TIBCO SOFTWARE INC - FORM 10-Q

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EX-31.1 - CERTIFICATION BY CHIEF EXECUTIVE OFFICER - TIBCO SOFTWARE INC	tibxex311831201410q.htm
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EX-31.2 - CERTIFICATION BY CHIEF FINANCIAL OFFICER - TIBCO SOFTWARE INC	tibxex312831201410q.htm
EX-32.1 - SECTION 1350 CERTIFICATION BY CHIEF EXECUTIVE OFFICER - TIBCO SOFTWARE INC	tibxex321831201410q.htm

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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 August 31, 2014



¨	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 the 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 October 3, 2014 was 163,738,591 shares.

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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 August 31, 2014 and November 30, 2013	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended August 31, 2014 and 2013	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended August 31, 2014 and 2013	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended August 31, 2014 and 2013	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 4.	Mine Safety Disclosures	49

Item 6.	Exhibits	50

	Signatures	51

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TIBCO SOFTWARE INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value per share)



	August 31, 2014			November 30, 2013
Assets
Current assets:
Cash and cash equivalents	$	354,366		$	662,109
Short-term investments	178,088			83,842
Accounts receivable, net of allowances of $5,051 and $5,145	194,896			231,194
Prepaid expenses and other current assets	97,550			74,725
Total current assets	824,900			1,051,870
Property and equipment, net	109,683			101,050
Goodwill	704,526			582,091
Acquired intangible assets, net	148,897			119,418
Long-term deferred income tax assets	78,909			78,853
Other assets	90,328			72,831
Total assets	$	1,957,243		$	2,006,113
Liabilities and Equity
Current liabilities:
Accounts payable	$	25,314		$	37,701
Accrued liabilities	103,898			125,112
Accrued restructuring costs	970			5,819
Deferred revenue	262,978			258,315
Total current liabilities	393,160			426,947
Long-term deferred revenue	24,774			24,036
Long-term income tax liabilities	64,225			57,067
Other long-term liabilities	7,596			4,788
Convertible senior notes, net	552,266			540,022
Total liabilities	1,042,021			1,052,860
Commitments and contingencies (Note 10)
Equity:
Common stock, $0.001 par value; 1,200,000 shares authorized; 163,896 and 163,169 shares issued and outstanding	163			163
Additional paid-in capital	938,354			925,581
Accumulated other comprehensive loss	(24,324		)	(9,048		)
Retained earnings	—			35,521
Total TIBCO Software Inc. stockholders’ equity	914,193			952,217
Noncontrolling interest	1,029			1,036
Total equity	915,222			953,253
Total liabilities and equity	$	1,957,243		$	2,006,113

See accompanying Notes to Condensed Consolidated Financial Statements

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TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



	Three Months Ended August 31,						Nine Months Ended August 31,
	2014			2013			2014			2013
Revenue:
Software	$	85,938		$	107,981		$	254,766		$	275,235
Service and maintenance	169,664			162,878			506,013			479,260
Total revenue	255,602			270,859			760,779			754,495
Cost of revenue:
Software	15,774			14,599			44,228			40,108
Service and maintenance	65,160			63,374			193,695			185,473
Total cost of revenue	80,934			77,973			237,923			225,581
Gross profit	174,668			192,886			522,856			528,914
Operating expenses:
Research and development	41,866			43,391			128,179			127,591
Sales and marketing	93,222			84,082			269,343			249,395
General and administrative	17,286			13,697			52,542			50,546
Amortization of acquired intangible assets	4,494			4,991			14,350			14,025
Acquisition related and other	272			630			1,180			1,525
Restructuring charges (credits)	(108		)	8,886			954			8,871
Total operating expenses	157,032			155,677			466,548			451,953
Income from operations	17,636			37,209			56,308			76,961
Interest expense, net	(8,395		)	(8,162		)	(24,959		)	(25,184		)
Other income (expense), net	128			153			(879		)	(1,258		)
Income before provision for income taxes and noncontrolling interest	9,369			29,200			30,470			50,519
Provision for income taxes	6,700			7,900			14,100			10,900
Net income	2,669			21,300			16,370			39,619
Less: Net income attributable to noncontrolling interest	37			49			37			148
Net income attributable to TIBCO Software Inc.	$	2,632		$	21,251		$	16,333		$	39,471
Net income per share attributable to TIBCO Software Inc.:
Basic	$	0.02		$	0.13		$	0.10		$	0.25
Diluted	$	0.02		$	0.13		$	0.10		$	0.24
Shares used to compute net income per share attributable to TIBCO Software Inc.:
Basic	163,429			160,638			162,904			161,012
Diluted	166,267			166,999			166,831			167,879

See accompanying Notes to Condensed Consolidated Financial Statements

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TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)



	Three Months Ended August 31,						Nine Months Ended August 31,
	2014			2013			2014			2013
Net income	$	2,669		$	21,300		$	16,370		$	39,619
Cumulative translation adjustment	(16,035		)	3,160			(15,776		)	(5,337		)
Net unrealized gain (loss) on available-for-sale securities	154			(22		)	456			96
Comprehensive income (loss)	(13,212		)	24,438			1,050			34,378
Comprehensive income (loss) attributable to noncontrolling interest	28			30			(7		)	(125		)
Comprehensive income (loss) attributable to TIBCO Software Inc.	$	(13,240	)	$	24,408		$	1,057		$	34,503

See accompanying Notes to Condensed Consolidated Financial Statements

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TIBCO SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Nine Months Ended August 31,
	2014			2013
Operating activities:
Net income	$	16,370		$	39,619
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment	14,424			11,616
Amortization of acquired intangible assets	30,506			26,965
Amortization of debt discount and transaction costs	14,869			14,258
Stock-based compensation	31,902			39,245
Deferred income tax	(3,931		)	(13,292		)
Tax benefits related to stock benefit plans	4,404			9,691
Excess tax benefits from stock-based compensation	(11,300		)	(13,442		)
Other non-cash adjustments, net	645			1,179
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	37,766			49,181
Prepaid expenses and other assets	(8,946		)	(19,568		)
Accounts payable and accrued liabilities	(57,341		)	12,071
Deferred revenue	(7,664		)	(11,119		)
Net cash provided by operating activities	61,704			146,404
Investing activities:
Purchases of short-term investments	(207,302		)	(38,261		)
Maturities and sales of short-term investments	110,263			15,346
Acquisitions, net of cash acquired	(181,415		)	(53,917		)
Purchases of property and equipment	(23,472		)	(10,695		)
Other investing activities, net	1,378			(1,047		)
Net cash used in investing activities	(300,548		)	(88,574		)
Financing activities:
Principal payments on debt	—			(35,711		)
Proceeds from issuance of common stock	30,814			23,089
Repurchases of common stock	(95,588		)	(105,289		)
Withholding taxes related to restricted stock net share settlement	(10,613		)	(12,467		)
Excess tax benefits from stock-based compensation	11,300			13,442
Net cash used in financing activities	(64,087		)	(116,936		)
Effect of foreign exchange rate changes on cash and cash equivalents	(4,812		)	(1,992		)
Net decrease in cash and cash equivalents	(307,743		)	(61,098		)
Cash and cash equivalents at beginning of period	662,109			727,309
Cash and cash equivalents at end of period	$	354,366		$	666,211
Supplemental disclosures:
Interest paid	$	7,496		$	7,712
Income taxes paid	$	13,499		$	19,670

See accompanying Notes to Condensed Consolidated Financial Statements

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by TIBCO Software Inc. (“TIBCO,” the “Company,” “we” or “us”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in Consolidated Financial Statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted in accordance with such rules and regulations. The Condensed Consolidated Balance Sheet data as of November 30, 2013 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 2013 Annual Report on Form 10-K for the fiscal year ended November 30, 2013.

Our fiscal year ends on November 30 of each year, while interim periods end on a Sunday in accordance with a 4-4-5 calendar. For purposes of presentation, we have indicated the third quarter of fiscal years 2014 and 2013 as ended on August 31, 2014 and August 31, 2013, respectively; whereas in fact, the third quarter of fiscal years 2014 and 2013 actually ended on August 31, 2014 and September 1, 2013, respectively. There were 91 days in the third quarter of each of fiscal years 2014 and 2013.

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 nine months ended August 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2014, or any other future period, and we make no representations related thereto.

Reclassifications

During the second quarter of 2014, we adopted a revised presentation, which we believe better reflects our evolving product and service offerings and related consumption models. A change was made to combine subscription revenue and license revenue as software revenue. Subscription revenue consists of revenue (i) from subscription-based licenses and related support for a variety of on-premise and hosted offerings, which we previously presented under services revenue, and (ii) from certain term licenses, which we previously presented under license revenue. Subscription revenue is generally recognized ratably over the subscription or license term.

A corresponding change was made to combine cost of license revenue and cost of subscription revenue as cost of software revenue. Cost of subscription revenue was previously part of cost of service revenue. This change in presentation does not affect total revenue, total cost of revenue or gross margin. Conforming changes have been made for all prior periods.

For the first quarter of fiscal year 2014, subscription revenue of $3.5 million and cost of subscription revenue of $2.2 million were reclassified from service revenue and cost of service revenue to software revenue and cost of software revenue, respectively.

For the three and nine months ended August 31, 2013, subscription revenue of $3.0 million and $10.2 million, and cost of subscription revenue of $2.2 million and $5.3 million were reclassified from service revenue and cost of service revenue to software revenue and cost of software revenue, respectively.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies and recent accounting pronouncements were described in Note 2 to our Consolidated Financial Statements included in our 2013 Annual Report on Form 10-K for the fiscal year ended November 30, 2013. There have been no significant changes in our accounting policies since November 30, 2013 other than as presented below.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted. The Company is currently evaluating the impact of its pending adoption of ASU2014-12 on its consolidated financial statements and disclosures.

In May 2014, the FASB issued an amendment to the revenue recognition accounting guidance. The amendment clarifies the principles for recognizing revenue and develops a common revenue standard for all industries. The new guidance will be effective prospectively for us in the first quarter of fiscal year 2018. Early application is not permitted. We are evaluating the impact of adopting this prospective guidance on our consolidated results of operations and financial condition.

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


3.	BUSINESS COMBINATIONS

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

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

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

Acquisitions in Fiscal Year 2014

Acquisition of Jaspersoft Corporation

On April 28, 2014, we acquired Jaspersoft Corporation ("Jaspersoft"), a private company based in California and incorporated in the State of Delaware. Jaspersoft is a provider of embedded business intelligence and reporting software. We paid $181.4 million, net of cash acquired, to acquire all of the outstanding shares of capital stock of Jaspersoft. We incurred $0.3 million of transaction costs associated with the acquisition.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The allocation of the purchase price for the Jaspersoft acquisition was as follows (in thousands):



Cash	$	6,741
Accounts receivable	4,103
Other assets	875
Identifiable intangible assets	60,500
Goodwill	125,287
Deferred income tax asset, net	8,709
Liabilities	(5,139		)
Deferred revenue	(12,920		)
Total purchase price	$	188,156

Identifiable intangible assets (in thousands, except amortization period):



	Gross Amount at Acquisition Date		Weighted Average Amortization Period
Existing technology	$	23,000	5.0 years
Customer base	34,200		8.0 years
Trademarks	3,300		6.0 years
	$	60,500

Acquisitions in Fiscal Year 2013

Acquisition of Extended Results

On September 13, 2013, we acquired Extended Results, Inc. (“Extended Results”), a private company based and incorporated in the State of Washington. Extended Results is a provider of mobile business intelligence software and services. We paid $21.0 million to acquire all of the outstanding shares of capital stock of Extended Results. We incurred $0.3 million of transaction costs associated with the acquisition.

