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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of October 6, 2006 was 211,207,378 shares.

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, 2005, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 10, 2006.

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.

Our fiscal year ends on November 30^th of each year. For purposes of presentation, we have indicated the third quarter of fiscal years 2006 and 2005 as ended on August 31, 2006 and 2005, respectively; whereas in fact, the third quarter of fiscal years 2006 and 2005 actually ended on September 3, 2006 and August 28, 2005, respectively. The third quarter of fiscal years 2006 and 2005 both consisted of 13 weeks. There were 277 days and 271 days for the first nine months of fiscal year 2006 and 2005, respectively.

The results of operations for the three and nine months ended August 31, 2006, are not necessarily indicative of the results that may be expected for the year ending November 30, 2006, or any other future period, and we make no representations related thereto.

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 generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable and collection of the resulting receivable is reasonably assured. When contracts contain multiple elements wherein vendor-specific objective evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method” prescribed by 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 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. Providing all other revenue criteria are met, the upfront, minimum, non-refundable license fees from OEM customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reported units shipped.

Professional services revenue consists primarily of revenue received for assisting with the implementation of our software, on-site support, training and other consulting services. Many customers who license our software also enter into separate professional services arrangements with the Company. In determining whether professional services revenue should be accounted for separately from license revenue, we evaluate, among other factors: the nature of our software products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenue is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. Substantially all of our professional services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a proportional performance basis. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. Training revenue is recognized as training services are delivered.

For arrangements that do not qualify for separate accounting for the license and professional services revenues, including arrangements that involve significant modification or customization of the software, that include milestones or customer specific acceptance criteria that may affect collection of the software license fees, or where payment for the software license is tied to the performance of professional services, software license revenue is generally recognized together with the professional services revenue using either the percentage-of-completion or completed-contract method. Under the percentage-of-completion method, revenue recognized is equal to the ratio of costs expended to date to the anticipated total contract costs, based on current estimates of costs to complete the project. If the total estimated costs to complete a project exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized currently.

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.

On December 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors including employee stock options and employee stock purchases under our Employee Stock Purchase Plan (“ESPP”) based on estimated fair values. SFAS 123(R) supersedes previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal year 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) providing supplemental implementation guidance for SFAS 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations. We adopted SFAS 123(R) using the modified prospective transition method which requires the application of the accounting standard starting from December 1, 2005, the first day of our fiscal year 2006. Our Consolidated Financial Statements, as of and for the three and nine months ended August 31, 2006, reflect the impact of SFAS 123(R). Stock-based compensation expense for the three and nine months ended August 31, 2006, was $3.5 million and $11.8 million, respectively, which consisted primarily of stock-based compensation expense related to employee stock options recognized under SFAS 123(R). Our ESPP, as modified in 2005, is deemed to be non-compensatory, and therefore, no stock-based compensation expense was recognized related to our ESPP.

Prior to the adoption of SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense for employee stock options had been recognized in our Consolidated Statements of Operations, because the exercise price of our stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method we used in adopting SFAS 123(R), our results of operations prior to fiscal year 2006 have not been restated to reflect, and do not include, the possible impact of SFAS 123(R).

Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the three and nine months ended August 31, 2006, included compensation expense for stock-based awards granted prior to, but not yet vested as of November 30, 2005, based on the fair value on the grant date estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for stock-based awards granted subsequent to November 30, 2005, based on the fair value on the grant date estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), we changed our method of attributing the value of stock-based compensation expense from the accelerated multiple-option method to the ratable single-option method. Compensation expense for all stock-based awards granted on or prior to November 30, 2005, will continue to be recognized using the accelerated multiple-option approach, while compensation expense for all stock-based awards granted subsequent to November 30, 2005, will be recognized using the ratable single-option method. As stock-based compensation expense recognized in our results is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Prior to fiscal year 2006, we accounted for forfeitures as they occurred for the purposes of pro forma information under SFAS 123, as disclosed in our Notes to Consolidated Financial Statements for the related periods.

Upon adoption of SFAS 123(R), we selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock. We determined that a blend of implied volatility and historical volatility is more reflective of the market conditions and a better indicator of expected volatility than solely using historical volatility.

Generally, stock options granted from our 1996 Stock Option Plan (“1996 Stock Plan”) prior to December 1, 2005, have a contractual term of ten years from the date of grant, and stock options granted from our 1996 Stock Plan on or after December 1, 2005, have a contractual term of seven years from the date of grant.

Stock-Based Compensation—Non-Employee Stock Options and Stock Options Assumed from Business Combinations

We account for stock compensation expense related to stock options granted to non-employees 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.” Compensation expense was amortized using the multiple option approach in compliance with the Financial Accounting Standards Board (the “FASB”) Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.”

Pursuant to the FASB Interpretation No. 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 was included as a component of the purchase price for acquisitions. The intrinsic value attributable to unvested options was recorded as unearned stock-based compensation and was amortized over the remaining vesting period of the options. Since our acquisition of Talarian Corporation (“Talarian”) in fiscal year 2002, we have not assumed any options from the companies we have acquired.

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

We assess the likelihood that we will be able to 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 a valuation allowance. If it is not more likely than not that we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As a result of our analysis of all available evidence, both positive and negative, as of August 31, 2006, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain capital loss and foreign tax credit carryovers against which a valuation allowance of approximately $11.8 million was held as of August 31, 2006.

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 stock shares outstanding during the period less common stock 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 stock shares and potential common stock shares outstanding during the period if their effect is dilutive. Certain potential common stock 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. These available-for-sale investments are presented as current assets as they are subject to use within one year in current operations. 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.

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; our financial condition and business outlook, including key operational and cash flow metrics, current market conditions and future trends in the industry; our 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 August 31, 2006 (in thousands):

U.S. Government Debt Securities: The unrealized losses on our investments in U.S. Treasury obligations and direct obligations of U.S. Government agencies were caused by rising interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because we have the ability and intent to hold these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired as of August 31, 2006.

Corporate Debt Securities: The unrealized losses on our investments in corporate bonds were caused by rising interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at

a price less than the amortized cost of the investment. The corporate bonds that we hold are all high investment grade, and no credit events occurred which relate to any of these corporate bonds. Therefore, we do not believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the investments. It is expected that the corporate bonds would not be settled at a price less than the amortized cost of the investment. Because we have the ability and intent to hold these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired as of August 31, 2006.

Asset-Backed Securities: The unrealized losses on our investments in asset-backed securities were caused by rising interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The asset-backed securities that we hold are all high investment grade, and no credit events occurred which relate to any of these asset-backed securities. Therefore, we do not believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the investments. It is expected that the asset-backed securities would not be settled at a price less than the amortized cost of the investment. Because we have the ability and intent to hold these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired as of August 31, 2006.

Mortgage-Backed Securities: The unrealized losses on our investments in mortgage-backed securities were caused by rising interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The mortgage-backed securities that we hold are all high investment grade, and no credit events occurred which relate to any of these mortgage-backed securities. Therefore, we do not believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the investments. It is expected that the mortgage-backed securities would not be settled at a price less than the amortized cost of the investment. Because we have the ability and intent to hold these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired as of August 31, 2006.

Obligations in Foreign Sovereigns: The unrealized losses on our investments in foreign sovereign obligations were caused by rising interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because we have the ability and intent to hold these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired as of August 31, 2006.

Our investments also include minority equity investments in privately held companies that are generally carried at cost basis and are included in other assets on the balance sheets. The fair value of these investments is dependent on the performance of the companies in which we invested, as well as the volatility inherent in external markets for these investments. In assessing potential impairment, we consider these factors as well as each of the companies’ cash position, earnings/revenue outlook, liquidity and management/ownership. If we believe that an other-than-temporary decline exists, we write down the investment to market value and record the related write-down as a loss on investments in our consolidated statement of operations. The carrying value of our minority equity investments is $1.6 million as of August 31, 2006, and $2.3 million as of November 30, 2005. For the three months ended August 31, 2006, we sold one of our private equity investments and realized a net gain of $0.7 million. No impairment losses were incurred in the periods presented.

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: first, we screen for impairment, and if any possible impairment exists, we then 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.

Our restructuring charges are comprised primarily of costs related to properties abandoned in connection with facilities consolidation, related write-downs of leasehold improvements and severance and associated employee termination costs related to headcount reductions. For restructuring actions initiated prior to December 31, 2002, we followed the guidance provided by EITF 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” We recorded the liability related to these termination costs when the plan was approved; the termination benefits were determined and communicated to the employees; the number of employees to be terminated, their locations and jobs were specifically identified; and the period of time to implement the plan was set. For restructuring actions initiated after January 1, 2003, we adopted SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred.

Our restructuring charges included accruals for estimated losses on facility costs based on our contractual obligations net of estimated sublease income based on current comparable market rates for leases. We reassess this liability periodically based on market conditions. Revisions to our estimates of this liability could materially impact our operating results and financial position in future periods if anticipated events and key assumptions, such as the timing and amounts of sublease rental income, either change or do not materialize. Should facilities operating lease rental rates decrease in these markets or should it take longer than expected to find a suitable tenant to sublease these facilities, the actual loss as of August 31, 2006, could exceed this estimate by approximately $2.3 million.

All of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at exchange rates at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Cumulative translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 provides guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for tax contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We are currently assessing the impact that FIN 48 will have on our results of operations and financial position.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. We do not believe that the application of SAB 108 will have a material effect on our results of operations or financial position.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently assessing the impact that SFAS 157 will have on our results of operations and financial position.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. We do not believe that SFAS 158 will have a material effect on our results of operations or financial position, as we do not currently have any defined benefit pension or other post-retirement plans.

Marketable securities as of August 31, 2006, and November 30, 2005, 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):

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 a 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, 2005. SFAS 142 requires impairment testing based on reporting units. We periodically re-evaluate our business and have determined that we continue to operate in one segment, which we consider our sole reporting unit. Therefore, goodwill was tested and will continue to be tested for impairment at the enterprise level. To date, we have determined that there has been no impairment of goodwill.

The change in the carrying amount of goodwill for the nine months ended August 31, 2006 was as follows (in thousands):

Our acquired intangible assets are subject to amortization on a straight line basis over their estimated useful lives as follows:

The carrying values of our amortized acquired intangible assets as of August 31, 2006, and November 30, 2005 are as follows (in thousands):

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

As of August 31, 2006, we expect the amortization of acquired intangible assets for future periods to be as follows (in thousands):

In 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 $3.9 million for the resulting workforce reduction. The restructuring plan eliminated 49 employees, across all functions and primarily in our European operations. All 49 employees have been terminated. As of August 31, 2006, $3.5 million related to this plan has been paid, and we expect to utilize the remaining accrual by the end of fiscal year 2006.

