
$1.86-$7.91		8,451,045		5.26 years	$	5.24		6,693,055	$	5.07

Summary of Stock Options Outstanding (Vested and Expected to Vest) and Exercisable

	June 30, 2014		June 30, 2013
Options Outstanding – Vested and Expected to Vest
Vested and expected to vest, net of expected forfeitures		8,389,070		10,806,773
Aggregate intrinsic value (in thousands)	$	2,146	$	16,625
Weighted average exercise price per share	$	5.24	$	5.11
Weighted average remaining contractual term (in years)		5.24		5.92
Options Exercisable
Options currently exercisable		6,693,055		7,665,751
Aggregate intrinsic value of currently exercisable options (in thousands)	$	2,124	$	13,977
Weighted average exercise price per share	$	5.07	$	4.83
Weighted average remaining contractual term (in years)		4.46		4.79

Summary of Restricted Stock Units

Restricted stock unit activity for the six months ended June 30, 2014 and 2013:

	June 30, 2014			June 30, 2013
Beginning outstanding balance		1,003,812			577,374
Awarded		1,257,500			447,500
Released		(55,500	)		(21,062	)
Forfeited		(49,000	)		—
Ending outstanding balance		2,156,812			1,003,812

Weighted Average Grant Date Fair Value of Restricted Stock Units Granted

The weighted average grant date fair value of restricted stock units granted during the quarter ended June 30, 2014 and 2013 were $5.51 and $6.55 per unit, respectively.

	Number of Units		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (thousands)
Restricted stock units outstanding (1)		2,156,812		1.85	$	10,288
Restricted stock units vested and expected to vest (2)		2,069,147		1.81	$	7,283
Restricted stock units vested and deferred (3)		542,375		—	$	2,587

(1) Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

(2) Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

(3) Vested awards with deferral elections to be released to the employee upon separation from service.

Summary of Performance Based Restricted Stock Units

Summary of Performance-Based Restricted Stock Units

	June 30, 2014		June 30, 2013
Beginning outstanding balance		279,630		235,000
Awarded		325,000		125,000
Ending outstanding balance		604,630		360,000

Summary of Performance Based Restricted Stock Units

The weighted average grant date fair value of performance-based RSUs granted during the quarter ended June 30, 2014 and 2013 were $5.74 and $5.60 per unit, respectively.

	Number of Units		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (thousands)
Performance-based units outstanding (1)		604,630		1.65	$	2,884
Performance-based units vested and expected to vest (2)		577,019		1.62	$	2,575
Performance-based units vested and deferred (3)		37,130		—	$	177

(1) Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

(2) Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

(3) Vested awards with deferral elections to be released to the employee upon separation from service.

XML

Restructuring Charges - Additional Information (Detail) (USD $)	3 Months Ended			6 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 201,000	$ 106,000	$ 523,000	$ 307,000	$ 591,000
China Subsidiary
Restructuring Cost and Reserve [Line Items]
Restructuring charges				307,000
Number of positions eliminated				50
Operating expenses				1,200,000
Shanghai facility
Restructuring Cost and Reserve [Line Items]
Restructuring charges	112,000
Toronto, Canada, Idle Facility
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 89,000

XML

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	6 Months Ended		3 Months Ended			1 Months Ended	6 Months Ended		1 Months Ended	6 Months Ended		1 Months Ended		3 Months Ended
	Jun. 30, 2014 Person	Jun. 30, 2014 Non-employee director option plan	Jun. 30, 2014 Revisions of Prior Period Reported Amounts	Jun. 30, 2014 Revisions of Prior Period Reported Amounts Treasury Stock	Jun. 30, 2014 Revisions of Prior Period Reported Amounts Additional Paid-in Capital	Apr. 30, 2013 Market-performance based restricted stock units (MSUs)	Jun. 30, 2014 Restricted stock units	Jun. 30, 2013 Restricted stock units	May 31, 2012 Performance Stock Units	Jun. 30, 2014 Performance Stock Units	Jun. 30, 2013 Performance Stock Units	Apr. 30, 2014 Performance Stock Unit One	Apr. 30, 2014 Performance Stock Unit Two	Jun. 30, 2014 Restricted Stock Units And Market Performance Based Restricted Stock Units Non-employee director option plan
Summary Of Significant Accounting Policies [Line Items]
Minimum number of customers, partners and employees using BIRT	200,000,000
Minimum number of developers uses BIRT	3,500,000
Revisions of prior period reported amounts				$ 3,750,000	$ (3,470,000)
Revisions of prior period reported amounts, effect on retained earning			(280,000)
Award vesting period		4 years					4 years		2 years			3 years	2 years
Percentage of stock units granted						200.00%			200.00%			100.00%	150.00%
Percentage of earned award vested									50.00%
Remaining percentage of earned award to be vested									50.00%
Expected dividend yield in the option valuation model	$ 0
Share reserve ratio							1
RSUs and MSUs issued and granted							1,257,500	447,500		325,000	125,000			3,028,750
Tax benefit realized upon settlement	Greater than a 50%
Period of significant increase decrease in unrecognized tax benefits	12 months

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

The Company

Actuate Software Corporation was incorporated in November 1993 in the State of California and reincorporated in the State of Delaware in July 1998 as Actuate Corporation (“We”, “Actuate” or the “Company”). Actuate enabled solutions help its enterprise customers maximize revenue, cut costs, create more effective customer communications, streamline operations and create competitive advantage. Applications built using Actuate’s products have delivered personalized analytics and insights to more than 200 million people. More than 3.5 million developers have downloaded open source BIRT, the open source Eclipse interactive development environment (IDE)-based project founded and co-led by Actuate. Many of these BIRT developers use commercial, value-added products from Actuate to enhance and deploy BIRT-based applications to deliver personalized analytics and insights to customers, partners and employees.

Enterprises use Actuate products to create customer-facing, Big Data analytics and customer communications management (CCM) applications with intuitive and visually-engaging experiences. These applications provide unique insights from multiple data sources, delivered securely across high volume of users and devices with proven scalability to millions of users. Developers use BIRT and BIRT iHub™, (Actuate’s commercial deployment platform for BIRT-based applications), to develop and deploy high scale applications that deliver information personalized for each user to enrich the brand experience and gain competitive advantage. BIRT iHub further ensures organizations can gain effective insights from Big Data and take advantage of mobile touch devices. Actuate’s BIRT Analytics™ delivers self-service predictive analytics to enhance customer engagement from Big Data. BIRT Content Services™ empowers ECM architects to easily transform, personalize and archive high volume content and customer correspondences. Actuate’s goal is to ensure that its customers can seamlessly incorporate information and business analysis into their day-to-day activities and decision-making, enabling organizations to explore new avenues for improving the bottom line. Actuate’s principal executive offices are located at the BayCenter Campus at 951 Mariners Island Boulevard, in San Mateo, California. Actuate’s telephone number is 650-645-3000. Actuate maintains Web sites at www.actuate.com, developer.actuate.com, www.birtondemand.com, www.quiterian.com and www.legodo.com. The information posted on our Web sites is not incorporated into this Form 10-Q.

Basis of Presentation

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in Actuate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 7, 2014.

To prepare financial statements in conformity with GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and may result in material effects on the Company’s operating results and financial position.

The condensed consolidated financial statements include the accounts of Actuate and its wholly-owned subsidiaries. Actuate has offices throughout North America, Europe and Asia including offices in the United States, Canada, Switzerland, United Kingdom, Germany, Spain, Singapore, Japan and Australia. All intercompany balances and transactions have been eliminated.

Revisions of Prior Period Reported Amounts

During the second quarter of 2014, we identified and recorded adjustments associated with certain equity accounts reported in prior periods. The adjustments related entirely to the classification of accounts within shareholders’ equity. Specifically, it affected the classification amongst additional paid-in-capital (“APIC”), retained earnings and Treasury stock accounts for Employee Stock Purchase Plan (ESPP) shares that were previously reissued from Treasury. The reissuance resulted in a cumulative increase of approximately $3.75 million to Treasury stock account for the weighted average cost of the treasury shares reissued, a decrease of approximately $3.47 million to APIC for the reissuance price over cost (net gain) of the ESPP shares and an decrease of approximately $280,000 to retained earnings for the cost over price (net loss) from reissuance of the ESPP shares. Since these accounts are separate components within Stockholders equity, the net overall impact on the Consolidated Balance Sheet was zero for the period presented.

Pursuant to the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatement in the Current Year Financial Statements, we concluded that the adjustments were not material to any of our annual or interim periods or the current period.

Revenue Recognition

Actuate generates revenues from the sales of software licenses and related services. The Company receives software license revenues from licensing its products directly to end-users and indirectly through resellers, system integrators and original equipment manufacturers (OEMs). The Company receives service revenues from maintenance contracts, consulting services and training that Actuate performs for customers.

For sales to end-user customers, Actuate recognizes license revenues when a license agreement has been signed by both parties or a definitive agreement has been received from the customer, the product has been physically shipped or electronically made available, there are no unusual uncertainties surrounding the product acceptance, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence (VSOE) of fair value exists to allocate the fee to the undelivered elements of the arrangement. Vendor-specific objective evidence of fair value of sales to end users is based on the price charged when an element is sold separately.

