Form 10-Q

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of July 6, 2005 was 212,478,205.

The accompanying unaudited condensed consolidated financial statements have been prepared by TIBCO Software Inc. (the “Company” or “TIBCO”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company, and its results of operations and cash flows. These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended November 30, 2004 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 14, 2005.

For purposes of presentation, we have indicated the second quarter of fiscal years 2005 and 2004 as ended on May 31, 2005 and 2004, respectively; whereas in fact, our second fiscal quarter ended on the Sunday nearest to the end of May in both years.

The results of operations for the three and six months ended May 31, 2005 are not necessarily indicative of the results that may be expected for the year ending November 30, 2005 or any other future period, and we make no representations related thereto.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain reclassifications have been made to prior year balances in order to conform to the current period presentation. These reclassifications had no impact on previously reported net income or cash flows.

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

License revenue consists principally of revenue earned under software license agreements. License revenue is 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 reasonably assured. When contracts contain multiple elements wherein vendor specific objective evidence exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method” prescribed by Statement of Position (“SOP”) 98-9. 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. Revenue from business partners who embed our products with their solutions is recognized on receipt of royalty reports from such business partners; and for non-refundable royalties, is recognized upon delivery of our software, provided that all other applicable revenue recognition criteria have been met. Revenue on shipments to resellers, which is generally subject to certain rights of return and price protection, is recognized when the products are sold by the resellers to an end-user customer, and recorded net of related costs to the resellers.

Service revenue consists primarily of revenue received for performing implementation of our software, on-site support, consulting and training. Service revenue is generally recognized as the services are performed.

Maintenance revenue consists of fees for providing software updates on a when and if-available basis and technical support for software products (“post-contract support” or “PCS”). Maintenance revenue is recognized ratably over the term of the agreement.

Payments received in advance of services performed are deferred. Allowances for estimated future returns and discounts are provided for upon recognition of revenue.

We account for employee stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No.25, “Accounting for Stock Issued to Employees” and have adopted the disclosure provisions of Statement of Financial Accounting Standard (“SFAS”) No.123 “Accounting for Stock-Based Compensation” and SFAS 148 “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of Financial Accounting Standards Board (“FASB”) Statement No.123”. We account for stock compensation expense related to stock options granted to consultants based on the fair value estimated using the Black-Scholes option pricing model on the date of grant and remeasured at each reporting date in compliance with Emerging Issues Task Force (“EITF”) No. 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” As a result, stock-based compensation expense fluctuates as the fair market value of our common stock fluctuates. Compensation expense is amortized using the multiple option approach in compliance with FASB Interpretation (“FIN”) No. 28. Pursuant to FIN 44 “Accounting for Certain Transactions involving Stock Compensation—an interpretation of APB 25”, options assumed in a purchase business combination are valued at the date of acquisition at their fair value calculated using the Black-Scholes option pricing model. The fair value of assumed options is included as a component of the purchase price. The intrinsic value attributable to unvested options is recorded as unearned stock-based compensation and amortized over the remaining vesting period of the options.

The following table illustrates the effect on net loss and net loss per share if we had applied a fair value method as prescribed by SFAS 123 for the periods indicated (in thousands, except per share data):

These pro forma amounts disclosed above may not be representative of the effects for future periods or years.

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.

Basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period less common shares subject to repurchase. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and potential common shares outstanding during the period if their effect is dilutive. Certain potential common shares were not included in computing net income per share because their effect was anti-dilutive.

We consider all highly liquid investment securities with remaining maturities, at the date of purchase, of three months or less to be cash equivalents. Management determines the appropriate classification of marketable securities at the time of purchase and evaluates 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. Interest, dividends and realized gains and losses are included in interest income and other income (expense). Realized gains and losses are recognized based on the specific identification method.

Marketable securities as of May 31, 2005 and November 30, 2004, which are classified as available-for-sale, are summarized below (in thousands):

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

The following table summarizes the net realized gains (losses) on short-term investments for the periods presented (in thousands):

We monitor our investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. In order to determine whether a decline in value is other-than-temporary, we evaluate, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company’s industry; the company’s relative competitive position within the industry; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair market value.

In accordance with EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, the following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of May 31, 2005 (in thousands):

Fair value was individually determined for each security in the investment portfolio. The decline in fair value of these investments is primarily related to changes in interest rates and is considered to be temporary in nature.

In accordance with SFAS 142, “Goodwill and Other Intangible Assets”, goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. Goodwill impairment testing is a two-step process. For the first step, we screen for impairment, and if any possible impairment exists, we undertake a second step of measuring such impairment. Other purchased intangible assets with definite useful lives are amortized over their useful lives.

We evaluate the recoverability of our long-lived assets in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. No impairment losses were incurred in the periods presented.

In December 2004, FASB issued SFAS 123(R), “Share-Based Payment”, which replaces SFAS 123 and supersedes APB 25. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, providing supplemental implementation guidance for SFAS 123(R). In April 2005, the SEC issued “Amendment to Rule 04-01(a) of Regulation S-X Regarding the Compliance Date for Statement of Financial Accounting Standard No.123(R), ‘Share-Based Payment’” (the “Amendment to Rule 4-01(a)”), changing the effective date for most public companies to adopt SFAS 123(R) to the first interim reporting period of a company’s fiscal year that begins on or after June 15, 2005. Under the Amendment to Rule 4-01(a), we are now required to adopt SFAS 123(R) in our first quarter of fiscal year 2006.

SFAS 123(R) requires that compensation costs relating to share-based payment transactions be recognized in the financial statements. The pro forma disclosure previously permitted under SFAS 123 will no longer be an acceptable alternative to recognition of expense in the financial statements. SFAS 123(R) also provides three alternative transition methods for its first adoption. We currently measure compensation costs related to share-based payments under APB 25, as allowed by SFAS 123, and provide disclosure in notes to our financial statements as required by SFAS 123. We expect the adoption of SFAS 123(R) and SAB 107 will

have a material adverse impact on our net income and net income per share. We are currently evaluating the extent of such impact and have not yet determined which transition method we will use in adopting SFAS 123(R).

In May 2005, FASB issued SFAS 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle, and applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. We do not expect that adoption of this statement will have a material impact on our results of operations or financial condition.

On March 7, 2005, we acquired substantially all of the assets and certain liabilities of ObjectStar International Limited (“ObjectStar”), a privately held native mainframe integration solutions provider.

The total purchase price was approximately $21.4 million, comprised of $20.9 million in cash and $0.5 million in direct transaction costs, including legal and valuation fees. The ObjectStar acquisition was accounted for under SFAS 141 “Business Combinations” and certain specified provisions of SFAS 142 “Goodwill and Other Intangible Assets”. The assets acquired and liabilities assumed are based on their fair values at the date of acquisition. ObjectStar’s existing technology had reached technological feasibility at the time of the acquisition; therefore we did not record an in-process research and development charge. The results of operations of ObjectStar are included in our Consolidated Statement of Operations from March 7, 2005. Pro forma results for the three and six months ended May 31, 2004, assuming that the acquisition of ObjectStar took place at the beginning of fiscal year 2004, are not presented, as the effect of the acquisition would not have been material to our results of operations.

We are currently finalizing our assessment of the fair value of the intangible and other assets acquired. The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values on the date of acquisition (in thousands):

We assessed the potential benefits from this acquisition, including the broadening of our mainframe product set, improvement of our competitive position and the possibility of increased revenues, and determined that the purchase price represented appropriate consideration for the acquisition. As the purchase price exceeded the fair value of the assets purchased, we recorded goodwill in connection with this transaction, of which approximately $2.5 million is amortizable for income tax purposes. In accordance with SFAS 142, goodwill is not being amortized and will be tested for impairment annually or sooner, if circumstances indicate that impairment may have occurred.

Amounts allocated to developed technology, patents/core technology, and customer base are amortized over their estimated useful lives of five years. Maintenance agreements are amortized over their estimated useful lives of nine years and non-competition agreements are amortized over their estimated useful lives of three years.

In June 2004, we acquired Staffware plc (“Staffware”), a provider of business process management (“BPM”) solutions that enable companies to automate, refine and manage their business processes. The addition of Staffware’s BPM solutions enabled us to offer our combined customer base a more robust and expanded real-time business integration solution, and increased our distribution capabilities through the cross-selling of products into new geographic regions. These factors contributed to a purchase price exceeding the fair value of Staffware’s net tangible and intangible assets acquired; as a result, we have recorded goodwill in connection with this transaction, which is not deductible for income tax purposes.

The total purchase price of approximately $237.1 million was comprised of $139.7 million in cash, the issuance of 10.9 million shares of our common stock valued at $92.3 million and approximately $5.1 million in direct transaction costs, including legal, valuation and accounting fees.

The shares issued in the acquisition have been valued in accordance with EITF 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.” In accordance with EITF 99-12, we have established that the first date on which the number of our shares and the amount of other consideration became fixed was April 22, 2004. Accordingly, we valued the transaction using the average closing price two days before and after April 22, 2004 of $8.44 per share.

The Staffware acquisition was accounted for under SFAS 141 “Business Combinations” and certain specified provisions of SFAS 142 “Goodwill and Other Intangible Assets.” The results of operations of Staffware are included in our Consolidated Statement of Operations from June 7, 2004. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, and as adjusted (in thousands):

In-process research and development, relating to development projects which had not reached technological feasibility and that were of no future alternative use, was expensed upon consummation of the acquisition. Other identifiable intangible assets, including developed technology, customer base and trademarks, are being amortized over their useful lives of five years; and patents/core technology and maintenance contracts are being amortized over their estimated useful lives of eight years.

Developed technology and in-process research and development were identified and valued through extensive interviews, analysis of data provided by Staffware concerning development projects, their stage of development, the time and resources needed to complete them, if applicable, and their expected income generating ability and associated risks. Where development projects had reached technological feasibility, they were classified as developed technology and the value assigned to developed technology was capitalized. The income approach, which includes an analysis of the cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing acquired intangible assets. Key assumptions included a discount rate of 16% and estimates of revenue growth, maintenance contract renewal rates, cost of sales, operating expenses and taxes.

The goodwill recorded in connection with the acquisition of Staffware was $164.1 million, which represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In accordance with SFAS 142, goodwill is not being amortized and will be tested for impairment annually or sooner, if circumstances indicate that impairment may have occurred.

As a result of the acquisition of Staffware, we incurred acquisition integration expenses for the incremental costs to exit and consolidate activities at Staffware locations, to terminate certain Staffware employees, and for other costs of integrating operating locations and other activities of Staffware with ours. Generally accepted accounting principles require that these acquisition integration expenses, which are not associated with the generation of future revenues and have no future economic benefit, be reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired. The components of the acquisition integration liabilities included in the purchase price allocation for Staffware are as follows (in thousands):

The acquisition integration liabilities are based on our integration plan which focuses principally on the elimination of redundancies in administrative overhead, support activities, and research and development organizations, as well as the restructuring and repositioning of sales and marketing.

The workforce reductions represent the planned termination of 30 Staffware employees, including two research and development, three customer support, 15 sales and marketing, and 10 administrative personnel. The remaining balance as of May 31, 2005 is expected to be utilized before the end of fiscal year 2005.

The results of operations of Staffware are included in our Consolidated Statements of Operations from June 7, 2004, the date of acquisition. If we had acquired Staffware at the beginning of fiscal year 2004, our unaudited pro forma net revenues, net income and net income per share would have been as follows (in thousands):

In accordance with SFAS 142, our goodwill is not amortized, but is tested for impairment at least annually, or sooner, if circumstances indicate impairment may have occurred. SFAS 142 prescribes a two-step process for impairment testing of goodwill. For the first step we screen for impairment, and if any possible impairment exists, we undertake a second step of measuring such impairment. We generally 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, 2004. SFAS 142 requires impairment testing based on reporting units. Following our acquisition of Staffware in June 2004 and ObjectStar in March 2005, we re-evaluated our business and 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 entity level. To date, we have determined that there has been no impairment of goodwill.

