UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2010
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 000-26299
ARIBA, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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77-0439730
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification Number)
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807 11th Avenue
Sunnyvale, California
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94089
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(Address of principal executive offices)
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(Zip Code)
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(650)
390-1000
(Registrants 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, $0.002 par value
Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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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
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No
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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
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Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
x
No
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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 registrants 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.
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Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer
x
Accelerated filer
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Non-accelerated
filer
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Smaller reporting company
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Indicate by check mark whether registrant is a shell company (as defined in Exchange Act Rule
12b-2). Yes
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No
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The aggregate market value of the common stock held by non-affiliates of the registrant as of March 31, 2010 the last business day of
the registrants most recently completed second fiscal quarter (based on the closing price of $12.85 on the Nasdaq Global Market as of that date) was approximately $1.2 billion.
As of October 31, 2010, there were 93,939,000 shares of the registrants common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement to be delivered to stockholders in connection with the 2011 annual meeting of stockholders are incorporated herein by reference in Part III of
this Annual Report on Form 10-K to the extent stated herein.
ARIBA, INC.
FORM 10-K
September 30, 2010
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
The information in this report 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). Such statements are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as may, will, should, estimates, predicts,
potential, continue, strategy, believes, anticipates, plans, expects, intends and similar expressions are intended to identify forward-looking
statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to,
those discussed in this report in the section entitled Risk Factors and elsewhere in this report. We undertake no obligation to revise or update publicly any forward-looking statements after the date of this document. Ariba, Inc. is
referred to herein as Ariba or we.
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PART I
Overview
Ariba is the leading provider of collaborative business commerce solutions for buying and selling goods and services.
Our mission is to transform the way companies of all sizes, industries, and geographies buy and sell goods and services and manage cash. By delivering software, services, and network solutions, Ariba enables companies to control costs, minimize
risk, improve profits and enhance cash flow and operations. Our enterprise-class offerings aim to simplify business commerce by providing companies with all of the tools needed to manage the commerce lifecycle through a single, web-based interface.
Delivered on-demand through the Ariba
®
Commerce Cloud, our solutions are easy to use, cost effective and quick
to deploy and integrate with enterprise resource planning (ERP) and other software systems, enabling companies to deliver rapid and sustainable results. More than 330,000 companies, including more than 80 percent of the companies on the
Fortune 500 list published in April 2010, use Ariba solutions to manage their commerce activities.
Ariba was incorporated in Delaware in September 1996. Our principal executive offices are located at 807 11
th
Avenue, Sunnyvale, California 94089.
Industry Background
The
first wave of technology-enabled productivity focused on making employees more effective in their daily jobs by simplifying key tasks such as developing documents, presentations, and spreadsheets and communicating with other team members; and, it
led to the dawn of the desktop operating system. The second wave leveraged Web-based technologies to drive greater productivity within particular functional areas like procurement and human resources. And with it came the advent of the enterprise
operating system. The next wave of productivity aims to attack the inefficiencies that remain between companies to enable more effective collaboration among trading partners and will be fueled by cloud-based platforms that allow businesses to share
common business processes in areas like product development and commerce.
Cloud Services Market
Most of our solutions are included in a segment of the broader market for Cloud Services. In its most recent Cloud Services Forecast
Report, Gartner Research, a third-party research firm, projected a five year growth rate of 20.5% for the worldwide market for cloud services, becoming a $148.8 billion market in 2014. Further, it noted that over the course of the next five years,
enterprises are projected to spend $112 billion cumulatively on software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS) combined. Gartner also noted it is seeing an
acceleration of adoption of cloud computing and cloud services among enterprises and a rapid growth of supply-side activity as technology providers maneuver to exploit the growing commercial opportunity. Actual annual growth rates of our segment
within the cloud services market may differ significantly from those forecast by Gartner Research.
Source: Gartner
Research: Forecast: Public Cloud Services, Worldwide and Regions, Industry Sectors, 2009-2014. Ben Pring, June 2010.
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The Gartner Report(s) described herein, (the Gartner Report(s)) represent(s) data, research opinion or viewpoints published, as part of a
syndicated subscription service, by Gartner, Inc. (Gartner), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Prospectus) and the opinions expressed in
the Gartner Report(s) are subject to change without notice.
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Ariba Collaborative Business Commerce Solutions
Ariba provides collaborative business commerce solutions that enable enterprises to buy, sell and manage related cash flows more
efficiently and effectively. We understand that software is only one part of helping companies achieve success. As such, we combine SaaS technology with a web-based community and a global network of trading partners. This combination optimizes the
complete commerce lifecycle, enables companies to discover, connect and collaborate with each other and helps companies control costs, minimize risk, improve profits and enhance cash flow and operations. Additionally, we offer expert capabilities to
augment internal resources and skills to ensure that our customers maximize the value of our solutions.
Ariba software is
built to leverage the Internet and provide enterprises with real-time access to their business data and their business partners. Our collaborative commerce solutions are delivered in a flexible manner, depending upon the needs and preferences of the
customer. Historically, our software was primarily provided as installed applications that were deployed behind a customers firewall. However, in response to customer demand, we began providing on-demand delivery of our software solutions in
2006, whereby applications are hosted by Ariba or a third party, and customers access the solution via the Internet. Our on-demand delivery model is designed to empower companies of all sizes to achieve greater control of their spend and drive
continuous improvements in financial and supply chain performance.
Our solutions allow enterprises to take a step-by-step
approach to managing business commerce with products and services that work together to address key activities, including:
For Buyers:
Ariba Spend Analysis Solution:
Ariba Spend Analysis Solution combines an
industry leading knowledge classification base with advanced technologies and an integrated database of more than 150 million suppliers to enable rich and accurate classification and enrichment of spend across all categories, systems and
divisions. Ariba Spend Analysis Solution offers an integrated business commerce dashboard for a 360-degree view of all purchasing activity and data. The solution incorporates the powerful yet easy-to-use Ariba Analysis reporting engine with
comprehensive data enrichmentproviding deep and ongoing visibility into both internal purchasing as well as external supply and sourcing market dynamics. Aribas Spend Analysis Solution delivers an improved view of spend that benefits
buyers in a number of critical areas:
Commodity classifications
Ariba Data Enrichment leverages a range of
advanced classification technologies to ensure spend is consistently classified over time and across data sources so that decisions can be made with confidence. Forecast information can be loaded and tracked across other Ariba modules for the
most-comprehensive view of purchasing in the market.
Supplier enrichment
With additional information about their
supply base, buyers are able to minimize purchasing risks, decrease costs and meet other targets.
Sourcing market
visibility
With additional information about commodity price fluctuations, buyers are able to compare these fluctuations with their own historical trends and better evaluate their commodity procurement programs. Peer spend profiles through
an opt-in program permit buyers to compare their spend profiles to others in their industry.
Ariba Sourcing Solutions:
Ariba Sourcing Solutions cover the full spectrum of sourcing activities, from the development of a strategic approach to
capture savings, to the sourcing and award negotiation phase, and finally to monitoring of supplier performance. Ariba Sourcing Solutions include
Ariba Sourcing and Ariba StartSourcing
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Ariba Sourcing
module is an enterprise-wide strategic sourcing application
designed for all spend categories. It assists professional buyers throughout the sourcing process, from defining spending baselines and category requirements, to finding suppliers and negotiating agreements. Ariba Sourcing helps speed up and
streamline the RFX process, dynamic events, auctions, and award negotiations management. Ariba Sourcing module also helps enterprises define, measure, and enhance the performance of their suppliers. Buyers use it to gather and monitor supplier
performance data through surveys, compare suppliers across a category for better sourcing and procurement decisions, collaborate throughout the sourcing process, and provide visibility of supplier performance with key performance indicator trend
analysis and scorecards.
Ariba StartSourcing
module enables small and medium businesses access to
enterprise-class technology they can use to structure and execute sourcing events online that deliver real, measurable results without a substantial commitment of time or resources.
Ariba Contract Management Solution:
The Ariba Contract Management Solution covers the full spectrum of a contracts lifecycle, from the contract request, contracts authoring, workflows to address the contracting process, negotiation
and approval, and contract execution via electronic signatures. In addition, the Ariba Contract Management Solution includes ongoing compliance and performance management through task-driven reminders and search and reporting capabilities as well as
contract renewal activities.
Ariba Procurement Solutions:
The Ariba Procurement and Expense Solutions allow customers to manage the procurement process from requisition, through ordering,
receiving, invoice reconciliation and payment. The solutions are designed to facilitate the procurement process for complex categories of spend, including travel. Our solutions include
Ariba Procure-to-Pay
,
Ariba
Procure-to-Order, Ariba Services Procurement, Ariba Buyer, Ariba Procurement Content
and
Ariba Travel and Expense
.
Ariba Procure-to-Pay
is our web-based procurement and expense solution. It addresses catalog-based indirect spend, complex non-purchase order spend for services and some types of inventory
spend. It allows customers to control the procurement process from requisition, through ordering, receiving and invoice reconciliation for payment via purchasing cards and other pre-payment vehicles. Customers can also use the module to manage their
travel and expense spend processes.
Ariba Buyer
module enables organizations to manage purchasing transactions
for any good or service. It links end users throughout an organization with approvers, and connects to back-end financial, purchasing and human resource systems to access important procurement information, such as supplier product information, price
lists, web sites and order status. Ariba Buyer helps enforce purchasing compliance against corporate policies and contracts, and measure progress. Ariba Buyer leverages the Ariba Supplier Network (described below) to securely automate commerce
transactions with suppliers on the Internet.
Ariba Procure-to-Order
enables companies to maximize the
efficiency of their front-end procurement process while integrating with current systems for payment and receipt to deliver immediate value across their organization. Ariba Procure-to-Order provides companies with the flexibility while ensuring
control and compliance between vendors, contracts, regulations and buyers.
Ariba Services Procurement
enables
customers to better manage complex categories of spend, such as catalog, travel, third-party, time-based and project-based purchases, including but not limited to facilities management, information technology and management consulting, temporary
labor and print services.
Ariba Procurement Content
module delivers Aribas proven catalog, product
search, supplier management, contract compliance, and category procurement solutions as a complimentary add-on to ERP systems such as
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those provided by Oracle and SAP AG. This combination enables companies of all sizes to extend the value of investments already made and enjoy some of the savings created by Aribas business
commerce solutions.
Ariba Travel and Expense
module helps enterprises to manage the procurement of corporate
travel and expenses. The application automates the manual processes required for travel purchases to increase expense policy compliance, decrease administrative costs, and helps reduce travel approval and expense reimbursement cycle times.
Ariba Supplier Management Solutions:
Ariba Supplier Information Management Solution
enables companies to identify and assess new sources of supply, on board approved suppliers and gain 360-degree view of supplier information
performance and risk. With Aribas Supplier management services and expertise, companies can access best practices and templates to ensure proper supplier selection, measurement and compliance management.
Ariba Supplier Performance Management Solution
enables companies to define, measure aggregate and act upon performance
metrics of their supply base, including the ability to bring together qualitative and quantitative information and to collaborate with suppliers throughout the process.
Ariba Discovery for Buyers:
Ariba Discovery for Buyers allows buyers
around the world to discover, connect and collaborate through the Ariba Network, an online trading community used by more than 330,000 companies.
For Sellers:
Ariba Contract Management for Sales Contracts
Solution:
The Ariba Contract Management for Sales Contracts Solution covers the full spectrum of a contracts
lifecycle, from the contract request, contracts authoring, workflows to address the contracting process, negotiation and approval, and contract execution via electronic signatures. In addition, the Ariba Contract Management for Sales Contracts
Solution includes all ongoing compliance and performance management through task-driven reminders and search and reporting capabilities as well as contract renewal activities.
Ariba Supplier Sales and Marketing Programs:
The Ariba Supplier Sales and
Marketing Program prepackages networking, marketing and consulting expertise to help companies grow their online commerce business faster and more efficiently.
Ariba Network Catalog, Order and Invoice Collaboration:
Ariba Network
Catalog, Order and Invoice Collaboration allows end-to-end collaboration on order fulfillment, including orders, change orders, confirmations, cancellations and advance shipping notices.
Ariba Discovery for Sellers:
Ariba Discovery for Sellers allows sellers around the world to discover, connect and collaborate through the Ariba Network, an online trading community used by more than 330,000 companies.
For Managing Cash:
Ariba Working Capital Management Solutions:
Ariba Working Capital
Management Solutions provide suppliers with the visibility and control over their receivables to better manage their cash flow. Comprehensive discount management features fully automate the
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process of offering, negotiating and agreeing on early payment terms with suppliers, and include managing of suppliers and related spend for discounting, invoice automation to capture
pre-negotiated early payment terms and contracts and prorated discount terms.
Ariba Supply Chain Finance Solution:
Ariba Supply Chain Finance solution provides third-party financing to key suppliers to improve their cash flow while
supporting cash management and working capital objectives.
Ariba Invoice Management Solution:
Ariba Invoice Management Solution automates supplier on-boarding and interactions for suppliers, provides suppliers with full visibility
into invoice status and cash forecasting and supports paperless operations for VAT compliance for global commerce.
Ariba
Payment Management Solution:
Ariba Payment Management Solution allows back-office systems to transmit payments to
suppliers via ACH with detailed remittance information.
Ariba Network
Aribas collaborative business commerce solutions also integrate with and leverage the Ariba Network. The Ariba Network is a scalable
Internet infrastructure that connects buyers and sellers enabling the exchange of product and service information as well as a broad range of business documents, such as purchase orders and invoices. Over 330,000 registered suppliers offering a wide
array of goods and services are connected to the Ariba Network. As a result, buying organizations can connect once to the Ariba Network and simultaneously access many suppliers. By using the Ariba Network, businesses can realize cost savings through
greater process efficiencies, better employee and contract compliance, reduced inventories and fair pricing opportunities.
The Ariba Network is a multi-protocol network that allows buyers to send orders from Ariba Buyer or other eProcurement systems in one
standard format that are then converted into the suppliers preferred transaction format. Supported formats include: cXML (Commerce eXtensible Markup Language), a format used on the Internet to describe commerce data and documents; EDI
(Electronic Data Interchange), a format used to electronically exchange data and documents; CIF (Catalog Interchange Format), a format commonly used to electronically transfer catalog information; electronic mail; and fax. In addition, by using
Ariba PunchOut, a cXML-based technology, buyers can link to a suppliers web site to find, configure and select products while keeping the purchasing process within Ariba Buyer or Ariba Procure-to-Pay for internal approval, accounting and
administrative controls. This feature is particularly useful when working with suppliers that have extensive web sites, product configuration systems and large product catalogs.
Frequently, suppliers join the Ariba Network at the request of buyers who purchase goods and services using Ariba Business Commerce
solutions. To help buyers attract and rapidly enable their target suppliers, Ariba has created Ariba Supplier Enablement solutions that provide a broad range of products and services to enable suppliers of various sizes in all industries to join the
Ariba Network. Ariba Supplier Enablement solutions include tools for content management, order management, order fulfillment, invoicing and payment that help suppliers manage business transactions and content simply through a web browser or by using
electronic methods (including XML and EDI). We have also created other Ariba Supplier Programs, including Ariba Ready and Ariba Supplier Consulting, to help suppliers develop, deploy and promote their capabilities on the Ariba Network.
Access to the Ariba Network is provided in one of two ways: (1) through a direct access license to the Ariba Network itself whereby
suppliers joining the Ariba Network must agree to a standard web-based terms of use agreement with us, and link to the network through any of several formats (e.g., cXML, e-mail, EDI or fax) and
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(2) through buying organizations as part of their purchase of procurement software. Suppliers that exceed certain transaction volumes are charged a fee for access to the Ariba Network. In
addition, suppliers are charged fees for optional solutions such as data retention and technical support services.
Ariba Services
In addition to software, Aribas collaborative business commerce solutions include a broad range of services designed
to improve the return on investment our customers receive through the use of our solutions. Aribas services are focused on delivering sustainable, company-wide capability and rapid results and include:
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Ariba Strategic Consulting
enables strategic decision making, organization assessment, process design and performance improvement;
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Ariba Implementation Services
executes installation and set-up of software;
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Ariba Supplier Enablement Services
helps to ensure that buyers and suppliers transact in a cost-effective, scalable manner; and
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Ariba Customer Support Services
supports customers direct usage of software (training and product support).
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Ariba has over 700 global consultants that assist our customers in devising, launching, and sustaining
successful collaborative business commerce programs. These experts are stationed around the globe, including in our service centers in Prague, Bangalore and Pittsburgh. They are trained in Aribas Business Commerce Enablement methodology that
includes initial program planning, system deployment, user training, trading partner enablement, program and change management and ongoing adoption and continuous improvement services, including ongoing expertise and support as a remote, on-demand
service via our Best Practice Center (BPC).
Employees
As of September 30, 2010, we had a total of 1,804 employees, including 316 in research and development, 416 in sales and marketing, 887 in professional services, customer support and training, and
185 in administration, finance, legal, human resources and information technology. Of these employees, 1,066 were located in the United States and 738 were located outside the United States. None of our employees are represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good.
Sales
We sell our solutions primarily through our worldwide direct sales organization. Our sales force is organized by
geographic regions, including North America, Europe and the Asia Pacific region. The direct sales force consists of sales professionals, application specialists and supporting personnel. As of September 30, 2010, we had 197 employees in our
global sales organization.
Marketing
Our marketing strategy is to continually elevate our brand, expand the awareness of our collaborative business commerce solutions in new market segments, and generate significant demand for our solutions.
Our primary marketing activities include:
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Developing press and industry analyst relations to garner third-party validation and generate positive coverage for us and our solutions, worldwide;
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Participation in, and sponsorship of, conferences, tradeshows and industry events targeted to finance, accounting, procurement, contract management and
travel executives;
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Field marketing events and sales tools to enable our sales organization to create awareness and effectively convert leads into pipeline;
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E-mail, direct mail, webinars and telemarketing campaigns to stimulate interest and drive demand;
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Collateral, white papers, case studies and thought leadership distributed through various mediums; and
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Website development to engage and educate prospects and generate interest through product information and demonstrations, customer testimonials, case
studies and marketing collateral.
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Customer Service, Training and Support
We believe that customer satisfaction is essential for our long-term success, and therefore offer comprehensive customer assistance
programs. Our technical support provides response to and resolution of customer technical inquiries and is available to clients by telephone, over the web or by e-mail. We use a customer service automation system to track each customer inquiry until
it is resolved.
Our Ariba Education Services group delivers education and training to our clients and partners at our
headquarters in Sunnyvale, California and in our offices in Pittsburgh, Pennsylvania and London. We offer a comprehensive series of classes to provide the knowledge and skills to successfully deploy, use and maintain our products and solutions
through Ariba University. Ariba University delivers Institute for Supply Management (ISM) training and change management services to customers and partners. Through a comprehensive offering of traditional classroom delivery at an Ariba
campus, client on-site delivery, web-based training and consulting services, Ariba Education Services provide the knowledge and skills required to successfully deploy, use and maintain the Ariba product line.
Seasoned instructors, instructional designers and education consultants deliver more than 350 classes per year to more than 3,000
students in a hands-on, role-based learning environment in our learning centers or on-site at the customers location. Participants who successfully complete our programs will receive continuing education hours. These hours may be applied
toward ISM Certified Purchasing Manager recertification and/or Accredited Purchasing Practitioner reaccreditation program requirements.
Research and Development
We introduced our initial product, Ariba Buyer, in June 1997, and since then have released a number of new products and product
enhancements to address the needs of sourcing, procurement, finance, accounts payable, treasury, legal and sales and marketing professionals. We began to operate the Ariba Network in April 1999 and continue to provide enhancements to it on an
ongoing basis. We introduced Ariba Sourcing in September 2001, and upgraded the solution in September 2004 to incorporate functionality from legacy FreeMarkets, Inc. (FreeMarkets) applications. In addition, we have also been
re-architecting our applications to be more easily deployed via an on-demand model. During fiscal years 2006 through 2010, we released, and continuing in fiscal year 2011 we plan to release, on-demand versions of many of our software applications.
If we are unable to develop new products or enhancements to existing products or corrections on a timely and cost-effective basis, particularly on-demand versions of our products, or if these new products or enhancements do not have the features or
quality measures to make them successful in the marketplace, our business will be harmed.
Our research and development
expenses were $46.0 million, $43.5 million and $52.3 million during the fiscal years ended September 30, 2010, 2009 and 2008, respectively. We also recorded amortization of acquired technology as part of cost of revenues of $302,000, $1.5
million and $1.1 million during the fiscal years ended September 30, 2010, 2009 and 2008, respectively.
Our research and
development organization is divided into teams focused on our various collaborative business commerce solutions and the Ariba Network, as well as on server and infrastructure development, user interface and Internet application design, tools
development, enterprise integration, operations, quality assurance,
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documentation, release management and advanced development. These teams regularly share resources and collaborate on code development, quality assurance and documentation.
International Operations
We sell our software and provide services and expertise worldwide. Our geographic coverage allows us to draw on business, technical and
sourcing expertise from a worldwide workforce which provides stability to our operations and revenue streams to leverage geography-specific economic trends.
We currently have offices in 22 countries. All of our international operations are conducted through wholly-owned subsidiaries. Revenues from our international operations were $105.8 million, $100.3
million and $102.9 million for the fiscal years ended September 30, 2010, 2009 and 2008, respectively.
We operate in
three geographic operating segments: North America; Europe, Middle East and Africa (EMEA); and Asia-Pacific (APAC). See Note 9 of Notes to Consolidated Financial Statements for additional financial information about our
geographic areas and Risk FactorsOur Business is Susceptible to Numerous Risks Associated with International Operations for risks relating to our international operations.
Competition
The market for business commerce applications is highly
competitive, rapidly evolving and fragmented and subject to changing technology and shifting customer needs.
Our principal
direct competition comes from ERP vendors whose software is installed by customers directly. We also compete with specialty vendors that offer their software on a hosted basis or under a perpetual license. In our services business, we compete with
several large and regional service providers. We anticipate additional competition from other established and emerging companies as the market continues to expand.
Our current principal competitors include:
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Enterprise software application vendors, including SAP AG and Oracle;
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Smaller specialty vendors, including Emptoris, BravoSolution, Zycus, Basware and American Express S2S;
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Smaller niche SaaS vendors, including Perfect Commerce, cc-Hubwoo, Ketera Technologies, Coupa and Iasta; and
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Service providers, including A.T. Kearney and McKinsey & Company.
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We believe the principal competitive factors considered with respect to, and the relative competitive standing of, our business commerce
software solutions are:
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Interoperability with existing commonly-used ERP systems;
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Ease of use and rates of user adoption;
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Price and demonstrable cost-effective benefits for customers;
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Performance, security, scalability, flexibility and reliability of the software;
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Ability to provide a network for buying and selling services;
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Vendor reputation and referenceable customers;
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Quality of customer support; and
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Financial stability of the vendor.
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Many of our current and potential competitors, such as ERP software vendors including Oracle and SAP AG, have longer operating histories, greater name recognition, larger marketing budgets and
significantly greater resources, and a larger installed base of customers than we do. These vendors could also introduce business
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commerce solutions that are included as part of broader enterprise application solutions at little or no cost to their customers. They may also be able to devote greater resources to the
development, promotion and sale of their products than we can to ours, which can enable them to respond more quickly to new technology, introduce new business commerce modules and respond to changes in customer needs. In addition, many of our
competitors have well-established relationships with our current and potential customers and have extensive knowledge of our industry. In the past, we have lost potential customers to competitors for various reasons, including lower prices and other
incentives not matched by us. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs and achieve
greater market acceptance. The industry has experienced consolidation with both larger and smaller competitors acquiring companies to broaden their offerings or increase scale. As a result, we may not be able to successfully compete against our
current and future competitors.
Intellectual Property and Other Proprietary Rights
We depend on our ability to develop and maintain the proprietary aspects of our technology. To protect our proprietary technology, we rely
primarily on a combination of contractual provisions, confidentiality procedures, trade secrets, and patent, copyright and trademark laws.
We license rather than sell our software products and require our customers to enter into license agreements, which impose restrictions on their ability to utilize the software. The license agreements
generally do not provide for a right to return. See Note 1 to the consolidated financial statements. In addition, we seek to avoid disclosure of our trade secrets through a number of means, including but not limited to requiring those persons with
access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We seek to protect our software, documentation and other written and electronic materials under trade secret and copyright
laws, which may afford only limited protection. We can make no assurance that any of our proprietary rights with respect to our solutions will be viable or of value in the future since the validity, enforceability and type of protection of
proprietary rights in these evolving technologies are uncertain and still evolving.
We currently have 47 U.S. patents issued
and 38 U.S. patent applications pending. We also have five foreign patents issued and zero foreign patent applications pending. It is possible that no patents will be issued from our pending patent applications or that, if issued, or our potential
future patents may be successfully challenged. It is also possible that we may not develop proprietary products or technologies that are patentable, that any patent issued to us may not provide us with any competitive advantages, or that the patents
of others will harm our ability to do business.
We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in our software products to perform key functions. If we are unable to continue to license any of this software on commercially reasonable terms, or at all, we will face delays in
releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our current product. These delays, if they occur, could materially and adversely affect Ariba.
Ariba and the Ariba logo are registered trademarks in the United States. In addition, Ariba, the Ariba logo and the Ariba
boomerang design are registered in one or more foreign countries. The above-mentioned trademark applications are subject to review by the applicable governmental authorities, may be opposed by private parties, and may not issue.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be
a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Our means of
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protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology, duplicate our products or design around patents issued to us or our other
intellectual property.
There has been a substantial amount of litigation in the software and Internet industries regarding
intellectual property rights. It is possible that in the future, third parties may claim that we or our current or potential future products infringe their intellectual property rights. We expect that software product developers and providers of
electronic commerce solutions will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Any claims, with or
without merit, could be time-consuming, result in costly litigation, divert managements time from developing our business, cause product shipment delays, require us to enter into royalty or licensing agreements or require us to satisfy
indemnification obligations to customers. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could harm our business. In addition, we may need to commence litigation or take other actions to
protect our intellectual property rights which may be costly, time-consuming and distracting to management and would result in the loss of our intellectual property.
Available Information
We file reports required of public companies with
the Securities and Exchange Commission (SEC). These include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports, and amendments to these reports. The public may
read and copy the materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 202-551-8090.
The SEC also maintains a Web site at
www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We make available free of charge on the Investor
Relations section of our corporate Web site all of the reports we file with the SEC as soon as reasonably practicable after the reports are filed. Copies of Aribas fiscal 2010 Annual Report on Form 10-K may also be obtained without charge by
contacting Investor Relations at InvestorInfo@ariba.com or by calling 650-390-1200. Our Internet address is www.ariba.com
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EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and their ages as of October 31, 2010 are as follows:
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Name
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Age
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Position(s)
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Robert M. Calderoni
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50
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Chairman and Chief Executive Officer
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Kevin Costello
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48
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President
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Kent Parker
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49
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Chief Operating Officer
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Ahmed Rubaie
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44
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Executive Vice President and Chief Financial Officer
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Robert M. Calderoni
has served as Aribas Chairman and Chief Executive Officer since July 2003. From October 2001 to July 2003, Mr. Calderoni served as Aribas President and Chief
Executive Officer. From October 2001 to December 2001, Mr. Calderoni also served as Aribas Interim Chief Financial Officer. From January 2001 to October 2001, Mr. Calderoni served as Aribas Executive Vice President and Chief
Financial Officer. Mr. Calderoni was also an employee of the Company from November 2000 to January 2001. In addition to serving as a director of Ariba, he is also a member of the board of directors of Juniper Networks, Inc., a provider of
network infrastructure systems, and KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. Mr. Calderoni holds a Bachelor of Science degree in
Accounting and Finance from Fordham University.
Kevin Costello
has served as Aribas President since November
2007. Mr. Costello also served as Aribas Executive Vice President and Chief Commercial Officer from October 2004 until November 2007. From October 2003 until October 2004, Mr. Costello served as Aribas Executive Vice
President of Sales and Solutions. From May 2002 until October 2003, Mr. Costello served as Aribas Executive Vice President, Ariba Solutions Delivery. Mr. Costello holds a Bachelor of Science degree in Accounting from the University
of Illinois.
Kent Parker
has served as Aribas Chief Operating Officer since November 2007. Mr. Parker also
served as Aribas Executive Vice President, Ariba Global Services Organization from July 2004 until November 2007. From April 2000 to July 2004, Mr. Parker held numerous positions including Senior Vice President of Global Sourcing Services
at FreeMarkets, which we acquired in July 2004. Mr. Parker holds a degree in mechanical engineering from the University of Evansville and an M.B.A from the Amos Tuck School of Business Administration at Dartmouth College.
Ahmed Rubaie
has served as Aribas Executive Vice President and Chief Financial Officer since August 2008. From December 2000
to July 2008, Mr. Rubaie held various positions at Avery Dennison, a global leader in pressure-sensitive labeling materials, retail tag, ticketing and branding systems, and office products. Mr. Rubaie most recently served as the vice
president, group finance for the retail information services group of Avery Dennison. Mr. Rubaie held numerous other positions at Avery Dennison, including Corporate Vice President, Global Internal Audit, member of RFID steering committee and
Corporate Vice President, Global Tax. Prior to Avery Dennison, Mr. Rubaie held various positions at BHP Billiton, a global leader in the resources industry, and spent six years in public accounting with both Coopers & Lybrand and
Deloitte & Touche. Mr. Rubaie holds a Bachelor of Arts degree in Economics and Management from Albion College and a J.D. degree from University of Detroit School of Law.
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In addition
to other information in this Form 10-K, the following risk factors should be carefully considered in evaluating Ariba and our business because such factors may have a significant impact on our business, operating results and financial condition. As
a result of the risk factors set forth below and elsewhere in this Form 10-K, actual results could differ materially from those projected in any forward-looking statements.
The Economic Downturn Adversely Impacted Our Business and May Continue to Adversely Impact Our Business Beyond Our Expectations.
Our business has been adversely affected by the credit crises and uncertain worldwide economic conditions. Although our
business commerce solutions help companies reduce the cost of their goods and services and may therefore be perceived as even more strategic during adverse economic conditions, we experienced a challenging selling environment during the years ended
September 30, 2010 and 2009. Adverse economic conditions could, among other things, result in reduced revenues, increased operating losses and reduced cash flows from operations, greater than anticipated uncollectible accounts receivables and
increased allowances for doubtful accounts receivable, impairment of financial and non-financial assets and increased restructuring charges.
Our Business Is Susceptible to Numerous Risks Associated with International Operations.
International operations have represented a significant portion of our revenues over the past three years. We have committed and expect to continue to commit significant resources to our international
sales and marketing activities. We are subject to a number of risks associated with these activities. These risks generally include:
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currency exchange rate fluctuations;
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unexpected changes in regulatory requirements;
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tariffs, export controls and other trade barriers;
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longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
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difficulties in managing and staffing international operations;
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potentially adverse foreign tax consequences, including withholding in connection with the repatriation of earnings;
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the burdens of complying with a wide variety of foreign laws; and,
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The risks will be enhanced if we complete our recently announced acquisition of Quadrems business. See Managements Discussion and Analysis of Financial Condition and Results of
Operations Recent Events. A substantial majority of Quadrems revenues are generated outside the United States and it has offices in Africa, Asia, Australia, Europe, the Middle East, North America and South America.