Acquisition of StreamBase Systems, Inc.

On June 3, 2013, we acquired StreamBase Systems, Inc. (“StreamBase”), a private company based in Massachusetts and incorporated in the State of Delaware. StreamBase is a provider of high performance event processing and real-time analytics software. We paid $49.7 million, net of cash acquired, to acquire all of the outstanding shares of capital stock of StreamBase. We incurred $0.5 million of transaction costs associated with the acquisition.

Acquisition of Maporama Solutions

On March 20, 2013, we acquired Maporama Solutions (“Maporama”), a private company based in Paris, France and organized under the laws of France. Maporama is a provider of location intelligence and geospatial analytics solutions. We incurred $0.3 million of transaction costs associated with the acquisition.

Pro Forma Adjusted Summary

The results of operations of Jaspersoft, Extended Results, StreamBase and Maporama have been included in the Consolidated Financial Statements subsequent to the respective acquisition dates. The following unaudited pro forma adjusted summary reflects our condensed results of operations for the periods ended August 31, 2014 and 2013. The summary assumes that the businesses had been acquired at the beginning of fiscal year 2013 and include pro forma adjustments for amortization charges for acquired intangible assets, stock-based compensation charges, if any, and related tax effects. The summary is presented for informational purposes only and is not intended to be indicative of future results of operations or whether similar

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

results would have been achieved if the acquisition had taken place at the beginning of fiscal year 2013 (in thousands, except per share data):



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Pro forma adjusted total revenue	$	255,602	$	287,088	$	775,341	$	810,039
Pro forma adjusted net income attributable to TIBCO Software Inc.	$	2,632	$	16,193	$	13,492	$	29,254
Pro forma adjusted net income per share attributable to TIBCO Software Inc.:
Basic	$	0.02	$	0.10	$	0.08	$	0.18
Diluted	$	0.02	$	0.10	$	0.08	$	0.17

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)


4.	INVESTMENTS

Short-term investments and cash equivalents, which are classified as available-for-sale, are summarized below as of August 31, 2014 and November 30, 2013 (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value
As of August 31, 2014
Money market funds	$	14,192	$	—	$	—		$	14,192
Corporate bonds and commercial paper	156,919		434		(9		)	157,344
U.S. Government debt and agency securities	20,324		8		—			20,332
Mortgage-backed securities	202		236		(26		)	412
	$	191,637	$	678	$	(35	)	$	192,280
As of November 30, 2013
Money market funds	$	245,953	$	—	$	—		$	245,953
Corporate bonds and commercial paper	77,442		66		—			77,508
U.S. Government debt and agency securities	6,012		1		—			6,013
Term deposits	536		—		—			536
Mortgage-backed securities	200		121		—			321
	$	330,143	$	188	$	—		$	330,331

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



	August 31, 2014		November 30, 2013
Contractual maturities:
Less than one year	$	91,166	$	36,084
One to three years	86,922		47,758
	$	178,088	$	83,842

Realized and unrealized gains and losses on our investments were primarily due to changes in interest rates and market and credit conditions of the underlying securities and were insignificant for any period presented.


5.	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 money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

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. There were no transfers between Level 1, Level 2 and Level 3 during the nine months ended August 31, 2014.

The fair value hierarchy of our cash equivalents, short-term investments and foreign currency contracts 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 August 31, 2014
Assets:
Money market funds	$	14,192	$	14,192	$	—
Corporate bonds and commercial paper	157,344		—		157,344
U.S. Government debt and agency securities	20,332		—		20,332
Mortgage-backed securities	412		—		412
Foreign currency forward contracts	429		—		429
Liabilities:
Foreign currency forward contracts	$	93	$	—	$	93

As of November 30, 2013
Assets:
Money market funds	$	245,953	$	245,953	$	—
Corporate bonds and commercial paper	77,508		—		77,508
U.S. Government debt and agency securities	6,013		—		6,013
Term deposits	536		—		536
Mortgage-backed securities	321		—		321
Foreign currency forward contracts	625		—		625
Liabilities:
Foreign currency forward contracts	$	547	$	—	$	547

Derivative Instruments

We conduct business in the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia Pacific and Japan (“APJ”). As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or changes in economic conditions in foreign markets. The U.S. dollar is our major transaction currency; we also transact business in approximately 25 foreign currencies worldwide, of which the most significant to our operations are the Euro, British pound, and Australian dollar. 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. Gains and losses on forward contracts are included in Other Income (Expense) in our Condensed Consolidated Statements of Operations.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

We had the following forward contracts outstanding as of August 31, 2014 (in thousands):



	Notional Value Local Currency	Notional Value USD		Fair Value Gain (Loss) USD
Forward contracts sold:
Australian dollar	6,100	$	5,693	$	(14	)
British pound	4,000	6,634		7
Euro	33,000	43,369		333
Japanese yen	244,000	2,345		28
Korean won	1,000,000	985		(15		)
Mexican peso	8,500	649		—
Polish zloty	1,800	561		16
South African rand	36,000	3,380		(26		)
New Taiwan dollar	27,000	904		(6		)
Forward contracts bought:
Brazilian real	8,500	3,790		32
Swedish krona	9,300	1,330		(19		)
				$	336



	Derivatives not Designated as Hedging Instruments (in thousands)
	August 31, 2014		November 30, 2013
Foreign currency forward contracts, fair value included in:
Other Current Assets	$	429	$	625
Accrued Liabilities	93		547



		Amount of Gain or (Loss) Recognized In Income on Derivative (in thousands)
		Three Months Ended August 31,					Nine Months Ended August 31,
Derivatives not Designated as Hedging Instruments	Location	2014			2013		2014		2013
Foreign Currency Contracts	Other income/(exp.)	$	(557	)	$	166	$	855	$	80

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6.	GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The change in the carrying value of goodwill for the nine months ended August 31, 2014 is as follows (in thousands):



Balance as of November 30, 2013	$	582,091
Goodwill recorded for the Jaspersoft acquisition	125,287
Post-acquisition goodwill adjustment for the Streambase acquisition	615
Post-acquisition goodwill adjustment for the Extended Results acquisition	(50		)
Foreign currency translation	(3,417		)
Balance as of August 31, 2014	$	704,526

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 acquired intangible assets are amortized over periods ranging from two to nine years. Carrying values as of August 31, 2014 and November 30, 2013 are as follows (in thousands):



	August 31, 2014							November 30, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technologies	$	225,100	$	(151,507	)	$	73,593	$	204,918	$	(137,758	)	$	67,160
Maintenance agreements	87,343		(63,975		)	23,368		87,888		(58,777		)	29,111
Customer base	101,012		(56,375		)	44,637		67,707		(50,623		)	17,084
Patents/core technologies	28,469		(27,033		)	1,436		28,649		(26,080		)	2,569
Trademarks	16,148		(10,285		)	5,863		12,871		(9,377		)	3,494
Non-compete agreements	580		(580		)	—		580		(580		)	—
Total intangible assets	$	458,652	$	(309,755	)	$	148,897	$	402,613	$	(283,195	)	$	119,418


7.	ACCRUED RESTRUCTURING COSTS

2013 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 third quarter of fiscal year 2013 (the "2013 Restructuring Plan"). The 2013 Restructuring Plan was intended to increase efficiencies and reduce redundancies, including those arising from recent acquisitions. The total restructuring costs associated with the 2013 Restructuring Plan are estimated to be $14.0 million. Changes in estimates, if any, will be reflected in our future results of operations. We expect to fulfill most of the obligations associated with this restructuring by the end of fiscal year 2014.

The following is a summary of activities in accrued restructuring costs for the nine months ended August 31, 2014 under the 2013 Restructuring Plan (in thousands):



	Accrued Facilities Restructuring			Accrued Severance and Other			Total
As of November 30, 2013	$	1,209		$	4,697		$	5,906
Restructuring charges	153			801			954
Cash utilized	(835		)	(5,055		)	(5,890		)
As of August 31, 2014	$	527		$	443		$	970

The remaining accrued facilities restructuring costs represent the estimated loss on abandoned excess facilities, which is expected to be paid over the next year.

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8.	DEBT AND CREDIT FACILITIES

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 of $34.7 million was satisfied in full in May 2013.

Credit Facility

In December 2011, we and one of our subsidiaries entered into an Amended and Restated Credit Agreement (the “2011 Credit Facility”). In May 2012, we amended certain covenants and other terms of the 2011 Credit Facility. The 2011 Credit Facility matures on December 19, 2016 and provides for borrowings of up to $250.0 million with a sublimit for swing line loans of up to $10.0 million and standby letters of credit in a face amount of up to $50.0 million. We have an option to request that the lenders increase the available commitments by up to an additional $100.0 million for total borrowings of up to $350.0 million.

Revolving loans accrue interest at a per annum rate based on, at our option, either (i) the base rate plus a margin ranging from 0.25% to 1.25%, depending on TIBCO’s consolidated leverage ratio, or (ii) the London Interbank Offered Rate (“LIBOR”) rate plus a margin ranging from 1.25% to 2.25%, 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) the LIBOR rate for a one month interest period plus a margin of 1.00%. We are also obligated to pay commitment fees for the unused amount of the 2011 Credit Facility, letter of credit fees and other customary fees. Loan origination fees and issuance costs of approximately $3.4 million were incurred since consummation of the 2011 Credit Facility, which will be amortized through interest expense over a period of five years. Under certain circumstances, a default interest rate of 2.00% above the applicable interest rate will apply on all obligations during the existence of an event of default under the 2011 Credit Facility.

We are currently required to maintain a minimum consolidated interest coverage ratio of 3.5:1.0 and a maximum consolidated leverage ratio of 2.75:1.00, in addition to other customary affirmative and negative covenants. As of August 31, 2014, we were in compliance with all covenants under the 2011 Credit Facility and we had no outstanding borrowings under the 2011 Credit Facility.

Line of Credit

We have a $10.0 million revolving line of credit (the “Line of Credit”) that matures in June 2015. The Line of Credit is available for cash borrowings and for the issuance of letters of credit up to $10.0 million. The Line of Credit contains financial covenants substantially identical to those of the 2011 Credit Facility, as well as other customary affirmative and negative covenants. As of August 31, 2014, we were in compliance with all covenants under the Line of Credit.

As of August 31, 2014, we had a total of $2.0 million outstanding under the Line of Credit with respect to letters of credit in connection with sales and lease transactions.

Guarantee Credit Line and Restricted Cash

We have a revolving guarantee credit line of approximately $15.8 million available for the issuance of bank guarantees denominated in foreign currency. Issued bank guarantees were approximately $12.8 million and $13.7 million as of August 31, 2014 and November 30, 2013, respectively, and were collateralized by pledging the equivalent amount under restricted cash as required under our guarantee credit line. Various other contractual commitments also require us to pledge cash as security and record this cash under restricted cash. As of August 31, 2014 and November 30, 2013, we had restricted cash of $13.7 million and $15.7 million, respectively, which is included in Other Assets on our Condensed Consolidated Balance Sheets.