The change in the carrying amount of goodwill for the six months ended May 31, 2005 was as follows (in thousands):

Our acquired intangible assets are being amortized on a straight line basis over their estimated useful lives. The following is a summary of the weighted average lives and the carrying values of our acquired intangible assets by category (in thousands, except for weighted average life):

Amortization of developed technologies is included in cost of revenue, while the amortization of other acquired intangibles is included in operating expenses. The following summarizes the amortization expense of acquired intangible assets for the periods indicated (in thousands):

As of May 31, 2005, we expect the amortization of acquired intangible assets for future periods to be as follows (in thousands):

During the second quarter of fiscal year 2005, we initiated a restructuring plan designed to re-align our resources and cost structure, and accordingly recognized a restructuring charge of approximately $3.7 million for the resulting workforce reduction. The restructuring plan eliminated 49 employees, primarily in our European operations and across all functions as of May 31, 2005. As of May 31, 2005, $1.6 million related to this plan was paid. We expect to utilize the remaining accrual by the end of fiscal year 2005.

In connection with our acquisition of Staffware in the third quarter of fiscal year 2004, we recorded an accrual of $2.9 million for the estimated expenses due to the Staffware facilities that we expected to abandon. In addition, we recorded an accrual of $2.6 million for severance related to the termination of redundant Staffware personnel and $0.2 million related to the cancellation of certain marketing programs.

Also in the third quarter of fiscal year 2004, we recorded $2.2 million in additional restructuring charges related to properties vacated in connection with a facilities consolidation. The additional facilities charges resulted from revisions to our estimates of future sublease income due to the prolonged recovery of the applicable real estate market. The estimated facility costs were based on our contractual obligations, net of estimated sublease income, based on current comparable rates for leases in their respective markets.

The following is a summary of activities in accrued restructuring costs for the six months ended May 31, 2005 (in thousands):

Accrued excess facilities costs represent the estimated loss on abandoned facilities, net of sublease income, which is expected to be paid over the next six years. As of May 31, 2005, $27.2 million of the accrued excess facilities costs were classified as long-term liabilities based on our current expectation that we will have to pay the remaining lease payments over the remaining term of the related leases. Accrued severance costs related to the Staffware integration are included in the Condensed Consolidated Balance Sheets as part of accrued liabilities.

In connection with the purchase of our corporate headquarters in June 2003, we recorded a $54.0 million mortgage note payable to a financial institution collateralized by the commercial real property acquired. The mortgage note payable carries a fixed annual interest rate of 5.09% and a 20-year amortization. The principal balance remaining at the end of the ten-year term of $33.9 million is due as a final lump sum payment on July 1, 2013. We are prohibited from acquiring another company without prior consent from the lender unless we maintain between $100.0 million and $300.0 million of cash and cash equivalents, depending on various other non-financial terms as defined in the agreements. In addition, we are subject to certain non-financial covenants as defined in the agreements. We were in compliance with all covenants as of May 31, 2005.

We capitalized $0.7 million in financing fees in connection with the mortgage note payable. These fees are included in Other Assets on the Condensed Consolidated Balance Sheets and are amortized to interest expense over the ten year term of the loan.

We have a $20.0 million revolving line of credit that matures on June 21, 2006. The revolving line of credit is available for cash borrowings and for the issuance of letters of credit up to $20.0 million. As of May 31, 2005, no borrowings were outstanding under the facility and a $13.0 million irrevocable letter of credit was outstanding, leaving $7.0 million of available credit for additional letters of credit or cash borrowings. The $13.0 million irrevocable letter of credit outstanding was issued in connection with the mortgage note payable. The letter of credit automatically renews for successive one-year periods, until the mortgage note payable has been satisfied in full. We are required to maintain a minimum of $40.0 million in unrestricted cash, cash equivalents, and short-term investment balances, net of total indebtedness, as well as comply with other non-financial covenants defined in the agreement. We were in compliance with all covenants under the revolving line of credit as of May 31, 2005.

In connection with the mortgage note payable (see Note 6), we entered into an irrevocable letter of credit in the amount of $13.0 million. The letter of credit automatically renews for successive one-year periods, until the mortgage note payable has been satisfied in full and is collateralized by the line of credit.

In connection with a facility lease, we have an irrevocable letter of credit in the amount of $4.5 million. The letter of credit automatically renews annually for the duration of the lease term, which expires in December 2010.

We have an additional irrevocable letter of credit in the amount of $0.9 million in connection with a facility surrender agreement. The letter of credit automatically renews annually and expires in June 2006.

As of May 31, 2005, in connection with bank guarantees issued by some of our international subsidiaries, we had $1.9 million of restricted cash which is included in Other Assets on our Condensed Consolidated Balance Sheets.

In June 2003, we entered into a 51-year lease of the land upon which our corporate headquarters is located. The lease was paid in advance for a total of $28.0 million, but is subject to adjustments every ten years based upon changes in fair market value. Should it become necessary, we have the option to prepay any rent increases due as a result of a change in fair market value. This prepaid land lease is being amortized using the straight-line method over the life of the lease; the portion to be amortized over the next twelve months is included in Other Current Assets and the remainder is included in Other Assets on our Condensed Consolidated Balance Sheets.

We lease office space and equipment under non-cancelable operating leases with various expiration dates through November 2014. Rental expense was approximately $2.2 million and $1.5 million for the three months ended May 31, 2005 and 2004, respectively, and $4.1 million and $3.0 million for the six months ended May 31, 2005 and 2004, respectively.

As of May 31, 2005, contractual commitments associated with indebtedness and lease obligations were as follows (in thousands):

As of May 31, 2005, future minimum lease payments under restructured non-cancelable operating leases included $31.4 million provided for as accrued restructuring costs and $1.4 million and $1.8 million for acquisition integration liabilities related to our acquisitions of Talarian Corporation (“Talarian”) and Staffware, respectively. These amounts are included in Accrued Restructuring and Excess Facilities Costs on our Condensed Consolidated Balance Sheets.

We conduct business in North America, South America, Europe, the Pacific Rim and the Middle East. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or changes in economic conditions in foreign markets. A majority of our sales are currently made in U.S. dollars. To manage currency exposure related to net assets and liabilities denominated in foreign currencies, we enter into forward contracts for certain foreign denominated assets and liabilities. We do not enter into derivative financial instruments for trading purposes. Gains and losses on forward contracts are included in Other Income (Expense) in our Condensed Consolidated Statements of Operations. Our forward contracts generally have original maturities of thirty days. We did not have any outstanding forward contracts as of May 31, 2005.

Our software license agreements typically provide for indemnification of customers for intellectual property infringement claims. To date, no such claims have been filed against us. We also warrant to customers that software products operate substantially in accordance with the software product’s specifications. Historically, we have incurred minimal costs related to product warranties, and, as such, no accruals for warranty costs have been made. In addition, we indemnify our officers and directors under the terms of indemnity agreements entered into with them, as well as pursuant to our certificate of incorporation, bylaws, and applicable Delaware law. To date, we have not incurred any costs related to these indemnifications.

In May 2005, three purported shareholder class action complaints were filed against us and several of our officers in the U.S. District Court for the Northern District of California. The plaintiffs in such actions are seeking to represent a class of purchasers of our common stock from September 21, 2004 through March 1, 2005. The complaints generally allege that we made false or misleading statements concerning our operating results, our business and internal controls, and the integration of Staffware and seek unspecified monetary damages. Because the outcome of this litigation is undetermined and we cannot reasonably estimate the possible loss or range of loss which may arise from the litigation, we have not recorded an accrual for possible damages.

We, certain of our directors and officers and certain investment bank underwriters have been named in a putative class action for violation of the federal securities laws in the U.S. District Court for the Southern District of New York (“Court”), captioned “In re TIBCO Software Inc. Initial Public Offering Securities Litigation.” This is one of a number of cases challenging underwriting practices in the initial public offerings (“IPOs”) of more than 300 companies, which have been coordinated for pretrial proceedings as “In re Initial Public Offering Securities Litigation.” Plaintiffs generally allege that the underwriters engaged in undisclosed and improper underwriting activities, namely the receipt of excessive brokerage commissions and customer agreements regarding post-offering purchases of stock in exchange for allocations of IPO shares. Plaintiffs also allege that various investment bank securities analysts issued false and misleading analyst reports. The complaint against us claims that the purported improper underwriting activities were not disclosed in the registration statements for our IPO and secondary public offering and seeks unspecified damages on behalf of a purported class of persons who purchased our securities or sold put options during the time period from July 13, 1999 to December 6, 2000.

A lawsuit with similar allegations of undisclosed improper underwriting practices, and part of the same coordinated proceedings, is pending against Talarian Corporation, which we acquired in 2002. That action is captioned “In re Talarian Corp. Initial Public Offering Securities Litigation.” The complaint against Talarian, certain of its underwriters, and certain of its former directors and officers claims that the purported improper underwriting activities were not disclosed in the registration statement for Talarian’s IPO and seeks unspecified damages on behalf of a purported class of persons who purchased Talarian securities during the time period from July 20, 2000 to December 6, 2000.

Comprehensive income includes net income and other comprehensive income (loss), which consists of unrealized gains (losses) on available-for-sale securities and cumulative translation adjustments. A summary of the comprehensive income for the periods indicated is as follows (in thousands):

Components of accumulated other comprehensive income (loss), disclosed as a separate component of stockholder’s equity in the accompanying Condensed Consolidated Balance Sheets, are as follows (in thousands):

We continuously monitor the circumstances impacting the expected realization of our deferred tax assets. 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. The available positive evidence at May 31, 2005 included three years of historical operating profits and a projection of future income limited to three years which coincides with the period over which we recorded historical operating profits, due to our lack of visibility into earnings further into the future. As a result of our analysis of all available evidence, both positive and negative at May 31, 2005, it was considered more likely than not that a full valuation allowance for deferred tax assets was not required, resulting in the release of a portion of the valuation allowance previously recorded against our deferred tax assets generating an $18.2 million tax benefit recorded to the income statement. This resulted in an effective tax rate of (249%) for the three month period ended May 31, 2005 compared with an effective tax rate of 40% used to record the provision for income taxes for the comparable three month period in fiscal year 2004. Our effective tax rate for the second quarter of fiscal year 2005 also differs from the U.S. statutory rate primarily due to state taxes and non-deductible expenses.

In addition, a portion of the valuation allowance previously recorded against stock option related deferred tax assets and acquired deferred tax assets was released generating a $12.9 million benefit recorded to additional paid-in capital and a $1.3 million benefit recorded to goodwill respectively. As of May 31, 2005, we believed that the amount of the deferred tax assets recorded on our balance sheet as a result of the partial release of valuation allowance would ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that the recovery is not probable.

Of the remaining valuation allowance of approximately $199.8 million at May 31, 2005, we estimate that when released, approximately $15.4 million will result in an income tax benefit, approximately $9.4 million will be credited to goodwill and approximately $175.0 million relating to stock option exercises and related tax credits will be credited directly to additional paid-in capital. Of the estimated $15.4 million that will result in an income tax benefit, we estimate that approximately $8.3 million will be realized in the third and fourth quarters of fiscal year 2005.

Basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period less common shares subject to repurchase. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares and potential common shares outstanding during the period if their effect is dilutive. Certain potential common shares were not included in computing net income per share because their effect was anti-dilutive.

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

We have commercial arrangements with affiliates of Reuters Group PLC (“Reuters”), one of our stockholders. Reuters is considered a related party because it owns more than 5% of our issued and outstanding shares of common stock. Revenue from Reuters consists primarily of product license and maintenance fees on its sales of TIBCO products under the terms of our license, maintenance and distribution agreement with Reuters. The following is a summary of revenue from Reuters for the periods indicated (in thousands):

Accounts receivable due from Reuters totaled $1.2 million and $2.9 million, as of May 31, 2005 and November 30, 2004, respectively. We incurred a negligible amount in royalty and commission expense payable to Reuters in the three and six month periods ended May 31, 2005 and 2004.

Reuters is a distributor of our products to customers in the financial services market. In February 2005, we entered into an amended agreement with Reuters, pursuant to which Reuters has the right to distribute certain of our products in conjunction with the sale by Reuters to end users of its market data delivery solutions. The initial term of the amendment is one year, which may be extended by Reuters for two additional one-year periods, on payment of additional license fees. The initial $9.9 million non-refundable prepaid royalty was recognized as related party license revenue in the first quarter of fiscal year 2005. Another $1.1 million under the amended agreement represents maintenance fees and is being recognized ratably over the one year maintenance period. In addition, Reuters is eligible to receive between 5% and 30% of revenue (depending upon the level of assistance provided by Reuters) from sales to approved customers referred to TIBCO by Reuters. Furthermore, the amended agreement requires us to provide Reuters with internal maintenance and support for a fee of $1.0 million per year plus an annual CPI-based increase until December 2012. This amount was recognized ratably over the corresponding period as related party service and maintenance revenue.

