10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 4, 2007

OR

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

For the transition period from                                  to                                 

Commission File Number: 000-26579

TIBCO SOFTWARE INC.

(Exact name of registrant as specified in its charter)

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

3303 Hillview Avenue

Palo Alto, California 94304-1213

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (650) 846-1000

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):

Large accelerated filer  x                    Accelerated filer  ¨                    Non-accelerated filer  ¨

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 April 9, 2007 was 208,492,537 shares.

TIBCO SOFTWARE INC.

INDEX

Item		Page No.
	PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of February 28, 2007 and November 30, 2006	3
	Condensed Consolidated Statements of Operations for the three months ended February 28, 2007 and February 28, 2006	4
	Condensed Consolidated Statements of Cash Flows for the three months ended February 28, 2007 and February 28, 2006	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operation	21
Item 3	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4	Controls and Procedures	34
	PART II—OTHER INFORMATION
Item 1	Legal Proceedings	35
Item 1A	Risk Factors	35
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6	Exhibits	45
	Signatures	46

2

TIBCO SOFTWARE INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value per share)

	February 28, 2007		November 30, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	127,151	$	138,912
Short-term investments		420,504		400,658
Accounts receivable, net of allowances of $3,707 and $4,255		102,431		149,141
Prepaid expenses and other current assets		34,829		35,699
Total current assets		684,915		724,410
Property and equipment, net		112,362		113,787
Goodwill		272,363		274,442
Acquired intangible assets, net		50,744		55,072
Long-term deferred income tax assets		21,437		21,437
Other assets		38,402		37,211
Total assets	$	1,180,223	$	1,226,359
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,616	$	12,651
Accrued liabilities		52,225		74,347
Accrued excess facilities costs		4,737		4,251
Deferred revenue		103,127		102,269
Current portion of long-term debt		1,924		1,892
Total current liabilities		171,629		195,410
Accrued excess facilities costs, less current portion		16,482		18,150
Long-term deferred revenue		3,143		4,151
Long-term deferred income tax liabilities		9,979		11,439
Long-term debt, less current portion		45,801		46,453
Other long-term liabilities		4,767		4,749
Total liabilities		251,801		280,352
Commitments and contingencies (Note 7)
Minority interest		279		—
Stockholders’ equity:
Common stock, $0.001 par value; 1,200,000 shares authorized; 208,359 shares and 211,208 shares issued and outstanding, respectively		208		211
Additional paid-in capital		905,617		909,289
Accumulated other comprehensive income		9,013		10,809
Retained earnings		13,305		25,698
Total stockholders’ equity		928,143		946,007
Total liabilities and stockholders’ equity	$	1,180,223	$	1,226,359

See accompanying Notes to Condensed Consolidated Financial Statements.

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TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended February 28,
	2007			2006
Revenue:
License revenue	$	52,185		$	48,149
Service and maintenance revenue:
Service and maintenance		71,939			64,630
Reimbursable expenses		1,530			1,801
Total service and maintenance revenue		73,469			66,431
Total revenue		125,654			114,580
Cost of revenue:
License		4,071			3,909
Service and maintenance		30,828			28,766
Total cost of revenue		34,899			32,675
Gross profit		90,755			81,905
Operating expenses:
Research and development		21,015			21,977
Sales and marketing		42,949			38,648
General and administrative		12,752			10,386
Amortization of acquired intangible assets		2,470			2,364
Total operating expenses		79,186			73,375
Income from operations		11,569			8,530
Interest income		6,390			4,386
Interest expense		(368	)		(654	)
Other income (expense), net		(1,265	)		47
Income before provision for income taxes and minority interest		16,326			12,309
Provision for income taxes		5,923			6,708
Minority interest, net of tax		12			—
Net income	$	10,391		$	5,601
Net income per share:
Basic	$	0.05		$	0.03
Diluted	$	0.05		$	0.03
Shares used in computing net income per share:
Basic		208,398			210,577
Diluted		216,306			220,170

See accompanying Notes to Condensed Consolidated Financial Statements.

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TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended February 28,
	2007			2006
Operating activities:
Net income	$	10,391		$	5,601
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		4,080			3,762
Amortization of acquired intangible assets		3,872			3,694
Stock-based compensation		3,936			4,587
Tax benefits related to employee stock option plans, net		(570	)		—
Minority interest, net of tax		12			—
Other non-cash adjustments, net		(76	)		13
Changes in operating assets and liabilities:
Accounts receivable		46,844			24,028
Due from related parties		—			1,243
Prepaid expenses and other assets		558			(1,136	)
Accounts payable		(1,700	)		468
Accrued liabilities and excess facilities costs		(25,347	)		(10,417	)
Deferred revenue		(48	)		(1,049	)
Net cash provided by operating activities		41,952			30,794
Investing activities:
Purchases of short-term investments		(70,900	)		(164,912	)
Maturities and sales of short-term investments		51,477			45,523
Purchases of private equity investments		(20	)		(17	)
Purchases of property and equipment		(2,607	)		(2,832	)
Restricted cash pledged as security		(725	)		(1,116	)
Net cash used in investing activities		(22,775	)		(123,354	)
Financing activities:
Proceeds from exercise of stock options		8,530			6,551
Proceeds from employee stock purchase program		898			1,061
Repurchases of the Company’s common stock		(41,814	)		(13,221	)
Excess tax benefits from stock-based compensation		2,561			—
Principal payments on long term debt		(620	)		(441	)
Proceeds from minority investors		189			—
Net cash used in financing activities		(30,256	)		(6,050	)
Effect of foreign exchange rate changes on cash and cash equivalents		(682	)		683
Net decrease in cash and cash equivalents		(11,761	)		(97,927	)
Cash and cash equivalents at beginning of the period		138,912			208,756
Cash and cash equivalents at end of the period	$	127,151		$	110,829
Supplemental disclosures:
Income taxes paid	$	2,837		$	3,458
Interest paid	$	816		$	654
Supplemental disclosures of non-cash investing and financing activities:
Non-cash contributions from minority investors	$	85		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by TIBCO Software Inc. (“TIBCO,” the “Company,” “we” or “us”) 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 audited Consolidated Financial Statements and notes thereto for the fiscal year ended November 30, 2006, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 9, 2007.

Our fiscal year ends on November 30^th of each year. For purposes of presentation, we have indicated the first quarter of fiscal years 2007 and 2006 as ended on February 28, 2007 and 2006, respectively; whereas in fact, the first quarter of fiscal years 2007 and 2006 actually ended on March 4, 2007, and March 5, 2006, respectively. There were 94 days and 95 days in the first quarter of fiscal years 2007 and 2006, respectively.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly- and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. For majority owned subsidiaries, we reflect the minority interest of the portion we do not own on our Condensed Consolidated Balance Sheets between Total Liabilities and Stockholders’ Equity.

The results of operations for the three months ended February 28, 2007, are not necessarily indicative of the results that may be expected for the year ending November 30, 2007, or any other future period, and we make no representations related thereto.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies were described in Note 2 to our audited Consolidated Financial Statements for the fiscal year ended November 30, 2006, included in our Annual Report on Form 10-K. These accounting policies have not significantly changed.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS No. 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing whether fair value accounting is appropriate for any of our eligible items and cannot estimate the impact, if any, on our results of operations and financial position.

6

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 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 No. 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 No. 157 will have on our results of operations and financial position.

In June 2006, the FASB issued Interpretation No. (“FIN”) 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 and is required to be adopted by TIBCO in the first quarter of fiscal year 2008. 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.

