Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Quarterly Report on Form 10-Q, the words "could," "may," "anticipate," "believe," "estimate," "expect," "intend," "plan" and variations of such words and similar expressions as they relate to our management or to Wind River are intended to identify these forward-looking statements. These forward-looking statements include, but are not limited to statements related to the proposed acquisition by Intel, including the tender offer and the merger, the potential benefits of the merger with Intel, our expected business, results of operations, future financial position, business strategy, including acceptance of our product lines and business models, our ability to increase our revenues, including deferred revenues, our ability to grow our open-source-based Linux business, the mix of licensing models adopted by our customers, our ability to increase our services backlog, our cost of product, subscription and services, savings related to our reorganization plan, our financing plans and capital requirements, our investments, impairment losses on investments, intangible assets and goodwill, our expenses, including changes in selling and marketing, product development and engineering and general and administrative expenses, our restructuring charges, the potential release of all or a portion of our valuation allowance associated with our U.S. deferred tax assets, our accounting for certain acquisitions, the effect of recent accounting pronouncements, the likelihood of realization of deferred taxes, the potential effect of litigation against us, forecasted trends relating to our sales or the markets in which we operate and similar matters and include statements based on current expectations, estimates, forecasts and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated herein. Factors that could cause or contribute to such differences include, but are not limited to, the risk that our business will not be successfully integrated with Intel's business; costs associated with the merger; a failure to complete the tender offer or merger; matters arising in connection with the parties' efforts to comply with and satisfy applicable regulatory approvals and closing conditions relating to the transaction; increased competition and technological changes in the industries in which we and Intel compete, the success of our implementation of new and current products, business models and market strategies, the ability to address rapidly changing technology and markets and to deliver our products on a timely basis, our ability to grow our open-source-based Linux business, the ability of our customers to sell products that include our software, the impact of competitive products and pricing, weakness in the economy generally or in the technology sector specifically, the success of our strategic relationships, the costs of litigation against us, as well as the impact of other costs and other factors discussed under Part II, Item 1A, "Risk Factors."

These forward-looking statements speak only as of the date this Quarterly Report on Form 10-Q was filed and of information actually known by us at that time. We do not intend to update these forward-looking statements to reflect events or circumstances that occur after the filing of this Quarterly Report on Form 10-Q or to reflect the occurrence or effect of anticipated events, except as required by law.

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report.

Overview

Wind River is a global leader in Device Software Optimization (DSO). We develop, market and sell operating systems, middleware and software development tools that allow our customers to develop, run, and manage their device products faster, better, at lower cost and more reliably. We offer our customers a choice of leading real-time, proprietary operating systems and open-source, commercial-grade Linux operating systems. We also offer our comprehensive, Eclipse-based Workbench software development suite that allows our customers to manage the design, development, debugging and testing of their device software systems, as well as leading device test solutions that allow our customers to test, diagnose and resolve defects in device software. Our customers manufacture devices as varied as set-top boxes, in-vehicle infotainment systems, mobile handsets, Internet routers, avionics control panels and coronary pacemakers. Our operating systems are currently deployed in millions of devices.

We market our products and services in North America, EMEA (comprising Europe, the Middle East and Africa), Japan and the Asia Pacific region, primarily through our own direct sales organization, which consists of sales persons, field engineers and support staff. We also market and sell our products through a network of distributors and resellers, primarily in international regions, to serve customers in regions not serviced by our direct sales force. We were incorporated in California in February 1983 and reincorporated in Delaware in April 1993.

For additional information about our business and operating model, please see "-Executive Operating and Financial Summary" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2009.

Recent Operating Results

Our total revenues were $82.5 million and $87.9 million during the three months ended April 30, 2009 and 2008, respectively. The decline in revenues can be attributed to a decrease in production license revenues primarily due to the global economic recession and a decrease in subscription revenues resulting partly from customer purchases under our multi-year term license model in lieu of renewing subscription revenue contracts. These decreases were offset by increases in perpetual and term license revenues and maintenance revenues associated with the adoption of our multi-year term license model. For the three months ended April 30, 2009 and 2008, we had a net income of $561,000 or $0.01 per diluted share and a net income of $462,000 or $0.01 per diluted share, respectively.

Our total deferred revenues decreased to $121.3 million at April 30, 2009 from $132.2 million at January 31, 2009. The decrease was due primarily to the ratable recognition of subscription contracts and lower sales of new subscription contracts resulting primarily from a higher mix of customer purchases under our term license model during the first quarter of fiscal 2010. To a lesser extent, the decrease was due to a decline in our deferred maintenance and other revenues, primarily attributable to a lower volume of professional service business in the first quarter of fiscal 2010.