For international sales and expenditures denominated in foreign currencies, we are subject to risks associated with currency
fluctuations. Since the majority of our non-U.S. sales are priced in currencies other than the U.S. dollar, a strengthening of the dollar may reduce the level of reported revenues. If such events continue to occur, our net revenues could be
seriously impacted, since a significant portion of our net revenues are derived from international operations. We have partially hedged risks associated with foreign currency transactions in order to minimize the impact of changes in foreign
currency exchange rates on earnings. We utilize forward contracts to hedge trade and intercompany receivables and payables. There can be no assurance that our hedging strategy will be successful or that currency exchange rate fluctuations will not
have a material adverse effect on our operating results. For example, in the year ended September 30, 2009 we had an increase in realized and unrealized foreign currency transaction losses of $6.7 million on accounts receivable billed from
Ariba, Inc. in
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foreign currencies to customers headquartered in foreign countries and realized losses on foreign denominated cash balances maintained in the United States of America, primarily due to the U.S.
dollar strengthening against the Euro, the British Pound, the Australian dollar and the Canadian dollar.
Our Success
Depends on Market Acceptance of Standalone Business Commerce Solutions.
Our success depends on widespread customer
acceptance of standalone business commerce solutions from vendors like us, rather than solutions from ERP software vendors and others that are part of a broader enterprise application solution. For example, ERP vendors, such as Oracle and SAP, could
bundle business commerce modules with their existing applications and offer these modules at little or no cost. If our products and services do not achieve continued customer acceptance, our business will be seriously harmed.
We Have a History of Losses and May Incur Significant Additional Losses in the Future.
We have a significant accumulated deficit as of September 30, 2010, resulting in large part from cumulative charges for the
amortization and impairment of goodwill and other intangible assets. We may incur significant losses in the future for a number of reasons, including those discussed in other risk factors and the following:
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declines in average selling prices of our products and services resulting from adverse economic conditions, competition and other factors;
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failure to successfully grow our sales channels;
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failure to maintain control over costs;
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charges incurred in connection with any future restructurings or acquisitions; and
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additional impairment charges as a result of the decline in value and credit quality of our investments in auction rate securities (ARS) or
changes in the accounting treatment of these securities.
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Our Quarterly Operating Results Are Volatile,
Difficult to Predict and May Be Unreliable as Indicators of Future Performance Trends.
Our quarterly operating results
have varied significantly in the past and will likely continue to vary significantly in the future. As a result, period-to-period comparisons of our results may not be meaningful and should not be relied upon as indicators of future performance. In
addition, we may fail to achieve forecasts of quarterly and annual revenues and operating results.
Our quarterly operating
results have varied or may vary depending on a number of factors, including the following:
Risks Related to Revenues:
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fluctuations in demand, sales cycles and average selling price for our products and services;
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reductions in customers budgets for information technology purchases and delays in their purchasing cycles;
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fluctuations in the number of relatively larger orders for our products and services;
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increased dependence on relatively smaller orders from a larger number of customers;
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dependence on generating revenues from new revenue sources;
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ability to renew ratable revenue streams, including subscription software, software maintenance and subscription services, without substantial declines
from prior arrangements; and,
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changes in the mix of types of customer agreements and related timing of revenue recognition.
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Risks Related to Expenses:
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our overall ability to control costs, including managing reductions in expense levels through restructuring and severance payments;
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costs associated with changes in our pricing policies and business model;
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costs associated with the amortization of stock-based compensation expense; and
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the failure to adjust our workforce to changes in the level of our operations.
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Our On-Demand Strategy Carries a Number of Risks Which May Be Harmful to Our Business.
We derive a substantial portion of our revenue from subscriptions to our on-demand applications. We have experienced and may
continue to experience a deferral of revenues and cash payments from customers.
Additional risks with the on-demand model include the
following:
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as a result of increased demands on our engineering organization to develop multi-tenant versions of our products while supporting and enhancing our
existing products, we may not introduce multi-tenant versions of our products or enhancements to our products on a timely and cost-effective basis or at appropriate quality levels;
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we have experienced and expect to continue to experience a decrease in the demand for our implementation services to the extent fewer customers license
our software products as installed applications;
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we have experienced and expect to continue to experience a decrease in the demand for our maintenance services, which is related to our CD business, as
many new customers are purchasing our on-demand products and a small number of legacy CD customers are converting to on-demand products;
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because we recognize revenue from subscription to our on-demand services over the term of the agreements, downturns or upturns in sales may not be
immediately reflected in our operating results;
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we may not successfully achieve market penetration in our newly targeted markets, including target customers we characterize as middle-market
companies;
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we may incur costs at a higher than forecasted rate as we expand our on-demand operations; and,
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product quality issues may affect forecasted adoptions and renewals.
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We May Incur Additional Restructuring Charges that Adversely Affect Our Operating Results.
We have recorded significant restructuring charges relating to the abandonment of numerous leased facilities, including most notably
portions of our Sunnyvale, California headquarters. For example, in the year ended September 30, 2010, we revised our estimates for sublease commencement dates based on the remaining terms of the lease in Sunnyvale, California and continued
soft market conditions in the Northern California real estate market, resulting in a charge of $8.6 million. Additional lease abandonment costs, resulting from the abandonment of additional facilities could adversely affect our operating results.
Our Business Could Be Seriously Harmed If We Fail to Retain Our Key Personnel.
Our future performance depends on the continued service of our senior management, product development and sales personnel. The loss of the
services of one or more of these personnel could seriously harm our business. Our ability to retain key employees may be harder given that we have substantial operations in several geographic regions, including Sunnyvale, California, Pittsburgh,
Pennsylvania, Atlanta, Georgia and Bangalore, India. In addition, uncertainty created by turnover of key employees could result in reduced confidence in our financial performance which could cause fluctuations in our stock price and result in
further turnover of our employees.
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Our Revenues In Any Quarter May Fluctuate Because Our Sales Cycles Can Be Long and
Unpredictable.
Our sales cycles can be long and unpredictable. The purchase of our products is often discretionary and
generally involves a significant commitment of capital and other resources by a customer. It frequently takes several months to finalize a sale and requires approval at a number of management levels within the customer organization. We have
experienced longer sales cycles as a result of the current economic downturn and more levels of required customer management approvals. The implementation and deployment of our products requires a significant commitment of resources by our customers
and third parties and/or professional services organizations. As a result of the length and unpredictability of our sales cycle, our revenues in any quarter may fluctuate.
A Decline in Revenues May Have a Disproportionate Impact on Operating Results and Require Further Reductions in Our Operating Expense Levels.
Because our expense levels are relatively fixed in the near term and are based in part on expectations of our future revenues, any decline
in our revenues to a level that is below our expectations would have a disproportionately adverse impact on our operating results for that quarter.
We Are Subject to Evolving and Expensive Corporate Governance Regulations and Requirements. Our Failure to Adequately Adhere to These Requirements or the Failure or Circumvention of Our Controls and
Procedures Could Seriously Harm Our Business and Results of Operations.
Because we are a publicly-traded company, we are
subject to certain federal, state and other rules and regulations, including those required by the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Compliance with
existing regulations is costly and requires a significant diversion of management time and attention, particularly with regard to our disclosure controls and procedures and our internal control over financial reporting. Although we have reviewed our
disclosure and internal controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent fraud or other errors in the future. Faulty judgments, simple errors or mistakes, or the failure
of our personnel to adhere to established controls and procedures may make it impossible for us to ensure that the objectives of the control system are met. A failure of our controls and procedures to detect fraud or other errors could seriously
harm our business and results of operations. The recently adopted Dodd-Frank Act will subject us to significant additional executive compensation and corporate governance requirements, many of which have yet to be implemented by the SEC. Compliance
with their requirements may be costly and adversely affect our business.
We Sometimes Experience Long Implementation
Cycles, Which May Increase Our Operating Costs.
Many of our products are complex applications that are generally deployed
with many users. Implementation of these applications by enterprises is complex, time consuming and expensive. When we experience long implementation cycles, we may incur costs at a higher level than anticipated, which may reduce the anticipated
profitability of a given implementation
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If a Sufficient Number of Suppliers Do Not Join and Maintain Their
Participation In the Ariba Supplier Network, It May Not Attract a Sufficient Number of Buyers and Other Sellers Required to Make the Network Successful.
In order to provide buyers on the Ariba Supplier Network an organized method for accessing goods and services, we rely on suppliers to maintain web-based product catalogs, indexing services and other
content aggregation tools. Any failure of suppliers to join the Ariba Supplier Network in sufficient numbers, or of existing suppliers to maintain their participation in the Ariba Supplier Network as a result of increase access charges or otherwise,
would make the network less attractive to buyers and consequently other suppliers. Our
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inability to access and index these catalogs and services provided by suppliers would result in our customers having fewer products and services available to them through our solutions, which
would adversely affect the perceived usefulness of the Ariba Supplier Network.
We Could Be Subject to Potential Claims
Related to Our On-Demand Solutions, As Well As the Ariba Supplier Network.
We warrant to our customers that our on-demand
solutions and the Ariba Supplier Network will achieve specified performance levels to allow our customers to conduct their transactions. To the extent we fail to meet warranted performance levels, we could be obligated to provide refunds or credits
for future use or maintenance. Further, to the extent that a customer incurs significant financial hardship due to the failure of our on-demand solutions or the Ariba Supplier Network to perform as specified, we could be exposed to additional
liability claims.
Failure to Establish and Maintain Strategic Relationships with Third Parties Could Seriously Harm Our
Business, Results of Operations and Financial Condition.
We have established strategic relationships with a number of
other companies. These companies are entitled to resell our products, to host our products for their customers, and/or to implement our products within their customers organizations. We cannot be assured that any existing or future resellers
or hosting or implementation partners will perform to our expectations. For example, in the past we have not realized the anticipated benefits from strategic relationships with a number of resellers. If our current or future strategic partners do
not perform to expectations, or if they experience financial difficulties that impair their operating capabilities, our business, operating results and financial condition could be seriously harmed.
We Face Intense Competition. If We Are Unable to Compete Successfully, Our Business Will Be Seriously Harmed.
The market for our solutions is intensely competitive, evolving and subject to rapid technological change. This competition could result
in further price pressure, reduced profit margins and loss of market share, any one of which could seriously harm our business. Competitors vary in size and in the scope and breadth of the products and services they offer. We compete with several
major enterprise software companies, including SAP AG and Oracle. We also compete with several service providers, including A.T. Kearney and McKinsey & Company. In addition, we compete with smaller specialty vendors or smaller niche
providers of sourcing or procurement products and services, including Emptoris, BravoSolution, Zycus, American Express S2S, Perfect Commerce, cc-Hubwoo, Ketera Technologies, Coupa and Iasta. Because business commerce is a relatively new software and
solutions category, we expect additional competition from other established and emerging companies if this market continues to develop and expand. For example, third parties that currently help implement Ariba Buyer and our other products could
begin to market products and services that compete with our products and services. These third parties, which include IBM, Accenture, Capgemini, Deloitte Consulting, BearingPoint and Unisys, are generally not subject to confidentiality or
non-compete agreements that restrict such competitive behavior.
Many of our current and potential competitors, such as ERP
software vendors including Oracle and SAP, have longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and a larger installed base of customers than us. These
vendors could also introduce business commerce solutions that are included as part of broader enterprise application solutions at little or no cost to their customers. In addition, many of our competitors have well-established relationships with our
current and potential customers and have extensive knowledge of our industry. In the past, we have lost potential customers to competitors for various reasons, including lower prices and incentives not matched by us. In addition, current and
potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. Accordingly,
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it is possible that new competitors or alliances among competitors may emerge and rapidly increase their market share. We also expect that competition will increase as a result of industry
consolidations. The industry has experienced consolidation with both larger and smaller competitors acquiring companies to broaden their offerings or increase scale. As a result, we may not be able to successfully compete against our current and
future competitors.
Any Current or Future Acquisitions or our Recently Announced Disposition Will Be Subject to a Number
of Risks.
Any current or future acquisitions or disposition will subject us to a number of risks, including:
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the diversion of management time and resources;
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the difficulty of assimilating/transitioning the operations and personnel of the acquired companies;
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the potential disruption of our ongoing business;
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the difficulty of incorporating acquired technology and rights into our products and services;
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unanticipated expenses related to integration of the acquired companies;
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difficulties in implementing and maintaining uniform standards, controls, procedures and policies;
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the impairment of relationships with employees and customers as a result of any integration of new management personnel;
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the inability to sell disposed assets;
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potential unknown liabilities associated with acquired businesses; and
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impairment of goodwill and other assets acquired or divested.
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Our sale of certain of our sourcing services to Accenture on November 15, 2010 could adversely impact our business because, among
other reasons, many of our existing customers will continue to require these services and our solution offering may be less attractive to potential customers without these services. See Managements Discussion of Analysis and Financial
ConditionRecent Events.
The Benefits We Anticipate From Acquiring Quadrem May Not Be Realized.
We entered into an agreement to acquire Quadrem with the expectation that the acquisition will result in various benefits including, among
other things, accelerating our penetration into the international market segments, enhancing our customer base and recognizing efficiencies. We may not realize any of these benefits or may not realize them as rapidly, or to the extent, anticipated
by our management and certain financial or industry analysts. Quadrems contribution to our financial results may not meet the current expectations of our management for a number of reasons, including integration risks, and could dilute our
profits beyond the current expectations of our management. Potential liabilities assumed in connection with our acquisition of Quadrem also could have an adverse effect on our business, financial condition and operating results. If these risks
materialize, our stock price could be materially adversely affected.
If We Fail to Develop Products and Services on a
Timely and Cost-Effective Basis, or If Our Products or Services Contain Defects, Our Business Could Be Seriously Harmed.
In developing new products and services, we may:
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fail to develop, introduce and market products in a timely or cost-effective manner;
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find that our products and services are obsolete, noncompetitive or have shorter life cycles than expected;
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fail to develop new products and services that adequately meet customer requirements or achieve market acceptance; or
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develop products that contain undetected errors or failures when first introduced or as new versions are released.
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If new releases of our products or potential new products are delayed, we could experience a delay or loss of revenues and customer
dissatisfaction.
Litigation Could Seriously Harm Our Business.
There can be no assurance that future litigation will not have a material adverse effect on our business, financial position, results of
operations or cash flows, or that the amount of any accrued losses is sufficient for any actual losses that may be incurred. See Legal Proceedings in Part I, Item 3 of this Form 10-K and Note 8 of Notes to the Consolidated Financial
Statements.
We May Be Required to Record Additional Impairment Charges in Future Quarters as a Result of the Decline in
Value of Our Investments in Auction Rate Securities (ARS).
We hold a variety of interest bearing ARS that
represent investments in pools of assets, including student loans, commercial paper and credit derivative products. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at
predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The continuing uncertainties in the credit markets have affected all of our holdings in ARS
investments and auctions for our investments in these securities have failed to settle on their respective settlement dates. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction
of these investments is successful or a buyer is found outside of the auction process. Contractual maturity dates for these ARS investments range from 2016 to 2047 with principal distributions occurring on certain securities prior to maturity.
The valuation of our ARS, along with the rest of our investment portfolio, is subject to uncertainties that are difficult to
predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount
rates and ongoing strength and quality of market credit and liquidity.
Although we currently not soliciting offers to sell
these ARS investments prior to recovery nor are aware of any factors that would make such a sale of the ARS investments more likely than not, if the current market conditions deteriorate further, or the anticipated recovery in market values does not
occur, we may be required to record additional unrealized losses in other comprehensive income (loss) or to record all current and any future unrealized losses as a charge in our statement of operations in future quarters. See Note 5Fair Value
of Our Notes to Consolidated Financial Statements for additional information about the potential adverse impact of our investments in ARS.
We May Incur Goodwill Impairment Charges that Adversely Affect Our Operating Results.
We review goodwill for impairment annually and more frequently if events and circumstances indicate that the asset may be impaired and that the carrying value may not be recoverable. Factors we consider
important that could trigger an impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the
strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, and decreases in our market capitalization below the recorded amount of our net assets for a
sustained period. Our stock price is highly volatile. The balance of goodwill is $406.5 million as of September 30, 2010 and, there can be no assurance that future goodwill impairments will not occur.
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We May Fail to Achieve Our Financial Forecasts Due to Inaccurate Sales Forecasts and
Other Factors.
Our revenues are difficult to predict and, as a result, our quarterly financial results can fluctuate
substantially. We estimate quarterly revenues in part based on our sales pipeline, which is an estimate of potential customers, their stage of the sales process, the potential amount of their sales contracts and the likelihood that we will convert
them into actual customers during the quarter. To the extent that any of these estimates are inaccurate, our actual revenues may be different than our forecast revenues.
Our Stock Price Is Highly Volatile and the Market Price of Our Common Stock May Decrease in the Future.
Our stock price has fluctuated dramatically. There is a significant risk that the market price of our common stock will decrease in the future in response to any of the following factors, including those
discussed in other risk factors, some of which are beyond our control:
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variations in our quarterly operating results;
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announcements that our revenues or income are below analysts expectations;
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changes in analysts estimates of our performance or industry performance;
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changes in market valuations of similar companies;
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sales of large blocks of our common stock;
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announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
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the loss of a major customer or our failure to complete significant subscription transactions; and
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additions or departures of key personnel.
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We Are at Risk of Further Securities Class Action Litigation Due to Our Stock Price Volatility.
In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. We have experienced significant volatility
in the price of our stock over the past years. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert managements attention and resources, which could seriously harm our
business.
If the Protection of Our Intellectual Property Is Inadequate, Our Competitors May Gain Access to Our Technology,
and We May Lose Customers.
We depend on our ability to develop and maintain the proprietary rights of our technology. To
protect our proprietary technology, we rely primarily on a combination of contractual provisions, including customer licenses that restrict use of our products, confidentiality agreements and procedures, and patent, copyright, trademark and trade
secret laws. We have 47 patents issued in the United States of America, but may not develop other proprietary products that are patentable. Despite our efforts, we may not be able to adequately protect our proprietary rights, and our competitors may
independently develop similar technology, duplicate our products or design around any patents issued to us. This is particularly true because some foreign laws do not protect proprietary rights to the same extent as those of the United States of
America and, in the case of our solutions, because the validity, enforceability and type of protection of proprietary rights in these technologies are uncertain and evolving. If we fail to adequately protect our proprietary rights, we may lose
customers.
There has been a substantial amount of litigation in the software industry and the Internet industry regarding
intellectual property rights. It is possible that in the future, third parties may claim that we or our current or potential future products infringe their intellectual property rights. We expect that software product developers and providers of
electronic commerce solutions will increasingly be subject to infringement claims, and third parties may claim that we or our current or potential future products infringe their intellectual property. Any
22
claims, with or without merit, could be time-consuming, result in costly litigation, divert managements time from developing our business, cause product shipment delays, require us to enter
into royalty or licensing agreements or require us to satisfy indemnification obligations to our customers. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could seriously harm our
business.
In addition, we may need to commence litigation or take other actions to protect our intellectual property rights.
These lawsuits and other potential litigation and actions brought by us could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts
to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights.
We May be Sued by Third Parties for Alleged Infringement of Their Proprietary Rights.
There is considerable patent and other intellectual property development activity in our industry. Our success depends upon our not
infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. Even though we have policies against our
unauthorized use of third party intellectual property rights and we take precautions not to use such intellectual property without the proper licenses, from time to time, third parties have claimed and may in the future claim that we are infringing
upon their intellectual property rights, and we may be found to be infringing upon such rights. In the future, we may receive claims that our application suite and underlying technology infringe or violate the claimants intellectual property
rights. However, we may be unaware of the intellectual property rights of others that may cover some or all of our technology or application suite. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted
against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business
partners in connection with any such litigation and to obtain licenses, modify products, or refund fees, which could further exhaust our resources. In addition, we may pay substantial settlement costs to resolve claims or litigation, whether or not
legitimately or successfully asserted against us, which could include royalty payments in connection with any such litigation and to obtain licenses, modify products, or refund fees, which could further exhaust our resources. Even if we were to
prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
We Rely on Third-Party Technology for Our Solutions which Might Not be Available to Us in the Future.
We must now, and may in the future have to, license or otherwise obtain access to intellectual property of third parties. For example, we
are currently dependent on developers licenses from ERP, database, human resource and other systems software vendors in order to ensure compliance of our products with their management systems. In addition, we rely on technology that we
license from third parties, including software that is integrated with internally developed software and used in our software products to perform key functions. If we are unable to continue to license any of this software on commercially reasonable
terms, or at all, we will face delays in releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our current products or require us to satisfy indemnification obligations to our customers.
These delays, if they occur, could adversely affect our business.
If Our Security Measures Fail or Unauthorized Access to
Customer Data Is Otherwise Obtained, Our Solutions May Be Perceived As Not Being Secure, Customers May Curtail or Stop Using Our Solutions, And We May Incur Significant Liabilities.
Our operations involve the storage and transmission of our customers confidential information, and security breaches could expose us
to a risk of loss of this information, litigation, indemnity obligations and other liability.
23
If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to our customers
data, our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched
against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be
harmed and we could lose potential revenues and existing customers.
Further, because our products transmit data and
information belonging to our customers, many customers and prospects require us to meet specific security standards or to maintain security certifications with respect to our products and operations. Given the complexity of our
business and the costs and efforts required to meet the high standards to maintain these security certifications, there is no guarantee that we can achieve or maintain any such certifications or standards. If we fail to meet the
standards for these security certifications, it could negatively impact our ability to attract new or keep existing customers and it could seriously harm our business.
Because our application suite collects, stores and reports personal information of buyers and suppliers, privacy concerns could result
in liability to us or inhibit sales of our application suite.
Many federal, state and foreign government bodies and
agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of third-party information. In addition to government regulation, privacy advocacy and industry groups may propose new and different
self-regulatory standards that apply to us. Because many of the features of our application suite collect, store and report on information about buyers and suppliers, any inability to adequately address privacy concerns, even if unfounded, or comply
with applicable privacy or data protection laws, regulations and policies, could result in liability to us, damage our reputation, inhibit sales and harm our business.
Business Disruptions Could Affect Our Operating Results.
A significant
portion of our research and development activities and certain other critical business operations is concentrated in a few geographic areas. We are a highly automated business and a disruption or failure of our systems could cause delays in
completing sales and providing services. A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could severely affect our ability to
conduct normal business operations and, as a result, our future operating results could be materially and adversely affected.
Defects or Disruptions in Our Solutions Could Diminish Demand for Our Solutions and Subject Us to Substantial Liability.
Since our customers use our solutions for important aspects of their business, any errors, defects, disruptions in service
or other performance problems with our solutions could hurt our reputation and may damage our customers businesses. If that occurs, customers could elect to terminate or not to renew their subscriptions, delay or withhold payment to us, or
make warranty or other claims against us. In addition, it could adversely affect our ability to attract new customers. Our business will be harmed if our customers and potential customers believe our solutions are unreliable.
Anti-takeover Provisions in Our Charter Documents and Delaware Law Could Discourage, Delay or Prevent a Change in Control of Our
Company and May Affect the Trading Price of Our Common Stock.
Certain anti-takeover provisions in our certificate of
incorporation and bylaws and certain provisions of Delaware law may have the effect of delaying, deferring or preventing a change in control of the Company without further action by our stockholders, may discourage bids for our common stock at a
premium over the market price of our common stock and may adversely affect the market price of our common stock and other rights of our stockholders.
24
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
Ariba
occupies three principal office locations in Sunnyvale, California, Pittsburgh, Pennsylvania and Atlanta, Georgia.
Operations
at our corporate headquarters in Sunnyvale, California consist principally of marketing, research and development and some administrative activities. We occupy approximately 150,000 square feet in a 716,000 square foot, five building office park.
Our lease for the entire office park commenced in January 2001 and expires in January 2013. We currently sublease over two buildings totaling 396,000 square feet to third parties. These subleases expire in January 2013. The remaining 170,000 square
feet is available for sublease for the remaining lease term.
We occupy approximately 91,000 square feet of office space in
Pittsburgh, Pennsylvania under a lease that expires in December 2017. Our operations at this location consist principally of our services organization and administrative activities.
We occupy approximately 27,000 square feet of office space in Atlanta, Georgia under a lease that expires in June 2013. Our operations at
this location consist principally of our sales and support activities.
We also lease several North American sales and support
offices throughout the United States, Canada and Mexico. We lease international sales and support offices including offices in Belgium, China, Czech Republic, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Netherlands, Singapore,
Slovakia, Spain, Sweden, Switzerland and the United Kingdom.
We may add additional offices in the United States and in other
countries as growth opportunities present themselves, as well as from time to time abandon locations that are no longer required to meet the needs of our business.
ITEM 3.
|
LEGAL PROCEEDINGS
|
Litigation
Patent Litigation with Emptoris, Inc.
On April 19, 2007, the Company sued Emptoris, Inc. (Emptoris) in the United States District Court for the Eastern District of Texas for patent infringement. On October 29, 2008,
after a seven day jury trial, the Company received a verdict that Emptoris willfully infringed one Company patent and also infringed a second Company patent. The jury awarded the Company approximately $4.9 million in damages. On January 7,
2009, the Court issued its judgment which affirmed the jurys damage award of $4.9 million and further ordered Emptoris to pay the Company $207,000 for pre-judgment interest, $1.4 million in enhanced damages due to the willfulness finding, and
the Companys costs of Court which have been calculated to be $164,000. In its judgment, the Court also issued an injunction against Emptoris. On January 22, 2009, the Court entered an amended judgment which assessed additional damages of
$168,000 against Emptoris based on its infringing conduct during the period after trial through December 4, 2008. Emptoris filed an appeal of the trial Courts judgment. On January 8, 2010, the United States Court of Appeals for the
Federal Circuit affirmed the judgment. During the year ended September 30, 2010, the Company received $7.0 million in satisfaction of the monetary portion of the judgment, and the Company recorded $7.0 million of income related to this matter.
25
General
From time to time, the Company is involved in a variety of claims, suits, investigations, and proceedings arising from the ordinary course of its business, including actions with respect to intellectual
property claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an adverse impact on the Company because of defense costs, diversion of
management resources, and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect our financial position, results of operations, cash flows in a
particular period or subject the Company to an injunction that could seriously harm its business. See the risk factors
If the Protection of Our Intellectual Property Is Inadequate, Our Competitors May Gain Access to Our Technology, and We
May Lose Customers and We May be Sued by Third Parties for Alleged Investment of Their Proprietary Rights,
in the Risk Factors section of Part I, Item 1A of this Annual Report on Form 10-K.
During the year ended September 30, 2009, the Company recorded $7.5 million of income related to an insurance reimbursement for
previously unreimbursed litigation costs.
Indemnification
The Company sells software licenses, access to its on-demand offerings and/or services to its customers under contracts that the Company
refers to as Terms of Purchase or Software License and Service Agreements (collectively, SLSA). Each SLSA contains the relevant terms of the contractual arrangement with the customer, and generally includes certain provisions for
indemnifying the customer against losses, expenses and liabilities from damages that may be incurred by or awarded against the customer in the event the Companys software or services are found to infringe upon a patent, copyright, trade
secret, trademark or other proprietary right of a third party. The SLSA generally limits the scope of remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain product usage
limitations and geography-based scope limitations, and a right to replace an infringing product or service or modify them to make them non-infringing. If the Company cannot address the infringement by replacing the product or service, or modifying
the product or service, the Company is allowed to cancel the license or service and return certain of the fees paid by the customer.
To date, we have not had to reimburse any of our customers for any losses related to these indemnification provisions and no material customer claims for such indemnification are outstanding as of
September 30, 2010.
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
Not applicable.
26
PART II
ITEM 5.
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market for Our Common Stock
Our common stock is traded on the Nasdaq Global Select Market under the symbol ARBA. The price range per share in the table below reflects the highest and lowest sale prices for our stock as
reported by the Nasdaq Global Select Market for each quarter during the last two fiscal years. Our present policy is to retain earnings, if any, to finance future growth. We have never paid cash dividends and have no present intention to pay cash
dividends. As of October 31, 2010, there were approximately 944 stockholders of record.
|
|
|
|
|
|
|
|
|
|
|
Price Range
Per Share
|
|
Three Months Ended:
|
|
High
|
|
|
Low
|
|
September 30, 2010
|
|
$
|
19.06
|
|
|
$
|
14.91
|
|
June 30, 2010
|
|
$
|
17.74
|
|
|
$
|
12.71
|
|
March 31, 2010
|
|
$
|
13.67
|
|
|
$
|
11.22
|
|
December 31, 2009
|
|
$
|
13.16
|
|
|
$
|
10.74
|
|
|
|
|
September 30, 2009
|
|
$
|
12.53
|
|
|
$
|
8.27
|
|
June 30, 2009
|
|
$
|
11.19
|
|
|
$
|
8.15
|
|
March 31, 2009
|
|
$
|
9.56
|
|
|
$
|
6.43
|
|
December 31, 2008
|
|
$
|
14.01
|
|
|
$
|
6.00
|
|
Equity
Compensation Plan Information
The following table sets forth as of September 30, 2010 certain information regarding
our equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
B
|
|
|
C
|
|
Plan category
|
|
Number of securities to
be issued upon exercise
of outstanding
options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and
rights
|
|
|
Number of securities
remaining available for
future issuance
under
equity compensation plans
(excluding securities
reflected in Column A)
|
|
Equity compensation plans approved by security holders
|
|
|
425,759
|
|
|
$
|
10.99
|
|
|
|
8,271,892
|
(1)
|
Equity compensation plans not approved by security holders (2)
|
|
|
98,971
|
(3)
|
|
$
|
14.27
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
524,730
|
|
|
$
|
11.61
|
|
|
|
8,271,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes 1.3 million shares available for future purchase under the Ariba, Inc. Employee Stock Purchase Plan. Securities available for future issuance under the
Ariba, Inc. 1999 Equity Incentive Plan exclude unvested shares of restricted common stock as of September 30, 2010.
|
(2)
|
See Note 10 of Notes to Consolidated Financial Statements for a narrative description of these plans.
|
(3)
|
Represents shares of common stock issuable pursuant to awards outstanding under equity compensation plans assumed by us in connection with our fiscal year 2004 merger
with FreeMarkets.
|
27
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We have granted shares of restricted common stock that allow statutory tax withholding obligations incurred upon vesting of those shares
to be satisfied by forfeiting a portion of those shares to us. There were no shares acquired by us upon forfeiture of restricted shares during the quarter ended September 30, 2010.
Stock Performance Graphs and Cumulative Total Return
The graph below
compares the cumulative total stockholder return on our common stock with the cumulative total return on the Morgan Stanley Technology Index and the Standard and Poors 500 Index (the S&P 500 Index), for each of the last
five fiscal years ended September 30, 2010, assuming an investment of $100 at the beginning of such period and the reinvestment of any dividends, if any. The comparisons in the graphs below are based upon historical data and are not indicative
of, nor intended to forecast, future performance of our common stock.