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 excess facilities 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 and integration costs for the nine months ended August 31, 2006 (in thousands):

The remaining 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 August 31, 2006, $20.4 million of the $25.4 million accrued restructuring and 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.

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 balance on the mortgage note payable was $48.8 million and $50.1 million as of August 31, 2006 and November 30, 2005, respectively.

The mortgage note payable carries a fixed annual interest rate of 5.09% and a 20-year amortization. The $33.9 million principal balance that will be remaining at the end of the ten-year term will be due as a final lump sum payment on July 1, 2013. Under the currently applicable terms of the mortgage note agreements, we are prohibited from acquiring another company without prior consent from the lender unless we maintain at least $300.0 million of cash or cash equivalents, and meet 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 August 31, 2006.

In 2003, we also capitalized $0.7 million in financing fees in connection with the mortgage note payable. These fees are being 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 20, 2007. 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 August 31, 2006, 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 investments, net of total current and long-term indebtedness, as well as comply with other non-financial covenants defined in the agreement. As of August 31, 2006, we were in compliance with all covenants under the revolving line of credit.

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.

As of August 31, 2006, in connection with bank guarantees issued by some of our international subsidiaries, we had $3.1 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 12 months is included in Other Current Assets and the remainder is included in Other Assets on our Condensed Consolidated Balance Sheets.

At various locations worldwide, we lease office space and equipment under non-cancelable operating leases with various expiration dates through April 2015. Rental expense was approximately $2.3 million and $2.2 million for the three month periods ended August 31, 2006 and 2005, respectively, and $6.7 million and $6.3 million for the nine month periods ended August 31, 2006 and 2005, respectively.

As of August 31, 2006, contractual commitments associated with indebtedness and lease obligations were as follows (in thousands):

Future minimum lease payments under restructured non-cancelable operating leases are included in Accrued Restructuring and Excess Facilities Costs in our Condensed Consolidated Balance Sheets.

We conduct business in North America, South America, Europe, Asia Pacific 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. The majority of our sales are currently made in U.S. dollars. We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies. These forward contracts are generally settled monthly. 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. We had three outstanding forward contracts with total notional amounts of $58.7 million as of August 31, 2006, which are summarized as follows (in thousands):

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 incurred costs for the payment of legal fees in connection with the legal proceedings detailed in Note 8, Legal Proceedings.

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. Plaintiffs 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. On September 29, 2006, the U.S. District Court for the Northern District of California dismissed the litigation with prejudice. Plaintiffs have the right to appeal. 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.

In September 2005, a shareholder derivative complaint was filed against certain of our officers and directors in the Superior Court of the State of California, Santa Clara County. The complaint is based on substantially similar facts and circumstances as the class actions and generally alleged that the named directors and officers breached their fiduciary duties to the Company. The complaint seeks unspecified monetary damages. Given the nature of derivative litigation, any recovery in a derivative suit would be to the benefit of the Company.

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, 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 (each, an “IPO”) 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 accepted by us and given preliminary approval by the U.S. District Court for the Southern District of New York. The completion of the settlement is subject to a number of conditions, including final approval by the U.S. District Court for the Southern District of New York. 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 self insured retention of $0.5 million was accrued at the time of the acquisition.

1996 Stock Option Plan. In 1996, we adopted the 1996 Stock Plan. The 1996 Stock Plan provides for the granting of stock options and stock awards to our employees and consultants.

Stock options granted under the 1996 Stock Plan may be either incentive stock options or nonqualified stock options. Incentive stock options may be granted only to employees (including officers and directors who are employees). Nonqualified stock options may be granted to our employees and consultants. Stock options granted are not generally exercisable immediately and generally vest over four years. Generally, stock options granted from our 1996 Stock Plan prior to December 1, 2005, have a contractual term of ten years from the date of grant, and stock options granted from our 1996 Stock Plan on or after December 1, 2005, have a contractual term of seven years from the date of grant.

We currently issue stock awards in the form of restricted stock and restricted stock units to our employees (including officers and directors who are employees) in addition to stock options. Restricted stock is issued at the time of grant, but held in escrow until it is vested. Generally, restricted stock vests over a four-year period, at a rate of 25% per year on the anniversary of the vesting commencement date. The recipient of restricted stock becomes the owner of record of the stock immediately upon grant, subject to the Company’s reacquisition right. Restricted stock units generally vest over a four-year period, at a rate of 25% per year on the anniversary of the vesting commencement date. Subject to certain restrictions, common stock will be issued upon vesting of the restricted stock units. The recipient of restricted stock units does not acquire any rights as a stockholder until the restricted stock units are settled upon vesting, and the recipient actually receives shares of our common stock.

Our stock option agreements and stock award agreements generally provide for partial accelerated vesting if there is a change in control of the Company. Also, one employee has entered into an agreement with the Company and certain employees are covered by a change in control and severance plan of the Company that provide for partial accelerated vesting if there is a change in control of the Company.

The 1996 Stock Plan provides for an automatic increase to the number of shares of common stock reserved for issuance to be added on the first day of each fiscal year, equal to the lesser of (i) 60 million shares, (ii) 5% of the outstanding shares of our common stock or (iii) a lesser amount determined by the Board of Directors. As of August 31, 2006, there were 25.5 million shares reserved for grant under this plan. We expect to continue granting a majority of our new equity grants from the reserved shares under this plan for the foreseeable future.

Talarian Stock Option Plans. In April 2002, we assumed all of the Talarian Stock Option Plans (the “Talarian Plans”) in connection with our acquisition of Talarian. At the date of acquisition all outstanding options of Talarian common stock were converted, according to the exchange ratio, into options of our common stock with terms and conditions equivalent to those applicable at the time of conversion. We recorded an initial $0.7 million of deferred compensation related to 486,000 options assumed and converted under the Talarian Plans in fiscal year 2002. As of August 31, 2006, no shares were reserved for grant under the Talarian Plans.

2000 Extensibility Stock Option Plan. In 2000, we adopted the 2000 Extensibility Stock Option Plan (the “Extensibility Plan”) in connection with options assumed in our acquisition of Extensibility. Extensibility employees who continued service with us were granted options with terms and conditions equivalent to those applicable at the date of acquisition. As of August 31, 2006, no shares were reserved for grant under this plan.

1998 Director Option Plan. In February 1998, we adopted the 1998 Director Option Plan (the “Director Plan”). As amended in April 2002, the Director Plan provides for an automatic initial grant of 100,000 shares to members of the Board who are not employees of the Company (“Outside Directors”). At any subsequent annual re-election, each Outside Director shall be granted an option to purchase 40,000 additional shares. Options are granted at an exercise price not less than the fair market value of the stock on the date of grant and become exercisable over a three-year period with a third of the shares vesting annually. Options granted prior to February 27, 2006, have a term not to exceed ten years, and options granted on or after February 27, 2006, have a term not to exceed seven years. Any Outside Director with over one year of consecutive service prior to the effective date of the Director Plan received an initial grant of 450,000 shares. As of August 31, 2006, there were 2.3 million shares reserved for grant under this plan.

Employee Stock Purchase Program. In June 1999, we amended the 1996 Stock Plan to include the ESPP. Employees are generally eligible to participate in the ESPP if they are customarily employed by us for more than 20 hours per week and more than five months in a calendar year and are not (and would not become as a result of being granted an option under the ESPP) 5% stockholders of the Company. Under the ESPP, eligible employees may select a rate of payroll deduction up to 10% of their eligible compensation subject to certain maximum purchase limitations.

In fiscal year 2005, our ESPP was revised in response to the recent changes in accounting for stock-based payments, as stated in SFAS 123(R). These changes to our ESPP were effective as of the purchase period beginning February 1, 2005. The plan before the revision had an offering period with a maximum duration of two years (the “offering period”) and consisted of four six-month purchase periods, and the price at which the common stock was purchased was 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or on the last day of that purchase period. The revised ESPP offers one six-month offering period, and the price at which the common stock is purchased is 95% of the market value of our common stock on the last day of the offering period. As the administrative burden and tax consequences appear to outweigh any benefit that our international employees might receive from participating in the ESPP, we have also chosen to exclude all non-U.S. employees from the ESPP.

Our revised ESPP is deemed non-compensatory under the provisions of SFAS 123(R). Accordingly, there is no compensation cost recorded for our ESPP under SFAS 123(R).

We issued approximately 0.3 million shares under our ESPP, representing approximately $2.0 million in employee contributions for the nine months ended August 31, 2006. As of August 31, 2006, there were 0.7 million shares reserved under this program for future purchases.

The activities under all stock option plans are summarized as follows (in thousands, except per share data):

All vested options are exercisable. The following table summarizes information about stock options outstanding as of August 31, 2006 (in thousands, except number of years and per share data):

The weighted-average remaining contractual life for all exercisable stock options as of August 31, 2006, was 5.75 years. The weighted-average remaining contractual life of all vested and expected-to-vest stock options as of August 31, 2006, was 6.27 years.

The intrinsic value of stock options outstanding, exercisable and expected-to-vest is calculated based on the difference between the exercise price and the quoted market price of our common stock as of the close of the last trading day of the fiscal period. The aggregate intrinsic value of stock options outstanding as of August 31, 2006, was $43.5 million, of which $33.6 million was related to exercisable options. The aggregate intrinsic value of stock options vested and expected-to-vest net of estimated forfeitures was $42.0 million.

The intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted market price of our common stock as of the close of the exercise date. The aggregate intrinsic value of exercised stock options was $40.2 million and $0.8 million during the three months ended August 31, 2006 and 2005, respectively, and $46.4 million and $9.7 million during the nine months ended August 31, 2006 and 2005, respectively.

The total tax benefit attributable to options exercised was $9.7 million for the nine months ended August 31, 2006.

The gross excess tax benefits from stock-based compensation for the nine months ended August 31, 2006, of $8.8 million, as reported on the Condensed Consolidated Statements of Cash Flows in financing activities represent the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for options exercised in current and prior periods.

The activities for stock awards are summarized as follows (in thousands, except per share data):

On December 1, 2005, we adopted SFAS 123(R) using the modified prospective transition method. SFAS 123(R) requires the measurement and recognition of compensation expense for all stock-based awards made to our employees and directors including employee stock options and other stock-based awards based on estimated fair values. The following table summarizes the impact of the adoption of SFAS 123(R) on stock-based compensation costs for employees on our Condensed Consolidated Statements of Operations for the three and nine months ended August 31, 2006 (in thousands, except per share data):

We started granting restricted stock and restricted stock units to employees in the three months ended August 31, 2006. Approximately $0.1 million of employee stock-based compensation for the three and nine months ended August 31, 2006, was related to restricted stock and restricted stock units. The remaining employee stock-based compensation expenses shown in the table above were related to stock options granted to employees.

