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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended April 30, 2005

or

For the transition period from             to             

Commission file number 0-21342

WIND RIVER SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

500 Wind River Way, Alameda, California 94501

(Address of principal executive offices, including zip code)

(510) 748-4100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

As of June 1, 2005, there were 84,063,685 shares of the registrant’s common stock outstanding.

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WIND RIVER SYSTEMS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2005

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Unless stated otherwise, references in this report to “Wind River,” “we,” “our,” “us” or “the Company” refer to Wind River Systems, Inc., a Delaware corporation, and its consolidated subsidiaries.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WIND RIVER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIND RIVER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIND RIVER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIND RIVER SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: The Company and Summary of Significant Accounting Policies

The Company. Wind River Systems, Inc. (“Wind River”) is a global leader in Device Software Optimization (“DSO”). Wind River’s software is used to develop and run devices better, faster, at lower cost and more reliably. Wind River’s software and development tools are used to optimize the functionality of devices as diverse as digital imaging products, automobile braking systems, Internet routers, avionics control panels and factory automation equipment. Wind River offers customers DSO solutions to enhance product performance, standardize designs across projects and throughout the enterprise, reduce research and development costs, and shorten product development cycles.

Wind River markets its products and services in North America, Europe (including the Middle East and Africa, “EMEA”), Japan and the Asia Pacific region, primarily through its own direct sales organization, which consists of sales persons and field engineers. Wind River also licenses distributors, primarily in international regions, to serve customers in regions not serviced by its direct sales force. Wind River was incorporated in California in February 1983 and reincorporated in Delaware in April 1993.

Basis of Presentation. Wind River has prepared the condensed consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However, Wind River believes that the disclosures are adequate to ensure the information presented is not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in Wind River’s Annual Report on Form 10-K for the fiscal year ended January 31, 2005 filed with the SEC on April 18, 2005.

Wind River believes that all necessary adjustments, which consisted of normal recurring items, have been included in the accompanying financial statements to state fairly the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for Wind River’s fiscal year ending January 31, 2006. Certain insignificant amounts have been reclassified to conform to the current year presentation.

The condensed consolidated financial statements include the financial information of Wind River and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Specifically, estimates are used for but not limited to, the accounting for the allowance for doubtful accounts, sales returns and other allowances, restructuring costs, valuation of investments, goodwill and purchased intangibles, deferred and income taxes, revenue recognition, accrued compensation, stock-based compensation and the outcome of litigation and other contingencies. Wind River bases its estimates on historical experience and various other assumptions that are believed to be reasonable based on the specific circumstances. Wind River’s management has discussed these estimates with the Audit Committee of the Board of Directors (“Board”). These estimates and assumptions form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates and could affect future operating results.

Stock-Based Compensation. Wind River issues stock options to its employees and outside directors and provides employees the right to purchase stock pursuant to stock option and employee stock purchase programs. Wind River accounts for its stock-based compensation plans under the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and related interpretations. Wind River applies the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation —Transition and Disclosure —an Amendment of SFAS No. 123.” For pro-forma disclosures, the estimated fair value of the options is amortized over the vesting period, typically four years, and the estimated fair value of the stock purchases is amortized over the six-month purchase period.

Wind River accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Wind River uses the Black-Scholes option-pricing model to value options granted to non-employees.

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Pro Forma Disclosures. Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants made during the three months ended April 30, 2005 and 2004:

The weighted average fair value per share of options granted during the three months ended April 30, 2005 and 2004 was $8.61 and $6.72, respectively.

The fair value of employees’ stock purchase rights under Wind River’s 1993 Employee Stock Purchase Plan (the “Purchase Plan”) was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions used for purchases made during the three months ended April 30, 2005 and 2004:

The weighted average fair value of the common stock purchase rights granted under the Purchase Plan during the three months ended April 30, 2005 and 2004 was $3.90 and $3.03, respectively.

