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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended November 30, 2006

For the transition period from                                  to                                 

Commission File Number: 000-26579

TIBCO SOFTWARE INC.

(Exact name of registrant as specified in its charter)

3303 Hillview Avenue, Palo Alto, CA 94304

(Address of principal executive offices) (Zip Code)

(650) 846-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant (based upon the closing sale price of such shares on the Nasdaq Global Market on June 2, 2006) was approximately $1,343,165,843. Shares of common stock held by each executive officer and director and by each entity that owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of January 31, 2007, there were 207,844,377 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the 2007 Annual Meeting of Stockholders to be held on April 18, 2007 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.

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TIBCO SOFTWARE INC. FORM 10-K

For the Fiscal Year Ended November 30, 2006

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Forward Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to: the mix of our revenues between license, service and maintenance revenues; the effect of stock-based compensation on our financial results; our financing plans and capital requirements; our revenues and costs of revenues; our expenses; our potential tax benefit or liabilities; the effect of recent accounting pronouncements and related interpretations; our investments, foreign currency risk, concentration of credit risk, debt service and principal repayment obligations; cash flows and our ability to finance operations from cash flows; seasonality in our business; the dependence of our license revenue on the timing and number of license deals; our continued investment and increased spending on research and development; the increase in absolute dollars in sales and marketing expenses, general and administrative spending and operating expenses; our amortization of previously acquired intangible assets; the dependence upon market conditions and other corporate conditions in relation to the timing and amount of stock repurchases; forecasts and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets; and other similar matters. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including, but not limited to, the factors set forth under “Risk Factors.” All forward-looking statements and reasons why results may differ included in this Annual Report on Form 10-K 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.

Trademarks

TIBCO, TIBCO Software, Information Bus, TIB and TIBCO BusinessFactor are the trademarks or registered trademarks of TIBCO Software Inc. in the United States and other countries. This Annual Report on Form 10-K also refers to the trademarks of other companies.

PART I

Overview

TIBCO Software Inc. (“TIBCO,” the “Company,” “we” or “us”) is a leading business integration and process management software company that enables real-time business. We provide a broad range of standards-based software solutions that helps organizations achieve the benefits of real-time business. Real-time business is about giving organizations the ability to sense and respond to changes and opportunities as they arise by enabling the use of current information to execute critical business processes and make smarter decisions. We provide software that enables interoperability between applications and information sources, coordinates processes that span systems and people, and helps companies sense and respond to events and opportunities more quickly and with more certainty and control.

Our software can make corporate assets such as applications, other IT systems and the information contained within them more effective and valuable by tying them together with a common framework and coordinating the interactions among them. Our products can lower IT costs by enabling companies to more quickly and easily create, manage and modify these interactions and can make companies more efficient by automating routine processes to allow their employees to focus their efforts on managing exceptional problems

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and opportunities. Our products can also give managers and executives the information they need to identify and understand both the strengths and weaknesses of their businesses and external factors that shape their businesses, along with the ability to quickly reallocate their assets or adapt their operations to fix a problem or capitalize on an opportunity.

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

To meet our goal of becoming the world’s leading provider of enterprise software for service-oriented architecture (“SOA”), business process management (“BPM”), business optimization and master data management (“MDM”), we are providing our customers with a comprehensive set of products and services, promoting the widespread adoption of our technology, leveraging our vertical market expertise and pursuing strategic acquisitions to expand and strengthen our offerings. We believe we are the market leader among independent integration software companies. See “—Competition.”

We are the successor to a portion of the business of Teknekron Software Systems, Inc. (“Teknekron”). Teknekron was founded in 1985 and was acquired by Reuters Group PLC (“Reuters”), a global information company, in 1994. In November 1996, we were incorporated in Delaware and in January 1997, we were established as an entity separate from Teknekron.

TIBCO Products

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

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Services

Professional Services

Our professional services offerings include a wide range of consulting services such as systems planning and design, installation and systems integration for the rapid deployment of TIBCO products. We offer our professional services with the initial deployment of our products as well as on an ongoing basis to address the continuing needs of our customers. Our professional services staff is located throughout the Americas, Europe, Africa and Asia Pacific and Japan, enabling us to perform installations and respond to customer demands rapidly across our global customer base. Many of our professional services employees have advanced degrees, substantial TIBCO experience and industry expertise in systems architecture and design and also have domain expertise in financial services, telecommunications, manufacturing, energy, logistics, healthcare and other industries.

We also have relationships with resellers, professional service organizations and system integrators including Accenture, Atos Origin, BearingPoint, Cap Gemini and Deloitte Consulting, which include participation in the deployment of our products to customers. These relationships help promote TIBCO products and provide additional technical expertise to enable us to provide the full range of professional services our customers require to deploy our products.

Maintenance and Support

We offer a suite of software support and maintenance options that are designed to meet the needs of our diverse customer base. These support options include 24 hour coverage that is available seven days a week, 365 days a year, to meet the needs of our global customers. To accomplish this level of support we have established a worldwide support organization with major support centers in Palo Alto, California; London and Swindon, England; and Woy Woy, Australia. These centers, working in conjunction with several smaller support offices located throughout the United States and India, as well as additional support offices in the Americas, Europe and Asia Pacific and Japan, provide seamless support using a “follow-the-sun” support model.

In addition to support teams around the globe, we have a Customer Support Website that provides our customers with the ability to submit service requests, receive confirmation that a service request has been opened and to obtain current status on these requests. Additionally, the Customer Support Website provides access to our support procedures, escalation numbers and late breaking news (“LBN”). LBN is used to provide updates and new information about our products. It also provides customers with information on generally known problems and suggested solutions or workarounds that may be available.

We use TIBCO BusinessFactor^™ in conjunction with our Customer Relationship Management (“CRM”) system to provide real-time monitoring of service requests. Through the use of our CRM system, we are able to track high severity problems and latency, allowing us to enhance our responsiveness.

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Training

We provide a comprehensive and global training program for customers and partners. Training is available at our main office in Palo Alto, California and at major training centers in Houston, Texas; Maidenhead, England; Munich, Germany; and Tokyo, Japan. We also deliver training on-site at customer locations. We provide specialized training for our professional services partners to enhance their effectiveness in integrating our products. Our Educational Services group has the capability to develop solutions to address the specific needs of individual customers and partners. Our curriculum leads to an industry recognized technical certification in high visibility TIBCO technologies.

Sales and Marketing

Sales

We currently market our software and services primarily through a direct sales organization complemented by indirect sales channels. Our direct sales force is located across the United States and throughout the Americas, Europe, Africa and Asia Pacific and Japan and operates globally through our foreign subsidiaries. We have established distribution and licensing relationships with several strategic hardware vendors, software and toolset developers and systems integrators. We have also developed alliances with key solution providers to target vertical industry sectors, including energy, telecommunications and manufacturing.

Our revenue consists primarily of license, service and maintenance fees from our customers and distributors which were primarily attributable to sales of our software. License fees represented approximately 46%, 46% and 55% of our total revenue in fiscal years 2006, 2005 and 2004, respectively. Revenue from services and maintenance represented approximately 54%, 54% and 45% of our total revenue in fiscal years 2006, 2005 and 2004, respectively.

Sales to customers outside the United States totaled $262.3 million, representing 51% of our total revenue in fiscal year 2006. For a geographic breakdown of our revenue and property and equipment, see Note 20 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Marketing

We use a mix of market research, analyst updates, seminars, direct mail, print advertising, trade shows, speaking engagements, public relations, customer newsletters and web marketing in order to achieve our marketing goals. Our marketing department also produces collateral material for distribution to potential customers including presentation materials, white papers, brochures, magazines and fact sheets. We also host annual user conferences for our customers and provide support to our channel partners with a variety of programs, training and product marketing support materials.

Seasonality

Our business is subject to variations throughout the year due to seasonal factors in the U.S. and worldwide. These factors include fewer selling days in Europe during the summer vacation season (which has a disproportionate effect on sales in Europe), the impact of the December holidays and a slow down in capital expenditures by our customers after calendar year-end (during our first fiscal quarter). These factors typically constrain sales activity in our first and third fiscal quarters compared to the rest of the year, and they make quarter-to-quarter comparisons of our operating results less meaningful.

