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Summary of Significant Accounting Policies (Policy)

12 Months Ended

Nov. 30, 2013

The Consolidated Financial Statements include the accounts of TIBCO and our wholly-owned and majority-owned subsidiaries. Noncontrolling interest is reported as a separate component of Consolidated Statements of Equity from the equity attributable to TIBCO's stockholders for all periods presented. The noncontrolling interests in our Net Income have been excluded from Net Income Attributable to TIBCO Software Inc. in our Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Years

Our fiscal year is a twelve month period ending on November 30 of a stated year. For the purpose of presentation, we refer to the fiscal years ended November 30, 2013, 2012 and 2011, as our fiscal years 2013, 2012 and 2011, respectively.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, returns and discounts, stock-based compensation, business combinations, legal contingencies, realizability of goodwill, intangible assets and long-lived assets, and accounting for income taxes have the greatest potential impact on our Consolidated Financial Statements.

Revenue Recognition

License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable and collection of the resulting receivable is probable. When contracts contain multiple software and software-related elements (for example, software license, maintenance and professional services) wherein Vendor-Specific Objective Evidence ("VSOE") exists for all undelivered elements, we account for the delivered elements in accordance with the "Residual Method." VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. VSOE of fair value of consulting and training services is based upon stand-alone sales of those services.

Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from original equipment manufacturer ("OEM") customers are recognized upon delivery, and on-going royalty fees are recognized upon reports of units shipped. Revenue on shipments to resellers is recognized when all revenue criteria are met, including evidence of sell-through to the end-user, and is recorded net of related costs to the resellers. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.

Maintenance revenue consists of fees for providing software updates on a when-and-if available basis and technical support for software products ("post-contract customer support" or "PCS"). Maintenance revenue is recognized ratably over the term of the agreement. Payments received in advance of services performed are deferred.

Professional services revenue consists primarily of revenue received for assisting with the implementation of our software, on-site support, training and other consulting services. Many customers who license our software also enter into separate professional services arrangements with us. In determining whether professional services revenue should be accounted for separately from license revenue, we evaluate whether the professional services are considered essential to the functionality of the software using factors such as the nature of our software products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenue is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. Substantially all of our professional services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a proportional performance model based on actual services performed. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. Training revenue is recognized as training services are delivered. Payments received in advance of consulting or training services performed are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent month. Allowances for estimated future returns and discounts are provided for upon recognition of revenue.

For arrangements that do not qualify for separate accounting for the license and professional services revenues, including arrangements that involve significant modification or customization of the software, that include milestones or customer specific acceptance criteria that may affect collection of the software license fees or where payment for the software license is tied to the performance of professional services, software license revenue is generally recognized together with the professional services revenue using either the percentage-of-completion or completed-contract method. The completed contract method is used for contracts where there is a risk over final acceptance by the customer or for contracts that are short term in nature. Under the percentage-of-completion method, revenue recognized is equal to the ratio of costs expended to date to the anticipated total contract costs, based on current estimates of costs to complete the project. If there are milestones or acceptance provisions associated with the contract, the revenue recognized will not exceed the most recent milestone achieved or acceptance obtained. If the total estimated costs to complete a project exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized in the current period.

We enter into multiple element revenue arrangements in which a customer may purchase a combination of software licenses, hosting services, maintenance, professional services and hardware. If a tangible hardware product includes software, we determine if the tangible hardware and the software work together to deliver the product's essential functionality. If so, the entire product is accounted for as a non-software deliverable; otherwise the hardware product and the software are accounted for separately. For multiple element arrangements that contain non-software related elements, for example our hosting services, we allocate revenue to each non-software element based upon the relative selling price of each, and if software and software-related elements are also included in the arrangement, to those elements as a group based on our estimated selling price ("ESP") for the group. When applying the relative selling price method, we determine the selling price for each deliverable using VSOE of selling price, if applicable, or by using third-party evidence ("TPE") of the selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use our ESP for multiple element arrangements that include non-software components. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine ESP by considering multiple factors, including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. ESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element.

We show revenue from sales of software licenses and hardware as license revenue, and revenue from maintenance, professional services and hosting as services and maintenance revenue in our Consolidated Statements of Operations. Revenue recognized from hardware sales represents less than 3% of total revenue.

Fair Value of Financial Instruments

The fair values of our financial instruments including accounts receivable, accounts payable, accrued liabilities, mortgage note payable and revolving credit facility do not materially differ from their carrying amounts due to their short maturities and, in the case of the revolving credit facility, their variable, market-based interest rates. The fair values of our cash equivalents, short-term investments and derivative instruments are detailed further in Note 5.