9.	CONVERTIBLE SENIOR NOTES

Description of Convertible Senior Notes

In April 2012, we issued convertible senior notes (the “Notes”) in an aggregate principal amount of $600.0 million due May 1, 2032. The Notes bear interest at a rate of 2.25% per annum. The Notes do not contain any financial covenants or any

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restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us. Each $1,000 principal amount of Notes is initially convertible, at the option of the holders, at a rate of 19.7750 shares of our common stock, which represents an initial conversion price of approximately $50.57 per share, which is subject to adjustment upon the occurrence of certain events specified in the indenture. On conversion of a Note, we will deliver cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, for any conversion value greater than the principal amount, we will deliver shares of common stock. Holders may convert Notes prior to February 1, 2032, and other than during the period from February 1, 2017 to May 5, 2017, under the following circumstances: (1) if the Notes are called for redemption, at any time prior to the redemption date; (2) during any fiscal quarter, if our last reported sale price of a share of common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (3) during any five consecutive trading day period when the trading price per $1,000 principal amount of Notes is less than 98% of the product of the last reported sale price of a share of common stock and the conversion rate; and (4) upon the occurrence of certain distributions or corporate events as specified in the indenture governing the Notes. From February 1, 2017 to May 5, 2017, and from February 1, 2032 until the maturity date, holders may convert Notes at any time, regardless of the foregoing circumstances.

After May 5, 2017, we may redeem for cash all or part of the Notes. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. Holders may require us to repurchase all or a portion of their Notes on May 5, 2017, May 1, 2022 and May 1, 2027 in cash at a price equal to the principal amount, plus accrued and unpaid interest.

Upon the occurrence of a fundamental change under the indenture for the Notes such as in the event of a change in control, the holders may require us to repurchase all or a portion of their Notes at the principal amount of the Notes plus accrued and unpaid interest. Following certain corporate transactions that constitute a fundamental change, the conversion rate may increase for a holder who elects to convert the Notes. Upon conversion, we will deliver an amount of cash and a number of shares of common stock, if any, equal to the sum of the daily settlement amounts for each daily volume weighted average price in the 35 day observation period for such Note as determined pursuant to the indenture for the Notes.

Accounting for Convertible Senior Notes

Accounting guidance requires that convertible debt that can be settled for cash, such as the Notes, be separated into the liability and equity component at issuance and each be assigned a value. The value assigned to the liability component is the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. The difference between the cash proceeds and estimated fair value of the liability component, representing the value of the conversion premium assigned to the equity component, is recorded as a debt discount on the issuance date. This debt discount is amortized to interest expense using the effective interest method over the period from the issuance date through the first stated repurchase date on May 5, 2017. We estimated the straight debt borrowing rates at debt origination to be 5.50% for the Notes and determined the debt discount to be $84.6 million. As a result, a conversion premium after tax of $52.6 million was recorded in additional paid-in capital.

As of August 31, 2014, the carrying value of the Notes was $552.3 million, which consisted of $600.0 million outstanding principal amount net of $47.7 million unamortized debt discount.

In connection with the issuance of the Notes, we incurred $15.6 million of issuance costs, which primarily consisted of investment banker fees and legal and other professional service fees. Deferred issuance costs of $13.4 million attributable to the liability component are being amortized to interest expense through May 5, 2017, and $2.2 million ($1.4 million net of tax) of transaction costs attributable to the equity component were netted with the equity component in additional paid-in capital at the issuance date. The deferred debt issuance costs are recorded within other assets in accordance with short- and long-term classification. If the holders require conversion of some or all of the Notes when the conversion requirements are met, we would accelerate amortization of the pro rata share of the unamortized balance of the issuance cost to additional paid-in capital on such date.

For the third quarter ended August 31, 2014, we recognized interest expense of $8.2 million related to the Notes, comprised of $3.4 million for the contractual coupon interest, $4.1 million related to the amortization of debt discount and $0.7 million related to the amortization of deferred debt issuance costs.

The Notes are carried at face value less any unamortized debt discount and also require disclosure of an estimate of fair value (Level 2 of the three-tier value hierarchy). The fair value of the Notes at each balance sheet date is determined based on recent quoted market prices or dealer quotes for the Notes, if available. Otherwise, the fair value is determined using cash-flow

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models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. As of August 31, 2014, the estimated fair value of the Notes was approximately $605.4 million.


10.	COMMITMENTS AND CONTINGENCIES

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, subject to adjustments every ten years based upon changes in the fair market value of the land. The first adjustment to the rent as a result of the increase in the fair market value since 2003 occurred in April 2014. The total additional lease obligation over the remaining 41-year lease term was $115.9 million. We exercised our prepayment option to settle the entire $115.9 million future lease obligations at a discount and paid $1.4 million and $25.3 million in April 2014 and July 2014, respectively. These amounts are capitalized as Other Assets in the accompanying Condensed Consolidated Balance Sheet.

The prepaid land lease is being amortized using the straight-line method over the life of the lease.

Commitments

At various locations worldwide, we lease office space and equipment under non-cancelable operating leases with various expiration dates through March 2032. Rental expense was $4.7 million and $4.0 million for the three months ended August 31, 2014 and 2013, respectively, and $14.4 million and $12.1 million for the nine months ended August 31, 2014 and 2013, respectively.

As of August 31, 2014, contractual commitments associated with indebtedness, lease obligations (excluding potential future adjustments in connection with the corporate headquarter land lease), and restructuring were as follows (in thousands):



	Total		Remainder of 2014		2015		2016		2017		2018		Thereafter
Commitments:
Debt principal	$	600,000	$	—	$	—	$	—	$	600,000	$	—	$	—
Debt interest	40,500		6,750		13,500		13,500		6,750		—		—
Operating leases ⁽¹⁾	47,079		2,296		10,994		10,305		8,930		6,782		7,772
Total commitments	$	687,579	$	9,046	$	24,494	$	23,805	$	615,680	$	6,782	$	7,772


(1)	Operating leases included future minimum rent payments, net of estimated sublease income of $4.1 million, for facilities that we have vacated pursuant to our restructuring activities, as discussed in Note 7.

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 $64.2 million of long-term uncertain income tax liabilities 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.

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11.	LEGAL PROCEEDINGS

From time to time, we are involved in or subject to legal, administrative and regulatory proceedings, claims, demands and investigations arising in the ordinary course of business, including direct claims brought by or against us with respect to intellectual property, contracts, employment and other matters, as well as claims brought against our customers for whom we have a contractual indemnification obligation. We accrue for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. After we determine the probability of a loss and whether that loss is reasonably estimable, we then analyze whether the litigation, based on that determination, could have a material and adverse effect on our financial statements, taken as a whole and including our statement of cash flows. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, we will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to our financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

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. 1:10cv1028-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. ("SAS") 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. On September 30, 2011, the Court denied this motion to dismiss. However, the Court declined to address the merits of defendants’ arguments that the claims of the ’291 patent are directed to unpatentable subject matter, in the absence of discovery or claim construction. On May 3, 2012, defendants SAS, Algorithmics (U.S.), Inc. and International Business Machines Corp. filed a motion to stay the litigation pending the reexamination of the ’291 patent. On July 10, 2012, the Court entered an order to stay the litigation and administratively close the case during the pendency of the reexamination of the ’291 patent.

InvestPic seeks injunctive relief and unspecified damages. 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, results of operations, cash position or cash flow could be negatively affected by an unfavorable resolution of this action. As InvestPic has made no specific demand for damages in this matter other than injunctive relief, we cannot currently estimate a reasonably possible range of loss for this action.

Vasudevan Software, Inc. v. TIBCO, et al.

On December 23, 2011, Vasudevan Software, Inc. ("Vasudevan") filed a complaint for patent infringement against us and Spotfire Inc. in the United States District Court for the Northern District of California, Case No. 3:11-cv-06638-RS. The complaint alleges that TIBCO directly, indirectly, and willfully infringes U.S. Patent No. 7,167,864 B1 based on "Spotfire Analytics and other products." Vasudevan further alleges in its infringement contentions that the accused products "include at least the TIBCO Spotfire Platform (e.g., TIBCO Spotfire Professional, TIBCO Spotfire Server, TIBCO Spotfire Web Player, TIBCO Spotfire Enterprise Player, TIBCO Spotfire for the Apple iPad, TIBCO Spotfire Application Data Services, TIBCO Spotfire Developer, TIBCO Spotfire Metrics, TIBCO Spotfire Network Analytics, TIBCO Spotfire Operations Analytics Bundle, and TIBCO Silver Spotfire) at least versions 4.0 to 2.1, as well as any TIBCO products and services that utilize the TIBCO Spotfire Platform." Vasudevan amended its complaint on March 6, 2012, but continues to accuse the same products of infringement. On May 18, 2012, the Court granted our motion to dismiss Vasudevan's indirect and willful infringement claims. Vasudevan filed a second amended complaint on July 24, 2012, adding a claim for inducement of infringement for alleged acts of indirect infringement occurring after the filing of the original complaint. On September 19, 2012, the Court issued a claim construction order, followed by an order on September 19, 2013, clarifying the prior claim construction. Fact discovery closed on February 15, 2013. Expert discovery closed on June 7, 2013.

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On October 16, 2013, Vasudevan filed a stipulation of noninfringement based on the court’s claim construction orders. On October 17, 2013, the court granted our motion for summary judgment of invalidity of U.S. Patent No. 7,167,864 for lack of written description and enablement. In light of the stipulation of noninfringement and the order granting summary judgment of invalidity, the court entered judgment in our favor on October 17, 2013.

Vasudevan filed a notice of appeal to the United States Court of Appeals for the Federal Circuit on November 11, 2013, seeking reversal of the final judgment entered on October 17, 2013, including the claim construction orders of September 19, 2012 and September 19, 2013, and the October 17, 2013 order regarding invalidity. Vasudevan filed its opening appeal brief on January 28, 2014. We filed our opposition brief on March 27, 2014. Vasudevan filed its reply brief on April 28, 2014. The court held oral arguments on September 12, 2014.

We intend to defend the action vigorously. While we believe that we have valid defenses to Vasudevan'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, results of operations, cash position or cash flow could be negatively affected by an unfavorable resolution of this action. We cannot currently estimate a reasonably possible range of loss for this action.


12.	STOCK-BASED COMPENSATION

Stock-based compensation for the three months ended August 31, 2014 and 2013 was $8.6 million and $7.9 million, respectively. Stock-based compensation for the nine months ended August 31, 2014 and 2013 was $31.9 million and $39.2 million, respectively. The deferred tax benefit from stock-based compensation for the three months ended August 31, 2014 and 2013 was $2.4 million and $1.9 million, respectively. The deferred tax benefit from stock-based compensation expenses for the nine months ended August 31, 2014 and 2013 was $8.9 million and $11.3 million, respectively.

Since fiscal year 2010, certain of our employees received performance-based restricted stock units ("PRSUs"). These PRSUs are subject to the terms and conditions set forth in each applicable PRSU Agreement and have been granted under our 2008 Equity Incentive Plan. In February and May of 2014, we granted 1.7 million PRSUs to certain senior executives with performance-based and time-based vesting requirements. On August 1, 2014, we cancelled the previously granted shares and granted 0.9 million PRSUs with new market-based and time-based vesting requirements. During the nine months ended August 31, 2014, a total of 2.6 million PRSUs were granted and 1.8 million shares vested.