We also incurred stock-based compensation expenses related to non-employee stock options of less than $0.1 million for both the three and nine months ended August 31, 2006, which is excluded from the table above. We did not capitalize any stock-based compensation in any of the fiscal periods reported.

As of August 31, 2006, total unamortized stock-based compensation cost related to unvested stock options was $17.9 million, with the weighted average recognition period of 1.27 years.

As of August 31, 2006, total unamortized stock-based compensation cost related to unvested restricted stock and restricted stock units was $7.2 million, with the weighted average recognition period of 2.44 years. Restricted stock and restricted stock units generally vest over a four-year period, at a rate of 25% per year on the anniversary of the vesting commencement date. No restricted stock or restricted stock units vested during the nine months ended August 31, 2006, and therefore the total fair value of the restricted stock and restricted stock units vested during the period is zero.

Compensation costs for all stock-based awards granted on or prior to November 30, 2005, will continue to be recognized using the accelerated multiple-option approach, while compensation expense for all stock-based awards granted subsequent to November 30, 2005, will be recognized using the ratable single-option method.

Upon adoption of SFAS 123(R), we selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The use of the Black-Scholes model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rate and expected dividends. The following table summarizes the assumptions used to value options granted in the respective periods, and the grant-date fair value of the stock options granted during the respective periods:

Beginning December 1, 2005, we estimated the volatility of our stock using historical volatility, as well as the implied volatility in market-traded options on our common stock in accordance with guidance in SFAS 123(R) and SAB 107. Management determined that a blend of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. We will continue to monitor these and other relevant factors used to measure expected volatility for future option grants. Prior to the adoption of SFAS 123(R), we had used our historical stock price volatility in accordance with SFAS 123 for purposes of pro forma information disclosed in our Notes to Consolidated Financial Statements for prior periods.

The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. The dividend yield assumption is based on our history and expectation of dividend payouts.

The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. We derived the expected term assumption based on our historical settlement experience, while giving consideration to options that have life cycles less than the contractual terms and vesting schedules in accordance with guidance in SFAS 123(R) and SAB 107. Prior to the adoption of SFAS 123(R), we used our historical settlement experience to derive the expected term for the purposes of pro forma information under SFAS 123, as disclosed in our Notes to Consolidated Financial Statements for the related periods.

As stock-based compensation expense recognized in our results for the three and nine months ended August 31, 2006, is based on awards ultimately expected to vest, the amount has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience. Prior to fiscal year 2006, we accounted for forfeitures as they occurred for the purposes of pro forma information under SFAS 123, as disclosed in our Notes to Consolidated Financial Statements for the related periods. The cumulative impact due to the change in accounting principles for forfeitures was immaterial, and therefore was not recorded as a separate line item in the financial statements.

In accordance with SFAS 123(R), the fair value of restricted stock and restricted stock units is the grant date price of the Company’s common stock. For the three and nine months ended August 31, 2006, the weighted average grant date fair value for restricted stock was $7.30 per share, and for restricted stock units was $7.50 per share. We expense the cost of the restricted stock and restricted stock units ratably over the period during which the restrictions lapse, and adjust for estimated forfeitures.

Our ESPP as revised in 2005, is deemed non-compensatory under the provision of SFAS 123(R). Accordingly, we do not estimate the fair value of our ESPP awards using any valuation model or assumptions as there is no compensation cost to be recorded for our ESPP under SFAS 123(R).

Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of our employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Prior to the adoption of SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under SFAS 123. Under the intrinsic value method, no stock-based compensation expense for grants of employee stock options had been recognized in our results of operations in the prior periods, because the exercise price of the stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method that we used in adopting SFAS 123(R), our Consolidated Statements of Operations prior to fiscal year 2006 have not been restated to reflect, and do not include, the impact of SFAS 123(R).

The table below reflects net income and net income per share, and pro forma information for the three and nine months ended August 31, 2005 (in thousands, except income per share amounts):

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 stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets, are as follows (in thousands):

As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

As of August 31, 2006, we believed that the amount of the deferred tax assets recorded on our balance sheet 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 it is more likely than not that we cannot recover our deferred tax assets.

With the exception of our subsidiaries in the United Kingdom, net undistributed earnings of our foreign subsidiaries are generally considered to be indefinitely reinvested, and accordingly, no provision for U.S. 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 to the extent that available net operating loss carryovers and foreign tax credits are not sufficient to eliminate the additional tax liability.

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 stock shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common stock shares and potential common stock share equivalents outstanding during the period if their effect is 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 data):

The following potential common stock equivalents are not included in the diluted net income per share calculation above, because their effect was anti-dilutive for the periods indicated (in thousands):

We have commercial arrangements with affiliates of Reuters Group PLC (“Reuters”), one of our stockholders. During fiscal year 2005, Reuters reduced its holdings such that as of November 30, 2005, Reuters owned less than 1% of our outstanding shares of common stock. Beginning December 1, 2005, Reuters was no longer considered a related party. Transactions with Reuters subsequent to November 30, 2005, are presented along with other non-related party transactions and are no longer separately disclosed as related party transactions.

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 “Reuters Agreement”). Revenue from Reuters, while it was considered a related party during the three and nine months ended August 31, 2005, respectively, is summarized as follows (in thousands):

License revenue from Reuters for the nine months ended August 31, 2005, was primarily related to a $9.9 million upfront, minimum, non-refundable license fee received pursuant to the terms of an amendment to the Reuters Agreement we entered into in February 2005. We did not have transactions with Reuters of a similar amount in the three and nine months ended August 31, 2006.

Accounts receivable due from Reuters was $1.2 million as of November 30, 2005. We incurred an immaterial amount in royalty and commission expense payable to Reuters in the three and nine month period ended August 31, 2005, respectively.

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. 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.

Our revenue by geographic region, based on 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 nine months ended August 31, 2006. Revenue from Reuters accounted for 1% and 7% of total revenue for the three and nine months ended August 31, 2005, respectively. No customer had a balance in excess of 10% of our net accounts receivable as of August 31, 2006, or November 30, 2005.

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

Velosel Corporation. On August 1, 2005, we acquired certain assets of Velosel Corporation (“Velosel”), a Delaware corporation providing customer and product information management. The total purchase price was approximately $3.4 million paid in cash. Substantially all of the purchase price was related to amortizable intangible assets, including developed technologies. The acquired intangible assets are amortizable over their estimated useful lives of three to six years. No goodwill has been recorded for this acquisition as the fair value of acquired assets exceeded the purchase price.

The results of operations of Velosel have been included in our Condensed Consolidated Statements of Operations from August 1, 2005. As the effect of this acquisition would not have been material to our results of operations, pro forma results as if we had acquired Velosel at the beginning of fiscal year 2005 are not presented in this report.

ObjectStar International Limited. 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. We recorded intangible assets of $13.9 million and goodwill of $7.4 million for the transaction. 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. Goodwill is not being amortized and will be tested for impairment annually, or sooner, if circumstances indicate that impairment may have occurred.

The results of operations of ObjectStar have been included in our Condensed Consolidated Statements of Operations from March 7, 2005. As the effect of this acquisition would not have been material to our results of operations, pro forma results as if we had acquired ObjectStar at the beginning of fiscal year 2005 are not presented in this report.

In September 2004, our Board of Directors approved a two-year stock repurchase program pursuant to which we repurchased $50.0 million of our outstanding common stock. The program was completed by the end of the first quarter of fiscal year 2006.

In December 2005, our Board of Directors approved a new eighteen-month stock repurchase program pursuant to which we may repurchase up to $100.0 million of our outstanding common stock. The timing and amount of any repurchases is dependent upon market conditions and other corporate considerations. As of August 31, 2006, $34.2 million remained for future repurchases under this stock repurchase program.

All repurchased shares of common stock have been retired. The following table summarizes the activities under the stock repurchase programs for the periods indicated (in thousands, except per share data):

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 (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to: the mix of our revenues between license, service and maintenance revenues; the effect of stock-based compensation on our financial results; our financing plans and capital requirements; our costs of revenue; our expenses; our potential tax benefit or liabilities; the effect of recent accounting pronouncements and related interpretations; our investments, foreign currency risk, debt service and principal repayment obligations; cash flows and our ability to finance operations from cash flows; seasonality in our business; the dependence of our license revenue on the timing and number of license deals; our continued investment and increased spending on research and development; the increase in absolute dollars in sales and marketing expenses, general and administrative spending and operating expenses; our amortization of previously acquired intangible assets; the dependence upon market conditions and other corporate conditions in relation to the timing and amount of stock repurchases; and other similar matters. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth under Part II, Item 1A. Risk Factors. All forward-looking statements and reasons why results may differ included in this Quarterly Report are made as of the date hereof, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ.

Our suite of business integration and process management software solutions makes us a leading enabler of real-time business. We use the term “real-time business” to mean doing business in such a way that organizations can use current information to execute their critical business processes and make smarter decisions. We are the successor to a portion of the business of Teknekron Software Systems, Inc. (“Teknekron”). 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, 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.

We offer a wide range of products that can be sold individually to solve specific technical challenges in business integration and process management, but the emphasis of our product development and sales efforts is to create products that interoperate seamlessly and that can be sold together as a suite to enable businesses to be more cost-effective, agile and efficient. Our product offerings are broken into three categories: service-oriented architecture (“SOA”), business process management (“BPM”) and business optimization.

Our products are currently licensed by companies worldwide in diverse industries such as financial services, telecommunications, retail, healthcare, manufacturing, energy, transportation, logistics, 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 of license, maintenance fees and consulting services from our end user customers and partners who resell our products or embed our software in their hardware and networking systems.

First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. Maintenance revenue is determined based on VSOE 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, which services are usually performed 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 and nine months ended August 31, 2006 or 2005. As of August 31, 2006, 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.

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, 2005, included in our Annual Report on Form 10-K filed with the SEC on February 10, 2006 and notes to condensed consolidated financial statements as of and for the three and nine month periods ended August 31, 2006, included herein. Our most critical accounting policies include the following:

Since November 30, 2005, our accounting policies for stock-based compensation for employee stock-based awards and accounting for income taxes have been modified and are described below.