Competition

The market for our products and services is extremely competitive and subject to rapid change. While we offer a comprehensive suite of integration solutions and believe we are the market leader among independent integration software companies, we compete with various providers of integration products including BEA, IBM, Microsoft, SAP and webMethods. We believe that none of these companies has a suite of integration products as

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complete as ours, but BEA, IBM, Microsoft, Oracle and SAP offer products outside our segment and routinely bundle their broader set of products. We expect additional competition from other established and emerging companies. In addition, we may face pricing pressures from our current competitors and new market entrants in the future. We believe that the competitive factors affecting the market for our products and services include product functionality and features, quality of professional services offerings, performance and price, ease of product implementation, quality of customer support services, customer training and documentation, and vendor and product reputation. The relative importance of each of these factors depends upon the specific customer environment. We believe that our products and services currently compete favorably with respect to such factors. However, we may not be able to maintain our competitive position against current and potential competitors.

Many of our current and potential competitors have longer operating histories; significantly greater financial, technical, product development and marketing resources; greater name recognition; and larger customer bases than we do. Our present or future competitors may be able to develop products comparable or superior to those we offer; adapt more quickly than we do to new technologies, evolving industry trends or customer requirements; or devote greater resources to the development, promotion and sale of their products than we do. Accordingly, we may not be able to compete effectively in our markets, or competition may intensify and harm our business and operating results. If we are not successful in developing new products and enhancements to our existing products or achieving customer acceptance, our gross margins may decline, and our business and operating results may suffer.

Research and Development

Our success is heavily dependant on our ability to develop new products and technologies and to enhance our existing products. We expect that a majority of our research and development activities will focus on enhancing and extending our TIBCO products and that such enhancements and new products will be developed internally. However, as part of our development strategy, we may license or acquire externally developed technologies for integration into our product lines. In fiscal year 2006, we continued our development focus on creating products that interoperate. We expect that we will continue to commit significant resources to product development in the future. Product development costs are recorded as research and development expenses. Our research and development expenses, including stock-based compensation expense, were $85.9 million, $73.1 million and $61.1 million in fiscal years 2006, 2005 and 2004, respectively. To date, all product development costs have been expensed as incurred because the time period between the achievement of technical feasibility for a product and the general availability of such product has typically been very short.

Proprietary Technology

Our success is dependent upon our proprietary software technology. We believe that factors such as the technological and creative skills of our personnel, product enhancements and new product developments are all essential to establishing and maintaining a technology leadership position. We hold numerous United States and foreign patents and have several pending patent applications. We additionally license some patents from Reuters on a royalty-free basis. These patent rights notwithstanding, we currently rely primarily on trade secret rights, copyright and trademark laws, and nondisclosure and other contractual agreements to protect our technology. We enter into confidentiality and/or license agreements with our employees, distributors and customers, and limit access to and distribution of our software, documentation and other proprietary information. Despite these protective measures, third parties could still copy and use our products or otherwise misappropriate our technology.

Furthermore, third parties might independently develop competing technologies that include the same functionality or features, or otherwise are substantially equivalent or superior to our technologies. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries where we operate. Our business could suffer serious harm if we fail to protect our proprietary technology.

Although we do not believe our products infringe the proprietary rights of any third parties, third parties may nevertheless assert infringement claims against our customers or us in the future. Furthermore, we may

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initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation, whether resolved in our favor or not, would cause us to incur substantial costs and divert our management resources from productive tasks, which would harm our business. Parties making claims against us could secure substantial damages, as well as injunctive or other equitable relief, which could effectively block our ability to sell our products in the United States or abroad. Such a judgment could seriously harm our business. If it appears necessary or desirable, we may seek licenses to intellectual property. If we are unable to obtain necessary licenses or other rights, our business may suffer serious harm.

Employees

As of November 30, 2006, we employed 1,597 persons, including 476 in sales and marketing, 422 in research and development, 218 in finance and administration and 481 in professional services and technical support. Of our 1,597 employees, 945 were located in the Americas, 367 in Europe and Africa and 285 in Asia Pacific and Japan. Our success is highly dependent on our ability to attract and retain qualified employees. Competition for employees is intense in the software industry. To date, we believe we have been successful in our efforts to recruit qualified employees, but there is no assurance that we will continue to be as successful in the future.

Available Information

We are subject to the informational requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy statements and other information required that issuers file electronically.

Our principal internet address is www.tibco.com. We make available free of charge on www.tibco.com our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained or referenced on our website is not incorporated by reference in and does not form a part of this Annual Report on Form 10-K.

The following risk factors, as well as other factors of which we may be unaware or do not currently view as significant, could materially and adversely affect our future operating results and could cause actual events to differ materially from those predicted in the forward-looking statements we make about our business.

Our future revenue is unpredictable, and we expect our quarterly operating results to fluctuate, which may cause our stock price to decline.

Period-to-period comparisons of our operating results may not be a good indication of our future performance. Moreover, our operating results in some quarters have not in the past, and may not in the future, meet the expectations of stock market analysts and investors. This has in the past, and may in the future, cause our stock price to decline. As a result of the evolving nature of the markets in which we compete and the size of our customer agreements, we have difficulty accurately forecasting our revenue in any given period. In addition to the factors discussed elsewhere in this section, a number of factors may cause our revenue to fall short of our expectations, or those of stock market analysts and investors, or cause fluctuations in our operating results, including:

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In addition, while we may in future years record positive net income and/or increases in net income over prior periods, we may not show period-over-period earnings per share growth or earnings per share growth that meets the expectations of stock market analysts or investors as a result of the number of our shares outstanding during such periods. In such case, our stock price may decline.

Our stock price may be volatile, which could cause investors to lose all or part of their investments in our stock.

The stock market in general and the stock prices of technology companies in particular, have experienced volatility which has often been unrelated to the operating performance of any particular company or companies. During fiscal year 2006, our stock price fluctuated between a high of $9.70 and a low of $6.44. If market or industry-based fluctuations continue, our stock price could decline in the future regardless of our actual operating performance and investors could lose all or part of their investments.

Increases in services revenues as a percentage of total revenues may decrease overall margins.

We have in the past realized and may continue in the future to realize a higher percentage of revenues from services and maintenance on a combined basis. For example, in fiscal year 2006, our service and maintenance revenue represented 54% of our total revenue. Our profit margin for maintenance is higher than our margin for services, but both are lower than our license revenue profit margin. As a result, if services and maintenance revenues increase as a percentage of total revenues, our overall profit margin may decrease which could impact our stock price.

We must overcome significant competition in order to succeed.

The market for our products and services is extremely competitive and subject to rapid change. We compete with a variety of large and small providers of solutions for enterprise application integration, SOA, BPM,

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business optimization and MDM, including companies such as IBM, Oracle, Microsoft, BEA, SAP, Pegasystems and webMethods. We believe that of these companies, IBM has the potential to offer the most complete competitive set of products relative to our offerings. In addition, some of our competitors are expanding their competitive product offerings and market position through acquisitions and internal research and development. For example, Sun Microsystems acquired SeeBeyond in August 2005, potentially making Sun Microsystems a direct competitor of ours as well. BEA has also acquired companies that expand its offerings, such as Fuego, in March 2006, which potentially makes BEA a more direct competitor in BPM solutions. We expect additional competition from other established and emerging companies. We also face competition for certain aspects of our product and service offerings from major systems integrators. Further, we may face increasing competition from open source software initiatives, in which competitors provide software and intellectual property, typically without charging license fees. If customers choose such open source products over our proprietary software, our revenues and earnings could be adversely affected.

Many of our current and potential competitors have longer operating histories; significantly greater financial, technical, product development and marketing resources; greater name recognition; and larger customer bases than we do. Our present or future competitors may be able to develop products comparable or superior to those we offer; adapt more quickly than we do to new technologies, evolving industry trends or customer requirements; or devote greater resources to the development, promotion and sale of their products than we do. Accordingly, we may not be able to compete effectively in our markets or competition may intensify and harm our business and operating results.

If we are not successful in developing enhancements to existing products and new products in a timely manner, achieving customer acceptance for our existing and new product offerings or generating higher average selling prices, our gross margins may decline, and our business and operating results may suffer. Furthermore, any of our new product offerings or significant enhancements to current product offerings could cause some customers to delay making new or additional purchases while they fully evaluate any new offerings we might have introduced to the market, which in turn may slow sales and adversely affect operating results for an indeterminate period of time.

Our strategy contemplates possible future acquisitions which may result in us incurring unanticipated expenses or additional debt, difficulty in integrating our operations and dilution to our stockholders and may harm our operating results.