The following table summarizes additional information pertaining to our stock-based compensation from stock options and stock awards, which are comprised of restricted stock, restricted stock units and performance-based restricted stock units (in thousands, except grant-date fair value and recognition period):



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Stock options:
Options exercised	1,230		1,395		3,374		2,382
Total intrinsic value of stock options exercised	$	13,759	$	20,059	$	40,710	$	36,114
Total unrecognized compensation expense at period-end	$	2,411	$	7,623	$	2,411	$	7,623
Weighted-average remaining recognition period at period-end	1.1 years		1.7 years		1.1 years		1.7 years

Stock awards (excluding PRSUs):
Weighted-average grant-date fair value	$	20.11	$	23.67	$	19.90	$	22.49
Stock awards granted	1,521		214		5,605		2,961
Stock awards vested	351		361		1,717		1,835
Total unrecognized compensation expense at period-end	$	90,528	$	88,184	$	90,528	$	88,184
Weighted-average remaining recognition period at period-end	2.5 years		1.8 years		2.5 years		1.8 years

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13.	PROVISION FOR INCOME TAXES

The effective tax rate was 72% and 27% for the three months ended August 31, 2014 and 2013, respectively and 46% and 22% for the nine months ended August 31, 2014 and 2013, respectively.

In the three months ended August 31, 2014, we recognized a discrete tax expense of $2.0 million, primarily related to withholding taxes.

In the nine months ended August 31, 2014, we recognized a discrete tax expense of $2.2 million, primarily related to a $4.0 million tax expense for withholding taxes, offset by $0.7 million of tax benefits from the expiration of various statutes of limitations and $1.2 million of the prior year's foreign tax return refund.

In the three months ended August 31, 2013, we recognized a discrete provision of $1.4 million related to estimated withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit.

In the nine months ended August 31, 2013, we recognized certain discrete items of tax expense and benefit for a net benefit of $1.3 million primarily related to adjust taxes provided for prior year U.S. and foreign tax returns, to accrue withholding taxes, and to record tax benefits from retroactive legislative reinstatement of the federal research and development credit.

We recognize withholding taxes as discrete items because of the high variability of withholding tax rates by country and the difficulty in forecasting the exact country of future revenue.

The provisions for the nine month periods ended August 31, 2014 and 2013 reflect forecasted annual tax rates of 39% and 24%, respectively, offset by discrete items which are recognized in the period they occur. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, 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. The federal research and development credits expired on December 31, 2013.

We use the single sales factor apportionment for California state taxation, which is expected to lower our future taxable state income. This reduction in taxable income may affect the extent to which we can benefit from $17.9 million (net of reserve for uncertain tax positions) research and development credit carryforwards and $7.1 million net operating loss carryforwards. If we determine that it is more likely than not that we will not be able to fully utilize these carryforwards, we will recognize a valuation allowance against the related deferred tax assets.

During the three months ended August 31, 2014, the amount of gross unrecognized tax benefits increased by approximately $3.3 million. The total amount of gross unrecognized tax benefits was $93.6 million as of August 31, 2014, of which $78.3 million would benefit tax expense if realized. We elected to include interest expense and penalties accrued on unrecognized tax benefits as a component of our income tax expense. We are subject to routine corporate income tax audits in the United States, India, Netherlands, Sweden, United Kingdom and other foreign jurisdictions. Due to uncertainty of tax audit outcomes and the timing of tax audit settlements, we are unable to estimate the changes to our unrecognized tax benefit over the next twelve months.

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14.	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 August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Net income attributable to TIBCO Software Inc.	$	2,632	$	21,251	$	16,333	$	39,471
Weighted-average shares of common stock used to compute basic net income per share	163,429		160,638		162,904		161,012
Effect of dilutive common stock equivalents:
Stock options	1,948		4,392		2,724		4,738
Stock awards	885		1,961		1,197		2,122
Employee stock purchase program	5		8		6		7
Weighted-average shares of common stock used to compute diluted net income per share	166,267		166,999		166,831		167,879
Net income per share attributable to TIBCO Software Inc.:
Basic	$	0.02	$	0.13	$	0.10	$	0.25
Diluted	$	0.02	$	0.13	$	0.10	$	0.24

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 August 31,		Nine Months Ended August 31,
	2014	2013	2014	2013
Stock options	1,419	1,594	1,464	1,741
Stock awards	1,049	1,637	870	1,294
Convertible senior notes	11,865	11,865	11,865	11,865
Total anti-diluted common stock equivalents	14,333	15,096	14,199	14,900

Anti-dilutive potential common stock equivalents for the three and nine months ended August 31, 2014 include the 11.9 million shares that could be issued under the Notes if we experience substantial increases in our stock price. Under the treasury stock method, the Notes will generally have a dilutive impact on net income per share if our average stock price for the period exceeds the conversion price for the Notes. On conversion of a Note, however, we will deliver cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, only for any conversion value greater than the principal amount, we will deliver shares of common stock.


15.	SEGMENT INFORMATION

We operate our business in one operating segment: the development and marketing of 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.

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TIBCO SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Our revenue, organized by the following geographic regions: (i) Americas; (ii) EMEA; and (iii) APJ, based on the location at which each sale originates, is summarized as follows (in thousands):



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Americas:
United States	$	141,628	$	147,170	$	399,204	$	395,274
Other Americas	10,989		10,802		41,706		32,743
Total Americas	152,617		157,972		440,910		428,017
EMEA:
United Kingdom	18,666		26,973		55,614		67,056
Other EMEA	58,439		59,995		191,181		182,860
Total EMEA	77,105		86,968		246,795		249,916
APJ	25,880		25,919		73,074		76,562
	$	255,602	$	270,859	$	760,779	$	754,495

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



	August 31, 2014		November 30, 2013
Property and equipment, net:
United States	$	94,795	$	88,669
United Kingdom	2,328		1,568
Other	12,560		10,813
	$	109,683	$	101,050


16.	STOCK REPURCHASE PROGRAMS

On April 26, 2013, we announced that our Board of Directors approved a 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. During the nine months ended August 31, 2014, we repurchased 4.6 million shares for $95.6 million.

In connection with the repurchase activities during the nine months ended August 31, 2014, we classified $51.9 million of the excess purchase price over the par value of our common stock to retained earnings.


17.	SUBSEQUENT EVENT

Proposed Merger

On September 27, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which an affiliate of Vista Equity Partners V, L.P. (“Vista”) will acquire all of our common stock, through a merger, for $24.00 per share in cash, and we will cease to be a public company and will become a wholly-owned subsidiary of Vista (the “Merger”). Stock-based awards and stock options will be cancelled and converted into the right to receive $24.00 per share, less the exercise price per share underlying such awards and options, if any. Consummation of the Merger is subject to certain conditions, including approval from our stockholders and the expiration or termination of any waiting periods under applicable antitrust and competition laws. Subject to satisfaction of the closing conditions and receipt of the required approvals, it is expected that the Merger will close in the fourth calendar quarter of 2014.

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acquisition proposals from third parties and communicate with third parties regarding alternative acquisition proposals; however, prior to approval of the Merger by our stockholders, these restrictions are subject to a customary “fiduciary-out” provision, which provides for certain exceptions to the restrictions imposed by the Merger Agreement.

The Merger Agreement contains certain termination rights for us and Vista. Upon termination of the Merger Agreement under specified circumstances, we will be required to pay Vista a termination fee. If the Merger Agreement is terminated in connection with us accepting a superior proposal or due to our Board’s withdrawal of its recommendation of the Merger, then the termination fee payable by us to Vista will be $116.7 million. This termination fee will also be payable if the Merger Agreement is terminated under certain circumstances and, prior to such termination, a proposal to acquire at least 50% of our stock or assets is publicly announced or disclosed and we enter into an agreement for, or complete, any transaction involving the acquisition of at least 50% of our stock or assets within one year of the termination.

Our 2.25% Convertible Senior Notes will be treated in accordance with the terms of that certain Indenture, dated as of April 23, 2012, including the giving of any notice by us that may be required in connection with a fundamental change and any right of the holders of the notes to require us to repurchase all or a portion of their notes as a result of the merger, as discussed in Note 9. The repurchase price will be equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and any unpaid interest.

In connection with our entry into the Merger Agreement and the transactions contemplated thereby, three purported class action lawsuits have been filed. Two complaints, captioned Brian Ford, On Behalf of Himself and All Others Similarly Situated v. TIBCO Software Inc., et al. (filed on October 6, 2014) (the "Ford Complaint") and Bona Tilahun, Individually and On Behalf of All Others Similarly Situated v. TIBCO Software Inc., et al. (filed on October 7, 2014) (the "Tilahun Complain") were filed in the Court of Chancery of the State of Delaware. A third complaint, captioned Jeff Cole v. TIBCO Software Inc., et al. (filed on October 3, 2014) (the "Cole Complaint"), was filed in the Santa Clara Superior Court, in the State of California. In general, each of the complaints asserts that, among other things, the members of the Board of Directors breached their fiduciary duties to the company's stockholders by initiating a process that undervalues the company and by agreeing to a transaction that does not adequately reflect the company's true value, and that TIBCO, Balboa Intermediate Holdings LLC, Balboa Merger Sub, Inc. and Vista Equity Partners V., L.P. aided and abetted the Board's breaches of fiduciary duties. The complaints generally seek to enjoin the Merger or, alternatively, seek rescission of the Merger in the event the defendants are able to consummate it. We believe the complaints are without merit and intend to vigorously defend the actions.

The foregoing description of the Merger Agreement has been provided solely to inform investors of its terms. The representations, warranties and covenants were made solely for the benefit of the parties to the Merger Agreement and: (i) should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate, (ii) may have been qualified in the Merger Agreement by disclosures that were made to the other party in connection with the negotiation of the Merger Agreement, (iii) may apply contractual standards of "materiality" that are different from "materiality" under applicable securities laws, and (iv) were made only as of the date of the Merger Agreement or such other date or dates as may be specified in the Merger Agreement. Our stockholders and other investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions related to us or any of our respective subsidiaries or affiliates. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Quarterly Report on Form 10-Q not misleading.


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

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10-K for the year ended November 30, 2013 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

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

We intend to grow our business by pursuing key initiatives to: broaden our product platform and adapt our product offerings to new vertical markets through internal development and acquisitions; expand our customer base by introducing more subscription-based product offerings; expand our distribution capacity by growing our direct sales organization and developing our sales channels; and employ marketing programs to increase awareness of us and our products among existing and prospective customers.

Proposed Merger

On September 27, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which an affiliate of Vista Equity Partners V, L.P. (“Vista”) will acquire all of our common stock, through a merger, for $24.00 per share in cash, and we will cease to be a publicly-traded company and will become a wholly-owned subsidiary of Vista (the “Merger”). Stock-based awards and stock options will be cancelled and converted into the right to receive $24.00 per share, less the exercise price per share underlying such awards and options, if any. Consummation of the Merger is subject to certain conditions, including approval from the Company’s stockholders and the expiration or termination of any waiting periods under applicable antitrust and competition laws. Subject to satisfaction of the closing conditions and receipt of the required approvals, it is expected that the Merger will close in the fourth calendar quarter of 2014.

Under the terms of the Merger Agreement, we are subject to customary covenants regarding the operation of our and our subsidiaries' businesses prior to the closing. We are also subject to customary restrictions on our ability to solicit alternative acquisition proposals from third parties and communicate with third parties regarding alternative acquisition proposals; however, prior to approval of the Merger by our stockholders, these restrictions are subject to a customary “fiduciary-out” provision, which provides for certain exceptions to the restrictions imposed by the Merger Agreement.

Our 2.25% Convertible Senior Notes will be treated in accordance with the terms of that certain Indenture, dated as of April 23, 2012.