28
ITEM 6.
|
SELECTED FINANCIAL DATA
|
The following selected consolidated financial data should be read in conjunction with the consolidated financial statements, the notes to
the consolidated financial statements, and Managements Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Form 10-K. The consolidated statements of operations data for
each of the five fiscal years in the period ended September 30, 2010, and the consolidated balance sheet data as of the end of each such fiscal year, are derived from our consolidated financial statements. The operating results for any period
should not be considered indicative of results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(in thousands, except per share data)
|
|
Consolidated Statements of Operations Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
$
|
240,789
|
|
|
$
|
222,206
|
|
|
$
|
187,150
|
|
|
$
|
142,309
|
|
|
$
|
130,057
|
|
Services and other
|
|
|
120,357
|
|
|
|
116,766
|
|
|
|
140,910
|
|
|
|
159,358
|
|
|
|
165,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
361,146
|
|
|
|
338,972
|
|
|
|
328,060
|
|
|
|
301,667
|
|
|
|
296,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
|
51,049
|
|
|
|
47,907
|
|
|
|
40,088
|
|
|
|
32,709
|
|
|
|
27,039
|
|
Services and other
|
|
|
82,636
|
|
|
|
75,465
|
|
|
|
94,189
|
|
|
|
114,615
|
|
|
|
131,551
|
|
Amortization of acquired technology and customer intangible assets
|
|
|
4,402
|
|
|
|
5,550
|
|
|
|
14,257
|
|
|
|
14,074
|
|
|
|
15,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
138,087
|
|
|
|
128,922
|
|
|
|
148,534
|
|
|
|
161,398
|
|
|
|
174,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
223,059
|
|
|
|
210,050
|
|
|
|
179,526
|
|
|
|
140,269
|
|
|
|
121,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
120,796
|
|
|
|
103,739
|
|
|
|
110,834
|
|
|
|
93,904
|
|
|
|
82,456
|
|
Research and development
|
|
|
46,041
|
|
|
|
43,483
|
|
|
|
52,270
|
|
|
|
51,159
|
|
|
|
50,085
|
|
General and administrative
|
|
|
36,000
|
|
|
|
43,289
|
|
|
|
48,919
|
|
|
|
39,780
|
|
|
|
32,850
|
|
Litigation (benefit) provision
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
5,900
|
|
|
|
|
|
|
|
|
|
Insurance reimbursement
|
|
|
|
|
|
|
(7,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other intangible assets
|
|
|
104
|
|
|
|
755
|
|
|
|
739
|
|
|
|
525
|
|
|
|
800
|
|
Restructuring costs (benefit)
|
|
|
8,579
|
|
|
|
10,837
|
|
|
|
10,108
|
|
|
|
(4,194
|
)
|
|
|
26,321
|
|
Other incomeSoftbank
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
|
|
(13,564
|
)
|
|
|
(13,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
204,520
|
|
|
|
194,576
|
|
|
|
228,204
|
|
|
|
167,610
|
|
|
|
178,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
18,539
|
|
|
|
15,474
|
|
|
|
(48,678
|
)
|
|
|
(27,341
|
)
|
|
|
(57,203
|
)
|
Interest and other (expense) income, net
|
|
|
(735
|
)
|
|
|
(6,055
|
)
|
|
|
8,359
|
|
|
|
14,301
|
|
|
|
10,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
17,804
|
|
|
|
9,419
|
|
|
|
(40,319
|
)
|
|
|
(13,040
|
)
|
|
|
(46,268
|
)
|
Provision for income taxes
|
|
|
1,418
|
|
|
|
1,226
|
|
|
|
743
|
|
|
|
1,937
|
|
|
|
1,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,386
|
|
|
$
|
8,193
|
|
|
$
|
(41,062
|
)
|
|
$
|
(14,977
|
)
|
|
$
|
(47,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per sharebasic
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per sharediluted
|
|
$
|
0.18
|
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income (loss) per sharebasic
|
|
|
86,617
|
|
|
|
82,733
|
|
|
|
77,318
|
|
|
|
70,106
|
|
|
|
65,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income (loss) per sharediluted
|
|
|
89,221
|
|
|
|
85,424
|
|
|
|
77,318
|
|
|
|
70,106
|
|
|
|
65,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Consolidated Balance Sheets Data (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, restricted cash, short-term investments and long-term investments
|
|
$
|
252,366
|
|
|
$
|
195,446
|
|
|
$
|
136,970
|
|
|
$
|
183,046
|
|
|
$
|
170,616
|
|
Working capital (deficit)
|
|
$
|
54,809
|
|
|
$
|
1,031
|
|
|
$
|
(41,172
|
)
|
|
$
|
35,880
|
|
|
$
|
39,404
|
|
Total assets
|
|
$
|
721,709
|
|
|
$
|
668,171
|
|
|
$
|
627,461
|
|
|
$
|
583,586
|
|
|
$
|
586,944
|
|
Restructuring obligations, less current portion and deferred rent obligations
|
|
$
|
33,219
|
|
|
$
|
45,637
|
|
|
$
|
59,295
|
|
|
$
|
74,734
|
|
|
$
|
103,074
|
|
Total stockholders equity
|
|
$
|
498,954
|
|
|
$
|
434,051
|
|
|
$
|
391,018
|
|
|
$
|
351,144
|
|
|
$
|
333,023
|
|
(1)
|
The consolidated statements of operations data and the consolidated balance sheet data as of and for each of the fiscal years in the five-year period ended
September 30, 2010 reflects the results of operations of Procuri, Inc. (Procuri) subsequent to its acquisition on December 17, 2007.
|
See Note 11 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used to compute basic and diluted net income (loss) per share. We have paid no
cash dividends during the five-year period ended September 30, 2010.
30
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion contains forward-looking statements, including, without limitation, our expectations regarding our outlook and
future revenues. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future actual results to differ materially from our recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in the section entitled Risk Factors in this Form 10-K and in Outlook for Fiscal Year 2011 in this section. We assume no obligation to update the
forward-looking statements or our risk factors after the date of this document.
Overview of Our Business
Ariba is the leading provider of collaborative business commerce solutions for buying and selling goods and services.
Ariba combines industry-leading software as a service (SaaS) technology to optimize the complete commerce lifecycle and enables companies to discover, connect and collaborate with a global network of trading partners and expert
capabilities to augment internal resources and skills, delivering services needed to control costs, minimize risk, improve profits and enhance cash flow and operations, all in the Ariba
®
Commerce Cloud. Over 330,000 companies, including more than 80 percent of the Fortune 500, use Aribas solutions to drive more efficient inter-enterprise
commerce.
Our software is built to leverage the Internet and provide enterprises with real-time access to their business data
and their business partners. Our software is designed to integrate with all major platforms and can be accessed via a web browser. Our software can be provided as a service in an on-demand model or deployed as an installed application. In addition
to application software, Aribas collaborative business commerce solutions include implementation and strategic consulting services, education and training, commodity expertise and decision support services, benchmarking services, low-cost
country sourcing services and procurement outsourcing services. Aribas collaborative business commerce solutions also integrate with and leverage the Ariba Supplier Network. The Ariba Supplier Network is a scalable Internet infrastructure that
connects our buying organizations with their suppliers to exchange product and service information as well as a broad range of business documents, such as purchase orders and invoices. Over 245,000 registered suppliers, offering a wide array of
goods and services, are connected to the Ariba Supplier Network.
Recent Events
On November 15, 2010, we sold our sourcing services and business process outsourcing (BPO) services assets (collectively, our
Sourcing Services Business) to Accenture for approximately $51.0 million in cash, of which $12.0 million is subject to escrow. These assets include our category expertise, sourcing process expertise and strategic sourcing execution
resources.
On November 18, 2010, we signed a stock purchase agreement to acquire the business of Quadrem International
Holdings, Ltd., a privately held company headquartered in Amsterdam, Netherlands. Quadrem operates an online network for buying and selling goods and services. Under the terms of the Agreement, we will pay up to $150.0 million, including a
contingent payment of up to $50 million if performance conditions are met, of which $40.0 million is subject to escrow. The Company has also agreed to pay $10.25 million to modify and terminate aspects of a commercial arrangement previously entered
into by Quadrem. The transaction is expected to close in the latter part of the second quarter of fiscal year 2011.
Business Model
Ariba Business Commerce solutions are delivered in a flexible manner, depending upon the needs and preferences of the
customer. For customers seeking self sufficiency, we offer flexible, highly configurable and
31
easy-to-use technology and related services that can be deployed behind the firewall or delivered as an on-demand service.
We have aligned our business model with the way we believe customers want to purchase and deploy business commerce solutions. Customers
may generally subscribe to our software products and services for a specified term and/or pay for services on a time-and-materials or milestone basis, depending upon their business requirements. Our revenue is comprised of subscription and
maintenance fees, and services and other fees. Subscription and maintenance revenue consists of fees charged for hosted on-demand software solutions and fees for product updates and support, as well as fees paid by suppliers for access to the Ariba
Supplier Network. Services and other revenue consists of fees for implementation services, consulting services, managed services, training, education, premium support, license fees charged for the use of our software products under perpetual
agreements and other miscellaneous items.
Due to the different treatment of our revenue streams under applicable accounting
guidance, each type of revenue has a different impact on our consolidated financial statements. Subscription fees for hosted on-demand software solutions are generally fixed for a specific period of time, and revenue is recognized ratably over the
term. Similarly, maintenance fees are generally fixed for a specific period of time, and revenue is customarily recognized ratably over the maintenance term. Most of our customers renew their maintenance contracts annually to continue receiving
product updates and product support. Given the ratable revenue recognition and historically high renewal rates of our subscription and maintenance agreements, this revenue stream has generally been stable over time. Services revenues are driven by a
contract, project or statement of work, in which the fees may be fixed for specific services to be provided over time or billed on a time and materials basis. Individual subscription software license sales can be significant (greater than $1.0
million) and sales cycles are often lengthy and difficult to predict.
These different revenue streams also carry different
gross margins. Revenue from subscription and maintenance fees tends to be higher-margin revenue with gross margins typically around 75% to 80%. Subscription and maintenance fees are generally based on software products developed by us, which carry
minimal marginal cost to reproduce and sell. Revenue from labor-intensive services and other fees tends to be lower-margin revenue, with gross margins typically in the 20% to 40% range. Our overall gross margins could fluctuate from period to period
depending upon the mix of revenue. For example, a period with a higher mix of subscription revenue versus services revenue would drive overall gross margin higher and vice versa.
Overview of Fiscal Year 2010
Our revenues increased to $361.1 million in
the year ended September 30, 2010 compared to $339.0 million in the year ended September 30, 2009. Subscription and maintenance revenues increased $18.6 million, or 8%, and services and other revenues increased $3.6 million, or 3%.
Subscription revenues were $174.0 million in the year ended September 30, 2010, as compared to $151.2 million in the year ended September 30, 2009. This is primarily due to an increase in the organic demand for our subscription software
products, including on-demand software solutions and fees paid for access to the Ariba Supplier Network. Services and other revenues increased primarily due to an increase in implementation revenues partially offset by a decline in sourcing services
revenues in the year ended September 30, 2010.
Operating expenses increased to $204.5 million in the year ended
September 30, 2010 compared to $194.6 million in the year ended September 30, 2009. The increase in operating expenses is primarily attributable to an increase in compensation and benefits expense related to an increase in overall
headcount in the year ended September 30, 2010. In summation, our total net expenses, including cost of revenue and other items, increased to $344.8 million compared to $330.8 million in the year ended September 30, 2009, which resulted in
net income for the year ended September 30, 2010 of $16.4 million compared to net income of $8.2 million in the year ended September 30, 2009.
32
Outlook for Fiscal Year 2011
With the increase in customer demand and continued shift in demand toward subscription software sales, we expect continued growth in subscription revenue in fiscal year 2011 compared to fiscal year 2010.
We also expect total revenues to grow in fiscal year 2011 compared to fiscal year 2010 at a higher growth rate than 2010 with growth in subscription revenue being partially offset by modest declines in maintenance revenues.
We plan to continue to carefully monitor expenses in fiscal year 2011. We expect that total expenses, excluding expenses for amortization
of intangibles, stock-based compensation and restructuring costs, will grow, at a lower rate than revenues. Our expense outlook includes targeted investments in our business that are planned depending on economic conditions in fiscal year 2011. As a
result of our revenue and expense outlooks, we anticipate continued improvement in our results from operations, before giving effect to these excluded expenses.
The current economic uncertainty may continue to adversely impact our business. Although we believe that our business commerce solutions may be even more strategic to customers during adverse economic
conditions, because they help companies reduce the costs of their goods and services, a weakening global economy, or decline in confidence in the economy, could, among other things, result in reduced revenues, impairment of financial and
non-financial assets and reduced cash flows.
We believe that our success for fiscal year 2011 will depend largely on our
ability to: (1) renew our subscription or time-based revenues, including on-demand software fees, maintenance fees, and fees for certain services; (2) sell bundled solution offerings that include both technology and expert services;
(3) capitalize on revenue opportunities, such as increased fees for the Ariba Supplier Network and selling on-demand business commerce solutions to smaller and mid-market customers; (4) successfully manage the sale of our Sourcing Services
Business; and (5) complete the purchase and successfully integrate the acquisition of Quadrems business.
In
addition to the macro-economic impact, we believe that key risks to our revenues in fiscal year 2011 include: our ability to renew ratable revenue streams without substantial declines from prior arrangements, including subscription software,
software maintenance and subscription services; our ability to generate organic growth; the market acceptance of business commerce solutions as a standalone market category; the overall level of information technology spending; and potential
declines in average selling prices. We believe that key risks to our future operating profitability include: our ability to maintain or grow our revenues; and our ability to maintain adequate utilization of our services organization. We may not be
successful in addressing such risks and difficulties. See Risk Factors for additional information.
33
Results of Operations
The following table indicates the year over year change (on a percentage basis) and the percentage of total revenues represented by line items in our consolidated statements of operations (certain items
may not foot due to rounding). This data has been derived from the consolidated financial statements contained elsewhere in this Form 10-K. The operating results for any period should not be considered indicative of results for any future period.
This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
Percentage Change
Year Over Year
|
|
|
Percentage of Total
Revenues
|
|
|
|
2010/2009
|
|
|
2009/2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
|
8
|
%
|
|
|
19
|
%
|
|
|
67
|
%
|
|
|
66
|
%
|
|
|
57
|
%
|
Services and other
|
|
|
3
|
|
|
|
(17
|
)
|
|
|
33
|
|
|
|
34
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7
|
|
|
|
3
|
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
|
7
|
|
|
|
20
|
|
|
|
14
|
|
|
|
14
|
|
|
|
12
|
|
Services and other
|
|
|
10
|
|
|
|
(20
|
)
|
|
|
23
|
|
|
|
22
|
|
|
|
29
|
|
Amortization of acquired technology and customer intangible assets
|
|
|
(21
|
)
|
|
|
(61
|
)
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
7
|
|
|
|
(13
|
)
|
|
|
38
|
|
|
|
38
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6
|
|
|
|
17
|
|
|
|
62
|
|
|
|
62
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
16
|
|
|
|
(6
|
)
|
|
|
34
|
|
|
|
30
|
|
|
|
34
|
|
Research and development
|
|
|
6
|
|
|
|
(17
|
)
|
|
|
13
|
|
|
|
13
|
|
|
|
16
|
|
General and administrative
|
|
|
(17
|
)
|
|
|
(12
|
)
|
|
|
10
|
|
|
|
13
|
|
|
|
15
|
|
Litigation (benefit) provision
|
|
|
NM
|
|
|
|
NM
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
2
|
|
Insurance reimbursement
|
|
|
NM
|
|
|
|
NM
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Amortization of other intangible assets
|
|
|
(86
|
)
|
|
|
2
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Restructuring costs
|
|
|
(21
|
)
|
|
|
7
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
Other incomeSoftbank
|
|
|
NM
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
(0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5
|
|
|
|
(15
|
)
|
|
|
57
|
|
|
|
57
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
20
|
|
|
|
132
|
|
|
|
5
|
|
|
|
5
|
|
|
|
(15
|
)
|
Interest and other (expense) income, net
|
|
|
88
|
|
|
|
(172
|
)
|
|
|
(0
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
89
|
|
|
|
123
|
|
|
|
5
|
|
|
|
3
|
|
|
|
(13
|
)
|
Provision for income taxes
|
|
|
16
|
|
|
|
65
|
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
100
|
%
|
|
|
120
|
%
|
|
|
5
|
%
|
|
|
2
|
%
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM means not meaningful
Comparison of the Fiscal Years Ended September 30, 2010, 2009 and 2008
Revenues
Please refer to Note 1 of Notes to Consolidated Financial Statements and Application of Critical Accounting Policies and Estimates below for a description of our accounting policy related to
revenue recognition.
34
Subscription and maintenance
Subscription and maintenance revenues for the year ended September 30, 2010 were $240.8 million, an 8% increase from subscription and
maintenance revenues of $222.2 million for the year ended September 30, 2009. Subscription revenues consist mainly of fees for software access subscription and hosted software services. Subscription revenues for the year ended
September 30, 2010 were $174.0 million compared to $151.2 million for the year ended September 30, 2009. The increase in subscription revenues of $22.8 million, or 15%, was primarily due to an increase in the demand for our
subscription software products and the continued growth of Ariba Supplier Network revenues. Maintenance revenues consist primarily of Ariba Buyer and Ariba Sourcing product maintenance fees. Maintenance revenues for the year ended September 30,
2010 were $66.8 million compared to $71.0 million for the year ended September 30, 2009. The slight decline in maintenance revenues was primarily due to a decline in perpetual license revenues. We anticipate that subscription revenues will
increase in fiscal year 2011 compared to fiscal year 2010, partially offset by modest declines of maintenance revenues in fiscal year 2011.
Subscription and maintenance revenues for the year ended September 30, 2009 were $222.2 million, a 19% increase from subscription and maintenance revenues of $187.2 million for the year ended
September 30, 2008. Subscription revenues consist mainly of fees for software access subscription and hosted software services. Subscription revenues for the year ended September 30, 2009 were $151.2 million compared to $112.3 million
for the year ended September 30, 2008. The increase of $38.9 million, or 35%, was primarily due to an increase in the demand for our subscription software products, the continued growth of Ariba Supplier Network revenues and the acquisition of
Procuri in December 2007. Maintenance revenues consist primarily of Ariba Buyer and Ariba Sourcing product maintenance fees. Maintenance revenues for the year ended September 30, 2009 were $71.0 million compared to $74.9 million for the year
ended September 30, 2008. The slight decline in maintenance revenues was primarily due to a decline in perpetual license revenues.
Services and other
Services and other revenues were $120.4 million for the
year ended September 30, 2010, a 3% increase from services and other revenues of $116.8 million for the year ended September 30, 2009. The increase of $3.6 million in services and other revenues was primarily attributable to increase in
implementation revenues partially offset by a decline in sourcing services revenues in the year ended September 30, 2010. We anticipate that services and other revenues will remain relatively consistent in fiscal year 2011 compared to fiscal
year 2010.
Services and other revenues were $116.8 million for the year ended September 30, 2009, a 17% decrease from
services and other revenues of $140.9 million for the year ended September 30, 2008. The decrease of $24.1 million in services and other revenues was primarily attributable to declines in implementation revenues and perpetual license revenues
in the year ended September 30, 2009.
Cost of Revenues
Subscription and maintenance
Cost of subscription and maintenance revenues includes hosting services, technical support, training personnel, facilities, equipment costs and stock-based compensation costs. Cost of subscription and
maintenance revenues for the year ended September 30, 2010 was $51.0 million, a 7% increase from cost of subscription and maintenance revenues of $47.9 million for the year ended September 30, 2009. This increase was primarily the result
of an increase in hosted support costs associated with the overall 15% increase in subscription revenues in the year ended September 30, 2010. We anticipate that cost of subscription and maintenance expenses will remain relatively consistent as
a percentage of revenues in the year ending September 30, 2011 compared to the year ended September 30, 2010.
Cost
of subscription and maintenance revenues for the year ended September 30, 2009 was $47.9 million, a 20% increase from cost of subscription and maintenance revenues of $40.1 million for the year ended September 30, 2008. This increase was
primarily the result of an increase in hosted support costs associated with the overall 35% increase in subscription revenues in the year ended September 30, 2009.
35
Services and other
Cost of services and other revenues consists of labor costs for consulting services, including stock-based compensation costs, training
personnel, facilities and equipment costs. Cost of services and other revenues was $82.6 million for the year ended September 30, 2010, a 10% increase from cost of services and other revenues of $75.5 million for the year ended
September 30, 2009. This increase of $7.2 million was primarily due to the following: 1) increased compensation and benefits expense of $3.2 million due to a slight increase in average consulting headcount in the year ended September 30,
2010; 2) increased temporary and contract labor costs of $3.2 million related to the increase in implementation revenues noted above; and 3) increased stock-based compensation expense of $1.6 million in the year ended September 30, 2010 related
to performance-based awards based on the increase in subscription software revenues noted above. We anticipate that cost of services and other revenues will remain relatively consistent as a percentage of services and other revenues in the year
ending September 30, 2011 compared to the year ended September 30, 2010.
Cost of services and other revenues was
$75.5 million for the year ended September 30, 2009, a 20% decrease from cost of services and other revenues of $94.2 million for the year ended September 30, 2008. This decrease of $18.7 million was primarily due to the following:
(1) decreased compensation and benefits expense, travel expense and overhead costs of $10.1 million, $3.3 million and $2.1 million, respectively, due to a slight decrease in average consulting headcount in the year ending September 30,
2009; (2) decreased third party software royalty costs of $2.1 million primarily due to the associated declines in perpetual license revenues in the year ended September 30, 2009; (3) decreased stock-based compensation of $2.0 million
primarily due to a decrease in restricted stock grants in the year ending September 30, 2009; and (4) increased bonus expense of $1.8 million primarily associated with our financial results for the year ended September 30, 2009.
Additionally, the Compensation Committee of our Board of Directors decided to eliminate bonuses for executives and reduce bonuses for certain key employees in the year ended September 30, 2008.
Amortization of acquired technology and customer intangible assets
Amortization of acquired technology and customer intangible assets represents the amortization of assets associated with our fiscal year
2008 business combination with Procuri and our fiscal year 2004 business combinations with FreeMarkets. This expense amounted to $4.4 million, $5.6 million and $14.3 million for the years ended September 30, 2010, 2009 and 2008, respectively.
The decrease in the years ended September 30, 2010 and 2009 was primarily attributable to assets reaching the end of their estimated useful lives. We anticipate amortization of acquired technology and customer intangible assets will decrease
slightly in the year ended September 30, 2011 compared to the year ended September 30, 2010 due to decreases in costs resulting from our acquisition of Procuri as assets reach the end of their estimated useful lives.
Gross profit
Our gross profit as a percentage of revenues for the year ended September 30, 2010 was 62%, consistent with the 62% for the year ended September 30, 2009. Our gross profit as a percentage of
revenues for the year ended September 30, 2009 was 62% compared to 55% for the year ended September 30, 2008. The increase in gross profit was primarily due to the continued shift in our revenue mix. Subscription and maintenance revenues
contributed 66% of total revenues in the year ended September 30, 2009, as compared to 57% in the year ended September 30, 2008, while services and other revenues contributed 34% of total revenues in the year ended September 30, 2009,
respectively as compared to 43% in the year ended September 30, 2008.
Operating Expenses
Sales and marketing
Sales and marketing expenses include costs associated with our sales and marketing personnel and product marketing personnel and consist primarily of compensation and benefits, commissions and bonuses,
stock-based compensation costs, promotional and advertising expenses, travel and entertainment expenses related to these
36
personnel and the provision for doubtful accounts. Sales and marketing expenses for the year ended September 30, 2010 were $120.8 million, a 16% increase from sales and marketing expenses of
$103.7 million for the year ended September 30, 2009. This increase of $17.1 million is primarily due to the following: 1) increased stock-based compensation of $9.4 million related to performance-based awards based on the increase in
subscription software revenues noted above; 2) increased sales commission and bonus expense of $3.5 million related to the increase in revenues noted above; 3) increased compensation and benefits costs and travel costs of $1.5 million and $1.1
million, respectively, related to an increase in overall sales and marketing headcount in the year ended September 30, 2010; and 4) increased marketing expense of $1.2 million in the year ended September 30, 2010. We anticipate that sales
and marketing expenses will remain relatively consistent as a percentage of revenues in the year ending September 30, 2011 compared to the year ended September 30, 2010.
Sales and marketing expenses for the year ended September 30, 2009 were $103.7 million, a 6% decrease from sales and marketing
expenses of $110.8 million for the year ended September 30, 2008. This decrease of $7.1 million was primarily due to the following: (1) decreased sales commission expense of $3.0 million in the year ending September 30, 2009;
(2) decreased stock-based compensation of $2.4 million primarily due to a decrease in restricted stock grants in the year ending September 30, 2009; (3) decreased overhead costs, marketing expenses and travel expenses of $2.3 million,
$1.6 million and $1.4 million, respectively, due to cost cutting efforts in the year ended September 30, 2009; (4) increased bonus expense of $3.5 million associated with our financial results for the year ended September 30, 2009 and
the decision by the Compensation Committee of our Board of Directors to eliminate bonuses for executives and reduce bonuses for certain key employees within sales and marketing in the year ended September 30, 2008; and (5) increased
provision for bad debt of $872,000 associated with a slight deterioration in the aging of accounts receivable in the year ended September 30, 2009.
Research and development
Research and development expenses include costs
associated with the development of new products, enhancements of existing products for which technological feasibility has not been achieved, and quality assurance activities, and primarily include compensation and benefits, stock-based compensation
costs, consulting costs and the cost of software development tools and equipment. Research and development expenses for the year ended September 30, 2010 were $46.0 million, a 6% increase from research and development expenses of $43.5 million
for the year ended September 30, 2009. The increase in the year ended September 30, 2010 is primarily due to an increase in compensation and benefits expense. We anticipate that research and development expenses will remain relatively
consistent as a percentage of revenues in the year ending September 30, 2011 compared to the year ended September 30, 2010.
Research and development expenses for the year ended September 30, 2009 were $43.5 million, a 17% decrease from research and development expenses of $52.3 million for the year ended
September 30, 2008. The decrease of $8.8 million was primarily due to the following: (1) decreased compensation and benefits of $5.9 million due to a decrease in average research and development headcount and a shift of engineering roles
to lower cost countries in the fourth quarter of fiscal year 2008; (2) decreased overhead expense of $1.9 million due to cost reduction efforts; (3) decreased stock-based compensation expense of $1.4 primarily due to a decrease in
restricted stock grants in the year ended September 30, 2009; and, (4) increased bonus expense of $1.3 million associated with our financial results for the year ended September 30, 2009. Additionally, the Compensation Committee of
our Board of Directors decided to eliminate bonuses for executives and reduce bonuses for certain key employees in the year ended September 30, 2008.
General and administrative
General and administrative expenses include
costs for executive, finance, human resources, information technology, legal and administrative support functions, and primarily include compensation and benefits, stock-based compensation costs and professional services costs. General and
administrative expenses for the year ended September 30, 2010 were $36.0 million, a 17% decrease from general and administrative expenses of $43.3 million for the year ended September 30, 2009. This decrease of $7.3 million is
primarily due an
37
impairment of $4.3 million in the year ended September 30, 2009 associated with capitalized costs related to an enterprise resource planning (ERP) system for finance and human
resources, a decrease in expenses of $3.1 million based upon managements assessment that a previously accrued contingency now has less than a remote probability of potential loss and a decrease in intellectual property related legal expenses
of approximately $1.7 million associated with the patent infringement matters disclosed in Note 8 to Notes to Consolidated Financial Statements, partially offset by an increase in stock-based compensation of $1.8 million primarily related to
restricted stock awards. We anticipate that general and administrative expenses will remain relatively consistent as a percentage of revenues in the year ending September 30, 2011 compared to the year ended September 30, 2010.
General and administrative expenses for the year ended September 30, 2009 were $43.3 million, a 12% decrease from general and
administrative expenses of $48.9 million for the year ended September 30, 2008. This decrease of $5.6 million was primarily due to the following: (1) decreased legal expenses of $8.7 million primarily associated with a reduction of
expenditures for patent infringement matters; (2) decreased compensation and benefits and overhead costs of $1.5 million and $1.3 million, respectively due to a slight decrease in average general and administrative headcount in the year ending
September 30, 2009; (3) decreased stock-based compensation expense of $1.2 million primarily due to a decrease in restricted stock grants in the year ended September 30, 2009; (4) impairment of $4.3 million of previously
capitalized costs related to an ERP system for finance and human resources; and (5) increased bonus expense of $2.5 million based on our financial results in the year ended September 30, 2009. Additionally, the Compensation Committee of
our Board of Directors decided to eliminate bonuses for executives and reduce bonuses for certain key employees within general and administrative during fiscal year 2008.
Other incomeSoftbank
During the years ended September 30, 2008,
we recorded $566,000 of income from the settlement with Softbank entered into in October 2004. The $37.0 million of deferred income recorded upon the settlement with Softbank was recognized into income, starting in January 2005, over the remaining
term of the three-year license that ended in October 2007. For further discussion, see Note 13 of Notes to Consolidated Financial Statements.
Litigation (benefit) provision
During the year ended September 30,
2010, we recorded $7.0 million of income related to the Emptoris matter. See Note 8 of Notes to Consolidated Financial Statements. We recorded a $5.9 million provision related to the settlement of our patent infringement litigation with Sky
Technologies LLC during the year ended September 30, 2008.
Insurance reimbursement
During the year ended September 30, 2009, we recorded $7.5 million of income related to an insurance reimbursement for previously
unreimbursed litigation costs. See LitigationGeneral in Note 8 of Notes to Consolidated Financial Statements.
Amortization of other intangible assets
Amortization of other intangible assets was $104,000, $755,000 and $739,000 in the years ended September 30, 2010, 2009 and 2008, respectively. These amounts consisted of the amortization of trade
name/trademark and non-competition agreement resulting from our merger with FreeMarkets and our acquisition of Procuri. The decrease in the years ended September 30, 2010 was primarily attributable to assets reaching the end of their estimated
useful lives. We anticipate amortization of other intangible assets will decrease in the year ended September 30, 2011 compared to the year ended September 30, 2010 as assets reach the end of their estimated useful lives.
38
Restructuring costs
We recorded a restructuring charge of $8.6 million in the year ended September 30, 2010 due to the revision of our estimates for
sublease commencement dates based on the remaining terms of the lease in Sunnyvale, California and continued soft market conditions in the Northern California real estate market.
We recorded a restructuring charge of $10.8 million in the year ended September 30, 2009. During the year, we revised our estimates
for sublease commencement dates and sublease rental rate projections to reflect continued soft market conditions in the Northern California real estate market, resulting in a charge of $6.8 million. The remaining charge of $3.9 million is related to
severance benefit costs in connection with workforce reductions in the current economic environment to better align our expenses with our revenues.