On December 1, 2005, we adopted SFAS 123(R) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors including employee stock options and employee stock purchases under the ESPP based on estimated fair values. SFAS 123(R) supersedes our previous accounting under APB 25 for periods beginning in fiscal year 2006. In March 2005, the SEC issued SAB 107 providing supplemental implementation guidance for SFAS 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations. We adopted SFAS 123(R) using the modified prospective transition method which requires the application of the accounting standard starting from December 1, 2005, the first day of our fiscal year 2006. Our Consolidated Financial Statements, as of and for the three and nine months ended August 31, 2006, reflect the impact of SFAS 123(R). Stock-based compensation expense for the three and nine months ended August 31, 2006, was $3.5 million and $11.8 million, respectively, which consisted primarily of stock-based compensation expense related to employee stock options recognized under SFAS 123(R). Our ESPP, as revised in 2005, is deemed to be non-compensatory, and therefore, no stock-based compensation expense was recognized related to our ESPP.

Based Compensation.” Under the intrinsic value method, no stock-based compensation expense for employee stock options had been recognized in our Consolidated Statements of Operations, because the exercise price of our stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method we used in adopting SFAS 123(R), our results of operations prior to fiscal year 2006 have not been restated to reflect, and do not include, the possible impact of SFAS 123(R).

Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the three and nine months ended August 31, 2006, included compensation expense for stock-based awards granted prior to, but not yet vested as of November 30, 2005, based on the fair value on the grant date estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for the stock-based awards granted subsequent to November 30, 2005, based on the fair value on the grant date estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), we changed our method of attributing the value of stock-based compensation expense from the accelerated multiple-option method to the ratable single-option method. Compensation expense for all stock-based awards granted on or prior to November 30, 2005, will continue to be recognized using the accelerated multiple-option approach, while compensation expense for all stock-based awards granted subsequent to November 30, 2005, will be recognized using the ratable single-option method. As stock-based compensation expense now recognized in our results is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Prior to fiscal year 2006, we accounted for forfeitures as they occurred for the purposes of pro forma information under SFAS 123, as disclosed in our Notes to Consolidated Financial Statements for the related periods.

Generally, stock options granted from our 1996 Stock Plan prior to December 1, 2005, have a contractual term of ten years from the date of grant, and stock options granted from our 1996 Stock Plan on or after December 1, 2005, have a contractual term of seven years from the date of grant.

Also see Note 9 to the Consolidated Financial Statements on Stock-Based Compensation.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” that allows for a simplified method to establish the beginning balance of the additional paid-in capital pool (“APIC Pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC Pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R). As of August 31, 2006, we were still in the process of calculating the APIC Pool.

estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is not more likely than not that we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As a result of our analysis of all available evidence, both positive and negative, as of August 31, 2006, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain capital loss and foreign tax credit carryovers.

With the exception of our subsidiaries in the United Kingdom, net undistributed earnings of our foreign subsidiaries are generally considered to be indefinitely reinvested, and accordingly, no provision for U.S. 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 net of available net operating loss carryovers and foreign tax credits associated with these earnings.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 provides guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for tax contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We are currently assessing the impact that FIN 48 will have on our results of operations and financial position.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. We do not believe that the application of SAB 108 will have a material effect on our results of operations or financial position.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently assessing the impact that SFAS 157 will have on our results of operations and financial position.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. We do not believe that SFAS 158 will have a material effect on our results of operations or financial position, as we do not currently have any defined benefit pension or other post-retirement plans.

For purposes of presentation, we have indicated the third quarter of fiscal years 2006 and 2005 as ended on August 31, 2006 and 2005, respectively; whereas in fact, the third quarter of fiscal years 2006 and 2005 actually ended on September 3, 2006 and August 28, 2005, respectively. The third quarter of fiscal years 2006 and 2005 both consisted of 13 weeks. There were 277 days and 271 days for the first nine months of fiscal year 2006 and 2005, respectively.

In June 2004, we acquired Staffware plc, a provider of BPM solutions that enable businesses to automate, refine and manage their processes. Our consolidated results of operations have included incremental revenue and costs related to the former Staffware operations since the date of acquisition. Due to the structure of our multi-product Enterprise License Agreements, which often combine TIBCO and Staffware products, we are not able to separately report the portion of revenue attributable solely to the Staffware components. In addition, we have fully integrated the former Staffware personnel and operations into our worldwide operations, and therefore, we are not able to separately track or report the performance of the former Staffware operations.

All amounts presented in the tables in the following sections on Results of Operations are stated in thousand of dollars, except for percentages and unless otherwise stated.

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 partners.

Total revenue for the third quarter of fiscal year 2006 compared to the same period last year increased by $14.5 million or 14%. The increase was comprised of a $7.7 million or 13% increase in service and maintenance

revenue and a $6.7 million or 15% increase in license revenue. Total revenue for the first nine months of fiscal year 2006 compared to the same period last year increased by $44.8 million or 14%. The increase was comprised of a $30.1 million or 17% increase in service and maintenance revenue and a $14.6 million or 11% increase in license revenue.

We do not have revenue from any entities that we consider related parties in the current quarter or the first nine months of fiscal year 2006, as compared to $1.4 million and $21.8 million of total revenue from related parties for the third quarter and the first nine months of fiscal year 2005, respectively, representing approximately 1% and 7% of our total revenue for the respective periods. Reuters was considered a related party in the first nine months of fiscal year 2005, but during fiscal year 2005, Reuters reduced its holdings such that as of November 30, 2005, Reuters owned less than 1% of our outstanding common stock. Beginning December 1, 2005, Reuters was no longer considered a related party. Pursuant to the terms of the amendment to the Reuters Agreement that we entered into in February 2005, Reuters had 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 was one year, which Reuters had the option to extend upon payment of additional license fees. Reuters did not exercise the option to extend the Reuters Agreement, and the option has lapsed. The initial $9.9 million upfront, minimum, non-refundable license fee was recognized as related party license revenue in the first quarter of fiscal year 2005. Another $1.1 million under the amended Reuters Agreement represents maintenance fees and was recognized ratably over the one year maintenance period.

We have no single customer that accounted for more than 10% of total revenue in the current quarter or the first nine months of fiscal year 2006. Our products are licensed by companies worldwide in diverse industries, and a high percentage of our customers are from the financial service and telecommunication sectors.

We experienced growth in total revenue from all major geographic regions. In particular, we had a high rate of growth in revenue from the Asia Pacific region in the first nine months of fiscal year 2006. See Note 14 to the Condensed Consolidated Financial Statements for amounts of total revenue by region. The percentages of total revenue from the geographic regions are summarized as follows:

Our total revenue may fluctuate from quarter to quarter, based in part upon seasonality in our business.

License revenue increased $6.7 million or 15% for the current quarter as compared to the same quarter last year, and increased $14.6 million or 11% for the first nine months of fiscal year 2006 as compared to the same period last year. In fiscal year 2005, we recognized $16.0 million of license revenue in the first nine months from a former related party, Reuters. In the current quarter and the first nine months of fiscal year 2006, we do not have transactions of a similar amount with Reuters or any related parties.

Our license revenue in a particular period is dependent upon the timing and number of license deals, and their relative size. Selected data about our license revenue deals recognized for the respective periods is summarized as follows:

Cost of license mainly consisted of royalty costs and amortization of developed technology acquired through corporate acquisitions. Cost of license was approximately 7% of license revenue in the current quarter and the same quarter last year. The increase in absolute dollars in cost of license in the current quarter as compared to the same quarter last year resulted primarily from an increase of $0.5 million of royalty cost.

For the first nine months of fiscal year 2006 and the same period last year, cost of license was approximately 7% of license revenue. The increase in absolute dollars in cost of license in the first nine months of fiscal year 2006 as compared to the same period last year resulted primarily from an increase of $1.8 million of royalty cost. The amount of royalty cost we incur is primarily dependent on the mix of products that we sell, and will fluctuate from period to period.

For the remainder of fiscal year 2006, we estimate license revenues to be approximately 45% to 55% of our total revenue, and we estimate the cost of license to remain approximately 5% to 10% of license revenue.

Service and maintenance revenue increased $7.7 million or 13% for the current quarter compared to the same quarter last year. This increase was primarily comprised of a $6.7 million increase in maintenance revenue and a $1.0 million increase in consulting and training revenue. Maintenance revenue increased primarily due to the continuous growth in our installed software base. Consulting revenue increased due to our focus on providing more installation and implementation services to our customers.

Cost of service and maintenance consists primarily of compensation of professional services, customer support personnel and third-party contractors, and associated expenses related to providing consulting services. Cost of service and maintenance increased $2.0 million or 7% for the current quarter as compared to the same quarter last year. The cost of service and maintenance decreased as a percentage of total revenue, primarily due to a higher growth rate of maintenance revenue, which generally has a higher margin. The increase in absolute dollars in the current quarter as compared to the same quarter last year resulted primarily from a $0.4 million increase in stock-based compensation, a $2.4 million increase in other personnel compensation, which included salaries, bonuses and fringe benefits, offset by a $1.1 million decrease in third-party contractor compensation and consulting fees, and a net $0.3 million increase in other costs. Increased stock-based compensation was due to the adoption of SFAS 123(R) in fiscal year 2006 as further discussed below. Increased other personnel compensation cost was primarily due to annual salary adjustments and an increase in our customer support and professional services staff.

For the first nine months of fiscal year 2006, service and maintenance revenue increased $30.1 million or 17% compared to the same period last year. The increase was comprised of a $20.9 million increase in maintenance revenue and a $9.2 million increase in consulting and training revenue.

Cost of service and maintenance increased $6.7 million or 8% for the first nine months of fiscal year 2006 as compared to the same period last year. Cost of service and maintenance decreased as a percentage of total revenue, primarily due to the relative proportion of maintenance revenue increase. The increase in absolute dollars in the first nine months of fiscal year 2006 as compared to the same period last year resulted primarily from a $1.5 million increase in stock-based compensation, a $5.2 million increase in other personnel compensation, a $1.1 million increase in travel costs, offset by a $0.7 million decrease in third-party contractor compensation and consulting fees, and a net $0.4 million decrease in other costs.

For the remainder of fiscal year 2006, we estimate service and maintenance revenue to be approximately 45% to 55% of our total revenue. We estimate the cost of service and maintenance revenue to increase in absolute dollars and in line with increasing service and maintenance revenue in the near future.

The stock-based compensation cost was included in the Condensed Consolidated Statements of Operations corresponding to the same functional lines as cash compensation paid to the same employees, as follows:

On December 1, 2005, we adopted SFAS 123(R), which requires recognition of compensation expense for all stock-based awards made to employees in our Consolidated Statements of Operations. Prior to the adoption of

SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25, and under this method, no stock-based compensation expense for employee stock options was recognized in the prior periods in our Consolidated Statements of Operations because the exercise price of our stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method we used in adopting SFAS 123(R), our results of operations prior to fiscal year 2006 have not been restated to reflect, and do not include, the possible impact of SFAS 123(R).

