TIBCO SOFTWARE INC - FORM 10-Q

TIBCO SOFTWARE INC - FORM 10-Q - July 8, 2011

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EX-32.1 - SECTION 1350 CERTIFICATION BY CHIEF EXECUTIVE OFFICER - TIBCO SOFTWARE INC	dex321.htm
EX-32.2 - SECTION 1350 CERTIFICATION BY CHIEF FINANCIAL OFFICER - TIBCO SOFTWARE INC	dex322.htm
EX-31.1 - RULE 13A-14(A) / 15D-14(A) CERTIFICATION BY CHIEF EXECUTIVE OFFICER - TIBCO SOFTWARE INC	dex311.htm
EX-10.1 - 2008 EQUITY INCENTIVE PLAN - TIBCO SOFTWARE INC	dex101.htm
EX-10.2 - EXECUTIVE CHANGE IN CONTROL AND SEVERANCE PLAN - TIBCO SOFTWARE INC	dex102.htm
EXCEL - IDEA: XBRL DOCUMENT - TIBCO SOFTWARE INC	Financial_Report.xls
EX-31.2 - RULE 13A-14(A) / 15D-14(A) CERTIFICATION BY CHIEF FINANCIAL OFFICER - TIBCO SOFTWARE INC	dex312.htm

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 May 29, 2011

¨	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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of July 1, 2011 was 166,493,057 shares.

TIBCO SOFTWARE INC.

Table of Contents


		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of May 31, 2011 and November 30, 2010		3

	Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended May 31, 2011 and 2010		4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended May 31, 2011 and 2010		5

	Notes to Condensed Consolidated Financial Statements (Unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43

Item 4.	Controls and Procedures		43

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		45

Item 1A.	Risk Factors		45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55

Item 6.	Exhibits		56

	Signatures		57

TIBCO SOFTWARE INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value per share)


	May 31, 2011		November 30, 2010
Assets
Current assets:
Cash and cash equivalents	$	278,487	$	243,989
Short-term investments		247		1,504
Accounts receivable, net of allowances of $5,661 and $5,729		171,191		185,740
Prepaid expenses and other current assets		63,273		57,889

Total current assets		513,198		489,122
Property and equipment, net		86,976		88,523
Goodwill		441,567		409,545
Acquired intangible assets, net		94,359		104,818
Long-term deferred income tax assets		76,758		66,671
Other assets		46,533		46,320

Total assets	$	1,259,391	$	1,204,999

Liabilities and Equity
Current liabilities:
Accounts payable	$	23,098	$	23,815
Accrued liabilities		94,206		108,576
Accrued restructuring costs		996		2,714
Deferred revenue		213,501		182,895
Current portion of long-term debt		2,332		2,269

Total current liabilities		334,133		320,269
Accrued restructuring costs, less current portion		298		513
Long-term deferred revenue		13,351		15,212
Long-term deferred income tax liabilities		6,138		4,257
Long-term income tax liabilities		16,338		14,044
Long-term debt, less current portion		36,926		38,108
Other long-term liabilities		2,679		2,865

Total liabilities		409,863		395,268

Commitments and contingencies (Note 9)
Equity:
Common stock, $0.001 par value; 1,200,000 shares authorized; 166,615 and 164,522 shares issued and outstanding		166		165
Additional paid-in capital		847,455		830,479
Accumulated other comprehensive income (loss)		601		(22,076	)
Retained earnings		—		—

Total TIBCO Software Inc. stockholders’ equity		848,222		808,568
Noncontrolling interest		1,306		1,163

Total equity		849,528		809,731

Total liabilities and equity	$	1,259,391	$	1,204,999

See accompanying Notes to Condensed Consolidated Financial Statements.

TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)


	Three Months Ended May 31,						Six Months Ended May 31,
	2011			2010			2011			2010
Revenue:
License	$	81,974		$	62,096		$	152,059		$	116,270
Service and maintenance		134,447			111,174			249,703			212,044

Total revenue		216,421			173,270			401,762			328,314

Cost of revenue:
License		9,710			8,199			18,637			15,595
Service and maintenance		52,017			39,128			96,037			74,332

Total cost of revenue		61,727			47,327			114,674			89,927

Gross profit		154,694			125,943			287,088			238,387
Operating expenses:
Research and development		36,175			30,127			68,861			58,201
Sales and marketing		68,909			56,846			131,432			109,549
General and administrative		15,573			11,907			28,490			23,253
Amortization of acquired intangible assets		5,030			3,976			9,921			7,684
Acquisition related and other		278			589			823			1,634
Restructuring charges (adjustment)		—			6,271			(33	)		6,271

Total operating expenses		125,965			109,716			239,494			206,592

Income from operations		28,729			16,227			47,594			31,795
Interest income		448			224			930			428
Interest expense		(951	)		(980	)		(1,997	)		(1,965	)
Other income (expense), net		(1,136	)		142			(1,426	)		(87	)

Income before provision for income taxes and noncontrolling interest		27,090			15,613			45,101			30,171
Provision for income taxes		6,000			2,682			7,996			6,800

Net income		21,090			12,931			37,105			23,371
Less: Net income attributable to noncontrolling interest		44			117			106			132

Net income attributable to TIBCO Software Inc.	$	21,046		$	12,814		$	36,999		$	23,239

Net income per share attributable to TIBCO Software Inc.:
Basic	$	0.13		$	0.08		$	0.23		$	0.14

Diluted	$	0.12		$	0.08		$	0.21		$	0.14

Shares used in computing net income per share attributable to TIBCO Software Inc.:
Basic		161,911			160,992			161,207			161,793

Diluted		174,666			169,975			174,076			169,861

See accompanying Notes to Condensed Consolidated Financial Statements.

TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six Months Ended May 31,
	2011			2010
Operating activities:
Net income	$	37,105		$	23,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		6,310			6,606
Amortization of acquired intangible assets		19,664			15,218
Stock-based compensation		23,268			14,224
Deferred income tax		(9,342	)		(5,263	)
Tax benefits related to stock benefit plans		10,739			13,683
Excess tax benefits from stock-based compensation		(26,737	)		(8,889	)
Other non-cash adjustments, net		(146	)		50
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		17,516			40,579
Prepaid expenses and other assets		3,623			4,482
Accounts payable		(1,222	)		(5,388	)
Accrued liabilities and restructuring costs		(21,504	)		(29,769	)
Deferred revenue		24,064			12,601

Net cash provided by operating activities		83,338			81,505

Investing activities:
Purchases of short-term investments		(76	)		—
Maturities and sales of short-term investments		1,424			157
Acquisitions, net of cash acquired		(22,579	)		(42,626	)
Proceeds from sales of private equity investments		—			32
Purchases of property and equipment		(3,837	)		(2,458	)
Restricted cash pledged as security		(1,852	)		(1,880	)

Net cash used in investing activities		(26,920	)		(46,775	)

Financing activities:
Proceeds from exercise of stock options		31,518			19,264
Proceeds from employee stock purchase program		1,806			1,374
Withholding taxes related to restricted stock net share settlement		(15,024	)		(4,216	)
Repurchases of the Company’s common stock		(72,329	)		(67,482	)
Excess tax benefits from stock-based compensation		26,737			8,889
Principal payments on long-term debt		(1,119	)		(2,404	)

Net cash used in financing activities		(28,411	)		(44,575	)

Effect of foreign exchange rate changes on cash and cash equivalents		6,491			(5,626	)

Net increase (decrease) in cash and cash equivalents		34,498			(15,471	)
Cash and cash equivalents at beginning of period		243,989			292,529

Cash and cash equivalents at end of period	$	278,487		$	277,058

Supplemental disclosures:
Income taxes paid	$	7,466		$	13,992

Interest paid	$	1,473		$	1,593

See accompanying Notes to Condensed Consolidated Financial Statements

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (“GAAP”) have been condensed or omitted in accordance with such rules and regulations. The condensed consolidated balance sheet data as of November 30, 2010 was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our financial position and our 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 included in our 2010 Annual Report on Form 10-K for the fiscal year ended November 30, 2010.

Our fiscal year ends on November 30^th of each year. For purposes of presentation, we have indicated the second quarter of fiscal years 2011 and 2010 as ended on May 31, 2011 and May 31, 2010, respectively; whereas in fact, the second quarter of fiscal years 2011 and 2010 actually ended on May 29, 2011 and May 30, 2010, respectively. There were 91 days in the second quarter of both fiscal years 2011 and 2010.

The Condensed Consolidated Financial Statements include the accounts of us and our wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For majority-owned subsidiaries, we reflect the noncontrolling interest of the portion we do not own on our Condensed Consolidated Balance Sheets in Equity and our Condensed Consolidated Statements of Operations.

The results of operations for the three and six months ended May 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2011, or any other future period, and we make no representations related thereto.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies were described in Note 2 to our audited Consolidated Financial Statements included in our 2010 Annual Report on Form 10-K for the fiscal year ended November 30, 2010. Other than the adoption of the Financial Accounting Standards Board (“FASB”) guidance related to accounting for revenue recognition, there have been no significant changes in our accounting policies for the second quarter of fiscal year 2011.

Recent Accounting Pronouncements

In December 2010, the FASB issued Accounting Standards Update Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805)—Business Combinations, to improve consistency in how the pro forma disclosures are calculated. Additionally, the update enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. The guidance is effective for us in the first quarter of fiscal 2012 and should be applied prospectively to business combinations for which the acquisition date is after the effective date. Early adoption is permitted. We are currently evaluating the potential impact, if any, of the adoption of the guidance on our consolidated results of operations and financial condition.

In September 2009, the FASB issued authoritative revenue recognition guidance on accounting for multiple elements in an arrangement and how total consideration should be allocated amongst the various elements. It also expands disclosure requirements for multiple element arrangements. Concurrently, the FASB also issued authoritative guidance for arrangements that include both software and tangible products that excludes tangible products and certain related elements from the scope of the revenue recognition authoritative guidance specific to software transactions. Both standards must be adopted in the same period and can either be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted, or be adopted on a retrospective basis. In April 2010, FASB Emerging Issues Task Force issued a consensus on Milestone Method of Revenue Recognition which

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

amended disclosure requirements on accounting policy and arrangements for revenue transactions counting under the milestone method. The amendments are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. We adopted this guidance in the first quarter of fiscal year 2011 and there was no material impact on our consolidated results of operations and financial condition.

Revenue Recognition

License revenue consists principally of revenue earned under software license agreements. License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable and collection of the resulting receivable is probable. When contracts contain multiple software and software-related elements (for example software license, maintenance, and professional services) wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.

Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from Original Equipment Manufacturer (“OEM”) customers are generally recognized upon delivery, on-going royalty fees are generally recognized upon reports of units shipped. Revenue on shipments to resellers is recognized when evidence of an end-user arrangement exists and recorded net of related costs to the resellers.

Professional services revenue consists primarily of revenue received for assisting with the implementation of our software, on-site support, training and other consulting services. Many customers who license our software also enter into separate professional services arrangements with us. In determining whether professional services revenue should be accounted for separately from license revenue, we evaluate whether the professional services are considered essential to the functionality of the software using factors such as the nature of our software products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenue is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. Substantially all of our professional services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a percentage-of-completion or completed-contract basis. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. Training revenue is recognized as training services are delivered. VSOE of fair value of consulting and training services is based upon stand-alone sales of those services. Payments received in advance of consulting or training services performed are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent month. Our service and maintenance revenue includes reimbursable expenses of $5.2 million and $4.6 million for the six months ended May 31, 2011 and 2010, respectively.

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

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

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

In October 2009, the FASB amended the accounting standards for certain multiple deliverable revenue arrangements to:

•

provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

•

require an entity to allocate revenue in an arrangement using the estimated selling price (“ESP”) of deliverables if a vendor does not have VSOE of selling price or third-party evidence (“TPE”) of selling price; and

•

eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

We occasionally enter into multiple element revenue arrangements in which a customer may purchase a combination of software licenses, hosting services, maintenance, professional services and hardware. For multiple element arrangements that contain non-software related elements, for example our hosting services, we allocate revenue to each non-software element based upon the relative selling price of each, and if software and software-related elements are also included in the arrangement, to those elements as a group based on our ESP for the group. When applying the relative selling price method, we determine the selling price for each deliverable using VSOE of selling price, if it exists, then TPE of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use our ESP for that deliverable. Revenue allocated to each element is then recognized when the basic revenue recognition criteria is met for each element. The manner in which we account for multiple element arrangements that contain only software and software-related elements remains unchanged. Our non-software components of tangible products and software do not function together to provide the essential functionality of the product.

Consistent with our methodology under previous accounting guidance, we determine VSOE for each element based on historical stand-alone sales to third-parties or from the stated renewal rate for the elements contained in the initial software license arrangement. When we are unable to establish selling prices using VSOE or TPE, we use ESP in our allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. ESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings.

We regularly review VSOE and have established a review process for TPE and ESP and maintain internal controls over the establishment and updates of these estimates. There was no material impact to revenue during the three and six months ended May 31, 2011 resulting from changes in VSOE, TPE or ESP.

BUSINESS COMBINATION

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

The total purchase price allocated to the tangible assets acquired was assigned based on the fair values as of the date of the acquisition. The fair value assigned to identifiable intangible assets acquired was determined using the income approach which discounts expected future cash flows to present value using estimated assumptions determined by management. We believe that these identified intangible assets will have no residual value after their estimated economic useful lives.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

LoyaltyLab, Inc.