3. INVESTMENTS IN MARKETABLE SECURITIES

Marketable securities, which are classified as available-for-sale, are summarized below as of February 28, 2007, and November 30, 2006 (in thousands):

	Purchased/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Cash and Cash Equivalents		Short-term Investments
As of February 28, 2007
U.S. Government debt securities	$	122,509	$	84	$	(162	)	$	122,431	$	15,995	$	106,436
Corporate debt securities		163,399		104		(236	)		163,267		1,100		162,167
Asset-backed securities		105,630		258		(114	)		105,774		—		105,774
Mortgage-backed securities		46,024		127		(24	)		46,127		—		46,127
Money market funds		8,874		—		—			8,874		8,874		—
	$	446,436	$	573	$	(536	)	$	446,473	$	25,969	$	420,504
As of November 30, 2006
U.S. Government debt securities	$	104,759	$	97	$	(313	)	$	104,543	$	—	$	104,543
Corporate debt securities		177,983		104		(370	)		177,717		21,758		155,959
Asset-backed securities		90,223		272		(165	)		90,330		—		90,330
Mortgage-backed securities		48,759		113		(49	)		48,823		—		48,823
Obligations in foreign sovereigns		1,004		—		(1	)		1,003		—		1,003
Money market funds		3,597		—		—			3,597		3,597		—
	$	426,325	$	586	$	(898	)	$	426,013	$	25,355	$	400,658

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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

	February 28, 2007		November 30, 2006
Contractual maturities:
Less than one year	$	187,771	$	165,453
One to three years		232,733		235,205
	$	420,504	$	400,658

The maturities of asset-backed and mortgage-backed securities were allocated primarily based upon assumed prepayment forecasts utilizing interest rate scenarios and mortgage loan characteristics.

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

	Three Months Ended February 28,
	2007			2006
Realized gains	$	82		$	5
Realized losses		(10	)		(1	)
Net realized gains	$	72		$	4

The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position, as of February 28, 2007 (in thousands):

	Less than 12 months					More than 12 months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government debt securities	$	7,799	$	(1	)	$	58,046	$	(161	)	$	65,845	$	(162	)
Corporate debt securities		34,844		(46	)		62,904		(190	)		97,748		(236	)
Asset-backed securities		12,257		(6	)		17,417		(108	)		29,674		(114	)
Mortgage-backed securities		4,202		(10	)		8,468		(14	)		12,670		(24	)
	$	59,102	$	(63	)	$	146,835	$	(473	)	$	205,937	$	(536	)

The unrealized losses on our investments in the underlying securities listed above 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 securities to be other-than-temporarily impaired as of February 28, 2007.

We have invested in privately held companies; such investments are classified as equity investments that are generally carried on a cost basis and are included in Other Assets. The carrying value of our equity investments is $1.7 million as of February 28, 2007, and $1.6 million as of November 30, 2006. No impairment losses were incurred in the periods presented.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The change in the carrying amount of goodwill for the three months ended February 28, 2007, was as follows (in thousands):

Balance as of November 30, 2006	$	274,442
Foreign currency translation		(2,079	)
Balance as of February 28, 2007	$	272,363

Certain of our intangibles assets were recorded in foreign currencies, and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments. The carrying values of our amortized acquired intangible assets as of February 28, 2007, and November 30, 2006, are as follows (in thousands):

	As of February 28, 2007							As of November 30, 2006
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technologies	$	48,240	$	(35,534	)	$	12,706	$	48,515	$	(34,279	)	$	14,236
Customer base		22,560		(14,401	)		8,159		22,721		(13,561	)		9,160
Patents/core technologies		16,319		(5,682	)		10,637		16,500		(5,201	)		11,299
Trademarks		5,353		(3,647	)		1,706		5,398		(3,478	)		1,920
Non-compete agreements		680		(613	)		67		680		(597	)		83
OEM customer royalty agreements		1,000		(967	)		33		1,000		(917	)		83
Maintenance agreements		25,389		(7,953	)		17,436		25,549		(7,258	)		18,291
	$	119,541	$	(68,797	)	$	50,744	$	120,363	$	(65,291	)	$	55,072

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):

	Three Months Ended February 28,
	2007		2006
Amortization of acquired intangible assets:
In cost of revenue	$	1,402	$	1,330
In operating expense		2,470		2,364
Total	$	3,872	$	3,694

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

5. ACCRUED EXCESS FACILITIES COSTS

The following is a summary of activities in accrued facilities restructuring costs for the three months ended February 28, 2007 (in thousands):

	Accrued Excess Facilities
	Headquarter Facilities			Staffware Integration			Total
As of November 30, 2006	$	21,844		$	557		$	22,401
Cash utilized		(1,117	)		(65	)		(1,182	)
As of February 28, 2007	$	20,727		$	492		$	21,219

The remaining accrued facilities restructuring costs represent the estimated loss on abandoned excess facilities, net of estimated sublease income, which is expected to be paid over the next four years. As of February 28, 2007, $16.5 million of the $21.2 million accrued excess facilities costs were classified as long-term liabilities based on our current expectation that we will have to pay the remaining lease payments over the remaining term of the related leases.

6. LONG TERM DEBT AND LINE OF CREDIT

Mortgage Note Payable

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 $47.7 million and $48.3 million as of February 28, 2007, and November 30, 2006, 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 February 28, 2007.

Line of Credit

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 February 28, 2007, 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 February 28, 2007, we were in compliance with all covenants under the revolving line of credit.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. COMMITMENTS AND CONTINGENCIES

Letters of Credit and Bank Guarantees

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

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 February 28, 2007, in connection with bank guarantees issued by some of our international subsidiaries, we had $4.0 million of restricted cash which is included in Other Assets on our Condensed Consolidated Balance Sheets.

Prepaid Land Lease

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 Prepaid Expenses and Other Current Assets, and the remainder is included in Other Assets on our Condensed Consolidated Balance Sheets.

Operating Commitments

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 $2.4 million for the three month periods ended February 28, 2007 and 2006, respectively.

As of February 28, 2007, contractual commitments associated with indebtedness and lease obligations were as follows (in thousands):

	Total			Remainder of 2007			2008			2009			2010			2011			Thereafter
Operating commitments:
Debt principal	$	47,881		$	1,428		$	1,990		$	2,094		$	2,203		$	2,318		$	37,848
Debt interest		13,481			1,804			2,318			2,215			2,106			1,991			3,047
Operating leases		32,048			5,413			6,456			5,436			4,308			3,431			7,004
Total operating commitments		93,410			8,645			10,764			9,745			8,617			7,740			47,899
Restructuring-related commitments:
Gross lease obligations		28,389			4,954			7,521			7,551			7,720			643			—
Estimated sublease income		(8,345	)		(1,627	)		(2,113	)		(2,177	)		(2,239	)		(189	)		—
Net restructuring-related commitment		20,044			3,327			5,408			5,374			5,481			454			—
Total commitments	$	113,454		$	11,972		$	16,172		$	15,119		$	14,098		$	8,194		$	47,899

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

11

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Derivative Instruments

We conduct business in North America, South America, Asia Pacific and Japan, and Europe, the Middle East and Africa (“EMEA”). 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. Our forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. 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 five outstanding forward contracts with total notional amounts of $58.1 million as of February 28, 2007, which are summarized as follows (in thousands):

	Notional Value Local Currency	Notional Value USD		Fair Value Gain (Loss) USD
Forward contracts (sold):
EURO	25,300	$	33,381	$	129
Australian Dollar	4,100		3,210		20
British Pound	6,200		12,062		92
Japanese Yen	140,000		1,202		(15	)
South African Rand	61,000		8,283		114
		$	58,138	$	340

Indemnification

Our software license agreements typically provide for indemnification of customers for intellectual property infringement claims. To date, no such claims have been filed against us. We also warrant to customers that software products operate substantially in accordance with the software product’s specifications. Historically, we have incurred minimal costs related to product warranties, and, as such, no accruals for warranty costs have been made. In addition, we indemnify our officers and directors under the terms of indemnity agreements entered into with them, as well as pursuant to our certificate of incorporation, bylaws and applicable Delaware law. To date, we have incurred costs for the payment of legal fees in connection with the legal proceedings detailed in Note 8.