Actuate has not established vendor-specific objective evidence of fair value for its licenses. Therefore, the Company recognizes revenues from software arrangements with multiple elements involving software licenses under the residual method, which means the fair value of the undelivered elements is deferred while the remaining value of the arrangement is allocated to the delivered elements. If we are unable to determine the fair value of the undelivered elements, it is not possible to allocate revenues separately to the undelivered elements in the arrangement and consequently, the entire amount of the arrangement fee is recognized ratably over the performance period of that undelivered element, assuming all other revenue recognition criteria are satisfied. If the license agreement contains payment terms that would indicate that the fee is not fixed or determinable, revenues are recognized as the payments become due and payable, assuming that all other revenue recognition criteria are met.

Actuate enters into reseller and distributor arrangements that typically give such distributors and resellers the right to distribute its products to end-users headquartered in specified territories. Actuate recognizes license revenues from arrangements with U.S. resellers and distributors when there is persuasive evidence of an arrangement with the reseller or distributor, the product has been shipped, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement. Actuate recognizes license revenues from arrangements with international resellers and distributors upon receipt of evidence of sell-through and when all other revenue recognition criteria have been met. If it is not practical to obtain evidence of sell-through, the Company defers revenues until the end-user has been identified and cash has been received. In some instances there is a timing difference between when a reseller completes its sale to the end-user and the period in which Actuate receives the documentation required for revenue recognition. Because Actuate delays revenue recognition until the reporting period in which the required documentation is obtained, it may recognize revenue in a period subsequent to the period in which the reseller completes the sale to its end-user.

Actuate also enters into OEM arrangements that provide for license fees based on the bundling or embedding of its products with the OEM’s products. These arrangements generally provide for fixed, irrevocable royalty payments. Actuate recognizes license fee revenues from U.S. and international OEM arrangements when a license agreement has been executed by both parties, the product has been shipped, there are no unusual uncertainties surrounding the product acceptance, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement.

In addition to licenses sold on perpetual basis, Actuate also sells its products on a time-based arrangement. The time-based licenses are sold either as on-premise time-based offerings or as hosted Software-as-a-Service (SaaS). The time-based transactions are typically broken down into separate license and maintenance components. The license component is recognized ratably over the term of the underlying arrangement as license revenue while the maintenance component is recognized ratably over the term of the underlying arrangement in services revenue in the Company’s Condensed Consolidated Statement of Operations. Our SaaS offerings consist of BIRT Performance Analytics onDemand and BIRT onDemand. Actuate recognizes revenue on these licenses ratably over the term of the underlying arrangement. Revenues from Actuate’s SaaS offerings are reported as services revenue in the Company’s Condensed Consolidated Statement of Operations.

The Company establishes vendor specific objective evidence of fair value for maintenance and support using a “bell-shaped curve” approach for certain types of license transactions, and uses a “stated maintenance renewal” approach for other categories of license transactions. When applying the “bell-shaped curve” approach the Company analyzes all maintenance renewal transactions over the past twelve months for that category of license and plots those data points on a bell-shaped curve to ensure that a high percentage of the data points are within an acceptable margin of the established VSOE rate. This analysis is performed quarterly.

When applying the “stated renewal rate” approach, the Company ensures that the individual license transaction includes a clear and substantive renewal rate explicitly stated in the documentation for the transaction. Furthermore, the Company ensures that it has a practice of consistently renewing those transactions at the contractual rate. This is done by reviewing maintenance renewals on these contracts and making sure that a very high percentage are renewed at the renewal rates stipulated in the contract.

The Company assesses the collectability of fees from end-users based on payment history and current credit profile. When a customer is not deemed credit-worthy, revenues are deferred and recognized upon cash receipt.

Actuate recognizes maintenance revenues, which consist of fees for ongoing support and unspecified product updates, ratably over the term of the contract, typically one year. Consulting revenues are primarily related to standard implementation and configuration. Training revenues are generated from classes offered at the Company’s offices and customer locations. Revenues from consulting and training services are typically recognized as the services are performed. When a contract includes both license and service elements, the license fee is typically recognized on delivery of the software, assuming all other revenue recognition criteria are met, provided services do not include significant customization or modification of the product and are not otherwise essential to the functionality of the software.

Share-Based Compensation

The Company has various types of share-based compensation plans. These plans are administered by the compensation committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. Readers should refer to Note 9 of the Company’s consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for additional information related to these share-based compensation plans. Share-based compensation expense and the related income tax benefit reflected in the Condensed Consolidated Statements of Operations in connection with stock options, restricted stock units, performance-based stock units and the Employee Stock Purchase Plan (“ESPP”) for three and six months ended June 30, 2014 and 2013 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Stock options	$	414	$	1,214	$	1,005	$	2,185
Restricted stock units		1,238		498		1,752		834
Performance-based stock units (1)		160		297		337		500
ESPP		95		336		231		572
Total share-based compensation	$	1,907	$	2,345	$	3,325	$	4,091
Income tax benefit	$	603	$	689	$	1,061	$	1,214

(1) Includes Performance Stock Units (“PSUs”) and market-performance based units (“MSUs”).

In May 2012, MSUs were granted to the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company. Each MSU represents the right to one share of Actuate’s common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Actuate’s stock price relative to the performance of the Standard & Poor’s (“S&P”) Small Cap 600 Index over a two-year vesting period, up to 200% of the MSUs initially granted. After the initial performance period, 50% of the earned award vests immediately and the remaining 50% is subject to an additional one year service period. We valued the MSUs using the Monte Carlo simulation model and amortize the compensation expense over the three year performance and service period.

In April 2013, additional MSUs were granted to the CEO and the CFO of the Company. The actual number of MSUs which will be eligible to vest will be based on the performance of Actuate’s stock price relative to the performance of the Russell 2000 Index over the vesting period, up to 200% of the MSUs initially granted. The award is divided into two tranches. The first tranche has a two year performance period and the second has a three year performance period.

In April 2014, the CEO and CFO were each granted two PSU awards, each with its own distinct internal, company-wide performance metric. The metric for the first award has a one year performance period to determine number of earnable shares, up to 100% of the initial grant, followed by a three-year vesting period with one-third vesting at the end of each calendar year. The metric for the second award has a one year performance period to determine number of earnable shares, up to 150% of the initial grant, followed by a two-year vesting period with half vesting at the end of each calendar year. Vesting for both grants is subject to continued employment with the Company. The PSU awards have a fair value equal to the stock price on the grant date. We amortize the compensation expense over the three or four year performance and service periods if and when achievement of the performance metrics are determined probable.

We estimate the expected term of options granted by analyzing actual historical experience of exercises and cancellations under our plans. We also look at the average length of time in which our current outstanding options are expected to be exercised or cancelled based on past experience and the vesting and contractual term. We estimate the volatility of our common stock by using historical volatility over the expected term. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those previously estimated. Management’s estimate of forfeitures is based on historical experience; however actual forfeitures could differ as a result of employee terminations which may impact future share-based compensation expense. We base the risk-free interest rate used in the option valuation model on the daily Treasury yield curve interest rate published by the U.S. Department of the Treasury. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. The assumptions used to estimate the fair value of stock options granted and stock purchase rights granted under our Employee Stock Purchase Plan (the “Purchase Plan”) for the six months ended June 30, 2014 and 2013 are as follows:

	Options Six Months Ended		ESPP Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Volatility	45.92 - 49.94%	53.19 - 53.58%	21.4 – 30.09%	34.3 - 41.52%
Expected term (years)	5.54 - 5.57	5.66 - 5.67	1.25	1.25
Risk free interest rate	1.62 - 1.73%	0.77 - 1.38%	0.07 - 0.30%	0.11 - 0.27%
Expected dividend yield	0%	0%	0%	0%

Beginning January 2010, restricted stock units (“RSUs”) were granted to senior management as part of the Company’s annual incentive compensation program under the Amended and Restated 1998 Equity Incentive Plan. RSUs are valued based on the closing price of the Company’s common stock on the grant date. In general, restricted stock units vest over four years with annual cliff vesting and are subject to the employees’ continuing service to the Company. For each restricted stock unit granted under the 1998 Plan, a share reserve ratio is applied for the purpose of determining the remaining number of shares reserved for future grants under the plan. The share reserve ratio is 1:1 for each restricted stock unit granted, and an equivalent of 1 share will be deducted from the share reserve for each restricted stock unit issued. Likewise, each forfeited restricted stock unit increases the number of shares available for issuance by the applicable rate at the time of forfeiture.

In the first quarter of 2014 the Company expanded its equity incentive program to grant RSUs in-lieu of stock options to its employees across all levels based on performance. Stock options will continue to be granted as part of the Company’s new hire program.

Performance stock units (“PSUs”) were also granted for the first time to select key employees of the Company. PSU vesting is contingent upon meeting certain company-wide performance goals.

As of June 30, 2014, a total of 3,028,750 RSUs and performance-based awards have been granted to the Company’s senior management, employees and non-employee Board of Directors.

Net (loss) Income Per Share

The Company computes basic net (loss) income per share using the weighted-average number of common shares outstanding during the period, less weighted average shares subject to repurchase. The Company computes diluted net (loss) income per share using the weighted-average number of common shares and dilutive share-based awards during the period determined by using the treasury stock method.

The table below reconciles the weighted-average common shares used to calculate basic net (loss) income per share with the weighted-average common shares used to calculate diluted net (loss) income per share (in thousands).