Stock-based compensation cost recorded prior to fiscal year 2006 was related to non-employee stock options and stock options we assumed from business acquisitions in prior years. Such stock-based compensation cost in fiscal year 2006 was insignificant, and was included in the total stock-based compensation cost above. Also see Note 9 to Condensed Consolidated Financial Statements on Stock-Based Compensation.

For the fourth quarter of fiscal year 2006, we estimate our total stock-based compensation cost to be approximately $3.0 million to $4.5 million.

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 $2.9 million or 16% in the current quarter as compared to the same quarter last year, resulting primarily from a $0.7 million increase in stock-based compensation and a $2.1 million increase in other personnel compensation due to annual salary adjustments and increased headcount.

For the first nine months of fiscal year 2006 as compared to the same period last year, research and development expenses increased by $13.4 million or 26%, resulting primarily from a $2.8 million increase in stock-based compensation, an $8.4 million increase in other personnel compensation due to annual salary adjustments and increased headcount, a $1.0 million increase in expensed software and equipment, and a $0.8 million increase in facilities costs.

We believe that continued investment in research and development is critical to attaining our strategic objectives. Accordingly, we estimate that spending on research and development will increase slightly in absolute dollars and will continue to account for approximately 15% to 20% of total revenue for the remainder of fiscal year 2006.

Sales and marketing expense consists 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 $5.7 million or 17% increase in sales and marketing expenses for the current quarter as compared to the same quarter last year was primarily due to a $1.0 million increase in stock-based compensation, a $3.2 million increase in other personnel compensation, a $0.4 million increase in lead generation and marketing programs, a $0.4 million increase in sales referral fees, a $0.3 million increase in travel costs and a $0.4 million increase in facilities costs. The increase in other personnel compensation was mainly related to increased commission and incentives to employees due to higher commissionable revenue, as well as annual salary adjustments.

The $14.5 million or 14% increase in sales and marketing expenses for the first nine months of fiscal year 2006 as compared to the same period last year was primarily due to a $3.4 million increase in stock-based compensation, a $5.9 million increase in other personnel compensation, a $2.0 million increase in sales referral fees, a $1.8 million increase in travel costs, a $1.5 million increase in facilities costs, and a $1.2 million increase in lead generation and marketing programs, offset by a net decrease of $1.3 million in other costs. The increase in other personnel compensation was mainly related to increased commission and incentives to employees due to higher commissionable revenue, as well as annual salary adjustments. The increase in facilities costs was mainly due to additional costs to support expanded field sales operations.

For the remainder of fiscal year 2006, we intend to selectively increase staff in our direct sales organization and to increase our marketing efforts. Accordingly, we estimate that sales and marketing expenses will increase in absolute dollars, and will continue to account for approximately 30% to 35% of total revenue.

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 $2.1 million or 24% in the current quarter as compared to the same quarter last year, primarily due to a $1.3 million increase in stock-based compensation, a $2.0 million increase in other personnel compensation, offset by a $0.5 million decrease in third party contractors fees and a net $0.7 million decrease in other costs. The increase in other personnel compensation was mainly related to annual salary adjustments and increased headcount.

The $4.4 million or 16% increase in general and administrative expenses for the first nine months of fiscal year 2006 as compared to the same period last year was primarily due to a $4.0 million increase in stock-based compensation, a $3.7 million increase in other personnel compensation, offset by a $2.0 million decrease in professional fees, primarily legal, accounting and tax consulting fees, a $1.0 million decrease in third party contractors fees, a $0.9 million decrease in bad debt expense and a net $0.6 million increase in other costs.

For the remainder of fiscal year 2006, we will continue to invest in improving our corporate infrastructure to enhance effective management of internal controls, and we therefore estimate that general and administrative spending will increase in absolute dollars and will account for approximately 7% to 10% of total revenue.

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

The decrease in amortization of developed technologies, as included in cost of revenue, in the current quarter and first nine months of fiscal year 2006 as compared to the same respective periods of fiscal year 2005 was primarily due to certain intangible assets acquired in earlier years which are now fully amortized. The increase in amortization of other acquired intangible assets, as included in operating expenses, in the current quarter and the first nine months of fiscal year 2006 as compared to the same respective periods last year was primarily due to the addition of acquired intangible assets recorded from the ObjectStar and Velosel acquisitions in fiscal year 2005. See Note 4 to Condensed Consolidated Financial Statements for further detail on acquired intangible assets.

We expect amortization of previously acquired intangible assets to be approximately $3.7 million for the fourth quarter of fiscal year 2006.

The increase in interest income in the current quarter and the first nine months of fiscal year 2006 as compared to the same respective periods last year was primarily due to a higher investment balance and increased interest rates on our investments.

Interest expense is primarily related to a $54.0 million mortgage note issued in connection with the purchase of our corporate headquarters. The 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. Mortgage interest decreased slightly for the current quarter and the first nine months of fiscal year 2006 as compared to the same respective periods last year due to principal amortization of the mortgage note. See Note 6 to Condensed Consolidated Financial Statements for further detail on the mortgage note payable.

Apart from the mortgage interest, we also incurred other interest expense in the amount of less than $0.1 million during the current quarter, resulting in a slight increase in the total interest expense for the three month period as compared to the same period last year.

Other income (expense), net, is comprised of realized gains and losses on investments and other miscellaneous income and expense items. Realized gain (loss) on investments represents gains or losses realized when such investments are sold and when other-than-temporary impairment on individual securities is recorded.

The increase in other income, net, in absolute dollars for the current quarter and the first nine months of fiscal year 2006 as compared to the same respective periods last year was due to a $0.7 million gain from the sale of a long-term private equity investment, foreign exchange gains and realized gains from short-term investments as compared to losses in the respective periods last year.

During the three months ended August 31, 2006, the effective tax rate was 38% and differs from our projected annual effective tax rate of 28% for fiscal year 2006, primarily due to certain non-recurring items that benefited the effective tax rate during the second quarter of fiscal year 2006 on a discrete basis. These items primarily consisted of the release of valuation allowance of $9.9 million and the reversal of tax reserves of $1.6 million related to certain U.K. interest expense deductions.

Our effective tax rate of 38% for the three months ended August 31, 2006, differs from the effective tax rate of negative 11% used to record the provision for income taxes for the comparable period in fiscal year 2005, primarily due to a valuation allowance release in the third quarter of fiscal year 2005, the tax impact of the stock compensation charges under SFAS 123(R) and additional taxes incurred attributable to repatriation of foreign earnings from our U.K. subsidiaries in fiscal year 2006.

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 a valuation allowance. If it is not more likely than not that we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As a result of our analysis of all available evidence, both positive and negative, as of August 31, 2006, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain capital loss and foreign tax credit carryovers. The remaining valuation allowance of approximately $11.8 million as of August 31, 2006, will result in an income tax benefit if and when we conclude it is more likely than not that the related deferred tax assets would be realized.

As of August 31, 2006, we had cash, cash equivalents and short-term investments totaling $521.3 million, an increase of $43.7 million as compared to November 30, 2005. Our short-term available-for-sale investments, which primarily consist of high grade corporate debt, U.S. government debt securities and asset-based securities, totaled $396.4 million as of August 31, 2005 and $268.9 million as of November 30, 2005.

Net cash provided by operating activities for the nine months ended August 31, 2006, was $93.8 million, resulting from net income of $41.3 million, adjusted for non-cash charges including $22.7 million of depreciation and amortization, $11.8 million in stock-based compensation, $10.0 million net benefit from deferred tax and tax benefits from stock plans, and net change in assets and liabilities, including a $27.8 million decrease in accounts receivable due to collections, a $10.1 million increase of deferred revenue due to increased billings of maintenance and an $8.2 million decrease in liabilities due to payments made during the nine months.

To the extent that 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, including maintenance which is typically billed annually in advance. Our operating cash flows are also impacted by the timing of payments to our vendors for accounts payable and other liabilities. We generally pay our vendors and service providers in accordance with the invoice terms and conditions. The timing of cash payments in future periods will be impacted by the terms of accounts payable arrangements and the timing of our cash inflows.

Net cash used for investing activities was $135.1 million for the nine months ended August 31, 2006, which resulted primarily from the net purchases of short-term investments of $126.6 million, net proceeds from sales of long-term investments of $1.4 million, capital expenditures of $8.7 million and an increase in restricted cash pledged as security of $1.3 million.

Net cash used for financing activities was $44.7 million for the nine months ended August 31, 2006, which resulted primarily from $66.8 million used to repurchase our shares of common stock on the open market, offset by $14.6 million cash received from the issuance of common stock, and $8.8 million excess tax benefits from stock-based compensation, in accordance with the disclosure requirements of SFAS 123(R).

The timing and amount of stock repurchases is dependent upon market conditions and other corporate considerations. Under our current stock repurchase program approved in December 2005, approximately $34.2 million remained available for future repurchases as of August 31, 2006.

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 estimated to be approximately $10.0 million to $12.0 million for fiscal year 2006. We expect to use primarily our current cash resources to fund capital expenditures, acquisitions or investments in complementary businesses, technologies or product lines, and repurchases of our common 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 currently approved stock repurchases for at least the next 12 months.

In June 2003, we purchased our corporate headquarters with a $54.0 million mortgage note to lower our operating costs. The principal balance of $33.9 million that will be remaining at the end of the ten-year term will be due as a final lump sum payment on July 1, 2013. Under the currently applicable terms of the mortgage note agreements, we are prohibited from acquiring another company without prior consent from the lender unless we maintain at least $300.0 million of cash or cash equivalents, and meet 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 August 31, 2006.

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 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 of the land. Should it become necessary, we have the option to prepay any rent increases due as a result of a change in fair market value.

As of August 31, 2006, we had $3.1 million in restricted cash in connection with bank guarantees issued by some of our international subsidiaries. The cash collateral is presented as restricted cash and included in Other Assets on the Condensed Consolidated Balance Sheets.

At various locations worldwide, we lease office space and equipment under non-cancelable operating leases with various expiration dates through April 2015. Rental expenses were approximately $2.3 million and $2.2 million for the three months ended August 31, 2006 and 2005, respectively, and $6.7 million and $6.3 million for the nine months ended August 31, 2006 and 2005, respectively.

As of August 31, 2006, contractual commitments associated with indebtedness and lease obligations were as follows, (in thousands):

Future minimum lease payments under restructured non-cancelable operating leases are included in Accrued Restructuring and Excess Facilities Costs in 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 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 provisions of Delaware law. To date, we have incurred costs for the payment of legal fees in connection with the legal proceedings detailed in Note 8 to Condensed Consolidated Financial Statements.

We are exposed to the impact of interest rate changes and foreign currency fluctuations.

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We invest excess cash in marketable debt instruments of the U.S. Government and its agencies, high-quality corporate debt securities, asset-backed and mortgage-backed debt securities and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve invested funds by limiting default, market and reinvestment risk.

Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. As of August 31, 2006, we had an investment portfolio of fixed income securities totaling $396.4 million, excluding those classified as cash and cash equivalents. Our investments consist primarily of marketable debt instruments of the U.S. Government and its agencies, high-quality corporate debt securities, asset-backed and mortgage-backed debt securities. These securities are classified as available-for-sale and are recorded on the balance sheets 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.

A hypothetical 100 basis point increase in interest rates would result in an approximate $3.7 million decrease in the fair value of our available-for-sale debt securities as of August 31, 2006.

We develop products in the United States of America and sell products in North America, South America, Europe, Asia Pacific 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 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. We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies. These forward contracts are generally settled monthly. We do not enter into derivative financial instruments for trading purposes.

As of August 31, 2006, we had three outstanding forward contracts with total notional amounts of $58.7 million, which are summarized as follows (in thousands):

We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income.

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under 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 SEC 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.

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.

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 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 the number of our shares outstanding during such periods. In such case, our stock price may decline.

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. For example, during the first nine months of fiscal year 2006, our stock price fluctuated between a high of $9.02 and a low of $6.44. 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.

We are required to recognize expense for stock-based compensation related to stock-based awards, and the recognition of this expense could cause the trading price of our common stock to decline.

On December 1, 2005, we adopted SFAS 123(R) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values. As a result, starting with fiscal year 2006, our operating results contain a charge for stock-based compensation expense related to employee stock options. This charge is in addition to stock-based compensation expense we have recognized in prior periods related to non-employee stock options and business acquisitions. The application of SFAS 123(R) requires the use of an option-pricing model to determine the fair value of stock-based awards. This determination of fair value is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility, expected term, risk-free interest rate and expected dividends. As a result of the adoption of SFAS 123(R), in the first nine months of fiscal year 2006, our earnings were lower than they would have been had we not been required to adopt SFAS 123(R). This will continue to be the case for future periods, and we cannot accurately predict the magnitude of this effect on our earnings in future periods. Further, we cannot predict what the impact will be on the trading price of our common stock as a result of the adoption of SFAS 123(R).

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

We have in the past realized and may continue in the future to realize a higher percentage of revenues from services and maintenance. For example, for the first nine months of fiscal year 2006, our service and maintenance revenue represented 57% of our total revenue. We realize lower profit 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 may yield lower margins than our internal services business. As a result, if services and maintenance revenues increase as a percentage of total revenues or if we increase our use of third parties to provide services, our profit margins may decrease which could impact our stock price.

The market for our products and services is extremely competitive and subject to rapid change. We compete with a variety of large and small providers of solutions for enterprise application integration, SOA, BPM and business optimization, including companies such as IBM, Oracle, Microsoft, BEA, SAP, Pegasystems and webMethods. We believe that of these companies, IBM has the potential to offer the most complete competitive set of products relative to our offerings. As a result of our acquisition of Staffware, we now also compete directly with a wider variety of BPM solutions. In addition, some of our competitors are expanding their competitive product offerings and market position through acquisitions and internal research and development. For example, Sun Microsystems acquired SeeBeyond in August 2005, potentially making Sun Microsystems a direct competitor of ours as well. BEA has also acquired companies that expand its offerings, such as Fuego in March 2006, which potentially makes BEA a more direct competitor in BPM solutions. We expect additional competition from other established and emerging companies. We also face competition for certain aspects of our product and service offerings from major systems integrators. Further, we may face increasing competition from open source software initiatives, in which competitors provide software and intellectual property without charging license fees. If customers choose such open source products over our proprietary software, our revenues and earnings could be adversely affected.

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 for our existing and new product offerings or generating higher average selling prices, our gross margins may decline, and our business and operating results may suffer. Furthermore, any of our new product offerings or significant enhancements to current product offerings could cause some customers to delay making new or additional purchases while they fully evaluate any new offerings we might have introduced to the market, which in turn may slow sales and adversely affect operating results for an indeterminate period of time.

Future changes in financial accounting standards, financial reporting regulations and interpretations of these standards and regulations may adversely affect our reported results of operations.

A change in accounting standards and financial reporting regulations can have a significant effect on our reported results. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. These new accounting pronouncements may adversely affect our reported financial results.

Although we use standardized license agreements designed to meet current revenue recognition criteria under generally accepted accounting principles, we must often negotiate and revise terms and conditions of these standardized agreements, particularly in larger license transactions. Negotiation of mutually acceptable terms and conditions can extend the sales cycle and, in certain situations, may require us to defer recognition of revenue on the license. While we believe that we are in compliance with Statement of Position 97-2, “Software Revenue Recognition,” as amended, the American Institute of Certified Public Accountants continues to issue implementation guidelines for these standards and the accounting profession continues to discuss a wide range of potential interpretations. Additional implementation guidelines, and changes in interpretations of such guidelines, could lead to unanticipated changes in our current revenue accounting practices that could cause us to defer the recognition of revenue to future periods or to recognize lower revenue and profits.

Moreover, policies, guidelines and interpretations related to revenue recognition, accounting for acquisitions, income taxes, facilities consolidation charges, allowances for doubtful accounts and other financial reporting matters require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. To the extent that management’s judgment is incorrect, it could result in an adverse impact on the Company’s financial statements. Some of these matters are also among topics currently under re-examination by accounting standard setters and regulators. These standard setters and regulators could promulgate interpretations and guidance that could result in material and potentially adverse changes to our accounting policies.

Beginning in the first quarter of fiscal year 2006, we were required to comply with SFAS 123(R), which mandates accounting for our stock-based awards to employees based on the fair value method and recording the compensation expense in our results of operations. Due to this, our net income and net income per share have been reduced. In the third quarter of fiscal year 2006, we recorded $3.5 million in stock-based compensation expense as compared to less than $0.1 million for the same quarter last year, and in the first nine months of fiscal year 2006, we recorded $11.8 million in stock-based compensation expense as compared to approximately $0.1 million for the same period last year.

Our strategy contemplates possible future acquisitions which may result in us incurring unanticipated expenses or additional debt, difficulty in integrating our operations and 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 have made strategic acquisitions, including the acquisition of certain assets of Velosel and ObjectStar in 2005, and the acquisition of Staffware plc and General Interface Corporation in 2004. 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, substantial 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 or achieve the benefits of the acquisition we anticipated in valuing the businesses, products or technologies we acquire. Furthermore, the costs of integrating acquired companies in international transactions can be particularly high, due to local laws and regulations. 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.

In addition, we may face competition for acquisition targets from larger and more established companies with greater financial resources. Also, 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 not able to acquire strategically attractive businesses, products or technologies, we may not be able to remain competitive in our industry.

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. Lower spending by corporate and governmental customers around the world, which has had a disproportionate impact on information technology spending, 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 corporate and governmental spending increases 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, 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.

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. While we have historically met the requirements of our customers, if we fail to meet such requirements in the future, 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.

We monitor individual customer payment capability in granting 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. As we have grown our revenue and customer base, our exposure to credit risk has increased. Although we have not had material losses to date as a result of customer defaults, future defaults, if incurred, could harm our business and have an adverse effect on our business, operating results and financial condition.

We are required 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 and confidence in our financial reporting.

Sarbanes-Oxley imposes duties on us, our executives and directors. We completed our fiscal year 2005 evaluation of the design, remediation and testing of effectiveness of our ICFR required to comply with the management certification and attestation by our independent registered public accounting firm as required by Section 404 of Sarbanes-Oxley. While our assessment, testing and evaluation of the design and operating effectiveness of our ICFR resulted in our conclusion that as of November 30, 2005, our ICFR were effective, we cannot predict the outcome of our testing in future periods. 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, if we identify areas of our ICFR that require improvement, we could incur additional expenses to implement enhanced processes and controls to address such issues. Any such events could adversely affect our financial results and/or may result in a negative reaction in the stock market.

Regulatory requirements 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 rules enacted by the SEC and Nasdaq have caused us, and we expect will continue to cause us, to incur significant costs as a result of these regulatory requirements. In this regard, achieving and maintaining compliance with Sarbanes-Oxley and other rules and regulations, have caused us to hire additional personnel and use additional outside legal, accounting and advisory services and may require us to do so in the future.

Failure to satisfy the 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.

If we cannot successfully recruit and retain 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. As we grow, we must invest significantly in building our sales, marketing and engineering groups. Competition for these people in the SOA market is intense, and we may not be able to successfully recruit, train or retain qualified personnel. We are competing against companies with greater financial resources and name recognition for these employees, and as such, there is no assurance that we will be able to meet our hiring needs or hire the most qualified candidates. The success of our business is also 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.

In addition, 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 year ended November 30, 2005, we recorded a $3.9 million restructuring charge for a workforce reduction to re-align our resources and cost structure.

The value of our equity incentive programs may diminish as a retention tool as a result of the changes in the financial accounting standards and our stock price volatility.

We have historically used equity incentive programs, such as employee stock options and stock purchase plans, as a part of overall employee compensation arrangements. As a result of changes in the financial accounting standards, we have changed our stock purchase plan, reduced the size and number of stock option grants we give to our employees, changed the form of equity compensation we give to some of our employees and may make further changes to our equity compensation programs, all of which may decrease the effectiveness of our plans as employee retention tools. In addition, the volatility of our stock price 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.

The inability to upsell to our current customers or 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. Any inability on our part to upsell to and generate revenues from our existing customers could adversely affect our business and operating results.

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, our use of open source software components in our products may make us increasingly vulnerable to claims that our products infringe third-party intellectual property rights, in particular because many of the open source software components we may incorporate with our products are developed by numerous independent parties over whom we exercise no supervision or control. “Open source software” is software that is covered by a license agreement which permits the user to liberally copy, modify and distribute the software for free. Further, 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. While no claims have been filed against us to date, 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. Although no claims have been made in the past, our software license agreements typically provide for indemnification of our customers for intellectual property infringement claims. 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.

Market acceptance of new platforms, standards and technologies 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, standards and technologies. There may be future or existing platforms, standards and technologies 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, standards and technologies achieve market acceptance within our target markets. If we are unable to achieve market acceptance of our software products or adapt to new platforms, standards and technologies, 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, standards and technologies, our license and service revenues and our gross margins could be adversely affected. In addition, if the platforms, standards and technologies we have developed software for are not accepted, our license and service revenues and our gross margins could be adversely affected.

Our operating results are subject to fluctuations in foreign currency exchange rates. We attempt to mitigate a portion of these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense. We have established a hedging program designed to partially hedge our exposure to foreign currency exchange rate fluctuations, which primarily involves the Euro and the British Pound. We regularly review our hedging program and will make adjustments based on our judgment. Although our hedging activities are designed to offset a portion of the financial impact resulting from the movement in foreign currency exchange rates, if we are unable to offset the effects of currency fluctuation, our operating results could be adversely affected.