On December 7, 2010, we acquired LoyaltyLab, Inc. (“Loyalty Lab”), a private company incorporated in Delaware. Loyalty Lab is an independent provider of loyalty management solutions allowing marketers to manage loyalty programs from their desktop. This acquisition provides us international presence in the customer loyalty market. We paid $23.5 million in cash to acquire all of the outstanding shares of capital stock of Loyalty Lab. We have also incurred $0.4 million of acquisition related and other expenses associated with the acquisition. As a result of the acquisition, we assumed facility leases and certain liabilities and commitments of Loyalty Lab. We are currently evaluating the purchase price allocation for this transaction.

The preliminary allocation of the purchase price for the Loyalty Lab acquisition, as of the date of the acquisition, is as follows (in thousands):


Cash	$	905
Accounts receivable (approximate contractual value)		5,118
Deferred income tax assets, net		3,369
Other assets		729
Identifiable intangible assets		6,600
Goodwill		12,355
Liabilities		(5,590	)

Total preliminary purchase price	$	23,486

The identifiable intangible assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets (in thousands, except amortization period):


	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	2,000		5.0 years
Customer base		4,100		5.0 years
Trademarks		500		5.0 years

	$	6,600		5.0 years

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, was recorded as goodwill. We anticipate that none of the goodwill recorded in connection with the Loyalty Lab acquisition will be deductible for income tax purposes.

Acquisitions in Fiscal Year 2010

OpenSpirit Corporation

On September 22, 2010, we acquired OpenSpirit Corporation (“OpenSpirit”), a private company incorporated in Delaware. OpenSpirit is a leading independent provider of data and application integration solutions for the exploration and production segment of the global oil and gas market. OpenSpirit’s vendor-neutral approach enables companies to pursue an architectural model to both better leverage legacy investments and exploit new technologies which reduce the time and risk associated with decision making. We paid $18.4 million in cash to acquire all of the outstanding shares of capital stock of OpenSpirit. In the first quarter of fiscal year 2011, we recorded a decrease in goodwill of $0.2 million net of tax as a result of the adjustment of certain accrued liabilities. We have also incurred $0.5 million of acquisition related and other expenses associated with the acquisition. We are currently evaluating the purchase price allocation for this transaction.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The preliminary allocation of the purchase price for the OpenSpirit acquisition, as of the date of the acquisition, is as follows (in thousands):


Cash	$	3,479
Accounts receivable (approximate contractual value)		1,486
Deferred income tax assets, net		221
Other assets		2,252
Identifiable intangible assets		9,400
Goodwill		5,753
Liabilities		(4,173	)

Total preliminary purchase price	$	18,418


	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	3,900		4.0 years
Customer base		700		5.0 years
Trademarks		400		5.0 years
Core technology		1,200		5.0 years
Maintenance agreements		1,500		6.0 years

Total intangible assets subject to amortization		7,700		4.7 years
In-process research and development		1,700		N/A

Total intangible assets	$	9,400

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, was recorded as goodwill. We anticipate that none of the goodwill recorded in connection with the OpenSpirit acquisition will be deductible for income tax purposes.

Proginet Corporation

On September 15, 2010, we acquired Proginet Corporation (“Proginet”), a public company incorporated in Delaware. Proginet is a provider of managed file transfer solutions. This acquisition augments our broader software infrastructure offerings and will help customers across industries more efficiently manage the information and processes that run their business. We paid $22.0 million in cash to acquire all of the outstanding shares of capital stock of Proginet. We have also incurred $0.6 million of acquisition related and other expenses associated with the acquisition. Also see Note 10 to our Condensed Consolidated Financial Statements for a discussion of the Proginet Merger Litigation. We are currently evaluating the purchase price allocation for this transaction.

The preliminary allocation of the purchase price for the Proginet acquisition, as of the date of the acquisition, is as follows (in thousands):


Cash	$	931
Accounts receivable (approximate contractual value)		1,126
Deferred income tax assets, net		1,151
Other assets		131
Identifiable intangible assets		12,200
Goodwill		9,664
Liabilities		(3,217	)

Total preliminary purchase price	$	21,986

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)


	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	6,700		6.0 years
Customer base		1,400		7.0 years
Core technology		2,300		5.0 years
Trademarks		100		4.0 years
Maintenance agreements		1,700		8.0 years

	$	12,200		6.2 years

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, was recorded as goodwill. We anticipate that none of the goodwill recorded in connection with the Proginet acquisition will be deductible for income tax purposes.

Kabira Technologies, Inc.

On April 20, 2010, we acquired Kabira Technologies, Inc. (“Kabira”), a private company incorporated in Delaware and a provider of high performance transaction processing software solutions for communications service providers globally. Kabira’s products and solutions support key infrastructure capabilities such as subscriber provisioning, value-based charging, and mobile payments. Its in-memory approach to supporting transactions complements our abilities in handling events and adds to our broader suite of in-memory infrastructure software products. We paid $3.9 million of cash to acquire all of the outstanding equity of Kabira. In the first quarter of fiscal year 2011, we recorded an increase in goodwill of $0.5 million as a result of the adjustment of deferred income tax assets. We have also incurred $0.5 million of acquisition related and other expenses associated with the acquisition.

The allocation of the purchase price for the Kabira acquisition, as of the date of the acquisition, is as follows (in thousands):


Cash	$	931
Accounts receivable (approximate contractual value)		2,942
Other assets		1,763
Identifiable intangible assets		10,680
Goodwill		2,548
Deferred income tax liabilities, net		(78	)
Liabilities		(14,916	)

Total purchase price	$	3,870


	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	2,600		4.0 years
Customer base		1,700		4.0 years
Trademarks		180		2.0 years
Maintenance agreements		6,200		4.0 years

	$	10,680		4.0 years

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, was recorded as goodwill. We anticipate that $1.3 million of the goodwill recorded in connection with the Kabira acquisition will be deductible for income tax purposes.

Netrics.com, Inc.

On March 8, 2010, we acquired Netrics.com, Inc. (“Netrics”), a private company incorporated in Delaware and a provider of data quality software and services. Netrics’ in-memory-based approach to pattern matching and detection complements our core integration and business optimization offerings and adds to our broader suite of in-memory infrastructure software products. We paid $10.5 million of cash to acquire all of the outstanding equity of Netrics. We have also incurred $0.4 million of acquisition related and other expenses associated with the acquisition.

The allocation of the purchase price for the Netrics acquisition, as of the date of the acquisition, is as follows (in thousands):


Cash	$	40
Accounts receivable (approximate contractual value)		78
Deferred income tax assets, net		631
Other assets		259
Identifiable intangible assets		6,400
Goodwill		3,873
Liabilities		(781	)

Total purchase price	$	10,500


	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	4,890		6.0 years
Core technology		1,210		6.0 years
Customer base		100		5.0 years
Maintenance agreements		200		8.0 years

	$	6,400		6.0 years

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, was recorded as goodwill. We anticipate that none of the goodwill recorded in connection with the Netrics acquisition will be deductible for income tax purposes.

Foresight Corporation

On December 31, 2009, we acquired Foresight Corporation (“Foresight”), a private company incorporated in Delaware and a leading provider of Electronic Data Interchange (“EDI”) productivity tools and transaction automation solutions. Foresight’s products connect partners and validate transactions, reducing administrative inefficiencies, and addressing mandates. Foresight also expands our expertise in the healthcare and EDI markets, where its ability to support and validate transactions across a range of standards complements our core business-to-business abilities. We paid $30.0 million of cash to acquire all of the outstanding equity of Foresight. In the fourth quarter of fiscal year 2010, we recorded a decrease in goodwill of $1.1 million net of tax as a result of the adjustment of certain accrued liabilities. We have also incurred $0.8 million of acquisition related and other expenses associated with the acquisition.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The allocation of the purchase price for the Foresight acquisition, as of the date of the acquisition, is as follows (in thousands):


Cash	$	821
Accounts receivable (approximate contractual value)		593
Current assets		92
Identifiable intangible assets		16,700
Goodwill		21,717
Liabilities		(3,191	)
Deferred income tax liabilities, net		(6,732	)

Total purchase price	$	30,000


	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	9,800		7.3 years
Core technology		1,300		7.0 years
Customer base		1,500		8.2 years
Trademarks		600		8.0 years
Non-compete agreements		100		1.5 years
Subscription base/Service agreements		1,000		7.6 years
Maintenance agreements		2,400		8.0 years

	$	16,700		7.3 years

The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, was recorded as goodwill. We anticipate that none of the goodwill recorded in connection with the Foresight acquisition will be deductible for income tax purposes.

The results of Loyalty Lab, OpenSpirit, Proginet, Kabira, Netrics and Foresight operations have been included in the Consolidated Financial Statements subsequent to the acquisition dates. Pro forma results of operations for these acquisitions have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our consolidated financial results.

INVESTMENTS

Marketable securities, which are classified as available-for-sale, are summarized below as of May 31, 2011 and November 30, 2010 (in thousands):


										Classified on Balance Sheet
	Purchased/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Cash and Cash Equivalents		Short-term Investments
As of May 31, 2011:
Money market funds	$	10,998	$	—	$	—		$	10,998	$	10,998	$	—
Term deposits		8,203		—		—			8,203		8,203		—
Mortgage-backed securities		199		60		(12	)		247		—		247

	$	19,400	$	60	$	(12	)	$	19,448	$	19,201	$	247

As of November 30, 2010:
Money market funds	$	37,016	$	—	$	—		$	37,016	$	37,016	$	—
Term deposits		8,707		—		—			8,707		7,394		1,313
Mortgage-backed securities		201		—		(10	)		191		—		191

	$	45,924	$	—	$	(10	)	$	45,914	$	44,410	$	1,504

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):


	May 31, 2011		November 30, 2010
Contractual maturities:
Less than one year	$	—	$	1,313
One to three years		247		191

	$	247	$	1,504

The maturities of mortgage-backed securities are primarily based upon assumed payment forecasts utilizing interest rate scenarios and mortgage loan characteristics. The unrealized gains (losses) on our investments were primarily due to changes in interest rates and market and credit conditions of the underlying securities.

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


	Three Months Ended May 31,						Six Months Ended May 31,
	2011			2010			2011			2010
Realized gains	$	8		$	20		$	22		$	54
Realized losses		(2	)		(36	)		(2	)		(36	)

Net realized gains (losses)	$	6		$	(16	)	$	20		$	18

We periodically assess whether significant facts and circumstances have arisen to indicate an adverse effect on the fair value of the underlying investment that might indicate material deterioration in our creditworthiness, whether there has been a change in our intent to sell the security, whether it is more likely than not we will be required to sell before recovery of our amortized cost basis and whether we expect to recover the entire amortized cost basis of the security resulting as a credit loss. During our quarter-end assessments, we determined an impairment was not considered necessary as of May 31, 2011. Depending on market conditions, we may record impairments on our investment portfolio in the future.

FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS

Fair Value Measurements

FASB guidance for fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, we measure certain financial assets and liabilities at fair value, including our marketable securities and foreign currency contracts.

Our cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, sovereign government obligations, and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The types of instruments valued based on other observable inputs include investment-grade corporate bonds, mortgage-backed and asset-backed products and state, municipal and provincial obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

We execute our foreign currency contracts primarily in the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large multi-national and regional banks. Our foreign currency contracts valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

Fair value hierarchy of our cash equivalents, marketable securities and foreign currency contracts at fair value is as follows (in thousands):


			Fair Value Measurements at Reporting Date using
Description	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)
As of May 31, 2011:
Assets:
Money market fund	$	10,998	$	10,998	$	—
Term deposits		8,203		—		8,203
Mortgage-backed securities		247		—		247
Foreign currency forward contracts		14		—		14
Liabilities:
Foreign currency forward contracts	$	494	$	—	$	494
As of November 30, 2010:
Assets:
Money market fund	$	37,016	$	37,016	$	—
Term deposits		8,707		—		8,707
Mortgage-backed securities		191		—		191
Foreign currency forward contracts		991		—		991
Liabilities:
Foreign currency forward contracts	$	53	$	—	$	53

During the six months ended May 31, 2011, there were no transfers to or from Levels 1 or 2.

Derivative Instruments

We transact business in approximately 20 foreign currencies worldwide. Therefore, we enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies, and 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 a total notional amount of $30.1 million and six outstanding forward contracts with a total notional amount of €8.8 million as of May 31, 2011, which are summarized as follows (in thousands):


	Notional Value Local Currency		Notional Value USD		Fair Value Gain (Loss) USD
Forward contracts sold:
EURO		16,700	$	23,817	$	(330	)
Australian dollar		1,500		1,599		(27	)
Brazilian real		1,700		1,055		(21	)
South African rand		18,000		2,593		(40	)
New Taiwan dollar		30,000		1,041		(18	)

			$	30,105	$	(436	)

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)


	Notional Value Local Currency		Notional Value EURO		Fair Value Gain (Loss) USD
Forward contracts sold:
Australian dollar		4,000	€	2,990	$	(24	)
British pound		6,300		7,269		12
Japanese yen		144,000		1,248		1
Swiss franc		2,300		1,889		(25	)
South African rand		9,000		909		(9	)
Forward contracts bought:
Swedish krona		49,000		5,503		1

			€	8,802	$	(44	)


	Derivatives not Designated as Hedging Instruments
	May 31, 2011		November 30, 2010
Foreign currency forward contracts, fair value included in:
Other Current Assets	$	14	$	991
Accrued Liabilities		494		53


		Amount of Gain or (Loss) Recognized In Income on Derivative
Derivatives not Designated as Hedging Instruments	Location	Three Months Ended May 31,					Six Months Ended May 31,
Derivatives not Designated as Hedging Instruments	Location	2011			2010		2011			2010
Foreign Currency Contracts	Other income/(exp.)	$	(3,135	)	$	6,245	$	(7,569	)	$	14,803

Currently, we do not have master netting agreements with our counterparties for our forward contracts. We mitigate the credit risk of these derivatives by transacting with highly rated counterparties. As of May 31, 2011, we have evaluated the credit and non-performance risks associated with our derivative counterparties, and we believe that the impact of the credit risk associated with our outstanding derivatives was insignificant.

GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The change in the carrying value of goodwill for the six months ended May 31, 2011 is as follows (in thousands):


Balance as of November 30, 2010	$	409,545
Goodwill adjustment for the Kabira acquisition⁽¹⁾		464
Goodwill adjustment for the OpenSpirit acquisition⁽¹⁾		(237	)
Goodwill recorded for the Loyalty Lab acquisition		12,355
Foreign currency translation		19,440

Balance as of May 31, 2011	$	441,567

⁽¹⁾

Pursuant to our business combinations accounting policy, we record goodwill adjustments for the effect on goodwill changes to net assets acquired during the measurement period (up to one year from the date of an acquisition). Goodwill adjustments were not significant to our previously reported operating results or financial position.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Certain of our intangible 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 May 31, 2011 and November 30, 2010 are as follows (in thousands):


	May 31, 2011							November 30, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technologies	$	137,015	$	(100,479	)	$	36,536	$	129,492	$	(85,589	)	$	43,903
Customer base		56,408		(36,156	)		20,252		49,433		(31,606	)		17,827
Patents/core technologies		29,020		(20,985	)		8,035		27,628		(17,373	)		10,255
Trademarks		9,161		(6,835	)		2,326		8,334		(6,103	)		2,231
Non-compete agreements		580		(575	)		5		1,580		(1,541	)		39
Maintenance agreements		60,690		(35,185	)		25,505		57,915		(29,052	)		28,863

Total intangible assets subject to amortization		292,874		(200,215	)		92,659		274,382		(171,264	)		103,118
In-process research and development		1,700		—			1,700		1,700		—			1,700

Total intangible assets, net	$	294,574	$	(200,215	)	$	94,359	$	276,082	$	(171,264	)	$	104,818

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 May 31,				Six Months Ended May 31,
	2011		2010		2011		2010
Amortization of acquired intangible assets:
In cost of revenue	$	4,948	$	3,920	$	9,743	$	7,534
In operating expense		5,030		3,976		9,921		7,684

Total	$	9,978	$	7,896	$	19,664	$	15,218

ACCRUED RESTRUCTURING AND EXCESS FACILITIES COSTS

2010 Restructuring Plan

In order to achieve cost efficiencies and realign our resources and operations, our Board of Directors approved a restructuring plan initiated by management during the second quarter of fiscal year 2010. The restructuring charges were primarily related to corporate actions and excess facilities arising from the acquisition of Kabira. As of May 31, 2011, the total estimated restructuring costs associated with the restructuring plan were approximately $7.2 million, and consisted of costs associated with employee terminations and exit of excess facilities. These costs are recognized in accordance with the current guidance on accounting for exit activities and are presented as restructuring charges in our Condensed Consolidated Statements of Operations. We recognized $7.0 million of restructuring charges during fiscal year 2010, and expect to recognize remaining expenses related to the restructuring plan in fiscal year 2011. Changes in estimates, if any, will be reflected in our future results of operations as required by the current accounting guidance. We expect to fulfill our remaining cash obligations associated with this restructuring no later than fiscal year 2013.

The following is a summary of activities in accrued restructuring and excess facilities costs for the six months ended May 31, 2011 (in thousands):


	Accrued Excess Facilities												Accrued Severance and Other
	Headquarter Facilities			Acquisition Integration			Restructuring			Subtotal			Acquisition Integration			Restructuring			Subtotal			Total
As of November 30, 2010	$	138		$	56		$	924		$	1,118		$	11		$	2,098		$	2,109		$	3,227
Adjustment to acquisition integration costs		—			—			—			—			—			(33	)		(33	)		(33	)
Cash utilized		(119	)		(13	)		(230	)		(362	)		(11	)		(1,527	)		(1,538	)		(1,900	)

As of May 31, 2011	$	19		$	43		$	694		$	756		$	—		$	538		$	538		$	1,294

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The remaining accrued excess facilities costs represent the estimated loss on abandoned excess facilities, net of estimated sublease income, which is expected to be paid over the next two years. As of May 31, 2011, $0.3 million of the $1.3 million accrued restructuring and excess facilities costs were classified as long-term liabilities.

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 $39.3 million and $40.4 million as of May 31, 2011 and November 30, 2010, respectively. Our mortgage note payable has a fair value that is not materially different from its carrying amount.

The mortgage note payable carries a 20-year amortization, and in the second quarter of fiscal year 2007, we amended the mortgage note payable such that it now carries a fixed annual interest rate of 5.50%. The $34.4 million principal balance that will be remaining at the end of the 10-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 $50.0 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. As of May 31, 2011, we were in compliance with all covenants under the mortgage note agreements.

Lines of Credit

In November 2009, we entered into a $150.0 million unsecured revolving credit facility (the “Credit Agreement”) that matures in November 2012. The revolving credit facility is available for cash borrowings up to $150.0 million, with a sublimit for the issuance of standby letters of credit in a face amount up to $25.0 million and swing line loans up to $10.0 million. As of May 31, 2011, no borrowings were outstanding under the Credit Agreement. Revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 2.25% to 3.00%, depending on TIBCO’s consolidated leverage ratio or (ii) the LIBOR rate plus a margin ranging from 3.25% to 4.00%, depending on TIBCO’s consolidated leverage ratio, for various interest periods. The base rate is defined as the highest of (i) the administrative agent’s prime rate, (ii) the federal funds rate plus a margin equal to 0.50%, and (iii) except during a period when LIBOR rates are unavailable, the LIBOR rate for a one month interest period plus a margin equal to 1.00%. Swing line loans accrue interest at a per annum rate based on the base rate plus a margin ranging from 2.25% to 3.00%. A commitment fee is applied to the un-borrowed amount at a per annum rate ranging from 0.50% to 0.75%. A $2.3 million loan origination fee and issuance costs incurred upon consummation of the Credit Agreement will be amortized through interest expense over a period of three years. Other customary fees and letter of credit fees may be charged as they are incurred. All fees would be recognized over the life of the facility as an adjustment of interest expense. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate. In order to make acquisitions under the Credit Agreement, the Credit Agreement requires, among other things, immediately after giving a pro forma effect to any such acquisition we maintain $120.0 million of total unrestricted cash, cash equivalents, certain short-term investments and total available borrowings, of which $80.0 million must be held by a financial institution with the account residing in the United States. Under this Credit Agreement, we must maintain a minimum consolidated interest coverage ratio of 3.5:1.0 and a maximum consolidated leverage ratio of 2.5:1.0 in addition to other customary affirmative and negative covenants. As of May 31, 2011, we were in compliance with all covenants of this facility.

We also have a $20.0 million revolving line of credit that matures in November 2012. The revolving line of credit is available for cash borrowings and for the issuance of letters of credit up to $20.0 million. As of May 31, 2011, no borrowings were outstanding under the facility and three irrevocable letters of credit in the amounts of $13.0 million, approximately $1.1 million and approximately $0.5 million were outstanding, leaving approximately $5.4 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. The approximately $1.1 million and approximately $0.5 irrevocable letters of credit outstanding were issued in connection with two separate revenue transactions denominated in foreign currency and will remain outstanding until July 2012 and November 2012, respectively. The line of credit, as amended, contains financial covenants identical to those of the Credit Agreement, as well as other customary affirmative and negative covenants. As of May 31, 2011, we were in compliance with all covenants under the revolving line of credit.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Guarantee Credit Line

We have an approximately $14.3 million revolving guarantee credit line available for issuance of bank guarantees denominated in foreign currency. Issued bank guarantees as of May 31, 2011 were approximately $10.8 million and were collateralized by pledging the equivalent amount under restricted cash as required under our guarantee credit line. Other various contractual commitments also require us to pledge cash as security and record this cash under restricted cash. As of May 31, 2011 and November 30, 2010, we had restricted cash of $13.3 million and $10.5 million, respectively, which is included in Other Assets on our Condensed Consolidated Balance Sheets.

COMMITMENTS AND CONTINGENCIES

Letters of Credit

In connection with the mortgage note payable described in Note 8 above, we entered into an irrevocable letter of credit in the amount of $13.0 million; additionally, in connection with two separate revenue transactions denominated in foreign currencies, we entered into separate irrevocable letters of credit in the amounts of approximately $1.1 million and approximately $0.5 million; see Note 8 for further details. The letter of credit is collateralized by the $20.0 million revolving line of credit described above in Note 8 and automatically renews for successive one-year periods until the mortgage note payable has been satisfied in full. As of May 31, 2011, we were in compliance with all covenants under the revolving line of credit.

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 market condition. Should it become necessary, we have the option to prepay any rent increases due as a result of a change in fair market value. This prepaid land lease is being amortized using the straight-line method over the life of the lease; the portion to be amortized over the next twelve months is included in 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 May 2019. Rental expense was $3.6 million and $2.6 million for the three month periods ended May 31, 2011 and 2010, respectively, and $6.8 million and $5.2 million for the six month periods ended May 31, 2011 and 2010, respectively.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

As of May 31, 2011, contractual commitments associated with indebtedness, lease obligations and restructuring were as follows (in thousands):


	Total			Remainder of 2011			2012			2013			2014		2015		Thereafter
Operating commitments:
Debt principal	$	39,258		$	1,150		$	2,397		$	35,711		$	—	$	—	$	—
Debt interest		4,385			1,066			2,036			1,283			—		—		—
Operating leases		32,600			6,040			9,155			6,676			4,798		2,570		3,361

Total operating commitments		76,243			8,256			13,588			43,670			4,798		2,570		3,361

Restructuring-related commitments:
Gross lease obligations		1,078			299			674			105			—		—		—
Committed sublease income		(611	)		(178	)		(366	)		(67	)		—		—		—

Net restructuring-related commitment		467			121			308			38			—		—		—

Total commitments	$	76,710		$	8,377		$	13,896		$	43,708		$	4,798	$	2,570	$	3,361

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

The above commitment table does not include approximately $16.3 million of long-term income tax liabilities recorded in accounting for uncertainty in income taxes due to the fact that we are unable to reasonably estimate the timing of these potential future payments.

Indemnification

Our software license agreements typically provide for indemnification of customers for intellectual property infringement claims. 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.

10.

LEGAL PROCEEDINGS

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 United States 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.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The parties have reached a global settlement of the litigation, including the actions against us and Talarian. Under the settlement, the insurers will pay the full amount of settlement share allocated to us (our financial liability will be limited to paying the remaining balance of the applicable retention under Talarian’s directors and officers liability insurance policy). In addition, we and the other defendants will receive complete dismissals from the case. In 2009, the Court granted final approval of the settlement. Certain objectors appealed; several of the appeals have been dismissed. In May 2011, the appellate court issued an order to remand the remaining appeals to the district court for further determination.

Proginet Merger Litigation

On June 28, 2010, a putative shareholder class action suit was filed by individual stockholders in the Supreme Court of the State of New York, Nassau County, against Proginet (which we acquired on September 15, 2010), certain of its officers and directors, us and our subsidiary created for the purpose of effectuating the acquisition of Proginet. The complaint generally alleged that the individual defendants breached their fiduciary duties by failing to maximize shareholder value in negotiating and approving the merger agreement, and that Proginet and we aided and abetted those alleged breaches of fiduciary duties. The complaint seeks, among other relief, class certification, certain forms of injunctive relief, including enjoining the proposed merger, and unspecified damages.

We, Proginet and the other defendants in this action entered into an agreement providing for the settlement and dismissal with prejudice of this action. The agreement is subject to approval of the court. Although we and Proginet believe that the action is without merit, we and Proginet entered into the settlement to avoid the risk of delaying the merger and to minimize the expense of defending the action. The settlement and dismissal with prejudice, if approved by the court, will resolve all of the claims that were or could have been brought in the action, including all claims relating to the merger (other than claims for appraisal under Section 262 of Delaware law). In connection with the settlement and dismissal with prejudice, Proginet has agreed, subject to court approval, that it will pay plaintiffs’ counsel the amount of up to $200,000 for its fees and expenses in the action.

JuxtaComm v. TIBCO, et al.

On January 21, 2010, JuxtaComm-Texas Software, LLC (“JuxtaComm”) filed a complaint for patent infringement against us and other defendants in the United States District Court for the Eastern District of Texas, Case No. 6:10-CV-00011-LED. On April 22, 2010, JuxtaComm filed an amended complaint in which it alleges that certain TIBCO offerings, including ActiveMatrix Business Works^™, TIBCO iProcess^™ Suite, TIBCO Business Studio^™ and TIBCO ActiveMatrix^® Service Bus infringe U.S. Patent No. 6,195,662.

JuxtaComm seeks injunctive relief and unspecified damages. On May 6, 2010, we filed an answer and counterclaims in which we denied JuxtaComm’s claims and asserted counterclaims for declaratory relief that the asserted patent is invalid and not infringed. Trial is scheduled for January 3, 2012. We intend to defend the action vigorously. While we believe that we have valid defenses to JuxtaComm’s claims, litigation is inherently unpredictable and we cannot make any predictions as to the outcome of this litigation. It is possible that our business, financial position, or results of operations could be negatively affected by an unfavorable resolution of this action.