For the year ended September 30, 2008, we recorded a charge to operations of $10.1 million. During the year, we evaluated our office space in Sunnyvale, California, and ceased use of approximately
54,000 square feet of space in our corporate headquarters and recorded lease abandonment costs of $7.1 million and leasehold impairments of $1.5 million. We also recorded a charge during the year related to severance benefit costs of approximately
$2.7 million in connection with our acquisition of Procuri and to better align our expenses with our revenues and to enable our investment in certain growth initiatives. These amounts were partially offset by a benefit to operations of $549,000
primarily related to an agreement to sublease approximately 44,000 square feet of space at our Sunnyvale, California headquarters through January 2013. The remaining benefit in the year ended September 30, 2008 was for property taxes of
approximately $557,000 related to abandoned facilities in California based on a revised property tax assessment and notice of refund received in June 2008 related to fiscal years 2003 through 2006.
Interest and other (expense) income, net
Interest and other (expense) income, net for the year ended September 30, 2010 was expense of $735,000, a decrease of $5.3 million from expense of $6.1 million for the year ended September 30,
2009. The increase is primarily attributable to a decrease in realized and unrealized foreign currency transaction losses of $5.0 million on accounts receivable billed from Ariba, Inc. in foreign currencies to customers headquartered in foreign
countries and realized losses on foreign denominated cash balances maintained in the United States of America, primarily due to the U.S. dollar strengthening against the Euro, the British Pound, the Australian dollar and the Canadian dollar in the
year ended September 30, 2009.
Interest and other (expense) income, net for the year ended September 30, 2009 was
expense of $6.1 million, a decrease of $14.4 million from income of $8.4 million for the year ended September 30, 2008. The decrease was primarily attributable to an increase in realized and unrealized foreign currency transaction losses of
$9.7 million on accounts receivable billed from Ariba in foreign currencies to customers headquartered in foreign countries and realized losses on foreign denominated cash balances maintained in the United States, primarily due to the U.S. dollar
strengthening against the Euro, the British Pound, the Australian dollar and the Canadian dollar in the year ended September 30, 2009. The decrease was also attributable to a decrease in interest income of $3.4 million due to a decline in the
rate of return on investments and an other-than-temporary impairment of $1.4 million related to a long-term investment in the year ended September 30, 2009.
Provision for income taxes
We recorded income tax provisions of $1.4
million, $1.2 million and $743,000 for the years ended September 30, 2010, 2009 and 2008, respectively. The increase in the year ended September 30, 2009 was primarily attributable to a recovery of foreign income taxes in the year ended
September 30, 2008 related to taxes paid in the year ended September 30, 2007.
As of September 30, 2010, we
had net operating loss carryforwards for federal, state and foreign tax purposes of approximately $1.5 billion, $813.0 million and $4.8 million, respectively, before consideration of
39
any annual limitations as described below. The federal, state and foreign net operating loss carryforwards expire in various years from fiscal year 2011 through fiscal year 2030, from fiscal year
2011 through fiscal year 2030 and from fiscal year 2011 through fiscal year 2014, respectively. Utilization of our net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change
limitations imposed by Internal Revenue Code Section 382 and similar state provisions. Such an annual limitation could result in the expiration of our federal and state net operating loss and tax credit carryforwards before utilization.
As of September 30, 2010, we had research credit carryforwards for federal and state tax purposes of approximately $39.0
million and $25.0 million, respectively. If not utilized, the federal research credit carryforwards will expire in various years from fiscal year 2011 through fiscal year 2024. The state research credit carryforwards will continue indefinitely. We
also had manufacturers credit carryforwards as of September 30, 2010 for state tax purposes of approximately $300,000, which will expire in various years from fiscal year 2011 through fiscal year 2012.
Our net operating loss and tax credit carryforwards include net operating loss and research credit carryforwards of approximately $270.2
million and $4.8 million, respectively, generated by FreeMarkets, which are subject to annual limitations which could reduce or defer the utilization of those losses and credits.
Liquidity and Capital Resources
As of September 30, 2010, we had $223.1 million in cash, cash equivalents and investments and $29.2 million in restricted cash, for total cash, cash equivalents, investments and restricted cash of
$252.4 million. Our working capital on September 30, 2010 was $54.8 million. As of September 30, 2009, we had $166.2 million in cash, cash equivalents and investments and $29.2 million in restricted cash, for total cash, cash equivalents,
investments and restricted cash of $195.4 million. Our working capital on September 30, 2009 was $1.0 million. All significant cash, cash equivalents, investments and restricted cash are held in accounts in the United States.
We hold a variety of interest-bearing ARS that represent investments in pools of assets, including student loans and credit derivative
products. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity
by selling such interests at par. The continuing uncertainties in the credit markets have affected all of our holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective settlement
dates. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. Given the failures in the
auction markets, as well as the lack of any correlation of these instruments to other observable market data, there are no longer observable inputs available as defined by Levels 1 and 2 of the fair value hierarchy by which to value these
securities. Therefore, these auction rate securities are classified within Level 3 and their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the
securities.
Contractual maturity dates for these ARS investments range from 2016 to 2047. The ARS backed by student loans are
guaranteed by the U.S. government and have credit ratings of AAA to A. All of the ARS investments were in compliance with our investment policy at the time of acquisition and are investment grade quality, except for one credit derivative product.
Currently, we have no intent to sell these ARS investments prior to recovery nor are aware of any factors that would make
such a sale of the ARS investments more likely than not. As of September 30, 2010 and 2009, we classified the entire ARS investment balance as long-term investments on our consolidated balance sheet because of our inability to determine when
our investments in ARS would settle.
40
Historically, the fair value of ARS investments approximates par value due to the frequent
resets through the auction process. While we continue to earn interest on our ARS investments at the contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly,
the estimated fair value of ARS no longer approximates par value.
We have used a discounted cash flow model (DCF)
to determine the estimated fair value of our investment in ARS as of September 30, 2010. Significant estimates used in the DCF models include the credit quality of the instruments, the types of instruments and an illiquidity discount factor.
The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. The discount factor used for the $17.9 million of student loan securities
and $3.4 million of a credit derivative product was adjusted between 150 basis points (bps) and 250 bps for the student loan securities and 1,100 bps for the credit derivative product, respectively, to reflect the then current market
conditions for instruments with similar credit quality at the date of valuation and the risk in the marketplace for these investments that has arisen due to the lack of an active market for these instruments. Based on this assessment of fair value,
we determined there was a decline in the fair value of its ARS investments of $3.9 million, of which $2.2 million was deemed temporary. As a result of the credit rating reduction to below investment grade related to one of our ARS, we recorded
other-than-temporary impairments of $1.4 million in the year ended September 30, 2009 and $499,000 in the year ended September 30, 2010, partially offset by $254,000 of accretion recorded through September 30, 2010. Based upon the
analysis completed, we determined that the other-than-temporary loss of $1.7 million was principally related to the credit loss on the investment. Additionally, we evaluated the factors related to other than credit loss, which were determined to be
immaterial to the consolidated financial statements.
We review our impairments in accordance with the changes issued by the
Financial Accounting Standards Board (FASB) to fair value accounting and the recognition and presentation of other-than-temporary impairments, in order to determine the classification of the impairment as temporary or
other-than-temporary. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income (loss) component of stockholders equity. Such an unrealized loss does not affect net income
(loss) for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the consolidated statement of operations. The differentiating factors between temporary and other-than-temporary impairment are
primarily the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our intent and ability to retain our investment in the issuer for a period of time
sufficient to allow for the recovery in market value. If the issuers of the ARS are unable to successfully close future auctions or refinance their debt in the near term and/or the credit ratings of these instruments deteriorate, we may, in the
future, conclude that an additional other-than-temporary impairment charge is required related to these investments. Such other-than-temporary impairment may be greater than the $2.2 million currently accounted for as a temporary decline or may be
greater than the $1.7 million other-than-temporary impairment recorded in the year ended September 30, 2010.
The
valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact our valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those
securities, rates of default of the underlying assets, underlying collateral value, discount rates and ongoing strength and quality of market credit and liquidity.
If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may be required to record additional unrealized losses in other comprehensive income
(loss) or to record all current and any future unrealized losses as a charge in our statement of operations in future quarters. We continue to monitor the market for ARS transactions and consider their impact (if any) on the fair value of our
investments.
Our investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity
needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to our investment
41
guidelines and market conditions. We have modified our current investment strategy by limiting our investments in ARS to our current holdings and increasing our investments in more liquid
investments.
Our largest source of operating cash flows is cash collections from our customers related to our hosted
on-demand software solutions and fees for product updates and support, as well as fees paid by suppliers for the Ariba Supplier Network. We also generate cash inflows from services for implementation services, consulting services and license fees
charged for the use of our software products under perpetual agreements. Our primary uses of cash from operating activities are for personnel related expenditures as well as payments related to leased facilities.
Net cash provided by operating activities was $67.0 million for the year ended September 30, 2010, compared to net cash provided by
operating activities of $66.0 million for the year ended September 30, 2009. Cash flows provided by operating activities increased primarily due to higher net income in the year ended September 30, 2010 as compared to the year ended
September 30, 2009 partially offset by an increase in bonus and sales commission payments in the year ended September 30, 2010 based on our financial results in the years ended September 30, 2010 and 2009.
Net cash provided by operating activities was $66.0 million for the year ended September 30, 2009, compared to net cash provided by
operating activities of $21.6 million for the year ended September 30, 2008. Cash flows provided by operating activities increased $44.4 million primarily due to an improvement in net income (loss) excluding non-cash charges, a $7.5 million
insurance reimbursement in the year ended September 30, 2009, a net cash payment of $5.9 million related to a litigation settlement associated with a patent infringement matter in the year ended September 30, 2008, an increase in cash
collections from our customers in the year ended September 30, 2009 and a decrease in cash payments related to legal expenses of approximately $5.7 million. These amounts were partially offset by an increase in prepaid expense due to timing of
payments.
The changes in cash flows from investing activities primarily related to acquisitions and the timing of purchases,
maturities and sales of our investments. Net cash used in investing activities was $13.7 million for the year ended September 30, 2010, compared to net cash used in investing activities of $23.0 million for the year ended September 30,
2009. The decrease of $9.3 million is primarily attributable to a decrease in purchases of investments, net of sales of $12.6 million, partially offset by an increase in capital expenditures of $2.9 million primarily related to computer hardware for
data storage in the year ended September 30, 2010.
Net cash used in investing activities was $23.0 million for the year
ended September 30, 2009, compared to net cash provided by investing activities of $5.9 million for the year ended September 30, 2008. The decrease of $28.9 million was primarily attributable to a decrease in sales of investments, net of
purchases of $85.0 million primarily due to cash management activities. This is partially offset by $55.6 million of cash paid as a result of our acquisition of Procuri in the year ended September 30, 2008. Capital expenditures were relatively
consistent in the years ended September 30, 2009 and 2008.
The changes in cash flows from financing activities primarily
relate to the repurchase of common stock shares forfeited to Ariba by employees in satisfaction of statutory tax withholding obligations incurred as a result of the vesting of restricted shares of common stock held by those employees and the
proceeds from the issuance of common stock is attributed to the employee stock purchase plan and stock option exercises. Net cash used in financing activities was $1.7 million for the year ended September 30, 2010, compared to net cash provided
by financing activities of $1.5 million for the year ended September 30, 2009. The decrease in the year ended September 30, 2010 is related to an increase in the repurchase of common stock forfeited to Ariba by employees in satisfaction of
statutory tax withholding obligations.
Net cash provided by financing activities was $1.5 million for the year ended
September 30, 2009, compared to net cash used in financing activities of $809,000 for the year ended September 30, 2008. The increase in the year ended September 30, 2009 was primarily related to a decrease in the repurchase of common
stock shares forfeited to Ariba by employees in satisfaction of statutory tax withholding obligations.
42
As of September 30, 2010, we did not have any material commitments for capital
expenditures.
Contractual obligations
Our primary contractual obligations are under our operating leases and letters of credit, which are discussed below.
In March 2000, we entered into a facility lease agreement for 716,000 square feet in four office buildings and an amenities building in Sunnyvale, California for our headquarters. The operating lease term
commenced in 2001 and ends in January 2013. We occupy 150,000 square feet in this facility, and currently sublease over two buildings totaling 396,000 square feet to third parties. These subleases expire in January 2013. The remaining 170,000 square
feet is available for sublease. Minimum monthly lease payments are $3.5 million and escalate annually, with the total future minimum lease payments amounting to $104.1 million over the remaining lease term. As part of this lease agreement, we are
required to issue standby letters of credit backed by cash equivalents, totaling $28.8 million as of September 30, 2010, as a form of security through fiscal year 2013. Also, we are required by other lease agreements to hold an additional
$401,000 of standby letters of credit, which are cash collateralized. These instruments are issued by our banks in lieu of a cash security deposit required by landlords for domestic and international real estate leases. The total cash collateral of
$29.2 million is classified as restricted cash on our consolidated balance sheet as of September 30, 2010.
We also
occupy 91,000 square feet of office space in Pittsburgh, Pennsylvania under a lease that expires in December 2017. This location consists principally of our services organization and administrative activities.
We occupy approximately 27,000 square feet of office space in Atlanta, Georgia under a lease that expires in June 2013. Our operations at
this location consist principally of our sales and support activities.
Future minimum lease payments and sublease income
under noncancelable operating leases for the next five years and thereafter are as follows as of September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending September 30,
|
|
Lease
Payments
|
|
|
Contractual
Sublease
Income
|
|
|
Net
Obligations
|
|
2011
|
|
$
|
49,784
|
|
|
$
|
(12,970
|
)
|
|
$
|
36,814
|
|
2012
|
|
|
51,822
|
|
|
|
(13,656
|
)
|
|
|
38,166
|
|
2013
|
|
|
21,098
|
|
|
|
(4,450
|
)
|
|
|
16,648
|
|
2014
|
|
|
4,612
|
|
|
|
|
|
|
|
4,612
|
|
2015
|
|
|
3,547
|
|
|
|
|
|
|
|
3,547
|
|
Thereafter
|
|
|
7,674
|
|
|
|
|
|
|
|
7,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,537
|
|
|
$
|
(31,076
|
)
|
|
$
|
107,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table represents our estimates of future payments under fixed contractual obligations and
commitments. Changes in our business needs, cancellation provisions and other factors may result in actual payments differing from these estimates. We cannot provide certainty regarding the specific timing and actual amounts of payments.
Of the total operating lease commitments as of September 30, 2010 noted above, $54.4 million is for occupied properties and $84.1
million is for abandoned properties, which are a component of the restructuring obligation.
Other than the lease commitments
and letters of credit discussed above, we do not have commercial commitments under lines of credit, standby repurchase obligations or other such debt arrangements. We do not have any material noncancelable purchase commitments as of
September 30, 2010.
43
Off-balance sheet arrangements
We have no off-balance sheet arrangements or transactions with unconsolidated limited purpose entities, nor do we have any undisclosed
material transactions or commitments involving related persons or entities.
Anticipated cash flows
We expect to incur significant operating costs, particularly related to services delivery costs, sales and marketing, research and
development and restructuring costs, for the foreseeable future in order to execute our business plan. We anticipate that such operating costs will constitute a use of our cash resources. As a result, our net cash flows will depend heavily on the
level of future sales, changes in deferred revenues, our ability to manage infrastructure costs, the outcome of our subleasing activities related to abandoned excess leased facilities and ongoing regulatory and legal proceedings.
We believe our existing cash, cash equivalents and investment balances, together with anticipated cash flow from operations, should be
sufficient to meet our working capital and operating resource requirements for at least the next twelve months. Should we find it necessary to obtain additional funds, we may not be able to obtain additional financing on favorable terms or at all.
See Risk Factors.
Application of Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
(GAAP). Accounting policies, methods and estimates are an integral part of the preparation of consolidated financial statements in accordance with GAAP and, in part, are based upon managements current judgments. Those judgments are
normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated
financial statements and because of the possibility that future events affecting them may differ markedly from managements current judgments. While there are a number of accounting policies, methods and estimates affecting our consolidated
financial statements, areas that are particularly significant include revenue recognition policies, the assessment of recoverability of goodwill and other intangible assets, restructuring obligations related to abandoned operating leases, the fair
value of certain investments and contingencies related to the collectability of accounts receivable. These policies and our practices related to these policies are described below and in Note 1 of Notes to Consolidated Financial Statements.
Revenue recognition
Substantially all of our revenues are derived from the following sources: (i) subscription software solutions on a multi-tenant basis and single-tenant basis either hosted or behind the firewall;
(ii) maintenance and support related to existing single-tenant perpetual licenses; and (iii) services, including implementation services, strategic consulting services, sourcing services, managed services, training, education, premium
support and other miscellaneous services. The subscription software solutions include technical support and product updates. The significant majority of our subscription software solutions are hosted time-based licenses and are based on the number
of users or other usage criteria. Our multiple element arrangements typically include a combination of: (i) subscription software solutions; and (ii) a services arrangement, on either a fixed fee for access to specific services over time
or a time and materials basis.
We license our subscription software through our direct sales force and indirectly through
resellers. Sales made through resellers are recognized at the time that we have received persuasive evidence of an end user customer and all other criteria are met as defined below. The license agreements for our subscription software only provide
for a right of return in limited and defined circumstances, and historically product returns have not been significant. We do not recognize revenue on agreements subject to refund or cancellation rights until such rights to refund or cancel have
expired. Direct sales force commissions are accounted for as sales and marketing expense at the time of sale, when the liability is incurred and is reasonably estimable.
44
We recognize revenue when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery of the product or service has occurred; the fee is fixed or determinable; and collectibility is probable.
Certain of our contracts include performance incentive payments based on market volume and/or savings generated, as defined in the respective contracts. Revenue from such arrangements is recognized when
those thresholds are achieved.
In September 2009, the FASB issued new guidance on accounting for multiple deliverable revenue
arrangements. The new guidance:
|
(i)
|
provides updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be
allocated;
|
|
(ii)
|
requires an entity to establish an estimated selling price (ESP) for all deliverables when vendor-specific objective evidence (VSOE) of selling
price or third-party evidence (TPE) of selling price does not exist; and
|
|
(iii)
|
eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method.
|
We elected to early adopt this accounting guidance at the beginning of our first quarter of fiscal year 2010 on a prospective basis for
applicable transactions originating or materially modified after September 30, 2009. The new guidance allows for deliverables with stand alone value in a multi-element arrangement for which revenue was previously deferred due to undelivered
elements not having VSOE of selling price to be separated and recognized as delivered, rather than over the longest service delivery period as a single unit with other elements in the arrangement.
For transactions entered into prior to the first quarter of fiscal year 2010, we allocated revenue to each element in a multiple element
arrangement based on our respective fair value. Our determination of the fair value of each element in a multiple element arrangement was based on VSOE of selling price, which is limited to the price when sold separately. Revenue from subscription
software, hosting and sourcing solutions services was primarily recognized ratably over the term of the arrangement, commencing with the initial customer access date. Set up fees paid by customers in connection with multi-tenant subscription
software solutions are recognized ratably over the longer of the life of the agreement or the expected lives of customer relationships, which generally range from three to 5 years. Revenue allocated to maintenance and support was recognized ratably
over the maintenance term (typically one year). Revenue allocated to software implementation, process improvement, training and other services was recognized as the services are performed or as milestones are achieved or if bundled with a
subscription or time-based arrangement or in circumstances where VSOE of selling price could not be established for undelivered service elements, was recognized ratably over the term of the access agreement. In circumstances where we provided
services as part of a multi-element arrangement with subscription software, both the subscription software revenue and service revenue were recognized under the lesser of proportional performance method based on hours or ratable over the
subscription term. When revenue associated with multiple element arrangements was recognized and more than one element in that arrangement did not have VSOE of selling price, we first allocated revenue on the statement of operations to those
elements for which VSOE of selling price was available and the residual was allocated to those elements that did not have VSOE of selling price.
We do sell implementation services, strategic consulting, training and other services in stand-alone engagements. Maintenance and support are sold separately through renewals of annual contracts. As a
result, we have used and intend to continue using VSOE of selling price to allocate the arrangement consideration to each of these deliverables. Consistent with our methodology under previous accounting guidance, we determine VSOE of selling price
based on our normal pricing and discounting practices for the specific service when sold separately. In determining VSOE of selling price, we require that a substantial majority of the selling prices for a
45
service fall within a reasonably narrow pricing range, generally evidenced by approximately 80% of such historical stand-alone transactions falling within plus or minus 15% of the median rates.
In addition, we consider the geographies in which the services are sold and major service groups in determining VSOE of selling price.
However, we are not always able to establish VSOE of selling price for all deliverables in an arrangement with multiple elements. This may be due to us infrequently selling each element separately, not
pricing products within a narrow range, or only having a limited sales history. When VSOE of selling price cannot be established, as in the case for all subscription software solutions along with certain services, we attempt to establish selling
price of each element based on TPE of selling price. TPE of selling price is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings
contain a level of differentiation such that the comparable pricing of software solutions and services with similar functionality and delivery cannot be obtained. Furthermore, we are rarely able to reliably determine what similar competitors
selling prices are on a stand-alone basis. Therefore, we are typically not able to determine TPE of selling price.
For
contracts signed or substantially modified after October 1, 2009, and within the scope of the new guidance, we use ESP in our allocation of arrangement consideration when we are unable to establish selling price using VSOE or TPE. The objective
of ESP is to determine the price at which we would transact a sale if the subscription software or other services were sold on a stand-alone basis. ESP is generally used for offerings not priced within a narrow range, and it applies to a majority of
our arrangements with multiple deliverables.
We determine ESP for all deliverables that do not have VSOE of selling price by
considering multiple factors which include, but are not limited to the following: (i) substantive renewal rates contained within an arrangement for subscription software solutions; (ii) gross margin objectives and internal costs for
services; and (iii) pricing practices, market conditions and competitive landscape. The determination of ESP is made through consultation with and approval by our management, taking into consideration the go-to-market strategy.
We regularly review VSOE, TPE and ESP and maintain internal controls over the establishment and updates of these estimates. There were no
material changes to VSOE, TPE, or ESP either during the quarter or the year ended September 30, 2010.
The impact during
the year ended September 30, 2010 of the new guidance was not material to our reported revenues or results of operations. In terms of the timing and pattern of revenue recognition, the new guidance is not expected to have a significant effect
on revenues in periods after the initial adoption when applied to multiple element arrangements. The impact on future periods will vary based on the nature and volume of new deals in any given period.
Deferred revenue includes amounts received from customers for which revenue has not been recognized, and generally results from deferred
subscription, maintenance and support, hosting, consulting or training services not yet rendered and recognizable and license revenue deferred until all requirements are met. Deferred revenue is recognized as revenue upon delivery of our product, as
services are rendered, or as other requirements are satisfied. Deferred revenue excludes contract amounts for which payment has yet to be collected. Likewise, accounts receivable excludes amounts due from customers for which revenue has been
deferred.
Recoverability of goodwill
We test goodwill for impairment annually and more frequently if events and circumstances indicate that the asset may be impaired and that the carrying value may not be recoverable. The provisions of
Accounting Standard Codification (ASC) 350 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. Our reporting units are consistent
with the reportable segments identified in Note 9 of Notes to the Consolidated Financial Statements. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired
and we are not required to perform further testing. If the carrying value of the net assets
46
assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the
reporting units goodwill. If upon completing the second step of the impairment test the carrying value of a reporting units goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
The fair value of our reporting units were determined using the income approach and the market approach. The income approach
is a valuation technique whereby we calculate the fair value of each reporting unit based on the present value of estimated future cash flows, which are formed by evaluating historical trends, current budgets, operating plans and industry
data. The market approach is a valuation technique whereby we calculate the fair value of each reporting unit by comparing it to public traded companies in similar lines of business or to comparable transactions or assets. In selecting
comparable companies, we researched companies in the reporting units respective segments.
Determining the fair value of
a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions using the income approach include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted
discount rates, future economic and market conditions. The estimates and assumptions using the market comparable approach include determination of appropriate market comparables and an appropriate control premium. We use our fair value estimate on
assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to
determine the carrying values for each of our reporting units.
We performed the annual assessment in the fourth quarter of
fiscal years 2010, 2009 and 2008 and no indication of goodwill impairment was noted. The balance of goodwill is $406.5 million as of September 30, 2010, and there can be no assurance that future goodwill impairments will not occur.
Lease abandonment costs
We initially recorded a significant restructuring charge in the third quarter of fiscal year 2001 upon abandoning certain operating leases as part of a program to restructure our operations and related
facilities. In the years ended September 30, 2002 through 2007, we revised our original estimates and expectations for our corporate headquarters and field offices disposition efforts as a result of changed estimates of sublease rental
projections.
During the year ended September 30, 2008, we recorded a charge to operations of $10.1 million. During the
year, we evaluated our space in Sunnyvale, California headquarters, and ceased use of approximately 54,000 square feet and recorded lease abandonment costs of $7.1 million and leasehold impairments of $1.5 million. We also recorded a charge in the
year ended September 30, 2008 related to severance benefit costs of approximately $2.7 million in connection with our acquisition of Procuri and to better align our expenses with our revenues and to enable our investment in certain growth
initiatives. These amounts were partially offset by a benefit to operations of $549,000 primarily related to an agreement with Efficient Frontier to sublease approximately 44,000 square feet of space at our Sunnyvale, California headquarters through
January 2013. The remaining benefit during the year was for property taxes of approximately $557,000 related to abandoned facilities in California based on a revised property tax assessment and notice of refund received in June 2008 related to
fiscal years 2003 through 2006.
We recorded a restructuring charge of $10.8 million in the year ended September 30,
2009. During the year, we revised our estimates for sublease commencement dates and sublease rental rate projections to reflect continued soft market conditions in the Northern California real estate market, resulting in a charge of $6.8 million. We
also recorded a charge in the year ended September 30, 2009 related to severance benefit costs of $3.9 million in connection with workforce reductions in the current economic environment to better align our expenses and our revenues.
47
We recorded a restructuring charge of $8.6 million in the year ended September 30, 2010
due to the revision of our estimates for sublease commencement dates based on the remaining terms of the lease in Sunnyvale, California and continued soft market conditions in the Northern California real estate market.
Lease abandonment costs for the abandoned facilities were estimated to include remaining lease liabilities and brokerage fees offset by
sublease income. Estimates related to sublease costs and income are based on assumptions regarding the period required to locate and contract with suitable subleasees and sublease rates using market trend information analyses provided by a
commercial real estate brokerage firm retained by us. We review these estimates each quarterly reporting period, and to the extent that our assumptions change, the ultimate restructuring expenses for these abandoned facilities could vary
significantly from current estimates. See Note 8 of Notes to Consolidated Financial Statements. Our lease abandonment accrual is net of $31.1 million of sublease income.
Fair value of Auction Rate Securities
We hold a variety of
interest-bearing ARS that represent investments in pools of assets, including student loans, commercial paper and credit derivative products. As of September 30, 2010, we held $17.9 million in par value of student loan securities that failed to
settle in auctions commencing February 2008 and $3.4 million in par value of commercial paper and credit derivative products that failed to settle in auctions commencing August 2007. These ARS investments are intended to provide liquidity via an
auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The continuing uncertainties in the
credit markets have affected all of our holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective settlement dates. Consequently, the investments are not currently liquid and we will
not be able to access these funds until such time as either a future auction of these investments is successful or a buyer is found outside of the auction process. Given the failures in the auction markets, as well as the lack of any correlation of
these instruments to other observable market data, there are no longer observable inputs available as defined by Levels 1 and 2 of the fair value hierarchy by which to value these securities. Therefore, these auction rate securities are classified
within Level 3 and their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the securities.
Contractual maturity dates for these ARS investments range from 2016 to 2047. The ARS backed by student loans are guaranteed by the U.S.
government and have credit ratings of AAA to A. The ARS investments were in compliance with our investment policy at the time of acquisition and are investment grade quality, except for one credit derivative product.
Currently, we have no intent to sell these ARS investments prior to recovery nor are aware of any factors that would make such a sale of
the ARS investments more likely than not. As of September 30, 2010, we have classified the entire ARS investment balance as long-term investments on our consolidated balance sheet because of our current inability to predict that these
investments will be available for settlement within the next twelve months. We have also modified our current investment strategy and increased our investments in more liquid money market instruments.
Historically, the fair value of ARS investments approximates par value due to the frequent resets through the auction process. While we
continues to earn interest on its ARS investments at the contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer
approximates par value.
We have used a discounted cash flow (DCF) model to determine the estimated fair value of
its investment in ARS as of September 30, 2010. Significant estimates used in the DCF models include the credit quality of the instruments, the types of instruments and an illiquidity discount factor. The assumptions used in preparing the
48
discounted cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. The discount factor used for the $17.9 million of student
loan securities and $3.4 million of a credit derivative product was adjusted between 150 basis points (bps) and 250 bps for the student loan securities and 1,100 bps for the credit derivative product, respectively, to reflect the then
current market conditions for instruments with similar credit quality at the date of valuation and the risk in the marketplace for these investments that has arisen due to the lack of an active market for these instruments. Based on this assessment
of fair value, we determined there was a decline in the fair value of our ARS investments of $3.9 million, of which $2.2 million was deemed temporary. As a result of the credit rating reduction to below investment grade related to one of its ARS, we
recorded other-than-temporary impairments of $1.4 million in the year ended September 30, 2009 and $499,000 in the year ended September 30, 2010, partially offset by $254,000 of accretion recorded through September 30, 2010. Based
upon the analysis completed, we determined that the other-than-temporary loss of $1.7 million was principally related to the credit loss on the investment. Additionally, we evaluated the factors related to other than credit loss, which were
determined to be immaterial to the condensed consolidated financial statements.
We review our impairments in accordance with
the changes issued by the FASB to fair value accounting and the recognition and presentation of other-than-temporary impairments, in order to determine the classification of the impairment as temporary or
other-than-temporary. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income (loss) component of stockholders equity. Such an unrealized loss does not affect net loss for
the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the consolidated statement of operations. The differentiating factors between temporary and other-than-temporary impairment are primarily
the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our intent and ability to retain its investment for a period of time sufficient to allow for
the recovery in market value to par. If the issuers of the ARS are unable to successfully close future auctions or refinance their debt in the near term and/or the credit ratings of these instruments deteriorate, we may, in the near future, conclude
that an additional other-than-temporary impairment charge is required related to these investments. Such other-than-temporary impairment may be greater than the $2.2 million currently accounted for as a temporary decline or may be greater than the
$1.7 million other-than-temporary impairment recorded in the year ended September 30, 2010.