Had compensation expense under these arrangements been determined pursuant to SFAS No. 123, Wind River’s net income and net loss per share for the three months ended April 30, 2005 and 2004 would have been as follows:

The pro forma amounts include compensation expense related to employee stock option grants and stock purchase rights. The effects of applying SFAS No. 123 on pro forma disclosures of net income (loss) per share in the three months ended April 30, 2005 and 2004 are not likely to be representative of the pro forma effects on net income (loss) per share in future fiscal periods. See Recent Accounting Pronouncements below.

Recent Accounting Pronouncements. In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123R”), that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The statement eliminates the ability to account for share-based compensation transactions using the intrinsic value method as prescribed by APB No. 25, “Accounting for Stock Issued to Employees,” and generally requires that such transactions be accounted for using a fair-value-based method and recognized as expenses. The statement requires companies to assess the most appropriate model to calculate the value of the options. Wind River currently uses the Black-Scholes option pricing model to value options and is

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currently assessing which model it may use in the future under the statement and may deem an alternative model to be the most appropriate. The use of a different model to value options may result in a different fair value than the use of the Black-Scholes option-pricing model. In addition, there are a number of other requirements under the new standard that will result in differing accounting treatment than currently required. These differences include, but are not limited to, the accounting for the tax benefit on employee stock options and for stock issued under Wind River’s employee stock purchase plan. In addition to the appropriate fair value model to be used for valuing share-based payments, Wind River will also be required to determine the transition method to be used at date of adoption. The allowed transition methods include prospective and retroactive adoption options. Under the retroactive options, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The effective date of the new standard for Wind River’s Consolidated Financial Statements is its first quarter of fiscal 2007. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to the adoption of SFAS No. 123R.

Upon adoption, this statement will have a significant impact on Wind River’s Consolidated Financial Statements, specifically its statement of operations and earnings per share on a quarterly and annual basis, as Wind River will be required to expense the fair value of its stock option grants and stock purchases under its employee stock purchase plan rather than disclose the impact on its consolidated net income within its footnotes as is its current practice. The amounts disclosed herein are not necessarily indicative of the amounts that will be expensed upon the adoption of SFAS No. 123R. Compensation expense calculated under SFAS No. 123R and SAB 107 may differ materially from amounts currently disclosed based on changes in the fair value of Wind River’s common stock, changes in the number of options granted or the terms of such options, the treatment of tax benefits and changes in interest rates or other factors. In addition, upon adoption of SFAS No. 123R, Wind River may choose to use a different valuation model to value the compensation expense associated with its employee stock options.

In March 2004, the EITF reached a consensus on the remaining portions of EITF 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” (“EITF 03-01”) effective for the first reporting period beginning after June 15, 2004. EITF 03-01 provides new disclosure requirements for other-than-temporary impairments on debt and equity investments. Companies are required to disclose quantitative information about: (i) the aggregate amount of unrealized losses, and (ii) the aggregate related fair values of investments with unrealized losses, segregated into time periods during which the investment has been in an unrealized loss position of less than 12 months and greater than 12 months. In addition, investors are required to disclose the qualitative information that supports their conclusion that the impairments noted in the qualitative disclosure are not other-than-temporary. In September 2004, the FASB approved FASB Staff Position EITF 03-01, which defers the effective date for recognition and measurement guidance contained in EITF 03-01 until certain issues are resolved. In September 2004, the FASB delayed the accounting provisions of EITF 03-01; however the disclosure requirements remain effective for annual periods ending after June 15, 2004. Wind River will evaluate the additional provisions of this EITF upon its finalization.