The foregoing description of the Merger Agreement has been provided solely to inform investors of its terms. The representations, warranties and covenants were made solely for the benefit of the parties to the Merger Agreement and: (i) should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate, (ii) may have been qualified in the Merger Agreement by disclosures that were made to the other party in connection with the negotiation of the Merger Agreement, (iii) may apply contractual standards of "materiality" that are different from "materiality" under applicable securities laws; and (iv) were made only as of the date of the Merger Agreement or such other date or dates as may be specified in the Merger Agreement. Out stockholders and other investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions related to us or any of our respective subsidiaries or affiliates. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Quarterly Report on Form 10-Q not misleading.

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The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of such agreement attached as an exhibit to the Current Report on Form 8-K filed with the SEC on September 29, 2014.

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 GAAP. 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 on a regular basis 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 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 Operations” of our 2013 Annual Report on Form 10-K for the fiscal year ended November 30, 2013. There have been no changes in our critical accounting policies since the end of fiscal year 2013.

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 third quarter of fiscal years 2014 and 2013 as ended on August 31, 2014 and August 31, 2013, respectively; whereas interim fiscal periods end on a Sunday in accordance with a 4-4-5 calendar. The third quarter of fiscal years 2014 and 2013 actually ended on August 31, 2014 and September 1, 2013, respectively. There were 91 days in the third quarter of each of fiscal years 2014 and 2013. All amounts presented in the tables in the following sections of our Results of Operations are stated in thousands of dollars, except for percentages and unless otherwise stated.

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



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Revenue:
Software	34	%	40	%	33	%	36	%
Service and maintenance	66		60		67		64
Total revenue	100		100		100		100
Cost of revenue:
Software	6		5		6		5
Service and maintenance	26		24		25		25
Total cost of revenue	32		29		31		30
Gross profit	68		71		69		70
Operating expenses:
Research and development	16		16		17		17
Sales and marketing	36		31		36		33
General and administrative	7		5		7		7
Amortization of acquired intangible assets	2		2		2		2
Acquisition related and other	—		—		—		—
Restructuring adjustment	—		3		—		1
Total operating expenses	61		57		62		60
Income from operations	7		14		7		10
Interest expense, net	(3	)	(3	)	(3	)	(3	)
Other income (expense), net	—		—		—		—
Income before provision for income taxes and noncontrolling interest	4		11		4		7
Provision for income taxes	3		3		2		2
Net income	1		8		2		5
Less: Net income attributable to noncontrolling interest	—		—		—		—
Net income attributable to TIBCO Software Inc.	1	%	8	%	2	%	5	%

Our Results of Operations include incremental revenue and costs related to the acquisitions of Jaspersoft, Extended Results, StreamBase, and Maporama. 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 revenue consists primarily of software sales and maintenance fees from our customers, distributors and partners (including system integrators, resellers, professional service organizations and business partners) who embed our software in their products. In addition, we receive fees from our customers for providing consulting services. Our revenue is generally derived from a diverse customer base. No single customer represented greater than 10% of our total revenue for the first nine months of fiscal year 2014. As of August 31, 2014, one customer represented 12% of our net accounts receivable.

For the third quarter of fiscal year 2014, we recorded total revenue of $255.6 million, a decrease of 6% from the third quarter of fiscal year 2013. Software revenue was $85.9 million, a decrease of 20% from the third quarter of fiscal year 2013. In addition, we used cash from operations of $9.2 million in the third quarter of fiscal year 2014. Diluted earnings per share under generally accepted accounting principles in the United States of America (“GAAP”) was $0.02 in the third quarter of fiscal year 2014 as compared to $0.13 for the third quarter of fiscal year 2013. We ended the quarter with $532.5 million in cash, cash equivalents and short-term investments.

Starting with the first fiscal quarter of 2014, we are now reporting certain of our financial information based on two product categories: (i) core infrastructure and (ii) event processing and analytics, as opposed to the three product categories (i) integration and core infrastructure, (ii) business optimization, and (iii) process automation and collaboration that we previously used. Our core infrastructure offerings allow our customers to integrate their disparate systems and better coordinate both the

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manual and automated process flows that span their business. Our event processing and analytic offerings allow customers to track large volumes of real-time events as they occur, apply sophisticated rules in order to identify patterns that signify threats and opportunities, and initiate appropriate notifications or adaptations of processes. We believe this categorization better reflects how we manage our business today. Conforming changes have been made for all prior periods presented.

During the second quarter of 2014, we adopted a revised presentation, which we believe better reflects our evolving product and service offerings and related consumption models. A change was made to combine subscription revenue, which was previously part of service revenue, and license revenue as software revenue. A corresponding change was made to combine cost of license revenue and cost of subscription revenue, which was previously part of cost of service revenue, as cost of software revenue. This change in presentation does not affect total revenue, total cost of revenue or gross margin. Conforming changes have been made for all prior periods presented.

For our analytics business, we expect to expand our subscription offerings and migrate to a subscription-based licensing model starting in the third quarter of fiscal year 2014. Over time, we expect this business model change will help us expand our customer base by acquiring new users through a lower cost of entry and additional features, and drive long-term revenue growth. We plan to continue to offer the perpetual licensing model as we transition our customers to the new subscription-based model. We expect the adoption of the subscription model may initially cause a decline in our traditional perpetual license revenue for our analytics business and an increase in the amount of recurring revenue that is ratably recognized over the terms of subscriptions.

Our total revenue consisted of software and service and maintenance fees as follows:



	Three Months Ended August 31,						Nine Months Ended August 31,
	2014		2013		Change		2014		2013		Change
Software	$	85,938	$	107,981	(20	)%	$	254,766	$	275,235	(7	)%
Service and maintenance	169,664		162,878		4	%	506,013		479,260		6	%
Total revenue	$	255,602	$	270,859	(6	)%	$	760,779	$	754,495	1	%

Software Revenue



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
License revenue	$	76,690		$	105,054		(27	)%	$	236,093		$	265,183		(11	)%
Subscription revenue	9,248			2,927			216	%	18,673			10,052			86	%
Total software revenue	$	85,938		$	107,981		(20	)%	$	254,766		$	275,235		(7	)%
Percentage of total revenue	34		%	40		%			33		%	36		%

Total software revenue in the third quarter of fiscal year 2014 decreased compared to the same quarter last year due to a decrease in license revenue partially offset by an increase in subscription revenue. The decrease in license revenue was due mostly to sales execution issues in Europe generally, and in all geographies with respect to our Spotfire product, that we do not believe will be recurring, and the increase in subscription revenue was due to the addition of Jaspersoft and early growth in Spotfire and Engage subscription offerings.

For the first quarter of fiscal year 2014, subscription revenues of $3.5 million were reclassified from service revenues to software revenues. For the three and nine months ended August 31, 2013, subscription revenues of $3.0 million and $10.2 million were reclassified from service revenues to software revenues, respectively.

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Our software revenue was derived from core infrastructure and event processing and analytics. The percentages of software revenue from the two product categories are summarized as follows:



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Core infrastructure	48	%	53	%	56	%	55	%
Event processing and analytics	52	%	47	%	44	%	45	%
	100	%	100	%	100	%	100	%

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



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Number of license deals of $1.0 million or more	14		18		45		42
Number of license deals of $0.1 million or more	110		140		363		391
Average size of license deals of $0.1 million or more (in millions)	$	0.6	$	0.7	$	0.6	$	0.6

Service and Maintenance Revenue



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Service and maintenance revenue	$	169,664		$	162,878		4	%	$	506,013		$	479,260		6	%
Percentage of total revenue	66		%	60		%			67		%	64		%

Maintenance revenue was 64% and professional services and training revenue was 36% of total service and maintenance revenue for the three and nine months ended August 31, 2014. The increase in service and maintenance revenue for the three and nine months ended August 31, 2014 was primarily due to continued growth in our installed software base and the expansion of services to that growing base.

Geographic Revenue

The percentages of total revenue from the geographic regions are summarized as follows:



	Three Months Ended August 31,				Nine Months Ended August 31,
	2014		2013		2014		2013
Americas	60	%	58	%	58	%	57	%
EMEA	30	%	32	%	32	%	33	%
APJ	10	%	10	%	10	%	10	%
	100	%	100	%	100	%	100	%

For the three and nine months ended August 31, 2014, total revenue increased in the Americas and decreased in each of Asia Pacific and Japan (“APJ”) and Europe, the Middle East and Africa (“EMEA”) compared to the same period last year due to decline in demand in Europe referred to above. See Note 15 to our Condensed Consolidated Financial Statements for total revenue by region.

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Cost of Software Revenue



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Cost of license revenue	$	12,893		$	12,407		4	%	$	37,345		$	34,776		7	%
Cost of subscription revenue	2,881			2,192			31	%	6,883			5,332			29	%
Total cost of software revenue	$	15,774		$	14,599		8	%	$	44,228		$	40,108		10	%
Percentage of total revenue	6		%	5		%			6		%	5		%
Percentage of software revenue	18		%	14		%			17		%	15		%

Cost of license revenue mainly consisted of amortization of developed technology acquired through acquisitions and royalty costs. Cost of license revenue for the three and nine months ended August 31, 2014 increased due to a decrease in total revenue and a smaller base for fixed costs, compared to the same period last year. Cost of subscription revenue for the three and nine months ended August 31, 2014 increased due to an increase in infrastructure and other related fees and charges of the growing subscription business, including as a result of the acquisition of Jaspersoft, compared to the same period last year.

For the first quarter of fiscal year 2014, cost of subscription revenues of $2.2 million were reclassified from cost of service revenues to cost of software revenues. For the three and nine months ended August 31, 2013, cost of subscription revenues of $2.2 million and $5.3 million were reclassified from cost of service revenues to cost of software revenues, respectively.

Cost of Service and Maintenance Revenue



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Cost of service and maintenance revenue	$	65,160		$	63,374		3	%	$	193,695		$	185,473		4	%
Percentage of total revenue	26		%	24		%			25		%	25		%
Percentage of service and maintenance revenue	38		%	39		%			38		%	39		%

Cost of service and maintenance revenue consisted 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 revenue in the third quarter of fiscal year 2014 increased, compared to the same quarter last year, primarily due to a $2.4 million increase in employee-related expenses from higher headcount necessary to support the higher revenue, offset by a $1.0 million decrease in subcontractor costs. Cost of service and maintenance for the nine months ended August 31, 2014 increased, compared to the same period last year. The increase was primarily due to a $5.8 million increase in employee-related expenses from higher headcount necessary to support the higher revenue.

Research and Development Expenses

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



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Research and development expenses	$	41,866		$	43,391		(4	)%	$	128,179		$	127,591		—	%
Percentage of total revenue	16		%	16		%			17		%	17		%

Research and development expenses in the third quarter of fiscal year 2014 decreased compared to the same quarter last year primarily due to a $3.8 million decrease in employee related expenses, partially offset by a $2.0 million increase in subcontractor costs in connection with increased development projects.

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Sales and Marketing Expenses

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



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Sales and marketing expenses	$	93,222		$	84,082		11	%	$	269,343		$	249,395		8	%
Percentage of total revenue	36		%	31		%			36		%	33		%

Sales and marketing expenses in the third quarter of fiscal year 2014 increased compared to the same quarter last year, primarily due to a $5.2 million increase in employee-related expenses due to increased headcount to support higher anticipated sales and a $1.4 million increase in travel expenses. Sales and marketing expenses for the nine months ended August 31, 2014 increased compared to the same period last year due to a $11.0 million increase in employee-related expenses due to increased headcount, a $3.6 million increase in travel expenses, a $2.6 million increase in facility costs, and a $1.5 million increase in marketing programs in connection with increased sales volume.