Allowance for doubtful
accounts receivable
We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to provide
for actual losses resulting from collecting less than full payment on our receivables. A considerable amount of judgment is required when we assess the realizability of receivables, including assessing the probability of collection and the current
creditworthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts might be required. In cases where we are
aware of circumstances that may impair a specific customers ability to meet its financial obligations, we record a specific allowance against amounts due, and thereby reduce the net recognized receivable to the amount we reasonably believe
will be collected. For the remaining customers, we recognize allowances for doubtful accounts based on the length of time the aggregate receivables are outstanding, the current business environment and historical experience. Alternatively, if the
financial condition of our customers were to improve such that their ability to make payments was no longer considered impaired, we would reduce related estimated reserves with a credit to the provision for doubtful accounts.
New Accounting Pronouncements
For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial
Statements.
49
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign Currency Risk
We develop products primarily in the United States
and India and market our products primarily in the United States, Europe and Asia. As a result, our financial results have been and could in the future be affected by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Since the majority of our non-U.S. sales are priced in currencies other than the U.S. dollar, a strengthening of the dollar may reduce the level of reported revenues. If any of the events described above were to
continue to occur, our net sales could be seriously impacted, since a large portion of our net sales are derived from international operations. For the years ended September 30, 2010, 2009 and 2008, approximately 29%, 30% and 31%, respectively,
of our total net sales were derived from customers outside of the United States. As a result, our U.S. dollar earnings and net cash flows from international operations may be adversely affected by changes in foreign currency exchange rates.
We use derivative instruments to manage risks associated with foreign currency transactions in order to minimize the impact
of changes in foreign currency exchange rates on earnings. We utilize forward contracts to reduce our net exposures, by currency, related to the monetary assets and liabilities of our foreign operations denominated in local currency. In addition,
from time to time, we may enter into forward exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency. These forward contracts do not qualify for hedge accounting and
accordingly, all of these instruments are marked to market at each balance sheet date by a charge to earnings. We believe that these forward contracts do not subject us to undue risk due to foreign exchange movements because gains and losses on
these contracts are generally offset by losses and gains on the underlying assets and liabilities. We do not use derivatives for trading or speculative purposes. All contracts have a maturity of less than one year.
The following table provides information about our foreign exchange forward contracts outstanding as of September 30, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy/Sell
|
|
|
Contract Value
|
|
|
Unrealized
Gain (Loss)
in USD
|
|
|
|
Foreign
Currency
|
|
|
USD
|
|
|
Foreign Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
Sell
|
|
|
|
5,500
|
|
|
$
|
6,964
|
|
|
$
|
(464
|
)
|
Singapore Dollar
|
|
|
Sell
|
|
|
|
7,500
|
|
|
|
5,415
|
|
|
|
(287
|
)
|
Chinese Renminbi
|
|
|
Sell
|
|
|
|
35,000
|
|
|
|
5,159
|
|
|
|
(72
|
)
|
Japanese Yen
|
|
|
Buy
|
|
|
|
350,000
|
|
|
|
4,040
|
|
|
|
155
|
|
Czech Koruna
|
|
|
Buy
|
|
|
|
22,000
|
|
|
|
1,156
|
|
|
|
68
|
|
Swiss Franc
|
|
|
Buy
|
|
|
|
1,200
|
|
|
|
1,141
|
|
|
|
82
|
|
Brazilian Real
|
|
|
Sell
|
|
|
|
1,000
|
|
|
|
552
|
|
|
|
(39
|
)
|
Australian Dollar
|
|
|
Sell
|
|
|
|
500
|
|
|
|
465
|
|
|
|
(13
|
)
|
Indian Rupee
|
|
|
Buy
|
|
|
|
15,000
|
|
|
|
316
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
25,208
|
|
|
$
|
(553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized gain (loss) represents the difference between the contract value and the market value of the
contract based on market rates as of September 30, 2010.
Given our foreign exchange position, a ten percent change in
foreign exchange rates upon which these forward exchange contracts are based would result in unrealized exchange gains or losses of approximately $2.5 million. In all material aspects, these exchange gains and losses would be fully offset by
exchange losses or gains on the underlying net monetary exposures. We do not expect material exchange rate gains and losses from other foreign currency exposures.
50
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing in widely diversified
investments, consisting only of investment grade securities. We hold investments in both fixed rate and floating rate interest earning instruments, and both carry a degree of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which may have
declined in market value due to changes in interest rates. Our investments may fall short of expectations due to changes in market conditions and as such we may suffer losses at the time of sale due to the decline in market value.
The table below represents principal (or notional) amounts and related weighted-average interest rates by year of maturity of our
investment portfolio (in thousands, except for interest rates).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending
September 30,
2011
|
|
|
Year Ending
September 30,
2012
|
|
|
Year Ending
September 30,
2013
|
|
|
Year Ending
September 30,
2014
|
|
|
Year Ending
September 30,
2015
|
|
|
Thereafter
|
|
|
Total
|
|
Cash equivalents
|
|
$
|
152,332
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,332
|
|
Average interest rate
|
|
|
0.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.38
|
%
|
Investments
|
|
$
|
18,449
|
|
|
$
|
4,843
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,440
|
|
|
$
|
40,732
|
|
Average interest rate
|
|
|
0.91
|
%
|
|
|
1.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.82
|
%
|
|
|
1.32
|
%
|
Restricted cash
|
|
$
|
104
|
|
|
$
|
|
|
|
$
|
29,137
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29,241
|
|
Average interest rate
|
|
|
0.50
|
%
|
|
|
|
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
170,885
|
|
|
$
|
4,843
|
|
|
$
|
29,137
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,440
|
|
|
$
|
222,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above does not include uninvested cash of $30.1 million held as of September 30, 2010. Total
cash, cash equivalents, investments and restricted cash as of September 30, 2010 was $252.4 million.
51
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The following consolidated financial statements, and the related notes thereto, of the Company and the Reports of Independent Registered Public Accounting Firms are filed as a part of this Form 10-K.
52
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Ariba, Inc.
We have audited the accompanying consolidated balance sheets of
Ariba, Inc. and subsidiaries as of September 30, 2010 and 2009, and the related consolidated statements of operations and comprehensive income (loss), stockholders equity, and cash flows for each of the three years in the period ended
September 30, 2010. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Ariba, Inc. and subsidiaries at September 30, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended
September 30, 2010, in conformity with U.S. generally accepted accounting principles.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), Ariba, Inc.s internal control over financial reporting as of September 30, 2010, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 23, 2010, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 23, 2010
53
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2010
|
|
|
September 30,
2009
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
182,393
|
|
|
$
|
130,881
|
|
Short-term investments
|
|
|
18,449
|
|
|
|
12,169
|
|
Restricted Cash
|
|
|
104
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $2,537 and $2,691 as of September 30, 2010 and 2009,
respectively
|
|
|
21,781
|
|
|
|
19,660
|
|
Prepaid expenses and other current assets
|
|
|
7,942
|
|
|
|
11,235
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
230,669
|
|
|
|
173,945
|
|
Property and equipment, net
|
|
|
15,958
|
|
|
|
14,418
|
|
Long-term investments
|
|
|
22,283
|
|
|
|
23,155
|
|
Restricted cash
|
|
|
29,137
|
|
|
|
29,241
|
|
Goodwill
|
|
|
406,507
|
|
|
|
406,507
|
|
Other intangible assets, net
|
|
|
13,154
|
|
|
|
17,660
|
|
Other assets
|
|
|
4,001
|
|
|
|
3,245
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
721,709
|
|
|
$
|
668,171
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,190
|
|
|
$
|
7,758
|
|
Accrued compensation and related liabilities
|
|
|
32,079
|
|
|
|
29,010
|
|
Accrued liabilities
|
|
|
18,398
|
|
|
|
17,010
|
|
Restructuring obligations
|
|
|
17,188
|
|
|
|
17,964
|
|
Deferred revenue
|
|
|
97,005
|
|
|
|
101,172
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
175,860
|
|
|
|
172,914
|
|
Deferred rent obligations
|
|
|
9,880
|
|
|
|
14,539
|
|
Restructuring obligations, less current portion
|
|
|
23,339
|
|
|
|
31,098
|
|
Deferred revenue, less current portion
|
|
|
7,285
|
|
|
|
9,288
|
|
Other liabilities
|
|
|
6,391
|
|
|
|
6,281
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
222,755
|
|
|
|
234,120
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $.002 par value; 20,000 shares authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.002 par value; 1,500,000 shares authorized; 93,872 and 89,628 shares issued and outstanding as of
September 30, 2010 and 2009, respectively
|
|
|
188
|
|
|
|
179
|
|
Additional paid-in capital
|
|
|
5,236,265
|
|
|
|
5,189,566
|
|
Accumulated other comprehensive loss
|
|
|
(1,879
|
)
|
|
|
(3,688
|
)
|
Accumulated deficit
|
|
|
(4,735,620
|
)
|
|
|
(4,752,006
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
498,954
|
|
|
|
434,051
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
721,709
|
|
|
$
|
668,171
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
54
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
$
|
240,789
|
|
|
$
|
222,206
|
|
|
$
|
187,150
|
|
Services and other
|
|
|
120,357
|
|
|
|
116,766
|
|
|
|
140,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
361,146
|
|
|
|
338,972
|
|
|
|
328,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
|
51,049
|
|
|
|
47,907
|
|
|
|
40,088
|
|
Services and other
|
|
|
82,636
|
|
|
|
75,465
|
|
|
|
94,189
|
|
Amortization of acquired technology and customer intangible assets
|
|
|
4,402
|
|
|
|
5,550
|
|
|
|
14,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
138,087
|
|
|
|
128,922
|
|
|
|
148,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
223,059
|
|
|
|
210,050
|
|
|
|
179,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
120,796
|
|
|
|
103,739
|
|
|
|
110,834
|
|
Research and development
|
|
|
46,041
|
|
|
|
43,483
|
|
|
|
52,270
|
|
General and administrative
|
|
|
36,000
|
|
|
|
43,289
|
|
|
|
48,919
|
|
Litigation (benefit) provision
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
5,900
|
|
Insurance reimbursement
|
|
|
|
|
|
|
(7,527
|
)
|
|
|
|
|
Amortization of other intangible assets
|
|
|
104
|
|
|
|
755
|
|
|
|
739
|
|
Restructuring costs
|
|
|
8,579
|
|
|
|
10,837
|
|
|
|
10,108
|
|
Other incomeSoftbank
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
204,520
|
|
|
|
194,576
|
|
|
|
228,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
18,539
|
|
|
|
15,474
|
|
|
|
(48,678
|
)
|
Interest and other (expense) income, net
|
|
|
(735
|
)
|
|
|
(6,055
|
)
|
|
|
8,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
17,804
|
|
|
|
9,419
|
|
|
|
(40,319
|
)
|
Provision for income taxes
|
|
|
1,418
|
|
|
|
1,226
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,386
|
|
|
$
|
8,193
|
|
|
$
|
(41,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per sharebasic
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per sharediluted
|
|
$
|
0.18
|
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income (loss) per sharebasic
|
|
|
86,617
|
|
|
|
82,733
|
|
|
|
77,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income (loss) per sharediluted
|
|
|
89,221
|
|
|
|
85,424
|
|
|
|
77,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,386
|
|
|
$
|
8,193
|
|
|
$
|
(41,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments, net
|
|
|
1,895
|
|
|
|
(609
|
)
|
|
|
(3,005
|
)
|
Foreign currency translation adjustment
|
|
|
(86
|
)
|
|
|
15
|
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
1,809
|
|
|
|
(594
|
)
|
|
|
(4,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
18,195
|
|
|
$
|
7,599
|
|
|
$
|
(45,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
55
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balances at October 1, 2007
|
|
|
78,628,009
|
|
|
|
$157
|
|
|
$
|
5,067,993
|
|
|
$
|
1,112
|
|
|
$
|
(4,718,118
|
)
|
|
$
|
351,144
|
|
FIN 48 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,019
|
)
|
|
|
(1,019
|
)
|
Exercise of stock options
|
|
|
385,011
|
|
|
|
1
|
|
|
|
2,271
|
|
|
|
|
|
|
|
|
|
|
|
2,272
|
|
Issuance of common stock
|
|
|
626,336
|
|
|
|
1
|
|
|
|
4,121
|
|
|
|
|
|
|
|
|
|
|
|
4,122
|
|
Issuance of common stock related to the Procuri acquisition
|
|
|
4,060,164
|
|
|
|
8
|
|
|
|
46,103
|
|
|
|
|
|
|
|
|
|
|
|
46,111
|
|
Issuance of restricted stock, net of cancellations
|
|
|
3,779,206
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange and retirement of employee-owned mature stock for taxes
|
|
|
(551,046
|
)
|
|
|
(1
|
)
|
|
|
(7,202
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,203
|
)
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
40,859
|
|
|
|
|
|
|
|
|
|
|
|
40,859
|
|
Unrealized investment loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,005
|
)
|
|
|
|
|
|
|
(3,005
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
(1,201
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,062
|
)
|
|
|
(41,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2008
|
|
|
86,927,680
|
|
|
|
174
|
|
|
|
5,154,137
|
|
|
|
(3,094
|
)
|
|
|
(4,760,199
|
)
|
|
|
391,018
|
|
Exercise of stock options
|
|
|
172,396
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
925
|
|
Issuance of common stock
|
|
|
773,770
|
|
|
|
2
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
|
|
3,189
|
|
Issuance of restricted stock, net of cancellations
|
|
|
2,063,525
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange and retirement of employee-owned mature stock for taxes
|
|
|
(309,094
|
)
|
|
|
(1
|
)
|
|
|
(2,620
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,621
|
)
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
33,941
|
|
|
|
|
|
|
|
|
|
|
|
33,941
|
|
Realized investment loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,414
|
|
|
|
|
|
|
|
1,414
|
|
Unrealized investment loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,023
|
)
|
|
|
|
|
|
|
(2,023
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,193
|
|
|
|
8,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009
|
|
|
89,628,277
|
|
|
|
179
|
|
|
|
5,189,566
|
|
|
|
(3,688
|
)
|
|
|
(4,752,006
|
)
|
|
|
434,051
|
|
Exercise of stock options
|
|
|
34,566
|
|
|
|
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
332
|
|
Issuance of common stock
|
|
|
625,161
|
|
|
|
2
|
|
|
|
3,874
|
|
|
|
|
|
|
|
|
|
|
|
3,876
|
|
Issuance of restricted stock, net of cancellations
|
|
|
4,090,157
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange and retirement of employee-owned mature stock for taxes
|
|
|
(506,313
|
)
|
|
|
(1
|
)
|
|
|
(5,864
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,865
|
)
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
48,365
|
|
|
|
|
|
|
|
|
|
|
|
48,365
|
|
Unrealized investment gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,895
|
|
|
|
|
|
|
|
1,895
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
(86
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,386
|
|
|
|
16,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
93,871,848
|
|
|
$
|
188
|
|
|
$
|
5,236,265
|
|
|
$
|
(1,879
|
)
|
|
$
|
(4,735,620
|
)
|
|
$
|
498,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
56
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,386
|
|
|
$
|
8,193
|
|
|
$
|
(41,062
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for doubtful accounts
|
|
|
684
|
|
|
|
1,378
|
|
|
|
506
|
|
Depreciation and amortization
|
|
|
12,418
|
|
|
|
13,966
|
|
|
|
22,899
|
|
Stock-based compensation
|
|
|
48,365
|
|
|
|
33,941
|
|
|
|
40,859
|
|
Restructuring
|
|
|
8,579
|
|
|
|
10,837
|
|
|
|
10,108
|
|
Other-than-temporary impairment of long-term investments
|
|
|
724
|
|
|
|
1,414
|
|
|
|
|
|
Impairment of property and equipment
|
|
|
|
|
|
|
4,277
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,805
|
)
|
|
|
7,930
|
|
|
|
3,609
|
|
Prepaid expenses and other assets
|
|
|
2,312
|
|
|
|
(3,094
|
)
|
|
|
5,948
|
|
Accounts payable
|
|
|
3,560
|
|
|
|
(4,485
|
)
|
|
|
1,225
|
|
Accrued compensation and related liabilities
|
|
|
2,916
|
|
|
|
7,486
|
|
|
|
(3,687
|
)
|
Accrued liabilities
|
|
|
(3,120
|
)
|
|
|
(1,910
|
)
|
|
|
(7,914
|
)
|
Deferred revenue
|
|
|
(5,896
|
)
|
|
|
8,857
|
|
|
|
13,258
|
|
Deferred incomeSoftbank
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
Restructuring obligations
|
|
|
(17,114
|
)
|
|
|
(22,821
|
)
|
|
|
(23,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
67,009
|
|
|
|
65,969
|
|
|
|
21,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(55,638
|
)
|
Purchases of property and equipment
|
|
|
(9,452
|
)
|
|
|
(6,583
|
)
|
|
|
(7,657
|
)
|
Proceeds from maturities and sales of investments
|
|
|
18,091
|
|
|
|
15,950
|
|
|
|
97,953
|
|
Purchases of investments
|
|
|
(22,328
|
)
|
|
|
(32,772
|
)
|
|
|
(29,768
|
)
|
Allocation from restricted cash, net
|
|
|
|
|
|
|
400
|
|
|
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(13,689
|
)
|
|
|
(23,005
|
)
|
|
|
5,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
4,208
|
|
|
|
4,114
|
|
|
|
6,394
|
|
Repurchase of common stock
|
|
|
(5,865
|
)
|
|
|
(2,621
|
)
|
|
|
(7,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,657
|
)
|
|
|
1,493
|
|
|
|
(809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(151
|
)
|
|
|
(380
|
)
|
|
|
(1,201
|
)
|
Net increase in cash and cash equivalents
|
|
|
51,512
|
|
|
|
44,077
|
|
|
|
25,493
|
|
Cash and cash equivalents at beginning of year
|
|
|
130,881
|
|
|
|
86,804
|
|
|
|
61,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
182,393
|
|
|
$
|
130,881
|
|
|
$
|
86,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for income taxes
|
|
$
|
1,017
|
|
|
$
|
1,579
|
|
|
$
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
57
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Business and Summary of Significant Accounting Policies
Description of business
Ariba, Inc., along with its
subsidiaries (collectively referred to herein as the Company), is the leading provider of collaborative business commerce solutions for buying and selling goods and services. Ariba combines industry-leading software as a service
(SaaS) technology to optimize the complete commerce lifecycle with the worlds largest business oriented web-based community to discover, connect and collaborate with a global network of trading partners and expert capabilities to
augment internal resources and skills, delivering everything needed to control costs, minimize risk, improve profits and enhance cash flow and operations, all in the Ariba
®
Commerce Cloud. Over 330,000 companies, including more than 80 percent of the Fortune 500, use Aribas solutions to drive more efficient inter-enterprise
commerce. The Company was incorporated in Delaware in September 1996.
Basis of presentation
The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported results of
operations during the reporting period. Actual results could differ from those estimates. The items that are significantly impacted by estimates include revenue recognition, the assessment of recoverability of goodwill and other intangible assets,
restructuring obligations related to abandoned operating leases, the fair value of investments and collectibility of accounts receivable.
Cash, cash equivalents and restricted cash
The Company considers all
highly liquid investments with maturity dates of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents consist of money market funds, commercial paper, government/federal notes and bonds and certificates of deposit.
Restricted cash consists primarily of amounts held in deposits that are required as collateral under the Companys facilities operating lease agreements.
Fair value
Effective October 1, 2008, the Company adopted changes
issued by the Financial Accounting Standards Board (FASB) to fair value accounting. This guidance defines fair value as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction
between market participants at the measurement date and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the Companys assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based
on the reliability of inputs as follows:
Level 1Inputs are unadjusted, quoted prices in active markets for identical
assets or liabilities at the measurement date. Examples of the assets carried at Level 1 fair value generally are equities listed in active markets and investments in publicly traded mutual funds with quoted market prices.
58
Level 2Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liabilitys anticipated life.
Level 3Inputs reflect managements best estimate of what market participants would use in pricing the asset or liability at the
measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of a security, whether the security is new and not yet established in the
marketplace, and other characteristics particular to a transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. When observable prices are not available, the Company either uses implied pricing from similar instruments or
valuation models based on net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. Fair value is a market-based measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Companys own assumptions are set to reflect those it believes market participants would use in pricing the asset or liability at the
measurement date. See Note 5 for fair value related to the Companys cash equivalents, short-term investments, long-term investments and restricted cash.
Concentration of credit risk
Financial instruments that subject the
Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, short-term investments, long-term investments and trade accounts receivable. The Company maintains its cash, cash equivalents, short-term
investments and long-term investments with high quality financial institutions and limits its investment in individual securities based on the type and credit quality of each such security. The Companys customer base consists of both domestic
and international businesses, and the Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company maintains allowances for potential credit losses.
No customer accounted for more than 10% of total revenues for the years ended September 30, 2010, 2009 and 2008. No customer
accounted for more than 10% of net accounts receivable as of September 30, 2010 and 2009.
Allowance for doubtful
accounts
The Company evaluates the collectibility of accounts receivable based on a combination of factors. In cases where
the Company is aware of circumstances that may impair a specific customers ability to meet its financial obligations, the Company records a specific allowance against amounts due, and thereby reduces the net recognized receivable to the amount
the Company reasonably believes will be collected. For the remaining customers, the Company recognizes allowances for doubtful accounts based on the length of time the aggregate receivables are outstanding, the current business environment and
historical experience.
Derivative financial instruments and foreign currency management
The Company considers the functional currency of its foreign subsidiaries to be the local currency, and accordingly, the foreign
subsidiaries financial statements are translated into U.S. dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for the results of operations. Adjustments
resulting from translations of foreign subsidiary financial statements are reported in accumulated other comprehensive income. Gains or losses on foreign currency transactions are recognized as interest and other income (expense), net. The Company
recognized losses of approximately $1.7 million and $6.7 million for the years ended September 30, 2010 and 2009, respectively. The Company recognized a gain of approximately $2.9 million for the year ended September 30, 2008.
59
On January 1, 2009, the Company adopted changes issued by the FASB to accounting for
derivatives and hedging. This updated guidance had no financial impact on the Companys consolidated financial statements and only required additional financial statement disclosures. The Company has applied these changes on a prospective
basis. Accordingly, disclosures related to interim periods prior to the date of adoption have not been presented.
The Company
transacts business in various foreign currencies and has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Under this program, the
Companys strategy is to have increases or decreases in foreign currency exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or
losses. The Companys foreign currency forward contracts generally settle within 90 days. The Company does not use these forward contracts for trading purposes. The Company does not designate these forward contracts as hedging instruments.
Accordingly, the Company records the fair value of these contracts as of the end of the reporting period to the consolidated balance sheet with changes in fair value recorded in the consolidated statement of operations. The balance sheet
classification for the fair values of these forward contracts is to prepaid expenses and other current assets for unrealized gains and to other current liabilities for unrealized losses. The statement of operations classification for the fair values
of these forward contracts is to interest and other income (expense), net, for both realized and unrealized gains and losses.
As of September 30, 2010, the notional amounts of the forward contracts held to sell and purchase U.S. dollars in exchange for
other major international currencies were $6.7 million and $18.7 million, respectively, and the unrealized loss on these contracts was $553,000. As of September 30, 2009, the notional amounts of the forward contracts held to sell and purchase
U.S. dollars in exchange for other major international currencies were $4.9 million and $20.9 million, respectively, and the unrealized loss on these contracts was $427,000. The notional principal amounts for derivative instruments
provided one measure of the transaction volume outstanding as of September 30, 2010 and 2009, and do not represent the amount of the Companys exposure to credit or market loss. The Company has determined that the gross exposure for both
market and credit risk are deemed immaterial.
The fair value of the foreign currency forward contracts not designated as
hedges in the condensed consolidated balance sheet were $322,000 included in prepaid expense and other current assets and $875,000 included in other current liabilities as of September 30, 2010. The fair value of the foreign currency forward
contracts not designated as hedges in the condensed consolidated balance sheet were $58,000 included in prepaid expense and other current assets and $485,000 included in other current liabilities as of September 30, 2009. The effects of the
foreign currency forward contracts not designated as hedges on net income was a loss of $686,000 for the year ended September 30, 2010 and a loss of $881,000 for the year ended September 30, 2009, included in interest and other (expense)
income, net on the consolidated statement of operations.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the shorter of the estimated useful lives of the assets, generally two to five years based on asset classification, or the lease term, if applicable. Gains and losses on disposals are included in results of operations
at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Costs for replacements and improvements are capitalized, while the costs of maintenance and repairs are charged against
earnings as incurred.
Impairment of long-lived assets
Long-lived assets, such as property and equipment and purchased intangibles subject to depreciation and amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by
60
a comparison of the carrying amount of the assets to the estimated undiscounted future cash flows expected to be generated from the use and ultimate disposition of the assets. If the carrying
amount of the assets exceed its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of would be reported at the lower of
the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the
consolidated balance sheet.
Goodwill and other intangible assets
Purchased other intangible assets with finite lives are amortized over the estimated economic lives of the assets, generally ranging from
one to five years, and reviewed for impairment. Goodwill and purchased other intangible assets determined to have indefinite useful lives are not amortized but are reviewed for impairment annually and more frequently if events and circumstances
indicate the assets may be impaired and the carrying value may not be recoverable. The Company has no identifiable intangible assets with indefinite lives as of September 30, 2010.
The Company tests goodwill for impairment annually and more frequently if events and circumstances indicate that the asset may be
impaired and that the carrying value may not be recoverable. The provisions of Accounting Standard Codification (ASC) 350 require that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair
value of each reporting unit to its carrying value. The Companys reporting units are consistent with the reportable segments identified in Note 9 of Notes to the Consolidated Financial Statements. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the
fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting units goodwill. If upon completing the second step of the impairment test the
carrying value of a reporting units goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.
The fair value of the Companys reporting units were determined using the income approach and the market approach. The income approach is a valuation technique whereby the Company calculates the fair
value of each reporting unit based on the present value of estimated future cash flows, which are formed by evaluating historical trends, current budgets, operating plans and industry data. The market approach is a valuation technique whereby
the Company calculates the fair value of each reporting unit by comparing it to public traded companies in similar lines of business or to comparable transactions or assets. In selecting comparable companies, the Company researched companies in the
reporting units respective segments.
Determining the fair value of a reporting unit involves the use of significant
estimates and assumptions. These estimates and assumptions using the income approach include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market
conditions. The estimates and assumptions using the market comparable approach include determination of appropriate market comparables and an appropriate control premium. The Company uses its fair value estimates on assumptions it believes to be
reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, the Company makes certain judgments and assumptions in allocating shared assets and liabilities to determine the
carrying values for each of our reporting units.
The Company performed the annual assessment in the fourth quarter of fiscal
years 2010, 2009 and 2008 and no indication of impairment was noted. The balance of goodwill is $406.5 million as of September 30, 2010, and there can be no assurances that future goodwill impairments will not occur.
61
Revenue recognition
Substantially all of the Companys revenues are derived from the following sources: (i) subscription software solutions on a
multi-tenant basis and single-tenant basis either hosted or behind the firewall; (ii) maintenance and support related to existing single-tenant perpetual licenses; and (iii) services, including implementation services, strategic consulting
services, sourcing services, managed services, training, education, premium support and other miscellaneous services. The subscription software solutions include technical support and product updates. The significant majority of the Companys
subscription software solutions are hosted time-based license and are based on the number of users or other usage criteria. The Companys multiple element arrangements typically include a combination of: (i) subscription software
solutions; and (ii) a services arrangement, on either a fixed fee for access to specific services over time or a time and materials basis.
The Company licenses its subscription software through its direct sales force and indirectly through resellers. Sales made through resellers are recognized at the time that the Company has received
persuasive evidence of an end user customer and all other criteria are met as defined below. The license agreements for the Companys subscription software only provide for a right of return in limited and defined circumstances, and
historically product returns have not been significant. The Company does not recognize revenue on agreements subject to refund or cancellation rights until such rights to refund or cancel have expired. Direct sales force commissions are accounted
for as sales and marketing expense at the time of sale, when the liability is incurred and is reasonably estimable.
The
Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery of the product or service has occurred; the fee is fixed or determinable; and collectibility is probable.
Certain of the Companys contracts include performance incentive payments based on market volume and/or savings generated, as
defined in the respective contracts. Revenue from such arrangements is recognized when those thresholds are achieved.
In
September 2009, the FASB issued new guidance on accounting for multiple deliverable revenue arrangements. The new guidance:
|
(i)
|
provides updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be
allocated;
|
|
(ii)
|
requires an entity to establish an estimated selling price (ESP) for all deliverables when vendor-specific objective evidence (VSOE) of selling
price or third-party evidence (TPE) of selling price does not exist; and
|
|
(iii)
|
eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method.
|
The Company elected to early adopt this accounting guidance at the beginning of its first quarter of fiscal year 2010 on a prospective
basis for applicable transactions originating or materially modified after September 30, 2009. The new guidance allows for deliverables with stand alone value in a multi-element arrangement for which revenue was previously deferred due to
undelivered elements not having VSOE of selling price to be separated and recognized as delivered, rather than over the longest service delivery period as a single unit with other elements in the arrangement.
For transactions entered into prior to the first quarter of fiscal year 2010, the Company allocated revenue to each element in a multiple
element arrangement based on its respective fair value. The Companys determination of the fair value of each element in a multiple element arrangement was based on VSOE of selling price, which is limited to the price when sold separately.
Revenue from subscription software, hosting and sourcing solutions services was primarily recognized ratably over the term of the arrangement, commencing with the initial
62
customer access date. Set up fees paid by customers in connection with multi-tenant subscription software solutions are recognized ratably over the longer of the life of the agreement or the
expected lives of customer relationships, which generally range from three to 5 years. Revenue allocated to maintenance and support was recognized ratably over the maintenance term (typically one year). Revenue allocated to software implementation,
process improvement, training and other services was recognized as the services are performed or as milestones are achieved or if bundled with a subscription or time-based arrangement or in circumstances where VSOE of selling price could not be
established for undelivered service elements, was recognized ratably over the term of the access agreement. In circumstances where the Company provided services as part of a multi-element arrangement with subscription software, both the subscription
software revenue and service revenue were recognized under the lesser of proportional performance method based on hours or ratable over the subscription term. When revenue associated with multiple element arrangements was recognized and more than
one element in that arrangement did not have VSOE of selling price, the Company first allocated revenue to those elements for which VSOE of selling price was available and the residual was allocated to those elements that did not have VSOE of
selling price.
The Company does sell implementation services, strategic consulting, training and other services in
stand-alone engagements. Maintenance and support are sold separately through renewals of annual contracts. As a result, the Company has used and intends to continue using VSOE of selling price to allocate the arrangement consideration to each of
these deliverables. Consistent with its methodology under previous accounting guidance, the Company determines VSOE of selling price based on its normal pricing and discounting practices for the specific service when sold separately. In determining
VSOE of selling price, the Company requires that a substantial majority of the selling prices for a service fall within a reasonably narrow pricing range, generally evidenced by approximately 80% of such historical stand-alone transactions falling
within plus or minus 15% of the median rates. In addition, the Company considers the geographies in which the services are sold and major service groups in determining VSOE of selling price.
However, the Company is not always able to establish VSOE of selling price for all deliverables in an arrangement with multiple elements.