Our success depends in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. We have in the past and may in the future, acquire complementary businesses, products or technologies. In this regard, we have made strategic acquisitions, including the acquisition of certain assets of Velosel Corporation (“Velosel”) and ObjectStar International Limited (“ObjectStar”) in 2005, and the acquisition of Staffware plc (“Staffware”) and General Interface Corporation in 2004. We do not know if we will be able to complete any subsequent acquisition or that we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees. Integrating any newly acquired business, product or technology could be expensive and time-consuming, could disrupt our ongoing business and financial performance and could distract our management. In particular, integrating sales forces and strategies for marketing and sales has in the past required and will likely require in the future, substantial time, effort and expense, especially from our management team. Therefore, we might not be able, either immediately post-acquisition or ever, to replicate the pre-acquisition revenues achieved by companies that we acquire or achieve the benefits of the acquisition we anticipated in valuing the businesses, products or technologies we acquire. Furthermore, the costs of integrating acquired companies in international transactions can be particularly high, due to local laws and regulations. If we are unable to integrate any newly acquired entity, products or technology effectively, our business, financial condition and operating results would suffer. In addition, any amortization or impairment of acquired intangible assets, stock-based compensation or other charges resulting from the costs of acquisitions could harm our operating results.

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In addition, we may face competition for acquisition targets from larger and more established companies with greater financial resources. Also, in order to finance any acquisition, we might need to raise additional funds through public or private financings or use our cash reserves. In that event, we could be forced to obtain equity or debt financing on terms that are not favorable to us or that result in dilution to our stockholders. Use of our cash reserves for acquisitions could limit our financial flexibility in the future. Moreover, the terms of existing loan agreements may prohibit certain acquisitions or may place limits on our ability to incur additional indebtedness or issue additional equity securities to finance acquisitions. If we are not able to acquire strategically attractive businesses, products or technologies, we may not be able to remain competitive in our industry.

Our business is subject to seasonal variations which make quarter-to-quarter comparisons difficult.

Our business is subject to variations throughout the year due to seasonal factors in the U.S. and worldwide. These factors include fewer selling days in Europe during the summer vacation season (which has a disproportionate effect on sales in Europe), the impact of the December holidays and a slow down in capital expenditures by our customers after calendar year-end (during our first fiscal quarter). These factors typically constrain sales activity in our first and third fiscal quarters compared to the rest of the year, and they make quarter-to-quarter comparisons of our operating results less meaningful.

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

On December 1, 2005, we adopted SFAS No. 123(R) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values. As a result, starting with fiscal year 2006, our operating results contain a charge for stock-based compensation expense related to employee stock options. This charge is in addition to stock-based compensation expense we have recognized in prior periods related to non-employee stock options and business acquisitions. The application of SFAS No. 123(R) requires the use of an option-pricing model to determine the fair value of stock-based awards. This determination of fair value is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility, expected term, risk-free interest rate and expected dividends. As a result of the adoption of SFAS No. 123(R), in fiscal year 2006, our earnings were lower than they would have been had we not been required to adopt SFAS No. 123(R). This will continue to be the case for future periods, and we cannot accurately predict the magnitude of this effect on our earnings in future periods. Further, we cannot predict what the impact will be on the trading price of our common stock as a result of the adoption of SFAS No. 123(R). Also, SFAS No. 123(R) requires that the tax benefit of stock option deductions relating to incentive stock options be recorded in the period of disqualifying disposition. This could result in significant fluctuations in our effective tax rate between accounting periods.

Future changes in financial accounting standards, financial reporting regulations and interpretations of these standards and regulations may adversely affect our reported results of operations.

A change in accounting standards and financial reporting regulations can have a significant effect on our reported results. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. These new accounting pronouncements may adversely affect our reported financial results.

Although we use standardized license agreements designed to meet current revenue recognition criteria under generally accepted accounting principles, we must often negotiate and revise terms and conditions of these standardized agreements, particularly in larger license transactions. Negotiation of mutually acceptable terms and conditions can extend the sales cycle and, in certain situations, may require us to defer recognition of license revenue. While we believe that we are in compliance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended, the American Institute of Certified Public Accountants (“AICPA”) continues to issue

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implementation guidelines for these standards and the accounting profession continues to discuss a wide range of potential interpretations. Additional implementation guidelines, and changes in interpretations of such guidelines, could lead to unanticipated changes in our current revenue accounting practices that could cause us to defer the recognition of revenue to future periods or to recognize lower revenue and profits.

Moreover, policies, guidelines and interpretations related to revenue recognition, accounting for acquisitions, income taxes, facilities consolidation charges, allowances for doubtful accounts and other financial reporting matters require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. To the extent that management’s judgment is incorrect, it could result in an adverse impact on our financial statements. Some of these matters are also among topics currently under re-examination by accounting standard setters and regulators. These standard setters and regulators could promulgate interpretations and guidance that could result in material and potentially adverse changes to our accounting policies.

The past slowdown in the market for infrastructure software and its protracted recovery have caused our revenue to decline in the past and could cause our revenue or results of operations to fall below expectations in the future.

The market for infrastructure software is relatively new and evolving. We earn a substantial portion of our revenue from licenses of our infrastructure software, including application integration software and sales of related services. We expect to earn substantially all of our revenue in the foreseeable future from sales of these products and services. Our future financial performance will depend on continued growth in the number of organizations demanding software and services for application integration and information delivery and companies seeking outside vendors to develop, manage and maintain this software for their critical applications. Lower spending by corporate and governmental customers around the world, which has had a disproportionate impact on information technology spending, has led to a reduction in sales in the past and may continue to do so in the future. Many of our potential customers have made significant investments in internally developed systems and would incur significant costs in switching to third-party products, which may substantially inhibit the growth of the market for infrastructure software. If the market fails to grow, or grows more slowly than we expect, our sales will be adversely affected. Also, even as corporate and governmental spending increases and companies make greater investments in information technology and infrastructure software, our revenue may not grow at the same pace.

Any failure by us to meet the requirements of current or newly-targeted customers may have a detrimental impact on our business or operating results.

If we fail to meet the expectations or product and service requirements of our current customers, our reputation and business may be harmed. In addition, we may wish to expand our customer base into markets in which we have limited experience. In some cases, customers in different markets, such as financial services or government, have specific regulatory or other requirements which we must meet. For example, in order to maintain contracts with the U.S. Government, we must comply with specific rules and regulations relating to and that govern such contracts. While we have historically met the requirements of our customers, if we fail to meet such requirements in the future, we could be subject to civil or criminal liability or a reduction of revenue which could harm our business, operating results and financial condition.

Any losses we incur as a result of our exposure to the credit risk of our customers could harm our results of operations.

We monitor individual customer payment capability in granting credit arrangements, seek to limit credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. As we have grown our revenue and customer base, our exposure to credit risk has increased. Although we have not had material losses to date as a result of customer defaults, future defaults, if incurred, could harm our business and have an adverse effect on our business, operating results and financial condition.

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We are required to undertake an annual evaluation of our internal control over financial reporting (“ICFR”) that may identify internal control weaknesses requiring remediation, which could harm our reputation and confidence in our financial reporting.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) imposes duties on us, our executives and directors. We completed our fiscal year 2006 evaluation of the design and testing of effectiveness of our ICFR required to comply with the management certification and attestation by our independent registered public accounting firm as required by Section 404 of Sarbanes-Oxley. While our assessment, testing and evaluation of the design and operating effectiveness of our ICFR resulted in our conclusion that as of November 30, 2006, our ICFR were effective, we cannot predict the outcome of our testing in future periods. If we conclude in future periods that our ICFR is not effective, we may be required to change our ICFR to remediate deficiencies, investors may lose confidence in the reliability of our financial statements, and we may be subject to investigation and/or sanctions by regulatory authorities. Also, if we identify areas of our ICFR that require improvement, we could incur additional expenses to implement enhanced processes and controls to address such issues. Any such events could adversely affect our financial results and/or may result in a negative reaction in the stock market.

Regulatory requirements have caused us to incur increased costs and operating expenses, may limit our ability to obtain director and officer liability insurance and may make it more difficult for us to attract and retain qualified officers and directors.

Sarbanes-Oxley and rules enacted by the SEC and Nasdaq have caused us, and we expect will continue to cause us, to incur significant costs as a result of these regulatory requirements. In this regard, achieving and maintaining compliance with Sarbanes-Oxley and other rules and regulations, have caused us to hire additional personnel and use additional outside legal, accounting and advisory services and may require us to do so in the future.

Failure to satisfy the rules could make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, or as executive officers.

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

If we fail to retain and recruit key management and other skilled employees, our business and our ability to obtain new customers, develop new products and provide acceptable levels of customer service could suffer. As we grow, we must invest significantly in building our sales, marketing and engineering groups. Competition for these people in the SOA market is intense, and we may not be able to successfully recruit, train or retain qualified personnel. We are competing against companies with greater financial resources and name recognition for these employees, and as such, there is no assurance that we will be able to meet our hiring needs or hire the most qualified candidates. The success of our business is also heavily dependent on the leadership of our key management personnel, including Vivek Ranadivé, our President and Chief Executive Officer. The loss of one or more key employees could adversely affect our continued operations.