General and Administrative Expenses

General and administrative expenses consisted primarily of employee-related expenses, including salaries, stock-based compensation expenses, benefits, bonuses, third party contractor fees and related costs for general corporate functions, such as executive, legal, finance, accounting and human resources.



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
General and administrative expenses	$	17,286		$	13,697		26	%	$	52,542		$	50,546		4	%
Percentage of total revenue	7		%	5		%			7		%	7		%

General and administrative expenses in the third quarter of fiscal year 2014 increased $3.6 million compared to the same quarter last year. The increase was primarily due to a $2.3 million increase in employee-related expenses due to increased headcount and a $1.0 million increase in subcontractor costs to support business growth. General and administrative expenses for the nine months ended August 31, 2014 increased $2.0 million compared to the same period last year primarily due to a $2.2 million increase in fees and charges owing to an increase in depreciation and an increase in nonrecoverable foreign taxes and a $1.7 million increase in subcontractor costs, partially offset by a $1.2 million decrease in facilities costs.

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 August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Amortization of acquired intangible assets:
In cost of revenue	$	5,815		$	4,597				$	16,156		$	12,940
In operating expenses	4,494			4,991					14,350			14,025
Total amortization	$	10,309		$	9,588		8	%	$	30,506		$	26,965		13	%
Percentage of total revenue	4		%	4		%			4		%	4		%

The increase in total amortization of acquired intangible assets is due to amortization in connection with the fiscal 2014 acquisition of Jaspersoft.

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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 were terminated within 90 days of the acquisition date.



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Acquisition related and other expenses:
Transitional and other employee related costs	$	—		$	—				$	—		$	26
Professional services fees and other	272			630					1,180			1,499
Total	$	272		$	630		(57	)%	$	1,180		$	1,525		(23	)%
Percentage of total revenue	—		%	—		%			—		%	—		%

Restructuring



	Three Months Ended August 31,							Nine Months Ended August 31,
	2014			2013			Change	2014			2013			Change
Restructuring charges	$	(108	)	$	8,886		N/A	$	954		$	8,871		N/A
Percentage of total revenue	—		%	3		%		—		%	1		%

Restructuring charges were primarily severance costs related to corporate actions aimed to increase efficiencies and reduce redundancies. During the third quarter of fiscal year 2014, we released $0.1 million in restructuring charges previously accrued under our 2013 Restructuring Plan. The declines in restructuring charges in fiscal 2014 compared to fiscal 2013 were due to fewer restructuring actions undertaken. See Note 7 to our Condensed Consolidated Financial Statements for further details on restructuring charges.

Stock-Based Compensation

Stock-based compensation 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 August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Stock-based compensation:
Cost of revenue	$	1,476		$	1,914				$	5,045		$	5,386
Research and development	3,198			3,641					10,464			11,759
Sales and marketing	1,910			3,121					9,144			12,782
General and administrative	1,995			(766		)			7,249			9,318
Total	$	8,579		$	7,910		8	%	$	31,902		$	39,245		(19	)%
Percentage of total revenue	3		%	3		%			4		%	5		%

Total stock-based compensation in the third quarter of fiscal year 2014 increased compared to the same quarter last year primarily due to a $4.6 million increase related to performance-based restricted stock units ("PRSUs") due to a reversal in the third quarter of 2013 which did not occur in the third quarter of 2014, partially offset by a $3.4 million decrease related to service-based stock awards from a change in forfeiture rate assumptions, and a $0.5 million decrease related to stock options.

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Total stock-based compensation for the nine months ended August 31, 2014 decreased compared to the same period last year primarily due to a $3.4 million decrease in stock-based compensation related to PRSUs which were fully expensed in the first quarter of 2014, a $2.0 million decrease in stock-based compensation related to service based-stock awards from a change in forfeiture rate assumptions, and a $1.6 million decrease related to stock options.

Interest Expense and Other Income (Expense), Net



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Interest expense, net	$	(8,395	)	$	(8,162	)	3	%	$	(24,959	)	$	(25,184	)	(1	)%
Percentage of total revenue	(3		)%	(3		)%			(3		)%	(3		)%

Other income (expense), net	$	128		$	153		(16	)%	$	(879	)	$	(1,258	)	(30	)%
Percentage of total revenue	—		%	—		%			—		%	—		%

Interest expense is primarily related to our convertible senior notes and our credit facility. Interest expense, net, in the third quarter of fiscal year 2014 increased compared to the same quarter last year due to increased amortization of debt discount in connection with the convertible notes. See Note 8 and Note 9 to our Condensed Consolidated Financial Statements for further details on the credit facility, mortgage note and the convertible senior notes.

Other expense for the nine months ended August 31, 2014 decreased by $0.4 million compared to the same period last year primarily due to a $0.3 million reduction in foreign exchange losses.

Provision for Income Taxes



	Three Months Ended August 31,								Nine Months Ended August 31,
	2014			2013			Change		2014			2013			Change
Provision for income taxes	$	6,700		$	7,900		(15	)%	$	14,100		$	10,900		29	%
Effective tax rate	72		%	27		%			46		%	22		%

The increase in the effective tax rate for the three and nine months ended August 31, 2014, as compared to the three and nine months ended August 31, 2013, was primarily due to a higher proportion of taxable income forecasted to be generated from higher tax jurisdictions, a reduction in income before provision for income taxes, and an increase in withholding taxes.

In the three months ended August 31, 2014, we recognized a discrete tax expense of $2.0 million primarily related to withholding taxes. We recognize the withholding taxes as discrete items because of the high variability of withholding tax rates by country and the difficulty in forecasting the exact country of future revenue.

In the nine months ended August 31, 2014, we recognized a discrete tax expense of $2.2 million, primarily related to a $4.0 million tax expense for withholding taxes, offset by $0.7 million of tax benefits from the expiration of various statutes of limitations and a $1.2 million refund from the prior year's foreign tax returns.

In the three months ended August 31, 2013, we recognized a discrete benefit of $1.4 million to adjust taxes provided for prior U.S. and foreign tax returns and to accrue withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit. This included an out-of-period adjustment of $2.2 million related to a tax benefit that was not recorded during the fiscal year ended November 30, 2012.

In the nine months ended August 31, 2013, we recognized certain discrete items of tax expense and benefit for a net benefit of $1.3 million primarily related to the adjustment of taxes provided for prior year U.S. and foreign tax returns and to accrue withholding taxes, and to record tax benefits from retroactive legislative reinstatement of the federal research and development credit.

The tax expense for the nine months ended August 31, 2014 and 2013 reflects forecasted tax rates of 39% and 24%, respectively, offset by discrete items which are recognized in the period they are incurred. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, domestic manufacturing incentives, and federal and state research and development credits, partially offset by the impact of certain stock compensation charges and

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state income taxes. The increase in forecasted tax rate is primarily due to a higher proportion of taxable income forecasted to be generated from higher tax jurisdictions. The federal research and development credits expired on December 31, 2013.

During the third quarter of fiscal year 2014, the amount of gross unrecognized tax benefits increased by approximately $3.3 million. The total amount of gross unrecognized tax benefits was $93.6 million as of August 31, 2014, of which $78.3 million would benefit tax expense if realized. We elected to include interest expense and penalties accrued on unrecognized tax benefits as a component of our income tax expense. We are subject to routine corporate income tax audits in the United States, India, Netherlands, Sweden, United Kingdom and other foreign jurisdictions. Due to uncertainty of tax audit outcomes and the timing of tax audit settlements, we are unable to estimate the changes to our unrecognized tax benefit over the next twelve months.

Liquidity and Capital Resources

Liquidity

As of August 31, 2014, we had cash and cash equivalents totaling $354.4 million, representing a decrease of $307.7 million from November 30, 2013. As of August 31, 2014, $272.2 million of our cash and cash equivalents were held by our foreign subsidiaries in our foreign operations. Our current 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 nine months ended August 31, 2014 was $61.7 million as compared with net cash provided of $146.4 million for the comparable period of fiscal 2013. The $84.7 million decline in net cash provided by operations was primarily due to a decline in net income of $23.2 million, a decline in net cash used to fund an increase in working capital of $66.8 million and a decline in non-cash stock-based compensation of $7.3 million, partially offset by a decline in net cash used from deferred income taxes of $9.4 million.

To the extent that non-cash items increase or decrease our future operating results, there will be no corresponding impact on our cash flows. After excluding the effects of these non-cash charges, the primary changes in cash flows relating to operating activities result from changes in working capital. Our primary source of operating cash flows is the collection of accounts receivable from our customers, including maintenance which is typically invoiced 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 $300.5 million for the nine months ended August 31, 2014 as compared with a net cash used of $88.6 million for the comparable period of fiscal 2013. The $212.0 million increase in net cash used in investing activities primarily consisted of increased purchases of short-term investments, net of maturities, of $74.1 million and increased acquisitions, net of cash acquired, of $127.5 million.

Net cash used in financing activities was $64.1 million for the nine months ended August 31, 2014 as compared with net cash used of $116.9 million for the comparable period of fiscal 2013. The $52.8 million decline in net cash used by financing activities was primarily due to a $35.7 million decline in principal payments on long-term debt, a $9.7 million reduction in repurchases of common stock and a $7.7 million increase in proceeds from the sale of common stock.

On April 26, 2013, we announced that our Board of Directors approved a 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 August 31, 2014, we had $145.2 million remaining under the repurchase program.

Convertible Senior Notes: In April 2012, we issued convertible senior notes (the “Notes”) in an aggregate principal amount of $600.0 million due May 1, 2032. The Notes bear interest at a rate of 2.25% per annum. The Notes do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us. Each $1,000 principal amount of Notes is initially convertible, at the option of the holders, at a rate of 19.7750 shares of our common stock, which represents an initial conversion price of approximately $50.57

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per share, which is subject to adjustment upon the occurrence of certain events specified in the indenture. On conversion of a Note, we will deliver cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, for any conversion value greater than the principal amount, we will deliver shares of common stock. Holders may convert Notes prior to February 1, 2032, and other than during the period from February 1, 2017 to May 5, 2017, under the following circumstances: (1) if the Notes are called for redemption, at any time prior to the redemption date; (2) during any fiscal quarter, if our last reported sale price of a share of common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (3) during any five consecutive trading day period when the trading price per $1,000 principal amount of Notes is less than 98% of the product of the last reported sale price of a share of common stock and the conversion rate; and (4) upon the occurrence of certain distributions or corporate events as specified in the indenture governing the Notes. From February 1, 2017 to May 5, 2017, and from February 1, 2032 until the maturity date, holders may convert Notes at any time, regardless of the foregoing circumstances.

Credit Facility: In December 2011, we and one of our subsidiaries entered into an unsecured revolving credit facility that matures on December 19, 2016 and provides for borrowings of up to $250.0 million with a variable interest rate. We have an option to request that the lenders increase the available commitments by up to an additional $100.0 million for total borrowings of up to $350.0 million. We had no borrowings outstanding under the credit facility as of August 31, 2014.

Mortgage Note: In May 2013, we repaid the outstanding balance on our mortgage note of $34.7 million in full.

Line of Credit: We have a $10.0 million revolving line of credit that matures in June 2015. We had approximately $2.0 million of irrevocable letters of credit outstanding under the line of credit as of August 31, 2014.

Guarantee Credit Line: We have a revolving guarantee credit line of approximately $15.8 million available for the issuance of bank guarantees. We had approximately $12.8 million of bank guarantees outstanding under the guarantee credit line as of August 31, 2014.