This may be due to the Company infrequently selling each element separately, not pricing products within a narrow range, or only having a limited sales history. When VSOE of selling price cannot be established, as in the case for all subscription
software solutions along with certain services, the Company attempts to establish selling price of each element based on TPE of selling price. TPE of selling price is determined based on competitor prices for similar deliverables when sold
separately. Generally, the Companys go-to-market strategy differs from that of its peers and its offerings contain a level of differentiation such that the comparable pricing of software solutions and services with similar functionality and
delivery cannot be obtained. Furthermore, the Company is rarely able to reliably determine what similar competitors selling prices are on a stand-alone basis. Therefore, the Company is typically not able to determine TPE of selling price.
For contracts signed or substantially modified after October 1, 2009, and within the scope of the new guidance, the
Company uses ESP in its allocation of arrangement consideration when the Company is unable to establish selling price using VSOE or TPE. The objective of ESP is to determine the price at which the Company would transact a sale if the subscription
software or other services were sold on a stand-alone basis. ESP is generally used for offerings not priced within a narrow range, and it applies to a majority of the Companys arrangements with multiple deliverables.
The Company determines ESP for all deliverables that do not have VSOE of selling price by considering multiple factors which include, but
are not limited to the following: (i) substantive renewal rates contained within an arrangement for subscription software solutions; (ii) gross margin objectives and internal costs for services; and (iii) pricing practices, market
conditions and competitive landscape. The determination of ESP is made through consultation with and approval by the Companys management, taking into consideration the go-to-market strategy.
63
The Company regularly reviews VSOE, TPE and ESP and maintains internal controls over the
establishment and updates of these estimates. There were no material changes to VSOE, TPE or ESP either during the quarter or the year ended September 30, 2010.
The impact during the year ended September 30, 2010 of the new guidance was not material to the Companys reported revenues or results of operations. In terms of the timing and pattern of
revenue recognition, the new guidance is not expected to have a significant effect on revenues in periods after the initial adoption when applied to multiple element arrangements. The impact on future periods will vary based on the nature and volume
of new deals in any given period.
Deferred revenue includes amounts received from customers for which revenue has not been
recognized, and generally results from deferred subscription, maintenance and support, hosting, consulting or training services not yet rendered and recognizable and license revenue deferred until all requirements are met. Deferred revenue is
recognized as revenue upon delivery of the Companys product, as services are rendered, or as other requirements are satisfied. Deferred revenue excludes contract amounts for which payment has yet to be collected. Likewise, accounts receivable
excludes amounts due from customers for which revenue has been deferred.
Software development costs
Software development costs are expensed as incurred until technological feasibility, defined as a working prototype, has been established,
at which time such costs are capitalized until the product is available for general release to customers. To date, the Companys software has been available for general release shortly after the establishment of technological feasibility and,
accordingly, capitalized development costs have not been material.
The Company follows the guidance set forth by the FASB to
accounting for the development of its on-demand application service. This guidance requires companies to capitalize qualifying computer software costs which are incurred during the application development stage and to amortize such costs over the
softwares estimated useful life. Due to the economic downturn, restructuring actions taken in the year ended September 30, 2009 and a review of all discretionary spending and projects, the Company deferred its ERP system implementation
for finance and human resources to an uncertain date. The Company evaluated the capitalized software costs of this project for impairment. In the year ended September 30, 2009, the Company recorded an impairment charge of $3.3 million related
to capitalized software implementation costs and $1.0 million related to perpetual software license costs due to the deferral of the project to an uncertain date.
Advertising expense
Advertising costs are expensed as incurred and totaled
$769,000, $770,000 and $606,000 during the years ended September 30, 2010, 2009 and 2008, respectively.
Stock-based
compensation and deferred stock-based compensation
The Company maintains stock-based compensation plans which allow for
the issuance of stock options and restricted common stock to executives and certain employees. The Company also maintains an employee stock purchase plan (ESPP) that provides for the issuance of shares to all eligible employees of the
Company at a discounted price.
The Company amortizes the fair value of awards on an accelerated basis. The guidance requires
that forfeitures be estimated over the vesting period of an award, rather than being recognized as a reduction of compensation expense when the forfeiture actually occurs.
The Company did not grant stock options in the years ended September 30, 2010, 2009 and 2008. During the years ended September 30, 2010, 2009 and 2008, the Company recorded $704,000, $545,000
and $677,000, respectively, of stock-based compensation expense associated with employee stock purchase plan programs.
64
During the years ended September 30, 2010, 2009 and 2008, the Company granted
1.3 million, 1.5 million and 2.7 million shares, respectively, of restricted common stock time-based awards to directors, executive officers and certain employees with a fair value of $18.5 million, $14.6 million and $31.3 million,
respectively. These amounts are being amortized over the vesting period of the individual restricted common stock grants, which are one to three years.
During the year ended September 30, 2010, the Company granted 1.3 million restricted stock performance based units to executive officers and certain key employees with a fair value of $14.3
million, based on the then current fair value of the Companys shares at the grant date. The number of units that could vest under this grant is contingent upon meeting three criteria: (1) a 2010 performance milestone related to
subscription software revenues for the year ended September 30, 2010, (2) a 2011 performance milestone based upon sustained performance related to subscription software revenue for the year ended September 30, 2011; and (3) a
time-based service requirement. Based upon subscription software revenues for the year ended September 30, 2010, the granted restricted stock units that can vest up to 1.9 million with a fair value of $21.8 million.
During the year ended September 30, 2009, the Company granted restricted stock performance based units to executive officers and
certain key employees. The number of units that vest under this grant was contingent upon meeting three criteria: (1) a 2009 performance milestone related to subscription software revenues for the year ended September 30, 2009, (2) a
2010 performance milestone, established in October 2009, based upon sustained performance related to subscription software revenues for the year ended September 30, 2010, and (3) a time-based service requirement. The number of units that
vested upon meeting the performance milestone for the year ended September 30, 2009 was 848,250 units with a fair value of $7.3 million, based on the then current fair value of the Companys shares at the grant date. The number of units
awarded upon meeting the performance milestone for the year ended September 30, 2010 was 1.6 million units with a fair value of $18.0 million, based on the then current fair value of the Companys shares at the grant date.
During the year ended September 30, 2008, the Company granted up to 2.1 million shares of restricted common stock or
restricted stock performance based units to executive officers and certain key employees with a fair value of $24.4 million, whose vesting and the number of shares were contingent upon meeting a performance milestone related to subscription software
revenues for the year ended September 30, 2008 and upon subsequent service periods. The shares vest one-third upon the achievement of the performance milestone, one-third upon service on the first anniversary of achievement of the performance
milestone and one-third upon service on the second anniversary of achievement of the performance milestone. The number of shares awarded based on attainment against the performance milestone was 2.1 million shares, and compensation expense was
recorded based upon the fair value calculated based on the closing price on the date of grant over the vesting period of three years.
During the years ended September 30, 2010, 2009 and 2008, the Company recorded $43.7 million, $30.0 million and $37.4 million, respectively, of stock-based compensation expense associated with
restricted stock grants. As of September 30, 2010, there was $30.6 million of unrecognized compensation cost related to non-vested restricted share-based compensation arrangements which is expected to be recognized over a weighted-average
period of 0.8 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
The Company also made a contribution to the Ariba, Inc. Employees 401(k) Savings Plan (the 401(k) Plan) in the form of common
stock with a value of $4.0 million, $3.4 million and $2.7 million in the years ended September 30, 2010, 2009 and 2008, respectively.
65
Total stock-based compensation resulting from the ESPP, time-based awards, performance based
units and the 401(k) Plan of $48.4 million, $33.9 million and $40.9 million was recorded in the years ended September 30, 2010, 2009 and 2008, respectively, to various cost and operating expense categories as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Cost of revenuessubscription and maintenance
|
|
$
|
3,288
|
|
|
$
|
2,405
|
|
|
$
|
2,262
|
|
Cost of revenuesservices and other
|
|
|
5,305
|
|
|
|
3,715
|
|
|
|
5,758
|
|
Sales and marketing
|
|
|
22,913
|
|
|
|
13,511
|
|
|
|
15,915
|
|
Research and development
|
|
|
5,565
|
|
|
|
4,825
|
|
|
|
6,226
|
|
General and administrative
|
|
|
11,294
|
|
|
|
9,485
|
|
|
|
10,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,365
|
|
|
$
|
33,941
|
|
|
$
|
40,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
Income taxes are computed using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future
tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The Company has recorded a valuation allowance to reduce its deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
On October 1, 2007, the Company adopted changes issued by the FASB to accounting for uncertainty in income taxes. The guidance
contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is
more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon effective settlement.
Net income (loss) per share
Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average
number of common shares outstanding during the period, excluding restricted common stock and units subject to forfeiture. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number
of common shares, including restricted common stock and units subject to forfeiture and potential common shares outstanding during the period if their effect is dilutive. Potential common shares are comprised of incremental common shares issuable
upon the exercise of stock options and employee stock purchase plans shares.
Comprehensive income (loss)
Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources, including unrealized gains
and losses on marketable securities and cash flow hedges and changes in the cumulative translation adjustment.
Recently
adopted accounting pronouncements
In September 2009, the FASB issued changes to accounting for multiple-deliverable
revenue arrangements, and arrangements that include software elements. These changes require entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy.
66
The amendments eliminate the residual method of revenue allocation and require revenue to be allocated among the various deliverables in a multi-element transaction using the relative selling
price method. These changes remove tangible products from the scope of software revenue guidance and provide guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of
the software revenue guidance. These changes should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The
Company early adopted this standard at the beginning of its first quarter for fiscal year 2010 on a prospective basis for applicable transactions originating or materially modified after September 30, 2009. There was no material impact during
the year ended September 30, 2010. See
Revenue Recognition
above.
Recent accounting pronouncements
not yet adopted
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities.
The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The Company will adopt this standard on
October 1, 2010. The adoption is not expected to have an impact on the Companys consolidated financial statements.
Note
2Business Combination
On December 17, 2007, the Company acquired Procuri, Inc. (Procuri), a
privately held company headquartered in Atlanta, Georgia, to expand its on-demand supply management solutions. The total purchase price for Procuri was $103.2 million, which consisted of $55.6 million in cash paid to acquire the
outstanding common stock of Procuri and to settle Procuris outstanding debt, $46.1 million of the Companys common stock (based on the issuance of 4.1 million shares of Ariba common stock) and $1.5 million for transaction costs.
For the purposes of the purchase price calculation, the deemed fair value of the Ariba common stock issued in the merger was $11.36 per share, which is equal to Aribas average closing price per share as reported on the NASDAQ Global Market for
each trading day during the period beginning two days before the acquisition date and ending on the acquisition date of December 17, 2007. There was an indemnification obligation of $7.0 million by the stockholders of Procuri that expired 30
months after the closing of the merger with respect to certain intellectual property and tax representations.
The following
unaudited pro forma financial information is presented to reflect the results of operations for the year ended September 30, 2008 as if the acquisition of Procuri had occurred on October 1, 2007. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on October 1, 2007 and may not be indicative of future operating results (in thousands, except
per share amounts):
|
|
|
|
|
|
|
Year Ended
September 30, 2008
(unaudited)
|
|
Revenues
|
|
$
|
332,082
|
|
Net loss
|
|
$
|
(45,785
|
)
|
Net loss per sharebasic and diluted
|
|
$
|
(0.57
|
)
|
Weighted average sharesbasic and diluted
|
|
|
80,718
|
|
Note 3Balance Sheet
Components
The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases
where the Company is aware of circumstances that may impair a specific customers ability to meet its financial obligations, the Company records a specific allowance against amounts due, and thereby reduces the net recognized receivable to the
amount the Company reasonably believes will be collected. For the remaining customers, the Company recognizes allowances for doubtful accounts based on the length of time the aggregate
67
receivables are outstanding, the current business environment and historical experience. The provision for doubtful accounts is included in sales and marketing expense in the Companys
consolidated statements of operations.
Changes in the allowance for doubtful accounts for the years ended September 30,
2010, 2009 and 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Balance at
Beginning of
Period
|
|
|
Additions
|
|
|
Balance at
End of
Period
|
|
|
|
Expense/
(Recovery)
|
|
|
Deductions/
Write-
offs (a)
|
|
|
Year ended September 30, 2010 Allowance for doubtful accounts
|
|
$
|
2,691
|
|
|
$
|
684
|
|
|
$
|
(838
|
)
|
|
$
|
2,537
|
|
Year ended September 30, 2009 Allowance for doubtful accounts
|
|
$
|
1,938
|
|
|
$
|
1,378
|
|
|
$
|
(625
|
)
|
|
$
|
2,691
|
|
Year ended September 30, 2008 Allowance for doubtful accounts
|
|
$
|
1,973
|
|
|
$
|
506
|
|
|
$
|
(541
|
)
|
|
$
|
1,938
|
|
(a)
|
Amounts written off as uncollectible or recovered by payment.
|
Property and equipment and their related useful lives consisted of the following as of September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Computer equipment and software (2 to 3 years)
|
|
$
|
43,655
|
|
|
$
|
37,277
|
|
Office equipment (2 years)
|
|
|
2,020
|
|
|
|
2,242
|
|
Furniture and fixtures (5 years)
|
|
|
17,101
|
|
|
|
17,212
|
|
Leasehold improvements (lesser of lease term or economic life)
|
|
|
22,980
|
|
|
|
20,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,756
|
|
|
|
77,714
|
|
Less accumulated depreciation and amortization
|
|
|
(69,798
|
)
|
|
|
(63,296
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
15,958
|
|
|
$
|
14,418
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of property and equipment totaled $7.9 million, $7.7 million and $7.9
million for the years ended September 30, 2010, 2009 and 2008, respectively.
Accrued liabilities consisted of the
following as of September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Accrued taxes
|
|
$
|
2,783
|
|
|
$
|
6,146
|
|
Deferred rent obligationscurrent portion
|
|
|
4,646
|
|
|
|
3,744
|
|
Other accrued liabilities
|
|
|
10,969
|
|
|
|
7,120
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
18,398
|
|
|
$
|
17,010
|
|
|
|
|
|
|
|
|
|
|
68
Note 4Investments
The following is a summary of cash equivalents and available-for-sale securities as of September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Money market funds
|
|
$
|
70,325
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70,325
|
|
Certificates of deposit and other bank deposits
|
|
|
82,007
|
|
|
|
|
|
|
|
|
|
|
|
82,007
|
|
Non-U.S. government securities
|
|
|
19,098
|
|
|
|
|
|
|
|
|
|
|
|
19,098
|
|
U.S. government and agency securities
|
|
|
4,194
|
|
|
|
|
|
|
|
|
|
|
|
4,194
|
|
Auction rate securities
|
|
|
19,682
|
|
|
|
|
|
|
|
(2,242
|
)
|
|
|
17,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
195,306
|
|
|
$
|
|
|
|
$
|
(2,242
|
)
|
|
$
|
193,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents
|
|
$
|
152,332
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,332
|
|
Included in short-term investments
|
|
|
18,449
|
|
|
|
|
|
|
|
|
|
|
|
18,449
|
|
Included in long-term investments
|
|
|
24,525
|
|
|
|
|
|
|
|
(2,242
|
)
|
|
|
22,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
195,306
|
|
|
$
|
|
|
|
$
|
(2,242
|
)
|
|
$
|
193,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Money market funds
|
|
$
|
86,811
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86,811
|
|
Certificates of deposit and other bank deposits
|
|
|
27,827
|
|
|
|
|
|
|
|
|
|
|
|
27,827
|
|
Non-U.S. government securities
|
|
|
16,617
|
|
|
|
|
|
|
|
|
|
|
|
16,617
|
|
U.S. government and agency securities
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
Auction rate securities
|
|
|
21,786
|
|
|
|
|
|
|
|
(4,110
|
)
|
|
|
17,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154,072
|
|
|
$
|
|
|
|
$
|
(4,110
|
)
|
|
$
|
149,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents
|
|
$
|
114,638
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
114,638
|
|
Included in short-term investments
|
|
|
12,169
|
|
|
|
|
|
|
|
|
|
|
|
12,169
|
|
Included in long-term investments
|
|
|
27,265
|
|
|
|
|
|
|
|
(4,110
|
)
|
|
|
23,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154,072
|
|
|
$
|
|
|
|
$
|
(4,110
|
)
|
|
$
|
149,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Companys available-for-sale securities based on contractual
maturities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Due in one year or less
|
|
$
|
18,449
|
|
|
$
|
12,169
|
|
Due after one year through two years
|
|
|
4,843
|
|
|
|
5,479
|
|
Due after two years through three years
|
|
|
|
|
|
|
|
|
Due after three years
|
|
|
17,440
|
|
|
|
17,676
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,732
|
|
|
$
|
35,324
|
|
|
|
|
|
|
|
|
|
|
The long-term investments as of September 30, 2010 and 2009, respectively, due after three years are
auction rate securities (ARS). The Company had $2.2 million and $4.1 million of gross unrealized losses on auction rate securities as of September 30, 2010 and 2009, respectively. As a result of the credit rating reduction
69
to below investment grade related to one of its ARS, the Company recorded an other-than-temporary impairment of $1.4 million in the year ended September 30, 2009 and $499,000 in the year
ended September 30, 2010, partially offset by $254,000 of accretion recorded through September 30, 2010. See Note 5 of Notes to Consolidated Financial Statements.
Note 5Fair Value
As of September 30, 2010 and 2009, the fair
value measurements of the Companys cash equivalents, short-term investments, long-term investments and restricted cash consisted of the following and which are categorized in the table below based upon the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
70,325
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70,325
|
|
Certificates of deposit and other bank deposits
|
|
|
111,248
|
|
|
|
|
|
|
|
|
|
|
|
111,248
|
|
Non-U.S. government securities
|
|
|
19,098
|
|
|
|
|
|
|
|
|
|
|
|
19,098
|
|
U.S. government and agency securities
|
|
|
4,194
|
|
|
|
|
|
|
|
|
|
|
|
4,194
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
17,440
|
|
|
|
17,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents, investments and restricted cash
|
|
$
|
204,865
|
|
|
$
|
|
|
|
$
|
17,440
|
|
|
$
|
222,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
86,811
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86,811
|
|
Certificates of deposit and other bank deposits
|
|
|
57,068
|
|
|
|
|
|
|
|
|
|
|
|
57,068
|
|
Non-U.S. government securities
|
|
|
16,617
|
|
|
|
|
|
|
|
|
|
|
|
16,617
|
|
U.S. government and agency securities
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
17,676
|
|
|
|
17,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents, investments and restricted cash
|
|
$
|
161,527
|
|
|
$
|
|
|
|
$
|
17,676
|
|
|
$
|
179,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents reconciliations for market securities measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
Beginning balance as of October 1, 2008
|
|
$
|
|
|
Transfer in
|
|
|
20,525
|
|
Realized losses
|
|
|
(1,414
|
)
|
Unrealized losses
|
|
|
(609
|
)
|
Redemptions
|
|
|
(826
|
)
|
|
|
|
|
|
Ending fair value as of September 30, 2009
|
|
$
|
17,676
|
|
Realized losses
|
|
|
(724
|
)
|
Unrealized gains
|
|
|
1,895
|
|
Redemptions
|
|
|
(1,650
|
)
|
Accretion and other
|
|
|
243
|
|
|
|
|
|
|
Ending fair value as of September 30, 2010
|
|
$
|
17,440
|
|
|
|
|
|
|
Auction rate securities
The Company holds a variety of interest-bearing ARS that represent investments in pools of assets, including student loans, commercial paper and credit derivative products. As of September 30, 2010,
the Company held $17.9 million in par value of student loan securities that failed to settle in auctions commencing February 2008 and $3.4 million in par value of commercial paper and credit derivative products that failed to settle in auctions
commencing August 2007. These ARS investments are intended to provide liquidity via an
70
auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such
interests at par. The uncertainties in the credit markets have affected all of the Companys holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective settlement dates.
Consequently, the investments are not currently liquid and the Company will not be able to access these funds until such time as either a future auction of these investments is successful or a buyer is found outside of the auction process. Given the
failures in the auction markets, as well as the lack of any correlation of these instruments to other observable market data, there are no longer observable inputs available as defined by Levels 1 and 2 of the fair value hierarchy by which to value
these securities. Therefore, these auction rate securities are classified within Level 3 and their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the
securities.
Contractual maturity dates for these ARS investments range from 2016 to 2047. The ARS backed by student loans are
guaranteed by the U.S. government and have credit ratings of AAA to A. The ARS investments were in compliance with the Companys investment policy at the time of acquisition and are investment grade quality, except for one credit derivative
product.
Currently, we have no intent to sell these ARS investments prior to recovery nor are aware of any factors that would
make such a sale of the ARS investments more likely than not. As of September 30, 2010, the Company has classified the entire ARS investment balance as long-term investments on its condensed consolidated balance sheet because of its current
inability to predict that these investments will be available for settlement within the next twelve months. The Company has also modified its current investment strategy and increased its investments in more liquid money market instruments.
Historically, the fair value of ARS investments approximates par value due to the frequent resets through the auction
process. While the Company continues to earn interest on its ARS investments at the contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated
fair value of ARS no longer approximates par value.
The Company has used a discounted cash flow (DCF) model to
determine the estimated fair value of its investment in ARS as of September 30, 2010. Significant estimates used in the DCF models were the credit quality of the instruments, the types of instruments and an illiquidity discount factor. The
assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. The discount factor used for the $17.9 million of student loan securities and
$3.4 million of commercial paper and credit derivative products was adjusted between 150 basis points (bps) and 250 bps for the student loan securities and 1,100 bps for the credit derivative product, respectively, to reflect the then
current market conditions for instruments with similar credit quality at the date of valuation and the risk in the marketplace for these investments that has arisen due to the lack of an active market for these instruments. Based on this assessment
of fair value, the Company determined there was a decline in the fair value of its ARS investments of $3.9 million, of which $2.2 million was deemed temporary. In the year ended September 30, 2010, the Company received an unsolicited offer and
sold the entire position in one of its ARS of $1.5 million. In connection with this sale, the Company recorded a realized loss of $225,000 and released an unrealized loss of $546,000. As a result of the credit rating reduction to below investment
grade related to one of its ARS, the Company recorded an other-than-temporary impairment of $1.4 million in the year ended September 30, 2009 and $499,000 in the year ended September 30, 2010, partially offset by $254,000 of accretion
recorded through September 30, 2010. Based upon its analysis of this impairment, the Company determined that the other-than-temporary loss of $1.7 million was principally related to the credit loss on the investment. Additionally, the Company
evaluated the factors related to other than credit loss, which were determined to be immaterial to the condensed consolidated financial statements.
The Company reviews its impairments in accordance with the changes issued by the FASB to fair value accounting and the recognition and presentation of other-than-temporary impairments, in order to
determine the
71
classification of the impairment as temporary or other-than-temporary. A temporary impairment charge results in an unrealized loss being recorded in the other
comprehensive income (loss) component of stockholders equity. Such an unrealized loss does not affect net income (loss) for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the
consolidated statement of operations. The differentiating factors between temporary and other-than-temporary impairment are primarily the length of the time and the extent to which the market value has been less than cost, the financial condition
and near-term prospects of the issuer and the Companys intent and ability to retain its investment for a period of time sufficient to allow for the recovery in market value to par. If the issuers of the ARS are unable to successfully close
future auctions or refinance their debt in the near term and/or the credit ratings of these instruments deteriorate, the Company may, in the near future, conclude that an additional other-than-temporary impairment charge is required related to these
investments. Such other-than-temporary impairment may be greater than the $2.2 million currently accounted for as a temporary decline or may be greater than the $1.7 million other-than-temporary impairment recorded through September 30, 2010.
Note 6Goodwill and Other Intangible Assets
The Companys goodwill balance as of September 30, 2010 and 2009 was $406.5 million. For purposes of the Companys annual goodwill impairment tests, the goodwill balance as of
September 30, 2010 and 2009 has been allocated by management between the three reporting units. The goodwill balance as of September 30, 2010 and 2009 was $342.4 million, $64.1 million and zero for North America; Europe, Middle-East and
Africa (EMEA); and Asia-Pacific (APAC), respectively.
The table below reflects changes or activity in
the balances related to other intangible assets for the years ended September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
Useful Life
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
|
Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing software technology
|
|
|
24 months
|
|
|
$
|
13,300
|
|
|
$
|
(13,300
|
)
|
|
$
|
|
|
|
$
|
13,300
|
|
|
$
|
(12,998
|
)
|
|
$
|
302
|
|
Contracts and related customer relationships
|
|
|
72 months
|
|
|
|
80,881
|
|
|
|
(67,727
|
)
|
|
|
13,154
|
|
|
|
80,881
|
|
|
|
(63,627
|
)
|
|
|
17,254
|
|
Trade names/trademarks
|
|
|
24 months
|
|
|
|
2,200
|
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
2,200
|
|
|
|
(2,158
|
)
|
|
|
42
|
|
Non-competition agreements
|
|
|
24 months
|
|
|
|
600
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
600
|
|
|
|
(538
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
96,981
|
|
|
$
|
(83,827
|
)
|
|
$
|
13,154
|
|
|
$
|
96,981
|
|
|
$
|
(79,321
|
)
|
|
$
|
17,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other intangible assets for the year ended September 30, 2010 totaled $4.5 million. Of
the total, amortization of $4.4 million related to contracts and related customer relationship and existing software technology was recorded as cost of revenues in the year ended September 30, 2010. Amortization of $104,000 related to trade
name/trademark and non-competition agreements was recorded as operating expense in the year ended September 30, 2010.
Amortization of other intangible assets for the year ended September 30, 2009 totaled $6.3 million. Of the total, amortization of
$5.6 million related to contracts and related customer relationship and existing software technology was recorded as cost of revenues in the year ended September 30, 2009. Amortization of $755,000 related to trade name/trademark and
non-competition agreements was recorded as operating expense in the year ended September 30, 2009.
72
Amortization of other intangible assets for the year ended September 30, 2008 totaled
$15.0 million. Of the total, amortization of $14.3 million related to contracts and related customer relationship and existing software technology was recorded as cost of revenues in the year ended September 30, 2008. Amortization of $739,000
related to trade name/trademark and non-competition agreements was recorded as operating expense in the year ended September 30, 2008.
The Company anticipates amortization of existing other intangible assets to total $4.1 million in fiscal year 2011, $4.1 million in fiscal year 2012, $4.1 million in fiscal year 2013 and
$854,000 in fiscal year 2014.
Note 7Income Taxes
The provision for income taxes for the years ended September 30, 2010, 2009 and 2008 was comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
Foreign
|
|
|
1,770
|
|
|
|
(470
|
)
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,888
|
|
|
$
|
(470
|
)
|
|
$
|
1,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
Foreign
|
|
|
1,198
|
|
|
|
(14
|
)
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,240
|
|
|
$
|
(14
|
)
|
|
$
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
211
|
|
|
|
|
|
|
|
211
|
|
Foreign
|
|
|
1,245
|
|
|
|
(713
|
)
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,456
|
|
|
$
|
(713
|
)
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys income (loss) before income taxes for the years ended September 30, 2010, 2009 and
2008 consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Domestic
|
|
$
|
14,388
|
|
|
$
|
6,818
|
|
|
$
|
(45,932
|
)
|
Foreign
|
|
|
3,416
|
|
|
|
2,601
|
|
|
|
5,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) before income taxes
|
|
$
|
17,804
|
|
|
$
|
9,419
|
|
|
$
|
(40,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
The reconciliation between the amount computed by applying the U.S. federal statutory tax
rate of 35% to the net income (loss) before income taxes and actual income tax expense for the years ended September 30, 2010, 2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Computed tax benefit
|
|
$
|
6,231
|
|
|
$
|
3,297
|
|
|
$
|
(14,112
|
)
|
State taxes, net of federal benefit
|
|
|
864
|
|
|
|
427
|
|
|
|
(2,362
|
)
|
Nondeductible expenses and other permanent differences
|
|
|
5,102
|
|
|
|
805
|
|
|
|
1,816
|
|
Foreign taxes
|
|
|
105
|
|
|
|
274
|
|
|
|
(1,433
|
)
|
Provision to return adjustments
|
|
|
3,712
|
|
|
|
4,337
|
|
|
|
|
|
Other
|
|
|
494
|
|
|
|
161
|
|
|
|
199
|
|
Change in valuation allowance
|
|
|
(15,090
|
)
|
|
|
(8,075
|
)
|
|
|
16,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,418
|
|
|
$
|
1,226
|
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of net deferred tax assets
as of September 30, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Accruals and allowances
|
|
$
|
65,906
|
|
|
$
|
69,375
|
|
Capitalized research and experimentation costs
|
|
|
81,868
|
|
|
|
92,269
|
|
Depreciation and amortization
|
|
|
85,193
|
|
|
|
98,015
|
|
Credit carryforwards
|
|
|
64,871
|
|
|
|
65,259
|
|
Net operating loss and other carryforwards
|
|
|
584,934
|
|
|
|
573,460
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
882,772
|
|
|
|
898,378
|
|
Valuation allowance
|
|
|
(875,553
|
)
|
|
|
(890,643
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
|
7,219
|
|
|
|
7,735
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Unremitted earnings of foreign subsidiaries
|
|
|
(832
|
)
|
|
|
|
|
Acquired intangibles
|
|
|
(5,189
|
)
|
|
|
(7,008
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
1,198
|
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
Recorded As:
|
|
|
|
|
|
|
|
|
Current deferred tax asset
|
|
$
|
39,298
|
|
|
$
|
39,200
|
|
Valuation allowance
|
|
|
(38,852
|
)
|
|
|
(38,692
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
|
446
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset
|
|
|
843,475
|
|
|
|
859,180
|
|
Valuation allowance
|
|
|
(836,702
|
)
|
|
|
(851,953
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax asset
|
|
|
6,773
|
|
|
|
7,227
|
|
Current deferred tax liability
|
|
|
(832
|
)
|
|
|
|
|
Non-current deferred tax liability
|
|
|
(5,189
|
)
|
|
|
(7,008
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
1,198
|
|
|
$
|
727
|
|
|
|
|
|
|
|
|
|
|
The Company has provided a valuation allowance due to the uncertainty of generating future profits that
would allow for the realization of such deferred tax assets. The net decrease in the total valuation allowance for the year ended September 30, 2010 was $15.1 million. The net decrease in the total valuation allowance for the year ended
September 30, 2009 was $8.1 million. Utilization of the Companys net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations imposed
74
by Internal Revenue Code Sections 382 and 383 and similar state provisions. Such an annual limitation could result in the expiration of the Companys federal and state net operating
loss and tax credit carryforwards before utilization.