In addition, we must successfully integrate new employees into our operations and generate sufficient revenues to justify the costs associated with these employees. If we fail to successfully integrate employees or to generate the revenue necessary to offset employee-related expenses, we may be forced to reduce our headcount, which would force us to incur significant expenses and would harm our business and operating results.

The value of our equity incentive programs may diminish as a retention tool as a result of the changes in the financial accounting standards and our stock price volatility.

We have historically used equity incentive programs, such as employee stock options and stock purchase plans, as a part of overall employee compensation arrangements. As a result of changes in the financial

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accounting standards, we have changed our stock purchase plan, reduced the size and number of stock option grants we give to our employees, changed the form of equity compensation we give to some of our employees and may make further changes to our equity compensation programs, all of which may decrease the effectiveness of our plans as employee retention tools. In addition, the volatility of our stock price may negatively impact the value of such equity incentives, thereby diminishing the value of such incentive programs to employees and decreasing the effectiveness of such programs as retention tools.

The inability to upsell to our current customers or the loss of any significant customer could harm our business and cause our stock price to decline.

We do not have long-term sales contracts with any of our customers. Our customers may choose not to purchase our products in the future. As a result, a customer that generates substantial revenue for us in one period may not be a source of revenue in subsequent periods. Any inability on our part to upsell to and generate revenues from our existing customers could adversely affect our business and operating results.

Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

We cannot be certain that our products do not infringe issued patents or other intellectual property rights of others. In addition, our use of open source software components in our products may make us vulnerable to claims that our products infringe third-party intellectual property rights, in particular because many of the open source software components we may incorporate with our products may be developed by numerous independent parties over whom we exercise no supervision or control. “Open source software” is software that is covered by a license agreement which permits the user to liberally copy, modify and distribute the software, typically free of charge. Further, because patent applications in the United States and many other countries are not publicly disclosed at the time of filing, applications covering technology used in our software products may have been filed without our knowledge. While no intellectual property infringement lawsuits have been filed against us to date, we may be subject to legal proceedings and claims from time to time, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our licensees in connection with their use of our products. Although no such claims have been made in the past, our software license agreements typically provide for indemnification of our customers for intellectual property infringement claims. Intellectual property litigation is expensive and time consuming and could divert our management’s attention away from running our business and seriously harm our business. If we were to discover that our products violated the intellectual property rights of others, we would have to obtain licenses from these parties in order to continue marketing our products without substantial reengineering. We might not be able to obtain the necessary licenses on acceptable terms or at all, and if we could not obtain such licenses, we might not be able to reengineer our products successfully or in a timely fashion. If we fail to address any infringement issues successfully, we would be forced to incur significant costs, including damages and potentially satisfying indemnification obligations that we have with our customers, and we could be prevented from selling certain of our products.

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

We regard our intellectual property as critical to our success. Accordingly, we rely upon a combination of copyrights, service marks, trademarks, trade secret rights, patents, confidentiality agreements and licensing agreements to protect our intellectual property. Despite these protections, a third party could misappropriate our intellectual property. Any misappropriation of our proprietary information by third parties could harm our business, financial condition and operating results. In addition, the laws of some countries do not provide the same level of protection of our proprietary information as do the laws of the United States. If our proprietary information or material were misappropriated, we might have to engage in litigation to protect it. We might not succeed in protecting our proprietary information if we initiate intellectual property litigation, and, in any event, such litigation would be expensive and time-consuming, could divert our management’s attention away from running our business and could seriously harm our business.

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

Our software products can be licensed for use with a variety of platforms, standards and technologies, and we are constantly evaluating the feasibility of adding new platforms, standards and technologies. There may be future or existing platforms, standards and technologies that achieve popularity in the marketplace which may not be architecturally compatible with our software products. In addition, the effort and expense of developing, testing and maintaining software products will increase as more platforms, standards and technologies achieve market acceptance within our target markets. If we are unable to achieve market acceptance of our software products or adapt to new platforms, standards and technologies, our sales and revenues will be adversely affected.

Developing and maintaining different software products could place a significant strain on our resources and software product release schedules, which could harm our revenue and financial condition. If we are not able to develop software for accepted platforms, standards and technologies, our license and service revenues and our gross margins could be adversely affected. In addition, if the platforms, standards and technologies we have developed software for are not accepted, our license and service revenues and our gross margins could be adversely affected.

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

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

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

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

We may have exposure to additional tax liabilities.

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

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

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

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

Pursuant to the terms of the amended license, maintenance and distribution agreement with Reuters (the “Reuters Agreement”), we are permitted to market and sell our products, other than risk management and market data distribution products, directly and through third party resellers (other than specified resellers) to customers in the financial services market. The limitations on our ability to sell risk management and market data distribution products and on reselling through the specified resellers will continue through May 2008. While we currently do not offer any risk management and market data distribution solutions as part of our product offerings, if we were to develop any such products, we would have to rely on Reuters to sell those products in the financial services market until these restrictions end. Reuters is not required to help us sell any of these products in those markets, and Reuters may choose not to sell our products over our competitors’ products.

In addition, we license from Reuters the intellectual property that was incorporated into early versions of some of our software products. We do not own this licensed technology. Because Reuters has access to intellectual property used in our products, it could use this intellectual property to compete with us. Reuters is not restricted from using the licensed technology it has licensed to us to produce products that compete with our products, and it can grant limited licenses to the licensed technology to others who may compete with us. In addition, we must license to Reuters all of the products we own, and the source code for one of our messaging products, through December 2012. This may place Reuters in a position to more easily develop products that compete with ours.

Natural or other disasters could disrupt our business and result in loss of revenue or in higher expenses.

Natural disasters, terrorist activities and other business disruptions could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters and many of our operations are located in California, a seismically active region. In addition, many of our current and potential customers are concentrated in a few geographic areas. A natural disaster in one of these regions could have a material adverse impact on our U.S. and foreign operations, operating results and financial condition. Further, although we have not experienced a disruption to date, any unanticipated business disruption caused by Internet security threats, damage to global communication networks or otherwise could have a material adverse impact on our operating results.

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

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

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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.

We operate internationally and face risks attendant to those operations.

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

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

In May 2005, three purported shareholder class action complaints were filed against us and several of our officers in the U.S. District Court for the Northern District of California. The plaintiffs in such actions are seeking to represent a class of purchasers of our common stock from September 21, 2004, through March 1, 2005. Plaintiffs generally allege that we made false or misleading statements concerning our operating results, our business and internal controls and the integration of Staffware. The actions were consolidated and in September 2006, the U.S. District Court for the Northern District of California dismissed the litigation with prejudice. Plaintiffs have filed a notice of appeal. Plaintiffs seek unspecified monetary damages. We intend to defend ourselves vigorously; however, we expect to incur significant costs in mounting such defense.

In September 2005, a shareholder derivative complaint was filed against certain of our officers and directors in the Superior Court of the State of California, Santa Clara County. The complaint was based on substantially similar facts and circumstances as the class actions and generally alleged that the named directors and officers breached their fiduciary duties to TIBCO. In December 2006, plaintiff voluntarily dismissed the litigation without prejudice.

In addition, we, certain of our directors and officers and certain investment bank underwriters have been named in a putative class action for violation of the federal securities laws in the U.S. District Court for the Southern District of New York, captioned “In re TIBCO Software Inc. Initial Public Offering Securities Litigation.” This is one of a number of cases challenging underwriting practices in the initial public offerings (each, an “IPO”) of more than 300 companies, which have been coordinated for pretrial proceedings as “In re Initial Public Offering Securities Litigation.” Plaintiffs generally allege that the underwriters engaged in undisclosed and improper underwriting activities, namely the receipt of excessive brokerage commissions and customer agreements regarding post-offering purchases of stock in exchange for allocations of IPO shares. Plaintiffs also allege that various investment bank securities analysts issued false and misleading analyst reports. The complaint against us claims that the purported improper underwriting activities were not disclosed in the registration statements for our IPO and secondary public offering and seeks unspecified damages on behalf of a purported class of persons who purchased our securities or sold put options during the time period from July 13, 1999, to December 6, 2000.

A lawsuit with similar allegations of undisclosed improper underwriting practices, and part of the same coordinated proceedings, is pending against Talarian, which we acquired in 2002. That action is captioned “In re Talarian Corp. Initial Public Offering Securities Litigation.” The complaint against Talarian, certain of its

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underwriters and certain of its former directors and officers claims that the purported improper underwriting activities were not disclosed in the registration statement for Talarian’s IPO and seeks unspecified damages on behalf of a purported class of persons who purchased Talarian securities during the time period from July 20, 2000, to December 6, 2000.