See Note 8 and Note 9 to our Condensed Consolidated Financial Statements for further detail on these sources of financing.

Capital Resources

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 credit facility, 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.

Commitments

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 the fair market value of the land. The first adjustment to the rent as a result of the increase in the fair market value since 2003 occurred in April 2014. The total additional lease obligation over the remaining 41-year lease term was $115.9 million. We exercised our prepayment option to settle the entire $115.9 million future lease obligations at a discount and paid $1.4 million and $25.3 million in April 2014 and July 2014, respectively.

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As of August 31, 2014, our contractual commitments associated with indebtedness, lease obligations (excluding potential future adjustments in connection with the corporate headquarter land lease), and restructuring were as follows (in thousands):



	Total		Remainder of 2014		2015		2016		2017		2018		Thereafter
Commitments:
Debt principal	$	600,000	$	—	$	—	$	—	$	600,000	$	—	$	—
Debt interest	40,500		6,750		13,500		13,500		6,750		—		—
Operating leases ⁽¹⁾	47,079		2,296		10,994		10,305		8,930		6,782		7,772
Total commitments	$	687,579	$	9,046	$	24,494	$	23,805	$	615,680	$	6,782	$	7,772


(1)	Operating leases included future minimum rent payments, net of estimated sublease income of $4.1 million, for facilities that we have vacated pursuant to our restructuring activities.

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 10 to our Condensed Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.


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 25 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 speculative purposes. As of August 31, 2014, we had 16 outstanding forward contracts, all denominated in United States dollars, that resulted in a net gain of $0.3 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

Our investment policy is designed to protect and preserve invested funds by limiting default, market and investment risk. Our exposure to market rate risk for changes in interest rates relates primarily to interest paid on our credit facility and our investments.

Currently, we maintain our cash in current accounts, money market funds or investments in marketable securities. In general, money market funds are not considered to be subject to interest rate risk because the interest paid on such funds fluctuates with the prevailing interest rate. Our short-term investments are predominately held in marketable securities with

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maturities of less than three years with limited exposure to changes in market interest rates. As of August 31, 2014, a hypothetical 100 basis point increase in interest rates would not have a material impact on the fair value of our investments.

Interest on borrowings under the 2011 Credit Facility is based at specified margins above either LIBOR or a base rate defined in the 2011 Credit Facility, whereas the interest rate on our Notes is fixed over its term. Our exposure to interest rate risk under the 2011 Credit Facility will depend on the extent to which we utilize such facility. As of August 31, 2014, the 2011 Credit Facility had a borrowing capacity of $250.0 million and had no outstanding borrowings. A hypothetical 100 basis point increase in the LIBOR or Prime Rate-based interest rate on the 2011 Credit Facility would result in an increase in our interest expense by $1.0 million per year for every $100.0 million borrowed. See Note 8 for a discussion of the 2011 Credit Facility.


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.

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PART II—OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

Our legal proceedings are detailed in Note 11 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, 2013.

If the Merger contemplated by the Merger Agreement does not occur, it could have a material adverse effect on our business, results of operations, financial condition and stock price.

Completion of the proposed Merger is subject to the satisfaction of various conditions, including the receipt of approvals from our shareholders and from government or regulatory agencies. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe, or at all.

The proposed Merger gives rise to inherent risks that include:


•	pending shareholder litigation could prevent or delay the Merger or otherwise negatively impact our business and operations;


•	if the Merger is not completed, the share price of our common stock will change to the extent that the current market price of our stock reflects an assumption that the Merger will be completed;


•	the amount of the cash payment to be paid under the Merger agreement is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock;


•	legal or regulatory proceedings, including regulatory approvals from various domestic and foreign governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may delay or deny approval, or other matters that affect the timing or ability to complete the transaction as contemplated;


•	the ability of Vista and its affiliates to obtain the necessary funds to complete the Merger;


•	the possibility of disruption to our business, including increased costs and diversion of management time and resources;


•	difficulties maintaining business and operational relationships, including relationships with customers, suppliers, and other business partners;


•	the inability to attract and retain key personnel pending consummation of the proposed Merger;


•	the inability to pursue alternative business opportunities or make changes to our business pending the completion of the proposed Merger;


•	the requirement to pay a termination fee of $116.7 million if we terminate the Merger Agreement under certain circumstances;


•	developments beyond our control including, but not limited to, changes in domestic or global economic conditions that may affect the timing or success of the proposed Merger; and

•

the risk that if the proposed Merger is not completed, the market price of our common stock could decline, investor confidence could decline, shareholder litigation could be brought against us, relationships with customers, suppliers and other business partners may be adversely impacted, we may be unable to retain key personnel, and profitability may be adversely impacted due to costs incurred in connection with the proposed Merger.

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:


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


•	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;


•	the transition to a subscription-based licensing model for our analytics business;


•	our ability to accurately assess the renewal rates of subscription-based revenue offerings;


•	our ability to execute our marketing and sales strategies since implementing changes to our sales organization;


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


•	changes in our business model;


•	the impact of our provision of services and customer-required contractual terms on the recognition of software 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 before placing an order in the hope of obtaining more favorable terms;


•	adverse economic or market conditions;


•	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 grants or tax accounting, including accounting for uncertain tax positions.

A substantial portion of our software 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 deliver the software shortly after the receipt of an order, we may have software orders that have not shipped at the end of any given quarter. Because the amount of such software 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. 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.

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

We are subject to risks arising from adverse changes and uncertainty in domestic and global economies. For example, past domestic and global economic downturns resulted in reduced demand for information technology, including enterprise software and services. The direction and relative strength of the global economy continues to be uncertain and volatile, and could be adversely affected by, among other things, additional failures of the U.S. government to raise the debt ceiling resulting in a government shut down and reductions in U.S. government spending, concerns regarding Europe's potential sovereign-debt crisis and other potential financial issues affecting the European economy, unrest in the Middle East, further slowing of the Chinese economy, tightening in the credit markets, downturns in the financial industry, and other geopolitical factors, and makes it difficult for us to forecast operating results and to make decisions about future investments. We cannot

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predict the duration of these economic conditions or the impact they may have on our customers or business. Information technology spending has historically declined or been postponed 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, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control and 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.

Growth in our subscription-based software licenses affects the timing of revenue recognition and cash collections.

We are continuing to emphasize and expand our subscription-based software offerings, including transitioning certain of our product offerings from perpetual licenses to subscription-based licenses in our analytics business. Although the subscription model is designed to increase the number of customers who purchase our products and services and create a recurring revenue stream that is more predictable, it causes a delay in the timing of revenue recognition and a temporary reduction in operating cash flows. If our customers purchase subscription-based offerings as opposed to perpetual or certain term licenses, we may experience a deferral of software revenues and we may recognize less of the software revenue up-front. During the transition to the subscription-based licensing model, our customer billings and cash collected could also decline.

A portion of the subscription-based revenue we report each quarter results from the recognition of deferred revenue from subscription agreements entered into during previous quarters. A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our revenue in future quarters. If we were to experience significant downturns in subscription sales and renewal rates, our reported financial results might not reflect such downturns until future periods.

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 core infrastructure, and event processing and analytics, including companies such as IBM, Oracle and SAP generally, as well as other companies with respect to only certain of the business lines in which we operate. 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; execute more effectively on their marketing and sales strategies and leverage their internal relationships; and 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. Also, some of our competitors are expanding their competitive product offerings and strengthening their market position through 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.

Additionally, consolidation in the software industry has been a trend in recent years and is continuing at a rapid pace. Our current and potential competitors could make additional strategic acquisitions, consolidate their operations, or establish cooperative relationships among themselves or with other solution providers, allowing them to broaden their offerings of products and solutions and more effectively address the needs of our prospective customers, including acting as sole-source vendors for our customers. If any of this were to occur, it could adversely affect our business and operating results.

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Our strategy contemplates future acquisitions, which may present risks including our incurring unanticipated expenses or additional debt, difficulty in integrating our operations, competition from other potential acquirors, financing challenges and dilution to our stockholders and may harm our operating results.

Our success depends in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. We have acquired and expect to continue to acquire complementary businesses, products and technologies as part of our corporate strategy. In this regard, we have made a number of strategic acquisitions in recent years, including our acquisition of Jaspersoft Corporation in April 2014. We do not know if we will be able to complete any future acquisitions or whether we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees or customers. Acquiring any new business, product or technology could be expensive and time-consuming, disrupt our ongoing business and financial performance, distract our management, increase our debt to finance such acquisition, increase our capital expenditures to support such new business and require us to manage larger and more complex operations. 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, among other things, 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 could 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. Therefore, we may engage in discussions for, and incur expenses and fees for, acquisitions that do not ultimately occur. This could result in a diversion of our management's time and increased expenses.

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 may not be able to raise additional funds or 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. Further, if we finance an acquisition by issuing shares of stock or other rights with respect to our capital stock, our existing stockholders would be diluted and earnings per share may decrease. 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 and adapt our product offerings to new vertical markets through internal development and acquisitions; expand our customer base by introducing more subscription-based product offerings; expand our distribution capacity by growing our direct sales organization and developing our sales channels; 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 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; expand our product consumption models; 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.

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. In order to attract and retain executives and other key employees, we must provide a competitive compensation package, including equity compensation. Our equity compensation program includes performance-based restricted stock units that contain performance conditions relating to our financial performance that make the future value of those awards uncertain. If the anticipated value of such performance-based awards is not earned, if our total compensation package is not viewed as competitive, or if we do not obtain stockholder approval to continue granting equity awards that we believe are necessary to remain competitive, our ability to attract, retain, and motivate executives and key employees could be weakened. The success of our business is also heavily dependent on the

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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 justify 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.

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 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:


•	local political and economic instability;


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

•

the engagement of activities by our employees, contractors, partners and agents, especially in countries with developing economies, that are prohibited by international and local trade and labor laws and other laws prohibiting corrupt payments to government officials, including the Foreign Corrupt Practices Act, the UK Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws;


•	restrictions on the transfer of funds, including with respect to restrictions on our ability to repatriate foreign cash to the United States at favorable tax rates;


•	currency exchange rate fluctuations;

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•	overlapping tax regimes;


•	increased expense of developing, testing and making localized versions of our products;


•	managing our international operations; and


•	longer payment cycles and credit and collectability risk on our trade receivables.

Any of these factors, either individually or in combination, could materially impact our international operations and adversely affect our business as a whole.

Increases in services revenue may decrease overall margins or affect timing of revenue recognition.

We have historically realized, and may continue in the future to realize, an increasingly high percentage of our revenue from consulting services, which has a lower profit margin than software 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.

Additionally, our customers license our software in a number of ways, including as perpetual licenses and as hosted services. We provide hosted service offerings that are made available in a cloud deployment model, and we recognize revenue from these services ratably over the term of a subscription period. Any broad-based change in market trends or our business model and pricing policies, or any significant increase in the percentage of our business generated from such a subscription model, could cause certain revenues to be recognized over time as opposed to upfront, which could delay revenue recognition and have a negative impact on our operating results.

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-five foreign currencies. As a result of these international sales and operations, our revenue, expenses and net income are impacted by foreign exchange rate fluctuations against the U.S. dollar. For example, any strengthening of the U.S. dollar against foreign currencies would result in lower revenues from our international sales when sales are translated into U.S. dollars, although these decreases may be partially offset by lower operating expenses. Additionally, customers in foreign countries that incur higher costs due to the strengthening of the U.S. dollar may elect to delay payments or default on credit extended to them. Any material delay or default in our collection of significant accounts could have a negative effect 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. As our international operations continue to grow, or if large fluctuations in foreign exchange rates continue, our revenue, operating expenses and income may be adversely affected.