Prior to the third quarter of fiscal year 2004, Cisco Systems, Inc. (“Cisco”) owned more than 5% of our outstanding common stock. During the second half of fiscal year 2004, Cisco’s ownership was reduced to less than 5% of our outstanding common stock. Accordingly, beginning in the third quarter of fiscal year 2004, we no longer considered Cisco to be a related party.

During the three and six months ended May 31, 2004, when Cisco was considered a related party, we recorded revenue of $0.3 million and $0.7 million, respectively, from Cisco.

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer.

We operate our business in one reportable segment: the development and marketing of a suite of software products that enables businesses to link internal operations, business partners and customer channels through the real-time distribution of information.

Revenue by geographic region, determined by the location at which each sale originates, is summarized as follows (in thousands):

No customer accounted for more than 10% of total revenue for the three and six months ended May 31, 2005. One customer accounted for $12.4 million, or 15%, of total revenue for the three months ended May 31, 2004, and no customer accounted for more than 10% of total revenue for the six months ended May 31, 2004.

No customer had a balance in excess of 10% of our net accounts receivable at May 31, 2005 or November 30, 2004.

Long-lived assets, which are tangible assets such as property and equipment, by major country are summarized as follows (in thousands):

In September 2004, our Board of Directors approved a two-year stock repurchase program pursuant to which we may repurchase up to $50.0 million of our outstanding common stock from time to time on the open market or through privately negotiated transactions. The timing and amount of any repurchases is dependent upon market conditions and other corporate considerations.

During the three months ended May 31, 2005, we repurchased 3.5 million shares of our common stock, for $24.3 million. From the beginning of the program through May 31, 2005, we repurchased a total of 3.7 million shares, for $26.7 million, leaving $23.3 million under the plan for future repurchases.

The following contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors which could cause actual results to differ materially include those set forth in the following discussion, and, in particular, the risks discussed below under the subheading “Factors that May Affect Operating Results” and in other documents we file with the Securities and Exchange Commission. Unless required by law, we undertake no obligation to update publicly any forward-looking statements.

Our suite of business integration software solutions makes us a leading enabler of real-time business. We use the term “real-time business” to refer to those companies that use current information in their businesses to execute their critical business processes. We are the successor to a portion of the business of Teknekron Software Systems, Inc. Teknekron developed software, known as the TIB technology, for the integration and delivery of market data, such as stock quotes, news and other financial information, in trading rooms of large banks and financial services institutions. In 1992, Teknekron expanded its development efforts to include solutions designed to enable complex and disparate manufacturing equipment and software applications—primarily in the semiconductor fabrication market—to communicate within the factory environment. Teknekron was acquired by Reuters Group PLC, the global information company, in 1994. Following the acquisition, continued development of the TIB technology was undertaken to expand its use in the financial services markets.

In January 1997, our company, TIBCO Software Inc., was established as an entity separate from Teknekron. We were formed to create and market software solutions for use in the integration of business information, processes and applications. In connection with our establishment as a separate entity, Reuters transferred to us certain assets and liabilities related to our business and granted to us a royalty-free license to the intellectual property from which some of our messaging software products originated.

In June 2004, we acquired Staffware plc, a provider of BPM solutions that enable businesses to automate, refine and manage their processes. The addition of Staffware’s BPM solutions enabled us to offer our combined customer base an expanded real-time business integration solution, by making it easier for our customers to utilize their existing systems through real-time information exchange and automation and management of enterprise business processes regardless of where such processes reside. BPM enables companies to save time and money by driving costs and time out of business processes (for example, reducing error rates or manual steps), while at the same time ensuring that business processes are compliant with internal procedures and external regulations. Our acquisition of Staffware also increased our distribution capabilities through the cross-selling of products into new geographic regions, as well as an expanded customer and partner base.

Our products are currently licensed by companies worldwide in diverse industries such as telecommunications, retail, healthcare, manufacturing, energy, transportation, logistics, financial services, government and insurance. We sell our products through a direct sales force and through alliances with leading software vendors and systems integrators.

Our revenue consists primarily of license and maintenance fees from our customers and distributors, including fees from Reuters pursuant to our license agreement, which were primarily attributable to licenses of our software. In addition, we receive fees from our customers for providing consulting services. We also receive revenue from our strategic relationships with business partners who embed our products in their hardware and networking systems as well as from systems integrators who resell our products.

First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. Maintenance revenue is determined based on vendor-specific objective evidence of fair value and amortized over the term of the maintenance contract, typically 12 months. Consulting and training revenues are typically recognized as the services are performed and are usually on a time and materials basis. Such services primarily consist of implementation services related to the installation of our products and generally do not include significant customization to or development of the underlying software code.

Our revenue is generally derived from a diverse customer base. No single customer represented greater than 10% of total revenue for the three or six months ended May 31, 2005, or the six months ended May 31, 2004. For the three months ended May 31, 2004, revenue from one customer, Pepsico, accounted for 15% of total revenue. As of May 31, 2005, no single customer had a balance in excess of 10% of our net accounts receivable. We establish allowances for doubtful accounts based on our evaluation of collectibility and an allowance for returns and discounts based on specifically identified credits and historical experience.

Reuters is a distributor of our products to customers in the financial services segment. Pursuant to the terms of our agreement with Reuters, Reuters has the right to distribute certain of our products in conjunction with the sale by Reuters to end users of its market data delivery solutions for a specified period of time. We have the right to market and sell our products, other than risk management and market data distribution products, directly and through third party resellers (other than a few specified resellers) to customers in the financial services market. The limitations on our ability to sell risk management and market data distribution products and on reselling through the specified resellers will expire in May 2008.

As of May 31, 2005, Reuters owned less than 10% of our outstanding capital stock.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect 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. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 to the annual consolidated financial statements as of and for the year ended November 30, 2004, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 14, 2005 and notes to condensed consolidated financial statements as of and for the three and six month periods ended May 31, 2005, included herein. Our most critical accounting policies include the following, and have not changed since November 30, 2004, with the exception of accounting for income tax which has been modified as described below:

likely, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. The available positive evidence at May 31, 2005 included three years of historical operating profits and a projection of future income limited to three years which coincides with the period over which we recorded historical operating profits, due to our lack of visibility into earnings further into the future. As a result of our analysis of all available evidence, both positive and negative at May 31, 2005, it was considered more likely than not that a full valuation allowance for deferred tax assets was not required, resulting in the release of a portion of the valuation allowance previously recorded against our deferred tax assets and generating an $18.2 million tax benefit recorded in our income statement.

In addition, a portion of the valuation allowance previously recorded against stock option related deferred tax assets and acquired deferred tax assets was released, generating a $12.9 million benefit recorded to additional paid-in capital and a $1.3 million benefit recorded to goodwill respectively. As of May 31, 2005, we believed that the amount of the deferred tax assets recorded on our balance sheet as a result of the partial release of valuation allowance would ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that the recovery is not probable.

Net undistributed earnings of certain foreign subsidiaries are considered to be indefinitely reinvested, and accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, we will be subject to U.S. income taxes.

The following table sets forth the components of our results of operations as percentages of total revenue for the periods indicated:

Our total revenue consisted primarily of license, consulting and maintenance fees from our customers and distributors, including fees from Reuters pursuant to our license agreement, which were primarily attributable to sales of our software.

Total revenue for the second quarter of fiscal year 2005 compared to the second quarter of fiscal year 2004 increased by 25% and was comprised of a $23.7 million or a 66% increase in service and maintenance revenue offset by a $3.6 million or an 8% decrease in license revenue. Total revenue for the first half of fiscal year 2005 compared to the same period last year increased by 32% and was comprised of a $43.2 million or a 62% increase in service and maintenance revenue and a $6.7 million or an 8% increase in license revenue.

Total revenue increased largely due to additional revenue generated from our acquisition of Staffware in June 2004. Due to the structure of certain multi-product Enterprise License Agreements which often combine TIBCO and Staffware products, we are unable to determine the portion of revenue attributable solely to the Staffware components.

Revenue from Reuters was $3.2 million and $7.0 million, representing 3% and 9% of our total revenue, in the second quarter of fiscal years 2005 and 2004, respectively, and $20.4 million and $14.4 million, representing 10% and 9% of our total revenue, in the first half of fiscal years 2005 and 2004, respectively. Revenue from Reuters consisted primarily of fees under our distribution agreement, which, prior to March 2005, included minimum guaranteed fees of $5.0 million per quarter, reduced by an amount equal to 10% of the license and maintenance revenues from our sales to financial services companies. We no longer receive such minimum guaranteed fees. If we are unable to replace the guaranteed revenue from Reuters with direct sales either to financial services companies or increased sales in other sectors, our results of operations will be negatively impacted.

In February 2005, we entered into an amended agreement with Reuters. Pursuant to the terms of the amendment, Reuters has the right to distribute certain of our products in conjunction with the sale by Reuters to end users of its market data delivery solutions. The initial term of the amendment is one year, which may be extended by Reuters for two additional one-year periods, upon payment of additional license fees. The initial $9.9 million non-refundable prepaid royalty was recognized as related party license revenue in the first quarter of fiscal year 2005. Another $1.1 million under the amended agreement represents maintenance fees and is being recognized ratably over the one year maintenance period.

No single customer accounted for more than 10% of total revenue in the second quarter of fiscal 2005. In the second quarter of fiscal year 2004, we had $12.4 million of revenue from one customer, Pepsico, which accounted for 15% of total revenue in that quarter. Other than Reuters, no single customer accounted for more than 10% of total revenue in the first half of either fiscal year 2005 or 2004.

Geographically, our total revenue increased most significantly in the Europe, Middle East and Africa (“EMEA”) region, by $13.4 million, and from all other countries, we had a net increase of $6.7 million when comparing the second quarter of fiscal year 2005 to the second quarter of fiscal year 2004. For the first half of fiscal year 2005 as compared to the same period of last year, revenue increased by $29.1 million in the Americas region and $16.2 million in the EMEA region. Note 12 to the Condensed Consolidated Financial Statements provides further detail on total revenue by region.

License revenue decreased 8% for the second quarter of fiscal year 2005 compared to the second quarter of fiscal year 2004. The decrease in license revenue was primarily due to the decreased size of large license deals during the quarter.

The total number of license revenue transactions of more than $0.1 million increased to 83 in the second quarter of fiscal year 2005 from 49 in the second quarter of fiscal year 2004. The average deal size for transactions of more than $0.1 million was approximately $0.4 million and $0.8 million in the second quarter of fiscal years 2005 and 2004, respectively.

For the first half of fiscal year 2005 as compared to the same period last year, license revenue increased by 8%, primarily due to the significant amount of license revenue from Reuters. Such license revenue from Reuters totaled $16.0 million in the first half of fiscal year 2005, of which only $1.7 million was received during the second quarter of fiscal year 2005, offsetting the decrease in total license revenue in that quarter. License revenue from Reuters totaled $8.3 million in the first half of fiscal year 2004.

We expect license revenue to continue to account for approximately 40% to 50% of our total revenue for the remainder of fiscal year 2005.

Service and maintenance revenue increased 66% for the second quarter of fiscal year 2005 compared to the second quarter of fiscal year 2004. This increase was comprised of $12.7 million, a 124% increase, in consulting revenue, and $11.1 million, a 46% increase, in maintenance revenue. Consulting revenue increased due to more comprehensive and larger engagements with respect to a number of accounts, an increased focus on providing more services to customers and additional revenue generated by the Staffware acquisition. Maintenance revenue increased primarily due to growth in our installed software base, as well as additional revenue generated by the Staffware acquisition. In accordance with our agreement with Reuters, we began providing maintenance and support services directly to customers transitioned from Reuters starting during the fourth quarter of fiscal year 2003.