Note 2: Derivative Financial Instruments

Wind River may enter into foreign currency forward exchange contracts to manage foreign currency exposures related to certain non-functional currency related inter-company and other balances. Additionally, Wind River may adjust its foreign currency hedging position by taking out additional contracts or by terminating or offsetting existing forward contracts. These adjustments may result from changes in the underlying non-functional currency exposures or from fundamental shifts in the economics of particular exchange rates. Gains and losses on terminated forward contracts, or on contracts that are offset, are recognized in income in the period of contract termination or offset. Wind River’s ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of April 30, 2005, Wind River had outstanding contracts with the following terms:

Contract amounts are representative of the expected amounts to be paid under the terms of these instruments. Wind River does not enter into derivative financial instruments for trading or speculative purposes. As of April 30, 2005, the fair value of the above contracts was not significant.

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Note 3: Deferred Revenues

Deferred revenues consist of the following:

Deferred subscription revenues represent customer billings and payments made in advance for software licensed over a subscription period. Subscription periods vary from annual to multi-year and are classified as such. Deferred service revenues include pre-payments for software consulting and other product services, including software license transactions that are not segmentable from consulting services. Revenue for these services is recognized as the services are performed. Deferred maintenance revenues represent customer billings and payments made in advance for annual support contracts. Maintenance is typically billed on a per annum basis in advance and revenue is recognized ratably over the maintenance period.

Note 4: Restructuring Charges

As a result of decisions undertaken regarding the cost structure of its business, beginning in fiscal 2002, Wind River implemented restructuring plans that were designed to align its anticipated revenues more closely with its cost structure. In connection with the restructuring programs, Wind River recorded net restructuring charges of $185,000 and $1.2 million during the three months ended April 30, 2005 and 2004, respectively. During the three months ended April 30, 2005, Wind River recorded additional charges under SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”) associated with the restructuring program undertaken in the last quarter of fiscal 2005. Additionally, Wind River recorded a charge associated with employee litigation as a result of previous restructurings and revised estimates downward for Wind River’s actual experience in the amount of $143,000 for employee-related items, including outplacement fees and judgments rendered in employee litigation matters. These costs have been classified as operating expenses. Wind River’s restructuring programs for the three months ended April 30, 2005 and 2004 have been accounted for in accordance with SFAS No. 146. For a further discussion of factors that may affect the success of the restructuring program, see “—Factors That May Affect Our Future Results or the Market Price of Our Stock—Our restructuring plans may not enable us to achieve long-term profitability or achieve our business objectives.”

As of April 30, 2005, Wind River’s total restructuring liabilities related to its restructuring programs for the three months ended April 30, 2005, fiscal years 2005 and 2003 totaled approximately $1.4 million. There were no remaining restructuring liabilities for fiscal 2004. The following table summarizes Wind River’s restructuring liabilities as of April 30, 2005:

Wind River expects the workforce reduction and consolidation of excess facilities liabilities to be paid out by the end of the third quarter of fiscal 2006.

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Note 5: Convertible Subordinated Notes and Other Borrowings

In December 2001, Wind River issued $150.0 million of 3.75% convertible subordinated notes due December 2006. The notes are unsecured and subordinate to all existing and future senior debt. The notes mature on December 15, 2006, unless earlier redeemed or converted. Interest on the notes is payable in cash semi-annually in arrears on June 15 and December 15 of each year. The notes may be converted, at the option of the holder, into Wind River’s common stock at any time at the then-current conversion price, initially $24.115 per share. Wind River may redeem all or a portion of the notes for cash at the redemption price of 100.75% of the principal amount between December 15, 2004 and December 15, 2005 and 100.0% of the principal amount beginning December 15, 2005 and thereafter.

During fiscal 2005, Wind River repurchased $75.0 million of the notes on the open market at an aggregate price of $75.4 million. Additionally, Wind River expensed $1.0 million in unamortized bond issuance costs, resulting in a total recognized loss on the repurchase of $1.4 million. As of January 31, 2005, $75.0 million in convertible subordinated notes (convertible into 3.1 million shares) remained outstanding.

In March 2005, Wind River repurchased an additional $20.0 million of its 3.75% convertible subordinated notes on the open market at an aggregate price of $20.1 million. Wind River expensed $257,000 in unamortized bond issuance costs, resulting in a total recognized loss on the additional repurchase of $312,000. As of April 30, 2005, $55.0 million in convertible subordinated notes (convertible into 2.3 million shares) remained outstanding.