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.

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 or acceptance by the marketplace, 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 we do and loss of market share, net sales and earnings.

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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 software 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 software 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 such 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 the transactions involved, we may have to restate revenue for a previously reported period, which would seriously harm our business, operating results and financial condition.

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:


•	uncertainty about global economic or political conditions;


•	general volatility in the capital markets;


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

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•	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.

From December 1, 2012 through the end of our third fiscal quarter of fiscal year 2014, our stock price fluctuated between a low of $18.18 and a high of $27.15. 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 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 actual 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 operating results.

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

The agreements governing some of our debt 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:


•	incur indebtedness;


•	incur indebtedness at the subsidiary level;


•	grant liens;


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


•	make certain payments on our equity, including paying dividends;


•	make dispositions;


•	make investments;


•	change our business;


•	enter into transactions with our affiliates; and


•	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. In the event of an acceleration of our debt obligations, we may also not have, and may not be able to obtain, sufficient funds to make any accelerated payments, including under our convertible senior notes.

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.

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The conversion provisions of our convertible senior notes require us to deliver cash and, in certain circumstances, common stock upon conversion and could dilute the ownership interests of stockholders. In addition, the increase in our debt level from the issuance of the convertible senior notes could adversely affect our liquidity and impede our ability to raise additional capital, which may also be affected by the tightening of the capital markets.

In April 2012, we issued $600.0 million aggregate principal amount of convertible senior notes due 2032 (the "Notes"). All of the Notes were outstanding as of August 31, 2014. The Note holders can convert the Notes, under certain circumstances, into cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, for any conversion value greater than the principal amount, into shares of common stock at any time before the Notes mature or we redeem or repurchase them. Upon certain dates (May 5, 2017, May 1, 2022, and May 1, 2027) or the occurrence of certain events including a change in control, the Note holders can require us to repurchase some or all of the Notes.

Upon any conversion of the Notes, we would be required to make cash payments up to the principal amount of any converted Notes. Additionally, our basic earnings per share would be expected to decrease to the extent we are required to issue shares upon conversion because such underlying shares would be included in the basic earnings per share calculation and the conversion would result in dilution to our stockholders. Any new issuance of equity securities, including the issuance of shares upon the conversion of the Notes, could dilute the interests of our then-existing stockholders, including holders who receive shares upon conversion of their Notes, and could decrease the trading price of our common stock and the Notes.

Given that events constituting a "fundamental change" can trigger repurchase obligations, the existence of such repurchase obligations may delay or discourage a merger, acquisition, or other consolidation.

Our ability to service our debt obligations, make cash payments upon conversion and meet our repurchase or repayment obligations of the Notes will depend upon our future performance, which is subject to economic, competitive, financial, and other factors affecting our industry and operations, some of which are beyond our control. Further, we may not be able to generate sufficient cash flows to enable us to meet our expenses and service our debt, as well as to meet any cash conversion, repurchase or repayment obligations of the Notes. This could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate. If we are unable to meet the obligations out of cash flows from operations or other available funds, we may need to raise additional funds through public or private debt or equity financings. We may not be able to borrow money or sell more of our equity securities to meet our cash needs for various reasons, including the tightening of the capital markets. Even if we are able to do so, it may not be on terms that are favorable or reasonable to us. Any of these events could reduce the availability of cash flow to us to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes, which could have an adverse effect on our business, operating results and financial condition.

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. Any change in the geographical allocation of our business could adversely affect our tax rates to the extent the shift is weighted towards jurisdictions with higher tax rates.

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 and those authorities often disagree with positions taken by us on our tax returns. Although we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine our estimates of uncertain tax positions, a final determination of tax audits or tax disputes could have an adverse effect on our results of operations and financial condition.

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.

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In addition, our future effective tax rates could be unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, changes in the product or geographic mix of our revenues or changes in tax laws or their interpretation. Such changes could have a material adverse effect on our results of operations and financial condition.

We may be subject to increased income taxes, and other restrictions and limitations, if we were to decide to repatriate any of our foreign cash balances to the United States.

As of August 31, 2014, we held approximately $272.2 million, or 77%, of our cash and cash equivalents outside of the United States. We use our foreign cash by reinvesting it into our foreign operations. Our current intention is to continue to 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. or our foreign cash balance continues to grow such that we are unable to reinvest such cash outside of the United States, it may become increasingly likely that we would repatriate some of our foreign cash balances to the United States. In such event, we would be subject to additional income taxes in the United States.

Additionally, if we were to repatriate foreign cash to the United States, we would use a portion of our domestic net operating loss carryforward, which could result in us being subject to cash income taxes on the earnings of our domestic business sooner than would otherwise have been the case.

Any of these scenarios may subject us to costs, restrictions and/or limitations that result in us being unable to use our cash in the manner we desire, which may have a material adverse effect on our results of operations and financial condition.

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. A change in existing financial accounting standards or practices may even retroactively adversely affect previously reported transactions.

In addition, the Financial Accounting Standards Board is currently working with the International Accounting Standards Board (“IASB”) to converge certain accounting principles and to facilitate more comparable financial reporting between companies that are required to follow GAAP and those that are required to follow International Financial Reporting Standards (“IFRS”). These projects may result in different accounting principles under GAAP, which may have a material impact on the way in which we report financial results in areas including, but not limited to, principles for recognizing revenue, lease accounting, and financial statement presentation. A change in accounting principles from GAAP to IFRS may have a material impact on our financial statements should IFRS be incorporated into the financial reporting system for U.S. companies.

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

Note 11 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.

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

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subject businesses, than current privacy standards in the United States. We post our privacy policies and practices concerning the use and disclosure of user data on our website. 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.

We face a variety of risks in doing business with the U.S. and foreign governments, various state and local governments, and agencies, including risks related to the procurement process, budget constraints and cycles, termination of contracts and audits.

Our customers include the U.S. government and a number of state and local governments or agencies. There are a variety of risks in doing business with government entities, including:

Procurement. Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring that we incur significant up-front time and expense without any assurance that we will win a contract.

Budgetary Constraints and Cycles. Demand and payment for our products and services are impacted by public sector budgetary cycles and funding availability, with funding reductions or delays adversely impacting public sector demand for our products and services.

Termination of Contracts. Public sector customers often have contractual or other legal rights to terminate current contracts for convenience or due to a default. If a contract is terminated for convenience, which can occur if the customer's needs change, we may only be able to collect payment for products or services delivered prior to termination and settlement expenses. If a contract is terminated because of default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative products or services.

Audits. The U.S. government and state and local governments and agencies routinely investigate and audit government contractors for compliance with a variety of complex laws, regulations, and contract provisions relating to the formation, administration or performance of government contracts, including provisions governing reports of and remittances of fees based on sales under government contracts, price protection, compliance with socio-economic policies, and other terms that are particular to government contracts. If, as a result of an audit or review, it is determined that we have failed to comply with such laws, regulations or contract provisions, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, refunds of a portion of fees received, suspension of payments, cost associated with the triggering of price reduction clauses, fines and suspensions or debarment from future government business, and we may suffer harm to our reputation if we are found to have violated terms of our government contracts.

Our customers also include a number of foreign governments and agencies. Similar procurement, budgetary, contract and audit risks also apply to our doing business with these foreign entities. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources. In certain jurisdictions our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could adversely affect our business and results of operations.

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

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


•	potential customers may delay purchases;


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


•	our reputation in the marketplace may be damaged;


•	we may have to defend against product liability claims;


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


•	we may incur additional service and warranty costs; and


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

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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.

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 have increased our general and administrative expenses. 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 result in different outcomes from those 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 financial statements. 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 and harm our reputation, which could reduce our stock price.

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.

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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 in the short term 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 third quarter of fiscal year 2014 (in thousands, except per share amounts):



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs¹	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
June 1, 2014 – June 30, 2014	500	$	20.11	500	$	174,729
July 1, 2014 – July 31, 2014	1,500	$	19.68	1,500	$	145,208
August 1, 2014 – August 31, 2014	—	$	—	—	$	145,208
Total	2,000			2,000


(1)	On April 26, 2013, 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.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 6.	EXHIBITS



2.1(1)		Agreement and Plan of Merger, dated as of September 27, 2014, by and among Balboa Intermediate Holdings, LLC, Balboa Merger Sub, Inc. and the Registrant.

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

3.2 (3)		Amended and Restated Bylaws of Registrant.

10.1(4)#		TIBCO Software Inc. Executive Change in Control and Severance Plan (Amended and Restated August 1, 2014).

10.2(5)#		Form of Notice of Award of Performance-Based Restricted Stock Units - 2014.

10.3#		Employment Agreement, dated as of June 19, 2014, by and between the Registrant and R. Todd Bradley.

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 August 31, 2014 and November 30, 2013, (ii) the Condensed Consolidated Statement of Operations for the three months and nine months ended August 31, 2014 and 2013, (iii) the Condensed Consolidated Statements of Cash Flows for the three months and nine months ended August 31, 2014 and 2013 and (iv) the Notes to Condensed Consolidated Financial Statements.*


(1)	Incorporated by reference to Exhibit 2.1 filed with the Registrant's Current Report on Form 8-K, filed with the SEC on September 29, 2014.


(2)	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.


(3)	Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K, filed with the SEC on June 27, 2014.


(4)	Incorporated by reference to Exhibit 10.1 filed with the Registrant's Current Report on Form 8-K, filed with the SEC on August 1, 2014.


(5)	Incorporated by reference to Exhibit 10.2 filed with the Registrant's Current Report on Form 8-K, filed with the SEC on August 1, 2014.

# Indicates management contract or compensation plan or arrangement.

* 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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	TIBCO SOFTWARE INC.

	By:		/s/ James D. Johnson
			James D. Johnson Senior Vice President, Chief Financial Officer (Principal Financial Officer, interim Principal Accounting Officer and duly authorized officer)

Date: October 8, 2014

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EXHIBIT INDEX



2.1(1)		Agreement and Plan of Merger, dated as of September 27, 2014, by and among Balboa Intermediate Holdings, LLC, Balboa Merger Sub, Inc. and the Registrant.

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

3.2 (3)		Amended and Restated Bylaws of Registrant.

10.1(4)#		TIBCO Software Inc. Executive Change in Control and Severance Plan (Amended and Restated August 1, 2014).

10.2(5)#		Form of Notice of Award of Performance-Based Restricted Stock Units - 2014.

10.3#		Employment Agreement, dated as of June 19, 2014, by and between the Registrant and R. Todd Bradley.

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 August 31, 2014 and November 30, 2013, (ii) the Condensed Consolidated Statement of Operations for the three months and nine months ended August 31, 2014 and 2013, (iii) the Condensed Consolidated Statements of Cash Flows for the three months and nine months ended August 31, 2014 and 2013 and (iv) the Notes to Condensed Consolidated Financial Statements.*


(1)	Incorporated by reference to Exhibit 2.1 filed with the Registrant's Current Report on Form 8-K, filed with the SEC on September 29, 2014.


(2)	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.


(3)	Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K, filed with the SEC on June 27, 2014.


(4)	Incorporated by reference to Exhibit 10.1 filed with the Registrant's Current Report on Form 8-K, filed with the SEC on August 1, 2014.


(5)	Incorporated by reference to Exhibit 10.2 filed with the Registrant's Current Report on Form 8-K, filed with the SEC on August 1, 2014.

# Indicates management contract or compensation plan or arrangement.

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