For the first half of fiscal year 2005, service and maintenance revenue increased 62% compared to the same period last year. This increase was comprised of $22.9 million, a 124% increase, in consulting services revenue, and $20.4 million, a 43% increase, in maintenance revenue.

We expect that service and maintenance revenue will continue to account for approximately 50% to 60% of our total revenue for the remainder of fiscal year 2005.

Our cost of revenue consists primarily of compensation of professional services and customer support personnel and third-party contractors and associated expenses related to providing consulting services, the cost of providing maintenance and customer support services, royalties and product fees as well as the amortization of developed technologies acquired through corporate acquisitions. The majority of our cost of revenue is directly related to our service and maintenance revenue.

Cost of revenue increased by 70% in the second quarter of fiscal year 2005 as compared to the second quarter of fiscal year 2004, resulting primarily from an increase of approximately $6.1 million related to personnel compensation; $3.4 million related to third-party contractor compensation and consulting fees; $1.0 million related to traveling expenses and $0.8 million related to royalty costs. Increased compensation cost was primarily due to an increase in professional services and customer support staff. Increased third-party contractor and consulting fees, and traveling expenses were directly related to increased service revenues.

For the first half of fiscal year 2005, cost of revenue increased by 69% as compared to the same period last year, resulting primarily from an increase of approximately $11.8 million related to personnel compensation; $6.9 million related to third-party contractor compensation and consulting fees; $1.5 million related to traveling expenses and $1.3 million related to royalty costs.

Cost of revenue as a percentage of total revenue increased by 8% for the second quarter of fiscal year 2005 and 7% for the first half of fiscal year 2005 as compared to the same periods last year, primarily due to increased consulting services revenue constituting a larger portion of our total revenue, for which associated costs are higher.

We expect that cost of revenue will grow in absolute dollars and will account for approximately 26% to 32% of our total revenue through at least the end of fiscal year 2005.

Research and development expenses consist primarily of personnel, third party contractors and related costs associated with the development and enhancement of our suite of products.

Research and development expenses increased by 25% in the second quarter of fiscal year 2005 as compared to the second quarter of fiscal year 2004, resulting primarily from an increase of approximately $2.4 million related to personnel compensation, as headcount increased primarily due to the Staffware and ObjectStar acquisitions.

For the first half of fiscal year 2005 as compared to the same period last year, research and development expenses increased by 24%, resulting primarily from an increase of approximately $5.3 million related to personnel compensation, due to headcount increases.

We believe that continued investment in research and development is critical to attaining our strategic objectives and, as a result, we expect that spending on research and development will increase slightly in absolute dollars and will continue to account for approximately 15% to 17% of total revenue for at least the remainder of fiscal year 2005.

Sales and marketing expenses consist primarily of personnel and related costs of our direct sales force and marketing staff and the cost of marketing programs, including customer conferences, promotional materials, trade shows and advertising, and related travel expenses.

The 30% increase in sales and marketing expense for the second quarter of fiscal year 2005 as compared to the second quarter of fiscal year 2004 was primarily due to a $4.5 million increase in personnel compensation, a $1.1 million increase in travel expenses and a $1.2 million increase in facilities expenses. The increase in personnel compensation was related to an increase in headcount, most significantly in Europe, primarily as a result of the Staffware acquisition. The increase in travel expenses is mainly from increased business activity. The increase in facilities costs was mainly due to additional costs to support expanded operations.

The 29% increase in sales and marketing expense for the first six months of fiscal year 2005 as compared to the same period last year was primarily due to a $9.4 million increase in personnel compensation, a $2.1 million increase in travel expenses and a $2.1 million increase in facilities expenses.

We intend to selectively increase staff in our direct sales organization and to create select product marketing programs; accordingly, we expect that sales and marketing expenditures will increase in absolute dollars, and will continue to account for approximately 33% to 36% of total revenue through at least the remainder of fiscal year 2005.

General and administrative expenses consist primarily of personnel and related costs for general corporate functions, including executive, legal, finance, accounting and human resources.

General and administrative expenses increased by 51% in the second quarter of fiscal year 2005 as compared to the second quarter of fiscal year 2004, primarily due to a $3.1 million increase in consulting and outside services, offset by reductions in other administrative costs. The increase in consulting and outside services was primarily due to costs in connection with compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), tax consulting and legal services.

The increase in general and administrative expenses for the first half of fiscal year 2005 as compared to the same period last year was primarily due to a $6.8 million increase in consulting and outside services and a $2.3 million increase in personnel compensation. The increase in consulting and outside services was primarily due to costs in connection with Sarbanes-Oxley, tax consulting and legal fees. The increase in personnel compensation was due to increased headcount.

We believe that general and administrative expenses, exclusive of bad debt charges, will increase in absolute dollars and continue to account for approximately 7% to 10% of total revenue through at least the remainder of fiscal year 2005.

Stock-based compensation expense principally relates to stock options assumed in acquisitions and stock options granted to consultants. We account for employee stock-based compensation using the intrinsic value method prescribed by APB 25 as discussed in Note 2 to our Condensed Consolidated Financial Statements. Stock-based compensation expense related to stock options granted to consultants is recognized as earned using the multiple option method and is recorded by expense category. At each reporting date, we re-value consultant stock options using the Black-Scholes option-pricing model. As a result, stock-based compensation expense will fluctuate as the fair market value of our common stock fluctuates.

The amount of stock-based compensation was immaterial for all periods presented.

As prescribed by SFAS 123(R) issued in December 2004, and the Amendment to Rule 4-01(a), we will be required to recognize compensation costs in our operating results relating to share-based payments for employee and consultant options, using the fair value method, starting from our first quarter of fiscal year 2006. We expect the adoption of SFAS 123(R) will have a material adverse impact on our net income and income per share, and we are currently evaluating the extent of the impact.

During the second quarter of fiscal year 2005, we initiated a restructuring plan designed to re-align our resources and cost structure, and recognized a restructuring charge of approximately $3.7 million for workforce reduction. The restructuring plan eliminated 49 employees, primarily in our European operations and across all functions as of May 31, 2005. Also see Note 5 to the Condensed Consolidated Financial Statements for accrued restructuring costs.

Intangible assets acquired through corporate acquisitions are comprised of the estimated value of developed technologies, patents, trademarks, established customer bases and non-compete agreements, as well as maintenance and OEM customer royalty agreements. Amortization of developed technologies is included as a cost of revenue, while the amortization of other acquired intangibles is included in operating expenses.

The increase in amortization of acquired intangibles in the second quarter and first half of fiscal year 2005 as compared to the same respective periods of fiscal year 2004 was primarily due to the acquired intangible assets recorded from our acquisition of Staffware in the second half of fiscal year 2004. See Note 4 to Condensed Consolidated Financial Statements for detail on acquired intangibles.

The increase in interest income was primarily due to an increase in the rate of return on our investments, which was partially offset by lower investment balances during the second quarter and the first half of fiscal year 2005, as compared to same periods last year.

Interest expense relates to a note issued in connection with the corporate headquarters purchase in June 2003. The $54.0 million mortgage note is payable to a financial institution collateralized by the commercial real property acquired, and carries a fixed annual interest rate of 5.09% and a 20-year amortization. The principal balance of the mortgage note remaining at the end of the 10-year term of $33.9 million is due as a final balloon payment on July 1, 2013.

Other income (expense), net, is comprised of realized gains and losses on investments and other miscellaneous income and expense items.

Foreign exchange gain during the three and six months ended May 31, 2005 was primarily attributable to the strengthening of the U.S. dollar against the Euro and the British Pound, as compared to same periods last year. Realized gain (loss) on short-term investments represents gains or losses realized when such short-term investments are sold and when other-than-temporary impairment on individual securities is recorded. The decrease in realized loss in short-term investments in the second quarter of fiscal year 2005 compared to same period last year was mainly due to volatility in market interest rates.

We assess the likelihood that we will be able to recover our deferred tax assets. 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 recovery is not likely, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. The available positive evidence at May 31, 2005, included three years of historical operating profits and a projection of future income limited to three years which coincides with the period over which we have recorded historical operating profits, due to our lack of visibility into earnings further into the future. As a result of our analysis of all available evidence, both positive and negative, at May 31, 2005, it was considered more likely than not that a full valuation allowance for deferred tax assets was not required resulting in the release of a portion of the valuation allowance previously recorded against our deferred tax assets generating a $18.2 million tax benefit recorded to the income statement. This resulted in an effective tax rate of (249%) for the three month period ended May 31, 2005 compared with an effective tax rate of 40% used to record the provision for income taxes for the comparable three month period in fiscal year 2004. Our effective tax rate for the second quarter of fiscal year 2005 also differs from the U.S. statutory rate primarily due to state taxes and non-deductible expenses.

In addition, a portion of the valuation allowance previously recorded against stock option related deferred tax assets and acquired deferred tax assets was released, generating a $12.9 million benefit recorded to additional paid-in capital and a $1.3 million benefit recorded to goodwill, respectively. As of May 31, 2005, we believed that the amount of the deferred tax assets recorded on our balance sheet as a result of the partial release of valuation allowance will ultimately be recovered. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.

Of the remaining valuation allowance of approximately $199.8 million at May 31, 2005, we estimate that when this valuation allowance is released, approximately $15.4 million will result in an income tax benefit, approximately $9.4 million will be credited to goodwill and approximately $175.0 million relating to stock option exercises and related tax credits will be credited directly to additional paid-in capital. Of the estimated $15.4 million that will result in an income tax benefit, we estimate that approximately $8.3 million will be realized in the third and fourth quarters of fiscal year 2005.

Net undistributed earnings of certain foreign subsidiaries are considered to be indefinitely reinvested, and accordingly, no provision for U.S. Federal and state income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes.

As of May 31, 2005, the aggregate of our cash, cash equivalents and short-term investments increased by $4.4 million as compared to the end of fiscal year 2004. Our cash and cash equivalents totaled $172.2 million, a decrease of $8.7 million, while our short-term investments totaled $305.7 million, a $13.1 million increase from the amounts as of November 30, 2004.

Net cash provided by operating activities for the six months ended May 31, 2005 was $52.3 million, resulting from our net income of $32.1 million, adjusted by the partial release of the valuation allowance previously recorded against our deferred tax assets of $18.2 million, non-cash charges of $15.0 million and a net increase in assets and liabilities of $23.4 million. Net cash provided by operating activities for the six months ended May 31, 2004 was $33.0 million resulting from net income of $18.1 million combined with non-cash charges of $19.0 million partially offset by a net decrease in assets and liabilities of $4.1 million.

To the extent that the non-cash items increase or decrease our future operating results, there will be no corresponding impact on our cash flows. After excluding the effects of these non-cash charges, the primary changes in cash flows relating to operating activities result from changes in working capital. Our primary source of operating cash flows is the collection of accounts receivable from our customers. Our operating cash flows are also impacted by the timing of payments to our vendors for accounts payable. 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 and management’s assessment of our cash inflows.

Net cash used for investing activities was $44.6 million for the six months ended May 31, 2005, which includes a $13.9 million net purchase of short-term investments, $21.4 million used to acquire ObjectStar and $8.5 million of capital expenditures. Net cash provided by investing activities was $88.7 million for the six months ended May 31, 2004, resulting primarily from $242.3 million net sales and maturities of short-term investments offset by $150.0 million restricted cash recorded in connection with our offer to acquire Staffware.

Net cash used for financing activities for the six months ended May 31, 2005 was $14.9 million, mainly resulting from $11.9 million in proceeds from the exercise of stock options and stock purchases under our Employee Stock Purchase Program (“ESPP”), net of the $26.0 million repurchase of our common stock from the open market. Net cash used for financing activities in the six months ended May 31, 2004 was $104.1 million, primarily resulting from the $115.0 million repurchase of our common stock pursuant to our repurchase agreement with Reuters, partially offset by $11.7 million in proceeds from the exercise of stock options and stock purchases under our ESPP.

We anticipate our operating expenses will grow in absolute dollars and in line with total revenue for the foreseeable future, and we intend to fund our operating expenses through cash flows from operations. Our capital expenditures are expected to be in the range of $15.0 million to $20.0 million for fiscal year 2005. We expect to use our current cash resources to fund capital expenditures as well as acquisitions or investments in complementary businesses, technologies or product lines, and repurchase of our own common stock. In September 2004, our Board of Directors authorized a stock repurchase program for up to $50.0 million of our common stock. As of May 31, 2005, $23.3 million remained available for future repurchases of our stock. We believe that our current cash, cash equivalents and short-term investments together with expected cash flows from operations will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures, and stock repurchases for at least the next twelve months.