8. LEGAL PROCEEDINGS

Securities Class Action and Shareholder Derivative Suits

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 plc (“Staffware”). The actions were consolidated and in September 2006, the U.S. District Court for the Northern District of California dismissed the litigation with prejudice. Plaintiffs have filed a notice of appeal. Plaintiffs 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 was based on substantially similar

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(Unaudited)

facts and circumstances as the class actions and generally alleged that the named directors and officers breached their fiduciary duties to TIBCO. In December 2006, plaintiff voluntarily dismissed the litigation without prejudice.

IPO Allocation Suit

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.

In April 2006, the U.S. District Court for the Southern District of New York held a fairness hearing in connection with the motion for final approval of the settlement in the coordinated litigation. The U.S. District Court for the Southern District of New York has yet to issue a ruling on the motion for final approval. The settlement remains subject to a number of conditions, including final court approval. In December 2006, the Court of Appeals for the Second Circuit reversed the U.S. District Court for the Southern District of New York’s October 2004 order certifying a class in six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. TIBCO and Talarian are not among the test cases, and it is unclear what impact this will have on the classes certified in TIBCO’s and Talarian’s cases.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. STOCK BENEFIT PLANS AND STOCK-BASED COMPENSATION

Stock Benefit Plans

1996 Stock Option Plan. As of February 28, 2007, there were 28.2 million shares reserved for grant, 37.0 million shares underlying stock options, 1.2 million shares of restricted stock and 0.3 million shares underlying restricted stock units outstanding under the 1996 Stock Option 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. As of February 28, 2007, there were no shares reserved for grant and approximately 28,000 shares underlying stock options outstanding under the Talarian Stock Option Plans.

2000 Extensibility Stock Option Plan. As of February 28, 2007, no shares were reserved for grant and approximately 24,000 shares underlying stock options outstanding under the 2000 Extensibility Stock Option Plan.

1998 Director Option Plan. As of February 28, 2007, there were 2.3 million shares reserved for grant and 1.1 million shares underlying stock options outstanding under the 1998 Director Option Plan.

Employee Stock Purchase Program. We issued approximately 0.1 million shares under the Employee Stock Purchase Program (the “ESPP”), representing approximately $0.9 million in employee contributions for the three months ended February 28, 2007. Shares are reserved under the 1996 Stock Option Plan for future purchases under the ESPP.

Stock Options Activities

The summary of stock option activity in the three months ended February 28, 2007, is presented below (in thousands, except per share data):

	Three Months Ended February 28, 2007
Stock Options	Number of Shares Underlying Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at November 30, 2006	38,461		$	8.09	6.16	$	81,328
Granted	435			9.11
Exercised	(1,546	)		5.52
Forfeited or expired	(332	)		9.78
Outstanding at February 28, 2007	37,018		$	8.19	5.93	$	61,364
Vested and expected to vest at February 28, 2007	35,575		$	8.22	5.88	$	59,299
Exercisable at February 28, 2007	27,513		$	8.48	5.47	$	46,648

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 total intrinsic value of stock options exercised in the three months ended February 28, 2007 and 2006 was $6.0 million and $4.5 million, respectively. Upon the exercise of stock options, we issue common stock from our authorized

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(Unaudited)

shares. As of February 28, 2007, total unamortized stock-based compensation cost related to unvested stock options was $14.1 million, with the weighted-average recognition period of 1.08 years.

The total realized tax benefit attributable to stock options exercised were $2.0 million in the three months ended February 28, 2007.

Stock Awards Activities

Our nonvested stock awards are comprised of restricted stock and restricted stock units. A summary of the status for nonvested stock awards as of February 28, 2007, and activities during the three months ended February 28, 2007, is presented as follows (in thousands, except per share data):

	Three Months Ended February 28, 2007
Nonvested Stock Awards	Restricted Stock		Restricted Stock Units		Total Number of Shares Underlying Stock Awards		Weighted- Average Grant-Date Fair Value
Nonvested at November 30, 2006	1,177		319		1,496		$	7.34
Granted	8		11		19			8.95
Vested	—		—		—			—
Forfeited	(27	)	(8	)	(35	)		7.30
Nonvested at February 28, 2007	1,158		322		1,480			7.33

We granted approximately 19,000 shares of nonvested stock awards at no cost to recipients during the three months ended February 28, 2007. As of February 28, 2007, there was $6.2 million of total unrecognized compensation cost related to nonvested stock awards. That cost is expected to be recognized on a straight-line basis as the shares vest over four years (the weighted-average recognition period of 1.95 years). None of the stock awards vested during the first quarter of fiscal year 2007, and therefore the total fair value of the restricted stock and restricted stock units vested during the period is zero.

Stock-Based Compensation

Stock-based compensation cost for the three months ended February 28, 2007 and 2006 was $3.9 million and $4.6 million, respectively, which consisted primarily of stock-based compensation cost related to employee stock options recognized under SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”). The tax benefit on employee stock-based compensation for the three months ended February 28, 2007 and 2006 was $0.8 million and $0.4 million, respectively. We revised our ESPP effective from the purchase period beginning February 1, 2007. The revised ESPP is compensatory and is valued under the Black-Scholes option pricing model at each offering period. We recognize stock-based compensation cost on a straight-line basis over each six-month offering period.

We started granting restricted stock and restricted stock units to employees during the third quarter of fiscal year 2006. Approximately $0.6 million of employee stock-based compensation for the three months ended February 28, 2007, was related to restricted stock and restricted stock units.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Assumptions for Estimating Fair Value of Stock-Based Awards

We selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The following table summarizes the assumptions used to value stock options granted in the respective periods:

	Three Months Ended February 28,
	2007			2006
Stock option grants:
Expected term of stock options (years)		4.4			4.3
Risk-free interest rate		4.68	%		4.46	%
Expected Volatility		39	%		43	%
Weighted-average grant-date fair value of stock options (per share)	$	3.55		$	3.17
ESPP:
Expected term of ESPP (years)		0.5			n/a
Risk-free interest rate		5.16	%		n/a
Expected Volatility		34	%		n/a
Weighted-average grant-date fair value of ESPP (per share)	$	2.35			n/a

10. COMPREHENSIVE INCOME

Our comprehensive income includes net income and other comprehensive income (loss), which consists of unrealized gains and 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):

	Three Months Ended February 28,
	2007			2006
Net income	$	10,391		$	5,601
Cumulative translation adjustment		(2,147	)		2,927
Unrealized loss on available-for-sale securities		351			55
Comprehensive income	$	8,595		$	8,583

The balances of each component of accumulated other comprehensive income, net of taxes, as of February 28, 2007, and November 30, 2006, consist of the following (in thousands):

	Unrealized Gain (Loss) in Available-for-sale Securities			Foreign Currency Translation			Accumulated Other Comprehensive Income
Balance as of November 30, 2006	$	(313	)	$	11,122		$	10,809
Net change during three month period		351			(2,147	)		(1,796	)
Balance as of February 28, 2007	$	38		$	8,975		$	9,013

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. MINORITY INTEREST

In the first quarter of fiscal year 2007, we established a joint venture in South Africa, TS Innovations Limited (“Innovations”), with a local South Africa corporation, to assist with our sales efforts as well as to provide consulting services and training to our customers in the Sub-Saharan Africa region. For the three months ended February 28, 2007, Innovations had total assets of $3.1 million and total revenues of $0.5 million. As of February 28, 2007, we owned a 74.9% interest in the joint venture. Because of this majority interest, our Condensed Consolidated Financial Statements include the balance sheets, results of operations and cash flows of Innovations, net of intercompany charges. We therefore eliminated 25.1% of our financial results that pertain to the minority interest on a separate line in our Condensed Consolidated Statements of Operations and Balance Sheets.