We generated cash flows from operations of $5.5 million and $29.7 million during the three months ended April 30, 2009 and 2008, respectively. The decrease of $24.2 million was primarily due to a decrease in the working capital impact of deferred revenues of $19.2 million and a decrease in accrued compensation of $5.9 million. During the three months ended April 30, 2009, we expended cash of approximately $3.5 million to acquire all outstanding shares of Tilcon Software Limited, a privately held company based in Ottawa, Canada.

Recent Developments

On June 4, 2009, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Intel Corporation ("Intel") and APC II Acquisition Corporation, a wholly-owned subsidiary of Intel, pursuant to which APC II Acquisition Corporation will commence, as soon as reasonably practicable, a cash tender offer to acquire all of the issued and outstanding shares of our common stock, including the associated rights to purchase Series A Junior Participating Preferred Stock issued pursuant to our Rights Agreement, at a price of $11.50 per share, net to the holders thereof in cash. This proposed merger is detailed further in Note 13, "Subsequent Events," of the notes to condensed consolidated financial statements.

In February 2009, we implemented a restructuring plan to better align our resources with our strategic business objectives and to support profitable growth in the future. As part of this plan, we eliminated approximately 36 employee positions, including employees from our Device Test reporting unit, which is included in the All Other reportable segment, in the first quarter of fiscal year 2010 and recognized restructuring charges of $627,000 related to these terminations. We anticipate annual cost savings of approximately $3.5 million to $4.5 million in connection with this restructuring plan. In addition, we have taken other cost saving actions in the first quarter of fiscal 2010 such as reducing employee benefits and compensation costs for existing employees.

In February 2009, we acquired all of the outstanding shares of Tilcon Software Limited ("Tilcon"), a privately held company based in Ottawa, Canada that focuses on providing embedded graphics solutions, for approximately $3.5 million in cash consideration. In addition, in connection with this acquisition, we agreed to pay potential retention and performance bonuses of up to an aggregate of $1.0 million. With this acquisition, we acquired proprietary embedded graphical user interfaces that will enhance the value of our VxWorks and Wind River Linux software platforms across multiple device types and target. The acquisition is accounted for under Financial Accounting Standards Board ("FASB") Statement No. 141 (revised 2007), Business Combinations, as amended by FASB staff position FSP 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies ("SFAS 141R"), and is detailed further in Note 2, "Acquisitions, Goodwill and Purchased Intangibles," of the notes to condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157 ("FSP FAS 157-2"), which delayed the effective date of SFAS No. 157, Fair Value Measurements ("SFAS 157") for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. Therefore, in the first quarter of fiscal 2010, we adopted SFAS No. 157 for non-financial assets and non-financial liabilities. The adoption of SFAS No. 157 for non-financial assets and non-financial liabilities that are not measured and recorded at fair value on a recurring basis did not have a significant impact on our consolidated financial statements for the three months ended April 30, 2009.

In the first quarter of fiscal 2010, we adopted SFAS 141R, which generally requires an entity to recognize the assets acquired, liabilities assumed, contingencies, and contingent consideration at fair value on the acquisition date. In circumstances where the acquisition-date fair value for a contingency cannot be determined during the measurement period and it is concluded that it is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life upon the completion of the research and development. SFAS 141R is applicable to business combinations on a prospective basis beginning in the first quarter of fiscal 2010. Our acquisition of Tilcon Software Limited completed in the first quarter of fiscal 2010 is accounted for under SFAS 141R and is detailed further in Note 2, "Acquisitions, Goodwill and Intangibles Assets," of the notes to condensed consolidated financial statements.

In the first quarter of fiscal 2010, we adopted Statement of Financial Accounting Standards ("SFAS") No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS 160"), which addresses the accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Accordingly, minority interest has been re-captioned to noncontrolling interest and has been presented in accordance with SFAS 160 as part of equity on the condensed consolidated balance sheet.

Recent Accounting Pronouncements

See Note 1, "The Company and Summary of Significant Accounting Policies," of the notes to condensed consolidated financial statements for further information regarding recent accounting standards and pronouncements.

Critical Accounting Policies and Estimates

General

Management's discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The application of U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies and estimates that we believe are most critical to an understanding of our financial results and condition and that require a higher degree of judgment and complexity include:

• Revenue recognition;

• Estimating sales returns and other allowances, and allowance for doubtful accounts;

• Valuation of long-lived assets, including goodwill and purchased intangibles;

• Valuation of investments;

• Accounting for income taxes; and

• Stock-based compensation.