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Weighted-average common shares outstanding		46,692		47,781		47,224		47,980
Weighted-average dilutive common equivalent shares under the treasury stock method		—		2,690		—		2,613
Weighted-average common shares used in computing diluted net (loss) income per share		46,692		50,471		47,224		50,593

Under the treasury stock method, stock options with exercise prices exceeding the average share price of the Company’s common stock during the applicable period are excluded from the diluted earnings per share computation. The following table sets forth all potentially dilutive securities excluded from the computation in the table above because their effect would have been anti-dilutive (shares in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014(1)		2013(2)		2014(1)		2013(2)
Stock Options:
Weighted-average excluded shares		8,556		2,013		8,597		3,242
Weighted-average exercise price	$	5.25	$	5.98	$	5.24	$	6.13
Awards:
Weighted-average excluded shares		1,617		118		1,158		103

(1) Common equivalent shares are excluded from the calculation of net loss per share for the three and six months ended June 30, 2014.

(2) Anti-dilutive common equivalent shares are excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2013.

Income Taxes

We provide for the effect of income taxes in our Condensed Consolidated Financial Statements using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryovers, and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We also apply a two-step approach to determining the financial statement recognition and measurement of uncertain tax positions.

Income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year, and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We must make significant assumptions, judgments and estimates to determine our current provision (benefit) for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our deferred tax assets. Our judgments, assumptions and estimates relating to the current provision (benefit) for income taxes include the geographic mix and amount of income (loss), our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Our judgments also include anticipating the tax positions we will record in the financial statements before actually preparing and filing the tax returns. Our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved. Changes in our business, tax laws or our interpretation of tax laws, and developments in current and future tax audits, could significantly impact the amounts provided for income taxes in our results of operations, financial position, or cash flows.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry-forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. To make this assessment, we take into account predictions of the amount and category of taxable income from various sources and all available positive and negative evidence about these possible sources of taxable income. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified. Based on the analysis of positive and negative factors noted above, we have no valuation allowance against U.S. federal deferred tax assets. For U.S. states, we have determined that it is more likely than not that the Company’s California research credits will not be realized as we continue to generate credits significantly in excess of our yearly California tax liability. As such, we continue to maintain a full valuation allowance against our excess deferred tax asset for California research credit carry forwards. We maintain a full valuation allowance against deferred tax assets in foreign jurisdictions with a history of losses and a partial valuation allowance in foreign jurisdictions where operating results beyond a certain time frame are less reliable. If, in the future, we determine that these deferred tax assets are more likely than not to be realized, a release of all or part, of the related valuation allowance could result in an income tax benefit in the period such determination is made.

We only recognize an income tax expense or benefit with respect to uncertain tax positions in our financial statements that we judge is more likely than not to be sustained solely on its technical merits in a tax audit, including resolution of any related appeals or litigation processes. To make this judgment, we must interpret complex and sometimes ambiguous tax laws, regulations and administrative practices. If an income tax position meets the more likely than not recognition threshold, then we must measure the amount of the tax benefit to be recognized by determining the largest amount of tax benefit that has a greater than a 50% likelihood of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible settlement outcomes. To determine if a tax position is effectively settled, we must also estimate the likelihood that a taxing authority would review a tax position after a tax examination has otherwise been completed. We must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end. These judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements. We must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision.

Sales Taxes

The Company presents its revenues net of sales tax in its Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance related to reporting discontinued operations. This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The new standard is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are evaluating the impact, if any, of adopting this new accounting standard on our financial statements.

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for Actuate beginning January 1, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the impact of adopting this new accounting standard on our financial statements.

In June 2014, the FASB issued new guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Accounts receivable, allowances	$ 165	$ 418
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	91,102,175	92,286,427
Common stock, shares outstanding	46,086,570	47,710,244
Treasury stock at cost	45,015,605	44,576,183

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Acquisitions (Tables)

6 Months Ended

Jun. 30, 2014

Purchase Price Allocation Related to Acquired Assets and Useful Life

The table below represents the allocation of the purchase price to the acquired net assets of legodo based on their estimated fair values as of January 31, 2014 and the associated estimated useful life at that date.

	Amount (in thousands)			Useful life (in years)
Net tangible assets and liabilities	$	(2,555	)		N/A
Existing technology		2,722			7
Customer contracts and relationships		1,769			7
Goodwill		4,582			N/A
Total purchase consideration	$	6,518

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Jul. 31, 2014
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Trading Symbol	BIRT
Entity Registrant Name	ACTUATE CORP
Entity Central Index Key	0001062478
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		46,367,938

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Fair Value Measurements of Financial Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2014

Assets Measured at Fair Value on Recurring Basis

The following table represents information about the Company’s investments measured at fair value (in thousands).

	Fair value of investments as of June 30, 2014
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds (1)	$	4,351	$	4,351	$	—	$	—
Term deposits (1)		800		800		—		—
Commercial paper (2)(3)		8,498		—		8,498		—
Corporate bonds (2)		24,824		—		24,824		—
	$	38,473	$	5,151	$	33,322	$	—
	Fair value of investments as of December 31, 2013
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds (1)	$	6,088	$	6,088	$	—	$	—
Term deposits (1)		7,122		7,122		—		—
Commercial paper (2)		4,498		—		4,498		—
Corporate bonds (2)		32,652		—		32,652		—
Federal and municipal obligations (4)		4,000		—		4,000		—
	$	54,360	$	13,210	$	41,150	$	—

(1) Included in cash and cash equivalents in the Company’s Condensed Consolidated Balance Sheet.

(2) Included in short-term investments in the Company’s Condensed Consolidated Balance Sheet.

(3) Of this amount, approximately $3.5 million was included in cash equivalents at June 30, 2014 and the remainder was included in the short-term investment in the Company’s Condensed Consolidated Balance Sheet.

(4) Of this amount, approximately $3 million was included in cash equivalents at December 31, 2013 and the remainder was included in short-term investments in the Company’s Condensed Consolidated Balance Sheet.

Summary of Cash, Cash Equivalents and Short-Term Investments

The Company’s cash, cash equivalents, and short-term investments are as follows (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Balance at June 30, 2014
Classified as cash and cash equivalents:
Cash	$	20,950	$	—	$	—		$	20,950
Term deposits		800		—		—			800
Money market funds		4,351		—		—			4,351
Commercial paper		3,500		—		—			3,500
		29,601		—		—			29,601
Classified as short-term investments:
Commercial paper (5)		4,999		—		(1	)		4,998
Corporate bonds (5)		24,811		19		(6	)		24,824
		29,810		19		(7	)		29,822
Total	$	59,411	$	19	$	(7	)	$	59,423

(5) Securities totaling approximately $16 million were in an unrealized loss position at June 30, 2014. None of these securities were in a continuous unrealized loss position for greater than 12 months.

	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Balance at December 31, 2013
Classified as cash and cash equivalents:
Cash	$	25,540	$	—	$	—		$	25,540
Term deposits		7,122		—		—			7,122
Money market funds		6,088		—		—			6,088
Federal and municipal obligations		3,000		—		—			3,000
		41,750		—		—			41,750
Classified as short-term investments:
Commercial paper (6)		4,498		—		—			4,498
Corporate bonds (6)		32,654		—		(2	)		32,652
Federal and municipal obligations		1,000		—		—			1,000
		38,152		—		(2	)		38,150
Total	$	79,902	$	—	$	(2	)	$	79,900

(6) Securities totaling approximately $18.1 million were in an unrealized loss position at December 31, 2013. None of these securities were in a continuous unrealized loss position for greater than 12 months.

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues:
License fees	$ 7,335	$ 16,155	$ 13,553	$ 31,635
Services	19,178	18,747	37,046	38,185
Total revenues	26,513	34,902	50,599	69,820
Costs and expenses:
Cost of license fees	512	551	996	1,124
Cost of services	3,869	4,431	7,436	9,414
Sales and marketing	11,538	14,316	22,901	28,090
Research and development	6,218	6,382	13,279	12,942
General and administrative	6,344	6,168	12,037	12,048
Amortization of other purchased intangibles	364	301	707	564
Restructuring charges	201	523	307	591
Total costs and expenses	29,046	32,672	57,663	64,773
(Loss) Income from operations	(2,533)	2,230	(7,064)	5,047
Interest income and other income/(expense), net	401	17	315	317
Interest expense	(15)	(60)	(28)	(120)
(Loss) Income before income taxes	(2,147)	2,187	(6,777)	5,244
Provision for (benefits from) income taxes	185	874	(1,075)	912
Net (loss) income	$ (2,332)	$ 1,313	$ (5,702)	$ 4,332
Basic net (loss) income per share	$ (0.05)	$ 0.03	$ (0.12)	$ 0.09
Shares used in basic net (loss) income per share calculation	46,692	47,781	47,224	47,980
Diluted net (loss) income per share	$ (0.05)	$ 0.03	$ (0.12)	$ 0.09
Shares used in diluted net (loss) income per share calculation	46,692	50,471	47,224	50,593

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Goodwill and Other Purchased Intangible Assets

6 Months Ended

Jun. 30, 2014

Goodwill and Other Purchased Intangible Assets

6. Goodwill and Other Purchased Intangible Assets

Goodwill

Goodwill is not amortized, but is evaluated for impairment on an annual basis or when impairment indicators are present. The Company performs its annual impairment test of goodwill as of October 1st of each year. The potential impairment is identified if the fair value of the reporting unit to which goodwill applies is less than the recorded book value of the related reporting entity, including such goodwill. Where the book value of a reporting entity, including related goodwill, is greater than the reporting entity’s fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed on October 1, 2013. As a result, the Company did not record any impairment related to its goodwill for the period ended June 30, 2014.