Concentration of Credit Risk

Our cash, cash equivalents, short-term investments and accounts receivable are potentially subject to concentration of credit risk. Cash, cash equivalents and investments are deposited with financial institutions or invested in security issuers that management believes are creditworthy. We perform ongoing credit evaluations of our customers’ financial condition and, generally, require no collateral from our customers. We maintain an allowance for doubtful accounts receivable based on various factors, including our review of credit profiles of our customers, contractual terms and conditions, current economic trends and historical payment experience; see Note 6 for further details.

No customer accounted for more than 10% of total revenue in fiscal years 2013, 2012 or 2011. As of November 30, 2013 and 2012, no single customer had a balance in excess of 10% of our net accounts receivable.

Cash, Cash Equivalents, and Short-Term Investments

Cash, Cash Equivalents and Short-Term Investments

We consider all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. We determine the appropriate classification of marketable securities at the time of purchase and evaluate such designation as of each balance sheet date. To date, all marketable securities have been classified as available-for-sale and are carried at fair value with unrealized gains and losses, if any, included as a component of Accumulated Other Comprehensive Income (Loss) in Stockholders’ Equity. These available-for-sale investments are presented as Current Assets as they are available for current operations. Interest, dividends, realized gains and losses and impairment losses are included in Interest Income and Other Income (Expense). Realized gains and losses and impairment losses are recognized based on the specific identification method.

Property and Equipment, net

Property and equipment are stated at cost, net of accumulated depreciation. These assets are depreciated using the straight-line method over their estimated useful lives as follows:



Buildings		25 years
Equipment and software		2-5 years
Furniture and fixtures		5 years
Facilities improvements		Shorter of the lease term or the estimated useful life

Goodwill and In-Process Research and Development

Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. We do not have intangible assets with indefinite useful lives other than goodwill. To assess if goodwill is impaired we first perform a qualitative assessment to determine whether further impairment testing is necessary. If, as a result of the qualitative assessment, we consider it more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative impairment test. This includes a screening for an impairment and, in a second step, the measuring of such impairment. We perform our goodwill impairment test annually in our fourth fiscal quarter, and the last impairment test was completed for the fiscal year ended November 30, 2013 when it was determined that the fair value was significantly in excess of the carrying value. The guidance for goodwill and other intangible assets requires impairment testing based on reporting units. We periodically re-evaluate our business and have determined that we continue to operate in one segment, which we consider our sole reporting unit. Therefore, goodwill was tested and will continue to be tested for impairment at the enterprise level. To date, we have determined that there has been no impairment of goodwill.

Impairment of Long-Lived Assets

We evaluate the recoverability of our long-lived assets which includes amortizable intangible and tangible assets in accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets. Acquired intangible assets with definite useful lives are amortized over their useful lives. We evaluate long-lived assets, other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We recognize such impairment in the event the net book value of such assets exceeds their fair value. If the fair value of a long-lived asset exceeds its carrying value of the net asset assigned, then the asset is not impaired and no further testing is performed. If the carrying value of the net asset assigned exceeds the fair value of the asset, then we must perform the second step of the impairment test in order to determine the implied fair value. No long-lived assets impairment losses were incurred in the fiscal years presented.

Business Combinations

Under the accounting guidance for business combinations we recognize separately from goodwill the assets acquired and the liabilities assumed, at their fair values as of the date of the acquisition. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.

The total purchase price allocated to the tangible assets acquired is assigned based on the fair values as of the acquisition date. The fair value assigned to identifiable intangible assets acquired is determined using the income approach which discounts expected future cash flows to present value using estimations and assumptions determined by management. We believe that these identified intangible assets will have no residual value after their estimated economic useful lives. The identifiable intangible assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets.

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, is recorded as goodwill and primarily reflects the value of the synergies expected to be generated from combining our and the acquired entities’ technology and operations. Generally, none of the goodwill recorded in connection with the acquisitions is deductible for income tax purposes.

As a result of our acquisitions, we typically assume facility leases, certain liabilities and other commitments of the acquired entity.

Acquisition Related and Other

Acquisition related and other expenses consist of costs incurred after the issuance of a definitive term sheet for a particular transaction (whether or not such transaction is ultimately completed, remains in-process or is not completed) and include legal, banker, accounting and other advisory fees of third parties and severance costs for employees of the acquired company that are terminated within 90 days of the acquisition date.

Restructuring and Integration Costs

Our restructuring charges are comprised primarily of employee termination costs related to headcount reductions, costs related to properties abandoned in connection with facilities consolidation and related write-downs of leasehold improvements. A liability for costs associated with an exit or disposal activity is recognized and measured initially at fair value only when the liability is incurred. Our restructuring charges include accruals for estimated losses related to our excess facilities, based on our contractual obligations, net of estimated sublease income. We reassess the liability periodically based on market conditions.