In April 2003, in connection with the termination of the synthetic leases associated with Wind River’s headquarters facility, Wind River entered into a loan facility with a financial institution in the aggregate principal amount of $57.4 million, consisting of a non-revolving loan commitment of $37.4 million and a term loan of $20.0 million, of which $40.0 million was borrowed during fiscal year 2004. During the second quarter of fiscal 2005, Wind River repaid all outstanding borrowings under the loan facility, releasing $46.3 million held in restricted investments in connection with the loan facility and leaving the original facility of $17.5 million available through October 2005. On April 29, 2005, Wind River elected to terminate the loan facility.

Note 6: Provision for Income Taxes

Wind River recorded a tax provision of $386,000 and $700,000 in the three months ended April 30, 2005 and 2004, respectively. Wind River’s tax provision is based on estimates of its expected liability for domestic and foreign income and withholding taxes that will be incurred during the year. The decrease in the tax provision of $314,000 was primarily related to lower foreign withholding taxes and lower foreign income taxes.

Deferred income taxes are recorded in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) and are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. SFAS No. 109 provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur. With the exception of Germany, Wind River has determined that it is more likely than not that its deferred tax assets in all jurisdictions will not be realized, due to uncertainties related to its ability to utilize its deferred tax assets, primarily net operating losses carried forward and foreign tax credits, before they expire. Accordingly, Wind River has recorded a deferred tax asset of $682,000 in Germany and a full valuation allowance against the remainder of its deferred tax assets at April 30, 2005 and January 31, 2005.

Note 7: Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. The difference between net income (loss) and comprehensive income (loss) results from foreign currency translation adjustments, mark-to-market adjustments and unrealized gains and losses on available-for-sale securities.

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Comprehensive income (loss) for the three months ended April 30, 2005 and 2004 is as follows:

Note 8: Net Income (Loss) Per Share Computation

In accordance with SFAS No. 128, “Earnings Per Share,” the calculation of shares used in basic and diluted net income (loss) per share computation is presented below:

The effect of the assumed conversion of the 3.75% convertible subordinated notes for 2.3 million and 6.2 million shares for the three months ended April 30, 2005 and 2004, respectively, is anti-dilutive, and is therefore excluded from the above computation. Since Wind River had a net loss for the three months ended April 30, 2004, there is no difference between basic and diluted net loss per share. If Wind River had recorded net income for the three months ended April 30, 2004, it would have included in the computation dilutive potential common shares from outstanding stock options totaling approximately 3.4 million for the three months ended April 30, 2004.

Note 9: Commitments and Contingencies

Litigation

From time to time, Wind River is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of patents and other intellectual property rights. Management believes the outcome of Wind River’s outstanding legal proceedings, claims and litigation will not have a material adverse effect on Wind River’s business, results of operations, cash flows or financial condition. However, such matters involve complex questions of fact and law and could involve significant costs and the diversion of resources to defend. Additionally, the results of litigation are inherently uncertain, and an adverse outcome is at least reasonably possible. Quarterly, Wind River reviews the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. As additional information becomes available, Wind River reassesses the potential liability related to its pending claims and litigation and may revise its estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our consolidated results of operations or financial position.