A proposal to settle the claims against all of the issuers and individual defendants in the coordinated litigation was accepted by us and given preliminary approval by the U.S. District Court for the Southern District of New York. The completion of the settlement is subject to a number of conditions, including final approval by the U.S. District Court for the Southern District of New York. Under the settlement, the plaintiffs will dismiss and release all claims against participating defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in the action, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay an amount equal to $1.0 billion less any amounts ultimately collected by the plaintiffs from the underwriter defendants in all the cases. Unlike most of the defendant issuers’ insurance policies, including ours, Talarian’s policy contains a specific self-insured retention in the amount of $0.5 million for IPO “laddering” claims, including those alleged in this matter. Thus, under the proposed settlement, if any payment is required under the insurers’ guaranty, our subsidiary, Talarian, would be responsible for paying its pro rata share of the shortfall, up to $0.5 million of the self-insured retention remaining under its policy.

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

The uncertainty associated with substantial unresolved lawsuits could harm our business, financial condition and reputation. The defense of the lawsuits could result in the diversion of our management’s time and attention away from business operations, which could harm our business. Negative developments with respect to the lawsuits could cause our stock price to decline. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment could seriously harm our financial condition and liquidity.

The use of open source software in our products may expose us to additional risks.

Certain open source software is licensed pursuant to license agreements that require a user who distributes the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. This effectively renders what was previously proprietary software open source software. As competition in our markets increases, we must reduce our product development costs. Many features we may wish to add to our products in the future may be available as open source software and our development team may wish to make use of this software to reduce development costs and speed up the development process. While we carefully monitor the use of all open source software and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product, such use could inadvertently occur. Additionally, if a third party has incorporated certain types of open source software into its software but has failed to disclose the presence of such open source software and we embed that third party software into one or more of our products, we could, under certain circumstances, be required to disclose the source code to our product. This could have a material adverse effect on our business.

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Some provisions in our certificate of incorporation and bylaws, as well as a stockholder rights plan, may have anti-takeover effects.

We have a stockholder rights plan providing for one right for each outstanding share of our common stock. Each right, when exercisable, entitles the registered holder to purchase certain securities at a specified purchase price. The rights plan may have the anti-takeover effect of causing substantial dilution to a person or group that attempts to acquire TIBCO on terms not approved by our Board of Directors. The existence of the rights plan could limit the price that certain investors might be willing to pay in the future for shares of our common stock and could discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. In addition, provisions of our current certificate of incorporation and bylaws, as well as Delaware corporate law, could make it more difficult for a third party to acquire us without the support of our Board of Directors, even if doing so would be beneficial to our stockholders.

None.

Our principal administrative, sales, marketing, service and research and development facilities are located in a four building campus totaling approximately 292,000 square feet in Palo Alto, California. We purchased these buildings in June 2003. In connection with the purchase, we entered into a 51-year lease of the land upon which the buildings are located. Further information on the terms of the building acquisition can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Note 5 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

In addition, we lease field support offices in approximately 60 cities throughout the world. The field offices range from small executive offices to a 22,000 square foot facility, in Maidenhead, England, that serves as our European sales operations headquarters. Lease terms range from month-to-month on certain offices to ten years on certain direct leases. Because our professional services are generally performed at the client site, field facilities are generally small. Field facilities are sales offices, development centers or customer support sites, and are used for periodic meetings, training and administration. We are continually evaluating the adequacy of existing facilities and additional facilities in new cities, and we believe that suitable additional space will be available in the future on commercially reasonable terms as needed.

We have certain facilities under lease that are in excess of our requirements that we no longer occupy and do not intend to occupy. Currently, these vacated facilities are fully occupied by our tenants; however, the subleases will expire in various lengths. The estimated loss on excess facilities net of sublease income has been included in the accrued excess facilities costs on the Consolidated Balance Sheets as of November 30, 2006 and 2005.

Securities Class Action and Shareholder Derivative Suits

In May 2005, three purported shareholder class action complaints were filed against us and several of our officers in the U.S. District Court for the Northern District of California. The plaintiffs in such actions are seeking to represent a class of purchasers of our common stock from September 21, 2004, through March 1, 2005. Plaintiffs generally allege that we made false or misleading statements concerning our operating results, our business and internal controls and the integration of Staffware. The actions were consolidated and in September 2006, the U.S. District Court for the Northern District of California dismissed the litigation with prejudice. Plaintiffs have filed a notice of appeal. Plaintiffs seek unspecified monetary damages. We intend to defend ourselves vigorously; however, we expect to incur significant costs in mounting such defense.

In September 2005, a shareholder derivative complaint was filed against certain of our officers and directors in the Superior Court of the State of California, Santa Clara County. The complaint was based on substantially

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

IPO Allocation Suit

We, certain of our directors and officers and certain investment bank underwriters have been named in a putative class action for violation of the federal securities laws in the U.S. District Court for the Southern District of New York, captioned “In re TIBCO Software Inc. Initial Public Offering Securities Litigation.” This is one of a number of cases challenging underwriting practices in the IPOs of more than 300 companies, which have been coordinated for pretrial proceedings as “In re Initial Public Offering Securities Litigation.” Plaintiffs generally allege that the underwriters engaged in undisclosed and improper underwriting activities, namely the receipt of excessive brokerage commissions and customer agreements regarding post-offering purchases of stock in exchange for allocations of IPO shares. Plaintiffs also allege that various investment bank securities analysts issued false and misleading analyst reports. The complaint against us claims that the purported improper underwriting activities were not disclosed in the registration statements for our IPO and secondary public offering and seeks unspecified damages on behalf of a purported class of persons who purchased our securities or sold put options during the time period from July 13, 1999, to December 6, 2000.

A lawsuit with similar allegations of undisclosed improper underwriting practices, and part of the same coordinated proceedings, is pending against Talarian, which we acquired in 2002. That action is captioned “In re Talarian Corp. Initial Public Offering Securities Litigation.” The complaint against Talarian, certain of its underwriters and certain of its former directors and officers claims that the purported improper underwriting activities were not disclosed in the registration statement for Talarian’s IPO and seeks unspecified damages on behalf of a purported class of persons who purchased Talarian securities during the time period from July 20, 2000, to December 6, 2000.

A proposal to settle the claims against all of the issuers and individual defendants in the coordinated litigation was accepted by us and given preliminary approval by the U.S. District Court for the Southern District of New York. The completion of the settlement is subject to a number of conditions, including final approval by the U.S. District Court for the Southern District of New York. Under the settlement, the plaintiffs will dismiss and release all claims against participating defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in the action, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay an amount equal to $1.0 billion less any amounts ultimately collected by the plaintiffs from the underwriter defendants in all the cases. Unlike most of the defendant issuers’ insurance policies, including ours, Talarian’s policy contains a specific self-insured retention in the amount of $0.5 million for IPO “laddering” claims, including those alleged in this matter. Thus, under the proposed settlement, if any payment is required under the insurers’ guaranty, our subsidiary, Talarian, would be responsible for paying its pro rata share of the shortfall, up to $0.5 million of the self-insured retention remaining under its policy.

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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2006.

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PART II

Market Information

Our common stock is quoted on the Nasdaq Global Market (“Nasdaq”) under the symbol “TIBX.” The following table presents, for the periods indicated, the high and low intra-day sale prices per share of our common stock during the fiscal quarters indicated, as reported on Nasdaq.

Holders of Record

We had 872 stockholders of record as of January 31, 2007.

Dividends

We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.

Issuer Purchases of Equity Securities

In December 2005, our Board of Directors approved an eighteen-month stock repurchase program pursuant to which we may repurchase up to $100.0 million of our outstanding common stock. The remaining authorized amount for stock repurchases under this program was approximately $23.3 million as of November 30, 2006.

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Equity Compensation Plan Information

The following table sets forth information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of November 30, 2006.

The selected consolidated financial data below have been derived from our audited financial statements. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The historical results presented below are not indicative of any future results.

All amounts presented in the table below are stated in thousand of dollars, except for per share data.

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The following contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to: the mix of our revenues between license, service and maintenance revenues; the effect of stock-based compensation on our financial results; our financing plans and capital requirements; our revenues and costs of revenues; our expenses; our potential tax benefit or liabilities; the effect of recent accounting pronouncements and related interpretations; our investments, foreign currency risk, concentration of credit risk, debt service and principal repayment obligations; cash flows and our ability to finance operations from cash flows; seasonality in our business; the dependence of our license revenue on the timing and number of license deals; our continued investment and increased spending on research and development; the increase in absolute dollars in sales and marketing expenses, general and administrative spending and operating expenses; our amortization of previously acquired intangible assets; the dependence upon market conditions and other corporate conditions in relation to the timing and amount of stock repurchases; forecasts and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets; and other similar matters. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including, but not limited, to the factors set forth under “Risk Factors.” All forward-looking statements and reasons why results may differ included in this Annual Report on Form 10-K are made as of the date hereof, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ.