For a more comprehensive discussion of these critical accounting policies, please see "-Critical Accounting Policies and Estimates," under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the fiscal year ended January 31, 2009.

Results of Operations for the Three Months Ended April 30, 2009 and 2008

Revenues

We recognize revenues from three sources: (1) product revenues, (2) subscription revenues and (3) service revenues; in each case, net of sales returns and other allowances. Product revenues consist of revenues from production licenses (sometimes referred to as royalties), fees for stand-alone software and software programming tools sold under our perpetual and term licensing models, and from sales of our hardware products. Subscription revenues consist of revenues from the licensing of products and services under our subscription-based enterprise licensing model including items such as

development tools, operating systems, various protocols and interfaces and maintenance, which are licensed over a limited period of time, typically 12 months. Service revenues are derived from fees from professional services, which include design and development fees, software maintenance contracts, and customer training and consulting. Generally, our customer agreements do not allow the right of return or sales price adjustments. The table below sets forth a summary of our revenue during the three months ended April 30, 2009 and 2008:

                                   Three Months Ended          Percentage of
                                       April 30,            Total Revenues, net
                                    2009         2008       2009           2008
                                        (In thousands, except percentages)
         Product revenues        $    30,174   $ 32,898         37 %           37 %
         Subscription revenues        29,020     33,070         35             38
         Service revenues             23,276     21,897         28             25

         Total revenues, net     $    82,470   $ 87,865        100 %          100 %

Total revenues decreased $5.4 million or 6% in the three months ended April 30, 2009 compared to the three months ended April 30, 2008. The change was due primarily to decreased subscription revenues, attributable to lower sales of new subscription contracts resulting partly from customer purchases under our multi-year term license model in lieu of renewing new subscription contracts, and a decreased volume of production license revenues during the three months ended April 30, 2009, related to decreased levels of business with our customers primarily as a result of the impact of the global economic recession.

Product Revenues. Product revenues are comprised of perpetual development license revenues, including hardware revenues, term license revenues and production license revenues from perpetual licenses, term licenses and subscription licenses. The table below sets forth information for such components:

                                          Three Months Ended          Percentage of
                                              April 30,            Total Revenues, net
                                           2009         2008       2009           2008
                                               (In thousands, except percentages)
  Perpetual and term license revenues   $    16,122   $ 13,952         20 %           16 %
  Production license revenues                14,052     18,946         17             21

  Total product revenues, net           $    30,174   $ 32,898         37 %           37 %

Perpetual and term license revenues increased $2.2 million or 16% in the three months ended April 30, 2009 compared to the three months ended April 30, 2008. Most of the increase was related to a higher volume of revenues recognized under our term license model in the first quarter of fiscal 2010, offset in part by a large perpetual deal recognized in the first quarter of fiscal 2009. Term license revenues were approximately 11% and 1% of total revenues in the three months ended April 30, 2009 and 2008, respectively. Term license revenues can fluctuate from quarter to quarter depending on the rate of customer adoption of our multi-year term license model. We expect perpetual revenues and term license revenues to continue to grow in absolute dollars over the course of fiscal 2010.

Production license revenues decreased $4.9 million or 26% in the three months ended April 30, 2009 compared to the three months ended April 30, 2008. The decrease was primarily related to a lower volume of production license block purchases and in-arrears purchases, attributable to the economic recession and reduced customer spending, off set by an increase in production license revenues from our license compliance program. License compliance revenues can vary from quarter to quarter. We expect production license revenues to grow in absolute dollars over the course of fiscal 2010.

Subscription Revenues. Subscription revenues decreased $4.1 million or 12% in the three months ended April 30, 2009 compared to the three months ended April 30, 2008. The decrease was primarily attributable to lower sales of new subscription contracts in the prior year resulting partly from customer purchases under our multi-year term license model in lieu of renewing subscription revenue contracts. We expect subscription revenues to decrease slightly in absolute dollars over the remainder of fiscal 2010.

Service Revenues. Service revenues are derived from fees for professional services, which include design and development fees, software maintenance contracts, customer training and consulting.