As of September 30, 2010, the Company had net operating loss
carryforwards for federal, state and foreign tax purposes of approximately $1.5 billion, $813.0 million and $4.8 million, respectively, before consideration of any annual limitation as described above. These federal, state and foreign net operating
loss carryforwards expire in various years from fiscal year 2011 through fiscal year 2030, from fiscal year 2011 through fiscal year 2030 and from fiscal year 2011 through fiscal year 2014, respectively. As of September 30, 2010, the Company
had research credit carryforwards for federal and state tax purposes of approximately $39.0 million and $25.0 million, respectively. If not utilized, the federal research credit carryforwards will expire in various years from fiscal year 2011
through fiscal year 2024. The state research credit carryforwards will continue indefinitely. The Company also had manufacturers credit carryforwards as of September 30, 2010 for state tax purposes of approximately $300,000, which will
expire in various years from fiscal year 2011 through fiscal year 2012. The Companys net operating loss and tax credit carryforwards include net operating loss and research credit carryforwards of approximately $270.2 million and $4.8 million,
respectively, generated by legacy FreeMarkets, Inc. (FreeMarkets), which are subject to annual limitations which could reduce or defer the utilization of those losses and credits.
The undistributed earnings of the foreign subsidiaries are approximately $27.6 million as of September 30, 2010. The Company has
decided to permanently reinvest those earnings and accordingly has not provided for any taxes thereon.
On October 1,
2007, the Company adopted changes issued by the FASB to accounting for income taxes. These changes contain a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to
be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related
appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon effective settlement. The adoption of these changes resulted in an increase to the
Companys retained deficit of $1.0 million.
The aggregate changes in the balances of the Companys gross
unrecognized tax benefits were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30, 2010
|
|
|
Year Ended
September 30, 2009
|
|
Gross unrecognized tax benefits as of October 1
|
|
$
|
4,718
|
|
|
$
|
4,475
|
|
Increases related to tax positions taken during the fiscal year
|
|
|
133
|
|
|
|
215
|
|
Lapses of statutes of limitations
|
|
|
(312
|
)
|
|
|
(384
|
)
|
Changes in unrecognized tax benefits due to foreign currency translation
|
|
|
159
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
Total gross unrecognized tax benefits as of September 30
|
|
$
|
4,698
|
|
|
$
|
4,718
|
|
|
|
|
|
|
|
|
|
|
It is reasonably possible that the Companys existing liabilities for unrecognized tax benefits may
decrease within the next twelve months by approximately $3.2 million primarily due to the expiration of statutes of limitation in a foreign jurisdiction.
As of September 30, 2010, approximately $4.7 million of unrecognized benefits would affect the Companys effective tax rate if realized. The Company released interest and penalties related
to lapses of statute
75
of limitations of uncertain tax positions in the Companys provision for income taxes line of the Companys consolidated statements of operations of $56,000 during fiscal year 2010. The
gross amount of interest and penalties accrued as of September 30, 2010 was $1.7 million.
The Company has numerous tax
audits in progress globally which could affect its unrecognized tax benefits. At this time, the Company cannot reasonably predict the outcomes of those audits or the impacts on its unrecognized tax benefits. The Company believes that it has
adequately provided for any reasonably foreseeable outcomes related to the Companys tax audits. However, there can be no assurances as to the possible outcomes. The Companys U.S. federal income tax return is open to examination for
the fiscal year ended September 30, 2007 and forward. Globally, the Companys income tax returns are open to examination among various jurisdictions ranging from fiscal year ended September 30, 2004 and forward.
Note 8Commitments and Contingencies
Leases
In March 2000, the Company entered into a facility lease agreement
for approximately 716,000 square feet in four office buildings and an amenities building in Sunnyvale, California for its headquarters. The operating lease term commenced in January 2001 through April 2001 and ends in January 2013. The Company
occupies approximately 150,000 square feet in this facility. The Company currently subleases two buildings, totaling 396,000 square feet, to third parties. These subleases expire in January 2013. The remaining 170,000 square feet is available for
sublease. Minimum monthly lease payments are approximately $3.5 million and escalate annually, with the total future minimum lease payments amounting to $104.1 million over the remaining lease term. As part of this lease agreement, the Company is
required to issue standby letters of credit backed by cash equivalents, totaling $28.8 million as of September 30, 2010, as a form of security through fiscal year 2013. Also, the Company is required by other lease agreements to hold an
additional $401,000 of standby letters of credit, which are cash collateralized. These instruments are issued by its banks in lieu of a cash security deposit required by landlords for domestic and international real estate leases. The total cash
collateral of $29.2 million is classified as restricted cash on the Companys consolidated balance sheet as of September 30, 2010.
The Company also occupies 91,000 square feet of office space in Pittsburgh, Pennsylvania under a lease that expires in December 2017. This location consists principally of the Companys services
organization and administrative activities.
The Company occupies approximately 27,000 square feet of office space in Atlanta,
Georgia under a lease that expires in June 2013. Operations at this location consist principally of our sales and support activities.
The Company leases certain equipment, software and its facilities under various noncancelable operating and immaterial capital leases with various expiration dates through 2017. Gross operating rental
expense was approximately $24.6 million, $24.2 million and $24.8 million for the years ended September 30, 2010, 2009 and 2008, respectively. Gross operating rental expense was reduced by sublease income of $11.3 million, $10.5 million and $8.7
million for the years ended September 30, 2010, 2009 and 2008, respectively.
76
Future minimum lease payments and sublease income under noncancelable operating leases for
the next five years and thereafter are as follows as of September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
Year Ending September 30,
|
|
Lease
Payments
|
|
|
Contractual
Sublease
Income
|
|
2011
|
|
$
|
49,784
|
|
|
$
|
12,970
|
|
2012
|
|
|
51,822
|
|
|
|
13,656
|
|
2013
|
|
|
21,098
|
|
|
|
4,450
|
|
2014
|
|
|
4,612
|
|
|
|
|
|
2015
|
|
|
3,547
|
|
|
|
|
|
Thereafter
|
|
|
7,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,537
|
|
|
$
|
31,076
|
|
|
|
|
|
|
|
|
|
|
Of the total operating lease commitments as of September 30, 2010 noted above, $54.4 million is for
occupied properties and $84.1 million is for abandoned properties, which are a component of the restructuring obligation.
Restructuring costs
The Company recorded a charge to operations for restructuring costs of $8.6 million, $10.8 million and $10.1 million for the years ended September 30, 2010, 2009 and 2008, respectively. See
disclosure below for a detailed discussion of these amounts.
The following table details accrued restructuring obligations
and related activity for the three years ended September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and
benefits
|
|
|
Lease
abandonment
costs
|
|
|
Leasehold
impairments
|
|
|
Total
restructuring
costs
|
|
Accrued restructuring obligations as of October 1, 2007
|
|
$
|
|
|
|
$
|
71,171
|
|
|
$
|
|
|
|
$
|
71,171
|
|
Cash paid
|
|
|
(4,147
|
)
|
|
|
(19,445
|
)
|
|
|
|
|
|
|
(23,592
|
)
|
Total charge to operating expense
|
|
|
2,714
|
|
|
|
5,933
|
|
|
|
1,461
|
|
|
|
10,108
|
|
Assets impairment applied to asset balances
|
|
|
|
|
|
|
|
|
|
|
(1,461
|
)
|
|
|
(1,461
|
)
|
Purchase accounting adjustment
|
|
|
2,093
|
|
|
|
794
|
|
|
|
|
|
|
|
2,887
|
|
Reclassification from deferred rent obligations
|
|
|
|
|
|
|
1,933
|
|
|
|
|
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring obligations as of September 30, 2008
|
|
|
660
|
|
|
|
60,386
|
|
|
|
|
|
|
|
61,046
|
|
Cash paid
|
|
|
(4,554
|
)
|
|
|
(18,179
|
)
|
|
|
|
|
|
|
(22,733
|
)
|
Total charge to operating expense
|
|
|
3,936
|
|
|
|
6,813
|
|
|
|
88
|
|
|
|
10,837
|
|
Assets impairment applied to asset balances
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring obligations as of September 30, 2009
|
|
|
42
|
|
|
|
49,020
|
|
|
|
|
|
|
|
49,062
|
|
Cash paid
|
|
|
(42
|
)
|
|
|
(17,072
|
)
|
|
|
|
|
|
|
(17,114
|
)
|
Total charge to operating expense
|
|
|
|
|
|
|
8,579
|
|
|
|
|
|
|
|
8,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring obligations as of September 30, 2010
|
|
$
|
|
|
|
$
|
40,527
|
|
|
$
|
|
|
|
|
40,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring obligations, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Severance and benefits costs
Severance and benefits costs primarily include involuntary termination and health benefits, outplacement costs and payroll taxes for
terminated personnel. The Company recorded a charge of $3.9 million for the year ended September 30, 2009 related to severance benefit costs in connection with workforce reductions in the current economic environment to better align its
expenses with its revenues. The Company recorded a charge of $2.7 million for the year ended September 30, 2008 related to severance benefit costs in connection with a workforce reduction initiative associated with the integration of Procuri,
to better align its expenses with its revenues and to enable the Company to invest in certain growth initiatives. In addition, the Company assumed liabilities related to the severance of former Procuri employees of $2.1 million.
Lease abandonment and leasehold impairment costs
Lease abandonment costs incurred to date relate primarily to the abandonment of leased facilities in Mountain View and Sunnyvale, California and Pittsburgh, Pennsylvania. Total lease abandonment costs
include lease liabilities offset by estimated sublease income, and were based on market trend information analyses. As of September 30, 2010, $40.5 million of lease abandonment costs remain accrued and are expected to be paid by fiscal year
2013. The Companys lease abandonment accrual is net of $31.1 million of sublease income. In the year ended September 30, 2010, the Company revised its estimates for sublease commencement dates based on the remaining terms of the lease in
Sunnyvale, California and continued soft market conditions in the Northern California real estate market, resulting in a charge of $8.6 million.
In the year ended September 30, 2009, the Company revised its estimates for sublease commencement dates and sublease rental rate projections to reflect continued soft market conditions in the
Northern California real estate market, resulting in a charge of $6.8 million.
In the year ended September 30, 2008, the
Company evaluated its office space in Sunnyvale, California, and ceased use of approximately 54,000 square feet of space in its corporate headquarters. The Company recorded lease abandonment costs of $7.1 million and leasehold impairments of $1.5
million.
In June 2008, the Company entered into an agreement to sublease approximately 44,000 square feet of space at the
Companys Sunnyvale, California headquarters through January 2013. The impact of the execution of the sublease agreement with Efficient Frontier was a benefit to operations of approximately $549,000 in the year ended September 30,
2008.
Also, in June 2008, based on a revised property tax assessment and notice of refund received from the County of Santa
Clara in California related to fiscal years 2003 through 2006, the Company recorded a benefit to the Consolidated Statement of Operations of approximately $1.3 million. Of the total adjustment, $557,000 related to abandoned space and was recorded as
a benefit to operations.
In March 2008, the Company entered into an amendment with Motorola, Inc. (Motorola) to
the sublease dated as of August 24, 2004 between the Company and Motorola. Pursuant to the amendment, Motorola agreed to renew its sublease of approximately 88,000 square feet of space at the Companys Sunnyvale, California headquarters
through January 2013. Also in March 2008, the Company revised its estimates for sublease commencement dates to reflect current market conditions primarily in the Northern California real estate market. The impact of the execution of the
amendment to the sublease agreement with Motorola was a benefit to operations of approximately $1.7 million and the impact of the revised estimated sublease commencement dates was a charge to operations of $1.7 million, resulting in a net benefit to
operations of $18,000 in the year ended September 30, 2008.
Also during the year ended September 30, 2008, in
conjunction with the acquisition of Procuri, the Company recorded an adjustment of $794,000 to the restructuring obligation
.
This restructuring cost was considered part of the preliminary purchase accounting for Procuri.
78
Other arrangements
Other than the obligations identified above, the Company does not have commercial commitments under lines of credit, standby repurchase
obligations or other such debt arrangements. The Company has no other off-balance sheet arrangements or transactions with unconsolidated limited purpose entities, nor does it have any undisclosed material transactions or commitments involving
related persons or entities. The Company does not have any material noncancelable purchase commitments as of September 30, 2010.
Litigation
IPO class action litigation
In 2001, a number of purported shareholder class action complaints related to the Companys and FreeMarkets initial public
offerings (the IPOs) were filed in the United States District Court for the Southern District of New York against the Company and FreeMarkets, which the Company acquired in 2004, certain of the two companies former officers and
directors, and the underwriters who handled the IPOs. These consolidated complaints were then further consolidated, along with similar complaints filed against over 300 other issuers in connection with their initial public offerings, before a
single judge for case management purposes. After many years of litigation and appeals related to the sufficiency of the pleadings and class certification, the parties have agreed to a settlement of the entire litigation, which was approved by
the Court on October 5, 2009. Under the settlement, neither the Company nor FreeMarkets will be required to make any payment. Notices of appeal have been filed by various objectors of the Courts order. As of September 30, 2010,
no amount is accrued as a loss is not considered probable or estimable.
Patent litigation with Emptoris, Inc.
On April 19, 2007, the Company sued Emptoris, Inc. (Emptoris) in the United States District Court for the
Eastern District of Texas for patent infringement. On October 29, 2008, after a seven day jury trial, the Company received a verdict that Emptoris willfully infringed one Company patent and also infringed a second Company patent. The jury
awarded the Company approximately $4.9 million in damages. On January 7, 2009, the Court issued its judgment which affirmed the jurys damage award of $4.9 million and further ordered Emptoris to pay the Company $207,000 for pre-judgment
interest, $1.4 million in enhanced damages due to the willfulness finding, and the Companys costs of Court which have been calculated to be $164,000. In its judgment, the Court also issued an injunction against Emptoris. On January 22,
2009, the Court entered an amended judgment which assessed additional damages of $168,000 against Emptoris based on its infringing conduct during the period after trial through December 4, 2008. Emptoris filed an appeal of the trial
Courts judgment. On January 8, 2010, the United States Court of Appeals for the Federal Circuit affirmed the judgment. During the year ended September 30, 2010, the Company received $7.0 million in satisfaction of the monetary
portion of the judgment, and the Company recorded $7.0 million of income related to this matter.
General
From time to time, the Company is involved in a variety of claims, suits, investigations, and proceedings arising from the ordinary course
of its business, including actions with respect to intellectual property claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an
adverse impact on the Company because of defense costs, diversion of management resources, and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely
affect our financial position, results of operations, cash flows in a particular period or subject the Company to an injunction that could seriously harm its business.
During the year ended September 30, 2009, the Company recorded $7.5 million of income related to an insurance reimbursement for previously unreimbursed litigation costs.
79
Indemnification
The Company sells software licenses, access to its on-demand offerings and/or services to its customers under contracts that the Company
refers to as Terms of Purchase or Software License and Service Agreements (collectively, SLSA). Each SLSA contains the relevant terms of the contractual arrangement with the customer, and generally includes certain provisions for
indemnifying the customer against losses, expenses and liabilities from damages that may be incurred by or awarded against the customer in the event the Companys software or services are found to infringe upon a patent, copyright, trade
secret, trademark or other proprietary right of a third party. The SLSA generally limits the scope of remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain product usage
limitations and geography-based scope limitations, and a right to replace an infringing product or service or modify them to make them non-infringing. If the Company cannot address the infringement by replacing the product or service, or modifying
the product or service, the Company is allowed to cancel the license or service and return certain of the fees paid by the customer.
As of September 30, 2010, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions and no material customer claims for such indemnification
are outstanding.
Note 9Segment Information
The Company has three geographic operating segments: North America, EMEA and APAC. The segments are determined in accordance with how management views and evaluates the Companys business and based
on the aggregation criteria. Future changes to this organizational structure or the business may result in changes to the reportable segments disclosed. The Company markets its products in the United States and in foreign countries through its
direct sales force and indirect sales channels.
The results of the reportable segments are derived directly from the
Companys management reporting system. The results are based on the Companys method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the
performance of each segment based on several metrics, including contribution margin. Asset data is not reviewed by management at the segment level.
Segment contribution margin includes all geographic segment revenues less the related cost of sales, direct sales and marketing expenses and regional general and administrative expenses. A significant
portion of each segments expenses arise from shared services and infrastructure that the Company has historically allocated to the segments in order to realize economies of scale and to use resources efficiently. These expenses include
information technology services, facilities and other infrastructure costs and are generally allocated based upon headcount.
Financial information for each reportable segment was as follows for the years ended September 30, 2010, 2009 and 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
217,726
|
|
|
$
|
208,325
|
|
|
$
|
193,004
|
|
EMEA
|
|
|
79,276
|
|
|
|
79,569
|
|
|
|
77,094
|
|
APAC
|
|
|
26,545
|
|
|
|
20,716
|
|
|
|
25,837
|
|
Corporate revenue
|
|
|
37,599
|
|
|
|
30,362
|
|
|
|
32,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
361,146
|
|
|
$
|
338,972
|
|
|
$
|
328,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Revenues are attributed to countries based on the location of the Companys customers,
with some internal reallocation for multi-national customers. Certain revenue items are not allocated to segments because they are separately managed at the corporate level. These items include Ariba Managed Procurement Services and expense
reimbursement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Contribution margin
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
104,757
|
|
|
$
|
100,766
|
|
|
$
|
83,411
|
|
EMEA
|
|
|
30,019
|
|
|
|
32,500
|
|
|
|
24,159
|
|
APAC
|
|
|
7,563
|
|
|
|
4,903
|
|
|
|
3,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment contribution margin
|
|
$
|
142,339
|
|
|
$
|
138,169
|
|
|
$
|
110,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin is used, in part, to evaluate the performance of, and allocate resources to, each of the
segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include marketing costs other than direct sales and marketing, research and development costs,
corporate general and administrative costs, such as legal and accounting, amortization of purchased intangibles, insurance reimbursement, other incomeSoftbank, restructuring and integration costs (benefit), litigation provision, interest and
other income (expense), net and provision for income taxes.
The reconciliation of segment information to the Companys
net income (loss) before income taxes is as follows for the years ended September 30, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Segment contribution margin
|
|
$
|
142,339
|
|
|
$
|
138,169
|
|
|
$
|
110,603
|
|
Corporate revenue
|
|
|
37,599
|
|
|
|
30,362
|
|
|
|
32,125
|
|
Corporate costs, such as research and development, corporate general and administrative and other
|
|
|
(155,314
|
)
|
|
|
(143,442
|
)
|
|
|
(160,968
|
)
|
Amortization of acquired technology and customer intangible assets
|
|
|
(4,402
|
)
|
|
|
(5,550
|
)
|
|
|
(14,257
|
)
|
Litigation benefit (provision)
|
|
|
7,000
|
|
|
|
|
|
|
|
(5,900
|
)
|
Insurance reimbursement
|
|
|
|
|
|
|
7,527
|
|
|
|
|
|
Amortization of other intangibles
|
|
|
(104
|
)
|
|
|
(755
|
)
|
|
|
(739
|
)
|
Restructuring costs
|
|
|
(8,579
|
)
|
|
|
(10,837
|
)
|
|
|
(10,108
|
)
|
Other incomeSoftbank
|
|
|
|
|
|
|
|
|
|
|
566
|
|
Interest and other (expense) income, net
|
|
|
(735
|
)
|
|
|
(6,055
|
)
|
|
|
8,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
17,804
|
|
|
$
|
9,419
|
|
|
$
|
(40,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues consist mainly of fees for software access subscription and hosted software services.
Maintenance revenues consist primarily of Ariba Buyer and Ariba Sourcing product maintenance fees. Services and other revenues consist of fees for implementation services, consulting services, managed services, training, education, premium support,
fees charged for the use of the Companys software under perpetual agreements and other miscellaneous items. Revenues by similar product and service groups are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Subscription revenues
|
|
$
|
173,960
|
|
|
$
|
151,195
|
|
|
$
|
112,287
|
|
Maintenance revenues
|
|
|
66,829
|
|
|
|
71,011
|
|
|
|
74,863
|
|
Services and other revenues
|
|
|
120,357
|
|
|
|
116,766
|
|
|
|
140,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361,146
|
|
|
$
|
338,972
|
|
|
$
|
328,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Information regarding long-lived assets in geographic areas are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
14,633
|
|
|
$
|
12,976
|
|
International
|
|
|
1,325
|
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,958
|
|
|
$
|
14,418
|
|
|
|
|
|
|
|
|
|
|
Note 10Stockholders Equity
1999 Equity Incentive Plan
The Companys Board of Directors approved
the 1999 Equity Incentive Plan (the Incentive Plan) on April 20, 1999. The Incentive Plan was amended on October 4, 2001 and on March 11, 2009. Any shares not issued under the Companys 1996 Stock Plan (the 1996
Stock Plan) and any shares repurchased pursuant to the 1996 Stock Plan will also be available for grant under the Incentive Plan. The number of shares reserved under the Incentive Plan automatically increased on January 1 of each year
until 2005 by the lesser of 3.3 million shares or 5% of the total number of shares of common stock outstanding on that date and was increased by 5.3 million shares on March 11, 2009. Under the Incentive Plan, eligible employees,
outside directors and consultants may be granted stock options, stock appreciation rights, restricted shares or stock units. The exercise price for incentive stock options and nonstatutory options may not be less than 100% and 85%, respectively, of
the fair value of common stock at the option grant date. As of September 30, 2010, 7.0 million shares are available for grant under the Incentive Plan (including shares transferred from the 1996 Stock Plan since September 22, 1999).
As of September 30, 2010, there were 349,000 shares outstanding in connection with options granted under the Incentive Plan, including shares transferred from the 1996 Stock Plan since September 22, 1999.
Employee Stock Purchase Plan
The Companys Board of Directors adopted the Employee Stock Purchase Plan (the Purchase Plan) on April 20, 1999. The Purchase Plan was amended on August 1, 2006 and on
March 11, 2009. Under the Purchase Plan, eligible employees may purchase common stock in an amount not to exceed 1,000 shares per period. The purchase price per share equals 85% of the common stocks fair value at the end of the defined
purchase period. As of September 30, 2010, there have been 5.8 million shares issued under the Purchase Plan and 1.3 million shares are available for future issuance.
FreeMarkets Stock Plans
On July 1, 2004, the Company assumed the FreeMarkets, Inc. Second Amended and Restated Stock Incentive Plan and Broad Based Equity Incentive Plan (the FreeMarkets Plans). The FreeMarkets
Plans were not approved by the Companys stockholders. On October 11, 2007, the Compensation Committee of the Board of Directors of the Company amended and restated the Second Amended and Restated Stock Incentive Plan. This Third Amended
and Restated Stock Incentive Plan provides for the grant of stock units representing the equivalent of shares of Aribas common stock, the grant of incentive stock options to employees at prices not less than 100% of the fair market value of
the common stock on the date of grant and for the grant of nonstatutory stock options to employees, consultants, advisers and outside directors at a price determined by the Board of Directors. The Broad Based Equity Incentive Plan provides for the
grant of nonstatutory stock options to employees (other than officers), consultants and advisers at a price determined by the Board of Directors. Options expire not later than ten years from the date of grant. As of September 30, 2010, there
were 99,000 options outstanding in connection with options granted under the FreeMarkets Plans.
82
A summary of the activity related to the Companys restricted common stock is presented
below:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Nonvested at October 1, 2007
|
|
|
6,396,580
|
|
|
$
|
8.33
|
|
Granted
|
|
|
4,761,116
|
|
|
|
11.70
|
|
Vested
|
|
|
(3,541,293
|
)
|
|
|
8.10
|
|
Forfeited
|
|
|
(981,910
|
)
|
|
|
10.67
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2008
|
|
|
6,634,493
|
|
|
|
10.47
|
|
Granted
|
|
|
2,387,997
|
|
|
|
9.18
|
|
Vested
|
|
|
(3,452,430
|
)
|
|
|
10.41
|
|
Forfeited
|
|
|
(324,472
|
)
|
|
|
10.65
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2009
|
|
|
5,245,588
|
|
|
|
9.90
|
|
Granted
|
|
|
4,342,768
|
|
|
|
12.17
|
|
Vested
|
|
|
(3,128,145
|
)
|
|
|
10.16
|
|
Forfeited
|
|
|
(252,611
|
)
|
|
|
11.14
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2010
|
|
|
6,207,600
|
|
|
$
|
11.32
|
|
|
|
|
|
|
|
|
|
|
The fair value of stock awards vested was $37.5 million, $29.2 million and $46.0 million for the
years ended September 30, 2010, 2009 and 2008, respectively.
The nonvested shares roll forward presented above includes
the restricted stock units granted in the year ended September 30, 2010. See
Stock-based compensation and deferred stock-based compensation
in Note 1Description of Business and Summary of Significant Accounting Policies.
A summary of the activity related to the Companys stock options is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding at October 1, 2007
|
|
|
1,273,285
|
|
|
$
|
12.76
|
|
Exercised
|
|
|
(386,343
|
)
|
|
|
5.85
|
|
Forfeited
|
|
|
(71,991
|
)
|
|
|
23.96
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
814,951
|
|
|
|
15.00
|
|
Exercised
|
|
|
(172,396
|
)
|
|
|
5.36
|
|
Forfeited
|
|
|
(58,900
|
)
|
|
|
23.32
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
583,655
|
|
|
|
16.95
|
|
Exercised
|
|
|
(34,566
|
)
|
|
|
9.56
|
|
Forfeited
|
|
|
(24,459
|
)
|
|
|
140.40
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
524,630
|
|
|
$
|
11.61
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010
|
|
|
524,630
|
|
|
$
|
11.61
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options outstanding and exercisable as of September 30, 2010
was $4.2 million. The aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Companys closing stock price on the last trading day of the fourth quarter of fiscal 2010 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2010. Total intrinsic value of options exercised for the years ended
September 30, 2010, 2009 and 2008 was $198,000, $532,000 and $2.8 million, respectively.
83
The following table summarizes information about stock options outstanding as of
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
Range of
Exercise Prices
|
|
Number of
Options
|
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
$ 5.57$ 7.31
|
|
|
105,850
|
|
|
|
4.75
|
|
|
$
|
5.85
|
|
7.39 11.96
|
|
|
139,349
|
|
|
|
3.22
|
|
|
|
10.07
|
|
12.00 12.23
|
|
|
110,731
|
|
|
|
3.53
|
|
|
|
12.06
|
|
12.48 16.97
|
|
|
113,713
|
|
|
|
3.14
|
|
|
|
14.49
|
|
17.10 174.00
|
|
|
54,987
|
|
|
|
2.05
|
|
|
|
29.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 5.57$174.00
|
|
|
524,630
|
|
|
|
3.48
|
|
|
$
|
11.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
The components of accumulated other comprehensive loss as of September 30, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2010
|
|
|
September 30,
2009
|
|
Foreign currency translation adjustments
|
|
$
|
350
|
|
|
$
|
436
|
|
Unrealized loss on securities, net
|
|
|
(2,229
|
)
|
|
|
(4,124
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(1,879
|
)
|
|
$
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
Note 11Net Income (Loss) Per Share
The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net income (loss)
|
|
$
|
16,386
|
|
|
$
|
8,193
|
|
|
$
|
(41,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common sharesbasic
|
|
|
86,617
|
|
|
|
82,733
|
|
|
|
77,318
|
|
Less: Weighted-average common shares subject to repurchase
|
|
|
2,604
|
|
|
|
2,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common sharesdiluted
|
|
|
89,221
|
|
|
|
85,424
|
|
|
|
77,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharebasic
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharediluted
|
|
$
|
0.18
|
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share is computed by dividing income by the weighted-average number of shares of common
stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding
options, shares to be purchased under the employee stock purchase plan and unvested restricted common stock. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury
share method. For the year ended September 30, 2008, the Company excluded approximately 4.9 million of potential common shares issuable upon exercise of outstanding stock options and upon vesting of outstanding
restricted common stock because they had an anti-dilutive effect due to net losses recorded in the year ended September 30, 2008.
84
The Company has concluded that the unvested restricted common stock subject to performance
milestones will only be included in basic earnings per share when the underlying shares are issuable to the respective employees. However, if all necessary conditions have not been satisfied by the end of the reporting period, the number of the
unvested restricted common stock included in diluted earnings per share shall be based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period and if the result would be
dilutive.
Note 12401(k) Savings Plan
Company employees in the United States can participate in the 401(k) Plan. Participants can generally contribute up to 100% of their eligible compensation annually as defined by the plan document, subject
to the section 402(g) limit as defined by the IRS. The Company made a discretionary contribution in the form of common stock with a value of $4.0 million, $3.4 million and $2.7 million in the years ended September 30, 2010, 2009 and 2008,
respectively.
Note 13Other IncomeSoftbank
In September 2003, the Company commenced an arbitration proceeding against Softbank, Inc. (Softbank) for failing to meet its contractual revenue commitments. In October 2004, the Company
entered into a definitive agreement with Softbank settling their dispute. A total of $37.0 million was recorded as Deferred incomeSoftbank in connection with the settlement. As the Company was unable to determine the respective
fair value of the amounts that related to Softbanks software license, related maintenance and the Companys prior agreements with Softbank, the $37.0 million had been recognized ratably as Other incomeSoftbank over the
three-year software license term ended in October 2007. The Company recorded other income of $566,000 in the year ended September 30, 2008.
Note 14Subsequent Events
On November 15, 2010, the Company sold its
sourcing services and business process outsourcing (BPO) services assets (collectively, the Sourcing Services Business) to Accenture for approximately $51.0 million in cash, of which $12.0 million is subject to escrow. These assets
include the Companys category expertise, sourcing process expertise and strategic sourcing execution resources.
On
November 18, 2010, the Company entered into a Stock Purchase Agreement (the Agreement) with Quadrem International Holdings, Ltd. and certain subsidiaries of Quadrem (collectively, Quadrem) to acquire Quadrems
business (the Business). Quadrem operates an online network that connects more than 70,000 suppliers in 65 countries and large buyer customers in a variety of industries, including Natural Resources, Oil & Gas and Manufacturing. The
Company will pay up to $150 million, as adjusted, which includes a contingent payment of up to $50 million payable after the third anniversary of closing which will be paid out of the escrow account described below if performance conditions are met.
Ariba will pay $125 million, as adjusted, at closing, consisting of approximately $50 million in Ariba stock and the remainder in cash. The cash includes $40 million, which will be deposited in escrow to satisfy potential indemnification claims. If
the performance conditions are met in full, after the third anniversary Ariba will pay an additional $25 million in cash or, at its election, Ariba stock. Depending on the level of achievement of the performance conditions, Ariba may not be required
to pay the additional $25 million and will be entitled to take back $25 million of escrow cash, to the extent such cash is not used to satisfy indemnification claims. The Company has also agreed to pay $10.25 million to modify and terminate aspects
of a commercial arrangement previously entered into by Quadrem. The acquisition is expected to close in the quarter ending March 31, 2011.