On June 7, 2004, Wind River filed a complaint against Green Hills Software, Inc. (Green Hills), a direct competitor, in the Superior Court of California, County of Alameda. The action was transferred to the Superior Court of California, County of Santa Barbara. The subsequently amended complaint requested $25,000 in damages due to breach by Green Hills of a cooperative marketing and technology agreement entered into between the parties in October 1992. Green Hills subsequently filed an answer and cross-complaint in that action. On January 18, 2005, Green Hills filed a complaint against Wind River in the United States District Court for the Central District of California alleging, among other things, that Wind River violated antitrust and unfair competition

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laws by allegedly refusing to license its VxWorks product to Green Hills and refusing to market VxWorks separately from the integrated development environment for VxWorks. Green Hills requested an award for damages and injunctive relief on these matters. On April 28, 2005, the Court denied Wind River’s motion to dismiss and Green Hill’s motion for preliminary injunction. On May 12, 2005, Wind River filed its answer. These related lawsuits are still in the preliminary stages, and it is not possible for Wind River to quantify the extent of potential liability to Green Hills, if any, resulting from the Green Hills lawsuits. Wind River does not believe that the lawsuit brought by Green Hills against Wind River has any merit and intends to defend the action vigorously.

Note 10: Segment and Geographic Information

Wind River reports in one industry segment—technology for device operating systems and provides the disclosures required in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. The Wind River business is principally managed on a consolidated basis. Wind River markets its products and related services to customers in four geographic regions: North America (the United States and Canada), EMEA, Japan and Asia Pacific. Internationally, Wind River markets its products and services primarily through its subsidiaries and various distributors. Revenues are generally attributed to geographic areas based on the country in which the customer is domiciled.

Revenue and long-lived asset information by region is presented below:

Revenue information on a product, subscription and services basis is presented below:

No single customer accounted for more than 10% of Wind River’s total revenues in the three months ended April 30, 2005 and 2004, respectively.

Note 11: Subsequent Events

On June 8, 2005, the stockholders of Wind River, upon recommendation of Wind River’s Board of Directors (“Board”), approved the Wind River Systems, Inc. 2005 Equity Incentive Plan (the “2005 Equity Plan”). The Board adopted the 2005 Equity Plan on March 10, 2005, subject to stockholder approval. The 2005 Equity Plan will terminate ten years from the date of such adoption. The 2005 Equity Plan replaces the 1987 Equity Incentive Plan, 1995 Non-Employee Directors’ Stock Option Plan, the 1998 Non-Officer Stock Option Plan and the 1998 Equity Incentive Plan (the “Predecessor Plans”). No further awards will be granted under the Predecessor Plans. A maximum of 6,250,000 shares of Common Stock is available for issuance under the 2005 Equity Incentive Plan, plus any shares subject to any outstanding options under the Predecessor Plans that subsequently expire unexercised up to a maximum of an additional 2,500,000 shares.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include words such as “could.” “may.” “believe,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “estimate,” “foresee,” “project” and similar expressions and are found in the sections below entitled “—Overview,” “—Liquidity and Capital Resources,”“ —Results of Operations” and “—Factors That May Affect Our Future Results or the Market Price of Our Stock” and elsewhere in this Quarterly Report. These forward-looking statements include, but are not limited to, statements related to our expected business, results of operations, future financial position, business strategy, including our adoption of an open source strategy, and our shift to an enterprise licensing model, our ability to increase our revenues, our financing plans and capital requirements, our investments, our expenses and tax liability, the effect of recent accounting pronouncements, debt service and principal repayment obligations, cash flows, revenues generated from fixed-price services contracts forecasted trends relating to our services 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. Factors that could cause or contribute to such differences include but are not limited to the success of Wind River’s implementation of its new and current business models, products and market strategies, the ability of our customers to sell products that include our software, our ability to address new markets and complex technologies by delivering successful, new products on a timely basis, the impact of competitive products and pricing, the success of our strategic relationships, charges for restructuring and other costs and other risk factors detailed in this Quarterly Report on Form 10-Q and in Wind River’s Annual Report on Form 10-K for the fiscal year ended January 31, 2005 (“2005 Form 10-K”), its Quarterly Reports on Form 10-Q and other periodic filings with the Securities and Exchange Commission (“SEC”).