Executive Overview

We are a leading business integration and process management software company that enables real-time business. We provide a broad range of standards-based software solutions that helps organizations achieve the benefits of real-time business. Real-time business is about giving organizations the ability to sense and respond to changes and opportunities as they arise by enabling the use of current information to execute critical business processes and make smarter decisions.

We are the successor to a portion of the business of Teknekron. Teknekron developed software, known as The Information Bus^® (“TIB”) technology, for the integration and delivery of market data, such as stock quotes, news and other financial information, in trading rooms of large banks and financial services institutions. In 1992, Teknekron expanded its development efforts to include solutions designed to enable complex and disparate manufacturing equipment and software applications, primarily in the semiconductor fabrication market, to communicate within the factory environment. Teknekron was acquired by Reuters, the global information

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company, in 1994. Following the acquisition, continued development of the TIB^® technology was undertaken to expand its use in the financial services markets.

In January 1997, TIBCO was established as an entity separate from Teknekron. We were formed to create and market software solutions for use in the integration of business information, processes and applications. In connection with our establishment as a separate entity, Reuters transferred to us certain assets and liabilities related to our business and granted to us a royalty-free license to the intellectual property from which some of our messaging software products originated.

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

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

First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. Maintenance revenue is determined based on vendor-specific objective evidence of fair value and amortized over the term of the maintenance contract, typically 12 months. Consulting and training revenues are typically recognized as the services are performed, which services are usually performed on a time and materials basis. Such services primarily consist of implementation services related to the installation of our products and generally do not include significant customization to or development of the underlying software code.

Our revenue is generally derived from a diverse customer base. No single customer represented greater than 10% of total revenue in fiscal years 2006, 2005 or 2004. As of November 30, 2006 and 2005, no single customer had a balance in excess of 10% of our net accounts receivable. We establish allowances for doubtful accounts based on our evaluation of collectibility and an allowance for returns and discounts based on specifically identified credits and historical experience.

Critical Accounting Policies, Judgments and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors. We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, returns and discounts, stock-based compensation, valuation and impairment of investments, impairment of goodwill, intangible assets and long-lived assets, restructuring and integration costs and accounting for income taxes have the greatest potential impact on our Consolidated Financial Statements, so we consider these to be our critical accounting policies.

We discuss below the critical accounting estimates associated with these policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially

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from actual results. For further information on our significant accounting policies, see the discussion in Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Revenue Recognition.    We recognize license revenue when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable, and collection of the resulting receivable is probable. When contracts contain multiple elements wherein vendor-specific objective evidence exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method” prescribed by the AICPA SOP No. 98-9. Revenue on shipments to resellers, which is generally subject to certain rights of return and price protection, is recognized when the products are sold by the resellers to an end-user customer and recorded net of related costs to the resellers. Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from OEM customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of units shipped.

We assess whether the fee is fixed or determinable and collection is probable at the time of the transaction. In determining whether the fee is fixed or determinable, we compare the payment terms of the transaction to our normal payment terms. If a significant portion of a fee is due after our normal payment terms, we account for the fee as not being fixed or determinable and recognize revenue as the payments become due. We assess whether collection is reasonably assured based on a number of factors, including the customer’s past transaction history and credit-worthiness. Generally, we do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. For such arrangements with multiple elements, we allocate revenue to each component of the arrangement based on the Residual Method. Fair values of ongoing maintenance and support obligations are based on separate sales of renewals to other customers or upon renewal rates quoted in the contracts when the quoted renewal rates are deemed to be substantive. Maintenance revenue is deferred and recognized ratably over the term of the maintenance and support period. Fair value of services, such as consulting or training, is based upon separate sales of these services.

Many customers who license our software also enter into separate professional services arrangements with us. In determining whether professional services revenue should be accounted for separately from license revenue, we evaluate, among other factors, the nature of our software products, whether they are ready for use by the customer upon receipt, the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code, the availability of services from other vendors, whether the timing of payments for license revenue is coincident with performance of services and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. Substantially all of our professional services arrangements are billed on a time and materials basis and accordingly, are recognized as the services are performed. Contracts with fixed or not to exceed fees are recognized on a proportional performance basis. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. Training revenue is recognized as training services are delivered.

For arrangements that do not qualify for separate accounting for the license and professional services revenues, including arrangements that involve significant modification or customization of the software, that include milestones or customer specific acceptance criteria that may affect collection of the software license fees, or where payment for the software license is tied to the performance of professional services, software license revenue is generally recognized together with the professional services revenue using either the percentage-of-completion or completed-contract method. Under the percentage-of-completion method, revenue recognized is equal to the ratio of costs expended to date to the anticipated total contract costs, based on current estimates of costs to complete the project. If the total estimated costs to complete a project exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized currently.

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Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized could result.

Allowances for Doubtful Accounts, Returns and Discounts.    We establish allowances for doubtful accounts, returns and discounts based on our review of credit profiles of our customers, contractual terms and conditions, current economic trends and historical payment, return and discount experience. We reassess the allowances for doubtful accounts, returns and discounts each period. Historically, our actual losses and credits have been consistent with these provisions. However, unexpected events or significant future changes in trends could result in a material impact to our future statements of operations and of cash flows. If we made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue or bad debt expense recognized could result. Our allowances for doubtful accounts, returns and discounts as a percentage of net revenues were 0.8%, 1.0% and 1.0% in fiscal years 2006, 2005 and 2004, respectively. See Note 4 to our Consolidated Financial Statements for a summary of activities during the years reported. Based on our results for the fiscal year ended November 30, 2006, a one-percentage point deviation in our allowances for doubtful accounts, returns and discounts as a percentage of net revenues would have resulted in an increase or decrease in expense of approximately $5.2 million.

Stock-Based Compensation.    We account for stock-based compensation related to stock-based transactions in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R) (revised 2004), Share-Based Payment, (“SFAS No. 123(R)”). Under the fair value recognition provisions of SFAS No. 123(R), stock-based payment expense is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award. Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life.

Upon adoption of SFAS No. 123(R) on December 1, 2005, we selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock. Our current estimate of volatility was based upon a blend of average historical and market-based implied volatilities of our stock price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based payment expense in future periods. In addition, we apply an expected forfeiture rate when amortizing stock-based payment expense. Our estimate of the forfeiture rate was based primarily upon our historical experience. To the extent we revise this estimate in the future, our stock-based payment expense could be materially impacted in the quarter of revision, as well as in following quarters. We derived the expected term assumption based on our historical settlement experience, while giving consideration to options that have life cycles less than the contractual terms and vesting schedules in accordance with guidance in SFAS No. 123(R) and Staff Accounting Bulletin (“SAB”) No. 107. In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates. These changes could impact our fair value of stock options granted in the future. See Note 2 and Note 12 to our Consolidated Financial Statements for further details.

Valuation and Impairment of Investments.    We determine the appropriate classification of marketable securities at the time of purchase and evaluate such designation as of each balance sheet date. As of November 30, 2006, all our marketable securities have been classified as available-for-sale and are carried at fair value with unrealized gains and losses, if any, included as a component of “Accumulated Other Comprehensive Income” in stockholders’ equity. Marketable securities are presented as current assets as they are subject to use within one year in current operations. Realized gains and losses are recognized based on the “specific identification method.” As of November 30, 2006, gross unrealized losses on our investment portfolio totaled $0.9 million. The decline in value of these investments is primarily related to changes in interest rates and is considered temporary in nature.

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Our investments also include minority equity investments in privately held companies that are generally carried at cost basis and included in other assets on the balance sheet. The fair value of these investments is dependent on the performance of the companies in which we invested, as well as the volatility inherent in external markets for these investments. In assessing potential impairment, we consider these factors as well as each of the companies’ cash position, earnings/revenue outlook, liquidity and management/ownership. If we believe that an other-than-temporary decline exists, we write down the investment to market value and record the related write-down as a loss on investments in our consolidated statements of operations. In fiscal years 2006 and 2005, we did not recognize any impairment loss, while in fiscal year 2004, we recognized impairment losses of $0.1 million relating to the other-than-temporary decline in value of certain equity investments. As of November 30, 2006, the net carrying value of our minority equity investments totaled $1.6 million.

Significant management judgment is required in determining whether an other-than-temporary decline in the value of our investments exists. Estimating the fair value of non-marketable equity investments in early-stage technology companies is inherently subjective. Changes in our assessment of the valuation of our investments could materially impact our operating results and financial position in future periods if anticipated events and key assumptions do not materialize or change.