The following is a roll-forward of the activity that affected goodwill during the first half of 2014 (in thousands):

Goodwill as of December 31, 2013	$	51,962
Acquisition of legodo ag		4,582
Foreign currency translation		(152	)
Goodwill as of June 30, 2014	$	56,392

Other purchased intangible assets consist of the following (in thousands):

	June 30, 2014												December 31, 2013
	Gross Carrying Amount			Acquisition of legodo ag			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer lists	$	22,350		$	1,769		$	(19,239	)	$	4,880		$	22,350		$	(18,539	)	$	3,811
Purchased technologies		17,325			2,722			(13,354	)		6,693			17,325			(12,527	)		4,798
Leases		47			—			(39	)		8			47			(35	)		12
Foreign currency impact		(33	)		(63	)		(6	)		(102	)		(33	)		—			(33	)
	$	39,689		$	4,428		$	(32,638	)	$	11,479		$	39,689		$	(31,101	)	$	8,588

Amortization expense of purchased technology and other intangible assets was approximately $795,000 and $634,000 for the quarters ended June 30, 2014 and 2013, respectively. Of this total, approximately $431,000 and $333,000 was related to the amortization of purchased technology for the quarters ended June 30, 2014 and 2013, respectively. Purchased identifiable intangible assets are amortized on a straight-line basis over their useful lives. The estimated useful economic lives of the acquired customer lists and purchased technologies are seven years. The estimated economic useful life of favorable leases is five years. Amortization of purchased technology is included in cost of license fees in the accompanying condensed consolidated statements of income.

During the first quarter of 2014, the Company recorded additions to its purchased intangible assets of approximately $4.5 million related to the acquisition of legodo ag. For additional discussion, see Note 2 of this Form 10-Q.

The expected remaining annual amortization expense is summarized as follows (in thousands):

Fiscal Year (in thousands):	Purchased Technology and Intangibles
2014 (remainder of year)	$	1,584
2015		3,161
2016		3,158
2017		1,104
2018		917
2019 and thereafter		1,555
	$	11,479

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Segment and Geographic Information

6 Months Ended

Jun. 30, 2014

Segment and Geographic Information

5. Segment and Geographic Information

Our primary operations are located in the United States. Revenues from international sources relate to export sales, primarily to Europe and Asia. Our revenues by geographic area were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Revenues:
North America	$	19,811	$	26,731	$	37,205	$	54,552
Europe, Middle East, and Africa (EMEA)		5,227		6,820		10,774		12,593
Asia Pacific and others		1,475		1,351		2,620		2,675
	$	26,513	$	34,902	$	50,599	$	69,820

As of June 30, 2014, we operated solely in one segment, which is the development, marketing and support of our enterprise reporting application platforms. There were no customers that accounted for more than 10% of total revenues in the six months ended June 30, 2014 or 2013.

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Deferred Revenue (Tables)

6 Months Ended

Jun. 30, 2014

Deferred Revenue

Deferred revenue consists of the following (in thousands):

	June 30, 2014		December 31, 2013
Current portion
Maintenance and support	$	34,635	$	42,407
Other		3,569		3,886
Total current portion:	$	38,204	$	46,293
Long term portion:		1,050		1,640
Total deferred revenue	$	39,254	$	47,933

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Restructuring Charges (Tables)

6 Months Ended

Jun. 30, 2014

Restructuring Accrual Activity

The following table summarizes the restructuring accrual activity during the six months ended June 30, 2014 (in thousands):

	Severance & Benefits			Facility Related			Total
Balance at December 31, 2013	$	—		$	314		$	314
Restructuring charges (Q1)		106			—			106
Restructuring charges (Q2)		9			192			201
Reclassifications		96			(96	)		—
Cash payments, net of rents collected on sublease		(185	)		(152	)		(337	)
Other (1)		8			(98	)		(90	)
Balance at June 30, 2014:		34			160			194
Less: Current portion:		(34	)		(149	)		(183	)
Long-term balance at June 30, 2014 (2)	$	—		$	11		$	11

(1) Mainly relate to non-cash asset charges related to the closure of the Shanghai facility that were recorded to restructuring expense but not included in the restructuring accruals and therefore adjusted for presentation purposes. Also included are foreign currency translation adjustments.

(2) Included in “Other liabilities—long-term” section of the Condensed Consolidated Balance Sheet.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Basis of Presentation

Basis of Presentation

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in Actuate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 7, 2014.

To prepare financial statements in conformity with GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and may result in material effects on the Company’s operating results and financial position.

The condensed consolidated financial statements include the accounts of Actuate and its wholly-owned subsidiaries. Actuate has offices throughout North America, Europe and Asia including offices in the United States, Canada, Switzerland, United Kingdom, Germany, Spain, Singapore, Japan and Australia. All intercompany balances and transactions have been eliminated

Revisions of Prior Period Reported Amounts

Revisions of Prior Period Reported Amounts

During the second quarter of 2014, we identified and recorded adjustments associated with certain equity accounts reported in prior periods. The adjustments related entirely to the classification of accounts within shareholders’ equity. Specifically, it affected the classification amongst additional paid-in-capital (“APIC”), retained earnings and Treasury stock accounts for Employee Stock Purchase Plan (ESPP) shares that were previously reissued from Treasury. The reissuance resulted in a cumulative increase of approximately $3.75 million to Treasury stock account for the weighted average cost of the treasury shares reissued, a decrease of approximately $3.47 million to APIC for the reissuance price over cost (net gain) of the ESPP shares and an decrease of approximately $280,000 to retained earnings for the cost over price (net loss) from reissuance of the ESPP shares. Since these accounts are separate components within Stockholders equity, the net overall impact on the Consolidated Balance Sheet was zero for the period presented.

Pursuant to the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatement in the Current Year Financial Statements, we concluded that the adjustments were not material to any of our annual or interim periods or the current period.

Revenue Recognition

Revenue Recognition

Actuate generates revenues from the sales of software licenses and related services. The Company receives software license revenues from licensing its products directly to end-users and indirectly through resellers, system integrators and original equipment manufacturers (OEMs). The Company receives service revenues from maintenance contracts, consulting services and training that Actuate performs for customers.

For sales to end-user customers, Actuate recognizes license revenues when a license agreement has been signed by both parties or a definitive agreement has been received from the customer, the product has been physically shipped or electronically made available, there are no unusual uncertainties surrounding the product acceptance, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence (VSOE) of fair value exists to allocate the fee to the undelivered elements of the arrangement. Vendor-specific objective evidence of fair value of sales to end users is based on the price charged when an element is sold separately.

Actuate has not established vendor-specific objective evidence of fair value for its licenses. Therefore, the Company recognizes revenues from software arrangements with multiple elements involving software licenses under the residual method, which means the fair value of the undelivered elements is deferred while the remaining value of the arrangement is allocated to the delivered elements. If we are unable to determine the fair value of the undelivered elements, it is not possible to allocate revenues separately to the undelivered elements in the arrangement and consequently, the entire amount of the arrangement fee is recognized ratably over the performance period of that undelivered element, assuming all other revenue recognition criteria are satisfied. If the license agreement contains payment terms that would indicate that the fee is not fixed or determinable, revenues are recognized as the payments become due and payable, assuming that all other revenue recognition criteria are met.

Actuate enters into reseller and distributor arrangements that typically give such distributors and resellers the right to distribute its products to end-users headquartered in specified territories. Actuate recognizes license revenues from arrangements with U.S. resellers and distributors when there is persuasive evidence of an arrangement with the reseller or distributor, the product has been shipped, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement. Actuate recognizes license revenues from arrangements with international resellers and distributors upon receipt of evidence of sell-through and when all other revenue recognition criteria have been met. If it is not practical to obtain evidence of sell-through, the Company defers revenues until the end-user has been identified and cash has been received. In some instances there is a timing difference between when a reseller completes its sale to the end-user and the period in which Actuate receives the documentation required for revenue recognition. Because Actuate delays revenue recognition until the reporting period in which the required documentation is obtained, it may recognize revenue in a period subsequent to the period in which the reseller completes the sale to its end-user.

Actuate also enters into OEM arrangements that provide for license fees based on the bundling or embedding of its products with the OEM’s products. These arrangements generally provide for fixed, irrevocable royalty payments. Actuate recognizes license fee revenues from U.S. and international OEM arrangements when a license agreement has been executed by both parties, the product has been shipped, there are no unusual uncertainties surrounding the product acceptance, the fees are fixed or determinable, collectability is probable and vendor-specific objective evidence of fair value exists to allocate the fee to the undelivered elements of the arrangement.

In addition to licenses sold on perpetual basis, Actuate also sells its products on a time-based arrangement. The time-based licenses are sold either as on-premise time-based offerings or as hosted Software-as-a-Service (SaaS). The time-based transactions are typically broken down into separate license and maintenance components. The license component is recognized ratably over the term of the underlying arrangement as license revenue while the maintenance component is recognized ratably over the term of the underlying arrangement in services revenue in the Company’s Condensed Consolidated Statement of Operations. Our SaaS offerings consist of BIRT Performance Analytics onDemand and BIRT onDemand. Actuate recognizes revenue on these licenses ratably over the term of the underlying arrangement. Revenues from Actuate’s SaaS offerings are reported as services revenue in the Company’s Condensed Consolidated Statement of Operations.