InvestPic, LLC v. TIBCO, et al.

On November 24, 2010, InvestPic, LLC (“InvestPic”) filed a complaint for patent infringement against us and fourteen other defendants in the United States District Court for the District of Delaware, Case No. 1:10cv01028-SLR. The complaint alleges that TIBCO Spotfire^® S+^® “and other similar products” infringe U.S. Patent No. 6,349,291 (the “’291 patent”). On March 29, 2011, defendant SAS Institute Inc. filed a motion to dismiss the complaint for failure to state a claim for relief on the basis that all the asserted claims of the ’291 patent are invalid as being directed to unpatentable subject matter. On May 13, 2011, TIBCO, along with other defendants, filed a motion to dismiss the complaint on the same grounds as SAS’ motion.

InvestPic seeks injunctive relief and unspecified damages. The Court has not yet set a schedule for the case. We intend to defend the action vigorously. While we believe that we have valid defenses to InvestPic’s claims, litigation is inherently unpredictable and we cannot make any predictions as to the outcome of this litigation. It is possible that our business, financial position, or results of operations could be negatively affected by an unfavorable resolution of this action.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

11.

STOCK BENEFIT PLANS AND STOCK-BASED COMPENSATION

Stock Benefit Plans

2008 Equity Incentive Plan (the “2008 Plan”). As of May 31, 2011, there were 6.0 million shares available for grant and approximately 4.2 million shares underlying stock options outstanding under the 2008 Plan.

As of May 31, 2011, there were approximately 4.4 million performance-based restricted stock units (“PRSUs”) outstanding.

1996 Stock Option Plan (the “1996 Plan”). As May 31, 2011, there were no shares available for grant and approximately 14.8 million shares underlying stock options outstanding under the 1996 Plan.

As of May 31, 2011, there were 3.9 million shares of restricted stock and 1.5 million shares underlying restricted stock units outstanding under the 2008 Plan and 1996 Plan, combined.

Insightful Corporation Amended and Restated 2001 Stock Option and Incentive Plan (the “Insightful Plan”). As of May 31, 2011, there were no shares available for grant and approximately 34,000 shares underlying stock options outstanding under the Insightful Plan.

1998 Director Option Plan (the “Director Plan”). As of May 31, 2011, there were no shares available for grant and approximately 1.0 million shares underlying stock options outstanding under the Director Plan.

2008 Employee Stock Purchase Plan (the “2008 ESPP”). We issued approximately 0.2 million shares under the 2008 ESPP, representing approximately $1.8 million in employee contributions, for the six months ended May 31, 2011. As of May 31, 2011, approximately 8.9 million shares of our common stock were available for issuance under the 2008 ESPP.

2009 Deferred Compensation Plan (the “2009 DCP”). As of May 31, 2011, there were approximately 987,000 shares of our common stock available for issuance under the 2009 DCP.

Stock Options Activities

The summary of stock option activity for the six months ended May 31, 2011 is presented below (in thousands, except per share and term data):


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, 2010		22,173		$	8.36		3.23	$	250,651

Granted		1,784			27.79
Exercised		(3,742	)		8.41
Forfeited or expired		(140	)		16.85

Outstanding at May 31, 2011		20,075		$	10.02		3.18	$	368,834

Vested and expected to vest at May 31, 2011		19,387		$	9.66		3.07	$	362,912

Exercisable at May 31, 2011		15,911		$	8.18		2.49	$	320,326

The intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted closing market price of our common stock as of the exercise date. The total intrinsic value of stock options exercised in the six months ended May 31, 2011 and 2010 was $63.1 million and $10.0 million, respectively. Upon the exercise of stock options, we issue common stock from our authorized shares. As of May 31, 2011, total unamortized stock-based compensation cost related to unvested stock options was $21.0 million, with a weighted-average remaining recognition period of 2.74 years.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The total realized tax benefits attributable to stock options exercised and vesting of stock awards were $10.7 million and $13.7 million for the six months ended May 31, 2011 and 2010, respectively.

Stock Awards Activities

Our nonvested stock awards are comprised of restricted stock, restricted stock units and performance-based restricted stock units. A summary of the status of nonvested stock awards as of May 31, 2011, and activities during the six months ended May 31, 2011, is presented as follows (in thousands, except per share data):


Nonvested Stock Awards	Restricted Stock			Restricted Stock Units			Performance- based Restricted Stock Units		Total Number of Shares Underlying Stock Awards			Weighted- Average Grant Date Fair Value
Nonvested at November 30, 2010		4,314			1,659			4,092		10,065		$	9.47
Granted		1,121			357			274		1,752			26.71
Vested		(1,379	)		(467	)		—		(1,846	)		8.23
Forfeited		(134	)		(22	)		—		(156	)		13.01

Nonvested at May 31, 2011		3,922			1,527			4,366		9,815		$	12.63

We granted approximately 1.5 million shares of nonvested stock awards at no cost to recipients during the six months ended May 31, 2011. As of May 31, 2011 there was $59.9 million of total unrecognized compensation cost related to nonvested stock awards. That cost is expected to be recognized generally on a straight-line basis as the shares vest over three to four years (the weighted-average remaining recognition period is 2.6 years). The total fair value of shares vested pursuant to stock awards during the six months ended May 31, 2011 is $15.2 million.

We granted approximately 0.3 million PRSUs during the six months ended May 31, 2011. As of May 31, 2011, there was $28.1 million of total unrecognized compensation cost related to all of our outstanding PRSUs. That cost is expected to be recognized using the graded vesting attribution method over the requisite service period of four to five years (the weighted-average remaining recognition period is approximately 3.11 years as of May 31, 2011).

Stock-Based Compensation

Stock-based compensation cost for the three months ended May 31, 2011 and 2010 was $11.8 million and $7.8 million, respectively. Stock-based compensation cost for the six months ended May 31, 2011 and 2010 was $23.3 million and $14.2 million, respectively. The stock-based compensation cost primarily relates to expenses recognized from nonvested stock awards and employee stock options. The deferred tax benefit on stock-based compensation expenses for the three months ended May 31, 2011 and 2010 was $3.9 million and $2.7 million, respectively. The deferred tax benefit on stock-based compensation expenses for the six months ended May 31, 2011 and 2010 was $7.9 million and $4.7 million, respectively.

We recognize the fair value of service-based stock awards generally on a straight-line basis over the requisite service period of three to four years, net of estimated forfeitures. Employee stock-based compensation cost related to grants of service-based stock awards for the three months ended May 31, 2011 and 2010 was approximately $5.9 million and $4.0 million, respectively. Employee stock-based compensation cost related to grants of service-based stock awards for the six months ended May 31, 2011 and 2010 was approximately $11.3 million and $8.0 million, respectively.

We recognize the fair value of employee stock options on a straight-line basis over the requisite service period of three to four years, net of estimated forfeitures. Employee stock-based compensation cost related to employee stock options for the three months ended May 31, 2011 and 2010 was approximately $2.6 million and $2.2 million, respectively. Employee stock-based compensation cost related to employee stock options for the six months ended May 31, 2011 and 2010 was approximately $4.6 million and $4.4 million, respectively.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

We recognize compensation cost related to the performance-based restricted stock units, net of estimated forfeitures, over the requisite service period of four to five years, using the graded vesting attribution method. Employee stock-based compensation cost related to PRSUs for the three months ended May 31, 2011 and 2010 was $3.0 million and $1.3 million, respectively. Employee stock-based compensation cost related to PRSUs for the six months ended May 31, 2011 and 2010 was $6.8 million and $1.3 million, respectively.

We recognize the stock-based compensation costs for PRSUs when we believe it is probable that we will achieve the performance criteria as defined in the PRSU agreement. We then estimate the most probable period in which the performance criteria will be met, if at all. Under the terms of the PRSUs granted in fiscal year 2010, 20% of those PRSUs will be forfeited if, in the fiscal year following achievement of the applicable performance goals, our non-GAAP EPS falls by 10% or more as compared to the non-GAAP EPS achieved for the year that the performance goals were achieved. Therefore, we also assess the probability of this forfeiture when analyzing our stock-based compensation costs for such PRSUs. On a quarterly basis management calculates, based on these estimates, the appropriate compensation expense over the requisite service period by using the graded vesting attribution method and then book an adjustment to compensation cost in that reporting period. As of May 31, 2011, management estimates that it is probable that the performance criteria will be met in the fourth quarter of 2012 and it is not probable that 20% of these PRSUs will be forfeited prior to vesting. In the first quarter of fiscal year 2011, we granted 0.3 million PRSUs which are subject to different performance criteria than the PRSUs granted in fiscal year 2010. As of May 31, 2011, management estimates that it is probable that the performance criteria of the PRSUs granted in the first quarter of fiscal year 2011 will be met in fiscal year 2011.

We recognized stock-based compensation costs associated with our employee stock purchase programs on a straight-line basis over each six-month offering period. Employee stock-based compensation associated with our employee stock purchase programs for the six months ended May 31, 2011 and 2010 was approximately $0.6 million and $0.5 million, respectively.

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 May 31,						Six Months Ended May 31,
	2011			2010			2011			2010
Stock Option Grants:
Expected term of stock options (years)		5.1			5.1			4.8 – 5.1			4.8 – 5.1
Risk-free interest rate		2.00	%		2.40	%		2.00 – 2.10	%		2.40	%
Expected volatility		42	%		42	%		42	%		42 - 44	%
Weighted-average grant date fair value (per share)	$	11.61		$	4.79		$	11.11		$	4.49
ESPP:
Expected term of ESPP (years)		N/A			N/A			0.5			0.5
Risk-free interest rate		N/A			N/A			0.20	%		0.20	%
Expected volatility		N/A			N/A			38	%		35	%
Weighted-average grant date fair value (per share)		N/A			N/A		$	6.17		$	2.30

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

12.

COMPREHENSIVE INCOME (LOSS)

Our comprehensive income (loss) 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 (loss) for the periods indicated is as follows (in thousands):


	Three Months Ended May 31,					Six Months Ended May 31,
	2011		2010			2011		2010
Net income	$	21,090	$	12,931		$	37,105	$	23,371
Cumulative translation adjustment		6,530		(17,924	)		22,656		(26,798	)
Unrealized gain on available-for-sale securities		25		14			58		33

Comprehensive income (loss)		27,645		(4,979	)		59,819		(3,394	)
Less: Comprehensive income attributable to noncontrolling interest		57		122			143		117

Comprehensive income (loss) attributable to TIBCO Software Inc.	$	27,588	$	(5,101	)	$	59,676	$	(3,511	)

The following table summarizes the allocation of comprehensive income (loss) between stockholders of TIBCO Software Inc. and the noncontrolling interest (in thousands):


	Three Months Ended May 31, 2011						Six Months Ended May 31, 2011
	Stockholders of TIBCO Software Inc.		Noncontrolling Interest		Total		Stockholders of TIBCO Software Inc.		Noncontrolling Interest		Total
Net income	$	21,046	$	44	$	21,090	$	36,999	$	106	$	37,105
Cumulative translation adjustment		6,517		13		6,530		22,619		37		22,656
Unrealized gain on available-for-sale securities		25		—		25		58		—		58

Comprehensive income	$	27,588	$	57	$	27,645	$	59,676	$	143	$	59,819

The balances of each component of accumulated other comprehensive income (loss), net of taxes, as of May 31, 2011 and November 30, 2010, consist of the following (in thousands):


	Unrealized Gain (Loss) in Available-for-Sale Securities			Foreign Currency Translation			Accumulated Other Comprehensive Income (Loss)
Balance as of November 30, 2010	$	(10	)	$	(22,066	)	$	(22,076	)
Net change during six month period		58			22,619			22,677

Balance as of May 31, 2011	$	48		$	553		$	601

13.

NONCONTROLLING INTEREST

We are a party to 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. As of May 31, 2011 and November 30, 2010, Innovations had total assets of $6.9 million and $5.7 million, respectively. For the six months ended May 31, 2011 and 2010, Innovations had total revenues of $4.6 million and $5.8 million, respectively. As of May 31, 2011, we owned a 74.9% interest in the joint venture. Because of our majority interest in Innovations, our Condensed Consolidated Financial Statements include the balance sheets, results of operations and cash flows of Innovations, net of intercompany charges. We accordingly eliminated 25.1% of the financial results that pertain to the noncontrolling interest of Innovations; the eliminated amounts were reported in separate lines in our Condensed Consolidated Statements of Operations and Balance Sheets.

The following table provides a reconciliation of the beginning and the ending carrying amounts of equity attributable to noncontrolling interest (in thousands):


Balance as of November 30, 2010	$	1,163
Net income		106
Cumulative translation adjustment		37

Balance as of May 31, 2011	$	1,306

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

14.

PROVISION FOR INCOME TAXES

The effective tax rate was approximately 22% and 17% for the three months ended May 31, 2011 and 2010, respectively, and approximately 18% and 23% for the six months ended May 31, 2011 and 2010, respectively.

The company recognized a $3.2 million tax benefit primarily related to lapses of statutes of limitations and reinstatement of federal research and development credit in the three months ended February 28, 2011.

The company recognized a $2.3 million tax benefit primarily related to the expiration of a statute of limitation in the United Kingdom in the three and six months ended May 31, 2010.