12. PROVISION FOR INCOME TAXES

The effective tax rate of 36.3% for the three months ended February 28, 2007, differs from the statutory rate of 35% primarily due to the tax impact of certain stock compensation charges under SFAS No. 123(R), state income taxes and additional U.S. taxes on repatriated U.K. earnings which was partially offset by research and development credits. The effective tax rate of 54.5% for the three months ended February 28, 2006, differs from the statutory rate of 35% primarily due to the recording of a valuation allowance, the tax impact of certain stock compensation charges under SFAS 123(R), state income taxes and additional taxes related to certain U.K. interest expense deductions.

In December 2006, the Tax Relief and Health Care Act of 2006, which included a retroactive reinstatement of the research and development credit, was signed into law. In the first quarter of fiscal year 2007, we recorded the retroactive fiscal year 2006 research and development credit of $0.6 million on a discrete basis.

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.

As part of the process of preparing our Condensed 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 Condensed Consolidated Balance Sheets.

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If 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 February 28, 2007, 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 as we cannot forecast sufficient future capital gains or foreign source income to realize these deferred tax assets. The remaining valuation allowance of approximately $10.6 million as of February 28, 2007, will result in an income tax benefit if and when we conclude it is more likely than not that the related deferred tax assets will be realized.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

As of February 28, 2007, we believed that the amount of 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.

While we do not expect any impact to the effective tax rate for U.S. non-qualified stock option, restricted stock or restricted stock units expense due to the adoption of SFAS No. 123(R), the effective tax rate may be negatively impacted by foreign stock option expense that may not be deductible in the foreign jurisdictions. Also, SFAS No. 123(R) requires that the tax benefit of stock option deductions relating to incentive stock options be recorded in the period of disqualifying disposition. This could result in significant fluctuations in our effective tax rate between accounting periods.

13. NET INCOME PER SHARE

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):

	Three Months Ended February 28,
	2007		2006
Net income	$	10,391	$	5,601
Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)		208,398		210,577
Effect of dilutive common stock equivalents:
Stock options to purchase common stock		7,567		9,593
Restricted common stock awards		341		—
Weighted-average shares of common stock used in computing diluted net income per share		216,306		220,170
Basic net income per share	$	0.05	$	0.03
Diluted net income per share	$	0.05	$	0.03

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):

	Three months ended February 28,
	2007	2006
Stock options to purchase common stock	12,681	28,066

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

14. SEGMENT INFORMATION

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):

	Three Months Ended February 28,
	2007		2006
Americas:
United States	$	47,321	$	58,407
Other Americas		15,120		1,945
EMEA:
United Kingdom		14,303		10,149
Other EMEA		39,495		32,829
Asia Pacific and Japan		9,415		11,250
	$	125,654	$	114,580

No customer accounted for more than 10% of total revenue for the three months ended February 28, 2007 and 2006, respectively. No customer had a balance in excess of 10% of our net accounts receivable at February 28, 2007, or November 30, 2006.

Our property and equipment by major country are summarized as follows (in thousands):

	February 28, 2007		November 30, 2006
Property and equipment, net:
United States	$	104,815	$	105,591
United Kingdom		3,714		4,028
Other		3,832		4,168
	$	112,361	$	113,787

15. STOCK REPURCHASE PROGRAMS

In December 2005, our Board of Directors approved an eighteen-month stock repurchase program pursuant to which we were authorized to repurchase up to $100.0 million of our outstanding common stock. In December 2006, the Audit Committee on behalf of 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 from time to time in the open market or through privately negotiated transactions. In connection with approving the December 2006 stock repurchase program, the December 2005 stock repurchase program was terminated and the remaining authorized amount under the program was canceled.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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):

	Three Months Ended February 28,
	2007		2006
Cash used for repurchases	$	41,814	$	13,221
Shares repurchased		4,478		1,700
Average price per share	$	9.34	$	7.78

In connection with the repurchase activities during the three months ended February 28, 2007, we classified $22.8 million of the excess purchase price over the par value of our common stock to retained earnings and $19.0 million to additional paid-in capital.

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

The following contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) 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 revenues and costs of revenues; our expenses; our potential tax benefit or liabilities; the effect of recent accounting pronouncements and related interpretations; our investments, foreign currency risk, concentration of credit 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 acquired intangible assets; 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 in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q 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.

EXECUTIVE OVERVIEW

We are a leading business integration and process management software company that enables real-time business. We provide a broad range of standards-based software solutions that helps organizations achieve the benefits of real-time business. Real-time business is about giving organizations the ability to sense and respond to changes and opportunities as they arise by enabling the use of current information to execute 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 Information Bus^® (“TIB”) technology, for the integration and delivery of market data, such as stock quotes, news and other financial information, in trading rooms of large banks and financial services institutions. In 1992, Teknekron expanded its development efforts to include solutions designed to enable complex and disparate manufacturing equipment and software applications, primarily in the semiconductor fabrication market, to communicate within the factory environment. Teknekron was acquired by Reuters Group PLC (“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, TIBCO 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.

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TIBCO Products and Services

We offer a wide range of software products that can be sold individually to solve specific technical challenges, but the emphasis of our product development and sales efforts is to create products that interoperate and can be sold together as a suite to enable businesses to be more cost-effective, agile and efficient. These products can help organizations achieve success in four areas: service-oriented architecture (“SOA”), business process management (“BPM”), business optimization and master data management (“MDM”).

• SOA: Our software enables organizations to migrate their IT infrastructures to SOA by turning information and functions into discrete and reusable components that can be invoked from across the business and aggregated with other such services to create “composite applications.” This helps companies streamline the integration and orchestration of assets across technological, organizational and geographical boundaries. Our software enables the creation, management and virtualization of heterogeneous services and provides a unified environment for policy and service management. It also delivers capabilities in the areas of service mediation, orchestration and communication and the development of rich internet applications. Our products give companies the flexibility to do these things using the standards or technologies that best meet their needs in specific situations (such as HTTP, e-mail, J2EE, EDI, Messaging, .NET, Web Services, etc.) without replacing existing technologies or committing to any one technology across the enterprise.

• BPM: Our software enables the automation and coordination of the assets and tasks that make up business processes. This software can coordinate the human and electronic resources inside a business and its network of customers and partners. Our products not only automate routine tasks and exception handling, but orchestrate long-lived activities and transactions that cut across organizational and geographical boundaries. Our software enables organizations to provide a higher level of customer satisfaction, retain customers, maximize partnerships with other businesses and out-execute their competitors.

• Business optimization: Our software automatically routes information to appropriate recipients, allows users access to up-to-date information whenever they need it, and provides users with the ability to analyze and act on information. Our software also tracks large volumes of real-time events as they occur and applies sophisticated rules in order to identify patterns that signify problems, threats and opportunities, and can automatically initiate appropriate notifications or adaptation of processes. This helps line-level employees perform their jobs, helps managers identify and analyze problems and opportunities, and gives customers the ability to get accurate and consistent information directly or through salespeople, service personnel or customer care representatives.

• MDM: Our software enables organizations to align enterprise master data (such as product, service, customer or vendor data) across multiple systems and departments, as well as with customers and trading partners. Our software also enables organizations to ensure that the necessary processes, policies and procedures are put in place to support the continuous addition, deletion and modification of information. This helps organizations reduce errors, increase the efficiency of their business activities and accelerate critical processes such as new product introductions, service provisioning, sales processes and customer service.

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 primarily of license and maintenance fees from our customers and distributors. In addition, we receive fees from our customers for providing consulting services. We also receive revenue from our strategic relationships with business partners who embed our products in their hardware and networking systems as well as from systems integrators who resell our products.

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First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. Maintenance revenue is determined based on vendor-specific objective evidence of fair value and amortized over the term of the maintenance contract, typically 12 months. Consulting and training revenues are typically recognized as the services are performed, 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 months ended February 28, 2007 or 2006. As of February 28, 2007, 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.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of our Board of Directors.

We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, returns and discounts, stock-based compensation, valuation and impairment of investments, impairment of goodwill, intangible assets and long-lived assets, restructuring and integration costs and accounting for income taxes have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results. The critical accounting estimates associated with these policies are described in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report on Form 10-K filed with the SEC on February 9, 2007

RECENT ACCCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements are detailed in Note 2 to our Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

For purposes of presentation, we have indicated the first quarter of fiscal years 2007 and 2006 as ended on February 28, 2007 and 2006, respectively; whereas in fact, the first quarter of fiscal years 2007 and 2006 actually ended on March 4, 2007, and March 5, 2006, respectively. 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.

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

	Three Months Ended February 28,
	2007		2006
Revenue:
License revenue	42	%	42	%
Service and maintenance revenue:
Service and maintenance revenue	57		56
Reimbursable expenses	1		2
Total service and maintenance revenue	58		58
Total revenue	100		100
Cost of revenue:
License	3		3
Service and maintenance	25		25
Total cost of revenue	28		28
Gross profit	72		72
Operating expenses:
Research and development	17		19
Sales and marketing	34		34
General and administrative	9		9
Amortization of acquired intangible assets	2		2
Total operating expenses	62		64
Income from operations	10		8
Interest income	5		4
Interest expense	0		(1	)
Other income (expense), net	(1	)	—
Income before income taxes and minority interest	14		11
Provision for income taxes	5		6
Minority interest, net of tax	—		—
Net income	9	%	5	%

Total Revenue

Our total revenue consisted primarily of license, consulting and maintenance fees from our customers and partners.

	Three Months Ended February 28,
	2007		2006		Change
Total revenue	$	125,654	$	114,580	10	%

Total revenue in the first quarter of fiscal year 2007 compared to the same quarter last year increased by $11.0 million or 10%. The increase was comprised of a $7.0 million or 11% increase in service and maintenance revenue and by a $4.0 million or 8% increase in license revenue.

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No single customer accounted for more than 10% of total revenue in the first quarter of fiscal years 2007 and 2006, respectively. 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 significant increase in EMEA in the first quarter of fiscal year 2007. See Note 14 to our Condensed Consolidated Financial Statements for amounts of total revenue by region. The percentages of total revenue from the geographic regions are summarized as follows:

	Three Months Ended February 28,
	2007		2006
North America	46	%	53	%
EMEA	46	%	37	%
Asia Pacific and Japan	8	%	10	%
	100	%	100	%

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

License Revenue and Cost

	Three Months Ended February 28,
	2007			2006			Change
License revenue	$	52,185		$	48,149		8	%
Percentage of total revenue		42	%		42	%
Cost of license revenue		4,071			3,909		4	%
Percentage of total revenue		3	%		3	%
Percentage of license revenue		8	%		8	%

License revenue increased 8% in the first quarter of fiscal year 2007 compared to the same quarter last year. The increase was primarily due to increased revenue in EMEA.

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:

	Three Months Ended February 28,
	2007		2006
Number of license deals of $1.0 million or more		13		13
Number of license deals over $0.1 million		75		61
Average size of license deals over $0.1 million (in millions)	$	0.7	$	0.7

Our total license revenue in any particular period is to a certain extent dependent on the size and timing of larger license deals. We currently expect the number of license transactions over $100,000 to increase in the remainder of fiscal year 2007, while the size and timing of any particular multi-million dollar deal cannot be reasonably forecasted.

Cost of license revenue mainly consisted of royalty costs and amortization of developed technology acquired through corporate acquisitions. Cost of license revenue remained approximately 3% of total revenue in the first quarter of fiscal year 2007 and the same quarter last year. The increase in absolute dollars in cost of

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license revenue in the current quarter compared to the same quarter last year resulted primarily from an increase of $0.1 million of royalty costs and consulting expenses as well as an increase of $0.1 million in amortization expenses associated with acquired technologies.

We estimate license revenue to be approximately 40% to 55% of our total revenue for fiscal year 2007, and we estimate the cost of license revenue to be approximately 4% to 7% of license revenue for fiscal year 2007.

Service and Maintenance Revenue and Cost

	Three Months Ended February 28,
	2007			2006			Change
Service and maintenance revenue	$	73,469		$	66,431		11	%
Percentage of total revenue		58	%		58	%
Cost of service and maintenance revenue		30,828			28,766		7	%
Percentage of total revenue		25	%		25	%
Percentage of service and maintenance revenue		42	%		43	%

Service and maintenance revenue increased $7.0 million or 11% in the first quarter of fiscal year 2007 compared to the same quarter last year. This increase was comprised of a $6.7 million increase in maintenance revenue and a $0.3 million increase in consulting and training services revenue. Maintenance revenue increased primarily due to growth in our installed software base.

Cost of service and maintenance revenue consisted primarily of compensation of professional services, customer support personnel and third-party contractors, and associated expenses related to providing consulting services.

The cost of service and maintenance revenue increased by $2.1 million or 7% in the first quarter of fiscal year 2007 compared to the same quarter last year, which was primarily due to the relative proportion of personnel costs. The increase in absolute dollars in the first quarter of fiscal year 2007 compared to the same quarter last year resulted primarily from a $2.4 million increase in employee related costs which was offset by a $0.1 million decrease in third-party contractor compensation and consulting fees and a $0.1 million decrease in stock-based compensation. Increased employee related costs were primarily due to adjustments in net salaries and benefits as well as increased headcount.

We estimate service and maintenance revenue to be approximately 45% to 60% of total revenue for fiscal year 2007. We estimate the cost of service and maintenance revenue to increase in absolute dollars and to be in line with increasing service and maintenance revenue for the remainder of fiscal year 2007.

Research and Development Expenses

Research and development expenses consisted primarily of personnel compensation, including stock-based compensation cost, third-party contractor fees and related costs associated with the development and enhancement of our products.

	Three Months Ended February 28,
	2007			2006			Change
Research and development expenses	$	21,015		$	21,977		(4	)%
Percentage of total revenue		17	%		19	%

Research and development expenses decreased by $1.0 million or 4% in the first quarter of fiscal year 2007 compared to the same quarter last year, resulting primarily from a $0.5 million decrease in third-party contractor compensation and consulting fees, a $0.2 million decrease in stock-based compensation and a $0.2 million decrease in travel expenses.

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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 fiscal year 2007.

Sales and Marketing Expenses

Sales and marketing expenses consisted primarily of personnel costs which include stock-based compensation cost, 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.

	Three Months Ended February 28,
	2007			2006			Change
Sales and marketing expenses	$	42,949		$	38,648		11	%
Percentage of total revenue		34	%		34	%

The $4.3 million or 11% increase in sales and marketing expense in the first quarter of fiscal year 2007 compared to the same quarter last year was primarily due to a $4.2 million increase in employee related costs, a $0.7 million increase in third-party contractor compensation and consulting fees and a $0.2 million increase in recruiting related expenses. These costs were offset by a $0.6 million reduction in our sales incentive expenses on strategic partner programs and a $0.3 million decrease in travel costs. The increase in employee related costs was mainly related to an increase in sales commission as well as increased headcount.

We intend to selectively increase staff in our direct sales and marketing organizations and to increase our marketing efforts during the remainder of fiscal year 2007. 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 for fiscal year 2007.

General and Administrative Expenses

General and administrative expenses consisted primarily of personnel and related costs for general corporate functions including executive, legal, finance, accounting and human resources, and also includes stock-based compensation cost.

	Three Months Ended February 28,
	2007			2006			Change
General and administrative expenses	$	12,752		$	10,386		23	%
Percentage of total revenue		9	%		9	%

General and administrative expenses increased by $2.4 million or 23% in the first quarter of fiscal year 2007 compared to the same quarter last year, primarily due to a $0.9 million increase in employee related costs, a $0.6 million increase in fees and charges, and a $0.7 million increase in third-party contractor compensation and consulting fees. Increased employee related costs were primarily due to adjustments in net salaries and benefits as well as increased headcount.

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 expenses will increase in absolute dollars and will account for approximately 7% to 10% of total revenue for fiscal year 2007.

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Amortization of Acquired Intangible Assets

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

	Three Months Ended February 28,
	2007			2006			Change
Amortization of acquired intangible assets:
In cost of revenue	$	1,402		$	1,330
In operating expenses		2,470			2,364
Total amortization expenses	$	3,872		$	3,694		5	%
Percentage of total revenue		3	%		3	%

We expect the amortization of acquired intangible assets to be approximately $3.9 million per quarter for the remainder of fiscal year 2007, excluding any new acquisitions.

Stock-Based Compensation

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:

	Three Months Ended February 28,
	2007			2006			Change
Stock-based compensation costs:
Cost of license	$	8		$	15
Cost of service and maintenance		473			631
Total in cost of revenue		481			646		(26	)%
Research and development		868			1,122
Sales and marketing		1,220			1,341
General and administrative		1,367			1,478
Total in operating expenses		3,455			3,941		(12	)%
Stock-based compensation cost before income taxes		3,936			4,587		(14	)%
Income tax benefit		(753	)		(428	)
Total stock-based compensation cost after income taxes	$	3,183		$	4,159		(23	)%
Percentage of total revenue		3	%		4	%

For the remainder of fiscal year 2007, we estimate our stock-based compensation cost before income taxes to be approximately $14.0 million to $19.0 million.

Interest Income

	Three Months Ended February 28,
	2007			2006			Change
Interest Income	$	6,390		$	4,386		46	%
Percentage of total revenue		5	%		4	%

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The increase in interest income in the first quarter of fiscal year 2007 compared to the same quarter last year was primarily due to interest income received from higher investment yields and higher average investment portfolio balances.

Interest Expense

	Three Months Ended February 28,
	2007			2006			Change
Interest Expense	$	368		$	654		(44	)%
Percentage of total revenue		—	%		1	%

Interest expense was 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. The balance of the mortgage note as of February 28, 2007, was $47.7 million. 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. See Note 6 to our Condensed Consolidated Financial Statements for further detail on the mortgage note payable. Interest expenses decreased by $0.3 million in the first quarter of fiscal year 2007 compared to the same quarter last year, which resulted primarily from a release of a transaction tax reserve due to a favorable tax ruling.

Other Income (Expense), Net

Other income (expense) included realized gains and losses on investments, foreign exchange gain (loss) and other miscellaneous income and expense items.

	Three Months Ended February 28,
	2007			2006			Change
Other income (expense), net:
Foreign exchange gain (loss)	$	(1,473	)	$	125
Realized gain on short-term investments		72			4
Realized gain (loss) on long-term investments		4			(16	)
Other income (expense), net		132			(66	)
Total other income (expense), net	$	(1,265	)	$	47		*	%
Percentage of total revenue		(1	)%		—	%

* The percentage has been omitted as it is not meaningful for comparison purposes.

The decrease in other income (expense) in absolute dollars for the first quarter of fiscal year 2007 compared to the same quarter last year was due to unfavorable exchange rate movements on certain foreign currency transactions.

Provision for Income Taxes

	Three Months Ended February 28,
	2007			2006			Change
Provision for income tax	$	5,923		$	6,708		(12	)%
Effective tax rate		36.3	%		54.5	%

The effective tax rate of 36.3% for the three months ended February 28, 2007, differs from the statutory rate of 35% primarily due to the tax impact of certain stock compensation charges under SFAS No. 123(R), state

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income taxes and additional U.S. taxes on repatriated U.K. earnings which was partially offset by research and development credits. The effective tax rate of 54.5% for the three months ended February 28, 2006, differs from the statutory rate of 35% primarily due to the recording of a valuation allowance, the tax impact of certain stock compensation charges under SFAS 123(R), state income taxes and additional taxes related to certain U.K. interest expense deductions.

In December 2006, the Tax Relief and Health Care Act of 2006, which included a retroactive reinstatement of the research and development credit, was signed into law. In the first quarter of fiscal year 2007, we recorded the retroactive fiscal year 2006 research and development credit of $0.6 million on a discrete basis.

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.

As part of the process of preparing our Condensed 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 Condensed Consolidated Balance Sheets.

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 February 28, 2007, 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 $10.6 million as of February 28, 2007, 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 February 28, 2007, 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.

Minority Interest, Net of Tax

Minority interest represents the portion of net income belonging to minority stockholders of our consolidated subsidiaries.

	Three Months Ended February 28,
	2007			2006			Change
Minority Interest, net of tax	$	12		$	—		*	%
Percentage of total revenue		—	%		—	%

* The percentage has been omitted as it is not meaningful for comparison purposes.

Minority Interest is detailed in Note 11 to our Condensed Consolidated Financial Statements.

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LIQUIDITY AND CAPITAL RESOURCES

Current Cash Flows

As of February 28, 2007, we had cash, cash equivalents and short-term investments totaling $547.7 million, representing an increase of $8.1 million from November 30, 2006. Our total cash and cash equivalent balance was $127.2 million as of February 28, 2007. As of February 28, 2007, our short-term available-for-sale investments totaled $421.0 million, primarily in high grade corporate bonds, U.S. government debt, asset-backed and mortgage-backed securities and money market funds.

Net cash provided by operating activities for the three months ended February 28, 2007, was $42.0 million, resulting from net income of $10.4 million, adjusted for $10.7 million in non-cash charges and $20.9 million net change in assets and liabilities. The non-cash charges included depreciation and amortization, stock-based compensation cost, deferred income tax and tax benefits from employee stock options, less excess tax benefits from stock-based compensation recorded on financing activities. Net change in assets and liabilities included a decrease in accounts receivable due to significant cash collections in the first quarter of fiscal year 2007 resulting from a strong revenue quarter in the fourth quarter of fiscal year 2006, a decrease in accrued liabilities due to the fiscal year 2006 corporate annual bonus and commission payments, and decreases in accounts payable and other assets compared to the first quarter of fiscal year 2006.

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 resulted 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 an accounts payable arrangement. In addition, we usually pay our annual bonuses in the first quarter.

Net cash used for investing activities was $22.8 million for the three months ended February 28, 2007, resulting primarily from the net purchases of short-term investments of $19.4 million and $2.6 million in capital expenditures.

Net cash used for financing activities was $30.3 million for the three months ended February 28, 2007, resulting primarily from our $41.8 million repurchase of shares of our common stock in the open market, less $9.4 million cash received from the exercise of stock options and the sale of our common stock under our ESPP, and $2.6 million excess tax benefits from stock-based compensation. Additionally, proceeds of $0.2 million were received from minority investors.

In December 2006, the Audit Committee on behalf of 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. As of February 28, 2007, we had repurchased approximately 4.5 million shares of our outstanding common stock at an average price of $9.34 per share pursuant to this program.

We currently anticipate that our operating expenses will grow in absolute dollars for the foreseeable future, and we intend to fund our operating expenses primarily through cash flows from operations. Our capital expenditures are currently expected to be approximately $12.0 million to $16.0 million for the remainder of fiscal year 2007. 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.

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Commitments

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 February 28, 2007.

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.

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 February 28, 2007, 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 February 28, 2007, we were in compliance with all covenants under the revolving line of credit.

As of February 28, 2007, we had $4.0 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 in our Condensed Consolidated Balance Sheets.

As of February 28, 2007, our contractual commitments associated with indebtedness, lease obligations and operational restructuring are as follows (in thousands):

	Total			Remainder of 2007			2008			2009			2010			2011			Thereafter
Operating commitments:
Debt principal	$	47,881		$	1,428		$	1,990		$	2,094		$	2,203		$	2,318		$	37,848
Debt interest		13,481			1,804			2,318			2,215			2,106			1,991			3,047
Operating leases		32,048			5,413			6,456			5,436			4,308			3,431			7,004
Total operating commitments		93,410			8,645			10,764			9,745			8,617			7,740			47,899
Restructuring-related commitments:
Gross lease obligations		28,389			4,954			7,521			7,551			7,720			643			—
Estimated sublease income		(8,345	)		(1,627	)		(2,113	)		(2,177	)		(2,239	)		(189	)		—
Net restructuring-related commitment		20,044			3,327			5,408			5,374			5,481			454			—
Total commitments	$	113,454		$	11,972		$	16,172		$	15,119		$	14,098		$	8,194		$	47,899

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

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Indemnification

Our indemnification obligations are detailed in Note 7 to our Condensed Consolidated Financial Statements.

ITEM  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

INTEREST RATE RISK

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, money market funds and obligations in foreign sovereigns and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve invested funds by limiting default, market and investment 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 February 28, 2007, we had an investment portfolio of fixed income securities totaling $420.5 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, money market funds and obligations in foreign sovereigns. 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 $4.0 million decrease in the fair value of our available-for-sale debt securities as of February 28, 2007.

FOREIGN CURRENCY RISK

We conduct business in North America, South America, Asia Pacific and Japan and EMEA. 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.

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As of February 28, 2007, we had five outstanding forward contracts with total notional amounts of $58.1 million, which are summarized as follows (in thousands):

	Notional Value Local Currency	Notional Value USD		Fair Value Gain (Loss) USD
Forward contracts (sold):
EURO	25,300	$	33,381	$	129
Australian Dollar	4,100		3,210		20
British Pound	6,200		12,062		92
Japanese Yen	140,000		1,202		(15	)
South African Rand	61,000		8,283		114
		$	58,138	$	340

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 translation gains or losses which are recorded net as a component of other comprehensive income.

ITEM  4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Our legal proceedings are detailed in Note 8 to our Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

The following risk factors, as well as other factors of which we may be unaware or do not currently view as significant, 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:

• the announcement or introduction of new or enhanced products or services by our competitors;

• the relatively long sales cycles for many of our products;

• the tendency of some of our customers to wait until the end of a fiscal quarter or our fiscal year in the hope of obtaining more favorable terms;

• the timing of our new products or product enhancements or any delays in such introductions;

• the delay or deferral of customer implementations of our products;

• changes in customer budgets and decision making processes that could affect both the timing and size of any transaction;

• our dependence on large deals, which if such deals do not close, can greatly impact revenues for a particular quarter;

• the timing, size and mix of orders from customers;

• the deferral of license revenue to future periods due to the timing of the execution of an agreement or our ability to deliver the products;

• the impact of our provision of services and customer-required contractual terms on our recognition of license revenue;

• any difficulty we encounter in integrating acquired businesses, products or technologies;

• the amount and timing of operating costs and capital expenditures relating to the expansion of our operations;

• the impact of employee stock-based compensation costs on our earnings; and

• changes in local, national and international regulatory requirements.

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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.

The stock market in general and the stock prices of technology companies in particular, have experienced volatility which has often been unrelated to the operating performance of any particular company or companies. During fiscal year 2006, our stock price fluctuated between a high of $9.70 and a low of $6.44, and during the first quarter of fiscal year 2007, our stock price fluctuated between a high of $10.45 and a low of $8.61. 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.

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 on a combined basis. For example, in the first quarter of fiscal year 2007, our service and maintenance revenue represented 58% of our total revenue. Our profit margin for maintenance is higher than our profit margin for services, but both are lower than our license revenue profit margin. As a result, if services and maintenance revenues increase as a percentage of total revenues, our overall profit margin may decrease which could impact our stock price.

We must overcome significant competition in order to succeed.

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, business optimization and MDM, including companies such as IBM, Oracle, Microsoft, BEA, SAP, Pegasystems and Software AG (assuming its acquisition of webMethods closes). We believe that of these companies, IBM has the potential to offer the most complete competitive set of products relative to our offerings. 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, typically 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

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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.

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 Corporation and ObjectStar International Limited in 2005, and the acquisition of Staffware 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 financial performance 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 or that 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.

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 December holidays and a slow down in capital expenditures by our customers after calendar year-end (during our first fiscal quarter). These factors typically constrain 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.

We cannot accurately predict the impact of stock-based compensation cost on the trading price of our common stock.

On December 1, 2005, we adopted SFAS No. 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

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values. As a result, starting with fiscal year 2006, our operating results contain a charge for stock-based compensation cost related to employee stock options. This charge is in addition to stock-based compensation cost we have recognized in prior periods related to non-employee stock options and business acquisitions. The application of SFAS No. 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 No. 123(R), in fiscal year 2006, our earnings were lower than they would have been had we not been required to adopt SFAS No. 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 stock-based compensation costs we may record. Also, SFAS No. 123(R) requires that the tax benefit of stock option deductions relating to incentive stock options be recorded in the period of disqualifying disposition. This could result in significant fluctuations in our effective tax rate between accounting periods.

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 license revenue. 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 our 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.

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

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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.

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.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) imposes duties on us, our executives and directors. We completed our fiscal year 2006 evaluation of the design 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, 2006, our ICFR was 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.

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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.

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

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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 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 may be 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, typically free of charge. Further, because patent applications in the United States and many other countries are not publicly disclosed at the time of filing, applications covering technology used in our software products may have been filed without our knowledge. While no intellectual property infringement lawsuits 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 such 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 intellectual property as critical to our success. Accordingly, we rely upon a combination of copyrights, service marks, trademarks, trade secret rights, patents, confidentiality agreements and licensing agreements to protect our intellectual property. Despite these protections, a third party could misappropriate our intellectual property. 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, and we are constantly evaluating the feasibility of adding new 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,

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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.

If we fail to manage our exposure to worldwide financial and securities market risk successfully, our operating results and financial statements could be materially impacted.

We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and prices of marketable equity and fixed-income securities. We do not use derivative financial instruments for speculative or trading purposes.

The primary objective of most of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, a majority of our marketable investments are investment grade, liquid, short-term fixed-income securities and money market instruments denominated in U.S. dollars. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to further write down the value of our investments, which could materially harm our results of operations and financial condition.

A significant portion of our net revenue and expenses are transacted in U.S. dollars. However, some of these activities are conducted in other currencies, primarily currencies in EMEA and Asia. As a response to the risks of changes in value of foreign currency denominated transactions, we may enter into foreign currency forward contracts or other instruments, the majority of which mature within approximately one month. Our foreign currency forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in which we conduct business. Accordingly, such amounts denominated in foreign currencies may fluctuate in value and produce significant earnings and cash flow volatility.

We may have exposure to additional tax liabilities.

As a multinational corporation, we are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities.

Although we believe that our tax estimates are reasonable, we cannot assure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and various foreign jurisdictions. We are regularly under audit by tax authorities with respect to these non-income taxes and may have exposure to additional non-income tax liabilities.

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

Pursuant to the terms of the amended license, maintenance and distribution agreement with Reuters, we are permitted to market and sell our products, other than risk management and market data distribution products, directly and through third party resellers (other than 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.

Our software may have defects and errors that could lead to a loss of revenues or product liability claims.

Our products and platforms use complex technologies and, despite extensive testing and quality control procedures, may contain defects or errors, especially when first introduced or when new versions or enhancements are released. If defects or errors are discovered after commercial release of either new versions or enhancements of our products and platforms:

• potential customers may delay purchases;

• customers may react negatively, which could reduce future sales;

• our reputation in the marketplace may be damaged;

• we may have to defend product liability claims;

• we may be required to indemnify our customers, distributors, original equipment manufacturers or other resellers;

• we may incur additional service and warranty costs; and

• we may have to divert additional development resources to correct the defects and errors, which may result in the delay of new product releases or upgrades.

If any or all of the foregoing occur, we may lose revenues, incur higher operating expenses and lose market share, any of which could severely harm our financial condition and operating results.

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We operate internationally and face risks attendant to those operations.

We earn a significant portion of our total revenues from international sales generated through our foreign direct and indirect operations. As a result of these sales operations, we face risks arising from local political, legal and economic factors such as the general economic conditions in each country or region, varying regulatory requirements and compliance with international and local trade, labor and other laws. We may also face difficulties in managing our international operations, collecting receivables in a timely fashion and repatriating earnings. Any of these factors, either individually or in combination, could materially impact our international operations and adversely affect our business as a whole.

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

Note 8 to our Condensed Consolidated Financial Statements describes the litigation pending against us and our directors and officers. 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.

Certain open source software is licensed pursuant to license agreements that require a user who distributes 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 carefully 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 but has failed to disclose 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.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

In December 2005, our Board of Directors approved an eighteen-month stock repurchase program pursuant to which we were authorized to repurchase up to $100.0 million of our outstanding common stock. In December 2006, the Audit Committee on behalf of 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. In connection with approving the December 2006 stock repurchase program, the December 2005 stock repurchase program was terminated and the remaining authorized amount under the program was canceled. The remaining authorized amount for stock repurchases under the December 2006 stock repurchase program was approximately $58.2 million as of the end of the first quarter of fiscal year 2007.

(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
December 1, 2006 – January 4, 2007	1,000	$	9.54	1,000	$	90,455
January 5, 2007 – February 4, 2007	3,478	$	9.28	3,478	$	58,186
February 5, 2007 – March 4, 2007	—		—	—	$	58,186
Total	4,478	$	9.34	4,478	$	58,186

ITEM 6. EXHIBITS

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)#	1996 Stock Option Plan, as amended and restated.
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.

# Indicates management contract or compensatory plan or arrangement.

(1) Incorporated by reference to an exhibit filed with the Registrant’s Registration Statement on Form 8-A, filed with the SEC on February 23, 2004.

(2) Incorporated by reference to an exhibit filed with the Registrant’s Current Report on Form 8-K, filed with the SEC on April 11, 2006.

(3) Incorporated by reference to an exhibit filed with the Registrant’s Registration Statement on Form S-1 (File No. 333-78195), filed with the SEC on June 18, 1999, as amended.

(4) Incorporated by reference to an exhibit filed with the Registrant’s Annual Report on Form 10-K, filed with the SEC on February 9, 2007.

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SIGNATURES

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

Date: April 12, 2007

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EXHIBIT INDEX

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)#	1996 Stock Option Plan, as amended and restated.
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.

# Indicates management contract or compensatory plan or arrangement.

(1) Incorporated by reference to an exhibit filed with the Registrant’s Registration Statement on Form 8-A, filed with the SEC on February 23, 2004.

(2) Incorporated by reference to an exhibit filed with the Registrant’s Current Report on Form 8-K, filed with the SEC on April 11, 2006.

(3) Incorporated by reference to an exhibit filed with the Registrant’s Registration Statement on Form S-1 (File No. 333-78195), filed with the SEC on June 18, 1999, as amended.

(4) Incorporated by reference to an exhibit filed with the Registrant’s Annual Report on Form 10-K, filed with the SEC on February 9, 2007.

47

EX-31.1

TIBCO SOFTWARE INC.

Exhibit 31.1

CERTIFICATION

I, Vivek Y. Ranadivé, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TIBCO Software Inc.;

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

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

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

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

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

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

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: April 12, 2007

/s/    VIVEK Y. RANADIVÉ        

Vivek Y. Ranadivé

President, Chief Executive Officer and

Chairman of the Board of Directors

EX-31.2

TIBCO SOFTWARE INC.

Exhibit 31.2

CERTIFICATION

I, Murray D. Rode, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TIBCO Software Inc.;

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

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

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

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

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

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

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: April 12, 2007

/s/    MURRAY D. RODE        

Murray D. Rode

Chief Financial Officer and

Executive Vice President, Strategic Operations

EX-32.1

TIBCO SOFTWARE INC.

Exhibit 32.1

CERTIFICATION

I, Vivek Y. Ranadivé, President and Chief Executive Officer of TIBCO Software Inc. (the “Company”), do hereby certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. Section 1350, that, to my knowledge:

(a) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 4, 2007, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 12, 2007

/s/    VIVEK Y. RANADIVÉ        

Vivek Y. Ranadivé

President, Chief Executive Officer and

Chairman of the Board of Directors

EX-32.2

TIBCO SOFTWARE INC.

Exhibit 32.2

CERTIFICATION

I, Murray D. Rode, Chief Financial Officer and Executive Vice President, Strategic Operations of TIBCO Software Inc. (the “Company”), do hereby certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. Section 1350, that, to my knowledge:

(a) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 4, 2007, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 12, 2007

/s/    MURRAY D. RODE        

Murray D. Rode

Chief Financial Officer and

Executive Vice President, Strategic Operations