The Company establishes vendor specific objective evidence of fair value for maintenance and support using a “bell-shaped curve” approach for certain types of license transactions, and uses a “stated maintenance renewal” approach for other categories of license transactions. When applying the “bell-shaped curve” approach the Company analyzes all maintenance renewal transactions over the past twelve months for that category of license and plots those data points on a bell-shaped curve to ensure that a high percentage of the data points are within an acceptable margin of the established VSOE rate. This analysis is performed quarterly.

When applying the “stated renewal rate” approach, the Company ensures that the individual license transaction includes a clear and substantive renewal rate explicitly stated in the documentation for the transaction. Furthermore, the Company ensures that it has a practice of consistently renewing those transactions at the contractual rate. This is done by reviewing maintenance renewals on these contracts and making sure that a very high percentage are renewed at the renewal rates stipulated in the contract.

The Company assesses the collectability of fees from end-users based on payment history and current credit profile. When a customer is not deemed credit-worthy, revenues are deferred and recognized upon cash receipt.

Actuate recognizes maintenance revenues, which consist of fees for ongoing support and unspecified product updates, ratably over the term of the contract, typically one year. Consulting revenues are primarily related to standard implementation and configuration. Training revenues are generated from classes offered at the Company’s offices and customer locations. Revenues from consulting and training services are typically recognized as the services are performed. When a contract includes both license and service elements, the license fee is typically recognized on delivery of the software, assuming all other revenue recognition criteria are met, provided services do not include significant customization or modification of the product and are not otherwise essential to the functionality of the software.

Share-Based Compensation

Share-Based Compensation

The Company has various types of share-based compensation plans. These plans are administered by the compensation committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. Readers should refer to Note 9 of the Company’s consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for additional information related to these share-based compensation plans. Share-based compensation expense and the related income tax benefit reflected in the Condensed Consolidated Statements of Operations in connection with stock options, restricted stock units, performance-based stock units and the Employee Stock Purchase Plan (“ESPP”) for three and six months ended June 30, 2014 and 2013 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Stock options	$	414	$	1,214	$	1,005	$	2,185
Restricted stock units		1,238		498		1,752		834
Performance-based stock units (1)		160		297		337		500
ESPP		95		336		231		572
Total share-based compensation	$	1,907	$	2,345	$	3,325	$	4,091
Income tax benefit	$	603	$	689	$	1,061	$	1,214

(1) Includes Performance Stock Units (“PSUs”) and market-performance based units (“MSUs”).

In May 2012, MSUs were granted to the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company. Each MSU represents the right to one share of Actuate’s common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Actuate’s stock price relative to the performance of the Standard & Poor’s (“S&P”) Small Cap 600 Index over a two-year vesting period, up to 200% of the MSUs initially granted. After the initial performance period, 50% of the earned award vests immediately and the remaining 50% is subject to an additional one year service period. We valued the MSUs using the Monte Carlo simulation model and amortize the compensation expense over the three year performance and service period.

In April 2013, additional MSUs were granted to the CEO and the CFO of the Company. The actual number of MSUs which will be eligible to vest will be based on the performance of Actuate’s stock price relative to the performance of the Russell 2000 Index over the vesting period, up to 200% of the MSUs initially granted. The award is divided into two tranches. The first tranche has a two year performance period and the second has a three year performance period.

In April 2014, the CEO and CFO were each granted two PSU awards, each with its own distinct internal, company-wide performance metric. The metric for the first award has a one year performance period to determine number of earnable shares, up to 100% of the initial grant, followed by a three-year vesting period with one-third vesting at the end of each calendar year. The metric for the second award has a one year performance period to determine number of earnable shares, up to 150% of the initial grant, followed by a two-year vesting period with half vesting at the end of each calendar year. Vesting for both grants is subject to continued employment with the Company. The PSU awards have a fair value equal to the stock price on the grant date. We amortize the compensation expense over the three or four year performance and service periods if and when achievement of the performance metrics are determined probable.

We estimate the expected term of options granted by analyzing actual historical experience of exercises and cancellations under our plans. We also look at the average length of time in which our current outstanding options are expected to be exercised or cancelled based on past experience and the vesting and contractual term. We estimate the volatility of our common stock by using historical volatility over the expected term. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those previously estimated. Management’s estimate of forfeitures is based on historical experience; however actual forfeitures could differ as a result of employee terminations which may impact future share-based compensation expense. We base the risk-free interest rate used in the option valuation model on the daily Treasury yield curve interest rate published by the U.S. Department of the Treasury. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. The assumptions used to estimate the fair value of stock options granted and stock purchase rights granted under our Employee Stock Purchase Plan (the “Purchase Plan”) for the six months ended June 30, 2014 and 2013 are as follows:

	Options Six Months Ended		ESPP Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Volatility	45.92 - 49.94%	53.19 - 53.58%	21.4 – 30.09%	34.3 - 41.52%
Expected term (years)	5.54 - 5.57	5.66 - 5.67	1.25	1.25
Risk free interest rate	1.62 - 1.73%	0.77 - 1.38%	0.07 - 0.30%	0.11 - 0.27%
Expected dividend yield	0%	0%	0%	0%

Beginning January 2010, restricted stock units (“RSUs”) were granted to senior management as part of the Company’s annual incentive compensation program under the Amended and Restated 1998 Equity Incentive Plan. RSUs are valued based on the closing price of the Company’s common stock on the grant date. In general, restricted stock units vest over four years with annual cliff vesting and are subject to the employees’ continuing service to the Company. For each restricted stock unit granted under the 1998 Plan, a share reserve ratio is applied for the purpose of determining the remaining number of shares reserved for future grants under the plan. The share reserve ratio is 1:1 for each restricted stock unit granted, and an equivalent of 1 share will be deducted from the share reserve for each restricted stock unit issued. Likewise, each forfeited restricted stock unit increases the number of shares available for issuance by the applicable rate at the time of forfeiture.

In the first quarter of 2014 the Company expanded its equity incentive program to grant RSUs in-lieu of stock options to its employees across all levels based on performance. Stock options will continue to be granted as part of the Company’s new hire program.

Performance stock units (“PSUs”) were also granted for the first time to select key employees of the Company. PSU vesting is contingent upon meeting certain company-wide performance goals.

As of June 30, 2014, a total of 3,028,750 RSUs and performance-based awards have been granted to the Company’s senior management, employees and non-employee Board of Directors.

Net (Loss) Income Per Share

Net (loss) Income Per Share

The Company computes basic net (loss) income per share using the weighted-average number of common shares outstanding during the period, less weighted average shares subject to repurchase. The Company computes diluted net (loss) income per share using the weighted-average number of common shares and dilutive share-based awards during the period determined by using the treasury stock method.

The table below reconciles the weighted-average common shares used to calculate basic net (loss) income per share with the weighted-average common shares used to calculate diluted net (loss) income per share (in thousands).

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Weighted-average common shares outstanding		46,692		47,781		47,224		47,980
Weighted-average dilutive common equivalent shares under the treasury stock method		—		2,690		—		2,613
Weighted-average common shares used in computing diluted net (loss) income per share		46,692		50,471		47,224		50,593

Under the treasury stock method, stock options with exercise prices exceeding the average share price of the Company’s common stock during the applicable period are excluded from the diluted earnings per share computation. The following table sets forth all potentially dilutive securities excluded from the computation in the table above because their effect would have been anti-dilutive (shares in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014(1)		2013(2)		2014(1)		2013(2)
Stock Options:
Weighted-average excluded shares		8,556		2,013		8,597		3,242
Weighted-average exercise price	$	5.25	$	5.98	$	5.24	$	6.13
Awards:
Weighted-average excluded shares		1,617		118		1,158		103

(1) Common equivalent shares are excluded from the calculation of net loss per share for the three and six months ended June 30, 2014.

(2) Anti-dilutive common equivalent shares are excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2013.

Income Taxes

Income Taxes

We provide for the effect of income taxes in our Condensed Consolidated Financial Statements using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryovers, and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We also apply a two-step approach to determining the financial statement recognition and measurement of uncertain tax positions.

Income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year, and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We must make significant assumptions, judgments and estimates to determine our current provision (benefit) for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our deferred tax assets. Our judgments, assumptions and estimates relating to the current provision (benefit) for income taxes include the geographic mix and amount of income (loss), our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Our judgments also include anticipating the tax positions we will record in the financial statements before actually preparing and filing the tax returns. Our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved. Changes in our business, tax laws or our interpretation of tax laws, and developments in current and future tax audits, could significantly impact the amounts provided for income taxes in our results of operations, financial position, or cash flows.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry-forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. To make this assessment, we take into account predictions of the amount and category of taxable income from various sources and all available positive and negative evidence about these possible sources of taxable income. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified. Based on the analysis of positive and negative factors noted above, we have no valuation allowance against U.S. federal deferred tax assets. For U.S. states, we have determined that it is more likely than not that the Company’s California research credits will not be realized as we continue to generate credits significantly in excess of our yearly California tax liability. As such, we continue to maintain a full valuation allowance against our excess deferred tax asset for California research credit carry forwards. We maintain a full valuation allowance against deferred tax assets in foreign jurisdictions with a history of losses and a partial valuation allowance in foreign jurisdictions where operating results beyond a certain time frame are less reliable. If, in the future, we determine that these deferred tax assets are more likely than not to be realized, a release of all or part, of the related valuation allowance could result in an income tax benefit in the period such determination is made.