These forward-looking statements are based on current expectations and involve known and unknown risks and uncertainties that may cause the results, levels of activity, performance or achievements of Wind River or its industry to be materially different from those expressed or implied by the forward-looking statements. You should carefully review the risk factors described in the “—Factors That May Affect Our Future Results or the Market Price of Our Stock” section below and in other documents we file from time to time with the SEC, including our 2005 Form 10-K, and the other quarterly and other reports we file. We do not intend to update any of the forward-looking statements contained in this report to reflect any future events or developments unless 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”). Our software is used to develop and run devices better, faster, at a lower cost and more reliably. Our software and development tools are used to optimize the functionality of devices as diverse as digital imaging products, automobile braking systems, Internet routers, avionics control panels and factory automation equipment. Wind River offers customers DSO solutions to enhance product performance, standardize designs across projects and throughout the enterprise, reduce research and development costs and shorten product development cycles.

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 2005 Form 10-K.

Recent Operating Results

Our total revenues were $61.8 million and $52.8 million in the three months ended April 30, 2005 and 2004, respectively. Our net income was $1.8 million or a net income of $0.02 per fully diluted share in three months ended April 30, 2005. Our net loss was $3.8 million or a net loss of $0.05 per fully diluted share in the three months ended April 30, 2004.

Our total deferred revenue increased to $82.8 million at April 30, 2005 from $77.1 million at January 31, 2005, primarily as a result of continued increases in sales of our Wind River Platforms and other enterprise license based products under our subscription licenses model. Of the total deferred revenue balance at April 30, 2005, $11.1 million relates to deferred revenue classified as long-term. This deferred revenue relates to the portion of multi-year contracts that is due to be recognized as revenue in a time period greater than one year from the balance sheet date.

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We generated cash flow from operations of $11.2 million and $9.1 million in the three months ended April 30, 2005 and 2004, respectively. We repurchased an additional $20.0 million of our 3.75% convertible subordinated notes in March 2005.

Critical Accounting Policies and Estimates

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 GAAP. 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. Note 2, “Summary of Significant Accounting Policies” in Notes to Consolidated Financial Statements in our 2005 Form 10-K describes our significant accounting policies which are reviewed by us on a regular basis and which are also reviewed by senior management with the Audit Committee of our Board of Directors.

An accounting policy is deemed by us to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. 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 are:

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 2005 Form 10-K.

Results of Operations for the Three Months Ended April 30, 2005 and 2004

Revenues

We recognize revenues from three sources: (1) product revenues, (2) service revenues and (3) subscription revenues, net of sales returns and other allowances. Product revenues consist of revenues from production licenses (sometimes referred to as royalties), and fees for stand-alone software and software programming tools sold under our perpetual licensing model and from sales of our hardware. Service revenues are derived from fees from professional services, which include design and development fees, software maintenance contracts, and customer training and consulting. Subscription revenues consist of revenues from the licensing of products and services under our enterprise licensing model including items such as development tools, an operating system, various protocols and interfaces and maintenance and support services such as installation and training, which are licensed over a limited period of time, typically 12 months.

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Total revenues increased 17% in the three months ended April 30, 2005 compared to the three months ended April 30, 2004. This was primarily due to higher customer demand for our software and hardware, in particular production licenses and as a result of an improvement in the overall economy. See “—Factors That May Affect Our Future Results or the Market Price of Our Stock.”

Our product and service revenues, in particular maintenance revenues, have also been affected as the result of the transition of some of our customers to our Wind River Platforms. Fees from the Wind River Platforms are recorded as subscription revenue ratably over the license term, which is typically one year. In contrast, under our perpetual model, a significant percentage of the transaction fee is recognized in the quarter the transaction is completed. While this has impacted, and will continue to impact, our revenues in the short-term as customers transition to the Wind River Platforms, our deferred revenues have increased to $82.8 million at April 30, 2005 from $77.1 million at January 31, 2005 and we expect this trend to continue.

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

Perpetual license revenues declined 11% in the three months ended April 30, 2005 compared to the three months ended April 30, 2004. This was primarily due to the transition to our Wind River Platforms, which are accounted for as subscription revenues. We expect perpetual licenses and hardware revenues to continue to decline as the transition to our Wind River Platforms continues.