In June 2003, we obtained a $54.0 million mortgage note to purchase our corporate headquarters to lower our operating costs. The note is collateralized by the commercial real property acquired. The principal balance remaining at the end of the 10-year term of $33.9 million is due as a final balloon payment on July 1, 2013. We are prohibited from acquiring another company without prior consent from the lender unless we maintain between $100.0 million and $300.0 million of cash and cash equivalents, depending on various other non-financial terms as defined in the agreements. In addition, we are subject to certain non-financial covenants as defined in the agreements. We were in compliance with all covenants as of May 31, 2005.

In conjunction with the purchase of our corporate headquarters, we entered into a 51-year lease of the land upon which the property is located. The land lease was paid in advance for a total of $28.0 million, but is subject to adjustments every ten years based upon changes in fair market value. Should it become necessary, we have the option to prepay any rent increases due as a result of a change in fair market value.

Also, in connection with the mortgage note payable for our corporate headquarters, we have a $20.0 million revolving line of credit that matures on June 21, 2006. The revolving line of credit is available for cash borrowings and for the issuance of letters of credit up to $20.0 million. As of May 31, 2005, no cash loans were outstanding under the facility and a $13.0 million irrevocable letter of credit was outstanding, leaving $7.0 million of available credit for additional letters of credit or cash loans. The $13.0 million irrevocable letter of credit outstanding was issued in connection with the mortgage note payable. The letter of credit automatically renews for successive one-year periods, until the mortgage note payable has been satisfied in full. We are required to maintain a minimum of $40.0 million in unrestricted cash, cash equivalents, and short-term investment balances net of total indebtedness as well as comply with other non-financial covenants defined in the agreement. We were in compliance with all covenants at May 31, 2005.

As of May 31, 2005, we had an additional $4.5 million irrevocable standby letter of credit outstanding in connection with a facility lease. The letter of credit automatically renews annually for the duration of the lease term, which expires in December 2010.

As of May 31, 2005, we had an additional $0.9 million irrevocable standby letter of credit outstanding in connection with a facility surrender agreement. The letter of credit automatically renews annually for the duration of the letter of credit requirement of the surrender agreement, which expires in June 2006.

At various locations worldwide, we lease office space and equipment under non-cancelable operating leases with various expiration dates through November 2014. Rental expenses were approximately $2.2 million and $1.5 million for the three months ended May 31, 2005 and May 31, 2004, respectively, and $4.1 million and $3.0 million for the six months ended May 31, 2005 and May 31, 2004, respectively.

As of May 31, 2005, contractual commitments associated with indebtedness and lease obligations were as follows, (in thousands):

As of May 31, 2005, future minimum lease payments under restructured non-cancelable operating leases included $31.4 million provided for accrued restructuring costs and $1.4 million and $1.8 million for acquisition integration liabilities related to our acquisitions of Talarian and Staffware, respectively. These amounts are included in Accrued Restructuring and Excess Facilities Costs on our Condensed Consolidated Balance Sheets.

Our software license agreements typically provide for indemnification of customers for intellectual property infringement claims. To date, no such claims have been filed against us. We also warrant to customers that software products operate substantially in accordance with specifications. Historically, minimal costs have been incurred related to product warranties, and as such no accruals for warranty costs have been made. In addition, we indemnify our officers and directors under the terms of indemnity agreements entered into with them, as well as pursuant to our certificate of incorporation, bylaws, and applicable provisions of Delaware law. To date, we have not incurred any costs related to these indemnification arrangements.

The following risk factors could materially and adversely affect our future operating results and could cause actual events to differ materially from those predicted in the forward-looking statements we make about our business.

Our future revenue is unpredictable and we expect our quarterly operating results to fluctuate, which may cause our stock price to decline.

Period-to-period comparisons of our operating results may not be a good indication of our future performance. Moreover, our operating results in some quarters have not in the past, and may not in the future, meet the expectations of stock market analysts and investors. This has in the past and may in the future cause our stock price to decline. As a result of our limited operating history, the evolving nature of the markets in which we compete and the size of our customer agreements, we have difficulty accurately forecasting our revenue in any given period. In addition to the factors discussed elsewhere in this section, a number of factors may cause our revenue to fall short of our expectations, or those of stock market analysts and investors, or cause fluctuations in our operating results, including:

In addition, while we may in future years record positive net income and/or increases in net income over prior periods, we may not show period-over-period earnings per share growth or earnings per share growth that meets the expectations of stock market analysts or investors, as a result of increases in the number of our shares outstanding during such periods. In such case, our stock price may decline.

In this regard, our operating results in the second quarter of fiscal year 2005 did not meet the expectations of stock market analysts. We believe that our disappointing results were due in large part to the slippage in closing several large deals around the world. We have in the past and will in the future attempt to increase the diversification of our customer base and reduce our dependence on large transactions. However, due to the nature of our business and enterprise software transactions generally, these efforts may not be successful or even if successful, it is possible that our revenues will continue to be unpredictable.

Our stock price may be volatile, which could cause investors to lose all or part of their investments in our stock or negatively impact the effectiveness of our equity incentive plans.

The stock market in general and the stock prices of technology companies in particular, have experienced volatility which has often been unrelated to the operating performance of any particular company or companies. During the first half of fiscal year 2005, for example, our stock price fluctuated between a high of $13.60 and a low of $6.10. If market or industry-based fluctuations continue, our stock price could decline in the future regardless of our actual operating performance and investors could lose all or part of their investments.

In addition, we have historically used equity incentive programs, such as employee stock options and stock purchase plans, as a substantial part of overall employee compensation arrangements. Continued stock price volatility may negatively impact the value of such equity incentives, thereby diminishing the value of such incentive programs to employees and decreasing the effectiveness of such programs as retention tools.

Our strategy contemplates possible future acquisitions which may result in us incurring unanticipated expenses or additional debt, difficulty in integrating our operations, dilution to our stockholders and may harm our operating results.

Our success depends in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. We have in the past and may in the future, acquire complementary businesses, products or technologies. In this regard, we completed our acquisition of ObjectStar International in March 2005 and acquired the businesses of Staffware and General Interface Corp. in 2004, Talarian Corporation in 2002, PRAJA, Inc. in 2002, Extensibility, Inc. in 2000 and InConcert, Inc. in 1999. We do not know if we will be able to complete any subsequent acquisition or that we will be able to successfully integrate any acquired business, operate it profitably, or retain its key employees. Integrating any newly acquired business, product or technology could be expensive and time-consuming, could disrupt our ongoing business and could distract our management. In particular, integrating sales forces and strategies for marketing and sales has in the past required and will likely require in the future, much time, effort and expense, especially from our management team. Therefore, we might not be able, either immediately post-acquisition or ever, to replicate the pre-acquisition revenues achieved by companies that we acquire. Furthermore, the costs of integrating acquired companies in international transactions can be particularly high, due to local laws and regulations, such as the “EU Directive (98/50/EC) amending Directive 77/187/EEC on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses” (“EU Directive (98/50/EC)”), which are heavily protective of employees’ rights in the context of a merger. We may face competition for acquisition targets from larger and more established companies with greater financial resources. In addition, in order to finance any acquisition, we might need to raise additional funds through public or private financings or use our cash reserves. In that event, we could be forced to obtain equity or debt financing on terms that are not favorable to us and, in the case of equity financing, that may result in dilution to our stockholders. Use of our cash reserves for acquisitions could limit our financial flexibility in the future. Moreover, the terms of existing loan agreements may prohibit certain acquisitions or may place limits on our ability to incur additional indebtedness or issue additional equity securities to finance acquisitions. If we are unable to integrate any newly acquired entity, products or technology effectively, our business, financial condition and operating results would suffer. In addition, any amortization or impairment of acquired intangible assets, stock-based compensation or other charges resulting from the costs of acquisitions could harm our operating results.

Increases in services revenues as a percentage of total revenues may decrease overall margins.

We have in the past and may continue in the future realize a higher percentage of revenues due to services and maintenance revenues. We realize lower margins on our services and maintenance revenues than on our software license revenues. In addition, we may contract with certain third parties to supplement the services we provide to customers, which generally yields lower margins than our internal services business. As a result, if services and maintenance revenues continue to increase as a percentage of total revenues or if we increase our use of third parties to provide services, our margins may decrease.

Our financial results may be materially adversely affected by and our business may suffer due to recent changes in the accounting rules governing the recognition of stock-based compensation expense.

Historically, we have accounted for employee stock-based compensation plans using the intrinsic value method prescribed by APB 25, “Accounting for Stock Issued to Employees.” Under this method, we recognized stock-based compensation for employees in negligible amounts for the three and six months ended May 31, 2005 and 2004, and $0.1 million, net of taxes, for fiscal year 2004. In accordance with SFAS 123 and SFAS 148, we provide additional disclosures of our operating results in the notes to our financial statements as if we had applied the fair value method of accounting. Had we accounted for our stock-based compensation expense for employees in our results of operations under the fair value method of accounting prescribed by SFAS 123, the compensation charges would have been significantly higher than under the intrinsic value method currently used by us and our net income would have been reduced by approximately $3.0 million and $7.6 million for the three and six months ended May 31, 2005, respectively, and by $38.0 million for fiscal year 2004.

In December 2004, FASB issued SFAS 123(R), which replaces SFAS 123 and supersedes APB 25. SFAS 123(R) requires compensation costs relating to share-based payment transactions to be recognized in financial statements. Due to the Amendment to Rule 4-01(a) issued in April 2005, SFAS 123(R) must be adopted by the first interim reporting period of the fiscal year that begins on or after June 15, 2005. Accordingly, we are required to adopt SFAS 123(R) starting in our first quarter of fiscal year 2006. We expect the adoption of SFAS 123(R) to have a material adverse impact on our net income or loss and our net income or loss per share by decreasing our income or increasing our losses by the additional amount of such stock option charges. We are currently in the process of evaluating the extent of such impact and cannot quantify the amount of such impact at this time.

In addition, we modified our Employee Stock Purchase Program in response to these recent accounting changes such that the duration for offering periods was changed to six months and the price at which the common stock is purchased under the ESPP was set at 95% of the fair market value of our common stock on the last day of the respective purchase period. These modifications to the ESPP were effective as of the purchase period beginning February 1, 2005. Since the administrative burden and tax consequences appear to outweigh any benefit that our international employees might receive from participating in the ESPP, we also chose to exclude all non-U.S. employees from the ESPP, on a country-by-country basis, starting with the purchase period beginning February 1, 2005. Such changes to our ESPP are likely to be deemed a reduction in benefits to both our current and prospective employees, potentially increasing the difficulty in retaining and recruiting quality personnel, which could cause our business to suffer.

Recent legislation requires us to undertake an annual evaluation of our internal control over financial reporting (“ICFR”) that may identify internal control weaknesses requiring remediation, which could harm our reputation.

Sarbanes-Oxley imposes new duties on us, our executives, and directors. We have recently completed our evaluation of the design, remediation and testing of effectiveness of our internal control over financial reporting required to comply with the management certification and attestation by our independent registered public accounting firm as required by Section 404 of Sarbanes-Oxley (“Section 404”). While our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that as of November 30, 2004, our ICFR were effective, we cannot predict the outcome of our testing in future periods. If we are not able to implement the requirements of Section 404 in a timely manner and/or if we conclude in future periods that our ICFR is not effective, we may be required to change our ICFR to remediate deficiencies, investors may lose confidence in the reliability of our financial statements, and we may be subject to investigation and/or sanctions by regulatory authorities. Also, in the course of our ongoing ICFR evaluation, we have identified areas of our ICFR requiring improvement and are in the process of designing enhanced processes and controls to address those issues. As a result, we expect to incur additional expenses and diversion of management’s time, any of which could materially increase our operating expenses and accordingly reduce our net income or increase our net losses. And, we cannot be certain that our efforts will be effective or sufficient for us to issue reports in the future. Any such events could adversely affect our financial results and/or may result in a negative reaction in the stock market.