85
Note 15Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2010
For the Quarter Ended
|
|
|
|
Sept. 30,
2010
|
|
|
June 30,
2010
|
|
|
March 31,
2010
|
|
|
Dec. 31,
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
$
|
62,892
|
|
|
$
|
60,768
|
|
|
$
|
58,756
|
|
|
$
|
58,373
|
|
Services and other
|
|
|
32,204
|
|
|
|
32,481
|
|
|
|
28,374
|
|
|
|
27,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
95,096
|
|
|
|
93,249
|
|
|
|
87,130
|
|
|
|
85,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
|
12,691
|
|
|
|
13,045
|
|
|
|
12,639
|
|
|
|
12,674
|
|
Services and other
|
|
|
21,520
|
|
|
|
21,700
|
|
|
|
19,954
|
|
|
|
19,462
|
|
Amortization of acquired technology and customer intangible assets
|
|
|
1,025
|
|
|
|
1,025
|
|
|
|
1,025
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
35,236
|
|
|
|
35,770
|
|
|
|
33,618
|
|
|
|
33,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
59,860
|
|
|
|
57,479
|
|
|
|
53,512
|
|
|
|
52,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
32,516
|
|
|
|
31,337
|
|
|
|
28,641
|
|
|
|
28,302
|
|
Research and development
|
|
|
11,929
|
|
|
|
11,622
|
|
|
|
11,344
|
|
|
|
11,146
|
|
General and administrative
|
|
|
10,178
|
|
|
|
9,369
|
|
|
|
5,756
|
|
|
|
10,697
|
|
Litigation benefit
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)
|
|
|
|
|
Amortization of other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
8,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
54,623
|
|
|
|
52,328
|
|
|
|
47,320
|
|
|
|
50,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5,237
|
|
|
|
5,151
|
|
|
|
6,192
|
|
|
|
1,959
|
|
Interest and other (expense) income, net
|
|
|
(676
|
)
|
|
|
(454
|
)
|
|
|
74
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,561
|
|
|
|
4,697
|
|
|
|
6,266
|
|
|
|
2,280
|
|
Provision for income taxes
|
|
|
425
|
|
|
|
423
|
|
|
|
515
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,136
|
|
|
$
|
4,274
|
|
|
$
|
5,751
|
|
|
$
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per sharebasic
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per sharediluted
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income per sharebasic
|
|
|
87,565
|
|
|
|
87,163
|
|
|
|
86,578
|
|
|
|
85,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income per sharediluted
|
|
|
91,868
|
|
|
|
89,336
|
|
|
|
88,753
|
|
|
|
88,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
For the Quarter Ended
|
|
|
|
Sept. 30,
2009
|
|
|
June 30,
2009
|
|
|
March 31,
2009
|
|
|
Dec. 31,
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
$
|
57,858
|
|
|
$
|
55,411
|
|
|
$
|
54,856
|
|
|
$
|
54,081
|
|
Services and other
|
|
|
26,460
|
|
|
|
28,463
|
|
|
|
29,837
|
|
|
|
32,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
84,318
|
|
|
|
83,874
|
|
|
|
84,693
|
|
|
|
86,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and maintenance
|
|
|
12,269
|
|
|
|
12,158
|
|
|
|
11,832
|
|
|
|
11,648
|
|
Services and other
|
|
|
18,592
|
|
|
|
18,551
|
|
|
|
18,524
|
|
|
|
19,798
|
|
Amortization of acquired technology and customer intangible assets
|
|
|
1,387
|
|
|
|
1,388
|
|
|
|
1,387
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
32,248
|
|
|
|
32,097
|
|
|
|
31,743
|
|
|
|
32,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
52,070
|
|
|
|
51,777
|
|
|
|
52,950
|
|
|
|
53,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
24,720
|
|
|
|
25,515
|
|
|
|
25,927
|
|
|
|
27,577
|
|
Research and development
|
|
|
11,341
|
|
|
|
10,787
|
|
|
|
10,451
|
|
|
|
10,904
|
|
General and administrative
|
|
|
10,173
|
|
|
|
9,301
|
|
|
|
12,212
|
|
|
|
11,603
|
|
Insurance reimbursement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,527
|
)
|
Amortization of other intangible assets
|
|
|
125
|
|
|
|
210
|
|
|
|
210
|
|
|
|
210
|
|
Restructuring costs
|
|
|
|
|
|
|
1,438
|
|
|
|
7,698
|
|
|
|
1,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
46,359
|
|
|
|
47,251
|
|
|
|
56,498
|
|
|
|
44,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
5,711
|
|
|
|
4,526
|
|
|
|
(3,548
|
)
|
|
|
8,785
|
|
Interest and other expense, net
|
|
|
(35
|
)
|
|
|
(265
|
)
|
|
|
(739
|
)
|
|
|
(5,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,676
|
|
|
|
4,261
|
|
|
|
(4,287
|
)
|
|
|
3,769
|
|
Provision for income taxes
|
|
|
68
|
|
|
|
367
|
|
|
|
449
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,608
|
|
|
$
|
3,894
|
|
|
$
|
(4,736
|
)
|
|
$
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per sharebasic
|
|
$
|
0.07
|
|
|
$
|
0.05
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per sharediluted
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income (loss) per sharebasic
|
|
|
84,124
|
|
|
|
83,444
|
|
|
|
82,416
|
|
|
|
80,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income (loss) per sharediluted
|
|
|
87,561
|
|
|
|
85,447
|
|
|
|
82,416
|
|
|
|
84,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
Not applicable.
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of
Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-K, we carried out an evaluation
under the supervision and with the participation of our Disclosure Committee and our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures are procedures that are designed to ensure that information required to be disclosed in
our reports filed under the Exchange Act, such as this Form 10-K, is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls and procedures are also designed to ensure that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of them and
their effect on the information generated for use in this Form 10-K. In the course of the controls evaluation, we reviewed any data errors or control problems that we had identified and sought to confirm that appropriate corrective actions,
including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including our Chief Executive Officer and Chief Financial Officer, concerning the effectiveness
of the disclosure controls can be reported in our periodic reports on Form 10-K and Form 10-Q. Many of the components of our disclosure controls and procedures are also evaluated on an ongoing basis by both our internal audit and finance
organizations. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and to modify them as necessary. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2010 based on the guidelines established in
Internal ControlIntegrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.
Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2010. We have reviewed the results of
managements assessment with our Audit Committee. Ernst & Young LLP, an independent registered public accounting firm, has issued their report, included on page 90 of this Form 10-K, regarding the Companys internal controls over
financial reporting.
88
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Management Certifications
The certifications of our Chief Executive Officer and Chief Financial Officer required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002 are attached as exhibits to this Annual Report on Form 10-K. The disclosures set forth in this Item 9A contain information concerning (i) the evaluation of our disclosure controls and procedures referred to in
paragraph 4 of the certifications, and (ii) material weaknesses in the design or operation of our internal control over financial reporting referred to in paragraph 5 of the certifications. Those certifications should be read in conjunction
with this Item 9A for a more complete understanding of the matters covered by the certifications.
Inherent Limitations on
Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments
in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of
the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
89
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Ariba, Inc.
We have audited
Ariba, Inc. and subsidiaries internal control over financial reporting as of September 30, 2010, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Ariba, Inc. and subsidiaries management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A
companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Ariba, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Ariba, Inc. and subsidiaries as of September 30, 2010 and 2009, and the related consolidated statements of operations and comprehensive income (loss), stockholders equity, and cash flows for each of the
three years in the period ended September 30, 2010 of Ariba, Inc. and subsidiaries and our report dated November 23, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 23, 2010
90
ITEM 9B. OTHER
|
INFORMATION
|
Not
applicable.
91
PART III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information concerning our executive officers required by this Item is incorporated by reference herein to the section entitled Executive Officers of the Registrant in Part I, Item 1
of this Form 10-K. The information concerning our directors, compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, code of ethics and corporate governance required by this Item are incorporated herein by reference to
information contained in sections of the Proxy Statement for our 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2010 (the 2011 Proxy Statement)
entitled Proposal No. 1Election of Directors, Corporate Governance and Section 16(a) Beneficial Ownership Reporting Compliance.
ITEM 11.
|
EXECUTIVE COMPENSATION
|
See the information set forth in the section entitled Executive Compensation and Related Information in the 2011 Proxy
Statement, which is incorporated herein by reference.
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
See the information set forth in Part I, Item 5 of this Form 10-K and the section entitled Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters in the 2011 Proxy Statement, which is incorporated herein by reference.
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
See the information set forth in the section entitled Related Person Disclosure and Corporate Governance in the 2011 Proxy Statement, which is incorporated herein by reference.
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
See the information set forth in the section entitled Ratification of Appointment of Independent Registered Public Accounting Firm in the 2011 Proxy Statement, which is incorporated herein by
reference.
92
PART IV
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a)
|
1. FINANCIAL STATEMENTS
|
See Item 8 of this Form 10-K.
|
2. FINANCIAL STATEMENT SCHEDULES
|
Schedules have been omitted since they are either not required, not applicable, or the information has otherwise been included.
The exhibits listed below in the accompanying Exhibit Index are filed as part of, or incorporated by reference into, this Form 10-K.
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Exhibit No.
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|
Description
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2.1
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Agreement and Plan of Merger and Reorganization, dated September 20, 2007 by and among the Registrant, Axe Acquisition Corporation, Procuri, Inc. and Insight Venture Partners,
LLC, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.1 to the Registrants Form 10-K dated November 15, 2007).
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2.2
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Amendment No. 1 to the Agreement and Plan of Merger and Reorganization, dated September 20, 2007, by and among the Registrant, Axe Acquisition Corporation, Procuri, Inc. and Insight
Venture Partners, LLC, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.2 to the Registrants Form 10-K/A dated November 26, 2007).
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2.3
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Amendment No. 2 to the Agreement and Plan of Merger and Reorganization, dated September 20, 2007, by and among the Registrant, Axe Acquisition Corporation, Procuri, Inc. and Insight
Venture Partners, LLC, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.3 of the Registrants Form 10-K for the fiscal year ended September 30, 2008).
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2.4
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Asset Purchase and Sale Agreement, dated October 5, 2010, by and between the Registrant and Accenture LLP and Accenture Global Services Limited.
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3.1
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Amended and Restated Certificate of Incorporation of the Registrant including all amendments to date (which is incorporated herein by reference to Exhibit 3.1 to the
Registrants Form 10-K dated December 29, 2000).
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3.2
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Amended and Restated Bylaws of the Registrant (which are incorporated herein by reference to Exhibit 3.2 to the Registrants Form 8-K filed on March 16, 2009).
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4.2
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Specimen Certificate of the Registrants common stock (which is incorporated herein by reference to Exhibit 4.2 to the Registrants Form S-1 Registration No.
333-76953).
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10.1
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Form of Indemnification Agreement entered into between the Registrant and its directors and executive officers (which is incorporated herein by reference to Exhibit 10.1 to the
Registrants Form S-1 Registration No. 333-76953).
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10.2
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1999 Equity Incentive Plan, as amended and restated effective January 15, 2009 (which is incorporated herein by reference to Appendix A to the Registrants Schedule 14A dated
January 23, 2009).
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10.3
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Employee Stock Purchase Plan, as amended and restated effective February 1, 2009 (which is incorporated herein by reference to Appendix B to the Registrants Schedule 14A dated
January 23, 2009).
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10.4
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Third Amended and Restated Stock Incentive Plan of FreeMarkets, Inc. (which is incorporated herein by reference to Exhibit 10.10 to the Registrants Form 10-K dated November
15, 2007).
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93
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|
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Exhibit No.
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Description
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10.5
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2001 Broad Based Equity Incentive Plan of FreeMarkets, Inc.
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10.6
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Lease Agreement, dated March 15, 2000, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.10 to the
Registrants Form 10-Q dated May 15, 2000).
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10.7
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First Amendment to Lease, dated as of January 12, 2001, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.7 to the
Registrants Form 10-K dated November 25, 2009).
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|
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10.8
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Second Amendment to Lease, dated as of October 31, 2002, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.8 to the
Registrants Form 10-K dated November 25, 2009).
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|
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10.9
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Third Amendment to Lease, dated as of October 25, 2004, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.7 to
the Registrants Form 10-Q dated February 9, 2005).
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|
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10.10
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Fourth Amendment to Lease, dated as of July 6, 2007, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.10 to the
Registrants Form 10-K dated November 25, 2009).
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10.11
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Letter, dated as of September 11, 2000, by and between Moffett Park Drive LLC and the Registrant re: Moffett Park Drive LLC/Ariba/Tenant Improvements (which is incorporated herein
by reference to Exhibit 10.11 to the Registrants Form 10-K dated November 25, 2009).
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10.12
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|
Lease Agreement, dated October 21, 1998, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
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10.13
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|
First Amendment to Lease, dated March 30, 1999, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
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10.14
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|
Second Amendment to Lease, dated September 1999, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
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10.15
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|
Third Amendment to Lease, dated March 2000, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
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10.16
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|
Fourth Amendment to Lease, dated July 10, 2002, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership (which is incorporated herein by reference to Exhibit
10.16 to the Registrants Form 10-K dated November 25, 2009).
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10.17
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|
Fifth Amendment to Lease, dated October 31, 2004, by and between Ariba, Inc. and One Oliver Associates Limited Partnership (which is incorporated herein by reference to Exhibit
10.17 to the Registrants Form 10-K dated November 25, 2009).
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10.18
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Sixth Amendment to Lease by and between One Oliver Associates L.P. and the Registrant, effective as of January 1, 2007 (which is incorporated herein by reference to Exhibit
10.38 to the Registrants Form 8-K dated February 20, 2007).
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10.19
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|
Sublease, dated October 18, 2002, by and between Netscreen Technologies, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.35 to the
Registrants Form 10-Q dated April 10, 2003).
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10.20
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First Amendment to Sublease, dated as of June 15, 2007, by and between Juniper Networks, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.45 to
the Registrants Form 10-Q dated August 8, 2007).
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|
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10.21
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|
Letter Agreement, dated April 9, 2008, by and between Juniper Networks, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.21 to the Registrants
Form 10-K dated November 25, 2009).
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94
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|
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Exhibit No.
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|
Description
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10.22
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|
Letter Agreement, dated November 9, 2007, by and between Juniper Networks, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.22 to the
Registrants Form 10-K dated November 25, 2009).
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10.23
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Consent to Sublease, dated as of October 25, 2004, by and between Moffett Park Drive LLC, Motorola, Inc. and the Registrant (which is incorporated herein by reference to
Exhibit 10.8 to the Registrants Form 10-Q dated February 9, 2005).
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10.24
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|
Second Amendment to and Restatement of Sublease, dated as of October 21, 2004, by and between Motorola, Inc. and the Registrant (which is incorporated herein by reference to
Exhibit 10.11 to the Registrants Form 10-Q dated February 9, 2005).
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10.25
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|
Third Amendment of Sublease, dated as of March 31, 2008, by and between Motorola, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.25 to the
Registrants Form 10-K dated November 25, 2009).
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10.26
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|
Settlement and License Agreement, effective as of January 19, 2008, by and between Sky Technologies, LLC, Ariba, Inc. and Procuri, Inc. (which is incorporated herein by
reference to Exhibit 10.40 to Ariba, Inc.s Form 8-K dated January 24, 2008).
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10.27
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Offer Letter, dated November 22, 2000, by and between the Registrant and Robert M. Calderoni (which is incorporated herein by reference to Exhibit 10.17 to Registrants
Form 10-Q dated February 14, 2001).
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10.28
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Amendment to Offer Letter, dated July 18, 2001, by and between Registrant and Robert M. Calderoni (which is incorporated herein by reference to Exhibit 10.18 to the
Registrants Form 10-K/A dated December 31, 2001).
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10.29
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|
Offer Letter, dated April 10, 2002, by and between the Registrant and Kevin Costello (which is incorporated herein by reference to Exhibit 10.29 to the Registrants Form
10-Q dated August 14, 2002).
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|
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10.30
|
|
Ariba, Inc.Compensation Program for Non-Employee Directors (which is incorporated herein by reference to Exhibit 10.52 to Ariba, Inc.s Form 10-Q dated May 7,
2008).
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10.31
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|
Employment Agreement, dated July 21, 2008, by and between the Registrant and Ahmed Rubaie (which is incorporated herein by reference to Exhibit 10.53 to Ariba, Inc.s Form 10-Q
dated August 6, 2008).
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|
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10.32
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|
Amendment to Employment Agreement, dated July 21, 2008, by and between the Registrant and Ahmed Rubaie (which is incorporated herein by reference to Exhibit 10.1 to Ariba,
Inc.s Form 8-K dated October 16, 2008).
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10.33
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Amended and Restated Severance Agreement, dated August 25, 2008, by and between the Registrant and Robert M. Calderoni (which is incorporated herein by reference to Exhibit 10.39 to
the Registrants Form 10-K dated November 18, 2008).
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|
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10.34
|
|
Amended and Restated Severance Agreement, dated September 5, 2008, by and between the Registrant and Kevin Costello (which is incorporated herein by reference to Exhibit 10.40 to
the Registrants Form 10-K dated November 18, 2008).
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|
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10.35
|
|
Amended and Restated Employment Agreement, dated August 15, 2008, by and between the Registrant and Kent Parker (which is incorporated herein by reference to Exhibit 10.41 to the
Registrants Form 10-K dated November 18, 2008).
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|
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10.36
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|
Ariba Bonus PlanExecutive Officers, adopted on December 22, 2008 (which is incorporated herein by reference to Exhibit 10.42 to Ariba, Inc.s Form 10-Q dated February 6,
2009).
|
95
|
|
|
Exhibit No.
|
|
Description
|
10.37
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Ahmed Rubaie (which is
incorporated herein by reference to Exhibit 10.43 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
10.38
|
|
Ariba, Inc.: 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Kent Parker (which is
incorporated herein by reference to Exhibit 10.44 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
10.39
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Kevin Costello (which is
incorporated herein by reference to Exhibit 10.45 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
10.40
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Robert Calderoni (which is
incorporated herein by reference to Exhibit 10.46 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
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|
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10.41
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Ahmed Rubaie (which is
incorporated herein by reference to Exhibit 10.41 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
10.42
|
|
Ariba, Inc.: 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Kent Parker (which is
incorporated herein by reference to Exhibit 10.42 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
10.43
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Kevin Costello (which is
incorporated herein by reference to Exhibit 10.43 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
10.44
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Robert Calderoni (which is
incorporated herein by reference to Exhibit 10.44 to the Registrants Form 10-Q dated February 5, 2010).
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|
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14.1
|
|
Code of Business Conduct (which is incorporated herein by reference to Exhibit 14.1 to the Registrants Form 10-K dated December 1, 2006).
|
|
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21.1
|
|
Subsidiaries.
|
|
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
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|
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24.1
|
|
Power of Attorney (incorporated by reference to the signature page of this Form 10-K).
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
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31.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
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32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
101
|
|
Interactive Data Files pursuant to Rule 405 of Regulation S-T (XBRL).
|
|
Management contract or compensatory plan or arrangement.
|
|
A request for confidential treatment has been filed with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
|
96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized on November 23, 2010.
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|
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ARIBA, INC.
|
|
|
By:
|
|
/s/ A
HMED
R
UBAIE
|
|
|
Ahmed Rubaie
|
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert M. Calderoni and Ahmed Rubaie, and each of them, his true and lawful
attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with Exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ R
OBERT
M.
C
ALDERONI
Robert M. Calderoni
|
|
Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)
|
|
November 23, 2010
|
|
|
|
/s/ A
HMED
R
UBAIE
Ahmed Rubaie
|
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
November 23, 2010
|
|
|
|
/s/ H
ARRIET
E
DELMAN
Harriet Edelman
|
|
Director
|
|
November 23, 2010
|
|
|
|
/s/ R
OBERT
D.
J
OHNSON
Robert D. Johnson
|
|
Director
|
|
November 23, 2010
|
|
|
|
/s/ R
ICHARD
A.
K
ASHNOW
Richard Kashnow
|
|
Director
|
|
November 23, 2010
|
|
|
|
/s/ R
OBERT
E. K
NOWLING
,
J
R
.
Robert E. Knowling, Jr.
|
|
Director
|
|
November 23, 2010
|
|
|
|
/s/ T
HOMAS
F.
M
ONAHAN
Thomas F. Monahan
|
|
Director
|
|
November 23, 2010
|
|
|
|
/s/ K
ARL
E.
N
EWKIRK
Karl E. Newkirk
|
|
Director
|
|
November 23, 2010
|
|
|
|
/s/ R
ICHARD
F.
W
ALLMAN
Richard F. Wallman
|
|
Director
|
|
November 23, 2010
|
97
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Description
|
2.1
|
|
Agreement and Plan of Merger and Reorganization, dated September 20, 2007 by and among the Registrant, Axe Acquisition Corporation, Procuri, Inc. and Insight Venture Partners,
LLC, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.1 to the Registrants Form 10-K dated November 15, 2007).
|
|
|
2.2
|
|
Amendment No. 1 to the Agreement and Plan of Merger and Reorganization, dated September 20, 2007, by and among the Registrant, Axe Acquisition Corporation, Procuri, Inc. and Insight
Venture Partners, LLC, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.2 to the Registrants Form 10-K/A dated November 26, 2007).
|
|
|
2.3
|
|
Amendment No. 2 to the Agreement and Plan of Merger and Reorganization, dated September 20, 2007, by and among the Registrant, Axe Acquisition Corporation, Procuri, Inc. and Insight
Venture Partners, LLC, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.3 of the Registrants Form 10-K for the fiscal year ended September 30, 2008).
|
|
|
2.4
|
|
Asset Purchase and Sale Agreement, dated October 5, 2010, by and between the Registrant and Accenture LLP and Accenture Global Services Limited.
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Registrant including all amendments to date (which is incorporated herein by reference to Exhibit 3.1 to the
Registrants Form 10-K dated December 29, 2000).
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant (which are incorporated herein by reference to Exhibit 3.2 to the Registrants Form 8-K filed on March 16, 2009).
|
|
|
4.2
|
|
Specimen Certificate of the Registrants common stock (which is incorporated herein by reference to Exhibit 4.2 to the Registrants Form S-1 Registration No.
333-76953).
|
|
|
10.1
|
|
Form of Indemnification Agreement entered into between the Registrant and its directors and executive officers (which is incorporated herein by reference to Exhibit 10.1 to the
Registrants Form S-1 Registration No. 333-76953).
|
|
|
10.2
|
|
1999 Equity Incentive Plan, as amended and restated effective January 15, 2009 (which is incorporated herein by reference to Appendix A to the Registrants Schedule 14A dated
January 23, 2009).
|
|
|
10.3
|
|
Employee Stock Purchase Plan, as amended and restated effective February 1, 2009 (which is incorporated herein by reference to Appendix B to the Registrants Schedule 14A dated
January 23, 2009).
|
|
|
10.4
|
|
Third Amended and Restated Stock Incentive Plan of FreeMarkets, Inc. (which is incorporated herein by reference to Exhibit 10.10 to the Registrants Form 10-K dated November
15, 2007).
|
|
|
10.5
|
|
2001 Broad Based Equity Incentive Plan of FreeMarkets, Inc.
|
|
|
10.6
|
|
Lease Agreement, dated March 15, 2000, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.10 to the
Registrants Form 10-Q dated May 15, 2000).
|
|
|
10.7
|
|
First Amendment to Lease, dated as of January 12, 2001, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.7 to the
Registrants Form 10-K dated November 25, 2009).
|
|
|
10.8
|
|
Second Amendment to Lease, dated as of October 31, 2002, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.8 to the
Registrants Form 10-K dated November 25, 2009).
|
|
|
10.9
|
|
Third Amendment to Lease, dated as of October 25, 2004, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.7 to
the Registrants Form 10-Q dated February 9, 2005).
|
|
|
|
Exhibit No.
|
|
Description
|
10.10
|
|
Fourth Amendment to Lease, dated as of July 6, 2007, by and between Moffett Park Drive LLC and the Registrant (which is incorporated herein by reference to Exhibit 10.10 to the
Registrants Form 10-K dated November 25, 2009).
|
|
|
10.11
|
|
Letter, dated as of September 11, 2000, by and between Moffett Park Drive LLC and the Registrant re: Moffett Park Drive LLC/Ariba/Tenant Improvements (which is incorporated herein
by reference to Exhibit 10.11 to the Registrants Form 10-K dated November 25, 2009).
|
|
|
10.12
|
|
Lease Agreement, dated October 21, 1998, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
|
|
|
10.13
|
|
First Amendment to Lease, dated March 30, 1999, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
|
|
|
10.14
|
|
Second Amendment to Lease, dated September 1999, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
|
|
|
10.15
|
|
Third Amendment to Lease, dated March 2000, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership.
|
|
|
10.16
|
|
Fourth Amendment to Lease, dated July 10, 2002, by and between FreeMarkets, Inc. and One Oliver Associates Limited Partnership (which is incorporated herein by reference to Exhibit
10.16 to the Registrants Form 10-K dated November 25, 2009).
|
|
|
10.17
|
|
Fifth Amendment to Lease, dated October 31, 2004, by and between Ariba, Inc. and One Oliver Associates Limited Partnership (which is incorporated herein by reference to Exhibit
10.17 to the Registrants Form 10-K dated November 25, 2009).
|
|
|
10.18
|
|
Sixth Amendment to Lease by and between One Oliver Associates L.P. and the Registrant, effective as of January 1, 2007 (which is incorporated herein by reference to Exhibit
10.38 to the Registrants Form 8-K dated February 20, 2007).
|
|
|
10.19
|
|
Sublease, dated October 18, 2002, by and between Netscreen Technologies, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.35 to the
Registrants Form 10-Q dated April 10, 2003).
|
|
|
10.20
|
|
First Amendment to Sublease, dated as of June 15, 2007, by and between Juniper Networks, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.45 to
the Registrants Form 10-Q dated August 8, 2007).
|
|
|
10.21
|
|
Letter Agreement, dated April 9, 2008, by and between Juniper Networks, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.21 to the Registrants
Form 10-K dated November 25, 2009).
|
|
|
10.22
|
|
Letter Agreement, dated November 9, 2007, by and between Juniper Networks, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.22 to the
Registrants Form 10-K dated November 25, 2009).
|
|
|
10.23
|
|
Consent to Sublease, dated as of October 25, 2004, by and between Moffett Park Drive LLC, Motorola, Inc. and the Registrant (which is incorporated herein by reference to
Exhibit 10.8 to the Registrants Form 10-Q dated February 9, 2005).
|
|
|
10.24
|
|
Second Amendment to and Restatement of Sublease, dated as of October 21, 2004, by and between Motorola, Inc. and the Registrant (which is incorporated herein by reference to
Exhibit 10.11 to the Registrants Form 10-Q dated February 9, 2005).
|
|
|
10.25
|
|
Third Amendment of Sublease, dated as of March 31, 2008, by and between Motorola, Inc. and the Registrant (which is incorporated herein by reference to Exhibit 10.25 to the
Registrants Form 10-K dated November 25, 2009).
|
|
|
|
Exhibit No.
|
|
Description
|
10.26
|
|
Settlement and License Agreement, effective as of January 19, 2008, by and between Sky Technologies, LLC, Ariba, Inc. and Procuri, Inc. (which is incorporated herein by
reference to Exhibit 10.40 to Ariba, Inc.s Form 8-K dated January 24, 2008).
|
|
|
10.27
|
|
Offer Letter, dated November 22, 2000, by and between the Registrant and Robert M. Calderoni (which is incorporated herein by reference to Exhibit 10.17 to Registrants
Form 10-Q dated February 14, 2001).
|
|
|
10.28
|
|
Amendment to Offer Letter, dated July 18, 2001, by and between Registrant and Robert M. Calderoni (which is incorporated herein by reference to Exhibit 10.18 to the
Registrants Form 10-K/A dated December 31, 2001).
|
|
|
10.29
|
|
Offer Letter, dated April 10, 2002, by and between the Registrant and Kevin Costello (which is incorporated herein by reference to Exhibit 10.29 to the Registrants Form
10-Q dated August 14, 2002).
|
|
|
10.30
|
|
Ariba, Inc.Compensation Program for Non-Employee Directors (which is incorporated herein by reference to Exhibit 10.52 to Ariba, Inc.s Form 10-Q dated May 7,
2008).
|
|
|
10.31
|
|
Employment Agreement, dated July 21, 2008, by and between the Registrant and Ahmed Rubaie (which is incorporated herein by reference to Exhibit 10.53 to Ariba, Inc.s Form 10-Q
dated August 6, 2008).
|
|
|
10.32
|
|
Amendment to Employment Agreement, dated July 21, 2008, by and between the Registrant and Ahmed Rubaie (which is incorporated herein by reference to Exhibit 10.1 to Ariba,
Inc.s Form 8-K dated October 16, 2008).
|
|
|
10.33
|
|
Amended and Restated Severance Agreement, dated August 25, 2008, by and between the Registrant and Robert M. Calderoni (which is incorporated herein by reference to Exhibit
10.39 to the Registrants Form 10-K dated November 18, 2008).
|
|
|
10.34
|
|
Amended and Restated Severance Agreement, dated September 5, 2008, by and between the Registrant and Kevin Costello (which is incorporated herein by reference to Exhibit 10.40 to
the Registrants Form 10-K dated November 18, 2008).
|
|
|
10.35
|
|
Amended and Restated Employment Agreement, dated August 15, 2008, by and between the Registrant and Kent Parker (which is incorporated herein by reference to Exhibit 10.41 to the
Registrants Form 10-K dated November 18, 2008).
|
|
|
10.36
|
|
Ariba Bonus PlanExecutive Officers, adopted on December 22, 2008 (which is incorporated herein by reference to Exhibit 10.42 to Ariba, Inc.s Form 10-Q dated February 6,
2009).
|
|
|
10.37
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Ahmed Rubaie (which is
incorporated herein by reference to Exhibit 10.43 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
10.38
|
|
Ariba, Inc.: 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Kent Parker (which is
incorporated herein by reference to Exhibit 10.44 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
10.39
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Kevin Costello (which is
incorporated herein by reference to Exhibit 10.45 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
10.40
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2009 Performance Stock Units), by and between Ariba, Inc. and Robert Calderoni (which is
incorporated herein by reference to Exhibit 10.46 to Ariba, Inc.s Form 10-Q dated February 6, 2009).
|
|
|
|
Exhibit No.
|
|
Description
|
10.41
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Ahmed Rubaie (which is
incorporated herein by reference to Exhibit 10.41 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
10.42
|
|
Ariba, Inc.: 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Kent Parker (which is
incorporated herein by reference to Exhibit 10.42 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
10.43
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Kevin Costello (which is
incorporated herein by reference to Exhibit 10.43 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
10.44
|
|
Ariba, Inc. 1999 Equity Incentive Plan: Notice of Stock Unit Award and Agreement (FY 2010 Performance Stock Units), by and between Ariba, Inc. and Robert Calderoni (which is
incorporated herein by reference to Exhibit 10.44 to the Registrants Form 10-Q dated February 5, 2010).
|
|
|
14.1
|
|
Code of Business Conduct (which is incorporated herein by reference to Exhibit 14.1 to the Registrants Form 10-K dated December 1, 2006).
|
|
|
21.1
|
|
Subsidiaries.
|
|
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
|
|
|
24.1
|
|
Power of Attorney (incorporated by reference to the signature page of this Form 10-K).
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
101
|
|
Interactive Data Files pursuant to Rule 405 of Regulation S-T (XBRL).
|
|
Management contract or compensatory plan or arrangement.
|
|
A request for confidential treatment has been filed with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
|
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