The provision for the six-month periods ended May 31, 2011 and 2010 reflects a forecasted annual tax rate of 26% and 33%, respectively, offset by discrete items which are booked in the period they occur. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, release of the valuation allowance on certain domestic assets, domestic manufacturing incentives, and federal and state research and development credits, partially offset by the impact of certain stock compensation charges and state income taxes.

In February 2009, the California 2009-2010 budget legislation was signed into law. One of the major components of this legislation is the ability to elect to apply a single sales factor apportionment for years beginning after January 1, 2011. As a result of our anticipated election of the single sales factor, we are required to re-measure our deferred taxes taking into account the reversal pattern and the expected California tax rate under the elective single sales factor. We have determined that by electing a single sales factor apportionment, our California deferred tax assets will decrease by approximately $1.1 million (net of federal benefit). The tax impact of $1.1 million has been recorded as a discrete item in the first quarter of fiscal year 2009. We continue to estimate the reversal of the noncurrent deferred tax assets and liabilities at the anticipated tax rate for fiscal year 2012.

In connection with the acquisition of Loyalty Lab in the first quarter of fiscal year 2011, we have recorded current deferred tax assets of $0.1 million and long term deferred tax assets of $3.3 million with a corresponding adjustment to goodwill. These deferred taxes were primarily related to the acquired intangible assets, deferred revenue and accrued expenses.

In connection with the acquisition of Kabira in the second quarter of fiscal year 2010, we have recorded current deferred tax assets of $1.4 million and long term deferred tax liabilities of $1.1 million with a corresponding adjustment to goodwill. These deferred taxes were primarily related to the acquired intangible assets, deferred revenue and accrued expenses.

In connection with the acquisition of Netrics in the second quarter of fiscal year 2010, we have recorded current deferred tax assets of $0.2 million and long term deferred tax assets of $0.4 million with a corresponding adjustment to goodwill. These deferred taxes were primarily related to the acquired intangible assets, deferred revenue, accounts receivable, accrued expenses and certain tax attributes of Netrics.

In connection with the acquisition of Foresight in the first quarter of fiscal year 2010, we have recorded current deferred tax liabilities of $1.6 million and long term deferred tax liabilities of $6.5 million with a corresponding adjustment to goodwill. These deferred taxes were primarily related to the acquired intangible assets, deferred revenue and accrued expenses.

During the second quarter of fiscal year 2011, the amount of gross unrecognized tax benefits was decreased by approximately $0.1 million for current period exposures offset by the expiration of certain statutes of limitations. The total amount of gross unrecognized tax benefits was $38.1 million as of May 31, 2011, of which $18.4 million would affect the effective tax rate if realized. We do not expect any significant changes to the amount of unrecognized tax benefit within the next twelve months.

Upon adoption of the accounting for uncertainty in income taxes, we have elected to include interest expense and penalties accrued on unrecognized tax benefits as a component of our income tax expense. This is consistent with our policy prior to the adoption of the accounting for uncertainty in income taxes. As of November 30, 2010, we had accrued $0.9 million for interest and penalties. There was not a material change to the amount of accrued interest and penalties during the second quarter of fiscal year 2011.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

We are subject to routine corporate income tax audits in the United States and foreign jurisdictions. The statute of limitations for our fiscal years 1994 through 2010 remains open for U.S. purposes. Most foreign jurisdictions have statutes of limitations that range from three to six years.

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

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 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. The temporary differences mostly relate to stock based compensation charges, amortization of intangible assets, fixed assets depreciation, deferred revenue recognition and other items. We estimate these temporary differences on a quarterly basis which result in movements in deferred tax assets and liabilities, which are included in our Condensed Consolidated Balance Sheets.

With the exception of our subsidiaries in the United Kingdom and Japan, 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.

15.

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 May 31,				Six Months Ended May 31,
	2011		2010		2011		2010
Net income attributable to TIBCO Software Inc.	$	21,046	$	12,814	$	36,999	$	23,239

Weighted-average shares of common stock used to compute basic net income per share		161,911		160,992		161,207		161,792
Effect of dilutive common stock equivalents:
Stock options to purchase common stock		10,197		6,921		10,226		6,080
Restricted common stock awards		2,558		2,062		2,643		1,989

Weighted-average shares of common stock used to compute diluted net income per share		174,666		169,975		174,076		169,861

Net income per share attributable to TIBCO Software Inc.:
Basic	$	0.13	$	0.08	$	0.23	$	0.14

Diluted	$	0.12	$	0.08	$	0.21	$	0.14

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 May 31,				Six Months Ended May 31,
	2011		2010		2011		2010
Stock options to purchase common stock		886		6,911		634		7,880
Restricted common stock awards		540		227		270		114

Total anti-diluted common stock equivalents		1,426		7,138		904		7,994

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

In fiscal year 2010, we granted 4.1 million PRSUs that contain performance metrics based on the attainment and maintenance of specified non-GAAP EPS goals. If the performance criteria are achieved, these PRSUs will be considered outstanding for the purpose of computing diluted EPS if the effect is dilutive. Please see Note 11 for additional details. The dilutive impact of these awards will be deferred until the first quarter of fiscal year 2013, at the earliest, when and if the performance criteria of the awards have been met.

Additionally, we granted 0.3 million of PRSUs in the first quarter of fiscal year 2011 that are not included in the diluted net income per share calculation. The dilutive impact of these awards will be deferred until the first quarter of fiscal year 2012 when and if the performance criteria of the awards have been met.

16.

SEGMENT INFORMATION

We operate our business in one operating segment: the development and marketing of a suite of infrastructure software. Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

Our revenue by geographic region, Americas; Europe, the Middle East and Africa (“EMEA”); and Asia Pacific and Japan (“APJ”), based on the location at which each sale originates, is summarized as follows (in thousands):


	Three Months Ended May 31,				Six Months Ended May 31,
	2011		2010		2011		2010
Americas:
United States	$	103,849	$	82,853	$	199,537	$	152,134
Other Americas		8,867		6,586		19,792		16,841

Total Americas		112,716		89,439		219,329		168,975

EMEA:
United Kingdom		22,019		18,665		38,361		35,093
Other EMEA		59,249		45,648		103,972		89,401

Total EMEA		81,268		64,313		142,333		124,494

APJ		22,437		19,518		40,100		34,845

	$	216,421	$	173,270	$	401,762	$	328,314

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


	May 31,		November 30,
	2011		2010
Property and equipment, net:
United States	$	82,717	$	83,931
United Kingdom		1,609		1,724
Other		2,650		2,868

	$	86,976	$	88,523

17.

STOCK REPURCHASE PROGRAMS

On December 21, 2010, we announced that our Board of Directors approved a new stock repurchase program pursuant to which we may repurchase up to $300.0 million of our outstanding common stock from time to time in the open market or through privately negotiated transactions. As of May 31, 2011, the remaining authorized amount available for repurchases under the December 2010 stock repurchase program was approximately $227.7 million.

TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2011		2010		2011		2010
Cash used for repurchases	$	47,899	$	37,918	$	72,329	$	67,482

Shares repurchased		1,642		3,447		2,860		6,587

Average price per share	$	29.17	$	11.00	$	25.29	$	10.24

In connection with the repurchase activities during the six months ended May 31, 2011, we classified $37.0 million of the excess purchase price over the par value of our common stock to retained earnings and $35.3 million to additional paid-in capital. From June 1, 2011 up to July 5, 2011, we have repurchased approximately 1.3 million shares of our outstanding common stock at an average price of $29.18 per share pursuant to our December 2010 stock repurchase program.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 future events or matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “strategy,” “continue,” “will,” “estimate,” “forecast,” and similar words and expressions are intended to identify forward-looking statements, although these words are not the only means of identifying these statements. 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.” This discussion should be read in conjunction with our Consolidated Financial Statements and accompanying notes and with our Annual Report on Form 10-K for the year ended November 30, 2010 and with our quarterly Condensed Consolidated Financial Statements and notes thereto which appear elsewhere in 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

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

Our revenue is generally derived from a diverse customer base. No single customer represented greater than 10% of total revenue for the first six months of fiscal year 2011. As of May 31, 2011, 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 collectability and an allowance for returns and discounts based on specifically identified credits and historical experience.

For the second quarter of fiscal year 2011, we recorded total revenue of $216.4 million, an increase of 25% from the second quarter of fiscal year 2010. License revenue was $82.0 million, an increase of 32% from the second quarter of fiscal year 2010. Service and maintenance revenue was $134.4 million, an increase of 21% from the second quarter of fiscal year 2010. In addition, we generated cash flow from operations of $47.0 million in the second quarter of fiscal year 2011. Diluted earnings per share was $0.12 in the second quarter of fiscal year 2011 as compared to $0.08 for the second quarter of fiscal year 2010. We ended the quarter with $278.7 million in cash, cash equivalents and short-term investments.

We currently intend to grow our business by pursuing key initiatives to: broaden our product platform through internal development and acquisitions; increase our sales capacity by expanding our direct sales organization and developing our channel partnerships; expand our product offerings to new vertical markets; and employ marketing programs to increase awareness of us and our products among existing and prospective customers. Whether or not we are successful depends on our ability to: appropriately manage our expenses as we grow our organization; identify or acquire companies or assets at attractive valuations; enter into beneficial channel relationships; develop products for new vertical markets; and successfully execute our marketing strategies.

Critical Accounting Policies, Judgments and Estimates

The discussion and analysis of our financial condition and results of operations is 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, business combination, impairment of goodwill, intangible assets and long-lived assets 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 2010 Annual Report on Form 10-K for the fiscal year ended November 30, 2010.

Recent Accounting 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 second quarter of fiscal years 2011 and 2010 as ended on May 31, 2011 and May 31, 2010, respectively; whereas in fact, the second quarter of fiscal years 2011 and 2010 actually ended on May 29, 2011 and May 30, 2010, respectively. There were 91 days in the second quarter of both fiscal years 2011 and 2010. All amounts presented in the tables in the following sections on our Results of Operations are stated in thousands of dollars, except for percentages and unless otherwise stated.

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


	Three Months Ended May 31,						Six Months Ended May 31,
	2011			2010			2011			2010
Revenue:
License		38	%		36	%		38	%		35	%
Service and maintenance		62			64			62			65

Total revenue		100			100			100			100

Cost of revenue:
License		5			5			5			5
Service and maintenance		24			22			24			22

Total cost of revenue		29			27			29			27

Gross profit		71			73			71			73
Operating expenses:
Research and development		17			17			17			18
Sales and marketing		32			33			33			33
General and administrative		7			7			7			7
Amortization of acquired intangible assets		2			2			2			2
Acquisition related and other		—			—			—			1
Restructuring charges (adjustment)		—			4			—			2

Total operating expenses		58			63			59			63

Income from operations		13			10			12			10
Interest income		—			—			—			—
Interest expense		—			(1	)		(1	)		(1	)
Other income (expense), net		—			—			—			—

Income before provision for income taxes and noncontrolling interest		13			9			11			9
Provision for income taxes		3			2			2			2

Net income		10			7			9			7
Less: Net income attributable to noncontrolling interest		—			—			—			—

Net income attributable to TIBCO Software Inc.		10	%		7	%		9	%		7	%

Our Results of Operations have included incremental revenue and costs related to the acquisitions of Loyalty Lab, OpenSpirit, Proginet, Kabira, Netrics and Foresight. In connection with these acquisitions, we have incurred additional expenses, including amortization of intangible assets and acquired technology; stock based compensation; personnel and related costs; facility and infrastructure costs; and other charges.

Total Revenue

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


	Three Months Ended May 31,							Six Months Ended May 31,
	2011		2010		Change			2011		2010		Change
Total revenue	$	216,421	$	173,270		25	%	$	401,762	$	328,314		22	%

Total revenue in the second quarter of fiscal year 2011 increased by $43.2 million, or 25%, compared to the same quarter last year. The increase was primarily comprised of a $19.9 million, or 32%, increase in license revenue and a $23.3 million, or 21%, increase in service and maintenance revenue. Total revenue for the six months ended May 31, 2011 increased by $73.4 million, or 22%, compared to the same period last year.

For the six months ended May 31, 2011, we experienced an increase in total revenue in all geographic regions compared to the same periods last year. See Note 16 to our Condensed Consolidated Financial Statements for total revenue by region. The percentages of total revenue from the geographic regions are summarized as follows:


	Three Months Ended May 31,						Six Months Ended May 31,
	2011			2010			2011			2010
Americas		52	%		52	%		55	%		51	%
EMEA		38			37			35			38
APJ		10			11			10			11

		100	%		100	%		100	%		100	%

License Revenue


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
License revenue	$	81,974		$	62,096			32	%	$	152,059		$	116,270			31	%
As percent of total revenue		38	%		36	%					38	%		35	%

License revenue in the second quarter of fiscal year 2011 increased by $19.9 million, or 32%, compared to the same quarter last year. License revenue for the six months ended May 31, 2011 increased by $35.8 million, or 31%, compared to the same period last year.