In addition, our evaluation of our ICFR for fiscal year 2004 did not include an evaluation of the Staffware entities which we acquired during the second half of fiscal year 2004. Our inclusion of Staffware in future assessments will increase the cost and complexity of complying with Section 404 and may increase the risks of achieving compliance. These costs include the continued implementation of our integration plan for the acquired Staffware entities during the third quarter of fiscal year 2005, including the continued deployment of our enterprise resource planning software system to the Staffware entities. It may be difficult to design and implement effective ICFR for such combined operations and differences in existing controls of Staffware and other acquired businesses may result in weaknesses that require remediation when the internal control over financial reporting is combined. The management of our combined operations and growth will require us to improve our operational, financial and management controls, as well as our internal reporting systems and controls. We may not be able to implement improvements to our ICFR in an efficient and timely manner and may be unable to conclude in future periods that our internal controls over financial reporting are effective. Such complications could also harm our reputation with investors.

Recently enacted and proposed regulatory changes have caused us to incur increased costs and operating expenses, may limit our ability to obtain director and officer liability insurance and may make it more difficult for us to attract and retain qualified officers and directors.

Sarbanes-Oxley and newly proposed or enacted rules of the SEC and Nasdaq have caused us, and we expect will cause us, to incur significant increased costs in the future as we implement and respond to new requirements. In this regard, achieving and maintaining compliance with Sarbanes-Oxley and other new rules and regulations, may require us to hire additional personnel and use additional outside legal, accounting and advisory services.

Failure to satisfy the new rules could make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, or as executive officers.

We have incurred and expect to incur significant costs associated with our acquisition and integration of Staffware, which could have an adverse effect on our share price.

Since we completed our acquisition of Staffware in the third quarter of fiscal year 2004, we have been integrating many of our operations with those of Staffware. We have incurred and expect to incur significant costs, associated with both the acquisition and integration of Staffware, including intangible costs such as the diversion of management’s attention and focus. The tangible costs have been substantial and include advisers’ fees; reorganization or closure of facilities, including lease terminations; severance,

employee retention and other employee related costs; costs of meetings, training, re-branding and integration of information technology systems; and other integration costs. We also expect to incur costs as a result of international rules and regulations that limit or complicate restructuring plans, such as the EU Directive (98/50/EC) which requires us to undertake costly and time-consuming administrative measures to protect employees’ rights in connection with our acquisition of Staffware. In addition, our inclusion of Staffware in future Section 404 assessments will increase the costs and complexity of complying with Section 404.

The combined entity has incurred and will incur charges to operations, which are not currently reasonably estimable, in the quarters which follow, to reflect costs associated with integrating the two companies. We also expect to incur charges to earnings for amortization of intangibles acquired in the acquisition. Our financial results, including earnings per share, could be adversely affected by these or any additional future charges to reflect additional costs associated with the acquisition, which could have an adverse effect on the price of TIBCO shares.

The past slowdown in the market for infrastructure software and its protracted recovery have caused our revenue to decline in the past and could cause our revenue or results of operations to fall below expectations in the future.

The market for infrastructure software is relatively new and evolving. We earn a substantial portion of our revenue from licenses of our infrastructure software, including application integration software, and sales of related services. We expect to earn substantially all of our revenue in the foreseeable future from sales of these products and services. Our future financial performance will depend on continued growth in the number of organizations demanding software and services for application integration and information delivery and companies seeking outside vendors to develop, manage and maintain this software for their critical applications. A slowly recovering United States and global economy, which has had a disproportionate impact on information technology spending by businesses, has led to a reduction in sales in the past and may continue to do so in the future. Many of our potential customers have made significant investments in internally developed systems and would incur significant costs in switching to third-party products, which may substantially inhibit the growth of the market for infrastructure software. If the market fails to grow, or grows more slowly than we expect, our sales will be adversely affected. Also, even as the economy revives and companies make greater investments in information technology and infrastructure software, our revenue may not grow at the same pace.

Our business is subject to seasonal variations which make quarter-to-quarter comparisons difficult.

Our business is subject to variations throughout the year due to seasonal factors in the U.S. and worldwide. These factors include fewer selling days in Europe during the summer vacation season which has a disproportionate effect on sales in Europe, including the impact of the holidays and a slow down in capital expenditures by our customers at calendar year-end (during our first fiscal quarter). These factors typically result in lower sales activity in our first and third fiscal quarters compared to the rest of the year and they make quarter-to-quarter comparisons of our operating results less meaningful.

Our licensing, distribution and maintenance agreement with Reuters places certain limitations on our ability to conduct our business and involves various execution risks to our business.

Pursuant to the terms of our agreement with Reuters, we are permitted to market and sell our products, other than risk management and market data distribution products, directly and through third party resellers (other than a few specified resellers) to customers in the financial services market. The limitations on our ability to sell risk management and market data distribution products and on reselling through the specified resellers will continue through May 2008.

Reuters may also internally use and embed our products in its solutions. While we currently do not offer any risk management and market data distribution solutions as part of our product offerings, if we were to develop any such products, we would have to rely on Reuters to sell those products in the financial services market until these restrictions end. Reuters is not required to help us sell any of these products in those markets and Reuters may choose not to sell our products over our competitors’ products. Consequently, our revenue from the financial services market will be dependent upon our ability to directly market and sell our products in such market or indirectly with resellers other than Reuters.

Reuters paid us quarterly minimum guaranteed distribution fees through March 2005. We no longer receive such minimum guaranteed fees and have to replace such revenue with direct sales either to financial services companies or increased sales in other sectors. It is possible that we may not be successful in generating enough revenue from financial services market customers to replace these minimum guaranteed payments. Any inability on our part to replace the minimum guaranteed revenue from Reuters will adversely affect our business and operating results.

Any failure by us to meet the requirements of current or newly-targeted customers may have a detrimental impact on our business or operating results.

If we fail to meet the expectations or product and service requirements of our current customers, our reputation and business may be harmed. In addition, we may wish to expand our customer base into markets in which we have limited experience. In some cases, customers in different markets, such as financial services or government, have specific regulatory or other requirements which we must meet. For example, in order to maintain contracts with the U.S. Government, we must comply with specific rules and regulations relating to and that govern such contracts. If we fail to meet such requirements, we could be subject to civil or criminal liability or a reduction of revenue which could harm our business, operating results and financial condition.

Any losses we incur as a result of our exposure to the credit risk of our customers could harm our results of operations.

Most of our licenses are on an “open credit” basis. We monitor individual customer payment capability in granting such open credit arrangements, seek to limit credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts.

Because of the slow recovery in the global economy, our exposure to credit risks has increased. Although these losses have not been material to date, future losses, if incurred, could harm our business and have an adverse effect on our business, operating results and financial condition.

We have in the past incurred significant expenses in both hiring new employees and reducing or re-aligning our headcount in response to changing market conditions, and the volatile nature of our industry makes it likely that we will continue to expend significant resources in managing our operations.

Our ability to successfully offer products and services and implement our business plan in a rapidly evolving market requires an effective planning and management process. We have increased the scope of our operations both domestically and internationally. We must successfully integrate new employees into our operations and generate sufficient revenues to justify the costs associated with these employees. If we fail to successfully integrate employees or to generate the revenue necessary to offset employee-related expenses, we may be forced to reduce our headcount, which would force us to incur significant expenses and would harm our business and operating results. For example, in the three months ended May 31, 2005, we recorded a $3.7 million restructuring charge for a workforce reduction to re-align our resources and cost structure. We expect that we will need to continue to improve our financial and managerial controls, reporting systems and procedures and continue to train and manage our workforce worldwide. Furthermore, we expect that we will be required to manage an increasing number of relationships with various customers and other third parties. Failure to control costs in any of the foregoing areas efficiently and effectively could interfere with the growth of our business as a whole.

If we do not retain our key management personnel and attract and retain other highly skilled employees, we may not be able to execute our business strategy effectively.

If we fail to retain and recruit key management and other skilled employees, our business and our ability to obtain new customers, develop new products and provide acceptable levels of customer service could suffer. The success of our business is heavily dependent on the leadership of our key management personnel, including Vivek Ranadivé, our President and Chief Executive Officer. The loss of one or more key employees could adversely affect our continued operations. We have experienced changes in our management organization over the past several years and may experience additional management changes in the future. Uncertainty created by turnover of key employees could also result in reduced confidence in our financial performance which could cause fluctuations in our stock price and result in further turnover of our employees.

Our success also depends on our ability to recruit, retain and motivate highly skilled sales, marketing and engineering personnel and we have invested significantly in building our sales, marketing and engineering groups. Competition for these people in the software industries is intense, and we may not be able to successfully recruit, train or retain qualified personnel. In addition, we have in the past and may in the future experienced turnover in our marketing and sales management.

The loss of any significant customer could harm our business and cause our stock price to decline.

We do not have long-term sales contracts with any of our customers. Our customers may choose not to purchase our products in the future. As a result, a customer that generates substantial revenue for us in one period may not be a source of revenue in subsequent periods. For example, although no single customer represented greater than 10% of total revenue during the first half of fiscal year 2005, for the first quarter of fiscal year 2004, revenue from one customer, Telecom Italia and its affiliates, accounted for 16% of total revenue, and for the second quarter of fiscal year 2004, revenue from one other customer, Pepsico, accounted for 15% of total revenue. Any inability on our part to upsell to and generate revenues from our existing customers could adversely affect our business and operating results.

Our business may be harmed if Reuters uses the technology we license from it to compete with us or grants licenses to such technology to others who use it to compete with us.

We license from Reuters the intellectual property that was incorporated into early versions of some of our software products. We do not own this licensed technology. Because Reuters has access to intellectual property used in our products, it could use this intellectual property to compete with us. Reuters is not restricted from using the licensed technology it has licensed to us to produce products that compete with our products, and it can grant limited licenses to the licensed technology to others who may compete with us. In addition, we must license to Reuters all of the products, and the source code for certain products, we create through December 2012. This may place Reuters in a position to more easily develop products that compete with ours.

Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

We cannot be certain that our products do not infringe issued patents or other intellectual property rights of others. In addition, because patent applications in the United States and many other countries are not publicly disclosed until a patent is issued, applications covering technology used in our software products may have been filed without our knowledge. We may be subject to legal proceedings and claims from time to time, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our licensees in connection with their use of our products. Intellectual property litigation is expensive and time-consuming and could divert our management’s attention away from running our business and seriously harm our business. If we were to discover that our products violated the intellectual property rights of others, we would have to obtain licenses from these parties in order to continue marketing our products without substantial reengineering. We might not be able to obtain the necessary licenses on acceptable terms or at all, and if we could not obtain such licenses, we might not be able to reengineer our products successfully or in a timely fashion. If we fail to address any infringement issues successfully, we would be forced to incur significant costs, including damages and potentially satisfying indemnification obligations that we have with our customers, and we could be prevented from selling certain of our products.

Our intellectual property or proprietary rights could be misappropriated, which could force us to become involved in expensive and time-consuming litigation.

We regard our copyrights, service marks, trademarks, trade secrets, patents (licensed or others) and similar intellectual property as critical to our success. Any misappropriation of our proprietary information by third parties could harm our business, financial condition and operating results. In addition, the laws of some countries do not provide the same level of protection of our proprietary information as do the laws of the United States. If our proprietary information or material were misappropriated, we might have to engage in litigation to protect it. We might not succeed in protecting our proprietary information if we initiate intellectual property litigation,

and, in any event, such litigation would be expensive and time-consuming, could divert our management’s attention away from running our business and could seriously harm our business.

The market for our products and services is extremely competitive and subject to rapid change. We compete with various providers of enterprise application integration solutions, including webMethods and SeeBeyond. We also compete with various providers of web services such as Microsoft, BEA, SAP and IBM. We believe that of these companies, IBM has the potential to offer the most complete competitive set of products for enterprise application integration. As a result of our acquisition of Staffware, we now also compete with various providers of BPM solutions. In addition, some of our competitors are effectively expanding their competitive product offerings and market position through acquisitions. For example, Sun Microsystems announced in June 2005 that it intends to purchase SeeBeyond, potentially making Sun Microsystems a direct competitor of ours as well. We also face competition for certain aspects of our product and service offerings from major systems integrators. We expect additional competition from other established and emerging companies.

Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition and larger customer bases than we do. Our present or future competitors may be able to develop products comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends or customer requirements, or devote greater resources to the development, promotion and sale of their products than we do. Accordingly, we may not be able to compete effectively in our markets or competition may intensify and harm our business and operating results. If we are not successful in developing enhancements to existing products and new products in a timely manner, achieving customer acceptance or generating higher average selling prices, our gross margins may decline, and our business and operating results may suffer.

Market acceptance of new platforms and web services standards may require us to undergo the expense of developing and maintaining compatible product lines.

Our software products can be licensed for use with a variety of platforms. There may be future or existing platforms that achieve popularity in the marketplace which may not be architecturally compatible with our software products. In addition, the effort and expense of developing, testing and maintaining software products will increase as more platforms achieve market acceptance within our target markets. Moreover, future or existing user interfaces that achieve popularity within the enterprise application integration marketplace may not be compatible with our current software products. If we are unable to achieve market acceptance of our software products or adapt to new platforms, our sales and revenues will be adversely affected.

Developing and maintaining different software products could place a significant strain on our resources and software product release schedules, which could harm our revenue and financial condition. If we are not able to develop software for accepted platforms or fail to adopt webservices standards, our license and service revenues and our gross margins could be adversely affected. In addition, if the platforms we have developed software for are not accepted, our license and service revenues and our gross margins could be adversely affected.

The outcome of litigation pending against us could require us to expend significant resources and could harm our business and financial resources.

In May 2005, three purported shareholder class action complaints were filed against us and several of our officers in the U.S. District Court for the Northern District of California. The plaintiffs in such actions are seeking to represent a class of purchasers of TIBCO’s common stock from September 21, 2004 through March 1, 2005. The complaints generally allege that we made false or misleading statements concerning our operating results, our business and internal controls and the integration of Staffware. The complaints seek unspecified monetary damages. We intend to defend ourselves vigorously; however we expect to incur significant costs in mounting such defense.

In addition, certain of our directors and officers and certain investment bank underwriters have been named in a putative class action for violation of the federal securities laws in the U.S. District Court for the Southern District of New York, captioned “In re TIBCO Software Inc. Initial Public Offering Securities Litigation.” This is one of a number of cases challenging underwriting practices in the initial public offerings of more than 300 companies, which have been coordinated for pretrial proceedings as “In re Initial Public Offering Securities Litigation.” Plaintiffs generally allege that the underwriters engaged in undisclosed and improper underwriting activities, namely the receipt of excessive brokerage commissions and customer agreements regarding post-offering purchases of stock in exchange for allocations of IPO shares. Plaintiffs also allege that various investment bank securities analysts issued false and misleading analyst reports. The complaint against us claims that the purported improper underwriting activities were not disclosed in the registration statements for our IPO and secondary public offering and seeks unspecified damages on behalf of a purported class of persons who purchased our securities or sold put options during the time period from July 13, 1999 to December 6, 2000.

A lawsuit with similar allegations of undisclosed improper underwriting practices, and part of the same coordinated proceedings, is pending against Talarian, which we acquired in 2002. That action is captioned “In re Talarian Corp. Initial Public Offering Securities Litigation.” The complaint against Talarian, certain of its underwriters, and certain of its former directors and officers claims that the purported improper underwriting activities were not disclosed in the registration statement for Talarian’s IPO and seeks unspecified damages on behalf of a purported class of persons who purchased Talarian securities during the time period from July 20, 2000 to December 6, 2000.

A proposal to settle the claims against all of the issuers and individual defendants in the coordinated litigation was conditionally accepted by us and given conditional preliminary Court approval. The completion of the settlement is subject to a number of conditions, including final Court approval. Under the settlement, the plaintiffs will dismiss and release all claims against participating defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in the action, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay an amount equal to $1.0 billion less any amounts ultimately collected by the plaintiffs from the underwriter defendants in all the cases. Unlike most of the defendant issuers’ insurance policies, including ours, Talarian’s policy contains a specific self-insured retention in the amount of $0.5 million for IPO “laddering” claims, including those alleged in this matter. Thus, under the proposed settlement, if any payment is required under the insurers’ guaranty, our subsidiary, Talarian, would be responsible for paying its pro rata share of the shortfall, up to $0.5 million of the self-insured retention remaining under its policy.

The uncertainty associated with substantial unresolved lawsuits could harm our business, financial condition and reputation. The defense of the lawsuits could result in the diversion of our management’s time and attention away from business operations, which could harm our business. Negative developments with respect to the lawsuits could cause our stock price to decline. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment could seriously harm our financial condition and liquidity.

Natural or other disasters could disrupt our business and result in loss of revenue or in higher expenses.

Natural disasters and other business disruptions could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters and many of our operations are located in California, a seismically active region. A natural disaster, such as the recent tsunami in Asia, or other unanticipated business disruption could have a material adverse impact on our business, operating results and financial condition both in the United States and abroad.

Some provisions in our certificate of incorporation and bylaws, as well as a stockholder rights plan, may have anti-takeover effects.

In February 2004, our Board of Directors adopted a stockholder rights plan and declared a dividend distribution of one right for each outstanding share of our common stock. Each right, when exercisable, entitles the registered holder to purchase certain securities at a specified purchase price. The rights plan may have the anti-takeover effect of causing substantial dilution to a person or group that attempts to acquire TIBCO on terms not approved by our Board of Directors. The existence of the rights plan could limit the price that certain investors might be willing to pay in the future for shares of our common stock and could discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. In addition, provisions of our current certificate of incorporation and bylaws, as well as Delaware corporate law, could make it more difficult for a third party to acquire us without the support of our Board of Directors, even if doing so would be beneficial to our stockholders.

We invest in marketable securities in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. The maximum allowable duration of a single issue is 2.5 years and the maximum allowable duration of the portfolio is 1.3 years.

As of May 31, 2005, we had an investment portfolio of fixed income securities totaling $305.7 million, excluding those classified as cash and cash equivalents. Our investments consist primarily of bank and finance notes, various government obligations and asset-backed securities. These securities are classified as available-for-sale and are recorded on the balance sheet at fair market value with unrealized gains or losses reported as a separate component of stockholders’ equity. Unrealized losses are charged against income when a decline in fair market value is determined to be other-than-temporary. The specific identification method is used to determine the cost of securities sold.

The investment portfolio is subject to interest rate risk and will fall in value in the event market interest rates increase. If market interest rates were to increase immediately and uniformly by 100 basis points from levels as of May 31, 2005, the fair market value of the portfolio would decline by approximately $2.5 million.

We develop products in the United States of America and sell in North America, South America, Europe, the Pacific Rim and the Middle East. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. The acquisition of Staffware increased our international sales and potentially increases our exposure to foreign exchange fluctuations. A majority of sales are currently made in U.S. dollars; however, a strengthening of the dollar could make our products less competitive in foreign markets. To manage currency exposure related to net assets and liabilities denominated in foreign currencies, we enter into forward contracts for certain foreign denominated assets or liabilities. We do not enter into derivative financial instruments for trading purposes. We did not have any outstanding forward contracts as of May 31, 2005.

Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In May 2005, three purported shareholder class action complaints were filed against us and several of our officers in the U.S. District Court for the Northern District of California. The plaintiffs in such actions are seeking to represent a class of purchasers of TIBCO’s common stock from September 21, 2004 through March 1, 2005. The complaints generally allege that we made false or misleading statements concerning our operating results, our business and internal controls and the integration of Staffware. The complaints seek unspecified monetary damages.

At our annual meeting of stockholders on April 21, 2005, the following two proposals were voted on and approved as follows:

PROPOSAL I (To elect six directors to serve until our next annual meeting of stockholders, or until their successors are duly elected and qualified.)

PROPOSAL II (To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending November 30, 2005.)

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.


TIBCO SOFTWARE INC.

By:		/s/ Christopher G. O’Meara
		Christopher G. O’Meara Executive Vice President and Chief Financial Officer



By:		/s/ Sydney L. Carey
		Sydney L. Carey Vice President, Corporate Controller and Chief Accounting Officer


Item		Page No.

	PART I – FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of May 31, 2005 and November 30, 2004	3

	Condensed Consolidated Statements of Operations for the three and six months ended May 31, 2005 and May 31, 2004	4

	Condensed Consolidated Statements of Cash Flows for the six months ended May 31, 2005 and May 31, 2004	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4	Controls and Procedures	42

	PART II – OTHER INFORMATION

Item 1	Legal Proceedings	43

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 4	Submission of Matters to a Vote of Security Holders	43

Item 6	Exhibits	43

	Signatures	44


	As of May 31, 2005			As of November 30, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	172,170		$	180,849
Short-term investments		305,730			292,686
Accounts receivable, net of allowances; $4,270 and $3,845, respectively		93,135			109,002
Accounts receivable from related parties		1,165			2,886
Other current assets		15,502			16,984

Total current assets		587,702			602,407
Property and equipment, net		117,817			118,058
Long-term deferred income tax assets		30,850			—
Other assets		33,008			32,389
Goodwill		272,203			265,137
Acquired intangibles, net		70,977			64,820

Total assets	$	1,112,557		$	1,082,811

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,696		$	7,058
Accrued liabilities		74,532			84,429
Accrued restructuring and excess facilities costs		9,514			9,489
Deferred revenue		74,362			60,633
Current portion of long-term debt		1,753			1,708

Total current liabilities		169,857			163,317
Accrued excess facilities costs, less current portion		27,160			29,878
Long-term deferred income tax liabilities		18,275			18,991
Long-term debt, less current portion		49,255			50,143

Total liabilities		264,547			262,329
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.001 par value; 1,200,000 shares authorized; 212,377 and 213,912 shares issued and outstanding, respectively		212			214
Additional paid-in capital		931,869			933,223
Unearned stock-based compensation		(131	)		(149	)
Accumulated other comprehensive income (loss)		(2,552	)		702
Accumulated deficit		(81,388	)		(113,508	)

Total stockholders’ equity		848,010			820,482

Total liabilities and stockholders’ equity	$	1,112,557		$	1,082,811


	Three Months Ended						Six Months Ended
	May 31, 2005			May 31, 2004			May 31, 2005			May 31, 2004
Revenue:
License revenue:
Non-related parties	$	40,082		$	41,261		$	76,732		$	77,720
Related parties		1,668			4,057			16,038			8,368

Total license revenue		41,750			45,318			92,770			86,088

Service and maintenance revenue:
Non-related parties		56,456			31,644			105,594			60,986
Related parties		1,556			3,317			4,336			6,836
Reimbursable expenses		1,626			970			2,834			1,740

Total service and maintenance revenue		59,638			35,931			112,764			69,562

Total revenue		101,388			81,249			205,534			155,650

Cost of revenue:
Cost of revenue, non-related parties		31,402			18,419			58,881			34,832
Cost of revenue, related parties		—			—			92			—

Total cost of revenue		31,402			18,419			58,973			34,832

Gross profit		69,986			62,830			146,561			120,818

Operating expenses:
Research and development		17,269			13,839			33,459			26,958
Sales and marketing		35,089			26,891			69,295			53,527
General and administrative		8,655			5,736			18,455			10,542
Restructuring charges		3,743			—			3,743			—
Amortization of acquired intangibles		2,315			483			4,198			982

Total operating expenses		67,071			46,949			129,150			92,009

Income from operations		2,915			15,881			17,411			28,809
Interest income		3,598			2,092			6,382			4,205
Interest expense		(688	)		(691	)		(1,370	)		(1,388	)
Other income (expense), net		406			(1,243	)		759			(1,044	)

Income before income taxes		6,231			16,039			23,182			30,582
Provision for (benefit from) income taxes		(15,500	)		6,441			(8,937	)		12,456

Net income	$	21,731		$	9,598		$	32,119		$	18,126

Net income per share:
Basic	$	0.10		$	0.05		$	0.15		$	0.09

Shares used to compute net income per share – Basic		214,551			198,816			214,651			204,002

Net income per share:
Diluted	$	0.10		$	0.05		$	0.14		$	0.08

Shares used to compute net income per share – Diluted		221,943			212,658			225,733			217,555