Our agreement with Reuters places certain limitations on our ability to conduct our business.

Pursuant to the terms of the amended Reuters Agreement, 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 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. 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.

In addition, 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 we own, and the source code for one of our messaging products, through December 2012. This may place Reuters in a position to more easily develop products that compete with ours.

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

Natural disasters, terrorist activities 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. In addition, many of our current and potential customers are concentrated in a few geographic areas. A natural disaster in one of these regions could have a material adverse impact on our U.S. and foreign operations, operating results and financial condition. Further, although we have not experienced a disruption to date, any unanticipated business disruption caused by Internet security threats, damage to global communication networks or otherwise could have a material adverse impact on our operating results.

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. Plaintiffs generally allege that we made false or misleading statements concerning our operating results, our business and internal controls and the integration of Staffware. On September 29, 2006, the U.S. District Court for the Northern District of California dismissed the litigation with prejudice. Plaintiffs have the right to appeal. The complaints seek unspecified monetary damages. We intend to defend ourselves vigorously; however, we expect to incur significant costs in mounting such defense.

In September 2005, a shareholder derivative complaint was filed against certain of our officers and directors in the Superior Court of the State of California, Santa Clara County. The complaint is based on substantially similar facts and circumstances as the class actions and generally alleged that the named directors and officers breached their fiduciary duties to TIBCO. The complaint seeks unspecified monetary damages. Given the nature of derivative litigation, any recovery in a derivative suit would be to the benefit of TIBCO.

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 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.

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.

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.

The use of open source software in our products may expose us to additional risks.

“Open source software” is software that is covered by a license agreement which permits the user to liberally copy, modify and distribute the software for free. Certain open source software is licensed pursuant to license agreements that require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. This effectively renders what was previously proprietary software open source software. As competition in our markets increases, we must reduce our product development costs. Many features we may wish to add to our products in the future may be available as open source software and our development team may wish to make use of this software to reduce development costs and speed up the development process. While we monitor the use of all open source software and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product, such use could inadvertently occur. Additionally, if a third party has incorporated certain types of open source software into its software, has not disclosed the presence of such open source software and we embed that third party software into one or more of our products, we could, under certain circumstances, be required to disclose the source code to our product. This could have a material adverse effect on our business.

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

We have a stockholder rights plan providing for 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.

In December 2005, our Board of Directors approved an eighteen-month stock repurchase program pursuant to which we may repurchase up to $100.0 million of our outstanding common stock. The remaining authorized amount for stock repurchases under this program was approximately $34.2 million as of the end of the third quarter of fiscal year 2006.

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/ MURRAY D. RODE
		Murray D. Rode Chief Financial Officer and Executive Vice President, Strategic Operations

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


Delaware		77-0449727
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Item		Page No.
	PART I—FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of August 31, 2006 and November 30, 2005	3

	Condensed Consolidated Statements of Operations for the three and nine months ended August 31, 2006 and August 31, 2005	4

	Condensed Consolidated Statements of Cash Flows for the nine months ended August 31, 2006 and August 31, 2005	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3	Quantitative and Qualitative Disclosures about Market Risk	51

Item 4	Controls and Procedures	52

	PART II—OTHER INFORMATION

Item 1	Legal Proceedings	53

Item 1A	Risk Factors	53

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 6	Exhibits	63

	Signatures	64


	As of August 31, 2006		As of November 30, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	124,932	$	208,756
Short-term investments		396,409		268,882
Accounts receivable, net of allowances; $4,219 and $4,521, respectively		93,341		121,159
Accounts receivable from related parties		—		1,243
Other current assets		34,290		18,111

Total current assets		648,972		618,151

Property and equipment, net		113,372		116,457
Goodwill		268,708		261,075
Acquired intangible assets, net		57,539		64,742
Long-term deferred income tax assets		28,957		27,440
Other assets		36,015		34,559

Total assets	$	1,153,563	$	1,122,424

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,501	$	9,656
Accrued liabilities		56,005		59,872
Accrued restructuring and excess facilities costs		5,049		5,840
Deferred revenue		88,472		82,300
Current portion of long-term debt		1,868		1,798

Total current liabilities		161,895		159,466

Accrued excess facilities costs, less current portion		20,372		24,149
Deferred revenue, less current portion		4,008		—
Deferred income tax liabilities, less current portion		11,203		13,875
Long-term debt, less current portion		46,935		48,345
Other long-term liabilities		4,133		2,970

Total long-term liabilities		86,651		89,339

Total liabilities		248,546		248,805
Stockholders’ equity:
Common stock, $0.001 par value; 1,200,000 shares authorized; 210,903 and 210,548 shares issued and outstanding, respectively		211		211
Additional paid-in capital		898,294		928,830
Unearned stock-based compensation		—		(123	)
Accumulated other comprehensive income (loss)		6,512		(14,346	)
Retained earnings (accumulated deficit)		—		(40,953	)

Total stockholders’ equity		905,017		873,619


Total liabilities and stockholders’ equity	$	1,153,563	$	1,122,424


	Three Months Ended August 31,						Nine Months Ended August 31,
	2006			2005			2006			2005
Revenue:
License revenue:
Non-related parties	$	51,076		$	44,365		$	151,738		$	121,097
Related parties		—			—			—			16,038

Total license revenue		51,076			44,365			151,738			137,135

Service and maintenance revenue:
Non-related parties		67,620			58,488			199,112			164,082
Related parties		—			1,404			—			5,740
Reimbursable expenses		1,707			1,688			5,380			4,522

Total service and maintenance revenue		69,327			61,580			204,492			174,344

Total revenue		120,403			105,945			356,230			311,479

Cost of revenue:
Cost of license		3,422			2,995			10,764			9,152
Cost of service and maintenance		30,048			28,039			87,519			80,855

Total cost of revenue		33,470			31,034			98,283			90,007

Gross profit		86,933			74,911			257,947			221,472

Operating expenses:
Research and development		20,957			18,073			64,908			51,529
Sales and marketing		40,121			34,392			118,184			103,690
General and administrative		10,908			8,814			31,658			27,269
Restructuring charges		—			162			—			3,905
Amortization of acquired intangible assets		2,364			2,317			7,091			6,515

Total operating expenses		74,350			63,758			221,841			192,908

Income from operations		12,583			11,153			36,106			28,564

Interest income		5,319			3,150			14,675			9,532
Interest expense		(702	)		(670	)		(2,002	)		(2,040	)
Other income, net		1,037			(1,142	)		1,145			(383	)

Income before income taxes		18,237			12,491			49,924			35,673

Provision for (benefit from) income taxes		6,987			(1,358	)		8,601			(10,295	)

Net income	$	11,250		$	13,849		$	41,323		$	45,968

Net income per share:
Basic	$	0.05		$	0.07		$	0.20		$	0.21

Shares used to compute net income per share—Basic		207,616			212,308			209,323			213,870

Net income per share:
Diluted	$	0.05		$	0.06		$	0.19		$	0.21

Shares used to compute net income per share—Diluted		214,498			219,775			218,150			223,747


	Nine Months Ended August 31,
	2006			2005
Cash flows from operating activities:
Net income	$	41,323		$	45,968
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		11,625			11,394
Amortization of acquired intangible assets		11,083			11,143
Stock-based compensation		11,751			110
Realized (gain) loss on investments, net		(833	)		250
Deferred income tax		(10,816	)		(20,096	)
Tax benefits related to stock options		9,675			—
Excess tax benefits from stock-based compensation		(8,814	)		—
Other non-cash adjustments, net		(16	)		—
Changes in assets and liabilities:
Accounts receivable		27,840			22,109
Accounts receivable from related parties, net		1,243			1,779
Other assets		(3,039	)		1,781
Accounts payable		914			2,748
Accrued liabilities, restructuring and excess facilities costs		(8,230	)		(13,055	)
Deferred revenue		10,126			6,570

Net cash provided by operating activities		93,832			70,701

Cash flows from investing activities:
Purchases of short-term investments		(341,079	)		(192,260	)
Proceeds from sales and maturities of short-term investments		214,514			173,502
Purchases of private equity investments		(76	)		(311	)
Proceeds from sales of private equity investments		1,488			—
Cash used in acquisitions, net of cash received		—			(24,849	)
Purchases of property and equipment		(8,667	)		(11,753	)
Restricted cash pledged as security		(1,309	)		(546	)

Net cash used for investing activities		(135,129	)		(56,217	)

Cash flows from financing activities:
Proceeds from issuance of common stock		14,627			14,344
Repurchase of common stock		(66,791	)		(33,424	)
Excess tax benefits from stock-based compensation		8,814			—
Principal payments on long term debt		(1,340	)		(1,273	)

Net cash used for financing activities		(44,690	)		(20,353	)

Effect of exchange rate changes on cash		2,163			(3,251	)

Net change in cash and cash equivalents		(83,824	)		(9,120	)
Cash and cash equivalents at beginning of the period		208,756			180,849

Cash and cash equivalents at end of the period	$	124,932		$	171,729

Supplemental cash flow information:
Cash paid for taxes	$	10,739		$	5,067
Cash paid for interest		2,002			2,040


	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	$	61,477	$	(268	)	$	18,053	$	(169	)	$	79,530	$	(437	)
Corporate debt securities		91,776		(443	)		14,130		(135	)		105,906		(578	)
Asset-backed securities		37,709		(266	)		413		—			38,122		(266	)
Mortgage-backed securities		22,083		(187	)		—		—			22,083		(187	)
Obligations in foreign sovereigns		1,009		(3	)		—		—			1,009		(3	)

	$	214,054	$	(1,167	)	$	32,596	$	(304	)	$	246,650	$	(1,471	)


	Purchase/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Classified on Balance Sheets as:
	Purchase/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Cash and Cash Equivalents		Short-term Investments
As of August 31, 2006:
U.S. Government debt securities	$	108,857	$	39	$	(437	)	$	108,459	$	—	$	108,459
Corporate debt securities		169,269		85		(578	)		168,776		25,137		143,639
Asset-backed securities		96,699		162		(266	)		96,595		—		96,595
Mortgage-backed securities		46,838		60		(187	)		46,711		—		46,711
Obligations in foreign sovereigns		1,008		—		(3	)		1,005		—		1,005
Money market funds		4,804		—		—			4,804		4,804		—

Total	$	427,475	$	346	$	(1,471	)	$	426,350	$	29,941	$	396,409

As of November 30, 2005:
U.S. Government debt securities	$	117,639	$	—	$	(950	)	$	116,689	$	—	$	116,689
Corporate debt securities		270,779		10		(797	)		269,992		153,823		116,169
Asset-backed securities		36,273		7		(264	)		36,016		—		36,016
Marketable equity securities		6		2		—			8		—		8
Money market funds		8,865		—		—			8,865		8,865		—