Our license revenue for the three months and six months ended May 31, 2011 and 2010 was derived from the following three product lines: service oriented architecture (“SOA”), business optimization and business process management (“BPM”). The percentages of license revenue from the three product lines are summarized as follows:


	Three Months Ended May 31,						Six Months Ended May 31,
	2011			2010			2011			2010
SOA		57	%		62	%		56	%		66	%
Business optimization		34			27			34			25
BPM		9			11			10			9

		100	%		100	%		100	%		100	%

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2011		2010		2011		2010
Number of license deals of $1.0 million or more		21		12		35		22
Number of license deals of $0.1 million or more		119		85		227		182
Average size of license deals of $0.1 million or more (in millions)	$	0.6	$	0.6	$	0.6	$	0.6

Cost of License Revenue


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Cost of license revenue	$	9,710		$	8,199			18	%	$	18,637		$	15,595			20	%
As percent of total revenue		5	%		5	%					5	%		5	%
As percent of license revenue		12	%		13	%					12	%		13	%

Cost of license revenue mainly consisted of amortization of developed technology acquired through corporate acquisitions and royalty costs. Cost of license revenue in the second quarter of fiscal year 2011 increased by $1.5 million, or 18%, compared to the same quarter last year. The increase was primarily due to a $1.0 million increase in amortization expenses associated with acquired technologies and a $0.8 million increase in royalty costs, which were partially offset by a $0.3 million decrease in cost of goods sold.

Cost of license revenue for the six months ended May 31, 2011 increased by $3.0 million, or 20%, compared to the same period last year. The increase was primarily due to a $2.2 million increase in amortization expenses associated with acquired technologies and a $1.4 million increase in royalty costs, which were partially offset by a $0.6 million decrease in cost of goods sold.

Service and Maintenance Revenue and Cost


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Service and maintenance revenue	$	134,447		$	111,174			21	%	$	249,703		$	212,044			18	%
As percent of total revenue		62	%		64	%					62	%		65	%
Cost of service and maintenance	$	52,017		$	39,128			33	%	$	96,037		$	74,332			29	%
As percent of total revenue		24	%		22	%					24	%		22	%
As percent of service and maintenance revenue		39	%		35	%					38	%		35	%

Service and maintenance revenue in the second quarter of fiscal year 2011 increased by $23.3 million, or 21%, compared to the same quarter last year. Service and maintenance revenue for the six months ended May 31, 2011 increased by $37.7 million, or 18%, compared to the same period last year. The increase for the three months and six months ended May 31, 2011 was primarily due to continued growth in our installed software base and an increase in both the number and size of consulting engagements.

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

Cost of service and maintenance in the second quarter of fiscal year 2011 increased by $12.9 million, or 33%, compared to the same quarter last year. The increase in absolute dollars was primarily due to a $6.9 million increase in employee-related expenses, a $3.2 million increase in subcontractor costs, a $1.4 million increase in travel expenses, a $0.9 million increase in facilities expenses and a $0.3 million increase in cost of services. The increase in employee-related expenses and subcontractor costs was primarily due to an increase in professional services and customer support staff and was also directly related to increased service revenue in the second quarter of fiscal year 2011.

Cost of service and maintenance for the six months ended May 31, 2011 increased by $21.7 million, or 29%, compared to the same period last year. The increase was primarily due to an $11.0 million increase in employee-related expenses, a $5.8 million increase in subcontractor costs, a $2.4 million increase in travel expenses, a $1.7 million increase in facilities

expenses and a $0.7 million increase in cost of services. The increase in employee-related expenses and subcontractor costs was primarily due to an increase in professional services and customer support staff and was also directly related to increased service revenue for the first six months of fiscal year 2011.

Research and Development Expenses

Research and development expenses consisted primarily of employee-related expenses, including salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support, third-party contractor fees and related costs associated with the development and enhancement of our products.


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Research and development expenses	$	36,175		$	30,127			20	%	$	68,861		$	58,201			18	%
As percent of total revenue		17	%		17	%					17	%		18	%

Research and development expenses in the second quarter of fiscal year 2011 increased by $6.0 million, or 20%, compared to the same quarter last year. The increase was primarily due to a $5.6 million increase in employee-related expenses, a $0.4 million increase in facilities expenses and a $0.2 million increase in travel expenses, which were partially offset by a $0.2 million decrease in information technology-related expenses. The increase in employee-related expenses was primarily due to increased headcount.

Research and development expenses for the six months ended May 31, 2011 increased by $10.7 million, or 18%, compared to the same period last year. The increase was primarily due to a $9.7 million increase in employee-related expenses, a $0.9 million increase in facilities expenses and a $0.4 million increase in travel expenses, which were partially offset by a $0.3 million decrease in information technology-related expenses. The increase in employee-related expenses was primarily due to increased headcount.

Sales and Marketing Expenses

Sales and marketing expenses consisted primarily of employee-related expenses, including sales commissions, salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support, related costs of our direct sales force and marketing staff, and the costs of marketing programs, including customer conferences, promotional materials, trade shows, advertising and related travel expenses.


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Sales and marketing expenses	$	68,909		$	56,846			21	%	$	131,432		$	109,549			20	%
As percent of total revenue		32	%		33	%					33	%		33	%

Sales and marketing expenses in the second quarter of fiscal year 2011 increased by $12.1 million, or 21%, compared to the same quarter last year. The increase was primarily due to a $10.9 million increase in employee-related expenses, a $2.1 million increase in travel expenses, a $0.6 million increase in consulting expenses and a $0.4 million increase in facilities expenses, which were partially offset by a $1.6 million decrease in marketing programs and a $0.3 million decrease in information technology-related expenses. The increase in employee-related expenses was primarily due to an increase in headcount and variable compensation. The increase in travel expenses was due to increased travel related to sales activities.

Sales and marketing expenses for the six months ended May 31, 2011 increased by $21.9 million, or 20%, compared to the same period last year. The increase was primarily due to a $18.2 million increase in employee-related expenses, a $3.3 million increase in travel expenses, a $1.3 million increase in consulting expenses, a $0.7 million increase in facilities expenses and a $0.2 million increase in referral fees, which were partially offset by a $1.3 million decrease in marketing programs and a $0.5 million decrease in information technology-related expenses. The increase in employee-related expenses was primarily due to increased headcount as well as an increase in variable compensation. The increase in travel expenses was due to increased travel related to sales activities.

General and Administrative Expenses

General and administrative expenses consisted primarily of employee-related expenses, including salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support and related costs for general corporate functions including executive, legal, finance, accounting and human resources, and also included accounting, tax and legal fees and charges.


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
General and administrative expenses	$	15,573		$	11,907			31	%	$	28,490		$	23,253			23	%
As percent of total revenue		7	%		7	%					7	%		7	%

General and administrative expenses in the second quarter of fiscal year 2011 increased by $3.7 million, or 31%, compared to the same quarter last year. The increase was primarily due to a $1.5 million increase in employee-related expenses, a $1.4 million increase in consulting expenses and a $1.0 million increase in fees and charges.

General and administrative expenses for the six months ended May 31, 2011 increased by $5.2 million, or 23%, compared to the same period last year. The increase was primarily due to a $3.4 million increase in employee-related expenses and a $2.4 million increase in consulting expenses. The increase in employee-related expenses was primarily due to increased headcount.

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 May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Amortization of acquired intangible assets:
Cost of revenue	$	4,948		$	3,920					$	9,743		$	7,534
Operating expenses		5,030			3,976						9,921			7,684

Total amortization of acquired intangible assets	$	9,978		$	7,896			26	%	$	19,664		$	15,218			29	%

As percent of total revenue		5	%		5	%					5	%		5	%

Acquisition Related and Other Expenses

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


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Acquisition related and other expenses:
Transitional and other employee related costs	$	—		$	147					$	10		$	341
Professional services fees and other		278			442						813			1,293

Total acquisition related and other expenses	$	278		$	589			(53	)%	$	823		$	1,634			(50	)%

As percent of total revenue		—	%		—	%					—	%		1	%

Restructuring Charges (Adjustment)


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Restructuring charges (adjustment)	$	—		$	6,271			*	%	$	(33	)	$	6,271			*	%
As percent of total revenue		—	%		4	%					—	%		2	%

*	Percentage change has been excluded as it is not meaningful for comparison purposes.

The restructuring adjustment in the first six months of fiscal year 2011 was primarily related to excess accrued severance arising from the acquisition of Kabira. Also see Note 7 to our Condensed Consolidated Financial Statements for further discussion on restructuring charges.

Stock-Based Compensation Cost

Stock-based compensation cost is included in our Condensed Consolidated Statements of Operations corresponding to the same functional lines as cash compensation paid to the same employees in the respective departments as follows:


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Stock-based compensation:
Cost of license	$	(6	)	$	(4	)				$	4		$	7
Cost of service and maintenance		963			685						1,827			1,316

Total in cost of revenue		957			681						1,831			1,323

Research and development		3,003			2,020						5,652			3,540
Sales and marketing		4,077			2,571						8,290			4,826
General and administrative		3,750			2,516						7,495			4,535

Total in operating expenses		10,830			7,107						21,437			12,901

Total stock-based compensation	$	11,787		$	7,788			51	%	$	23,268		$	14,224			64	%

As percent of total revenue		5	%		4	%					6	%		4	%

Total stock-based compensation costs in the second quarter of fiscal year 2011 increased by $4.0 million, or 51%, compared to the same quarter last year. The increase was primarily due to $3.0 million in stock-based compensation costs related to PRSUs.

Total stock-based compensation costs for the six months ended May 31, 2011 increased by $9.0 million, or 64%, compared to the same period last year. The increase was primarily due to $6.8 million in stock-based compensation costs related to PRSUs.

Interest Income


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Interest income	$	448		$	224			100	%	$	930		$	428			117	%
As percent of total revenue		—	%		—	%					—	%		—	%

Interest income increased in the second quarter of fiscal year 2011 compared to the same quarter last year by $0.2 million or 100%. The increase was primarily due to $0.2 million in interest income associated with a tax refund.

Interest income increased for the six months ended May 31, 2011 compared to the same period last year by $0.5 million or 117%. The increase was primarily due to $0.4 million in interest income associated with a tax refund.

Interest Expense


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Interest expense	$	951		$	980			(3	)%	$	1,997		$	1,965			2	%
As percent of total revenue		—	%		1	%					1	%		1	%

Interest expense was primarily related to a $54.0 million mortgage note and the fees on a $150.0 million unsecured revolving credit facility.

The mortgage note was issued in connection with the purchase of our corporate headquarters in June 2003, carries a 20-year amortization, and a fixed annual interest rate of 5.50%. The balance of the mortgage note as of May 31, 2011 was $39.3 million. The $34.4 million principal balance that will be remaining at the end of the 10-year term will be due as a final lump sum payment on July 1, 2013. See Note 8 to our Condensed Consolidated Financial Statements for further detail on the mortgage note payable.

In November 2009, we entered into a $150.0 million unsecured revolving credit facility that matures in November 2012. As of May 31, 2011, no borrowings were outstanding under the Credit Agreement. See Note 8 to our Condensed Consolidated Financial Statements for further detail on the Credit Agreement.

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 May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Other income (expense), net:
Foreign exchange gain (loss)	$	(1,146	)	$	159					$	(1,452	)	$	(72	)
Realized gain (loss) on short-term investments		6			(16	)					20			18
Other income (expense), net		4			(1	)					6			(33	)

Total other income (expense), net	$	(1,136	)	$	142			(900	)%	$	(1,426	)	$	(87	)		1,539	%

As percent of total revenue		—	%		—	%					—	%		—	%

Other income (expense) decreased in the second quarter of fiscal year 2011 compared to the same quarter last year by $1.3 million or 900%. The decrease was primarily due to foreign exchange losses in the second quarter of fiscal year 2011. Other income (expense) in absolute dollars decreased for the six months ended May 31, 2011 compared to the same period last year. The decrease was primarily due to a $1.4 million decrease in foreign exchange gain (loss) for the first six months of fiscal year 2011.

Provision for Income Taxes


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Provision for income taxes	$	6,000		$	2,682			124	%	$	7,996		$	6,800			18	%
Effective tax rate		22	%		17	%					18	%		23	%

The company recognized a $2.3 million tax benefit primarily related to the expiration of a statute of limitation in the United Kingdom in the three and six months ended May 31, 2010.

The provision for the six-month periods ended May 31, 2011 and 2010 reflects a forecasted tax rate of 26% and 33%, respectively, offset by discrete items which are recognized in the period they incur. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, release of the valuation allowance on certain domestic assets, domestic manufacturing incentives, and reinstatement of research and development credits, partially offset by the impact of certain stock compensation charges and state income taxes.

During the second quarter of fiscal year 2011, the amount of gross unrecognized tax benefits was increased by approximately $0.1 million for current period exposures offset by the expiration of certain statutes of limitations. The total amount of gross unrecognized tax benefits was $38.1 million as of May 31, 2011, of which $18.4 million would affect the effective tax rate if realized. We do not expect any significant changes to the amount of unrecognized tax benefit within the next twelve months.

We continue to expand our international operations to better support our growth in international markets. Effective as of December 1^st, 2010 we began transitioning our international customers to our Netherlands operations. We believe that this change will enable us to be more responsive to the global concerns of our customers. As a result of these changes, we also anticipate that a material portion of our consolidated pre-tax income will be subject to foreign tax at comparatively lower tax rates than the United States federal statutory tax rate. The majority of our foreign subsidiaries’ earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested were to be repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.

Recent statements from the Internal Revenue Service have indicated their intent to seek greater disclosure by companies of their reserves for uncertain tax positions. Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if the relative mix of United States and international income changes for any reason. Accordingly, there can be no assurance that our income tax rate will be less than the United States federal statutory rate in future periods.