                                      Three Months Ended          Percentage of
                                          April 30,            Total Revenues, net
                                       2009         2008       2009           2008
                                           (In thousands, except percentages)
      Maintenance revenues          $     9,812   $  7,931         12 %            9 %
      Other service revenues             13,464     13,966         16             16

      Total service revenues, net   $    23,276   $ 21,897         28 %           25 %

Maintenance revenues increased $1.9 million or 24% during the three months ended April 30, 2009 compared to the three months ended April 30, 2008. The increase was primarily related to a higher volume of maintenance revenues recognized under our multi-year term license model. We expect maintenance revenues to increase over the remainder of fiscal 2010, as a result of maintenance revenues to be recognized under our multi-year term license contracts.

Other service revenues, which consist of professional services and training, decreased slightly by $502,000 or 4% during the three months ended April 30, 2009 compared to the three months ended April 30, 2008. The slight decrease is due to a lower volume of professional service business primarily in the consumer device sector partially offset by an increase in fixed-price service revenues related to certain large contracts executed in prior year. During the three months ended April 30, 2009 and 2008, we generated $8.8 million and $6.9 million, respectively, in revenue from fixed-price services contracts. Fixed-price services contracts are accounted for under the percentage-of-completion method of accounting. Time-and-materials service contracts are recognized as services are performed. We expect overall services revenue to grow in absolute dollars over the remainder of fiscal 2010.

Our services backlog, which represents contractual commitments for our professional services not yet billed or delivered, has decreased by $8.0 million or 36% from $22.4 million at January 31, 2009 to $14.5 million at April 30, 2009. The change reflects the overall decrease in the volume of professional service consulting business with our customers during the first quarter of fiscal 2010. We expect that most of our services backlog will be billed and delivered within the next 12 months, but service contracts are subject to change or termination, and management does not believe that services backlog, as of any particular date, is a reliable indicator of future performance. Our services backlog, which is not reflected on our balance sheet, is not subject to our normal accounting controls for information that is either reported in or derived from our basic financial statements, and the concept of backlog is not defined in the accounting literature, making comparisons with other companies difficult and potentially misleading.

Revenues by Segment



                                           Three Months Ended          Percentage of
                                               April 30,            Total Revenues, net
                                            2009         2008       2009           2008
                                                (In thousands, except percentages)
 VxWorks                                 $    59,253   $ 68,007         72 %           77 %
 Linux                                        13,687      8,009         17              9
 Non-Core Products and Design Services         3,971      5,519          4              7
 All Other                                     5,559      6,330          7              7

 Total revenues, net                     $    82,470   $ 87,865        100 %          100 %

Our VxWorks segment comprises our proprietary VxWorks real-time operating system and related products and services. VxWorks revenues decreased $8.8 million or 13% during the three months ended April 30, 2009 compared to the three months ended April 30, 2008. This decrease primarily resulted from a large perpetual license deal that was executed in the first quarter of fiscal 2009.

Our Linux segment comprises our open-source-based, commercial-grade Linux operating systems and related products and services. Linux revenues increased $5.7 million or 71% during the three months ended April 30, 2009 compared to the same period of the prior year. This increase was attributable to increased market demand for our Linux platforms and services primarily in our networking, automotive and digital consumer markets.

Our Non-Core Products and Design Services segment consists of our pSOS real-time operating system, which was acquired from Integrated Systems, Inc. in fiscal 2001, certain other non-core products and turn-key product design services. Non-Core Products and Design Services revenues decreased $1.5 million or 28% during the three months ended April 30, 2009 as compared to the same period of the prior year due to lower levels of Design Services business.

Our All Other segment includes our development tools, common technologies, device test products and related services. All Other segment revenues decreased $771,000 or 12% during the three months ended April 30, 2009 as compared to the same period of the prior year. The decrease was attributable to a decline in revenues of our Tools product division associated with lower levels of business.

Revenues by Geography



                                  Three Months Ended          Percentage of
                                      April 30,            Total Revenues, net
                                   2009         2008       2009           2008
                                       (In thousands, except percentages)
          North America         $    43,394   $ 43,768         53 %           50 %
          EMEA                       16,719     22,235         20             25
          Japan                      10,660     13,264         13             15
          Asia Pacific               11,697      8,598         14             10

Total revenues, net $ 82,470 $ 87,865 100 % 100 %

Revenues from international sales decreased 11% to $39.1 million during the three months ended April 30, 2009 from $44.1 million in the three months ended April 30, 2008. The decrease was due to a 25% decrease in revenues from EMEA and a 20% decrease in revenues from Japan, offset in part by a 36% increase in revenues from Asia Pacific. The general level of decreased revenues in the geographic areas resulted primarily from reduced customer demand for our software and services both domestically and internationally, attributable to the . . .