Total	$	433,562	$	19	$	(2,011	)	$	431,570	$	162,688	$	268,882


	As of August 31, 2006		As of November 30, 2005
Contractual maturities:
Less than one year	$	160,058	$	152,520
One to three years		236,351		116,354

Total	$	396,409	$	268,874


	Three Months Ended August 31,						Nine Months Ended August 31
	2006			2005			2006			2005
Realized gains	$	100		$	—		$	125		$	—
Realized losses		(10	)		(230	)		(30	)		(250	)

Net realized gain (loss)	$	90		$	(230	)	$	95		$	(250	)


	Goodwill
Balance as of November 30, 2005	$	261,075
Changes in the nine months ended August 31, 2006
Tax benefit related to acquired deferred tax assets		(7,732	)
Currency adjustment		15,365

Balance as of August 31, 2006	$	268,708


	Estimated Life	Weighted Average Life As of August 31, 2006
Developed technologies	3 to 5 years	4.8 years
Customer base	3 to 5 years	4.8 years
Patents/core technologies	4 to 8 years	7.7 years
Trademarks	3.5 to 5 years	4.9 years
Non-compete agreements	2 to 3 years	2.3 years
OEM customer royalty agreements	5 years	5.0 years
Maintenance agreements	3.5 to 9 years	8.2 years


	As of August 31, 2006							As of November 30, 2005
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technologies	$	47,758	$	(32,530	)	$	15,228	$	45,721	$	(27,811	)	$	17,910
Customer base		22,222		(12,409	)		9,813		21,156		(9,380	)		11,776
Patents/core technologies		16,004		(4,520	)		11,484		14,671		(2,689	)		11,982
Trademarks		5,275		(3,229	)		2,046		4,947		(2,568	)		2,379
Non-compete agreements		680		(580	)		100		680		(530	)		150
OEM customer royalty agreements		1,000		(867	)		133		1,000		(717	)		283
Maintenance agreements		25,122		(6,387	)		18,735		24,280		(4,018	)		20,262

Total	$	118,061	$	(60,522	)	$	57,539	$	112,455	$	(47,713	)	$	64,742


	Estimated Amortization Expense
Remainder of fiscal year 2006	$	3,694
Fiscal year 2007		14,655
Fiscal year 2008		14,329
Fiscal year 2009		9,777
Fiscal year 2010		4,888
Thereafter		10,196

Total	$	57,539


	Accrued Excess Facilities									Accrued Severance and Other									Total Accrued Restructuring and Integration Costs
	Headquarter Facilities			Staffware Integration			Subtotal			2005 Restructuring			Staffware Integration			Subtotal
Balance as of November 30, 2005	$	28,105		$	1,137		$	29,242		$	747		$	13		$	760		$	30,002
Net cash utilized		(3,826	)		(399	)		(4,225	)		(343	)		(13	)		(356	)		(4,581	)

Balance as of August 31, 2006	$	24,279		$	738		$	25,017		$	404		$	—		$	404		$	25,421


	Total			Remainder of 2006			2007			2008			2009			2010			Thereafter
Operating commitments:
Debt principal	$	48,803		$	458		$	1,892		$	1,990		$	2,094		$	2,203		$	40,166
Debt interest		14,712			619			2,417			2,318			2,215			2,106			5,037
Operating leases		29,857			1,167			6,147			5,203			4,264			3,513			9,563

Total operating commitments		93,372			2,244			10,456			9,511			8,573			7,822			54,766
Restructuring-related commitments:
Gross lease obligations		32,082			1,282			7,371			7,515			7,551			7,720			643
Estimated sublease income		(6,621	)		(522	)		(1,821	)		(1,340	)		(1,386	)		(1,431	)		(121	)

Net restructuring-related commitment		25,461			760			5,550			6,175			6,165			6,289			522

Total commitments	$	118,833		$	3,004		$	16,006		$	15,686		$	14,738		$	14,111		$	55,288


	Notional Value Local Currency	Notional Value USD		Fair Value Gain/(Loss) USD
Forward contracts (sold)
EURO	39,000	$	50,045	$	(86	)
British Pound	3,300		6,285		(4	)
Japanese Yen	280,000		2,389		(8	)

		$	58,719	$	(98	)


	Options Outstanding				Options Exercisable
Range of Exercise Price	Number of Shares Underlying Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Shares Underlying Options	Weighted Average Exercise Price
$0.20	533	0.34	$	0.20	533	$	0.20
$0.20 to $5.54	4,677	4.90		3.46	4,126		3.28
$5.55 to $6.29	5,101	6.67		6.02	4,171		6.03
$6.30 to $6.63	4,875	8.66		6.62	1,542		6.62
$6.64 to $7.30	7,360	7.53		7.26	2,771		7.26
$7.31 to $8.00	6,653	5.77		7.92	5,408		7.97
$8.01 to $11.96	5,070	6.08		10.31	3,832		10.78
$11.97 to $24.75	5,304	5.38		12.69	5,178		12.70
$24.76 to $71.81	432	3.37		34.01	432		34.01

Total	40,005	6.35	$	7.99	27,993	$	8.36


	Nine Months Ended August 31, 2006
	Restricted Stock				Restricted Stock Units
	Number of Shares		Weighted Grant Date Fair Value		Number of Units		Weighted Grant Date Fair Value
Awards unvested as of November 30, 2005	—		$	—	—		$	—
Awarded	1,195			7.30	322			7.50
Released	—			—	—			—
Forfeited	(3	)		7.30	(1	)		7.50

Awards outstanding as of August 31, 2006	1,192		$	7.30	321		$	7.50


	Three Months Ended August 31,						Nine Months Ended August 31
	2006			2005			2006			2005
Expected term		4.59 years			3.00 years			4.30 to 4.59 years			3.00 years
Risk free interest rate		4.95	%		4.07	%		4.46 to 4.95	%		3.53 to 4.07	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected volatility		41.00	%		57.06	%		40.00 to 43.00	%		57.06 to 64.40	%

Weighted average fair value of stock options (per share)	$	3.05		$	2.83		$	3.09		$	3.01


	Nine Months Ended August 31, 2006
	Options		Weighted Average Exercise Price
Options outstanding as of November 30, 2005	46,266		$	7.01
Granted	3,252			7.54
Exercised	(7,612	)		1.66
Forfeited	(1,184	)		6.94
Expired	(717	)		11.52

Options outstanding as of August 31, 2006	40,005		$	7.99


Options vested and expected-to-vest as of August 31, 2006	37,864		$	8.03

Options exercisable as of August 31, 2006	27,993		$	8.36


	Three Months Ended August 31, 2006			Nine Months Ended August 31, 2006
Employee stock-based compensation classified as:
Cost of license	$	8		$	34
Cost of service and maintenance		429			1,580
Research and development expense		742			2,760
Sales and marketing expense		1,037			3,446
General and administrative expense		1,261			3,959

Total employee stock-based compensation		3,477			11,779
Tax effect on employee stock-based compensation		(535	)		(1,504	)

Net effect on net income	$	2,942		$	10,275

Effect on net income per share—Basic	$	(0.01	)	$	(0.05	)

Effect on net income per share—Diluted	$	(0.01	)	$	(0.05	)


	Three Months Ended August 31, 2005			Nine Months Ended August 31, 2005
Net income, before stock-based compensation for employees	$	13,849		$	45,968
Add: Stock-based compensation expense for employees previously determined under intrinsic value method, net of tax effect		6			23
Less: Stock-based compensation expense for employees determined under fair value based method, net of tax effect		(4,032	)		(11,648	)

Pro forma net income, after effect of stock-based compensation for employees	$	9,823		$	34,343

Pro forma net income per share:
Basic—as reported	$	0.07		$	0.21

Basic—pro forma, after effect of stock-based compensation for employees	$	0.05		$	0.16

Diluted—as reported	$	0.06		$	0.21

Diluted—pro forma, after effect of stock-based compensation for employees	$	0.05		$	0.16


	Unrealized Gain (Loss) in Available-for-Sale Securities			Foreign Currency Translation			Accumulated Other Comprehensive Income (Loss)
Balance as of November 30, 2005	$	(2,017	)	$	(12,329	)	$	(14,346	)
Net change during nine month period		892			19,966			20,858

Balance as of August 31, 2006	$	(1,125	)	$	7,637		$	6,512


	Three Months Ended August 31, 2005			Nine Months Ended August 31, 2005
License fees	$	—		$	16,038
Service and maintenance revenue:
Maintenance		1,369			5,630
Services contracts		35			110

Total service and maintenance		1,404			5,740

Total revenue from Reuters	$	1,404		$	21,778

Percent of total revenue		1	%		7	%


	Three Months Ended August 31,				Nine Months Ended August 31,
	2006		2005		2006		2005
Americas:
United States of America	$	62,167	$	53,680	$	178,949	$	160,467
Other Americas		1,154		765		5,423		2,724
Europe, Middle East and Africa:
United Kingdom		15,402		11,242		43,690		54,190
Germany		12,480		6,038		23,382		15,154
Other Europe		16,697		24,000		65,142		51,615
Asia Pacific		12,503		10,220		39,644		27,329

Total Revenue	$	120,403	$	105,945	$	356,230	$	311,479


	Three Months Ended August 31,						Nine Months Ended August 31,
	2006		2005		Change		2006		2005		Change
Total revenue	$	120,403	$	105,945	14	%	$	356,230	$	311,479	14	%


(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	Approximate Dollar Value of Shares That May Yet Be Purchased under the Plans or Programs
June 5, 2006 to July 4, 2006	—	$	—	—	$	67,017
July 5, 2006 to August 4, 2006	3,800	$	7.23	3,800	$	39,537
August 5, 2006 to September 3, 2006	710	$	7.51	710	$	34,208

Total	4,510	$	7.27	4,510	$	34,208


3.1(1)		Certificate of Incorporation of Registrant.

3.2(2)		Bylaws of Registrant.

4.1(3)		Form of Registrant’s Common Stock Certificate.

10.1(4)		TIBCO Software Inc. Change in Control and Severance Plan.

10.2(5)		Summary of 2006 TIBCO Executive Incentive Compensation Plan.

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.


Exhibit No.		Description
3.1(1)		Certificate of Incorporation of Registrant.

3.2(2)		Bylaws of Registrant.

4.1(3)		Form of Registrant’s Common Stock Certificate.

10.1(4)		TIBCO Software Inc. Change in Control and Severance Plan.

10.2(5)		Summary of 2006 TIBCO Executive Incentive Compensation Plan.

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.