Impairment of Goodwill, Intangible Assets and Long-Lived Assets.    Our goodwill and intangible assets result from our corporate acquisition transactions. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, which we adopted on December 1, 2002, goodwill and intangible assets with indefinite useful lives are no longer amortized, but are instead tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. We do not carry any intangible assets with indefinite useful lives other than goodwill. We generally perform our annual impairment test at the end of the fiscal year. As we operate our business in one reporting segment, our goodwill is tested for impairment at the enterprise level. Goodwill impairment testing is a two-step process. For the first step, we screen for impairment, and if any possible impairment exists, we undertake a second step of measuring such impairment. We periodically re-evaluate our business and have determined that we continue to operate in one segment, which we consider our sole reporting unit. Therefore, goodwill was tested and will continue to be tested for impairment at the enterprise level. If our assumptions change in the future, we may be required to record impairment charges to reduce the carrying value of our goodwill. Changes in the valuation of goodwill could materially impact our operating results and financial position.

We evaluate the recoverability of our long-lived assets including amortizable intangible and tangible assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Our acquired intangible assets with definite useful lives are amortized on a straight line basis over their useful lives, and periodically tested for impairment. We have not recorded any impairment losses to date. As of November 30, 2006, we had net $274.4 million of goodwill, $113.8 million of property and equipment and $55.1 million of acquired intangible assets, and had not recorded any impairment charges. If our estimates or the related assumptions change in the future, we may be required to record impairment charges to reduce the carrying value of these assets. Changes in the valuation of long-lived assets could materially impact our operating results and financial position.

Restructuring and Integration Costs.    Our restructuring charges are comprised primarily of costs related to properties abandoned in connection with facilities consolidation, related write-downs of leasehold improvements and severance and associated employee termination costs related to headcount reductions. For restructuring actions initiated prior to December 31, 2002, we followed the guidance provided by Emerging Issues Task Force (“EITF”) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. We recorded the liability related to these termination costs when the plan was approved; the termination benefits were determined and communicated to the employees; the number of employees to be terminated, their locations and job were specifically identified; and the period of time to implement the plan was

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set. For restructuring actions initiated after January 1, 2003, we adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred.

Our restructuring charges included accruals for estimated losses on facility costs based on our contractual obligations net of estimated sublease income based on current comparable market rates for leases. We reassess this liability periodically based on market conditions. Revisions to our estimates of this liability could materially impact our operating results and financial position in future periods if anticipated events and key assumptions, such as the timing and amounts of sublease rental income, either do not materialize or change.

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

As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If it is not more likely than not that we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. The available positive evidence at November 30, 2006, included four years of historical operating profits and a projection of future income sufficient to realize most of our remaining deferred tax assets. As a result of our analysis of all available evidence, both positive and negative, we recorded a valuation allowance release of $15.8 million in fiscal year 2006. As of November 30, 2006, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain capital loss and foreign tax credit carryovers as we cannot forecast sufficient future capital gains or foreign source income to realize these deferred tax assets. The remaining valuation allowance of approximately $10.6 million as of November 30, 2006, will result in an income tax benefit if and when we conclude it is more likely than not that the related deferred tax assets will be realized.

As of November 30, 2006, we believed that the amount of deferred tax assets recorded on our balance sheet would ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that it is more likely than not that we cannot recover our deferred tax assets. If we have to re-establish a full valuation allowance against our deferred tax assets, it would result in an increase of $36.1 million to income tax expense.

U.S. income taxes and foreign withholding taxes have not been provided on a cumulative total of $26.2 million of undistributed earnings for certain non-U.S. subsidiaries. With the exception of our subsidiaries in the United Kingdom, net undistributed earnings of our foreign subsidiaries are generally considered to be indefinitely reinvested, and accordingly, no provision for U.S. income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, we will be subject to U.S. income taxes net of available foreign tax credits associated with these earnings.

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

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period of disqualifying disposition. This could result in significant fluctuations in our effective tax rate between accounting periods.

See Note 15 to our Consolidated Financial Statements.

Results of Operations

The following table presents certain Consolidated Statement of Operations data as a percentage of total revenue:

In June 2004, we acquired Staffware, a provider of BPM solutions that enable businesses to automate, refine and manage their processes. Our consolidated results of operations have included incremental revenue and costs related to the former Staffware operations since the date of acquisition. Pro forma results as if we had acquired Staffware at the beginning of fiscal year 2004 are provided in Note 19 to our Consolidated Financial Statements. Due to the structure of our multi-product Enterprise License Agreements, which often combine TIBCO and

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Staffware products, we are not able to separately report the portion of revenue attributable solely to the Staffware components. In addition, we have fully integrated the former Staffware personnel and operations into our worldwide operations, and therefore, we are not able to separately track or report the performance of the former Staffware operations.

All amounts presented in the tables in the Results of Operations are stated in thousands of dollars, except percentages and unless otherwise stated.

Total Revenue

Total revenue increased 16% in fiscal year 2006 compared to fiscal year 2005, primarily due to an 18% increase in license revenue and a 15% increase in service and maintenance revenue. Geographically, we experienced growth in total revenue from all major regions in fiscal year 2006. In particular, we had a high percentage rate of growth in revenue from Asia Pacific and Japan. Our total revenue increased by $28.9 million or 13% in the United States, $25.4 million or 15% in Europe and $14.0 million or 30% in Asia Pacific and Japan in fiscal year 2006. See Note 20 to our Consolidated Financial Statements for further details on total revenue by region.

We did not have revenue from any entities that we consider related parties in fiscal year 2006 compared to $23.0 million and $29.0 million of total revenue from related parties in fiscal years 2005 and 2004 representing approximately 5% and 7% of our total revenue for the respective periods. Reuters was considered a related party in the first nine months of fiscal year 2005, but during that year, Reuters reduced its holdings such that as of November 30, 2005, Reuters owned less than 1% of our outstanding common stock. Beginning December 1, 2005, Reuters was no longer considered a related party. We recognized the initial $9.9 million upfront, minimum, non-refundable license fee pursuant to the Reuters Agreement as related party license revenue in the first quarter of fiscal year 2005. Another $1.1 million under the Reuters Agreement represents maintenance fees and was recognized ratably over the one year maintenance period.

We have no single customer that accounted for more than 10% of total revenue in fiscal year 2006. Our products are licensed by companies worldwide in diverse industries, and a high percentage of our customers are from the financial service, telecommunication and energy sectors.

Total revenue increased 15% in fiscal year 2005 compared to fiscal year 2004, primarily due to a 40% increase in service and maintenance revenue, offset by a 5% decrease in license revenue. Geographically, our total revenue increased by $35.0 million or 18% in the United States, $16.2 million or 11% in Europe and $5.5 million or 13% in Asia Pacific and Japan in fiscal year 2005.

License Revenue and Costs

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We license a wide range of products to customers in various industries and geographic regions. License revenue increased by $36.2 million or 18% in fiscal year 2006 compared to fiscal year 2005, primarily due to an increase in revenue from the telecommunications, government and energy sectors, partially offset by a decrease in revenue from the financial services sector. License revenue decreased by $10.2 million or 5% in fiscal year 2005 compared to fiscal year 2004, primarily due to a decrease in revenue from the telecommunications, consumer packaged goods and manufacturing sectors, partially offset by an increase in revenue from the financial services sector.

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

Our total license revenue in any particular period is to a certain extent dependent on the size and timing of larger license deals. We currently expect the number of license transactions over $100,000 to increase in fiscal year 2007, while the size and timing of any particular multi-million dollar deal is more difficult to forecast.

Cost of license revenue mainly consisted of royalty costs and amortization of developed technology acquired through corporate acquisitions. Cost of license revenue remained approximately 3% of total revenue and 5% to 7% of license revenue in each of fiscal years 2006, 2005 and 2004. As stated above, our fiscal years 2006 and 2005 financial results include incremental revenue and costs attributable to former Staffware operations; whereas, our fiscal year 2004 financial results only include such revenue and costs from June 2004.

We currently expect license revenue to be approximately 45% to 55% of our total revenue and cost of license revenue to remain approximately 5% to 7% of license revenue in fiscal year 2007.

Service and Maintenance Revenue and Costs

Service and maintenance revenue increased $35.2 million or 15% in fiscal year 2006 compared to fiscal year 2005, and increased $68.9 million or 40% in fiscal year 2005 compared to fiscal year 2004. The increase in fiscal year 2006 was the result of an $8.6 million increase in consulting and training services revenue and a $26.5 million increase in maintenance revenue. The increase in fiscal year 2005 was due to a $33.6 million increase in consulting and training services revenue and a $35.3 million increase in maintenance revenue. Consulting revenue increased due to more comprehensive and larger engagements with respect to a number of accounts and an increased focus on providing more services to customers. Maintenance revenue increased primarily due to continued growth in our installed software base, while the increase in fiscal year 2005 was also favorably affected by our acquisition of Staffware in the third quarter of fiscal year 2004 and ObjectStar in the second quarter of fiscal year 2005.