We only recognize an income tax expense or benefit with respect to uncertain tax positions in our financial statements that we judge is more likely than not to be sustained solely on its technical merits in a tax audit, including resolution of any related appeals or litigation processes. To make this judgment, we must interpret complex and sometimes ambiguous tax laws, regulations and administrative practices. If an income tax position meets the more likely than not recognition threshold, then we must measure the amount of the tax benefit to be recognized by determining the largest amount of tax benefit that has a greater than a 50% likelihood of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible settlement outcomes. To determine if a tax position is effectively settled, we must also estimate the likelihood that a taxing authority would review a tax position after a tax examination has otherwise been completed. We must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end. These judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements. We must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision.

Sales Taxes

Sales Taxes

The Company presents its revenues net of sales tax in its Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance related to reporting discontinued operations. This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The new standard is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are evaluating the impact, if any, of adopting this new accounting standard on our financial statements.

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for Actuate beginning January 1, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the impact of adopting this new accounting standard on our financial statements.

In June 2014, the FASB issued new guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies

7. Commitments and Contingencies

General

The Company is engaged in certain legal actions arising in the ordinary course of business. Although there can be no assurance as to the outcome of such litigation, the Company believes it has adequate legal defenses and it believes that neither the ultimate outcome of any of these actions nor ongoing litigation costs will not have a material effect on the Company’s consolidated financial position or results of operations.

Revolving credit line

During the second quarter of 2013, following a comparative evaluation of its credit facility, the Company decided to change to another vendor to service its borrowing needs. As a result, the Company terminated its existing credit agreement with Wells Fargo Capital Finance (“WFCF”) and on June 30, 2013 entered into a new revolving credit agreement with U.S. Bank National Association (“US Bank”) through and until June 29, 2017. The Company intends to use the proceeds from the Credit Agreement for working capital, acquisitions, issuance of commercial and standby letters of credit, stock repurchases, capital expenditures and other general corporate purposes.

The new Credit Agreement with US Bank allows for cash borrowings and the issuance of letters of credit under a secured revolving credit facility up to a maximum of $50 million. Interest accrues based on, at the Company’s election, (i) LIBOR plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio or (ii) the greater of: (a) the Federal Funds Effective Rate plus one half of one percent, (b) one month LIBOR plus one percent, and (c) U.S. Bank’s prime rate, in each case plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio. The Company is required to make interest payments on a monthly basis.

Following the termination of its agreement with WFCF, the Company wrote-off all remaining unamortized costs related to the old credit facility totaling approximately $188,000 in the second quarter of 2013. Costs related to the new credit facility with US Bank were not significant.

As of June 30, 2014, there was no balance owed on the credit facility and the balance available under the revolving credit facility was $50 million.

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
(In thousands):
Amortization of debt issuance costs	$	5	$	20	$	10	$	40
Unused line fees		—		37		—		75
	$	5	$	57	$	10	$	115

The Credit Agreement with US Bank contains covenants, which, among other things, impose certain limitations with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens and encumbrances. The Company is also required to maintain the two financial covenants listed below:

• Consolidated total cash flow leverage ratio not to exceed 2.50 to 1.00, and

• A fixed charge coverage ratio of not less than 1.75 to 1.00.

The indebtedness under the Credit Agreement is secured by (i) substantially all of the personal property (whether tangible or intangible) of Actuate Corporation and Actuate International Holding Company (as guarantor) as well as the proceeds generated by that property and (ii) by a pledge of all of its stock and a portion of the stock of certain of its subsidiaries.

Notes payable

Associated with the acquisition of Quiterian on October 16, 2012, the Company inherited two loan agreements that were previously executed to finance the development of the Quiterian software. The loans were offered by the Spanish government subsidy programs and are restricted for use on development of the software. One of the loans is interest free and has a principal balance of approximately $0.5 million. This loan was repaid in March of 2014. The other loan is a variable rate loan with an average rate of approximately 5% and a principal balance of approximately $0.4 million. This loan is scheduled for repayment on a quarterly basis starting June 2014 and ending December 2016 and is classified as notes payable on the Company’s Condensed Consolidated Balance Sheet at June 30, 2014.

Operating Lease Commitments

On November 28, 2011, the Company entered into a ten year lease agreement with a third party for approximately 58,000 square feet of office space in the BayCenter Campus in San Mateo, California. This lease is operating in nature and commenced on June 1, 2012 and will end on May 31, 2022. In addition, the lease provides for four months of free rent (rent holiday) and approximately $2.6 million in landlord incentives to be applied towards construction of improvements. At June 30, 2014, the deferred rent liability balance related to the new lease totaled approximately $3.3 million and this balance declines through May 2022 when contractual cash payments exceed the straight-line lease expense. Of this total deferred rent liability balance, approximately $260,000 was classified as short term and $3.1 million was classified as other long term liabilities on the Company’s Condensed Consolidated Balance Sheet at June 30, 2014. Actuate is using the BayCenter Campus as its corporate headquarters.

Upon the execution of the new lease, Actuate delivered to the new landlord two letters of credit totaling $225,300. These letters of credit guarantee Actuate’s contractual obligations related to the BayCenter Campus in San Mateo, California.

In fiscal 2012, the Company entered into a new lease agreement for one of its sales locations in Europe. Upon the execution of the new lease, Actuate delivered to the new landlord a letter of credit for approximately $88,000 in order to guarantee its contractual obligations related to this lease.

Actuate leases smaller office facilities in various locations in the United States and abroad. All facilities are leased under operating leases. Total rent expense for the second quarter and first six months of fiscal 2014 was approximately $1.1 million and $2.2 million, respectively, compared with rent expense of approximately $1.1 million in second quarter and $2.2 million in the first six months of fiscal 2013. In addition, the Company incurred facility related charges of approximately $157,000 and $360,000 in the second quarter and the first six months of fiscal 2014, respectively. During the same period last year, the Company incurred approximately $144,000 and $313,000 of facilities related charges in the second quarter and the first six months of fiscal 2013, respectively.

Stock Option Plans

An individual who first joins the Board of Directors as a non-employee director is awarded an option to purchase 25,000 shares of the Company’s Common Stock and a restricted stock unit award (“RSU”) covering 12,500 shares of the Company’s Common Stock. These options and RSUs each have a four year vesting period tied to continued Board service. Each option has an exercise price equal to the closing price of the Company’s Common Stock on the day of the grant, and 25% will vest upon the non-employee directors’ continued Board service through the first anniversary of the award date and on an equal, monthly basis over the next 3 years of service thereafter. The first 25% of each restricted stock unit award will vest 13 months following the award date and the remainder will vest in a series of three successive equal annual installments on each of the second, third and fourth anniversaries of the award date, provided that the non-employee director continues in Board service through each such vesting date. Each non-employee director receiving an initial 12,500-share RSU award is given the opportunity to elect to defer the receipt of the shares of Actuate Common Stock that vest and become issuable pursuant to the initial RSU award. If a non-employee director makes a timely deferral election, then the shares of Actuate Common Stock in which he or she vests under the initial RSU award will be issued upon termination of Board service. In the absence of an effective deferral election, any shares of the Company’s Common Stock in which the non-employee director vests under the initial RSU award will be issued as those shares vest.

Beginning in 2013 each continuing non-employee director is granted a RSU award covering 16,000 shares of the Company’s Common Stock at each annual stockholders meeting. Each restricted stock unit award granted to a continuing non-employee director will vest upon the non-employee director’s continued Board service through the first anniversary of the award date. Before the start of each calendar year, each of our non-employee directors is given the opportunity to elect to defer the receipt of any or all of the shares of Actuate Common Stock that vest and become issuable pursuant to the restricted stock unit award to be made to such non-employee director at the next annual stockholders meeting. If a non-employee director makes a timely deferral election, then the shares of Actuate Common Stock in which he or she vests under the RSU award will be issued upon his termination of Board service. In the absence of an effective deferral election, any shares of the Company’s Common Stock in which the non-employee director vests under the RSU award will be issued as those shares vest.

Each restricted stock unit award and each option award granted to a new or continuing non-employee director will vest in full on an accelerated basis upon (i) an approved acquisition of the Company by merger or consolidation, (ii) a sale of all or substantially all of the Company’s assets, (iii) the successful completion of a tender or exchange offer for securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities, or (iv) the death or disability of the optionee while serving as a member of the Board of Directors. Each restricted stock unit that vests will entitle the recipient to one share of the Company’s common stock on the designated issuance date for that share. All grants are made under the 1998 Plan.

All options are subject to the same vesting schedule (twenty-five percent of the option shares will vest on the one year anniversary of the option grant date and the remaining option shares will vest in thirty-six equal monthly installments over the thirty-six month period measured from the first anniversary of the option grant date, provided the optionee continues to provide services to the Corporation through each applicable vesting date) and all have ten year terms.

Shares issued as a result of the exercise of options under any of our plans would be fulfilled through shares currently in our existing pools. Total authorized but unissued shares were 20,956,493 as of June 30, 2014.

Plan Summary	Available for Grant			Options and Awards Outstanding(2)		Total Authorized But Unissued
Amended and Restated 1998 Equity Incentive Plan		9,081,808			11,098,121		20,179,929
2001 Supplemental Stock Plan		714,487			19,366		733,853
1998 Non-Employee Director Option Plan		—			95,000		95,000
Total Stock Plans		9,796,295			11,212,487		21,008,782
Miscellaneous Stock Grant (1)		(52,289	)		—		(52,289	)
Total Stock Plans Balance at June 30, 2014		9,744,006			11,212,487		20,956,493

(1) Board approved stock grant on February 17, 2011 to the beneficiary of a deceased senior executive in recognition of services performed. Also included are 2,289 shares of stock granted to an employee in April 2013.

(2) Total outstanding at June 30, 2014 includes 8,451,045 of options and 2,841,812 of RSUs awards, net of 80,370 of forfeited MSUs in fiscal 2013.

The weighted average grant date fair value of options granted during the quarter ended June 30, 2014 was $2.12 per option. Upon the exercise of options, the Company issues new common stock from its authorized shares. The total intrinsic value of options exercised during the quarter ended June 30, 2014 was $151,000.

All vested stock options are exercisable. The following table summarizes information about stock options outstanding and exercisable as of June 30, 2014:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
$1.86-$3.56		953,795		3.48 years	$	3.32		953,795	$	3.32
$3.59-$4.65		878,618		2.49 years	$	3.90		834,350	$	3.88
$4.74-$4.80		722,454		5.28 years	$	4.80		714,633	$	4.80
$4.84-$5.31		1,098,931		3.21 years	$	5.14		1,071,959	$	5.14
$5.32-$5.48		978,261		6.27 years	$	5.48		828,746	$	5.48
$5.49-$6.08		1,213,823		8.50 years	$	5.63		382,880	$	5.58
$6.09-$6.28		1,178,790		4.01 years	$	6.11		1,093,251	$	6.11
$6.29-$7.91		1,426,373		7.34 years	$	6.46		813,441	$	6.42
$1.86-$7.91		8,451,045		5.26 years	$	5.24		6,693,055	$	5.07

	June 30, 2014		June 30, 2013
Options Outstanding – Vested and Expected to Vest
Vested and expected to vest, net of expected forfeitures		8,389,070		10,806,773
Aggregate intrinsic value (in thousands)	$	2,146	$	16,625
Weighted average exercise price per share	$	5.24	$	5.11
Weighted average remaining contractual term (in years)		5.24		5.92
Options Exercisable
Options currently exercisable		6,693,055		7,665,751
Aggregate intrinsic value of currently exercisable options (in thousands)	$	2,124	$	13,977
Weighted average exercise price per share	$	5.07	$	4.83
Weighted average remaining contractual term (in years)		4.46		4.79

As of June 30, 2014, the number of shares reserved for future grants under all option plans was 9,744,006. The number of shares available for future purchase under the Purchase Plan was 2,620,195.

Summary of Restricted Stock Units

Restricted stock unit activity for the six months ended June 30, 2014 and 2013:

	June 30, 2014			June 30, 2013
Beginning outstanding balance		1,003,812			577,374
Awarded		1,257,500			447,500
Released		(55,500	)		(21,062	)
Forfeited		(49,000	)		—
Ending outstanding balance		2,156,812			1,003,812

The weighted average grant date fair value of restricted stock units granted during the quarter ended June 30, 2014 and 2013 were $5.51 and $6.55 per unit, respectively.

	Number of Units		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (thousands)
Restricted stock units outstanding (1)		2,156,812		1.85	$	10,288
Restricted stock units vested and expected to vest (2)		2,069,147		1.81	$	7,283
Restricted stock units vested and deferred (3)		542,375		—	$	2,587

(1) Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

(2) Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

(3) Vested awards with deferral elections to be released to the employee upon separation from service.

Summary of Performance-Based Restricted Stock Units

	June 30, 2014		June 30, 2013
Beginning outstanding balance		279,630		235,000
Awarded		325,000		125,000
Ending outstanding balance		604,630		360,000

The weighted average grant date fair value of performance-based RSUs granted during the quarter ended June 30, 2014 and 2013 were $5.74 and $5.60 per unit, respectively.

	Number of Units		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (thousands)
Performance-based units outstanding (1)		604,630		1.65	$	2,884
Performance-based units vested and expected to vest (2)		577,019		1.62	$	2,575
Performance-based units vested and deferred (3)		37,130		—	$	177

(1) Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

(2) Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

(3) Vested awards with deferral elections to be released to the employee upon separation from service.

Stockholder Rights Plan

On June 17, 2014, we adopted a stockholder rights plan and declared a dividend of one stock purchase right (a “Right”) for each outstanding share of common stock of the Company (“Common Shares”). Each Right entitles the registered holder to purchase from the Company one thousandth of a share of the Company’s Series A Junior Participating Preferred Stock (the “Preferred Shares”) at a price of $25 per one thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. In the event that any person or group owns more than 15% of the Company’s outstanding common stock and thereby becomes an “Acquiring Person”, each holder of a Right, other than Rights beneficially owned by the Acquiring Person, will thereafter have the right to receive upon exercise and payment of the exercise price that number of shares of common stock having a market value of two times the exercise price of the Right. In the event that any person or group becomes an Acquiring Person and the Company merges into or engages in certain other business combinations with any Person, or 50% or more of its consolidated assets or earning power are sold to any Person other than the Company or one of its wholly owned Subsidiaries, each holder of a Right, other than Rights owned by an Acquiring Person (and the affiliates, associates and certain transferees of such Acquiring Person), will thereafter have the right to receive, upon exercise and payment of the exercise price, that number of shares of common stock of the acquiring company that at the time of such transaction will have a market value of two times the exercise price of the Right; provided that, if the Company fails to meet such obligation within 30 days following the date a Person becomes an Acquiring Person, the Company must deliver, upon exercise of a Right but without requiring payment of the exercise price then in effect, Common Shares (to the extent available) and cash equal in value to the difference between the value of the Common Shares otherwise issuable upon the exercise of a Right and the exercise price then in effect. The company has determined the fair value of the dividend to be insignificant and therefore has recorded $0 on the date of declaration.

Further, some provisions of our charter documents, including provisions, eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or our management, which could have an adverse effect on the market price of our stock. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit an “interested stockholder” from engaging in a “business combination” with us for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner.

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Deferred Revenue

6 Months Ended

Jun. 30, 2014

Deferred Revenue

8. Deferred Revenue

Deferred revenue consists of the following (in thousands):

	June 30, 2014		December 31, 2013
Current portion
Maintenance and support	$	34,635	$	42,407
Other		3,569		3,886
Total current portion:	$	38,204	$	46,293
Long term portion:		1,050		1,640
Total deferred revenue	$	39,254	$	47,933

Maintenance and support consists primarily of first year maintenance and support services associated with the initial purchase of Actuate’s software, and the renewal of annual maintenance and support services from customers who purchased Actuate’s software in prior periods. The maintenance and support period is generally 12 months and revenues are typically recognized on a straight-line basis over the term of the maintenance and support period.

Other deferred revenue consists of deferred license, training and consulting fees generated from arrangements, which did not meet some or all of the revenue recognition criteria consistent with the Company’s revenue recognition policy, and are, therefore, deferred until all revenue recognition criteria have been met. Other deferred revenue also consists of deferred Software-as-a-Service (SaaS) fees which are recognized to revenue ratably over the term of the underlying arrangement.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

Share-Based Compensation Expense and Related Income Tax Benefit

Share-based compensation expense and the related income tax benefit reflected in the Condensed Consolidated Statements of Operations in connection with stock options, restricted stock units, performance-based stock units and the Employee Stock Purchase Plan (“ESPP”) for three and six months ended June 30, 2014 and 2013 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Stock options	$	414	$	1,214	$	1,005	$	2,185
Restricted stock units		1,238		498		1,752		834
Performance-based stock units (1)		160		297		337		500
ESPP		95		336		231		572
Total share-based compensation	$	1,907	$	2,345	$	3,325	$	4,091
Income tax benefit	$	603	$	689	$	1,061	$	1,214

(1) Includes Performance Stock Units (“PSUs”) and market-performance based units (“MSUs”).

Assumptions Used to Estimate Fair Value of Stock Options Granted and Stock Purchase Rights Granted Under Our Employee Stock Purchase Plan

The assumptions used to estimate the fair value of stock options granted and stock purchase rights granted under our Employee Stock Purchase Plan (the “Purchase Plan”) for the six months ended June 30, 2014 and 2013 are as follows:

	Options Six Months Ended		ESPP Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Volatility	45.92 - 49.94%	53.19 - 53.58%	21.4 – 30.09%	34.3 - 41.52%
Expected term (years)	5.54 - 5.57	5.66 - 5.67	1.25	1.25
Risk free interest rate	1.62 - 1.73%	0.77 - 1.38%	0.07 - 0.30%	0.11 - 0.27%
Expected dividend yield	0%	0%	0%	0%

Schedule of Weighted-Average Common Shares Used to Calculate Basic Net (Loss) Income Per Share

The table below reconciles the weighted-average common shares used to calculate basic net (loss) income per share with the weighted-average common shares used to calculate diluted net (loss) income per share (in thousands).

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Weighted-average common shares outstanding		46,692		47,781		47,224		47,980
Weighted-average dilutive common equivalent shares under the treasury stock method		—		2,690		—		2,613
Weighted-average common shares used in computing diluted net (loss) income per share		46,692		50,471		47,224		50,593

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share

The following table sets forth all potentially dilutive securities excluded from the computation in the table above because their effect would have been anti-dilutive (shares in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014(1)		2013(2)		2014(1)		2013(2)
Stock Options:
Weighted-average excluded shares		8,556		2,013		8,597		3,242
Weighted-average exercise price	$	5.25	$	5.98	$	5.24	$	6.13
Awards:
Weighted-average excluded shares		1,617		118		1,158		103

(1) Common equivalent shares are excluded from the calculation of net loss per share for the three and six months ended June 30, 2014.

(2) Anti-dilutive common equivalent shares are excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2013.

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Summary of Cash, Cash Equivalents and Short-Term Investments (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Available for sale securities gross unrealized losses duration of loss	Greater than 12 months	Greater than 12 months
Federal and municipal obligations
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Unrealized loss	$ 16.0	$ 18.1

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Weighted Average Grant Date Fair Value of Restricted Stock Units Granted (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Restricted stock units outstanding, Number of Units	2,156,812	[1]
Restricted stock units vested and expected to vest, Number of Units	2,069,147	[2]
Restricted stock units vested and deferred shares, Number of Units	542,375	[3]
Restricted stock units outstanding, Weighted Average Remaining Contractual Life (years)	1 year 10 months 6 days	[1]
Restricted stock units vested and expected to vest, Weighted Average Remaining Contractual Life, (years)	1 year 9 months 22 days	[2]
Restricted stock units outstanding, Aggregate Intrinsic Value	$ 10,288	[1]
Restricted stock units vested and expected to vest, Aggregate Intrinsic Value	7,283	[2]
Restricted stock units vested and deferred shares, Aggregate Intrinsic Value	$ 2,587	[3]

[1] Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.

[2] Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.

[3] Vested awards with deferral elections to be released to the employee upon separation from service.

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Goodwill and Other Purchased Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2014

Roll-Forward of Activity Affected Goodwill

The following is a roll-forward of the activity that affected goodwill during the first half of 2014 (in thousands):

Goodwill as of December 31, 2013	$	51,962
Acquisition of legodo ag		4,582
Foreign currency translation		(152	)
Goodwill as of June 30, 2014	$	56,392

Other Purchased Intangible Assets

Other purchased intangible assets consist of the following (in thousands):

	June 30, 2014												December 31, 2013
	Gross Carrying Amount			Acquisition of legodo ag			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer lists	$	22,350		$	1,769		$	(19,239	)	$	4,880		$	22,350		$	(18,539	)	$	3,811
Purchased technologies		17,325			2,722			(13,354	)		6,693			17,325			(12,527	)		4,798
Leases		47			—			(39	)		8			47			(35	)		12
Foreign currency impact		(33	)		(63	)		(6	)		(102	)		(33	)		—			(33	)
	$	39,689		$	4,428		$	(32,638	)	$	11,479		$	39,689		$	(31,101	)	$	8,588

Amortization Expense

The expected remaining annual amortization expense is summarized as follows (in thousands):

Fiscal Year (in thousands):	Purchased Technology and Intangibles
2014 (remainder of year)	$	1,584
2015		3,161
2016		3,158
2017		1,104
2018		917
2019 and thereafter		1,555
	$	11,479

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Assumptions Used to Estimate Fair Value of Stock Options Granted and Stock Purchase Rights Granted Under our Employee Stock Purchase Plan (Detail)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Options
Expected volatility, minimum	45.92%	53.19%
Expected volatility, maximum	49.94%	53.58%
Risk-free interest rate, minimum	1.62%	0.77%
Risk-free interest rate, maximum	1.73%	1.38%
Expected dividend yield	0.00%	0.00%
Options | Minimum
Expected term (years)	5 years 6 months 15 days	5 years 7 months 28 days
Options | Maximum
Expected term (years)	5 years 6 months 26 days	5 years 8 months 1 day
Employee Stock
Expected volatility, minimum	21.40%	34.30%
Expected volatility, maximum	30.09%	41.52%
Expected term (years)	1 year 3 months	1 year 3 months
Risk-free interest rate, minimum	0.07%	0.11%
Risk-free interest rate, maximum	0.30%	0.27%
Expected dividend yield	0.00%	0.00%

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Summary of Stock Options Outstanding (Vested and Expected to Vest) and Exercisable (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Options Outstanding - Vested and Expected to Vest
Vested and expected to vest, net of expected forfeitures	8,389,070	10,806,773
Aggregate intrinsic value (in thousands)	$ 2,146	$ 16,625
Weighted average exercise price per share	$ 5.24	$ 5.11
Weighted average remaining contractual term (in years)	5 years 2 months 27 days	5 years 11 months 1 day
Options Exercisable
Options currently exercisable	6,693,055	7,665,751
Aggregate intrinsic value of currently exercisable options (in thousands)	$ 2,124	$ 13,977
Weighted average exercise price per share	$ 5.07	$ 4.83
Weighted average remaining contractual term (in years)	4 years 5 months 16 days	4 years 9 months 15 days

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Roll-Forward of Activity Affected Goodwill (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Goodwill [Line Items]
Goodwill as of December 31, 2013	$ 51,962
Acquisition of legodo ag	4,582
Foreign currency translation	(152)
Goodwill as of June 30, 2014	$ 56,392

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Condensed Consolidated Statements Of Comprehensive (Loss) Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net (loss) income	$ (2,332)	$ 1,313	$ (5,702)	$ 4,332
Other comprehensive income/(loss), before tax:
Foreign currency translation	(533)	(250)	(523)	(1,585)
Net unrealized gain (loss) on securities	3	(55)	14	(79)
Total comprehensive (loss) income	$ (2,862)	$ 1,008	$ (6,211)	$ 2,668

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Restructuring Charges

6 Months Ended

Jun. 30, 2014

Restructuring Charges

4. Restructuring Charges

During the first half of fiscal 2014, the Company incurred a restructuring charge of approximately $307,000 associated mainly with closure of its Shanghai, China operation, which was effective January 31, 2014. The closure resulted in termination of approximately 50 employees, mainly in research and development, and totaled approximately $1.2 million in employee severance and associated charges. Of the total $1.2 million in severance associated with the China restructuring, only the portion that constituted one-time employee termination benefits were deemed as restructuring while the remaining balance was classified as an on-going employee benefits arrangement. An ongoing benefit arrangement is presumed to exist if an entity has a past practice of providing similar termination benefits, including statutorily-required benefits, to be provided in the event of involuntary termination. The Company classified most of the on-going benefits arrangement portion of the Shanghai, China restructuring to research and development as compensation expense during the first six months of fiscal 2014.

Additionally, the Company recorded facility related charges associated with the Shanghai facility totaling approximately $112,000 which it incurred upon exiting the facility in the second quarter of 2014. The Company also updated its estimates of sublease income related to its idle facility in Toronto Canada resulting in approximately $89,000 in restructuring expense during the second quarter of 2014.

The following table summarizes the restructuring accrual activity during the six months ended June 30, 2014 (in thousands):

	Severance & Benefits			Facility Related			Total
Balance at December 31, 2013	$	—		$	314		$	314
Restructuring charges (Q1)		106			—			106
Restructuring charges (Q2)		9			192			201
Reclassifications		96			(96	)		—
Cash payments, net of rents collected on sublease		(185	)		(152	)		(337	)
Other (1)		8			(98	)		(90	)
Balance at June 30, 2014:		34			160			194
Less: Current portion:		(34	)		(149	)		(183	)
Long-term balance at June 30, 2014 (2)	$	—		$	11		$	11

(1) Mainly relate to non-cash asset charges related to the closure of the Shanghai facility that were recorded to restructuring expense but not included in the restructuring accruals and therefore adjusted for presentation purposes. Also included are foreign currency translation adjustments.

(2) Included in “Other liabilities—long-term” section of the Condensed Consolidated Balance Sheet.

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Schedule of Weighted-Average Common Shares Used to Calculate Basic Net (Loss) Income per Share (Detail) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Reconciliation Of Basic Weighted Average Shares To Diluted Weighted Average Shares [Line Items]
Weighted-average common shares outstanding	46,692	47,781	47,224	47,980
Weighted-average dilutive common equivalent shares under the treasury stock method		2,690		2,613
Weighted-average common shares used in computing diluted net (loss) income per share	46,692	50,471	47,224	50,593

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Revenues by Geographic Area (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Operating Statistics [Line Items]
Revenues	$ 26,513	$ 34,902	$ 50,599	$ 69,820
North America
Operating Statistics [Line Items]
Revenues	19,811	26,731	37,205	54,552
Europe, Middle East, and Africa (EMEA)
Operating Statistics [Line Items]
Revenues	5,227	6,820	10,774	12,593
Asia Pacific and others
Operating Statistics [Line Items]
Revenues	$ 1,475	$ 1,351	$ 2,620	$ 2,675

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Segment and Geographic Information (Tables)

6 Months Ended

Jun. 30, 2014

Revenues by Geographic Area

Our revenues by geographic area were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Revenues:
North America	$	19,811	$	26,731	$	37,205	$	54,552
Europe, Middle East, and Africa (EMEA)		5,227		6,820		10,774		12,593
Asia Pacific and others		1,475		1,351		2,620		2,675
	$	26,513	$	34,902	$	50,599	$	69,820