Stock-Based Compensation

We utilize the Black-Scholes option pricing model for determining the estimated fair value of our share-based awards. The Black-Scholes model requires the use of subjective and complex assumptions to determine the fair value of share-based awards, including the option’s expected term and the price volatility of the underlying stock. We determined that a blend of implied volatility and historical volatility is more reflective of the market conditions and a better indicator of expected volatility than historical volatility alone. The fair value of the awards that are ultimately expected to vest is recognized over the requisite service periods typically on a straight-line basis in our Consolidated Statements of Operations. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Since fiscal year 2010, we have granted performance-based restricted stock units ("PRSUs") to our section 16 officers and certain other employees. We recognize the stock-based compensation expense for our PRSUs based on the probability of achieving certain performance criteria, as defined in the PRSU agreements. We then estimate the most probable period in which the performance criteria will be met, if at all, and recognize the expense using the graded vesting attribution method over the remaining recognition period. Due to the long-term nature of the performance goals, assessing the probability of achieving these goals is a subjective process that requires judgment. A deferred tax asset is recorded over the vesting period as stock compensation cost is recorded. Our ability to realize the deferred tax asset is ultimately based on the actual value of the stock-based awards upon release of the restricted stock unit. If the actual value is lower than the fair value determined on the date of grant, it would result in the reversal of such deferred tax asset with an increase to our income tax expense for the portion of the deferred tax asset that cannot be realized in that future period.

We utilize the "long form" method of calculating the tax effects of share-based compensation. Under the "long form" method, we determined the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of the employee share-based compensation "as if" we had adopted the recognition provisions of share-based payment since its effective date of January 1, 1995. We also determined the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effect of employee share–based compensation awards that were issued after the adoption of the share-based payment guidance and outstanding at the adoption date.

Consistent with prior years, we use the "with and without" approach in determining the order in which our tax attributes in connection with excess stock option tax benefits are utilized. The "with and without" approach results in the recognition of the windfall stock option tax benefits only after all other tax attributes, except for pre-acquisition tax attributes of acquired entities, have been considered in the annual tax accrual computation. Also consistent with prior years, we consider the indirect effects of the windfall deduction on the computation of other tax attributes, such as the R&D credit deduction, as an additional component of equity. This incremental tax benefit is credited to additional paid in capital when realized.

Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

We assess the likelihood that we will be able to realize our deferred tax assets on a more-likely-than-not basis. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If it is not more likely than not that we expect to realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realized.

Foreign Currencies

Most of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at exchange rates as of the balance sheet date. Income and expense items are translated at average exchange rates for the period. Cumulative translation adjustments are included as a component of Accumulated Other Comprehensive Income (Loss) in Stockholders’ Equity. Foreign currency exchange gains and losses, derived from monetary assets and liabilities stated in a currency other than the functional currency, are recorded in the Consolidated Statements of Operations.

Foreign Currency Forward Contracts

To manage currency exposure related to net assets and liabilities denominated in foreign currencies, we enter into forward contracts. The gains and losses on these derivative instruments are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated assets and liabilities subject to remeasurement and transaction exposures, and therefore, these forward contracts do not subject us to material balance sheet risk. We do not enter into derivative financial instruments for speculative purposes. These derivative instruments are not designed for hedge accounting and are adjusted to fair value through Other Income (Expense) under the Consolidated Statements of Operations and recorded as assets or liabilities in the Consolidated Balances Sheets.

Capitalized Software Development Costs

Capitalization of material software development costs begins when a product’s technological feasibility has been established. We define technological feasibility as the establishment of a working model, which typically occurs when beta testing commences. To date, the period between achieving technological feasibility and the general availability of our software products has been very short. Accordingly, our software development costs have been expensed as incurred, with the exception of immaterial costs related to hosted services.

Costs related to software acquired, developed or modified solely for internal use, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during post implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. These costs are included in Property and Equipment on the Consolidated Balance Sheets and are depreciated on a straight line basis over the useful life of the software.

Advertising Expense

Advertising costs are expensed as incurred and totaled approximately $3.7 million, $3.0 million, and $2.4 million in fiscal years 2013, 2012 and 2011, respectively.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that will require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Condensed Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. We early adopted this new standard in fiscal year 2013. There was no significant impact on our consolidated results of operations and financial condition upon adoption of this new standard.

In March 2013, the FASB issued new accounting guidance clarifying the accounting for the release of a cumulative translation adjustment into net income when a parent entity either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or a business within a foreign entity. The revised guidance is effective for us in the first quarter of fiscal year 2015. We do not anticipate that this adoption will have a significant impact on our consolidated results of operations and financial position.

In February 2013, the FASB issued an update to the reporting of reclassifications out of accumulated other comprehensive income. The guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The guidance is effective for us in our first quarter of fiscal year 2014 with earlier adoption permitted, which should be applied prospectively. We are currently evaluating the potential impact, if any, of the adoption of the guidance on our consolidated results of operations and financial condition.

In June 2011, the FASB issued an update to Presentation of Comprehensive Income that requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. The guidance became effective for us in the first quarter of fiscal year 2013.