Net Income Attributable to Noncontrolling Interest

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


	Three Months Ended May 31,									Six Months Ended May 31,
	2011			2010			Change			2011			2010			Change
Net income attributable to noncontrolling interest	$	44		$	117			(62	)%	$	106		$	132			(20	)%
As percent of total revenue		—	%		—	%					—	%		—	%

Noncontrolling interest is detailed in Note 13 to our Condensed Consolidated Financial Statements.

Liquidity and Capital Resources

Current Cash Flows

As of May 31, 2011, we had cash, cash equivalents and short-term investments totaling $278.7 million, representing an increase of $33.2 million from November 30, 2010. As of May 31, 2011, our cash and cash equivalents balance totaled $278.5 million and our short-term available-for-sale investments, consisting of mortgage-backed securities, totaled $0.2 million. A significant portion of our cash and cash equivalents are held by our foreign subsidiaries. Our intention is to permanently reinvest the majority of our earnings from foreign operations. Our current plans do not anticipate a need to repatriate cash to fund our domestic operations. In the event cash from foreign operations is needed to fund operations in the U.S., we would be subject to additional income taxes in the United States reduced by any foreign taxes paid on these earnings.

Net cash provided by operating activities in the six months ended May 31, 2011 was $83.3 million, resulting from net income of $37.1 million, $23.7 million in non-cash charges and $22.5 million net change in assets and liabilities. The non-cash charges included depreciation and amortization, stock-based compensation and tax benefits related to stock benefit plans, less deferred income tax and excess tax benefits from stock-based compensation recorded in financing activities. Net change in assets and liabilities included a decrease in accounts receivable for the first six months of fiscal year 2011, an increase in prepaid expenses and other assets, a decrease in accounts payable, a decrease in accrued liabilities and restructuring costs and an increase in deferred revenue.

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 our accounts payable arrangements.

Net cash used in investing activities was $26.9 million for the six months ended May 31, 2011, resulting primarily from cash used, net of cash acquired, of $22.6 million for the Loyalty Lab acquisition, $3.8 million in capital expenditures and $1.8 million in restricted cash pledged as security, $0.1 million purchase of short-term investments, which were partially offset by $1.4 million in net sales and maturities of investments.

Net cash used in financing activities was $28.4 million for the six months ended May 31, 2011, resulting primarily from $72.3 million of repurchases of shares of our common stock in the open market, $15.0 million in withholding taxes related to restricted stock net share settlement and a $1.1 million payment of long-term debt, which were partially offset by $33.3 million in cash received from the exercise of stock options and the sale of our common stock under our ESPP and $26.7 million in excess tax benefits from stock-based compensation.

On December 21, 2010, we announced that our Board of Directors approved a new stock repurchase program pursuant to which we may repurchase up to $300.0 million of our outstanding common stock from time to time in the open market or through privately negotiated transactions. In the second quarter of fiscal year 2011, we repurchased 1.6 million shares of our outstanding common stock at an average price of $29.17 per share pursuant to this program. As of May 31, 2011, the remaining authorized amount available for repurchases under the December 2010 stock repurchase program was approximately $227.7 million.

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. We believe that our current cash, cash equivalents and short-term investments and amounts available under our line of credit 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 twelve months. Should demand for our products and services significantly decline over the next twelve months, the available cash provided by operations could be adversely impacted.

Lines of Credit

We have a $20.0 million revolving line of credit that matures in November 2012. The revolving line of credit is available for cash borrowings and for the issuance of letters of credit up to $20.0 million. As of May 31, 2011, no borrowings were outstanding under the facility and three irrevocable letters of credit in the amounts of $13.0 million, approximately $1.1 million and approximately $0.5 million were outstanding, leaving approximately $5.4 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. The approximately $1.1 million and $0.5 million irrevocable letters of credit outstanding were issued in connection with two separate revenue transactions denominated in foreign currencies and will remain outstanding until July 2012 and November 2012, respectively. The line of credit, as amended, contains financial covenants identical to those of the Credit Agreement, as well as other customary affirmative and negative covenants. As of May 31, 2011, we were in compliance with all covenants under the revolving line of credit.

Guarantee Credit Line

We have an approximately $14.3 million revolving guarantee credit line available for the issuance of bank guarantees denominated in foreign currency. Issued bank guarantees as of May 31, 2011 was approximately $10.8 million and were collateralized by pledging the equivalent amount under restricted cash as required under our guarantee credit line. Other various contractual commitments also require us to pledge cash as security and record this cash under restricted cash. As of May 31, 2011 and November 30, 2010, we had restricted cash of $13.3 million and $10.5 million, respectively, which is included in Other Assets on our Condensed Consolidated Balance Sheets.

Fair Value Inputs

Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The use of fair value to measure investment instruments, with related unrealized and realized gains or losses on investment is a component to our consolidated financial statements. See Note 5 to our Condensed Consolidated Financial Statements.

We value our cash, cash equivalents and investment instruments by using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, sovereign government obligations and money market securities. We do not adjust the quoted price for such instruments. The types of instruments valued based on quoted prices in markets that are not active broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include investment-grade corporate bonds; mortgage-backed and asset-backed products; and state, municipal and provincial obligations. The price for each security at the measurement date is derived from various sources. Periodically, management assesses the reasonableness of these sourced prices by comparing them to the prices provided by our portfolio managers to derive the fair value of these financial instruments. Historically, we have not experienced significant deviation between the sourced prices and our portfolio managers’ prices. Management assesses the inputs of the pricing in order to categorize the financial instruments into the appropriate hierarchy levels.

Commitments

In June 2003, we purchased our corporate headquarters with a $54.0 million mortgage note to lower our operating costs. The mortgage note payable carries a 20-year amortization and, as amended in the second quarter of fiscal year 2007, a fixed annual interest rate of 5.50%. The principal balance of $34.4 million that will be remaining at the end of the 10-year term will be due as a final lump sum payment on July 1, 2013. Under the 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 $50.0 million of cash or cash equivalents and comply with other non-financial terms as defined in the agreements. We were in compliance with all covenants under the mortgage note agreements as of May 31, 2011.

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

As of May 31, 2011, we had $13.3 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 May 31, 2011, our contractual commitments associated with indebtedness, lease obligations and restructuring were as follows (in thousands):


	Total			Remainder of 2011			2012			2013			2014		2015		Thereafter
Operating commitments:
Debt principal	$	39,258		$	1,150		$	2,397		$	35,711		$	—	$	—	$	—
Debt interest		4,385			1,066			2,036			1,283			—		—		—
Operating leases		32,600			6,040			9,155			6,676			4,798		2,570		3,361

Total operating commitments		76,243			8,256			13,588			43,670			4,798		2,570		3,361

Restructuring-related commitments:
Gross lease obligations		1,078			299			674			105			—		—		—
Committed sublease income		(611	)		(178	)		(366	)		(67	)		—		—		—

Net restructuring-related commitment		467			121			308			38			—		—		—

Total commitments	$	76,710		$	8,377		$	13,896		$	43,708		$	4,798	$	2,570	$	3,361

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

Indemnification

Our indemnification obligations are summarized in Note 9 to our Condensed Consolidated Financial Statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Risk

We conduct business in the Americas, EMEA and APJ and transact business in approximately 20 foreign currencies worldwide. 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. We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies, and these forward contracts are generally settled monthly. We do not enter into derivative financial instruments for trading purposes. As of May 31, 2011, we had five outstanding forward contracts with a total notional amount of $30.1 million and six outstanding forward contracts with a total notional amount of €8.8 million, that resulted in a net loss of $0.5 million.

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.

Interest Rate Risk

Historically, our exposure to market rate risk for changes in interest rates related primarily to our investment portfolio. Our investment policy is designed to protect and preserve invested funds by limiting default, market and investment risk. As of May 31, 2011, our investment portfolio comprised of mortgage-backed securities totaling $0.2 million. 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 under Accumulated Other Comprehensive Income (Loss), a separate component of stockholders’ equity.

As of May 31, 2011, a hypothetical 100 basis point increase in interest rates would not have an impact on the fair value of our available-for-sale debt securities.

Furthermore, we invest our cash primarily in money market funds and term deposits. In general, money market funds and term deposits are not considered to be subject to interest rate risk because the interest paid on such funds and deposits fluctuates with the prevailing interest rate. As of May 31, 2011, our cash and cash equivalents totaled $278.5 million, of which $11.0 million was in money market funds and $8.2 million was in term deposits.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level 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.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. 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, the design of a control system must reflect

that there are resource constraints, thus, 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 probability of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Our legal proceedings are detailed in Note 10 to our Condensed Consolidated Financial Statements.

ITEM 1A.

RISK FACTORS

In addition to the factors discussed elsewhere in this Form 10-Q, 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. These risk factors should be read in conjunction with the other information contained in our other SEC filings, including our Form 10-K for the fiscal year ended November 30, 2010.

Our future revenue is unpredictable, and we expect our quarterly operating results to fluctuate, which may 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:

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the relatively long sales cycles for many of our products;

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

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the delay or deferral of customer implementation of our products;

•

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

•

reduced spending in the industries that license our products;

•

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

•

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 amount and timing of operating costs and capital expenditures relating to the expansion of our operations and the evaluation of strategic transactions; and

•

changes in accounting rules, such as recording expenses for employee stock option grants and tax accounting, including accounting for uncertain tax positions.

A substantial portion of our product license orders are usually received in the last month of each fiscal quarter, with a concentration of such orders in the final two weeks of the quarter. While we typically ship product licenses shortly after the receipt of an order, we may have license orders that have not shipped at the end of any given quarter. Because the amount of such product license orders may vary, the amount, if any, of such orders at the end of a particular quarter is not a reliable predictor of our future performance.

Because it is difficult for us to predict our quarterly operating results, period-to-period comparisons of our operating results may not be a good indication of our future performance. If, as a result of these difficulties, our revenues and operating results do not meet the expectations of our investors or securities analysts or fall below guidance we may provide to the market, the price of our common stock may decline.

Uneven growth and periods of contraction in the infrastructure software market 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.

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 this software and the related 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 if corporate and governmental spending increases and companies make greater investments in information technology and infrastructure software, our revenue may not grow at the same pace.

Our success depends on our ability to overcome significant competition.

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 infrastructure software, SOA, business optimization and BPM, including companies such as IBM, Oracle, Pegasystems, Progress Software, SAP, and Software AG. We also face competition for certain aspects of our product and service offerings from major systems integrators, and our customers have alternatives to our proprietary software from open source software providers that provide software and intellectual property, typically without charging license fees, or from other competitors offering products through alternative business models, such as software as a service. 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. This may allow our present or future competitors 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. For example, some of our competitors offer products outside our segment and routinely bundle these products with their infrastructure software products. Additionally, some of our competitors are expanding their competitive product offerings and strengthening their market position through acquisitions and increases in capital expenditures for internal research and development. Accordingly, we may not be able to compete effectively in our markets or against existing and future competitors, which could adversely affect our business and operating results.

Our strategy contemplates future acquisitions that may result in our 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 expect to acquire complementary businesses, products or technologies in the future as part of our corporate strategy. In this regard, we have made the following strategic acquisitions since the beginning of fiscal year 2010 – LoyaltyLab, Inc., OpenSpirit Corporation, Proginet Corporation, Kabira Technologies, Inc., Netrics.com, Inc. and Foresight Corporation. We do not know if we will be able to complete any future acquisitions 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. Therefore, we may 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 may 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. The terms of existing or future loan agreements may place limits on our ability to incur additional debt 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 or achieve our overall growth plans.

We may not be able to achieve our key initiatives and grow our business as anticipated.

While we currently intend to grow our business by pursuing key initiatives to: broaden our product platform through internal development and acquisitions; increase our sales capacity by expanding our direct sales organization and developing our channel partnerships; expand our product offerings to new vertical markets; and employ marketing programs to increase awareness of our company and our products among existing and prospective customers, we cannot assure you that we will be able to achieve on these key initiatives. Our success depends on our ability to: appropriately manage our expenses as we grow our organization; identify or acquire companies or assets at attractive valuations; enter into beneficial channel relationships; develop new products; and successfully execute our marketing and sales strategies. If we are not able to execute on these actions, our business may not grow as we anticipated, and our operating results could be adversely affected.

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

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 or challenged, 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.

Claims by others that our products may infringe their intellectual property rights may cause us to incur unexpected costs or prevent us from selling our products.

Third parties may claim that certain of our products infringe their patents or other intellectual property rights. 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. 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. Our software license agreements typically provide for indemnification of our customers for intellectual property infringement claims. Intellectual property litigation, with or without merit, is expensive and time consuming, could cause product shipment delays 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, which could require the payment of royalty or licensing fees, 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 to our customers, and we could be prevented from selling certain of our products.

We may not be able to successfully offer products and enhancements that respond to emerging technological trends and customers’ needs.

If we are not successful in developing enhancements to existing products and new products in a timely manner, achieving customer acceptance for our existing and new product offerings or generating higher average selling prices, our gross margins may decline, and our business and operating results may suffer. Furthermore, any of our new product offerings or significant enhancements to current product offerings could cause some customers to delay making new or additional purchases while they fully evaluate any new offerings we might have introduced to the market, which in turn may slow sales and adversely affect operating results for an indeterminate period of time. Also, we may not execute successfully on our product plans because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion or a lack of appropriate resources. This could result in competitors providing those solutions before us and loss of market share, net sales and earnings.

Our stock price may be volatile, which could cause investors to incur significant losses.

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. Some of the factors that may affect our common stock price other than our operating results include:

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uncertainty about current global economic or political conditions;

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general volatility in the capital markets;

•

business developments by us or our competitors, including material acquisitions or dispositions and strategic investments;

•

industry developments and announcements by us or our competitors;

•

changes in estimates and recommendations by securities analysts;

•

speculation in the press or investment community; and

•

changes in the accounting rules.