Production license revenues increased 35% in the three months ended April 30, 2005 compared to the three months ended April 30, 2004. This increase in the three months ended April 30, 2005 was primarily due to our customers manufacturing more embedded devices that include our technologies, especially in the networking segment, further improvement in our execution in the area of customer compliance and reporting and improvement in our customers’ own quarterly reporting processes.

Subscription Revenues. Subscription revenues were $16.4 million in the three months ended April 30, 2005 compared to $9.5 million in the three months ended April 30, 2004. The significant increase in the three months ended April 30, 2005 in subscription revenues resulted from the continued transition of a number of our customers from our traditional perpetual licensing model to our Wind River Platforms under the enterprise license model, also known as our subscription model, and increasing business activity levels. We expect that subscription revenues will continue to increase both in absolute dollars and as a percentage of revenue in the future. Fiscal 2004 was the first full fiscal year in which we sold our Wind River Platform products under the enterprise license model. The transition of customers to our enterprise license model will continue to affect the level of our overall revenues because we recognize fees under this business model ratably as opposed to our perpetual model where a significant proportion of the fee is recognized at the time the transaction is completed.

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

Maintenance revenues declined 11% in the three months ended April 30, 2005 compared to the three months ended April 30, 2004. The decline is primarily due to the continued transition of our customers to our Wind River Platforms, which include maintenance as a part of the subscription fee. We expect maintenance revenues will continue to decline as our customers’ transition to our Wind River Platforms continues. Other service revenues remained flat in the three months ended April 30, 2005 compared to the three months ended April 30, 2004. During the quarter ended April 30, 2005, we generated $3.5 million in revenue from fixed-price services contracts compared to $320,000 in the quarter ended April 30, 2004. Fixed-price services contracts are accounted for under the percentage-of-completion method of accounting. Time and materials services contracts are recognized as services are performed.

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In the short-term, we expect revenues generated from fixed-price services contracts to be similar to that generated in the first quarter of fiscal 2006.

Revenues by Geography

Revenues from international sales increased by 19% to $27.9 million in the three months ended April 30, 2005 from $23.4 million in the three months ended April 30, 2004. The overall increase was due to a 18% increase in revenues from EMEA, a 22% increase in revenues from Japan, and a 19% increase in revenues from Asia Pacific, for the three months ended April 30, 2005 compared to the three months ended April 30, 2004. Revenues from sales in North America increased 15% in the three months ended April 30, 2005 compared to the three months ended April 30, 2004. The increases in revenues in each geographic area over these periods resulted primarily from improvements in the overall worldwide economy and in local economies. The impact of foreign exchange rate movements did not have a significant impact on international revenues during the three months ended April 30, 2005. International revenues accounted for 45% and 44% of total revenues for the three months ended April 30, 2005 and 2004, respectively. We expect international sales to continue to represent a significant portion of our revenues, although the actual percentage may fluctuate from period to period. Our international sales are generally denominated in United States Dollars, Euro, United Kingdom Sterling or Japanese Yen.

Deferred Revenues

Our deferred revenues consist of the following:

During fiscal 2005, we began offering subscription and maintenance periods greater than twelve months and, accordingly, began to record long-term deferred revenues which represents the portion of multi-year contracts that are due to be recognized as revenue in a time period greater than one year from the balance sheet date. The growth in subscription deferred revenues results from the continued transition from our traditional perpetual licensing model to our Wind River Platforms enterprise license model and increasing business activity levels. The growth in deferred revenues for subscriptions during the three months ended April 30, 2005 corresponds to the 11% increase in subscription revenue from the three months ended January 31, 2005. The growth in deferred revenues for maintenance and other during the three months ended April 30, 2005 relates primarily to the additional deferred consulting services revenue, due to timing differences between customer billings and revenue recognition.

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Cost of Revenues