	Six Months Ended
	May 31, 2005			May 31, 2004
Cash flows from operating activities:
Net income	$	32,119		$	18,126
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment		7,521			6,300
Amortization of acquired intangibles		7,392			3,365
Stock-based compensation		40			117
Realized loss on investments, net		20			119
Deferred income tax		(18,236	)		—
Tax benefits related to acquisitions		—			9,131
Changes in assets and liabilities:
Accounts receivable		18,079			(16,869	)
Accounts receivable from related parties		1,721			216
Other assets		1,670			(1,440	)
Accounts payable		2,686			276
Accrued liabilities, restructuring and excess facilities costs		(11,601	)		7,126
Deferred revenue		10,904			6,544

Net cash provided by operating activities		52,315			33,011

Cash flows from investing activities:
Purchases of short-term investments		(157,789	)		(390,339	)
Sales and maturities of short-term investments		143,915			632,637
Cash used in acquisition		(21,449	)		—
Purchases of property and equipment, net		(8,532	)		(2,743	)
Purchases of private equity investments		(210	)		(121	)
Restricted cash and short-term investments pledged as security		(580	)		(150,748	)

Net cash provided by (used for) investing activities		(44,645	)		88,686

Cash flows from financing activities:
Proceeds from exercise of stock options		8,953			9,236
Proceeds from employee stock purchase program		2,969			2,423
Repurchase of the Company’s common stock		(26,024	)		(115,000	)
Principal payments on long term debt		(842	)		(802	)

Net cash used for financing activities		(14,944	)		(104,143	)

Effect of exchange rate changes on cash		(1,405	)		422

Net change in cash and cash equivalents		(8,679	)		17,976
Cash and cash equivalents at beginning of period		180,849			83,278

Cash and cash equivalents at end of period	$	172,170		$	101,254

Supplemental cash flow information:
Cash paid for taxes	$	3,264		$	1,325
Cash paid for interest		1,370			1,388
Non-cash investing and financing activities:
Deferred stock compensation		(132	)		(127	)


	Three Months Ended						Six Months Ended
	May 31, 2005			May 31, 2004			May 31, 2005			May 31, 2004
Net income, as reported	$	21,731		$	9,598		$	32,119		$	18,126
Add: Total stock-based employee compensation expense determined under intrinsic value based method for all awards, net of related tax effects		8			20			17			74
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,985	)		(7,591	)		(7,616	)		(17,877	)

Pro forma net income	$	18,754		$	2,027		$	24,520		$	323

Net income per share:
Basic – as reported	$	0.10		$	0.05		$	0.15		$	0.09

Basic – pro forma	$	0.09		$	0.01		$	0.11		$	0.00

Diluted – as reported	$	0.10		$	0.05		$	0.14		$	0.08

Diluted – pro forma	$	0.09		$	0.01		$	0.11		$	0.00


	Purchase/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Classified on Balance Sheet as:
	Purchase/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Cash and Cash Equivalents		Short-term Investments
As of May 31, 2005
U.S. Government debt securities	$	165,959	$	9	$	(1,878	)	$	164,090	$	—	$	164,090
Corporate debt securities		112,210		9		(698	)		111,521		—		111,521
Notes and other securities		39,780		1		(146	)		39,635		9,524		30,111
Marketable equity securities		6		2		—			8		—		8
Money market funds		469		—		—			469		469		—

Total	$	318,424	$	21	$	(2,722	)	$	315,723	$	9,993	$	305,730

As of November 30, 2004
U.S. Government debt securities	$	161,180	$	—	$	(1,022	)	$	160,158	$	—	$	160,158
Corporate debt securities		93,183		7		(568	)		92,622		—		92,622
Notes and other securities		60,117		12		(320	)		59,809		19,943		39,866
Marketable equity securities		40		—		—			40		—		40
Money market funds		237		—		—			237		237		—

Total	$	314,757	$	19	$	(1,910	)	$	312,866	$	20,180	$	292,686


	As of May 31, 2005		As of November 30, 2004
Contractual maturities
Less than one year	$	209,563	$	123,269
One to three years		96,159		169,377

Total	$	305,722	$	292,646


	Less than 12 months					Greater than 12 months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government debt securities	$	90,350	$	(712	)	$	65,744	$	(1,166	)	$	156,094	$	(1,878	)
Corporate debt securities		61,949		(417	)		38,563		(281	)		100,512		(698	)
Notes and other securities		12,028		(57	)		15,783		(89	)		27,811		(146	)

	$	164,327	$	(1,186	)	$	120,090	$	(1,536	)	$	284,417	$	(2,722	)


Total tangible assets acquired
Accounts Receivable	$	2,577
Other		225

Total tangible assets acquired		2,802		$	2,802
Amortizable intangible assets:
Developed technology		900
Patents/core technology		1,300
Maintenance contracts		9,700
Non-compete agreements		200
Customer base		1,600

Total amortizable intangible assets		13,700			13,700
Goodwill					8,293

Total assets acquired					24,795
Liabilities assumed
Deferred revenue		(3,018	)
Other		(328	)

Total liabilities assumed		(3,346	)		(3,346	)

Total purchase price				$	21,449


Cash acquired				$	27,190
Tangible assets acquired:
Accounts receivable	$	16,433
Other current assets		2,078
Property and equipment		4,623
Deferred tax assets		5,037
Other non-current assets		1,743

Total tangible assets acquired		29,914			29,914
Amortizable intangible assets:
Developed technology		21,700
Patents/core technology		14,200
Maintenance contracts		14,400
Customer base		14,000
Trademarks		3,500

Total amortizable intangible assets		67,800			67,800
In-process research and development					2,200
Goodwill, as adjusted					164,120

Total assets acquired					291,224
Liabilities assumed:
Accounts payable		(1,854	)
Accrued liabilities		(20,114	)
Deferred revenue		(11,391	)

Total liabilities assumed		(33,359	)		(33,359	)
Deferred tax liability for acquired intangibles					(20,736	)

Total purchase price				$	237,129


	Excess Facilities			Workforce Reduction and Other			Total
Original accrual	$	2,913		$	2,774		$	5,687
Utilized in fiscal year 2004		(68	)		(1,719	)		(1,787	)

Balance as of November 30, 2004		2,845			1,055			3,900
Utilized or adjusted in the six month period		(1,086	)		(1,030	)		(2,116	)

Balance as of May 31, 2005	$	1,759		$	25		$	1,784


	Three Months Ended May 31, 2004		Six Months Ended May 31, 2004
Revenue	$	97,605	$	191,187

Net income	$	92	$	9,086

Net income per share – Basic	$	—	$	0.04

Net income per share – Diluted	$	—	$	0.04


	Goodwill
Balance as of November 30, 2004	$	265,137
Changes in the six months ended May 31, 2005
Goodwill from the acquisition of ObjectStar		8,293
Tax benefit related to acquired deferred tax assets		(1,324	)
Other		97

Balance as of May 31, 2005	$	272,203


		As of May 31, 2005							As of November 30, 2004
	Weighted Average Life	Gross Amount		Accumulated Amortization			Net Carrying Amount		Gross Amount		Accumulated Amortization			Net Carrying Amount
Developed technologies	4.8 years	$	44,338	$	(25,385	)	$	18,953	$	43,630	$	(22,230	)	$	21,400
Customer base	4.9 years		20,690		(7,868	)		12,822		19,060		(6,365	)		12,695
Patents/core technology	7.8 years		15,374		(1,824	)		13,550		14,200		(887	)		13,313
Trademarks	4.9 years		5,119		(2,248	)		2,871		5,150		(1,878	)		3,272
Non-compete agreements	2.3 years		680		(497	)		183		480		(480	)		—
OEM customer royalty agreements	5.0 years		1,000		(617	)		383		1,000		(517	)		483
Maintenance agreements	8.3 years		24,829		(2,614	)		22,215		15,000		(1,343	)		13,657

Total		$	112,030	$	(41,053	)	$	70,977	$	98,520	$	(33,700	)	$	64,820


	Estimated Amortization Expense
Remainder of year ending November 30, 2005	$	7,126
Year ending November 30, 2006		13,803
Year ending November 30, 2007		13,681
Year ending November 30, 2008		13,478
Thereafter		22,889

Total	$	70,977


	Total		Remainder of 2005		2006		2007		2008		2009		Thereafter
Operating commitments:
Debt principal	$	51,008	$	865	$	1,798	$	1,892	$	1,990	$	2,094	$	42,369
Debt interest		17,894		1,289		2,511		2,417		2,319		2,215		7,143
Operating leases		27,364		2,801		4,876		3,674		3,517		3,010		9,486

Total operating commitments		96,266		4,955		9,185		7,983		7,826		7,319		58,998
Restructuring-related commitments:
Operating leases, net of sublease income		33,818		2,992		4,779		5,423		6,341		6,688		7,595

Total commitments	$	130,084	$	7,947	$	13,964	$	13,406	$	14,167	$	14,007	$	66,593


	Total			Remainder of 2005			2006			2007			2008			2009			Thereafter
Gross lease obligations	$	44,439		$	4,603		$	7,786		$	7,712		$	7,789		$	7,816		$	8,733
Sublease income		(10,621	)		(1,611	)		(3,007	)		(2,289	)		(1,448	)		(1,128	)		(1,138	)

Net lease obligations	$	33,818		$	2,992		$	4,779		$	5,423		$	6,341		$	6,688		$	7,595


	Unrealized Gain (Loss) in Available-for-Sale Securities			Foreign Currency Translation			Accumulated Other Comprehensive Income (Loss)
Balance as of November 30, 2004	$	(1,873	)	$	2,575		$	702
Change during six month period		(492	)		(2,762	)		(3,254	)

Balance as of May 31, 2005	$	(2,365	)	$	(187	)	$	(2,552	)


	Accrued Excess Facilities Costs												Accrued Severance Costs									Total
	Headquarter Facilities			Talarian Integration			Staffware Integration			Subtotal			2005 Restructuring			Staffware Integration			Subtotal			Total
Balance as of Nov 30, 2004	$	34,421		$	2,101		$	2,845		$	39,367		$	—		$	1,055		$	1,055		$	40,422
Acquisition integration costs adjustment		—			—			—			—			—			(352	)		(352	)		(352	)
Restructuring charge		—			—			—			—			3,743			—			3,743			3,743
Non-cash write-down of furniture and fixtures		—			—			(813	)		(813	)		—			—			—			(813	)
Net cash utilized in the six month period		(3,006	)		(730	)		(273	)		(4,009	)		(1,614	)		(678	)		(2,292	)		(6,301	)

Balance as of May 31, 2005	$	31,415		$	1,371		$	1,759		$	34,545		$	2,129		$	25		$	2,154		$	36,699


	As of May 31, 2005		As of November 30, 2004
United States of America	$	110,758	$	111,871
United Kingdom		4,206		3,401
Other countries		2,853		2,786

Total long-lived assets	$	117,817	$	118,058


(in thousands, except percentages)	Three Months Ended May 31,							Six Months Ended May 31,
(in thousands, except percentages)	2005		2004		Change			2005		2004		Change
Total revenue	$	101,388	$	81,249	$	20,139		$	205,534	$	155,650	$	49,884
						25	%						32	%


(In thousands, except per-share amounts)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares That May Yet Be Purchased under the Plans or Programs (1)
February 28 to March 27, 2005	—	$	—	—	$	47,531
March 28 to April 27, 2005	2,200	$	7.00	2,200	$	32,131
April 28 to May 29, 2005	1,300	$	6.81	1,300	$	23,276

Total	3,500	$	6.93	3,500	$	23,276


	Total Vote For Each Director	Total Vote Withheld From Each Director
Vivek Y. Ranadivé	178,284,813	15,269,111
Bernard Bourigeaud	182,547,643	11,006,281
Eric Dunn	182,555,654	10,998,270
Naren Gupta	173,571,692	19,982,232
Peter Job	179,215,501	14,338,423
Philip K. Wood	167,928,001	25,625,923


31.1		Rule 13a – 14(a) / 15d – 14(a) Certification by Chief Executive Officer.

31.2		Rule 13a – 14(a) / 15d – 14(a) Certification by Chief Financial Officer.

32.1		Section 1350 Certification by Chief Executive Officer.

32.2		Section 1350 Certification by Chief Financial Officer.