Since December 1, 2009 through the end of our second fiscal quarter of fiscal year 2011, our stock price has fluctuated between a low of $8.23 and a high of $30.75. If market or industry-based fluctuations continue, our stock price could decline in the future regardless of our actual operating performance and investors could incur significant losses.

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 a variety of risks, including:

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local political and economic instability;

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tariffs, quotas and trade barriers and other varying regulatory or contractual requirements or limitations;

•

compliance with international and local trade, labor and other laws including the Foreign Corrupt Practices Act, the UK Bribery Act of 2010 and export control laws;

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restrictions on the transfer of funds;

•

currency exchange rate fluctuations;

•

managing our international operations; and

•

longer payment cycles, 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.

Changes in foreign currency exchange rates could negatively affect our operating results.

In addition to receiving revenue and incurring expenses in U.S. dollars, we also receive revenue and incur expenses in approximately twenty foreign currencies. Our revenue, expenses and net income are impacted by foreign exchange rate fluctuations against the U.S. dollar. For example, customers in foreign countries may incur higher costs due to the strengthening of the U.S. dollar, which could result in a delay of payments or a default on credit extended to them. Any material delay or default in our collection of significant accounts could have a negative result on our results of operations. Additionally, any strengthening of the U.S. dollar could require us to offer discounts, reduce pricing or offer other incentives to mitigate any negative effects on demand from such rise in the U.S. dollar. Further, in the event that the U.S. dollar weakens compared to foreign currencies, we may incur higher operating expenses in those locations and, therefore, our business, financial condition and operating results could suffer.

We enter into foreign currency forward contracts, the majority of which mature within approximately one month, in an effort to manage our exposure from changes in value of certain foreign currency denominated net assets and liabilities. Our foreign currency forward contracts are intended to 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. In addition, our hedging program may not reduce the impact of short-term or long-term volatility in foreign exchange rates. Accordingly, amounts denominated in such foreign currencies may fluctuate in value and produce significant earnings and cash flow volatility.

Economic and market conditions have in the past adversely affected, and may in the future adversely affect, our operating results.

We are subject to the risks arising from adverse changes in domestic and global economies. For example, a domestic and global economic downturn resulted in reduced demand for information technology, including enterprise software and services, during fiscal year 2009. The direction and relative strength of the global economy continues to be uncertain, and could be adversely affected by concerns regarding Europe’s potential sovereign-debt crisis, unrest in the Middle East, possible ramifications if the United States Government fails to raise the United States’ debt limit in a timely manner and other geopolitical factors, and makes it difficult for us to forecast operating results and to make decisions about future investments. Information technology spending has historically declined as general economic and market conditions have worsened. During challenging and uncertain economic times and in tight credit markets, many customers delay or reduce technology purchases. Contract negotiations may become more protracted or difficult if customers institute additional internal approvals for technology purchases or require more negotiation of contract terms and conditions. These economic conditions could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable or delayed payments, slower adoption of new technologies, increased price competition and reductions in the rate at which our customers renew their maintenance agreements and procure consulting services.

Continued increases in consulting and training services revenue may decrease overall margins.

We have historically realized, and may continue in the future to realize, an increasingly high percentage of our revenue from services, which has a lower profit margin than license or maintenance revenue. As a result, if consulting and training services revenue increases as a percentage of total revenue, our overall profit margin may decrease, which could impact our stock price.

If we cannot successfully recruit, retain and integrate highly skilled employees, we may not be able to execute our business strategy effectively.

If we fail to retain and recruit key management, sales 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 software industry 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 Chairman 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 could force us to incur significant expenses and could harm our business and operating results.

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 or not to use our services in the future. As a result, a customer that generates substantial revenue for us in one period may not be a source of revenue in subsequent periods. Any inability on our part to upsell to and generate revenues from our existing customers or the loss of a significant customer could adversely affect our business and operating results.

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 strive to be cost-effective in our product development activities. 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.

Market acceptance of new platforms, standards and technologies may require us to undergo the expense of developing and maintaining compatible product solutions.

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, 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.

Any unauthorized, and potentially improper, actions of our personnel could adversely affect our business, operating results and financial condition.

The recognition of our revenue depends on, among other things, the terms negotiated in our contracts with our customers. Our personnel may act outside of their authority and negotiate additional terms without our knowledge. We have implemented policies to help prevent and discourage such conduct, but there can be no assurance that such policies will be followed. For instance, in the event that our sales personnel negotiate terms that do not appear in the contract and of which we are unaware, whether the additional terms are written or verbal, we could be prevented from recognizing revenue in accordance with our plans. Furthermore, depending on when we learn of unauthorized actions and the size of transactions involved, we may have to restate revenue for a previously reported period, which would seriously harm our business, operating results and financial condition.

We may incur impairments to goodwill, intangible or long-lived assets.

We review our goodwill, intangible and long-lived assets for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

Significant negative industry or economic trends, a decline in the market price of our common stock, reduced estimates of future cash flows or disruptions to our business could indicate that goodwill, intangible or long-lived assets might be impaired. If, in any period, our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period.

Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from results. Additionally, if our analysis results in an impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during a period in which such impairment is determined to exist.

Any of these factors could have a negative impact on our revenues and our operating results.

Our debt agreements contain certain restrictions that may limit our ability to operate our business.

The agreements governing our debt agreements contain, and any other future debt agreement we enter into may contain, restrictive covenants that limit our ability to operate our business, including, in each case subject to certain exceptions, restrictions on our ability to:

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incur indebtedness;

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incur indebtedness at the subsidiary level;

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grant liens;

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enter into certain mergers or sell all or substantially all of our assets;

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make certain payments on our equity, including paying dividends;

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make investments;

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change our business;

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enter into transactions with our affiliates; and

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enter into certain restrictive agreements.

In addition, our debt agreements contain financial covenants and additional affirmative and negative covenants. Our ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. If we are not able to comply with all of these covenants for any reason and we have debt outstanding at the time of such failure, some or all of our outstanding debt could become immediately due and payable and the incurrence of additional debt under the credit facilities would not be allowed. If our cash is utilized to repay any outstanding debt, depending on the amount of debt outstanding, we could experience an immediate and significant reduction in working capital available to operate our business.

As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us, such as strategic acquisitions or joint ventures.

Any losses we incur as a result of our exposure to the credit risk of our customers and partners 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. Any material losses we incur as a result of customer defaults could have an adverse effect on our business, operating results and financial condition.

We may have exposure to additional tax liabilities.

As a multinational corporation, we are subject to income taxes in the United States and various foreign jurisdictions. Significant judgment is required in determining our global 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. Our income tax returns are routinely subject to audits by tax authorities. Although we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine our tax estimates, a final determination of tax audits or tax disputes could have an adverse effect on our results of operations and financial condition.

For example, as a result of our transitioning of international customers to our Netherlands operations, we anticipate that a portion of our consolidated pre-tax income will be subject to foreign tax at a comparatively lower tax rates than the United States federal statutory tax rate. As a consequence, our effective income tax rate is expected to decrease in future years as the new structure is implemented. Recent statements from the Internal Revenue Service have indicated their intent to seek greater disclosure by companies of their reserves for uncertain tax positions. Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if the relative mix of United States and international income changes for any reason. Accordingly, there can be no assurance that our income tax rate will be less than the United States federal statutory rate in future periods.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes in 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 which could have an adverse effect on our results of operations and financial condition.

In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or their interpretation. Such changes could have a material adverse impact on our financial results.

Changes in existing financial accounting standards or practices, or taxation rules or practices may adversely affect our results of operations.

Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practice could have a significant adverse effect on our results of operations or the manner in which we conduct our business. Further, such changes could potentially affect our

reporting of transactions completed before such changes are effective. For example, on December 1, 2009, we adopted revised accounting guidance for business combinations which requires acquisition related costs to be expensed as incurred, restructuring costs generally to be expensed in periods subsequent to the acquisition date, in-process research and development to be capitalized as an intangible asset with an indefinite life, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period, which will impact income tax expense. The impact the guidance will have on our consolidated financial position, results of operations and cash flows will be dependent on the number and size of business combinations that we consummate subsequent to the adoption of the standard, as well as the valuation and allocation of the net assets acquired.

Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses.

Because we are a publicly-traded company, we are subject to certain federal, state and other rules and regulations, including those required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, new regulations promulgated by the SEC and the rules of the Nasdaq Marketplace. These and other laws relating to corporate governance and public disclosure are resulting in increased general and administrative expenses for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, our business may be harmed.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

Section 404 of the Sarbanes-Oxley Act requires that management report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control and financial reporting environment. If management identifies any material weaknesses, their correction could require remedial measures which could be costly and time-consuming. In addition, the presence of material weaknesses could result in financial statement errors which in turn could require us to restate our operating results. Any identification by us or our independent registered public accounting firm of material weaknesses, even if quickly remedied, could damage investor confidence in the accuracy and completeness of our financial reports, which could affect our stock price and potentially subject us to litigation.

The continuous process of maintaining and adapting our internal controls and complying with Section 404 is expensive and time-consuming, and requires significant management attention. We cannot be sure that our internal control measures will continue to provide adequate control over our financial processes and reporting and ensure compliance with Section 404. Any failure by us to comply with Section 404 could subject us to a variety of administrative sanctions, which could reduce our stock price.

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

Note 10 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q describes the litigation pending against us and our directors and officers. The uncertainty associated with substantial unresolved lawsuits or future 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 current lawsuits or any future lawsuit by settlement or otherwise, any such payment could seriously harm our financial condition and liquidity.

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:

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potential customers may delay purchases;

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customers may react negatively, which could reduce future sales;

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our reputation in the marketplace may be damaged;

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we may have to defend against product liability claims;

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

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we may incur additional service and warranty costs; and

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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.

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.

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 United States government, we must comply with specific rules and regulations relating to and that govern such contracts. Government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business. 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.

Aspects of our business are subject to privacy concerns and a variety of U.S. and international laws regarding data protection.

Aspects of our business are subject to federal, state and international laws regarding privacy and protection of user data. For example, in the United States regulations such as the Gramm-Leach-Bliley Act of 1999 (as amended or supplemented), which protects and restricts the use of consumer credit and financial information, and the Health Insurance Portability and Accountability Act of 1996 (as amended or supplemented), which regulates the use and disclosure of personal health information, impose significant requirements and obligations on businesses that may affect the use and adoption of our service. The European Union has also adopted a data privacy directive that requires member states to impose restrictions on the collection and use of personal data that, in some respects, are far more stringent, and impose more significant burdens on subject businesses, than current privacy standards in the United States. We post, on our website, our privacy policies and practices concerning the use and disclosure of user data. Any failure by us to comply with our posted privacy policies or other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others which could harm our business, operating results and financial condition.

It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines and penalties, a governmental order requiring that we change our data practices could result, which in turn could harm our business, operating results and financial condition. Compliance with these regulations may involve significant costs or require changes in business practices that result in reduced revenue. Noncompliance could result in penalties being imposed on us or orders that we cease conducting the noncompliant activity.

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, 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.

Some provisions in our certificate of incorporation and bylaws, as well as our 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.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about the repurchase of our common stock during the second quarter of fiscal year 2011.


(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
March 1, 2010 – March 31, 2010		—		—		—	$	275,570
April 1, 2011 – April 30, 2011		1,642	$	29.17		1,642	$	227,671
May 1, 2011 – May 31, 2011		—		—		—	$	227,671

Total		1,642	$	29.17		1,642

ITEM 6.

EXHIBITS


3.1(1)		Amended and Restated Certificate of Incorporation of Registrant.

3.2(2)		Amended and Restated Bylaws of Registrant.

10.1		2008 Equity Incentive Plan (March 2, 2011 Restatement)

10.2		Executive Change in Control and Severance Plan (Amended and Restated March 2, 2011)

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.

101		Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of May 31, 2011 and November 30, 2010, (ii) the Condensed Consolidated Statement of Operations for the three months and six months ended May 31, 2011 and 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended May 31, 2011 and 2010 and (iv) the Notes to Condensed Consolidated Financial Statements.*

(1)	Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Registration Statement on Form 8-A, filed with the SEC on February 23, 2004.

(2)	Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2009, filed with the SEC on July 9, 2009.

XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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/ SYDNEY L. CAREY
		Sydney L. Carey
		Executive Vice President, Chief Financial Officer
		(Principal Financial Officer and duly authorized officer)

By:		/s/ TROY O. MITCHELL
		Troy O. Mitchell
		Vice President, Corporate Controller
		(Principal Accounting Officer and duly authorized officer)

Date: July 8, 2011

EXHIBIT INDEX


3.1(1)		Amended and Restated Certificate of Incorporation of Registrant.

3.2(2)		Amended and Restated Bylaws of Registrant.

10.1		2008 Equity Incentive Plan (March 2, 2011 Restatement)

10.2		Executive Change in Control and Severance Plan (Amended and Restated March 2, 2011)

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.

101		Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of May 31, 2011 and November 30, 2010, (ii) the Condensed Consolidated Statement of Operations for the three months and six months ended May 31, 2011 and 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended May 31, 2011 and 2010 and (iv) the Notes to Condensed Consolidated Financial Statements.*

(1)	Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Registration Statement on Form 8-A, filed with the SEC on February 23, 2004.

(2)	Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2009, filed with the SEC on July 9, 2009.

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