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

The cost of service and maintenance revenue as a percentage of total revenue decreased in fiscal year 2006 compared to fiscal year 2005, as a result of efforts to increase utilization of our consulting staff as well as an increase in the relative proportion of maintenance revenue. The cost of service and maintenance revenue increased as a percentage of total revenue in fiscal year 2005 compared to fiscal year 2004, as the relative proportion of consulting revenue increased. The increase in absolute dollars in fiscal year 2006 compared to fiscal year 2005 resulted primarily from an increase of $8.9 million related to personnel compensation which includes a $2.1 million increase in stock-based compensation expense, partially offset by a $2.6 million reduction in third-party contractor costs. The increase in absolute dollars in fiscal year 2005 compared to fiscal year 2004 resulted primarily from an increase of approximately $13.6 million related to personnel compensation, $12.7 million for third-party contractor compensation and consulting fees and $2.4 million in travel costs. Increased compensation cost was primarily due to an increase in professional services and customer support staff during fiscal year 2005. Increased third-party contractor and consulting fees were also directly related to increased service revenue.

We currently expect service and maintenance revenue to be approximately 45% to 55% of total revenue in fiscal year 2007. We currently expect the cost of service and maintenance revenue to increase in absolute dollars.

Research and Development Expenses

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

The increase in fiscal year 2006 compared to fiscal year 2005 was primarily due to a $11.1 million increase in personnel compensation expenses with the remaining increase due to the higher cost of third-party software license fees and travel expense. The increase in personnel compensation expenses was due to annual salary adjustments, and includes a $3.6 million increase in stock-based compensation expense. Our fiscal year 2006 and fiscal year 2005 financial results include incremental costs attributable to former Staffware operations; whereas, our fiscal year 2004 financial results only include such costs from June 2004.

The increase in fiscal year 2005 compared to fiscal year 2004 was primarily due to a $9.5 million increase in personnel compensation as a result of headcount increases both from our acquisitions and our establishment of a new research and development center in India. The remainder of the increase in research and development expenses included increased travel expenses, depreciation of equipment and software and various license fees.

We currently believe that continued investment in research and development is critical to attaining our strategic objectives, and as a result, we currently expect that spending on research and development will increase in absolute dollars in fiscal year 2007.

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Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel costs which include stock-based compensation expense, related costs of our direct sales force and marketing staff, and the cost of marketing programs, including customer conferences, promotional materials, trade shows and advertising and related travel expenses.

The increase in fiscal year 2006 compared to fiscal year 2005 was primarily due to a $23.6 million increase in personnel compensation expenses, a $2.9 million increase in travel expenses, a $2.7 million increase in marketing expenses and a $1.9 million increase in facilities expenses. The increase in personnel compensation expenses was due to an increase in commission expenses associated with an increase in revenue, increased average headcount, annual salary adjustments and also includes a $4.5 million increase in stock-based compensation expense. Facilities expenses increased due to the addition of several sales offices, and increased marketing activity contributed to the increase in marketing program expenses. Our fiscal year 2006 and fiscal year 2005 financial results include incremental costs attributable to former Staffware operations; whereas, our fiscal year 2004 financial results only include such costs from June 2004.

The increase in fiscal year 2005 compared to fiscal year 2004 was primarily due to a $9.5 million increase in personnel compensation expenses, a $2.0 million increase in travel expenses, a $3.6 million increase in facilities expenses, partially offset by a $2.1 million decrease in commission expenses and a $1.7 million decrease in sales referral fees. The increase in personnel compensation expenses was due to an increase in headcount, while the lower sales commission resulted from a combination of lower license revenue and a lower effective commission rate.

We intend to selectively increase staff in our direct sales organization and to increase our marketing efforts in the coming year, and accordingly, we currently expect that sales and marketing expenses will increase in absolute dollars in fiscal year 2007.

General and Administrative Expenses

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

The increase in fiscal year 2006 compared to fiscal year 2005 was primarily due a $10.0 million increase in personnel compensation expenses, which was partially offset by a $2.0 million reduction in outside services expenses and a $1.2 million decrease in consulting expenses. The increase in personnel compensation expenses was due to increased headcount, annual salary adjustments and a $5.5 million increase in stock-based compensation expense. This increase was offset partially by a decrease in consulting and outside services expenses which resulted from hiring more personnel. Our fiscal year 2006 and fiscal year 2005 financial results include the incremental costs attributable to former Staffware operations; whereas, our fiscal year 2004 financial results only include such costs from June 2004.

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The increase in fiscal year 2005 compared to fiscal year 2004 was primarily due to an $8.9 million increase in consulting expenses and outside services expenses and a $1.8 million increase in personnel compensation expenses, offset by reductions in other administrative costs. Increased headcount contributed to total higher personnel compensation expenses. Consulting and outside services increased substantially due to our continuous effort to comply with the requirements of Sarbanes-Oxley, and increased legal, tax consulting and other professional fees.

We will continue to invest in improving our corporate infrastructure to enhance effective management and internal controls, and therefore, we currently expect that general and administrative expenses will increase in absolute dollars in fiscal year 2007.

Restructuring Charge (Adjustment)

In the fourth quarter of fiscal year 2006, we recorded a $1.0 million credit adjustment to the restructuring charge related to properties vacated in connection with a facilities consolidation in 2002. The adjustment resulted from revisions to our estimates of future sublease income due to the recovery of the applicable real estate market and the addition of a new tenant. Currently, our vacated facilities under prior restructuring programs are fully occupied by our tenants. The estimated excess facilities expenses were based on our contractual obligations, net of estimated sublease income, based on current comparable rates for leases in their respective markets.

During fiscal year 2005, we initiated a restructuring plan designed to re-align our resources and cost structure, and accordingly recognized a restructuring charge of approximately $3.9 million for the resulting workforce reduction. The restructuring plan eliminated 49 employees, across all functions and primarily in our European operations. As of November 30, 2005, all such employees have been terminated and of the $3.9 million restructuring charge, $3.2 million was paid and the remaining $0.7 million accrual was utilized in fiscal year 2006.

During fiscal year 2004, we recorded $2.2 million in restructuring charges related to properties vacated in connection with facilities consolidation. The additional facilities charges resulted from revisions to our estimates of future sublease income due to further deterioration of real estate market conditions. The estimated facilities costs were based on our contractual obligations, net of estimated sublease income, based on current comparable rates for leases in their respective markets.

Also see Note 7 to our Consolidated Financial Statements for further discussion on restructuring charges.

Amortization of Acquired Intangible Assets

Intangible assets acquired through corporate acquisitions are comprised of the estimated 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 intangibles is included in operating expenses.

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The decrease in amortization of developed technologies included in cost of revenue in fiscal year 2006 compared to fiscal year 2005 was primarily due to certain intangible assets acquired in earlier years which are now fully amortized. The increase in amortization of other acquired intangible assets included in operating expenses in fiscal year 2006 compared to fiscal year 2005 was primarily due to the addition of acquired intangible assets recorded from the ObjectStar and Velosel acquisitions in fiscal year 2005. See Note 6 to our Consolidated Financial Statements for further details on acquired intangible assets.

The increase in amortization expenses in fiscal year 2005 compared to fiscal year 2004 was primarily due to a full year of amortization related to intangible assets acquired from Staffware, and additional amortization related to intangible assets acquired from ObjectStar in the second quarter of fiscal year 2005.

We currently expect the amortization of acquired intangible assets to be approximately $15.0 million in fiscal year 2007, excluding any new acquisitions.

Acquired In-Process Research and Development

In fiscal year 2004, we estimated that $2.2 million of the purchase price of Staffware represented acquired in-process research and development (“IPRD”) that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense upon consummation of the acquisition. We calculated the value of IPRD by estimating the expected cash flows from the projects once commercially viable, discounting the net cash flows back to their present value and then applying a percentage of completion method. In determining the value ultimately assigned to IPRD we considered the stage of completion, complexity of work to date, difficulty of completing the remaining development, costs already incurred and the expected cost to complete the project. As of November 30, 2005, we had substantially completed the Staffware projects that were in process at the date of the acquisition.

Stock-Based Compensation

The stock-based compensation expense included in our Consolidated Statements of Operations correspond to the same functional lines as cash compensation paid to the same employees in the respective departments, as follows: