UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
July 31,
2010
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number:
001-33347
Aruba Networks, Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
(State or other jurisdiction
of
incorporation or organization)
|
|
02-0579097
(I.R.S. Employer
Identification No.)
|
1344 Crossman Ave.
Sunnyvale, California
94089-1113
(408) 227-4500
(Address, including zip
code, and telephone number,
including area code, of registrants principal executive
offices)
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class
|
|
Name of Exchange on Which Registered
|
|
Common Stock, par value $0.0001 per share
|
|
The NASDAQ Stock Market LLC
(NASDAQ Global Market)
|
Securities
registered pursuant to 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
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 o No þ
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 þ No o
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 o No o
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act.)
Yes o No þ
As of January 29, 2010, the last business day of the
registrants most recently completed second fiscal quarter,
shares held by non-affiliates of the registrant had an aggregate
market value of $736,314,686, based on the closing price
reported for such date on the NASDAQ Global Market.
The number of outstanding shares of the registrants Common
Stock, $0.0001 par value, was 97,281,745 shares as of
September 23, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrants 2010
Annual Meeting of Stockholders are incorporated by reference in
Part III of this
Form 10-K.
PART I
In addition to historical information, this report contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements include, among other things, statements concerning
our expectations:
|
|
|
|
|
that revenues(and, in particular, product revenues) from our
indirect channels will continue to constitute a significant
majority of our future revenues;
|
|
|
|
that competition will intensify in the future as other
companies introduce new products in the same markets we serve or
intend to enter;
|
|
|
|
that our product offerings, in particular our products that
incorporate 802.11n wireless LAN standard technologies, will
enable broader networking initiatives by both our current and
potential customers;
|
regarding the factors that will affect our
gross margins;
|
|
|
|
|
regarding the growth of our offshore operations and the
establishment of additional offshore capabilities for certain
general and administrative functions;
|
|
|
|
that, within our indirect channel, sales through our VADs
will grow, which will negatively impact our gross margins as
VADs experience a larger net effective discount than our other
channel partners;
|
|
|
|
that international revenues will increase in absolute dollars
and increase as a percentage of total revenues in future periods
compared with fiscal 2010;
|
|
|
|
that, as our customer base grows over time, the proportion of
our revenues represented by support revenues will increase;
|
|
|
|
that we will continue to hire employees throughout the
company;
|
|
|
|
that we will continue to invest significantly in our research
and development efforts;
|
|
|
|
that research and development expenses for fiscal 2011 will
increase on an absolute dollar basis and remain consistent or
decrease as a percentage of revenue compared with fiscal
2010;
|
|
|
|
that we will continue to invest strategically in our sales
and marketing efforts;
|
|
|
|
that sales and marketing expenses for fiscal 2011 will
continue to be our most significant operating expense and will
increase on an absolute dollar basis and decrease as a
percentage of revenue compared with fiscal 2010;
|
|
|
|
that general and administrative expenses for fiscal 2011 will
increase or remain consistent on an absolute dollar basis and
decrease as a percentage of revenue compared with fiscal
2010;
|
|
|
|
that ratable product and related professional services and
support revenues will decrease in absolute dollars and as a
percentage of total revenues in future periods;
|
|
|
|
that legal expenses will continue as part of our ongoing
operations and, depending on the timing and outcome of lawsuits
and the legal process, could have a significant impact on our
financial statements;
|
|
|
|
regarding the sufficiency of our existing cash, cash
equivalents, short-term investments and cash generated from
operations, and
|
|
|
|
that we will increase our market penetration and extend our
geographic reach through our network of channel partners,
|
as well as other statements regarding our future operations,
financial condition and prospects and business strategies. These
forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ
materially from those reflected in the forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in
this report, and in particular, the risks discussed under the
heading Risk Factors in Part I, Item 1A of
this report and those discussed in other documents we file with
the Securities and Exchange Commission. We undertake no
obligation to revise or publicly release the results of any
revision to these forward-looking statements. Given these risks
and uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
3
Overview
We are a global leader in distributed enterprise networks that
securely connect local and remote users to corporate IT
resources. Our award-winning portfolio of campus, branch office,
teleworker, and mobile solutions simplify operations and provide
secure access to all corporate applications and
services regardless of a users device,
location, or network. The result is improved productivity and
lower capital and operating costs.
Our product portfolio encompasses: industry-leading high-speed
802.11a/b/g/n wireless local area networks (WLANs);
Virtual Branching Networking solutions for branch offices and
teleworkers; and network operations tools including
spectrum analyzers, wireless intrusion prevention systems, and
the AirWave Wireless Management Suite for managing
wired, wireless, and mobile device networks. These products are
key to our rightsizing initiative which allows companies to move
toward a low-cost IT infrastructure solution by funding wireless
projects rather than wired LANs.
Our products have been sold to over 11,000 end customers
worldwide (not including customers of Alcatel-Lucent, one of our
channel partners), including some of the largest and most
complex global organizations. We have implemented a two-tier
distribution model in most areas of the world, including the
United States, with value-added distributors(VADs)
selling our portfolio of products, including a variety of our
support services, to a diverse number of value-added resellers
(VARs). Our focus continues to be management of our
channel including selection and growth of high prospect
partners, activation of our VARs and VADs through active
training and field collaboration, and evolution of our channel
programs in consultation with our partners.
Our ability to increase our product revenues will depend
significantly on continued growth in the market for enterprise
mobility and remote networking solutions, continued acceptance
of our products in the marketplace, our ability to continue to
attract new customers, our ability to compete, the willingness
of customers to displace wired networks with wireless LANs, in
particular, wireless LANs that utilize our 802.11n solution, and
our ability to continue to sell into our installed base of
existing customers. Our growth in support revenues is dependent
upon increasing the number of products under support contracts,
which is dependent on both growing our installed base of
customers and renewing existing support contracts. Our future
profitability and rate of growth, if any, will be directly
affected by the continued acceptance of our products in the
marketplace, as well as the timing and size of orders, product
and channel mix, average selling prices, costs of our products
and general economic conditions. Our future profitability will
also be affected by our ability to effectively implement and
generate incremental business from our two-tier distribution
model, the extent to which we invest in our sales and marketing,
research and development, and general and administrative
resources to grow our business, and current economic conditions.
While we begin to see improvements in the overall macroeconomic
environment, and our revenues have increased during fiscal 2010,
economic conditions worldwide have negatively impacted our
business in our recent history. While we believe in the
long-term growth prospects of the WLAN market, the deterioration
in overall economic conditions and in particular, tightening in
the credit markets and reduced spending by both enterprises and
consumers have significantly impacted various industries on
which we rely for purchasing our products. This has led to our
customers deferring purchases in response to tighter credit,
negative financial news and delayed budget approvals. These
factors could create significant and increasing uncertainty for
the future as they could continue to negatively impact
technology spending for the products and services we offer and
materially adversely affect our business, operating results and
financial condition.
The revenue growth that we have experienced has been driven
primarily by an expansion of our customer base coupled with
increased purchases from existing customers. We believe the
growth we have experienced is the result of business enterprises
needing to provide secure mobility to their users in a manner
that we believe is more cost effective than the traditional
approach of using port-centric networks. While we have
experienced both longer sales cycles and seasonality, both of
which have slowed our revenue growth, we believe that our
product offerings, in particular our products that incorporate
802.11n wireless LAN standard technologies, will enable broader
networking initiatives by both our current and potential
customers.
Each quarter, our ability to meet our product revenue
expectations is dependent upon (1) new orders received,
shipped, and recognized in a given quarter, (2) the amount
of orders booked but not shipped in the prior quarter that
4
are shipped in the current quarter, and (3) the amount of
deferred revenue entering a given quarter. Our product deferred
revenue is comprised of:
|
|
|
|
|
product orders that have shipped but where the terms of the
agreement, typically with our large customers, contain
acceptance terms and conditions or other terms that require that
the revenue be deferred until all revenue recognition criteria
are met;
|
|
|
|
product orders shipped to our VADs for which we have not yet
received persuasive evidence from the VADs of a sale to an end
customer; and
|
|
|
|
customer contracts that we entered into prior to our
establishment of VSOE of fair value.
|
We typically ship products within a reasonable time period after
the receipt of an order.
Our ability to meet our forecasted revenue is dependent on our
ability to convert our sales pipeline into product revenues from
orders received and shipped within the same fiscal quarter, as
well as the amount of revenue that we recognize for our products
and pre-billed services from our deferred revenue.
On May 7, 2010, we entered into a definitive agreement to
purchase Azalea Networks. The acquisition subsequently closed on
September 2, 2010. In connection with the closing, we will
be issuing common stock for an aggregate value of approximately
$27.0 million subject to certain adjustments and contingent
rights associated with such shares of up to $13.5 million
in cash, payable if at all, over two years. Based on our
evaluation of the Azalea Networks financial statements, we have
determined that the acquisition does not meet the conditions
needed to file separate financial statements and related pro
forma financial statements for the acquisition.
Industry
Background
Network users are increasingly mobile and depend on continuous
access to enterprise networks in order to work productively in
the office, at home, or on the road. No longer just a
convenience, mobile computing and connectivity are business
-critical infrastructure that must deliver to mobile users the
same experience, access to data, and security as they would
enjoy at the office. Effectively implemented, secure mobility
solutions offer a significant competitive advantage by allowing
resources to be used optimally and at the lowest cost. We expect
that ultimately every workplace will be all-wireless, and users
will be completely un-tethered from restrictive wired networks.
Delivering secure mobility solutions requires that certain
challenges be overcome:
|
|
|
|
|
Enabling both security and
mobility Radio waves cannot be confined
within a buildings walls, challenging traditional wired
network physical security models that depend on an impenetrable
perimeter. To enable mobility, network access privileges and
permissions must be clearly defined on a per-user basis to
enable secure access and the reliable delivery of data, voice,
video, and other applications to mobile users. Unauthorized
wireless devices that could potentially circumvent network
security must be detected and prevented.
|
|
|
|
Delivering applications reliably in a mobile
environment Without special handling, many
applications that are intended to be delivered over a fixed
network may perform
sub-optimally
in a mobile environment. This is especially true for
mission-critical data and latency-sensitive voice and video
applications. Enabling a network to recognize and adapt to an
application so-called application
awareness is essential if data, voice and
video are to be delivered reliably and with full fidelity.
|
|
|
|
System integration Enterprise-class
mobility solutions require more than just wireless access.
Security, application, network, and radio frequency
(RF) management services are also necessary,
potentially increasing the complexity of a system as it grows in
size and scope. To be effective, a mobility solution must
minimize deployment and integration complexity, and support
massive scalability, without requiring expensive upgrades to
existing networking infrastructure.
|
|
|
|
Network and operations management The
management system is the heart of any secure mobility solution
because it so profoundly affects up-time,
ease-of-use,
IT overhead, and on-going operating costs.
|
5
|
|
|
|
|
Essential tasks like network
set-up,
diagnostics, report generation, maintenance, and software
upgrades require an efficient centralized management system that
encompasses wired, wireless, and mobile device networks. To ease
the transition from legacy to new 802.11n Wi-Fi
networks and make the most of existing capital
investments it is imperative that the management
system seamlessly integrate devices from multiple vendors into a
single management console.
|
|
|
|
|
|
Support for emerging mobile applications
Secure mobility solutions need to be
future-proof, ready to support emerging applications such as
high definition video, unified communications, real-time
telemetry, wide-area smart grid over resilient mesh, large-scale
telework, and location-based services such as asset tracking and
inventory management.
|
We believe that our user-centric networks are fundamentally
different from alternative mobility solutions. In traditional
enterprise networks, users are connected to physical ports using
wire cables. These port-centric architectures assume a
static relationship between a user and a data port, and the
network access policies and application delivery priorities are
not designed to accommodate and therefore
limit user mobility away from that port. To enable
user mobility, the fixed ports must either be opened so any user
can connect from any port, or they must be connected to wireless
LANs. Both of these options reduce network security and
application performance in a port-centric architecture. To allow
remote users to securely access a port-centric network,
enterprises commonly deploy virtual private networks
(VPNs), which increase cost and complexity while
often degrading the user experience and application performance.
None of these alternatives address the fundamental challenge of
convenient and secure user access, reliable application
delivery, or delivery of a consistent user experience across
both wireless and wired networks at local and remote locations.
We address the secure mobility problem using a
user-centric architecture that assigns network access
policies to users instead of to data ports or other
infrastructure. As soon as a user is authenticated by our policy
enforcement firewall, access policies are immediately enforced
for that individual, regardless of whether theyre working
in the office, from home, or on the road. Our security
mechanisms allows unrestricted mobility and a common user
experience whenever, and wherever, the network is accessed.
While this design puts wireless networking on an equal footing
with wired networks with respect to security, it also enhances
mobility and potentially increases user productivity and
operational efficiencies. Within a campus environment these
benefits are typically realized by customers who
rightsize their networking infrastructure by
deploying Wi-Fi wherever it is possible to do so, and wired
Ethernet only where there is no wireless alternative. For users
at branch offices or on the road, user-centric technology
extends the enterprise network wherever it is needed. Leveraging
this capability, our Virtual Branch Networking solution delivers
an
in-the-office
experience to fixed teleworker and branch office users across
town and around the world.
Other key elements of our user-centric architecture include:
|
|
|
|
|
Adaptive wireless Adaptive 802.11a/b/g/n
wireless LANs enhance productivity and collaboration by
delivering high performance wireless data, voice, and video
connections even in environments with densely deployed clients
and high levels of RF interference. Our solutions scale for
campus applications yet remain cost-effective for small branch
deployments. They can be used both indoors and outdoors, and
incorporate secure enterprise mesh for completely wireless
networking.
|
|
|
|
Identity-based security IT departments can
deliver authentication, encryption, and access control services
to all users via a single integrated, low-power appliance. VPN
termination appliances and access control firewalls are not
required, reducing IT overhead and expenses.
|
|
|
|
Application-awareness Our user-centric
network is application-aware it knows what type of
applications are running on the network and will
dynamically adjust itself to improve the performance of data,
voice, and video applications. IT managers can define policies
that prioritize and optimize services based on the specific user
and/or the
application being delivered.
|
|
|
|
Vendor-agnostic operations
management Arubas AirWave Wireless
Management Suite is a multi-vendor network management platform
that provides business-critical insights into the operation of
wireless networks made by more than 15 different vendors.
Whether managing a single vendor network, or a multi-
|
6
|
|
|
|
|
vendor legacy system in transition to 802.11n, the AirWave
platform extends the life of existing infrastructure investments
and lowers IT overhead associated with managing a dynamic
network.
|
|
|
|
|
|
Easy to deploy, easy to use We have
designed our architecture as a non-disruptive overlay to
existing enterprise networks, allowing our networks to be
quickly deployed without replacing existing infrastructure.
Additionally, we have integrated all of the disparate elements
of enterprise mobility security, application,
network and RF management services into a single
architecture, making it easier and less expensive to deploy.
|
|
|
|
Cost-effective scalability We believe
our architecture provides industry-leading scalability through
its ability to support up to 100,000 concurrent users from a
single centralized point of control. In addition, our integrated
solution reduces the amount and type of equipment required to
enable mobility within a given location. As a result, our
architecture enhances management efficiency and reduces
equipment and personnel costs, allowing enterprise IT managers
to scale enterprise mobility solutions in a cost-effective
manner.
|
|
|
|
Flexible platform supports emerging
applications By combining the flexibility of
modular software with high-performance, programmable hardware,
customers can rapidly implement updates, upgrades, and new
features with no or minimal equipment changes.
|
|
|
|
Remote networking Virtual Branch Networking
extends the benefits of centralized management and secure
networking to branch offices, teleworkers, and road warriors.
Simple to deploy, use and maintain and with the
option to use 3G cellular broadband connections
these remote networking solutions extend the enterprise network
virtually anywhere.
|
|
|
|
Network rightsizing Network rightsizing
enables customers to lower operating expenses and reduce their
carbon footprint by bringing their wired and wireless LAN
infrastructure in line with actual user demand. Rightsizing is a
three-step process that involves assessing wired Ethernet LAN
utilization, consolidating edge switches to meet actual usage,
and expanding the wireless LAN to meet growing demand. We
believe that cost savings can result from, among other things,
fewer switch service contracts, lower electricity consumption,
and reduced air conditioning loading. Our Return On Investment
calculators help predict the monetary and carbon savings
opportunities based on company size and network configuration.
|
Our
Strategy
Our goal is to establish our secure mobility solution as the de
facto standard for global education, enterprise, finance,
government, healthcare, hospitality, industrial, and retail
verticals. In pursuit of this quest, we believe that the
following key elements of our strategy will help us maintain our
competitive advantage:
|
|
|
|
|
Drive adoption across the
enterprise Many enterprises initially
deploy our solutions at corporate headquarters or main campus
locations. Our objective is to penetrate remote locations and
gain adoption by mobile users across primary campuses, as well
as in satellite, branch, and home offices. We intend to do so by
emphasizing the productivity enhancements and cost-efficiency of
our approach. Network rightsizing and Virtual Branch Networking
are two pillars of this strategy, helping users to enhance
mobility, obtain a uniform network experience for all users, and
lower both operating and capital expenditures.
|
|
|
|
Maintain and extend our software
offerings We believe that the integrated
encryption, authentication, and network access technology
embedded in the ArubaOS operating system are key competitive
differentiators. We intend to continue enhancing the ArubaOS
operating system and our centralized mobility architecture to
maintain our position as a technology innovator. We also intend
to extend the functionality and performance of the ArubaOS
operating system with additional software modules such as
unified communications,
video-over-IP,
and location-based services. Finally, we intend to continue
enhancing the capabilities of our multi-vendor AirWave Wireless
Management Suite to support additional competitive products and
enhance the underlying features of this market-leading platform.
|
|
|
|
Utilize channel partners to expand our global market
penetration We intend to increase our
market penetration and extend our geographic reach through the
expansion of our network of channel partners. We
|
7
|
|
|
|
|
plan to expand our growing channel footprint and will tailor
training and support programs to help drive this expansion.
|
|
|
|
|
|
Realize increased operating
efficiencies We currently outsource our
hardware manufacturing to overseas contract manufacturers such
as Flextronics Manufacturing Singapore Pte. Ltd.
(Flextronics), Sercomm Corporation
(Sercomm) and Accton Corporation
(Accton) and have established offshore research and
development and customer support capabilities. We plan to
continue to realize increased operating efficiencies by growing
these offshore operations, and by establishing additional
offshore capabilities for certain general and administrative
functions.
|
|
|
|
Expand our base of technology
partners We will continue expanding our
network of technology partners to enhance and complement our
unified mobility solutions with security solutions, management
tools, connectivity devices, and mobility applications.
|
Products
Our secure mobility solutions integrate the ArubaOS operating
system together with adaptive indoor and outdoor Wi-Fi networks,
identity-based security, wired and wireless remote networking
devices, and centralized multi-vendor network management. The
resulting mobility solutions enhance productivity, foster
workplace collaboration, and ensure the continuity of
business-critical processes, regardless of where users work or
roam. Our solutions can be overlaid on top of existing networks
and security solutions, preserving or extending the useful life
of investments in legacy network infrastructure.
ArubaOS
ArubaOS serves as the system software for our architecture. It
uniquely integrates user-based security, application-aware RF
services, and wireless LAN access to deliver the most scalable
secure mobile networking solution for large and mid-sized
enterprises. ArubaOS comes standard with comprehensive
centralized controls, and additional security and mobility
functionality that can be added or unlocked via licensed
software modules.
Software
Modules for ArubaOS
Software modules extend the base capabilities of ArubaOS. Over
time, many licensed software modules have been integrated into
the base ArubaOS. Currently available base and licensed software
modules include, among others:
|
|
|
|
|
Policy enforcement firewall Delivers
user and group policy enforcement. Policies can be centrally
defined and enforced on a per-user or per-group basis, following
users as they move throughout the enterprise network.
|
|
|
|
Wireless intrusion protection Identifies
and protects against malicious attacks on wireless networks, as
well as vulnerabilities caused by unauthorized access points and
client devices.
|
|
|
|
xSec Provides wired and wireless Federal
Information Processing Standard (FIPS)
140-2
validated encryption technology designed for high-security
networks.
|
Mobility
Controllers
Arubas high-performance Mobility Controllers oversee the
operation of our secure mobility solutions. These purpose-built
platforms run ArubaOS and its associated software modules, and
can scale to meet the needs of large multi-national networks
while handling the high-throughput needs of 802.11n wireless
networks. The controllers share a common hardware architecture
that includes a dedicated control processor, a high-performance
programmable network processor unit, and a unique programmable
encryption engine. Mobility Controllers aggregate network
traffic from access points, process it using our software
controls, and deliver it to the network.
Our family of controllers includes multiple models, sized and
priced to support a wide variety of applications from small
offices and retail stores to branch and regional offices to
large campuses and multi-national deployments.
8
Access
Points
Our access points serve as on-ramps that aggregate user traffic
onto the enterprise network and direct this traffic to Mobility
Controllers. In addition to providing network access, our
wireless access points provide security monitoring services for
wireless networks. Wireless access points, available in a wide
range of indoor and outdoor versions, provide connectivity to
clients using 802.11a/b/g/n Wi-Fi, which is supported by a broad
array of consumer and commercial devices.
Virtual
Branching Networking Solutions
Virtual Branch Networking software does for branch connectivity
and security what data center virtualization did for desktop
applications. PC desktop virtualization has resulted in
cost-savings and security benefits that come from the
centralized control and management of business-critical tasks.
These benefits have not accrued to remote site networking
because existing vendors missed the virtualization revolution
and rely on a proliferation of subnets, ports, and VLANs to
manage and control users effectively creating
multiple networks at each site. This design is costly and
complex to deploy and maintain.
Virtual Branch Networking turns the remote networking model on
its head by virtualizing complex services at data center
controllers, thereby simplifying the workload and cost of
connecting remote users. Unlike a standard VPN, the solution is
easily configured, requires no user training, and delivers a
plug-and-play
experience. Low-cost Remote Access Points and Branch Office
Controllers allow remote users to be securely, simply, and
inexpensively connected to the enterprise network.
Arubas cloud-based Content Security Service brings
enterprise-class, real-time content filtering, intrusion
prevention, anti-virus/anti-spam protection, and load balancing
of outbound traffic to distributed enterprises and workforces
without the need for branch office hardware. All traffic is
sifted through a low-latency, real-time cloud-based filter for
compliance with filtering parameters before being passed to its
destination. Non-compliant traffic is blocked and logged.
User-defined thresholds trigger automatic notification alerts,
and a comprehensive reporting feature provides both real-time
and long-term historical reports of policy violations to help
quickly identify trends.
Management
Analytics and Threat Prevention
We offer a comprehensive suite of applications for planning,
monitoring, fault management, real-time troubleshooting,
reporting, RF coverage and location visualization for designing,
maintaining, and securing wireless networks. Our patent-pending
wireless intrusion detection and prevention system features a
two-tier system architecture dual-radio sensors and
a central security server. This powerful wireless security
solution incorporates the Wireless Threat Protection
Framework including user-defined threat
signatures for complete threat detection, attack
prevention, no wireless policy enforcement, and
compliance reporting inside the enterprise. The result is a
wireless network that is secured against intentionally
perpetrated intrusions and unintentional vulnerabilities caused
through misconfigured network equipment.
AirWave
Wireless Management Suite
AirWave Wireless, a division of Aruba Networks, is a leading
provider of specialized tools to centrally manage large,
multi-vendor wireless LAN, mesh, and WiMax networks. The AirWave
suite provides a single, easy-to-use console that gives the
entire IT staff full visibility and control over their wireless
network and its users.
Legacy and new networking equipment often need to run
side-by-side,
in some cases for several years, because of multi-year capital
equipment purchasing cycles and the introduction of new
networking technology like 802.11n. The AirWave platform eases
technology transitions by extending the life of existing capital
investments and enabling multi-vendor solutions to be run from a
common, centralized network management system. Most wireless
vendors offer only proprietary management solutions geared
towards their own products. In contrast, the AirWave suite
manages networks and products from Aruba and more than 15 other
vendors.
In addition to providing
best-in-class
multi-vendor mobility management tools, AirWave software can be
used for remote managed service applications targeted by some of
our service provider partners. The tool suite includes
9
the AirWave Management Platform,
VisualRFtm
Location and Mapping Module,
RAPIDStm
Rogue Detection Module, and AirWave Master Console &
Failover Servers.
AirWave OnDemand is a cloud-based, enterprise-class,
subscription-based network management service, housed at a
secure Aruba data center, that remotely configures, manages,
monitors, and diagnoses wireless LANs. The service uses virtual
instances of the AirWave Wireless Management to enable
subscribers to monitor and change wireless LAN status, generate
compliance reports, locate users and Wi-Fi devices, and diagnose
problems from any Internet connection. Enterprise-class
management capabilities and high security make AirWave OnDemand
suitable for small businesses and distributed enterprises and
institutions that want to lower capital and operating expenses
by eliminating local management servers and software.
Customers
Our products have been sold to over 11,000 end customers
worldwide (excluding end-customers of Alcatel-Lucent) in most
major industries including construction, education, finance,
government, healthcare, hospitality, manufacturing, media,
retail, technology, telecom, transportation, and utilities. Our
products are deployed in a wide range of organizations from
small organizations to large multinational corporations,
including:
|
|
|
|
|
United States
|
|
EMEA
|
|
Asia Pacific and Other
|
|
California State University
|
|
BAA
|
|
Lawson
|
Boston Medical Center
|
|
Norwegian Ministry of Foreign Affairs
|
|
Samsung Medical Center
|
Hess Corporation
|
|
Saudi Aramco
|
|
New South Wales DET
|
Microsoft
|
|
The London Business School
|
|
Santos-Brasil SA
|
Federal Deposit Insurance Corporation
|
|
KPMG Netherlands
|
|
Export-Import Bank of Thailand
|
United States Air Force
|
|
Southampton University Hospitals NHS Trust
|
|
University of Tokyo
|
End user customers purchase our products directly from us and
through our VARs, VADs and original equipment manufacturers
(OEMs). For a description of our revenues based on
our customers geographic locations, see Note 10 of
Notes to Consolidated Financial Statements.
Sales and
Marketing
We sell our products and support directly through our sales
force and indirectly through our VAR, VAD and OEM partners:
|
|
|
|
|
Our sales force We have a sales force in
each of the following regions: the Americas, Europe, Middle East
and Africa (EMEA), Asia Pacific (APAC)
and throughout the rest of the world. Each sales force is
responsible for managing all direct as well as channel business
within its designated geographic territory.
|
|
|
|
VARs, VADs and OEMs Our VARs, VADs and
OEMs market, sell, and deploy our solutions to a broad array of
organizations. Some of these VARs also purchase our solutions
and offer them to their end customers as a managed service.
|
We have continued to grow the use of our channel partners in
each of our theatres of operations. In total, we have brought on
board nearly 300 new channel partners during the past fiscal
year. In August 2010, we signed a multi-year OEM agreement with
Dell, Inc. Dell will sell our wireless networking solutions
under the Dell PowerConnect W-Series.
As part of our continuing efforts to improve operating leverage
through our channel partners we are increasingly relying on our
VARs, channel managers, and inside sales team to manage
smaller-sized deals. This improves our sales productivity and
enables our direct sales teams to focus more on winning large
customers.
Our marketing activities include lead generation, tele-sales,
advertising, website operations, direct marketing, and public
relations, as well as participation at technology conferences
and trade shows.
10
Backlog
In our experience, the actual amount of product backlog at any
particular time is not a meaningful indication of our future
business prospects. We have orders for products that have not
been shipped and for services that have not yet been performed
for various reasons. Because we allow customers to cancel or
change orders with limited advance notice prior to shipment or
performance and because many orders remain in backlog due to
concerns about the credit worthiness of the partner or customer,
we do not consider backlog to be firm and do not believe our
backlog information is a reliable indicator of our ability to
achieve any particular level of revenue or financial performance.
Customer
Service, Support and Training
We offer tiered customer service and support programs that
encompass hardware, software, and access to future software
upgrades on a
when-and-if
available basis. In order to better serve our customers, we have
multiple support centers available to respond 24x7x365. Service
and support for end customers of our VARs, VADs and OEMs are
typically provided by these channel partners, to whom we provide
back-up
support.
Our training department conducts basic and advanced courses
through an on-line training portal and
on-site at
customer locations, third-party regional training facilities,
and our headquarters training facility in Sunnyvale, California.
As part of our training program, we offer certification programs
to demonstrate that participants have successfully completed the
program and passed written and practical exams covering our
products, networking, and wireless technologies.
Research
and Development
Continued investment in research and development is critical to
our business. To this end, we have assembled a team of engineers
with expertise in various fields, including networking, security
and RF. Our research and development efforts are focused in
Sunnyvale, California and Bangalore, India. As part of our
acquisition of Azalea Networks, we gained a third development
center in Beijing, China. We have invested significant time and
financial resources into the development of our unified mobility
solutions and architecture. We will continue to expand our
product offerings and solutions capabilities in the future and
plan to dedicate significant resources to these continued
research and development efforts. Research and development
expenses for fiscal years 2010, 2009, and 2008 are disclosed in
the consolidated statements of operations.
Manufacturing
We outsource the manufacturing of the majority of our hardware
products to contract manufacturers and original design
manufacturers (ODM) partners. These manufacturing
partners help us optimize our operations by lowering costs and
reducing time to market. Our major manufacturing partners are
Flextronics, Sercomm, and Accton. Sercomm and Accton have
headquarters in Taiwan while our products are manufactured at
their facilities in Suzhou and Shenzhen, China, respectively.
Flextronics manufactures our products in Shanghai, China. Our
manufacturing agreement with each partner is structured
similarly. The agreements are automatically renewed each year
for successive one year terms unless we or our manufacturing
partner provides at least 90 days advance written
notice to the other party of an intent not to renew. In
addition, these agreements may be terminated by us or our
manufacturing partners for any reason upon 180 days
advance written notice to the other party.
In addition, we utilize a Flextronics facility in Singapore for
limited production of specialized products and fulfillment
operations for all customer shipments destined for most APAC and
EMEA destinations. We also have a second fulfillment center
located in Sunnyvale, California that is responsible for all
customer shipments destined to locations in the Americas. We
perform rigorous in-house quality control inspection and testing
at both of our fulfillment centers to ensure the reliability and
quality of our hardware components.
We utilize components from many suppliers. Whenever possible, we
strive to have multiple sources for these components to ensure
continuous supply and competitive costs. We work in conjunction
with the extensive supply chain management organizations at all
of our manufacturing partners to select and utilize suppliers
with established delivery and quality track records. We source a
limited number of components that are technically unique and
only
11
available from specific suppliers, but neither we nor our
manufacturing partners have entered into any long-term supply
agreements with these suppliers. Instead, we maintain close,
direct relationships with these suppliers to ensure supply meets
our requirements including, in some cases, entering into license
agreements that allow us to incorporate certain of their
components into our products.
We also incorporate certain generally available software
programs into our architecture pursuant to license agreements
with third parties. We have also entered into license agreements
with Atheros Communications, Inc. (Atheros),
Netlogic Microsystems Corporation (Netlogic) and
Broadcom Corporation (Broadcom), each of which is a
sole supplier of certain components used by our manufacturing
partners, in the production of our products.
Although the contract manufacturing and ODM services required to
manufacture and assemble our products may be readily available
from a number of established manufacturers, it is time consuming
and costly to qualify and implement contract manufacturer
relationships. Therefore, if any of our manufacturing partners,
Atheros, Netlogic, Broadcom or any other sole source supplier
suffers an interruption in its business, or experiences delays,
disruptions or quality control problems in its manufacturing
operations, or we have to change or add additional manufacturing
partners or suppliers of our sole sourced components, our
ability to ship products to our customers would be delayed, and
our business, operating results and financial condition would be
adversely affected.
Competition
The market for secure mobility products is highly competitive
and constantly evolving. We believe that we compete primarily on
the basis of providing a comprehensive solution that enables
mobility, security, and the delivery of converged application
services. We believe other principal competitive factors in our
market include the total cost of ownership, performance of
software and hardware products, ability to deploy easily into
existing networks, interoperability of networks with other
devices, ability to easily scale, ability to provide secure
mobile access to the network, speed of mobile connectivity, and
ability to allow the centralized management of networks.
Our competitive position also depends on our ability to innovate
and adapt to meet the evolving needs of our customers. We
believe we compete favorably in each of these areas.
We expect competition to intensify in the future as other
companies introduce new products in the same markets we serve or
intend to enter. This competition could result in increased
pricing pressure, reduced profit margins, increased sales and
marketing expenses and failure to increase, or the loss of,
market share, any of which could seriously harm our business,
operating results or financial condition. If we do not keep pace
with product and technology advances, there could be a material
adverse effect on our competitive position, revenues and
prospects for growth.
Our primary competitors include Cisco Systems, primarily through
its Wireless Networking Business Unit, Hewlett-Packard, and
Motorola. We also face competition from a number of smaller
companies and new market entrants.
Intellectual
Property
Our success as a company depends critically upon our ability to
protect our core technology and intellectual property. To
accomplish this, we rely on a combination of intellectual
property rights, including patents, trade secrets, copyrights
and trademarks, as well as customary contractual protections.
We have been granted eleven United States patents, and have over
70 provisional and non-provisional patent applications pending
in the United States. We intend to file counterparts for these
patents and patent applications in other jurisdictions around
the world as appropriate.
Our registered trademarks in the United States are AIRWAVE,
ARUBA NETWORKS, ARUBA WIRELESS NETWORKS, ARUBA MOBILITY
MANAGEMENT SYSTEM, FOR WIRELESS THAT WORKS, MOBILE EDGE
ARCHITECTURE, PEOPLE MOVE. NETWORKS MUST FOLLOW, RFPROTECT,
GREEN ISLAND, and ARUBA THE MOBILE EDGE COMPANY. We have filed
international trademark applications for the marks
12
ARUBA NETWORKS, ARUBA THE MOBILE EDGE COMPANY and PEOPLE MOVE.
NETWORKS MUST FOLLOW.
In addition to the foregoing protections, we generally control
access to and use of our proprietary software and other
confidential information through the use of internal and
external controls, including contractual protections with
employees, contractors, customers and partners, and our software
is protected by United States and international copyright laws.
Corporate
Information
We were incorporated in Delaware in February 2002. Our principal
executive offices are located at 1344 Crossman Ave., Sunnyvale,
California
94089-1113,
and our telephone number is
(408) 227-4500.
Our website address is www.arubanetworks.com
Employees
As of July 31, 2010, we had approximately
681 employees in offices in North America, Europe, the
Middle East and the Asia Pacific region, of which 300 were
engaged in sales and marketing, 254 were engaged in research and
development, 66 were engaged in general and administrative
functions, 40 were engaged in customer services and 21 were
engaged in operations. None of our employees are represented by
labor unions, and we consider current employee relations to be
good.
Website
Posting of SEC Filings
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports are available, free of charge, on
our website and can be accessed by clicking on the
Company/Investor Relations tab. Further, a copy of
this annual report on
Form 10-K
is located at the SECs Public Reference Room at
100 F Street, NE, Washington, D.C. 20549.
Information on the operation of the Public Reference Room can be
obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy
and information statements and other information regarding our
filings at www.sec.gov.
Risks
Related to Our Business and Industry
Our
business, operating results and growth rates may be adversely
affected by unfavorable economic and market
conditions.
While we have seen improvements in the overall macroeconomic
environment and our revenues have increased, economic conditions
worldwide have negatively impacted our business in our recent
history. While we believe in the long-term growth prospects of
the WLAN market, the deterioration in overall economic
conditions and, in particular, tightening in the credit markets
and reduced spending by both enterprises and consumers have
significantly impacted various industries on which we rely for
purchasing our products. This has led to reductions in capital
expenditures by end user customers for our products, longer
sales cycles, the deferral or delay of purchase commitments for
our products, increased competition, and the deferral or delay
of reviews by end user customers of their existing
infrastructure that could have otherwise driven demand for our
products. These factors have impacted our operating results and
could create uncertainty for the future. For example, as the
U.S. and global economies weakened, in the second and third
quarters of fiscal 2009, our total revenues decreased
sequentially over the same period. In addition, our business
depends on the overall demand for IT and on the economic health
of our current and prospective customers. We cannot be assured
of the level of IT spending, the deterioration of which could
have a material adverse effect on our results of operations and
growth rates. The purchase of our products or willingness to
replace existing infrastructure in some vertical markets may be
discretionary and may involve a significant commitment of
capital and other resources. Therefore, weak economic
conditions, or a reduction in IT spending would likely adversely
impact our business, operating results and financial condition
in a number of ways, including longer sales cycles, lower prices
for our products and services, and reduced unit sales. In
addition, if interest rates
13
rise or foreign exchange rates weaken for our international
customers, overall demand for our products and services could be
further dampened, and related IT spending may be reduced.
We
compete in new and rapidly evolving markets and have a limited
operating history, which makes it difficult to predict our
future operating results.
We were incorporated in February 2002 and began commercial
shipments of our products in June 2003. As a result of our
limited operating history, it is very difficult to forecast our
future operating results. In addition, we operate in an industry
characterized by rapid technological change. Our prospects
should be considered and evaluated in light of the risks and
uncertainties frequently encountered by companies in rapidly
evolving markets characterized by rapid technological change,
changing customer needs, evolving industry standards and
frequent introductions of new products and services. These risks
and difficulties include challenges in accurate financial
planning as a result of limited historical data and the
uncertainties resulting from having had a relatively limited
time period in which to implement and evaluate our business
strategies as compared to older companies with longer operating
histories.
In addition, our products are designed to be compatible with
industry standards for secure communications over wireless and
wireline networks. As we encounter changing standards, customer
requirements and competitive pressures, we likely will be
required to reposition our product and service offerings and
introduce new products and services. We may not be successful in
doing so in a timely and appropriately responsive manner, or at
all. Our failure to address these risks and difficulties
successfully could materially harm our business and operating
results.
Our
operating results may fluctuate significantly, which makes our
future results difficult to predict and could cause our
operating results to fall below expectations.
Our annual and quarterly operating results have fluctuated in
the past and may fluctuate significantly in the future due to a
variety of factors, many of which are outside of our control.
Furthermore, our product revenues generally reflect orders
shipped in the same quarter they are received, and a substantial
portion of our orders are often received in the last month of
each fiscal quarter, a trend that may continue. As a result, if
we are unable to ship orders received in the last month of each
fiscal quarter, even though we may have business indicators
about customer demand during a quarter, we may experience
revenue shortfalls, and such shortfalls may materially adversely
affect our earnings because we may not be able to adequately and
timely adjust our expense levels.
In addition to other risk factors listed in this Risk
Factors section, factors that may cause our operating
results to fluctuate include:
|
|
|
|
|
the impact of unfavorable worldwide economic and market
conditions, including the restricted credit environment
impacting the credit of our channel partners and end user
customers;
|
|
|
|
our ability to develop and maintain our relationship with our
VARs, VADs, OEMs and other partners;
|
fluctuations in demand, sales cycles and prices
for our products and services;
|
|
|
|
|
reductions in customers budgets for information technology
purchases and delays in their purchasing cycles;
|
|
|
|
the sale of our products in the timeframes we anticipate,
including the number and size of orders in each quarter;
|
|
|
|
our ability to develop, introduce and ship in a timely manner,
new products and product enhancements that meet customer
requirements;
|
|
|
|
our dependence on several large vertical markets, including the
government, healthcare and education vertical markets;
|
the timing of product releases or upgrades by us
or by our competitors;
14
|
|
|
|
|
any significant changes in the competitive dynamics of our
markets, including new entrants, or further consolidation;
|
|
|
|
our ability to control costs, including our operating expenses,
and the costs of the components we purchase;
|
|
|
|
product mix and average selling prices, as well as increased
discounting of products by us and our competitors;
|
the proportion of our products that are sold
through direct versus indirect channels;
|
|
|
|
|
our ability to maintain volume manufacturing pricing from our
contract manufacturers, and our component suppliers;
|
|
|
|
our contract manufacturers and component suppliers ability to
meet our product demand forecasts;
|
|
|
|
the potential need to record incremental inventory reserves for
products that may become obsolete due to our new product
introductions;
|
|
|
|
growth in our headcount and other related costs incurred in our
customer support organization;
|
|
|
|
the timing of revenue recognition in any given quarter as a
result of revenue recognition rules;
|
the regulatory environment for the certification
and sale of our products; and
|
|
|
|
|
seasonal demand for our products, some of which may not be
currently evident due to our revenue growth during fiscal 2010.
|
Our quarterly operating results are difficult to predict even in
the near term. In one or more future quarterly periods, our
operating results may fall below the expectations of securities
analysts and investors. In this event, the trading price of our
common stock could decline significantly.
We
have a history of losses and may not sustain profitability in
the future.
We have a history of losses and only achieved profitability
during our fourth quarter of fiscal year 2010. We experienced
net losses of $34.0 million, $23.4 million, and
$17.1 million for fiscal years 2010, 2009, and 2008,
respectively. As of July 31, 2010 and 2009, our accumulated
deficit was $175.6 million and $141.6 million,
respectively. Expenses associated with the continued development
and expansion of our business, including expenditures to hire
additional personnel relating to sales and marketing and
technology development, could limit our ability to sustain
operating profits. If we fail to increase revenues or manage our
cost structure, we may not sustain profitability in the future.
As a result, our business could be harmed, and our stock price
could decline.
Our
sales cycles can be long and unpredictable, and our sales
efforts require considerable time and expense. As a result, our
sales are difficult to predict and may vary substantially from
quarter to quarter, which may cause our operating results to
fluctuate significantly.
The timing of our revenues is difficult to predict. Our sales
efforts involve educating our customers about the use and
benefits of our products, including the technical capabilities
of our products and the potential cost savings achieved by
organizations that utilize our products. Customers typically
undertake a significant evaluation process, which frequently
involves not only our products but also those of our competitors
and can result in a lengthy sales cycle, which typically ranges
four to nine months in length but can be as long as
18 months. We spend substantial time, effort and money in
our sales efforts without any assurance that our efforts will
produce any sales. Over the last year, we have experienced
longer sales cycles in connection with customers evaluating our
802.11n solution and in light of general economic conditions in
certain verticals. In addition, product purchases are frequently
subject to budget constraints, multiple approvals, and unplanned
administrative, processing and other delays. For example, during
the second quarter of fiscal 2008, we experienced a significant
decrease in revenue in our federal vertical market, which
represents sales to United States governmental entities. We view
the federal vertical as highly dependent on large transactions,
and therefore we could experience fluctuations from period to
period in this vertical. If sales expected from a specific
customer for a particular quarter are not realized in that
quarter or at all, our business, operating results and financial
condition could be materially adversely affected.
15
The
market in which we compete is highly competitive, and
competitive pressures from existing and new companies may have a
material adverse effect on our business, revenues, growth rates
and market share.
The market in which we compete is highly competitive and is
influenced by the following competitive factors:
|
|
|
|
|
comprehensiveness of the solution;
|
|
|
|
performance of software and hardware products;
|
|
|
|
ability to deploy easily into existing networks;
|
|
|
|
interoperability with other devices;
|
|
|
|
scalability of solution;
|
|
|
|
ability to provide secure mobile access to the network;
|
|
|
|
speed of mobile connectivity offering;
|
|
|
|
return on investment;
|
|
|
|
ability to allow centralized management of products; and
|
|
|
|
ability to obtain regulatory and other industry certifications.
|
We expect competition to intensify in the future as other
companies introduce new products in the same markets we serve or
intend to enter and as the market continues to consolidate. This
competition could result in increased pricing pressure, reduced
profit margins, increased sales and marketing expenses and
failure to increase, or the loss of, market share, any of which
would likely seriously harm our business, operating results or
financial condition. If we do not keep pace with product and
technology advances, there could be a material adverse effect on
our competitive position, revenues and prospects for growth.
A number of our current or potential competitors have longer
operating histories, greater name recognition, larger customer
bases and significantly greater financial, technical, sales,
marketing and other resources than we do. Potential customers
may prefer to purchase from their existing suppliers rather than
a new supplier, regardless of product performance or features.
Currently, we compete with a number of large and well
established public companies, including Cisco Systems (primarily
through its Wireless Networking Business Unit), Hewlett-Packard
and Motorola, as well as smaller companies and new market
entrants, any of which could reduce our market share, require us
to lower our prices, or both.
We expect increased competition from other established and
emerging companies if our market continues to develop and
expand. Our channel partners could market products and services
that compete with our products and services. In addition, some
of our competitors have made acquisitions or entered into
partnerships or other strategic relationships with one another
to offer a more comprehensive solution than they individually
had offered. We expect this trend to continue as companies
attempt to strengthen or maintain their market positions in an
evolving industry and as companies enter into partnerships or
are acquired. Many of the companies driving this consolidation
trend have significantly greater financial, technical and other
resources than we do and are better positioned to acquire and
offer complementary products and technologies. The companies
resulting from these possible consolidations may create more
compelling product offerings and be able to offer greater
pricing flexibility, making it more difficult for us to compete
effectively, including on the basis of price, sales and
marketing programs, technology or product functionality.
Continued industry consolidation may adversely impact
customers perceptions of the viability of smaller and even
medium-sized technology companies and, consequently,
customers willingness to purchase from such companies.
These pressures could materially adversely affect our business,
operating results and financial condition.
16
We
sell a majority of our products through VADs, VARs, and OEMs. If
these channel partners on which we rely do not perform their
services adequately or efficiently, or if they exit the industry
or have financial difficulties, there could be a material
adverse effect on our revenues and our cash flow.
Our future success is highly dependent upon establishing and
maintaining successful relationships with a variety of VADs,
VARs, and OEMs, which we refer to as our indirect channel. In
recent quarters, we have dedicated a significant amount of
effort to increase the use of our VADs and VARs in each of our
theatres of operations. The percentage of our total revenues
fulfilled from sales through our indirect channel was 92.4%,
84.6%, and 80.5% for fiscal years 2010, 2009, and 2008
respectively. We expect that over time, indirect channel sales
will continue to constitute a significant majority of our total
revenues. Accordingly, our revenues depend in large part on the
effective performance of our channel partners. Three of our
channel partners accounted for more than 10% of total revenues
for fiscal 2010. The table below represents the percentage of
total revenues from our top channel partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Partner A
|
|
|
17.1
|
%
|
|
|
*
|
|
|
|
*
|
|
Partner B
|
|
|
16.6
|
%
|
|
|
10.1
|
%
|
|
|
*
|
|
Partner C
|
|
|
10.4
|
%
|
|
|
14.5
|
%
|
|
|
11.1
|
%
|
Our agreements with our partners provide that they use
reasonable commercial efforts to sell our products on a
perpetual basis unless the agreement is otherwise terminated by
either party. Our agreement with Alcatel-Lucent contains a
most-favored nations clause, pursuant to which we
agreed to lower the price at which we sell products to
Alcatel-Lucent in the event that we agree to sell the same or
similar products at a lower price to a similar customer on the
same or similar terms and conditions. However, the specific
terms of this most-favored nations clause are narrow
and specific, and we have not to date incurred any obligations
related to this term in the agreement.
Some of our indirect channel partners may have insufficient
financial resources and may not be able to withstand changes in
worldwide business conditions, including economic downturns,
abide by our inventory and credit requirements, or have the
ability to meet their financial obligations to us. As of
July 31, 2010, two of our channel partners individually
accounted for more than 10% of accounts receivable. Partner A
accounted for 31.6% and Partner B accounted for 18.2% of total
accounts receivable. As of July 31, 2009, Partner D
accounted for 23.0% and Partner C accounted for 19.1% of total
accounts receivable. If the indirect channel partners on which
we rely do not perform their services adequately or efficiently,
fail to meet their obligations to us, or if they exit the
industry and we are not able to quickly find adequate
replacements, there could be a material adverse effect on our
revenues, cash flow and market share. By relying on these
indirect channels, we may have less contact with the end users
of our products, thereby making it more difficult for us to
establish brand awareness, ensure proper delivery and
installation of our products, service ongoing customer
requirements and respond to evolving customer needs. In
addition, our indirect channel partners may receive pricing
terms that allow for volume discounts off of list prices for the
products they purchase from us, which reduce our margins to the
extent revenues from such channel partners increase as a
proportion of our overall revenues.
Recruiting and retaining qualified channel partners and training
them in our technology and product offerings requires
significant time and resources. In order to develop and expand
our distribution channel, we must continue to scale and improve
our processes and procedures that support our channel partners,
including investment in systems and training, and those
processes and procedures may become increasingly complex and
difficult to manage. We have no minimum purchase commitments
with any of our VADs, VARs, or OEMs, and our contracts with
these channel partners do not prohibit them from offering
products or services that compete with ours or from terminating
our contract on short notice. Our competitors may be effective
in providing incentives to existing and potential channel
partners to favor their products or to prevent or reduce sales
of our products. Our channel partners may choose not to focus
primarily on the sale of our products or offer our products at
all. Our failure to establish and maintain successful
relationships with indirect channel partners would likely
materially adversely affect our business, operating results and
financial condition.
17
We
depend upon the development of new products and enhancements to
our existing products. If we fail to predict and respond to
emerging technological trends and our customers changing
needs, we may not be able to remain competitive.
We may not be able to anticipate future market needs or be able
to develop new products or product enhancements to meet such
needs. For example, we anticipate a need to continue to increase
the mobility of our solution, and certain customers have
delayed, and may in the future delay, purchases of our products
until either new versions of those products are available or the
customer evaluations are completed. If we fail to develop new
products or product enhancements, our business could be
adversely affected, especially if our competitors are able to
introduce solutions with such increased functionality. In
addition, as new mobile applications are introduced, our success
may depend on our ability to provide a solution that supports
these applications.
We are active in the research and development of new products
and technologies and enhancing our current products. However,
research and development in the enterprise mobility industry is
complex and filled with uncertainty. If we expend a significant
amount of resources on research and development and our efforts
do not lead to the successful introduction of products that are
competitive in the marketplace, there could be a material
adverse effect on our business, operating results, financial
condition and market share. In addition, it is common for
research and development projects to encounter delays due to
unforeseen problems, resulting in low initial volume production,
fewer product features than originally considered desirable and
higher production costs than initially budgeted, which may
result in lost market opportunities. In addition, any new
products or product enhancements that we introduce may not
achieve any significant degree of market acceptance or be
accepted into our sales channel by our channel partners. There
could be a material adverse effect on our business, operating
results, financial condition and market share due to such delays
or deficiencies in the development, manufacturing and delivery
of new products.
Once a product is in the marketplace, its selling price often
decreases over the life of the product, especially after a new
competitive product is publicly announced. To lessen the effect
of price decreases, our product management team attempts to
reduce development and manufacturing costs in order to maintain
or improve our margins. However, if cost reductions do not occur
in a timely manner, there could be a material adverse effect on
our operating results and market share. Further, the
introduction of new products may decrease the demand for older
products currently included in our inventory balances. As a
result, we may need to record incremental inventory reserves for
the older products that we do not expect to sell. This may have
a material adverse effect on our operating results and market
share.
We manufacture our products to comply with standards established
by various standards bodies, including the Institute of
Electrical and Electronics Engineers, Inc. (IEEE).
If we are not able to adapt to new or changing standards that
are ratified by these bodies, our ability to sell our products
may be adversely affected. For example, prior to the
ratification of the 802.11n wireless LAN standard
(11n) by the IEEE in 2009, we had been developing
and were offering for sale products that complied with the draft
standard that the IEEE had not yet ratified. Although the IEEE
ratified the 11n standard and did not modify the draft of the
11n standard, the IEEE could modify the standard in the future.
We remain subject to any changes adopted by various standards
bodies, which would require us to modify our products to comply
with the new standards, require additional time and expense and
could cause a disruption in our ability to market and sell the
affected products.
We may
engage in future acquisitions that could disrupt our business,
cause dilution to our stockholders and harm our business,
operating results and financial condition.
In September 2010, we completed our acquisition of Azalea
Networks. We are currently integrating the acquired Azalea
products into our secure mobility solutions, as well as
providing products and continuing support to existing Azalea
customers and partners. The acquisition of Azalea is our first
significant international acquisition, and, as a result, our
ability as an organization to complete and integrate
international acquisitions is unproven. In the future we may
acquire other businesses, products or technologies. However, we
may not be able to find suitable acquisition candidates, and we
may not be able to complete acquisitions on favorable terms, if
at all. If we do complete acquisitions, we may not ultimately
strengthen our competitive position or achieve our goals. This
acquisition and future acquisitions may be viewed negatively by
customers, financial markets or investors. In
18
addition, this acquisition and any future acquisitions that we
make could lead to difficulties in integrating personnel and
operations from the acquired businesses and in retaining and
motivating key personnel from these businesses. Acquisitions may
disrupt our ongoing operations, divert management from
day-to-day
responsibilities, increase our expenses and adversely impact our
business, operating results and financial condition. Future
acquisitions may reduce our cash available for operations and
other uses and could result in an increase in amortization
expense related to identifiable assets acquired, potentially
dilutive issuances of equity securities or the incurrence of
debt, which could harm our business, operating results and
financial condition.
As a
result of the fact that we outsource the manufacturing of our
products to contract manufacturers, we do not have the ability
to ensure quality control over the manufacturing process.
Furthermore, if there are significant changes in the financial
or business condition of our contract manufacturers, our ability
to supply quality products to our customers may be
disrupted.
As a result of the fact that we outsource the manufacturing of
our products to contract manufacturers, we are subject to the
risk of supplier failure and customer dissatisfaction with the
quality or performance of our products. Quality or performance
failures of our products or changes in the financial or business
condition of our contract manufacturers could disrupt our
ability to supply quality products to our customers and thereby
have a material adverse effect on our business, revenues and
financial condition.
Our orders with our contract manufacturers represent a
relatively small percentage of the overall orders received by
them from their customers. As a result, fulfilling our orders
may not be considered a priority in the event our contract
manufacturers are constrained in their abilities to fulfill all
of their customer obligations in a timely manner. We provide
demand forecasts to our contract manufacturers. If we
overestimate our requirements, our contract manufacturers may
assess charges, or we may have liabilities for excess inventory,
each of which could negatively affect our gross margins.
Conversely, because lead times for required materials and
components vary significantly and depend on factors such as the
specific supplier, contract terms and the demand for each
component at a given time, if we underestimate our requirements,
our contract manufacturers may have inadequate materials and
components required to produce our products. This could result
in an interruption of the manufacturing of our products, delays
in shipments and deferral or loss of revenue. In addition, on
occasion we have underestimated our requirements, and, as a
result, we have been required to pay additional fees to our
contract manufacturers in order for manufacturing to be
completed and shipments to be made on a timely basis.
If any of our contract manufacturers suffer an interruption in
their business, or experiences delays, disruptions or quality
control problems in their manufacturing operations, or we have
to change or add additional contract manufacturers, our ability
to ship products to our customers would be delayed, and our
business, operating results and financial condition would be
adversely affected.
Our
contract manufacturers purchase some components, subassemblies
and products from a single supplier or a limited number of
suppliers, and with respect to some of these suppliers, we have
entered into license agreements that allow us to use their
components in our products. The loss of any of these suppliers
or the termination of any of these license agreements may cause
us to incur additional
set-up
costs, result in delays in manufacturing and delivering our
products, or cause us to carry excess or obsolete
inventory.
Shortages in components that we use in our products are
possible, and our ability to predict the availability of such
components may be limited. While components and supplies are
generally available from a variety of sources, we currently
depend on a limited number of suppliers for several components
for our equipment and certain subassemblies and products. We
rely on our contract manufacturers to obtain the components,
subassemblies and products necessary for the manufacture of our
products, including those components, subassemblies and products
that are only available from a single supplier or a limited
number of suppliers.
For example, our solution incorporates both software products
and hardware products, including a series of high-performance
programmable mobility controllers and a line of wired and
wireless access points. The chipsets that our contract
manufacturers source and incorporate in our hardware products
are currently available only from a limited number of suppliers,
with whom neither we nor our contract manufacturers have entered
into supply
19
agreements. All of our access points incorporate components from
Atheros, and some of our mobility controllers incorporate
components from Broadcom and Netlogic. We have entered into
license agreements with Atheros, Broadcom and Netlogic, the
termination of which could have a material adverse effect on our
business. Our license agreements with Atheros, Broadcom and
Netlogic have perpetual terms in that they will automatically be
renewed for successive one-year periods unless the agreement is
terminated prior to the end of the then-current term. As there
are no other sources for identical components, in the event that
our contract manufacturers are unable to obtain these components
from Atheros, Broadcom or Netlogic, we would be required to
redesign our hardware and software in order to incorporate
components from alternative sources. All of our product revenues
are dependent upon the sale of products that incorporate
components from Atheros, Broadcom or Netlogic.
In addition, for certain components, subassemblies and products
for which there are multiple sources, we are still subject to
potential price increases and limited availability due to market
demand for such components, subassemblies and products. In the
past, unexpected demand for communication products caused
worldwide shortages of certain electronic parts. If such
shortages occur in the future, our business would be adversely
affected. We carry very little to no inventory of our product
components, and we and our contract manufacturers rely on our
suppliers to deliver necessary components in a timely manner. We
and our contract manufacturers rely on purchase orders rather
than long-term contracts with these suppliers. As a result, even
if available, we or our contract manufacturers may not be able
to secure sufficient components at reasonable prices or of
acceptable quality to build products in a timely manner and,
therefore, may not be able to meet customer demands for our
products, which would have a material adverse effect on our
business, operating results and financial condition.
Our
international sales and operations subject us to additional
risks that may adversely affect our operating
results.
We derive a significant portion of our revenues from customers
outside the United States. We have sales and technical support
personnel in numerous countries worldwide. In addition, a
portion of our engineering and order management efforts are
currently handled by personnel located in India, and we expect
to expand our offshore development efforts within India and
possibly in other countries. We expect to continue to add
personnel in additional countries. Our international operations
subject us to a variety of risks, including:
|
|
|
|
|
the difficulty of managing and staffing international offices
and the increased travel, infrastructure and legal compliance
costs associated with multiple international locations;
|
|
|
|
difficulties in enforcing contracts and collecting accounts
receivable, and longer payment cycles, especially in emerging
markets;
|
the need to localize our products for
international customers;
|
|
|
|
|
tariffs and trade barriers, export regulations and other
regulatory or contractual limitations on our ability to sell or
develop our products in certain foreign markets;
|
increased exposure to foreign currency exchange
rate risk;
limited protection for intellectual property
rights in some countries; and
increased cost of terminating international
employees in some countries.
As we continue to expand our business globally, our success will
depend, in large part, on our ability to anticipate and
effectively manage these and other risks associated with our
international operations. Our failure to manage any of these
risks successfully could harm our international operations and
reduce our international sales, adversely affecting our
business, operating results and financial condition.
If we
are unable to protect our intellectual property rights, our
competitive position could be harmed or we could be required to
incur significant expenses to enforce our rights.
We depend on our ability to protect our proprietary technology.
We protect our proprietary information and technology through
licensing agreements, third-party nondisclosure agreements and
other contractual provisions, as well as through patent,
trademark, copyright and trade secret laws in the United States
and similar laws in other
20
countries. There can be no assurance that these protections will
be available in all cases or will be adequate to prevent our
competitors from copying, reverse engineering or otherwise
obtaining and using our technology, proprietary rights or
products. For example, the laws of certain countries in which
our products are manufactured or licensed do not protect our
proprietary rights to the same extent as the laws of the United
States. In addition, third parties may seek to challenge,
invalidate or circumvent our patents, trademarks, copyrights and
trade secrets, or applications for any of the foregoing. There
can be no assurance that our competitors will not independently
develop technologies that are substantially equivalent or
superior to our technology or design around our proprietary
rights. In each case, our ability to compete could be
significantly impaired. To prevent substantial unauthorized use
of our intellectual property rights, it may be necessary to
prosecute actions for infringement
and/or
misappropriation of our proprietary rights against third
parties. Any such action could result in significant costs and
diversion of our resources and managements attention, and
there can be no assurance that we will be successful in such
action. Furthermore, many of our current and potential
competitors have the ability to dedicate substantially greater
resources to enforce their intellectual property rights than we
do. Accordingly, despite our efforts, we may not be able to
prevent third parties from infringing upon or misappropriating
our intellectual property.
Claims
by others that we infringe their proprietary technology could
harm our business.
Third parties have asserted and may in the future assert claims
of infringement of intellectual property rights against us or
against our customers or channel partners for which we may be
liable. For example, in August 2007, Symbol Technologies, Inc.
and Wireless Valley Communications, Inc., both subsidiaries of
Motorola, Inc., filed suit against us asserting infringement of
certain U.S. patents, and, in November 2009, we entered
into a settlement agreement with Motorola, Inc., Symbol
Technologies, Inc. and Wireless Valley Communications, Inc.
(collectively Motorola), pursuant to which we paid
Motorola $19.8 million. Due to the rapid pace of
technological change in our industry, much of our business and
many of our products rely on proprietary technologies of third
parties, and we may not be able to obtain, or continue to
obtain, licenses from such third parties on reasonable terms. As
our business expands and the number of products and competitors
in our market increases and overlaps occur, we expect that
infringement claims may increase in number and significance.
Intellectual property lawsuits are subject to inherent
uncertainties due to the complexity of the technical issues
involved, and we cannot be certain that we will be successful in
defending ourselves against intellectual property claims.
Furthermore, a successful claimant could secure a judgment that
requires us to pay substantial damages or prevents us from
distributing certain products or performing certain services. In
addition, we might be required to seek a license for the use of
such intellectual property, which may not be available on
commercially acceptable terms or at all. Alternatively, we may
be required to develop non-infringing technology, which could
require significant effort and expense and may ultimately not be
successful. Any claims or proceedings against us, whether
meritorious or not, could be time consuming, result in costly
litigation, require significant amounts of management time,
result in the diversion of significant operational resources, or
require us to enter into royalty or licensing agreements.
Impairment
of our goodwill or other assets would negatively affect our
results of operations.
Our acquisition of AirWave Wireless, Inc. resulted in goodwill
of $7.7 million. Together with our purchase of certain
assets of Network Chemistry, Inc., we have purchased intangible
assets of $9.3 million as of July 31, 2010. Goodwill
is reviewed for impairment at least annually or sooner under
certain circumstances. Other intangible assets that are deemed
to have finite useful lives are amortized over their useful
lives but must be reviewed for impairment when events or changes
in circumstances indicate that the carrying amount of these
assets may not be recoverable. Screening for and assessing
whether impairment indicators exist, or if events or changes in
circumstances have occurred, including market conditions,
operating fundamentals, competition and general economic
conditions, requires significant judgment. Therefore, we cannot
assure you that a charge to operations will not occur as a
result of future goodwill and intangible asset impairment tests.
If impairment is deemed to exist, we would write down the
recorded value of these intangible assets to their fair values.
If and when these write-downs do occur, they could harm our
business, financial condition, and results of operations.
21
If we
lose members of our senior management or are unable to recruit
and retain key employees on a cost-effective basis, we may not
be able to successfully grow our business. If we fail to
effectively integrate new officers into our organization, our
business could be harmed.
Our success is substantially dependent upon the performance of
our senior management. All of our executive officers are at-will
employees, and we do not maintain any key-man life insurance
policies. The loss of the services of any members of our
management team may significantly delay or prevent the
achievement of our product development and other business
objectives and could harm our business. Our success also is
substantially dependent upon our ability to attract additional
personnel for all areas of our organization, particularly in our
sales, research and development, and customer service
departments. For example, unless and until we hire a Vice
President of Worldwide Sales, our Chief Executive Officer will
fill this role in addition to his other responsibilities.
Experienced management and technical, sales, marketing and
support personnel in the IT industry are in high demand, and
competition for their talents is intense. We may not be
successful in attracting and retaining such personnel on a
timely basis, on competitive terms, or at all. The loss of, or
the inability to recruit, such employees could have a material
adverse effect on our business.
Our future performance will depend in part on our ability to
successfully integrate any new executive officers into our
management team and develop an effective working relationship
among senior management. If we fail to integrate these
individuals and create effective working relationships among
them and other members of management, our business operating
results and financial condition could be adversely affected.
If we
fail to manage future growth effectively, our business would be
harmed.
We have expanded our operations significantly since inception
and anticipate that further significant expansion will be
required. We intend to increase our market penetration and
extend our geographic reach through our network of channel
partners. We also plan to increase offshore operations by
establishing additional offshore capabilities for certain
engineering functions. This future growth, if it occurs, will
place significant demands on our management, infrastructure and
other resources. To manage any future growth, we will need to
hire, integrate and retain highly skilled and motivated
employees. If we do not effectively manage our growth, our
business, operating results and financial condition could be
adversely affected.
Our
ability to sell our products is highly dependent on the quality
of our support and services offerings, and our failure to offer
high quality support and services would have a material adverse
effect on our sales and results of operations.
Once our products are deployed within our end customers
networks, they depend on our support organization to resolve any
issues relating to our products. A high level of support is
critical for the successful marketing and sale of our products.
If we or our channel partners do not effectively assist our end
customers in deploying our products, succeed in helping our end
customers quickly resolve post-deployment issues, or provide
effective ongoing support, it would adversely affect our ability
to sell our products to existing customers and could harm our
reputation with potential customers. In addition, as we expand
our operations internationally, our support organization will
face additional challenges including those associated with
delivering support, training and documentation in languages
other than English. As a result, our failure, or the failure of
our channel partners, to maintain high quality support and
services would have a material adverse effect on our business,
operating results and financial condition.
Enterprises
are increasingly concerned with the security of their data, and
to the extent they elect to encrypt data between the end user
and the server, our products will become less
effective.
Our products depend on the ability to identify applications. Our
products currently do not identify applications if the data is
encrypted as it passes through our mobility controllers. Since
most organizations currently encrypt most of their data
transmissions only between sites and not on the LAN, the data is
not encrypted when it passes through our mobility controllers.
If more organizations elect to encrypt their data transmissions
from the end user to the server, our products will offer limited
benefits unless we have been successful in incorporating
additional functionality into our products that address those
encrypted transmissions. At the same time, if our products do
not provide the level of network security expected by our
customers, our reputation and brand would be damaged, and
22
we would expect to experience decreased sales. Our failure to
provide such additional functionality and expected level of
network security could adversely affect our business, operating
results and financial condition.
Our
products are highly technical and may contain undetected
hardware errors or software bugs, which could cause harm to our
reputation and adversely affect our business.
Our products are highly technical and complex and, when
deployed, are critical to the operation of many networks. Our
products have contained and may contain undetected errors, bugs
or security vulnerabilities. Some errors in our products may
only be discovered after a product has been installed and used
by customers. Any errors, bugs, defects or security
vulnerabilities discovered in our products after commercial
release could result in loss of revenues or delay in revenue
recognition, loss of customers, damage to our brand and
reputation, and increased service and warranty cost, any of
which could adversely affect our business, operating results and
financial condition. In addition, we could face claims for
product liability, or breach of warranty, including claims
relating to changes to our products made by our channel
partners. Our contracts with customers contain provisions
relating to warranty disclaimers and liability limitations,
which may not be upheld. Defending a lawsuit, regardless of its
merit, is costly and may divert managements attention and
adversely affect the markets perception of us and our
products. In addition, if our business liability insurance
coverage proves inadequate or future coverage is unavailable on
acceptable terms or at all, our business, operating results and
financial condition could be adversely impacted.
Our
use of open source software could impose limitations on our
ability to commercialize our products.
We incorporate open source software into our products. Although
we monitor our use of open source closely, the terms of many
open source licenses have not been interpreted by
U.S. courts, and there is a risk that such licenses could
be construed in a manner that could impose unanticipated
conditions or restrictions on our ability to commercialize our
products. In such event, we could be required to seek licenses
from third parties in order to continue offering our products,
to re-engineer our products or to discontinue the sale of our
products in the event re-engineering cannot be accomplished on a
timely basis, any of which could adversely affect our business,
operating results and financial condition.
We
rely on the availability of third-party licenses.
Many of our products are designed to include software or other
intellectual property licensed from third parties. It may be
necessary in the future to seek or renew licenses relating to
various aspects of these products. There can be no assurance
that the necessary licenses would be available on acceptable
terms, if at all. The inability to obtain certain licenses or
other rights or to obtain such licenses or rights on favorable
terms, or the need to engage in litigation regarding these
matters, could have a material adverse effect on our business,
operating results, and financial condition. Moreover, the
inclusion in our products of software or other intellectual
property licensed from third parties on a nonexclusive basis
could limit our ability to protect our proprietary rights in our
products.
Enterprises
may have slow WAN connections between some of their locations
that may cause our products to become less
effective.
Our mobility controllers and network management software were
initially designed to function at LAN-like speeds in an office
building or campus environment. In order to function
appropriately, our mobility controllers synchronize with each
other over network links. The ability of our products to
synchronize may be limited by slow or congested data-links,
including DSL and
dial-up. Our
failure to provide such additional functionality could adversely
affect our business, operating results and financial condition.
New
safety regulations or changes in existing safety regulations
related to our products may result in unanticipated costs or
liabilities, which could have a material adverse effect on our
business, results of operations and future sales, and could
place additional burdens on the operations of our
business.
Radio emissions are subject to regulation in the United States
and in other countries in which we do business. In the United
States, various federal agencies including the Center for
Devices and Radiological Health of the Food
23
and Drug Administration, the Federal Communications Commission,
the Occupational Safety and Health Administration and various
state agencies have promulgated regulations that concern the use
of radio/electromagnetic emissions standards. Member countries
of the European Union (EU) have enacted similar
standards concerning electrical safety and electromagnetic
compatibility and emissions standards.
If any of our products becomes subject to new regulations or if
any of our products becomes specifically regulated by additional
government entities, compliance with such regulations could
become more burdensome, and there could be a material adverse
effect on our business and our results of operations.
In addition, our wireless communication products operate through
the transmission of radio signals. Currently, operation of these
products in specified frequency bands does not require licensing
by regulatory authorities. Regulatory changes restricting the
use of frequency bands or allocating available frequencies could
become more burdensome and could have a material adverse effect
on our business, results of operations and future sales.
Compliance
with environmental matters and worker health and safety laws
could be costly, and noncompliance with these laws could have a
material adverse effect on our results of operations, expenses
and financial condition.
Some of our operations use substances regulated under various
federal, state, local and international laws governing the
environment and worker health and safety, including those
governing the discharge of pollutants into the ground, air and
water, the management and disposal of hazardous substances and
wastes, and the cleanup of contaminated sites. Some of our
products are subject to various federal, state, local and
international laws governing chemical substances in electronic
products. We could be subject to increased costs, fines, civil
or criminal sanctions, third-party property damage or personal
injury claims if we violate or become liable under environmental
and/or
worker health and safety laws.
We are
subject to governmental export and import controls that could
subject us to liability or impair our ability to compete in
international markets.
Because we incorporate encryption technology into our products,
our products are subject to U.S. export controls and may be
exported outside the United States only with the required level
of export license or through an export license exception. In
addition, various countries regulate the import of certain
encryption technology and radio frequency transmission equipment
and have enacted laws that could limit our ability to distribute
our products or could limit our customers ability to
implement our products in those countries. Changes in our
products or changes in export and import regulations may create
delays in the introduction of our products in international
markets, prevent our customers with international operations
from deploying our products throughout their global systems or,
in some cases, prevent the export or import of our products to
certain countries altogether. Any change in export or import
regulations or related legislation, shift in approach to the
enforcement or scope of existing regulations, or change in the
countries, persons or technologies targeted by such regulations,
could result in decreased use of our products by, or in our
decreased ability to export or sell our products to, existing or
potential customers with international operations.
Our
business is subject to the risks of earthquakes, fire, floods
and other natural catastrophic events, and to interruption by
manmade problems such as computer viruses or
terrorism.
Our corporate headquarters are located in the San Francisco
Bay Area, a region known for seismic activity. A significant
natural disaster, such as an earthquake, fire or a flood,
occurring at our headquarters or in either China or Singapore,
where our major contract manufacturers are located, could have a
material adverse impact on our business, operating results and
financial condition. In addition, our servers are vulnerable to
computer viruses, break-ins and similar disruptions from
unauthorized tampering with our computer systems. In addition,
acts of terrorism could cause disruptions in our or our
customers businesses or the economy as a whole. To the
extent that such disruptions result in delays or cancellations
of customer orders, or the deployment of our products, our
business, operating results and financial condition would be
adversely affected.
24
Risks
Related to Ownership of our Common Stock
Our
stock price may be volatile.
The trading price of our common stock has been and may continue
to be volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our
control. Factors that could affect the trading price of our
common stock could include:
|
|
|
|
|
variations in our operating results;
|
|
|
|
announcements of technological innovations, new products or
product enhancements, strategic alliances or significant
agreements by us or by our competitors;
|
|
|
|
the gain or loss of significant customers;
|
|
|
|
recruitment or departure of key personnel;
|
|
|
|
the impact of unfavorable worldwide economic and market
conditions;
|
|
|
|
falling short of guidance on our financial results;
|
|
|
|
changes in estimates of our operating results or changes in
recommendations by any securities analysts who follow our common
stock;
|
|
|
|
significant sales, or announcement of significant sales, of our
common stock by us or our stockholders; and
|
|
|
|
adoption or modification of regulations, policies, procedures or
programs applicable to our business.
|
In addition, the stock market in general, and the market for
technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. Broad market and industry factors may seriously
affect the market price of our common stock, regardless of our
actual operating performance. In addition, in the past,
following periods of volatility in the overall market and the
market price of a particular companys securities,
securities class action litigation has often been instituted
against these companies. This litigation, if instituted against
us, could result in substantial costs and a diversion of our
managements attention and resources.
If
securities or industry analysts do not publish research or
reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and
trading volume could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who
cover us issue an adverse or misleading opinion regarding our
stock, our stock price would likely decline. If one or more of
these analysts cease coverage of our company or fail to publish
reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
Insiders
have substantial control over us and will be able to influence
corporate matters.
As of July 31, 2010, our directors and executive officers
and their affiliates beneficially owned, in the aggregate,
approximately 25.1% of our outstanding common stock. As a
result, these stockholders will be able to exercise significant
influence over all matters requiring stockholder approval,
including the election of directors and approval of significant
corporate transactions, such as a merger or other sale of our
company or its assets. This concentration of ownership could
limit stockholders ability to influence corporate matters
and may have the effect of delaying or preventing a third party
from acquiring control over us.
We may
choose to raise additional capital. Such capital may not be
available, or may be available on unfavorable terms, which would
adversely affect our ability to operate our
business.
We expect that our existing cash and cash equivalents balances
will be sufficient to meet our working capital and capital
expenditure needs for the foreseeable future. If we choose to
raise additional funds, due to unforeseen circumstances or
material expenditures, we cannot be certain that we will be able
to obtain additional financing on
25
favorable terms, if at all, and any additional financings could
result in additional dilution to our existing stockholders.
Provisions
in our charter documents, Delaware law, employment arrangements
with certain of our executive officers, and our OEM supply
agreement with Alcatel-Lucent could discourage a takeover that
stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing a change of control or
changes in our management. These provisions include but are not
limited to the following:
|
|
|
|
|
our board of directors has the right to elect directors to fill
a vacancy created by the expansion of the board of directors or
the resignation, death or removal of a director, which prevents
stockholders from being able to fill vacancies on our board of
directors;
|
|
|
|
our stockholders may not act by written consent or call special
stockholders meetings; as a result, a holder, or holders,
controlling a majority of our capital stock would not be able to
take certain actions other than at annual stockholders
meetings or special stockholders meetings called by the
board of directors, the chairman of the board, the Chief
Executive Officer or the president;
|
|
|
|
our certificate of incorporation prohibits cumulative voting in
the election of directors, which limits the ability of minority
stockholders to elect director candidates;
|
|
|
|
stockholders must provide advance notice and additional
disclosures in order to nominate individuals for election to the
board of directors or to propose matters that can be acted upon
at a stockholders meeting, which may discourage or deter a
potential acquiror from conducting a solicitation of proxies to
elect the acquirors own slate of directors or otherwise
attempting to obtain control of our company; and
|
|
|
|
our board of directors may issue, without stockholder approval,
shares of undesignated preferred stock; the ability to issue
undesignated preferred stock makes it possible for our board of
directors to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to
acquire us.
|
As a Delaware corporation, we are also subject to certain
Delaware anti-takeover provisions. Under Delaware law, a
corporation may not engage in a business combination with any
holder of 15% or more of its capital stock unless the holder has
held the stock for three years or, among other things, the board
of directors has approved the transaction. Our board of
directors could rely on Delaware law to prevent or delay an
acquisition of us.
Certain of our executive officers may be entitled to accelerated
vesting of their options pursuant to the terms of their
employment arrangements upon a change of control of Aruba. In
addition to the arrangements currently in place with some of our
executive officers, we may enter into similar arrangements in
the future with other officers. Such arrangements could delay or
discourage a potential acquisition of Aruba.
In addition, our OEM supply agreement with Alcatel-Lucent
provides that, in the event of a change of control that would
cause Alcatel-Lucent to purchase our products from an entity
that is an Alcatel-Lucent competitor, we must, without
additional consideration, (1) provide Alcatel-Lucent with
any information required by Alcatel-Lucent to make, test and
support the products that we distribute through our OEM
relationship with Alcatel-Lucent, including all hardware designs
and software source code, and (2) otherwise cooperate with
Alcatel-Lucent to transition the manufacturing, testing and
support of these products to Alcatel-Lucent. We are also
obligated to promptly inform Alcatel-Lucent if and when we
receive an inquiry concerning a bona fide proposal or offer to
effect a change of control and will not enter into negotiations
concerning a change of control without such prior notice to
Alcatel-Lucent. Each of these provisions could delay or result
in a discount to the proceeds our stockholders would otherwise
receive upon a change of control or could discourage a third
party from making a change of control offer.
We
have incurred and will continue to incur significant increased
costs as a result of operating as a public company, and our
management will be required to devote substantial time to new
compliance initiatives.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the Securities and Exchange Commission and the
Nasdaq Stock Market, have imposed various requirements on public
companies, including
26
requiring changes in corporate governance practices. Our
management and other personnel devote a substantial amount of
time to these compliance initiatives. Moreover, these rules and
regulations have increased our legal and financial compliance
costs and will make some activities more time-consuming and
costly. For example, we expect these rules and regulations to
make it more difficult and more expensive for us to obtain
director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur
substantial costs to maintain the same or similar coverage.
These rules and regulations could also make it more difficult
for us to attract and retain qualified persons to serve on our
board of directors, our board committees or as executive
officers.
In addition, the Sarbanes-Oxley Act requires us to furnish a
report by our management on our internal control over financial
reporting. Such report contains, among other matters, an
assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year, including
a statement as to whether or not our internal control over
financial reporting is effective. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by management. While we were
able to assert in this
Form 10-K
that our internal control over financial reporting was effective
as of July 31, 2010, we must continue to monitor and assess
our internal control over financial reporting. If we are unable
to assert in any future reporting period that our internal
control over financial reporting is effective (or if our
independent registered public accounting firm is unable to
express an opinion on the effectiveness of our internal
controls), we could lose investor confidence in the accuracy and
completeness of our financial reports, which would have an
adverse effect on our stock price.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
We have approximately 152,000 square feet of office space
in Sunnyvale, California pursuant to three leases that expire in
July 2016. We also lease approximately 43,500 square feet
of warehouse space in Sunnyvale, California pursuant to a lease
that expires in September 2010. We also maintain customer
service centers, sales offices and research and development
facilities in multiple locations worldwide. See Note 11 of
our Notes to Consolidated Financial Statements for information
regarding our lease obligations.
We believe that our current facilities are suitable and adequate
to meet our current needs.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we are involved in claims and legal
proceedings that arise in the ordinary course of business. We
expect that the number and significance of these matters will
increase as our business expands. Any claims or proceedings
against us, whether meritorious or not, could be time consuming,
result in costly litigation, require significant amounts of
management time, result in the diversion of significant
operational resources, or require us to enter into royalty or
licensing agreements which, if required, may not be available on
terms favorable to us or at all. If management believes that a
loss arising from these matters is probable and can be
reasonably estimated, we record the amount of the loss. As
additional information becomes available, any potential
liability related to these matters is assessed and the estimates
revised. Based on currently available information, management
does not believe that the ultimate outcomes of these unresolved
matters, individually and in the aggregate, are likely to have a
material adverse effect on our financial position, liquidity or
results of operations. However, litigation is subject to
inherent uncertainties, and our view of these matters may change
in the future. Were an unfavorable outcome to occur, there
exists the possibility of a material adverse impact on our
financial position and results of operations or liquidity for
the period in which the unfavorable outcome occurs or becomes
probable, and potentially in future periods.
27
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER REPURCHASES OF EQUITY SECURITIES
|
Our common stock has been listed on the Nasdaq Global Market
under the symbol ARUN since our initial public
offering in March 2007. The following table sets forth, for the
periods indicated, the high and low
intra-day
sales prices for our common stock as reported on the Nasdaq
Global Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.55
|
|
|
$
|
2.73
|
|
Second Quarter
|
|
$
|
3.15
|
|
|
$
|
1.95
|
|
Third Quarter
|
|
$
|
4.71
|
|
|
$
|
2.60
|
|
Fourth Quarter
|
|
$
|
9.11
|
|
|
$
|
4.39
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.48
|
|
|
$
|
7.75
|
|
Second Quarter
|
|
$
|
11.59
|
|
|
$
|
7.59
|
|
Third Quarter
|
|
$
|
13.89
|
|
|
$
|
9.92
|
|
Fourth Quarter
|
|
$
|
18.18
|
|
|
$
|
10.80
|
|
As of September 23, 2010, the number of stockholders of
record of our common stock was 355.
The equity compensation plan information required by this item,
which includes a summary of the number of outstanding options
granted to employees and directors, as well as the number of
securities remaining available for future issuances, under our
compensation plans as of July 31, 2010, is incorporated by
reference to our Proxy Statement for our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of the fiscal year ended July 31, 2010.
28
The following graph compares, for the period between
March 20, 2007 (the date of our initial public offering)
and July 31, 2010, the cumulative total stockholder return
for our common stock, the Nasdaq Composite Index and the Nasdaq
Computer Index. The graph assumes that $100 was invested on
March 27, 2007 in our common stock, the Nasdaq Composite
Index and the Nasdaq Computer Index and assumes reinvestment of
any dividends. The stock price performance on the following
graph is not necessarily indicative of future stock price
performance. This performance graph shall not be deemed
filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), or incorporated by reference into any of our filings
under the Securities Act of 1933, as amended, or the Exchange
Act, except as shall be expressly set forth by specific
reference in such filing.
COMPARISON
OF 40 MONTH CUMULATIVE TOTAL RETURN*
Among Aruba Networks Inc, The NASDAQ Composite Index
And The NASDAQ Computer Index
|
|
|
(*) |
|
$100 invested on 3/27/07 in stock or 2/28/07 in index, including
reinvestment of dividends.
Fiscal year ending July 31. |
Dividend
Policy
We have never declared or paid any cash dividend on our capital
stock. We currently intend to retain any future earnings and do
not expect to pay any dividends in the foreseeable future.
Repurchases
of Equity Securities by the Issuer and Affiliated
Purchasers
There were no repurchases of equity securities by us during the
fourth quarter of fiscal 2010.
29
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
You should read the following selected consolidated historical
financial data below in conjunction with the section titled
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements, related notes and schedule, and other
financial information included in this
Form 10-K.
The selected consolidated financial data in this section is not
intended to replace the consolidated financial statements and is
qualified in its entirety by the consolidated financial
statements and related notes and schedule included in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
221,474
|
|
|
$
|
161,927
|
|
|
$
|
148,550
|
|
|
$
|
107,939
|
|
|
$
|
43,171
|
|
Professional services and support
|
|
|
44,323
|
|
|
|
35,946
|
|
|
|
26,244
|
|
|
|
12,847
|
|
|
|
2,985
|
|
Ratable product and related professional services and support
|
|
|
737
|
|
|
|
1,386
|
|
|
|
3,466
|
|
|
|
6,713
|
|
|
|
26,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
266,534
|
|
|
|
199,259
|
|
|
|
178,260
|
|
|
|
127,499
|
|
|
|
72,503
|
|
Cost of revenues(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
77,070
|
|
|
|
59,917
|
|
|
|
48,126
|
|
|
|
36,035
|
|
|
|
16,904
|
|
Professional services and support
|
|
|
8,775
|
|
|
|
7,437
|
|
|
|
7,761
|
|
|
|
4,863
|
|
|
|
2,409
|
|
Ratable product and related professional services and support
|
|
|
229
|
|
|
|
483
|
|
|
|
1,228
|
|
|
|
2,470
|
|
|
|
10,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
86,074
|
|
|
|
67,837
|
|
|
|
57,115
|
|
|
|
43,368
|
|
|
|
29,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
180,460
|
|
|
|
131,422
|
|
|
|
121,145
|
|
|
|
84,131
|
|
|
|
42,618
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
51,619
|
|
|
|
40,293
|
|
|
|
37,393
|
|
|
|
25,654
|
|
|
|
14,130
|
|
Sales and marketing(1)
|
|
|
109,393
|
|
|
|
90,241
|
|
|
|
86,008
|
|
|
|
60,115
|
|
|
|
33,765
|
|
General and administrative(1)
|
|
|
30,953
|
|
|
|
23,198
|
|
|
|
17,740
|
|
|
|
14,600
|
|
|
|
5,963
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
Acquisition related severance expense
|
|
|
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
|
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation reserves
|
|
|
21,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
213,865
|
|
|
|
155,179
|
|
|
|
141,338
|
|
|
|
101,001
|
|
|
|
53,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(33,405
|
)
|
|
|
(23,757
|
)
|
|
|
(20,193
|
)
|
|
|
(16,870
|
)
|
|
|
(11,240
|
)
|
Other income (expense), net
|
|
|
135
|
|
|
|
1,132
|
|
|
|
4,036
|
|
|
|
(7,137
|
)
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes and cumulative effect of
change in accounting principle
|
|
|
(33,270
|
)
|
|
|
(22,625
|
)
|
|
|
(16,157
|
)
|
|
|
(24,007
|
)
|
|
|
(11,769
|
)
|
Provision for income taxes
|
|
|
728
|
|
|
|
788
|
|
|
|
967
|
|
|
|
375
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(33,998
|
)
|
|
|
(23,413
|
)
|
|
|
(17,124
|
)
|
|
|
(24,382
|
)
|
|
|
(12,075
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,998
|
)
|
|
$
|
(23,413
|
)
|
|
$
|
(17,124
|
)
|
|
$
|
(24,382
|
)
|
|
$
|
(12,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share; basic and diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(1.07
|
)
|
Shares used in computing basic and diluted net loss per common
share, basic and diluted
|
|
|
89,978
|
|
|
|
84,612
|
|
|
|
79,467
|
|
|
|
34,808
|
|
|
|
11,211
|
|
30
|
|
|
(1) |
|
Includes stock-based compensation as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007(2)
|
|
2006
|
|
|
(In thousands)
|
|
Cost of revenues
|
|
$
|
1,397
|
|
|
$
|
1,018
|
|
|
$
|
704
|
|
|
$
|
327
|
|
|
$
|
34
|
|
Research and development
|
|
|
10,716
|
|
|
|
7,577
|
|
|
|
6,200
|
|
|
|
2,925
|
|
|
|
259
|
|
Sales and marketing
|
|
|
14,205
|
|
|
|
10,520
|
|
|
|
8,953
|
|
|
|
4,362
|
|
|
|
749
|
|
General and administrative
|
|
$
|
9,763
|
|
|
$
|
5,464
|
|
|
$
|
3,421
|
|
|
$
|
5,103
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Beginning on August 1, 2006, we adopted the GAAP guidance
for accounting for stock-based compensation which requires the
measurement and recognition of compensation expense based on
estimated fair values for all share-based payment awards made to
employees and directors. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,254
|
|
|
$
|
41,298
|
|
|
$
|
37,602
|
|
|
$
|
42,570
|
|
|
$
|
9,263
|
|
Short-term investments
|
|
|
124,167
|
|
|
|
81,839
|
|
|
|
64,130
|
|
|
|
62,430
|
|
|
|
|
|
Working capital (deficit)
|
|
|
133,927
|
|
|
|
115,639
|
|
|
|
103,097
|
|
|
|
109,496
|
|
|
|
(10,472
|
)
|
Total assets
|
|
|
250,707
|
|
|
|
203,054
|
|
|
|
188,801
|
|
|
|
152,133
|
|
|
|
38,017
|
|
Equipment loans payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613
|
|
Deposit for Series D redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,329
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,009
|
|
Common stock and additional
paid-in-capital
|
|
|
326,187
|
|
|
|
279,035
|
|
|
|
249,139
|
|
|
|
213,553
|
|
|
|
6,077
|
|
Total stockholders equity (deficit)
|
|
$
|
150,655
|
|
|
$
|
137,585
|
|
|
$
|
130,875
|
|
|
$
|
112,487
|
|
|
$
|
(73,000
|
)
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis of our financial condition
and results of operations should be read together with our
Consolidated Financial Statements and related notes included
elsewhere in this report.
Overview
We are a global leader in distributed enterprise networks that
securely connect local and remote users to corporate IT
resources. Our award-winning portfolio of campus, branch office,
teleworker, and mobile solutions simplify operations and provide
secure access to all corporate applications and
services regardless of a users device,
location, or network. The result is improved productivity and
lower capital and operating costs.
Our product portfolio encompasses: industry-leading high-speed
802.11a/b/g/n WLANs; Virtual Branching Networking solutions for
branch offices and teleworkers; and network operations tools -
including spectrum analyzers, wireless intrusion prevention
systems, and the AirWave Wireless Management Suite
for managing wired, wireless, and mobile device networks. These
products are key to our rightsizing initiative which allows
companies to move toward a low-cost IT infrastructure solution
by funding wireless projects rather than wired LANs.
Our products have been sold to over 11,000 end customers
worldwide (not including customers of Alcatel-Lucent), including
some of the largest and most complex global organizations. We
have implemented a two-tier distribution model in most areas of
the world, including the United States, with VADs selling our
portfolio of
31
products, including a variety of our support services, to a
diverse number of VARs. Our focus continues to be management of
our channel including selection and growth of high prospect
partners, activation of our VARs and VADs through active
training and field collaboration, and evolution of our channel
programs in consultation with our partners.
Our ability to increase our product revenues will depend
significantly on continued growth in the market for enterprise
mobility and remote networking solutions, continued acceptance
of our products in the marketplace, our ability to continue to
attract new customers, our ability to compete, the willingness
of customers to displace wired networks with wireless LANs, in
particular, wireless LANs that utilize our 802.11n solution, and
our ability to continue to sell into our installed base of
existing customers. Our growth in support revenues is dependent
upon increasing the number of products under support contracts,
which is dependent on both growing our installed base of
customers and renewing existing support contracts. Our future
profitability and rate of growth, if any, will be directly
affected by the continued acceptance of our products in the
marketplace, as well as the timing and size of orders, product
and channel mix, average selling prices, costs of our products
and general economic conditions. Our future profitability will
also be affected by our ability to effectively implement and
generate incremental business from our two-tier distribution
model, the extent to which we invest in our sales and marketing,
research and development, and general and administrative
resources to grow our business, and current economic conditions.
While we began to see improvements in the overall macroeconomic
environment, and our revenues have increased during fiscal 2010,
economic conditions worldwide have negatively impacted our
business in our recent history. While we believe in the
long-term growth prospects of the WLAN market, the deterioration
in overall economic conditions and in particular, tightening in
the credit markets and reduced spending by both enterprises and
consumers have significantly impacted various industries on
which we rely for purchasing our products. This has led to our
customers deferring purchases in response to tighter credit,
negative financial news and delayed budget approvals. These
factors could create significant and increasing uncertainty for
the future as they could continue to negatively impact
technology spending for the products and services we offer and
materially adversely affect our business, operating results and
financial condition.
The revenue growth that we have experienced has been driven
primarily by an expansion of our customer base coupled with
increased purchases from existing customers. We believe the
growth we have experienced is the result of business enterprises
needing to provide secure mobility to their users in a manner
that we believe is more cost effective than the traditional
approach of using port-centric networks. While we have
experienced both longer sales cycles and seasonality, both of
which have slowed our revenue growth, we believe that our
product offerings, in particular our products that incorporate
802.11n wireless LAN standard technologies, will enable broader
networking initiatives by both our current and potential
customers.
Each quarter, our ability to meet our product revenue
expectations is dependent upon (1) new orders received,
shipped, and recognized in a given quarter, (2) the amount
of orders booked but not shipped in the prior quarter that are
shipped in the current quarter, and (3) the amount of
deferred revenue entering a given quarter. Our product deferred
revenue is comprised of:
|
|
|
|
|
product orders that have shipped but where the terms of the
agreement, typically with our large customers, contain
acceptance terms and conditions or other terms that require that
the revenue be deferred until all revenue recognition criteria
are met;
|
|
|
|
product orders shipped to our VADs for which we have not yet
received persuasive evidence from the VADs of a sale to an end
customer; and
|
|
|
|
customer contracts that we entered into prior to our
establishment of VSOE of fair value.
|
We typically ship products within a reasonable time period after
the receipt of an order.
Our ability to meet our forecasted revenue is dependent on our
ability to convert our sales pipeline into product revenues from
orders received and shipped within the same fiscal quarter, as
well as the amount of revenue that we recognize for our products
from our deferred revenue.
On May 7, 2010, we entered into a definitive agreement to
purchase Azalea Networks. The acquisition subsequently closed on
September 2, 2010. In connection with the closing, we will
be issuing common stock for an
32
aggregate value of approximately $27.0 million subject to
certain adjustments and contingent rights associated with such
shares of up to $13.5 million in cash, payable if at all,
over two years. Based on our evaluation of the Azalea Network
financial statements, we have determined that the acquisition
does not meet the conditions needed to file separate financial
statements and related pro forma financial statements for the
acquisition.
Revenues,
Cost of Revenues and Operating Expenses
Revenues
We derive our revenues from sales of our ArubaOS operating
system, controllers, wired and wireless access points,
application software modules, multi-vendor management solution
software, and professional services and support. Professional
services revenues consist of consulting and training services.
Consulting services primarily consist of installation support
services. Training services are instructor led courses on the
use of our products. Support services typically consist of
software updates, on a
when-and-if
available basis, telephone and internet access to technical
support personnel and hardware support. We provide customers
with rights to unspecified software product upgrades and to
maintenance releases and patches released during the term of the
support period.
We sell our products directly through our sales force and
indirectly through VADs, VARs, and OEMs. We expect revenues from
indirect channels to continue to constitute a significant
majority of our future revenues.
We sell our products to channel partners and end customers
located in the Americas, Europe, the Middle East, Africa and
Asia Pacific. Shipments to our channel partners that are located
in the United States are classified as U.S. revenue
regardless of the location of the end customer. We continue to
expand into international locations and introduce our products
in new markets, and we expect international revenues to increase
in absolute dollars and increase as a percentage of total
revenues in future periods compared to fiscal 2010. For more
information about our international revenues, see Note 10
of Notes to Consolidated Financial Statements.
Cost
of Revenues
Cost of product revenues consists primarily of manufacturing
costs for our products, shipping and logistics costs, and
expenses for inventory obsolescence and warranty obligations. We
utilize third parties to manufacture our products and perform
shipping logistics. We have outsourced the substantial majority
of our manufacturing, repair and supply chain operations.
Accordingly, the substantial majority of our cost of revenues
consists of payments to our contract manufacturers. Our
contractor manufacturers produce our products in China and
Singapore using quality assurance programs and standards that we
jointly established. Manufacturing, engineering and
documentation controls are conducted at our facilities in
Sunnyvale, California and Bangalore, India. Cost of product
revenues also includes amortization expense from our purchased
intangible assets.
Cost of professional services and support revenues is primarily
comprised of the personnel costs, including stock-based
compensation, of providing technical support, including
personnel costs associated with our internal support
organization. In addition, we employ a third-party support
vendor to complement our internal support resources, the costs
of which are included within costs of professional services and
support revenues.
Gross
Margin
Our gross margin has been, and will continue to be, affected by
a variety of factors, including:
|
|
|
|
|
the proportion of our products that are sold through direct
versus indirect channels;
|
|
|
|
product mix and average selling prices;
|
|
|
|
new product introductions, such as our new value-priced, high
performance 802.11n access point, and enhancements both by us
and by our competitors;
|
|
|
|
pressure to discount our products in response to our
competitors discounting practices;
|
|
|
|
demand for our products and services;
|
33
|
|
|
|
|
our ability to attain volume manufacturing pricing from our
contract manufacturers and our component suppliers;
|
|
|
|
losses associated with excess and obsolete inventory;
|
|
|
|
growth in our headcount and other related costs incurred in our
customer support organization;
|
|
|
|
costs associated with manufacturing overhead; and
|
|
|
|
amortization expense from our purchased intangible assets.
|
Due to higher net effective discounts for products sold through
our indirect channel, our overall gross margins for indirect
channel sales are typically lower than those associated with
direct sales. We expect product revenues from our indirect
channel to continue to constitute a significant majority of our
total revenues, which, by itself, negatively impacts our gross
margins. Further, we expect that within our indirect channel,
sales through our VADs will grow which will negatively impact
our gross margins as VADs experience a larger net effective
discount than our other channel partners.
Operating
Expenses
Operating expenses consist of research and development, sales
and marketing, and general and administrative expenses. The
largest component of our operating expenses is personnel costs.
Personnel costs consist of salaries, benefits and incentive
compensation for our employees, including commissions for sales
personnel and stock-based compensation for all employees.
Our headcount increased to 681 at July 31, 2010, from 635
at April 30, 2010, 598 at January 31, 2010, 560 at
October 31, 2009 and 545 at July 31, 2009. Going
forward, we expect to continue to hire employees throughout the
company as well as invest in research and development.
Research and development expenses primarily consist of personnel
costs and facilities costs. We expense research and development
expenses as incurred. We are devoting substantial resources to
the continued development of additional functionality for
existing products and the development of new products. We intend
to continue to invest significantly in our research and
development efforts because we believe it is essential to
maintaining our competitive position. For fiscal 2011, we expect
research and development expenses to increase on an absolute
dollar basis and remain consistent or decrease as a percentage
of revenue compared to fiscal 2010.
Sales and marketing expenses represent the largest component of
our operating expenses and primarily consist of personnel costs,
sales commissions, marketing programs and facilities costs.
Marketing programs are intended to generate revenue from new and
existing customers and are expensed as incurred.
We plan to continue to invest strategically in sales and
marketing with the intent to add new customers and increase
penetration within our existing customer base, expand our
domestic and international sales and marketing activities, build
brand awareness and sponsor additional marketing events. We
expect future sales and marketing expenses to continue to be our
most significant operating expense. Generally, sales personnel
are not immediately productive, and thus, the increase in sales
and marketing expenses that we experience as we hire additional
sales personnel is not expected to immediately result in
increased revenues and reduces our operating margins until such
sales personnel become productive and generate revenue.
Accordingly, the timing of sales personnel hiring and the rate
at which they become productive will affect our future
performance. For fiscal 2011, we expect sales and marketing
expenses to increase on an absolute dollar basis and decrease as
a percentage of revenue compared to fiscal 2010.
General and administrative expenses primarily consist of
personnel and facilities costs related to our executive,
finance, human resource, information technology and legal
organizations, as well as insurance, investor relations, and IT
infrastructure costs related to our ERP system. Further, our
general and administrative expenses include professional
services consisting of outside legal, audit, Sarbanes-Oxley and
information technology consulting costs. We have incurred in the
past, and continue to incur, significant legal costs defending
ourselves against claims made by third parties. These expenses
are expected to continue as part of our ongoing operations and
depending on the timing and outcome of lawsuits and the legal
process, can have a significant impact on our financial
statements.
34
For fiscal 2011, we expect general and administrative expenses
to increase or remain consistent on an absolute dollar basis and
decrease as a percentage of revenue compared to fiscal 2010.
Stock-Based
Compensation
We recognized $36.1 million, $24.6 million, and
$19.3 million, of stock-based compensation for fiscal years
2010, 2009, and 2008, respectively.
Other
Income (Expense), net
Other income (expense), net includes interest income on cash
balances, accretion of discount or amortization of premium on
short-term investments, interest expense, and losses or gains on
remeasurement of
non-U.S. dollar
transactions into U.S. dollars. Cash has historically been
invested in money market funds and marketable securities. During
fiscal 2008, other income (expense), net also included
adjustments to record our outstanding preferred stock warrants
to fair value. Subsequent to our initial public offering
(IPO) in March 2007, we are no longer required to
remeasure these warrants to fair value.
Critical
Accounting Policies
Our consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles
(GAAP). These accounting principles require us to
make estimates and judgments that affect the reported amounts of
assets and liabilities as of the date of the consolidated
financial statements, as well as the reported amounts of
revenues and expenses during the periods presented. We believe
that the estimates and judgments upon which we rely are
reasonable based upon information available to us at the time
that these estimates and judgments are made. To the extent there
are material differences between these estimates and actual
results, our consolidated financial statements will be affected.
The accounting policies that reflect our more significant
estimates and judgments and which we believe are the most
critical to aid in fully understanding and evaluating our
reported financial results include revenue recognition,
stock-based compensation, inventory valuation, allowances for
doubtful accounts, income taxes, and goodwill and purchased
intangible assets.
Revenue
Recognition and Sales Returns
Our revenues are derived primarily from two sources:
(1) product revenue, including hardware and software
products, and (2) related professional services and support
revenue, net of estimated sales returns and earned reseller
rebates. Support typically includes software updates, on a
when-and-if
available basis, telephone and internet access to technical
support personnel and hardware support. We provide our customers
with rights to unspecified software product upgrades and to
maintenance releases and patches released during the term of the
support period. Revenues for support services are recognized on
a straight-line basis over the service contract term, which is
typically between one year and five years.
We account for revenues as multiple elements because our
products are integrated with software that is essential to their
functionality and because we provide unspecified software
upgrades and enhancements related to the equipment through
support agreements. Our product sales may also include support,
training
and/or
consulting services. When a sale involves multiple elements, we
allocate the entire fee from the arrangement to each respective
element based on its VSOE of fair value and recognize revenue
when each elements revenue recognition criteria are met.
VSOE of fair value for each element is established based on the
sales price we charge when the same element is sold separately.
If VSOE of fair value cannot be established for the undelivered
element of an agreement, when the undelivered element is
support, the entire amount of revenue from the arrangement is
deferred and recognized ratably over the period that the support
is delivered. Prior to the second quarter of fiscal 2006, we had
not been able to establish VSOE of fair value at the outset of
our arrangements. Accordingly, prior to the second quarter of
2006, we recognized revenue for the entire transaction ratably
over the support period, as the only undelivered element was
typically support.
Beginning in the second quarter of fiscal 2006, we were able to
establish VSOE of fair value at the outset of our arrangements
as we established a new support and services pricing policy,
with different services and support offerings than were
previously sold. We also began selling support services
separately from our arrangements in the
35
form of support renewals. Accordingly, beginning in the second
quarter of fiscal 2006, we began recognizing product revenues
upon delivery using the residual method for transactions where
all other revenue recognition criteria were met. As we had not
been able to establish VSOE on our prior services and support
offerings, all transactions prior to the second quarter of
fiscal 2006 continue to be recognized ratably over the support
period. We record these revenues in the Consolidated Statements
of Operations as ratable product and related professional
services and support.
We recognize revenue only when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is probable. Additionally, we
recognize revenue from indirect channel partners upon persuasive
evidence provided by our channel partners of a sale to an end
customer. If a sale to an end customer has not occurred by the
end of the month in which we ship our products to the channel
partner, the revenue is deferred and the products that remain in
the partners inventory pending a sale to an end customer
are classified on the consolidated balance sheet as deferred
costs until the sale to an end customer occurs and the channel
partner provides persuasive evidence of the sale. The amount of
inventory held by resellers pending a sale to an end customer
was $3.7 million and $0.4 million as of July 31,
2010 and 2009, respectively.
The related sale of support services to a reseller occurs when a
specific sale to an end customer occurs. If the sale of support
services occurs at the same time as we receive the initial
purchase order from the reseller, the support services are
included on that purchase order and recognized ratably over the
related support period, commencing on the date of delivery to
the end customer. If the sale of support services occurs after
we receive the initial purchase order, the support services for
the specific product sales are purchased on a subsequent
purchase order. The subsequent purchase order is received at the
time the
point-of-sale
(POS) report is provided for all product sales that
occurred during the month. The support services are recognized
ratably over the related support period, commencing from the
delivery date to each respective end customer.
Post-contractual support (PCS) services that we
provide to our channel partners differ from PCS that we provide
to our end customers in that we are only obligated to provide
support services to the channel partner directly, while the
channel partner is obligated to provide support services
directly to the end customer. The channel partner is obligated
to provide Level 1 and Level 2 support services to the
end customer, including technical support and RMA fulfillment,
while our obligations are only to provide software upgrades and
Level 3 technical support in the unusual scenario in which
the channel partner is unable to provide the technical support
that the end customer requires.
We record estimated sales returns as a reduction to revenues
upon shipment based on our contractual obligations and
historical returns experience. In cases where we are aware of
circumstances that will likely result in a specific
customers request to return purchased equipment, we record
a specific sales returns reserve.
Stock-Based
Compensation
We measure and recognize compensation expense for all
share-based payment awards made to employees and directors based
on estimated fair values. Our share-based payment awards include
stock options, restricted stock units and awards, employee stock
purchase plan awards and performance-based awards, which require
an assessment of the probability of vesting. We calculate the
fair value of restricted stock based on the fair market value on
the date of grant. We calculate the fair value of stock options
and employee stock purchase plans on the date of grant using the
Black-Scholes option-pricing method. This methodology requires
the use of subjective assumptions, including expected stock
price volatility over the term of the awards, actual and
projected employee stock option exercise behaviors, risk-free
interest rates and expected dividends. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period. We
determine the amount of stock-based compensation expense based
on awards that we ultimately expect to vest, reduced for
estimated forfeitures. In addition, compensation expense
includes the effects of awards modified, repurchased or
cancelled.
Goodwill
and Intangibles
We perform an annual goodwill impairment test. For purposes of
impairment testing, we have determined that we have only one
reporting unit. The identification and measurement of goodwill
impairment involves the estimation of the fair value of the
Company. These estimates of fair value are based on the best
information available
36
as of the date of the assessment, which primarily includes our
market capitalization. As of the date of the assessment, our
market capitalization was substantially in excess of our
carrying value. As a result, we did not recognize impairment
charges in any of the periods presented.
Purchased intangible assets with finite lives are amortized
using the straight-line method over the estimated economic lives
of the assets, which range from two to seven years. Amortization
expense is recorded in the Consolidated Statements of Operations
in cost of revenues and sales and marketing expenses. Long-lived
assets, including intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Some
factors we consider important which could trigger an impairment
review include the following:
|
|
|
|
|
significant underperformance relative to estimated results;
|
|
|
|
significant changes in the manner of our use of the acquired
assets or the strategy for our overall business; and
|
|
|
|
significant negative industry or economic trends.
|
Determination of recoverability of purchased intangible assets
is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual
disposition. Measurement of an impairment loss is based on the
fair value of the asset. We did not recognize impairment charges
in any of the periods presented.
Screening for and assessing whether impairment indicators exist
or if events or changes in circumstances have occurred,
including market conditions, operating fundamentals, competition
and general economic conditions, requires significant judgment.
Additionally, changes in the technology industry occur
frequently and quickly. Therefore, there can be no assurance
that a charge to operating expenses will not occur as a result
of future goodwill and purchased intangible impairment tests.
Inventory
Valuation
Inventory consists of hardware and related component parts and
is stated at the lower of cost or market. Cost is computed using
the standard cost, which approximates actual cost, on a
first-in,
first-out basis. We record inventory write-downs for potentially
excess inventory based on forecasted demand, economic trends,
technological obsolescence of our products and transition of
inventory related to new product releases. If future demand or
market conditions are less favorable than our projections,
additional inventory write-downs could be required and would be
reflected in cost of product revenues in the period the revision
is made. At the point of the loss recognition, a new, lower-cost
basis for that inventory is established, and subsequent changes
in facts and circumstances do not result in the restoration or
increase in that newly established cost basis. Inventory
write-downs amounted to $2.9 million, $3.4 million,
and $1.2 million, for fiscal years 2010, 2009, and 2008,
respectively.
Allowances
for Doubtful Accounts
We record a provision for doubtful accounts based on historical
experience and a detailed assessment of the collectibility of
our accounts receivable. In estimating the allowance for
doubtful accounts, our management considers, among other
factors, (1) the aging of the accounts receivable,
including trends within and ratios involving the age of the
accounts receivable, (2) our historical write-offs,
(3) the credit-worthiness of each customer, (4) the
economic conditions of the customers industry, and
(5) general economic conditions, especially given the
recent financial crisis in todays economic environment. In
cases where we are aware of circumstances that may impair a
specific customers ability to meet their financial
obligations to us, we record a specific allowance against
amounts due from the customer, and thereby reduce the net
recognized receivable to the amount we reasonably believe will
be collected. The allowance for doubtful accounts was
$0.5 million and $0.4 million at July 31, 2010
and 2009, respectively.
Income
Taxes
We use the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to
differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets are
37
recognized for deductible temporary differences, along with net
operating loss carryforwards, if it is more likely than not that
the tax benefits will be realized. The ultimate realization of
the deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those
temporary differences, research and credit carryforwards and net
operating loss carryforwards are deductible. To the extent
deferred tax assets cannot be recognized under the preceding
criteria, a valuation allowance is established.
Income tax contingencies are accounted for and may require
significant management judgment in estimating final outcomes.
Actual results could differ materially from these estimates and
could significantly affect the effective tax rate and cash flows
in future years. At July 31, 2010 and 2009, we had
$6.3 million and $5.1 million, respectively, of
unrecognized tax benefits, none of which would materially affect
our income tax expense if recognized to the extent that we
continue to maintain a full valuation allowance against our
deferred tax assets.
Based on the available objective evidence, including the fact
that we have generated financial statement losses since
inception, management believes it is more likely than not that
the deferred tax assets will not be realized. Accordingly,
management has applied a full valuation allowance against our
deferred tax assets.
Recent
Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements
for recent accounting pronouncements that could have an effect
on us.
Results
of Operations
The following table presents our historical operating results as
a percentage of revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
83.1
|
%
|
|
|
81.3
|
%
|
|
|
83.3
|
%
|
Professional services and support
|
|
|
16.6
|
%
|
|
|
18.0
|
%
|
|
|
14.7
|
%
|
Ratable product and related professional services and support
|
|
|
0.3
|
%
|
|
|
0.7
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
28.9
|
%
|
|
|
30.1
|
%
|
|
|
27.0
|
%
|
Professional services and support
|
|
|
3.3
|
%
|
|
|
3.7
|
%
|
|
|
4.4
|
%
|
Ratable product and related professional services and support
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
67.7
|
%
|
|
|
66.0
|
%
|
|
|
68.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
19.4
|
%
|
|
|
20.3
|
%
|
|
|
21.0
|
%
|
Sales and marketing
|
|
|
41.0
|
%
|
|
|
45.3
|
%
|
|
|
48.2
|
%
|
General and administrative
|
|
|
11.6
|
%
|
|
|
11.6
|
%
|
|
|
10.0
|
%
|
Acquisition related expenses
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
Restructuring expenses
|
|
|
0.0
|
%
|
|
|
0.7
|
%
|
|
|
0.0
|
%
|
Litigation reserves
|
|
|
8.2
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
(12.5
|
)%
|
|
|
(11.9
|
)%
|
|
|
(11.3
|
)%
|
Other income (expense), net
|
|
|
0.0
|
%
|
|
|
0.5
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(12.5
|
)%
|
|
|
(11.4
|
)%
|
|
|
(9.1
|
)%
|
Provision for income taxes
|
|
|
0.3
|
%
|
|
|
0.4
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(12.8
|
)%
|
|
|
(11.8
|
)%
|
|
|
(9.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Total revenues
|
|
$
|
266,534
|
|
|
$
|
199,259
|
|
|
$
|
178,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
221,474
|
|
|
|
161,927
|
|
|
|
148,550
|
|
Professional services and support
|
|
|
44,323
|
|
|
|
35,946
|
|
|
|
26,244
|
|
Ratable product and related professional services and support
|
|
|
737
|
|
|
|
1,386
|
|
|
|
3,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
266,534
|
|
|
$
|
199,259
|
|
|
$
|
178,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
166,584
|
|
|
|
129,991
|
|
|
|
118,647
|
|
Europe, the Middle East and Africa
|
|
|
38,140
|
|
|
|
34,178
|
|
|
|
31,149
|
|
Asia Pacific
|
|
|
51,110
|
|
|
|
27,023
|
|
|
|
20,231
|
|
Rest of World (including Japan)
|
|
|
10,700
|
|
|
|
8,067
|
|
|
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
266,534
|
|
|
$
|
199,259
|
|
|
$
|
178,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2010, total revenues increased 33.8% over fiscal
2009 due to a $67.9 million increase in product and
professional services and support revenues. Demand was strong
across our core verticals, and across all of our major
geographies. Our customer base also increased as we added
approximately 3,100 new customers during fiscal 2010.
Additionally, we saw solid growth in the broader enterprise as
mobility is becoming a critical driver for enterprise
productivity.
Our product revenues were bolstered by an increase in revenue
primarily related to our 802.11n access points as customers are
purchasing more access points that comply with the higher
standard. Further, product revenues have grown as a result of
our rightsizing initiative. We are seeing companies continue to
move toward a low-cost IT infrastructure solution by funding
wireless projects rather than wired LANs, which we believe is
due in part to the recent economic downturn.
The increase in professional services and support revenues is a
result of increased product and first year support sales
combined with the renewal of support contracts by existing
customers. As our customer base grows over time, we expect the
proportion of our revenues represented by support revenues to
increase because substantially all of our customers purchase
support when they purchase our products.
Ratable product and related professional services and support
revenues decreased during fiscal 2010 compared to fiscal 2009
due to the run-off in the amortization of deferred revenue
associated with those customer contracts that we entered into
prior to our establishment of VSOE of fair value. We expect
ratable product and related professional services and support
revenues to continue to decrease in absolute dollars and as a
percentage of total revenues in future periods.
In fiscal 2010, we derived 92.4% of our total revenues from
indirect channels, which consist of VADs, VARs and OEMs. In
fiscal 2009, we derived 84.6% of our total revenues from
indirect channels. Overall, the percentage of revenue from our
indirect channels continues to grow as we see increased leverage
from partner relationships. Going forward, we expect to continue
to derive a significant majority of our total revenues from
indirect channels as we continue to focus on improving the
efficiency of marketing and selling our products through these
channels.
Revenues from shipments to locations outside the United States
increased $30.7 million during fiscal 2010 compared to
fiscal 2009 largely due to the strength of the VADs in the
international markets. Most notably, revenue in our Asia Pacific
region grew 89.1% year over year due to significantly improved
market presence by one of our VADs, especially in the education
vertical. We continue to expand into international locations and
introduce our products in new markets, and we expect
international revenues to increase in absolute dollars compared
to fiscal 2010, and increase as a percentage of total revenues
in future periods compared with fiscal 2010.
39
Total revenues increased 11.8% in fiscal 2009 compared to fiscal
2008 primarily due to an increase in product revenues which
increased $13.4 million. Product revenue increased due to
the continual growth of the WLAN market, the growth in our
customer base during fiscal 2009 and the result of companies
moving toward a low-cost IT infrastructure solution. Support
revenue grew $9.7 million in fiscal 2009 compared to fiscal
2008 as substantially all of our customers purchase support when
they purchase our products. Revenue from our indirect channels
was 84.6% of total revenues in fiscal 2009 compared to 80.5% of
total revenues in fiscal 2008. We generated 34.8% of our
revenues in fiscal 2009 from shipments to locations outside of
the U.S. up slightly from fiscal 2008 when we generated
33.4% of our revenues from shipments to locations outside of the
U.S.
Cost
of Revenues and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Total revenues
|
|
$
|
266,534
|
|
|
$
|
199,259
|
|
|
$
|
178,260
|
|
Cost of product
|
|
|
77,070
|
|
|
|
59,917
|
|
|
|
48,126
|
|
Cost of professional services and support
|
|
|
8,775
|
|
|
|
7,437
|
|
|
|
7,761
|
|
Cost of ratable product and related professional services and
support
|
|
|
229
|
|
|
|
483
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
86,074
|
|
|
|
67,837
|
|
|
|
57,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
180,460
|
|
|
$
|
131,422
|
|
|
$
|
121,145
|
|
Gross margin
|
|
|
67.7
|
%
|
|
|
66.0
|
%
|
|
|
68.0
|
%
|
During fiscal 2010 cost of revenues increased 26.9% compared to
fiscal 2009 primarily due to the corresponding increase in our
product revenue. The substantial majority of our cost of product
revenues consists of payments to Flextronics, our largest
contract manufacturer. For fiscal 2010, payments to Flextronics
and Flextronics-related costs constituted more than 70% of our
cost of product revenues.
Cost of professional services and support revenues increased
18.0% during fiscal 2010 compared to fiscal 2009 due to the
increase in professional services and support revenues. We have
benefitted from economies of scale within our professional
services department which has kept our costs down despite the
large increase in professional services and support revenues.
Cost of ratable product and related professional services and
support revenues decreased during these periods consistent with
the decrease in ratable product and related professional
services and support revenues.
As we expand internationally, we may incur additional costs to
conform our products to comply with local laws or local product
specifications. In addition, we plan to continue to hire
additional technical support personnel to support our growing
international customer base.
Gross margins increased 1.7% during fiscal 2010 compared to
fiscal 2009 primarily due to product mix of sales on
higher-margin controllers and software and better mix of sales
with higher-margin channel partners. Further, we have benefitted
from economies of scale within our professional services
department which has kept our costs down despite the large
increase in professional services and support revenues.
In fiscal 2009 cost of revenues increased 18.8% compared to
fiscal 2008 primarily due to an increase in our product
revenues, an increase in inventory reserves of $3.4 million
due to the transition of inventory related to new product
releases, and amortization expense related to the acquisition of
AirWave in late fiscal 2008. Cost of professional services and
support revenues decreased 4.2% during fiscal 2009 compared to
fiscal 2008. Most of the decrease was attributable to the fact
that, during fiscal 2008, we recognized the costs associated
with several significant professional services transactions for
large product installations.
Gross margins decreased by 2.0% during fiscal 2009 compared to
fiscal 2008 as a result of a large retail deal recognized in the
first quarter of fiscal 2009 that had a lower gross margin, an
increase in amortization expense
40
related to the acquisition of AirWave which occurred in late
fiscal 2008, and an increase in our inventory reserves due to
product transitions.
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Research and development expenses
|
|
$
|
51,619
|
|
|
$
|
40,293
|
|
|
$
|
37,393
|
|
Percent of total revenues
|
|
|
19.4
|
%
|
|
|
20.3
|
%
|
|
|
21.0
|
%
|
During fiscal 2010, research and development expenses increased
28.1% compared to fiscal 2009, primarily due to an increase of
$8.0 million in personnel and related costs as we added 77
new employees to our research and development team. Personnel
and related costs included $3.6 million in stock-based
compensation. Expenses for consulting and outside agencies
increased $1.3 million due to design and compliance work
for our new low-priced access point and our new controllers
Facilities expenses increased $1.1 million related to the
increase in headcount. Depreciation expense increased
$0.7 million due to an increase in fixtures, machinery and
equipment used to design and test new products.
During fiscal 2009, research and development expenses increased
7.8% compared to fiscal 2008 primarily due to an increase of
$1.9 million in personnel and related costs, including
$1.4 million in stock-based compensation. Facilities
expenses increased $0.4 million as a result of leasing a
new building for our Sunnyvale, CA headquarters, as well as
facilities-related expenses of AirWave. Depreciation expense
also increased $0.8 million. These increases were partially
offset by a decrease in expenses related to consulting services
of $0.2 million due to our cost-cutting efforts.
Sales
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Sales and marketing expenses
|
|
$
|
109,393
|
|
|
$
|
90,241
|
|
|
$
|
86,008
|
|
Percent of total revenues
|
|
|
41.0
|
%
|
|
|
45.3
|
%
|
|
|
48.2
|
%
|
During fiscal 2010, sales and marketing expenses increased 21.2%
compared to fiscal 2009. Personnel and related costs increased
$11.3 million primarily due to an increase in stock-based
compensation of $4.1 million and an increase in headcount
of 40 employees. Marketing expenses increased
$2.7 million related to new product launches, website
redesign fees and a user-group convention we hosted. Sales and
marketing expenses were also impacted by an increase in
commission expense of $3.5 million and an increase in
facilities expenses of $0.8 million due to the increase in
headcount. Finally, demonstration equipment increased
$0.8 million due to the increase in headcount as each new
sales representative is provided demonstration equipment and due
to an increase in new products being distributed to sales teams.
During fiscal 2009, sales and marketing expenses increased 4.9%
over fiscal 2008 primarily due to an increase of
$4.0 million in sales commissions as a result of the
increase in revenues. Overall personnel and related costs
increased $1.5 million due to several factors including an
increase of $2.8 million in salaries and stock-based
compensation due to an increase in headcount, and decreases in
travel and entertainment expenses of $1.1 million and
employee benefits of $0.5 million. Amortization expense
increased $0.9 million compared to fiscal 2008 due to the
acquisition of AirWave in late fiscal 2008. The amortization
expense relates to intangible assets such as tradenames,
customer relationships and contracts. These increases were
partially offset by a decrease in marketing program expenses of
$1.8 million and costs for internal equipment demonstration
kits of $0.7 million as part of our cost-control efforts.
41
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
General and administrative expenses
|
|
$
|
30,953
|
|
|
$
|
23,198
|
|
|
$
|
17,740
|
|
Percent of total revenues
|
|
|
11.6
|
%
|
|
|
11.6
|
%
|
|
|
10.0
|
%
|
During fiscal 2010, general and administrative expenses
increased 33.4% compared to fiscal 2009, primarily due to an
increase of $6.5 million in personnel expenses, including
$4.5 million in stock-based compensation. Expenses for
outside services increased $0.8 million due to design work
associated with our headquarters building as well as fees paid
to consultants working on our internal systems. Facilities
expenses increased $0.5 million due to an increase in our
headcount of 11 employees.
During fiscal 2009, general and administrative expenses
increased 30.8% compared to fiscal 2008 primarily due to an
increase of $2.4 million in legal fees related to
litigation. See Note 11 of the Notes to the Consolidated
Financial Statements. Further, personnel and related costs
increased $2.6 million as a result of additional grants of
stock-based awards which in turn increased stock-based
compensation. Professional accounting fees also increased
$0.6 million related to Sarbanes-Oxley compliance costs and
external audit services.
Acquisition
Related Severance Expenses
In connection with the acquisition of AirWave, we terminated one
of AirWaves executives due to redundancy in fiscal 2008.
As a result, we recorded expenses totaling approximately
$0.2 million for severance and related benefit costs. There
were no such costs in fiscal 2010 or fiscal 2009.
Restructuring
Expenses
In November 2008, as a result of the macroeconomic downturn, our
board of directors approved a plan to reduce our costs and
streamline operations through a combination of a reduction in
our work force and the closing of certain facilities. The
majority of the reduction in our work force was completed in the
second quarter of fiscal 2009 while the remaining reduction was
completed in the third quarter of fiscal 2009. The reduction in
our work force resulted in the termination of 46 employees
worldwide, or about 8% of our global work force, mainly in the
sales and marketing and research and development functions.
Expenses associated with the work force reduction, which were
comprised primarily of severance and benefits payments as well
as professional fees associated with career transition services,
totaled $1.1 million. Additionally, we closed facilities in
California and North Carolina and incurred facility exit costs
of $0.3 million as a result. These cost reduction efforts,
when added to our other cost control measures, resulted in a
savings of approximately $2.0 million during the second
quarter of fiscal 2009. We realized approximately
$5.0 million in additional savings during the second half
of fiscal 2009 based on all of our cost reduction efforts which
included a decrease in marketing, travel and entertainment,
outside contractor and other discretionary expenses, as well as
hiring controls.
Litigation
Reserves
During fiscal 2010, we recorded a charge totaling
$21.9 million related to legal matters. There were no such
expenses in fiscal 2009 and fiscal 2008.
On November 4, 2009, we entered into a Patent Cross License
and Settlement Agreement (the Settlement Agreement)
with Motorola. Pursuant to the Settlement Agreement, we and
Motorola agreed to:
|
|
|
|
|
jointly execute and file dismissals of patent infringement
actions brought in the United States District Court for the
District of Delaware involving U.S. Patent Nos. 7,173,922;
7,173,923; 6,973,622; 6,625,454; 7,359,676; 7,295,524 and
7,376,113;
|
|
|
|
release one another of all claims;
|
|
|
|
provide one another with seven year licenses to each of our
respective 802.11 Wireless LAN patent portfolios; and
|
42
|
|
|
|
|
provide one another a covenant not to assert any patent claims
against one anothers current products and commercially
reasonable extensions thereof for four years.
|
As part of the Settlement Agreement, we agreed to pay Motorola
$19.8 million in the first quarter of fiscal 2010. The
one-time expense is shown on the Consolidated Statement of
Operations within litigation reserves. The subsequent payment
was made during the second quarter of fiscal 2010. See
Note 11 of our Notes to Consolidated Financial Statements
for further discussion. The remaining $2.1 million of
litigation reserves is related to settlements entered into
during fiscal 2010.
Other
Income (Expense), net
Other income (expense), net consists primarily of interest
income, interest expense, foreign currency exchange gains and
losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
834
|
|
|
$
|
1,837
|
|
|
$
|
4,083
|
|
Other income (expense), net
|
|
|
(699
|
)
|
|
|
(705
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
135
|
|
|
$
|
1,132
|
|
|
$
|
4,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income during fiscal 2010 decreased 54.6% from fiscal
2009, primarily due to declining interest rates. Our average
yield-to-maturity
rate decreased from 2.0% in fiscal 2009 to 0.7% in fiscal 2010
Other income (expense), net during fiscal 2010 was consistent
with fiscal 2009. Other income (expense) includes primarily
foreign currency gains and losses driven by the remeasurement of
foreign currency transactions into U.S. dollars.
Provision
for Income Taxes
Since inception, we have incurred operating losses. However,
while we generated book losses, we generated operating income
for foreign and state tax purposes resulting in tax provisions
during fiscal 2010. As of July 31, 2010, we had net
operating loss carryforwards of $97.4 million and
$74.4 million for federal and state income tax purposes,
respectively. We also had research and credit carryforwards of
$6.4 million for federal and $8.0 million for state
income tax purposes as of July 31, 2010. Realization of
deferred tax assets is dependent upon future earnings, if any,
the timing and amount of which are uncertain. Accordingly, all
federal and state deferred tax assets have been fully offset by
a valuation allowance. If not utilized, the federal and state
net operating loss and federal tax credit carryforwards will
begin to expire between 2013 and 2022. Utilization of these net
operating losses and credit carryforwards may be subject to an
annual limitation due to provisions of the Internal Revenue Code
of 1986, as amended, that are applicable if we have experienced
an ownership change in the past, or if an ownership
change occurs in the future. See Note 8 of Notes to
Consolidated Financial Statements.
We recognize in the consolidated financial statements only those
tax positions determined to be more likely than not of being
sustained. We did not record any changes to the liability for
unrecognized tax benefits related to tax positions taken in
prior periods. Additionally, we did not make any
reclassifications between current taxes payable and long-term
taxes payable.
43
Quarterly
Fluctuations in Operating Results
The following table sets forth our unaudited quarterly
consolidated statement of operations data for each of the eight
quarters ended July 31, 2010. In managements opinion,
the data has been prepared on the same basis as the audited
consolidated financial statements included in this report, and
reflects all necessary adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of this
data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
2010
|
|
July 31,
|
|
|
April 30,
|
|
|
January 31,
|
|
|
October 31,
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
65,564
|
|
|
$
|
56,634
|
|
|
$
|
52,078
|
|
|
$
|
47,198
|
|
Professional services and support
|
|
|
11,651
|
|
|
|
12,167
|
|
|
|
10,362
|
|
|
|
10,143
|
|
Ratable product and related professional services and support
|
|
|
111
|
|
|
|
156
|
|
|
|
215
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
77,326
|
|
|
|
68,957
|
|
|
|
62,655
|
|
|
|
57,596
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
22,624
|
|
|
|
19,911
|
|
|
|
18,103
|
|
|
|
16,432
|
|
Professional services and support
|
|
|
2,338
|
|
|
|
2,201
|
|
|
|
2,157
|
|
|
|
2,079
|
|
Ratable product and related professional services and support
|
|
|
29
|
|
|
|
46
|
|
|
|
68
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
24,991
|
|
|
|
22,158
|
|
|
|
20,328
|
|
|
|
18,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
52,335
|
|
|
|
46,799
|
|
|
|
42,327
|
|
|
|
38,999
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,907
|
|
|
|
13,874
|
|
|
|
12,042
|
|
|
|
11,796
|
|
Sales and marketing
|
|
|
30,380
|
|
|
|
27,697
|
|
|
|
26,576
|
|
|
|
24,740
|
|
General and administrative
|
|
|
7,353
|
|
|
|
8,840
|
|
|
|
7,628
|
|
|
|
7,132
|
|
Litigation reserves
|
|
|
|
|
|
|
1,650
|
|
|
|
500
|
|
|
|
19,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
51,640
|
|
|
|
52,061
|
|
|
|
46,746
|
|
|
|
63,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
695
|
|
|
|
(5,262
|
)
|
|
|
(4,419
|
)
|
|
|
(24,419
|
)
|
Other income (expense), net
|
|
|
(48
|
)
|
|
|
29
|
|
|
|
39
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
647
|
|
|
|
(5,233
|
)
|
|
|
(4,380
|
)
|
|
|
(24,304
|
)
|
Provision for income taxes
|
|
|
224
|
|
|
|
85
|
|
|
|
47
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
423
|
|
|
$
|
(5,318
|
)
|
|
$
|
(4,427
|
)
|
|
$
|
(24,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per common share,
basic
|
|
|
92,977
|
|
|
|
90,874
|
|
|
|
88,572
|
|
|
|
87,489
|
|
Net income (loss) per common share, basic
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per common share,
diluted
|
|
|
108,814
|
|
|
|
90,874
|
|
|
|
88,572
|
|
|
|
87,489
|
|
Net income (loss) per common share, diluted
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
2009
|
|
July 31,
|
|
|
April 30,
|
|
|
January 31,
|
|
|
October 31,
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
43,366
|
|
|
$
|
35,822
|
|
|
$
|
38,871
|
|
|
$
|
43,868
|
|
Professional services and support
|
|
|
9,675
|
|
|
|
9,666
|
|
|
|
8,468
|
|
|
|
8,137
|
|
Ratable product and related professional services and support
|
|
|
285
|
|
|
|
318
|
|
|
|
342
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
53,326
|
|
|
|
45,806
|
|
|
|
47,681
|
|
|
|
52,446
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
15,939
|
|
|
|
14,005
|
|
|
|
13,368
|
|
|
|
16,605
|
|
Professional services and support
|
|
|
1,852
|
|
|
|
1,814
|
|
|
|
1,838
|
|
|
|
1,933
|
|
Ratable product and related professional services and support
|
|
|
98
|
|
|
|
110
|
|
|
|
120
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
17,889
|
|
|
|
15,929
|
|
|
|
15,326
|
|
|
|
18,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
35,437
|
|
|
|
29,877
|
|
|
|
32,355
|
|
|
|
33,753
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
9,886
|
|
|
|
9,734
|
|
|
|
10,250
|
|
|
|
10,423
|
|
Sales and marketing
|
|
|
23,722
|
|
|
|
20,251
|
|
|
|
21,607
|
|
|
|
24,661
|
|
General and administrative
|
|
|
6,044
|
|
|
|
5,854
|
|
|
|
6,015
|
|
|
|
5,285
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
39,652
|
|
|
|
35,839
|
|
|
|
39,319
|
|
|
|
40,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,215
|
)
|
|
|
(5,962
|
)
|
|
|
(6,964
|
)
|
|
|
(6,616
|
)
|
Other income (expense), net
|
|
|
(2
|
)
|
|
|
414
|
|
|
|
388
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(4,217
|
)
|
|
|
(5,548
|
)
|
|
|
(6,576
|
)
|
|
|
(6,284
|
)
|
Provision for income taxes
|
|
|
281
|
|
|
|
213
|
|
|
|
201
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,498
|
)
|
|
$
|
(5,761
|
)
|
|
$
|
(6,777
|
)
|
|
$
|
(6,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per common share, basic and
diluted
|
|
|
86,315
|
|
|
|
85,200
|
|
|
|
83,860
|
|
|
|
83,071
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating results may fluctuate due to a variety of factors,
many of which are outside of our control. As a result, comparing
our operating results on a
period-to-period
basis may not be meaningful. You should not rely on our past
results as an indication of our future performance.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
July 31,
|
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
Working capital
|
|
$
|
133,927
|
|
|
$
|
115,639
|
|
Cash and cash equivalents
|
|
|
31,254
|
|
|
|
41,298
|
|
Short-term investments
|
|
$
|
124,167
|
|
|
$
|
81,839
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Cash provided by operating activities
|
|
$
|
25,834
|
|
|
$
|
20,592
|
|
|
$
|
8,317
|
|
Cash used in investing activities
|
|
|
(48,581
|
)
|
|
|
(21,754
|
)
|
|
|
(21,760
|
)
|
Cash provided by financing activities
|
|
$
|
12,702
|
|
|
$
|
4,858
|
|
|
$
|
8,470
|
|
At July 31, 2010, our principal sources of liquidity were
our cash, cash equivalents and short-term investments. Cash and
cash equivalents are comprised of cash, sweep funds and money
market funds with an original maturity of 90 days or less
at the time of the purchase. Short-term investments include
corporate bonds, U.S. government agency securities,
U.S. treasury bills, commercial paper, and certificates of
deposit. Cash, cash equivalents and short-term investments
increased $32.3 million during fiscal 2010 from
$123.1 million in cash, cash equivalents and short-term
investments as of July 31, 2009 to $155.4 million as
of July 31, 2010. Most of our sales contracts are
denominated in United States dollars including sales contracts
with international customers. As such, changes in our revenues
derived from international customers have not affected our cash
flows from operations as these are not affected by movement in
exchange rates. However, as we fund our international
operations, our cash and cash equivalents are affected by
changes in exchange rates.
Cash
Flows from Operating Activities
Our cash flows from operating activities will continue to be
affected principally by our working capital requirements and the
extent to which we increase spending on personnel. The timing of
hiring sales personnel in particular affects cash flows as there
is a lag between the hiring of sales personnel and the
generation of revenue and cash flows from sales personnel. Our
largest source of operating cash flows is cash collections from
our customers. Our primary uses of cash from operating
activities are for personnel related expenditures, purchases of
inventory, and rent payments.
During fiscal 2010, operating activities provided
$25.8 million of cash compared to $20.6 million of
cash provided in operating activities during fiscal 2009.
Increases in accounts payable, deferred revenue, accrued
liabilities, and non-cash adjustments relating to stock-based
compensation, depreciation and amortization and inventory
write-downs, contributed to the overall cash inflow. These
inflows were partially offset by cash outflows due to increases
in accounts receivable, inventory, and prepaid and other assets
as well as our net loss for fiscal 2010. Further, in November
2009, pursuant to the Settlement Agreement with Motorola, we
made a one-time payment to Motorola for $19.8 million. See
Note 11 of our Notes to Consolidated Financial Statements
for further discussion.
Cash provided by operating activities increased
$12.3 million during fiscal 2009 compared to fiscal 2008
due to increases in deferred revenue and other accrued
liabilities, as well as an increase in the amount of non-cash
adjustments relating to stock-based compensation, depreciation
and amortization, and write downs in our inventory. Cash
provided by operating activities was offset by a decrease in
accounts payable and a larger net loss compared to fiscal 2008.
Cash
Flows from Investing Activities
Cash used in investing activities during fiscal 2010 increased
$26.8 million compared to fiscal 2009. We purchased more
short-term investments during fiscal 2010 compared to fiscal
2009 as we reinvested cash flow from operations. We also sold
fewer short-term investments in fiscal 2010 compared to fiscal
2009. Purchases of property and equipment in fiscal 2010 were
slightly up compared to fiscal 2009 due to the build out of our
office headquarters.
Cash used in investing activities during fiscal 2009 remained
consistent with fiscal 2008. We used the proceeds from the sale
of our short-term investments as well as some of the cash
generated from our operating activities to reinvest in
additional short-term investments. Purchases of property and
equipment in fiscal 2009 were slightly down compared to fiscal
2008 due to an effort to control costs.
46
Cash
Flows from Financing Activities
Cash provided by financing activities increased
$7.8 million in fiscal 2010 compared to fiscal 2009. The
cash proceeds from the issuance of common stock in conjunction
with our 2007 Equity Incentive Plan and Employee Stock Purchase
Plan increased substantially in fiscal 2010 compared to fiscal
2009 primarily due to increased exercise in stock options by our
employees as a result of the increase in our stock price, and
the increase in the number of contributions in our Employee
Stock Purchase Plan. During fiscal 2009 we repurchased shares of
our common stock under our stock repurchase program in the
amount of $1.0 million. We did not make any additional
purchases in fiscal 2010 related to this program.
Cash provided by financing activities decreased in fiscal 2009
compared to fiscal 2008. The cash proceeds from the issuance of
common stock in conjunction with our 2007 Equity Incentive Plans
and Employee Stock Purchase Plan were lower in fiscal 2009
compared to fiscal 2008 primarily due to the decline in our
stock price and thus, fewer exercises of employee stock options.
Cash outflows for the repurchase of our common stock under our
stock repurchase program also decreased during fiscal 2009
compared to fiscal 2008.
Based on our current cash, cash equivalents and short-term
investments we expect that we will have sufficient resources to
fund our operations for the next 12 months. However, we may
need to raise additional capital or incur additional
indebtedness to continue to fund our operations in the future.
Our future capital requirements will depend on many factors,
including our rate of revenue growth, the expansion of our sales
and marketing activities, the timing and extent of expansion
into new territories, the timing of introductions of new
products and enhancements to existing products, and the
continuing market acceptance of our products.
Other
Uses of Cash
On May 7, 2010, we entered into a definitive agreement to
purchase Azalea Networks. The acquisition subsequently closed on
September 2, 2010. In connection with the closing, we will
be issuing common stock for an aggregate value of approximately
$27.0 million subject to certain adjustments and contingent
rights associated with such shares of up to $13.5 million
in cash, payable if at all, over two years. We may enter into
these types of arrangements in the future, which could also
require us to seek additional equity or debt financing.
Additional funds may not be available on terms favorable to us
or at all.
Contractual
Obligations
The following is a summary of our contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
Less Than
|
|
|
1 3
|
|
|
3 5
|
|
|
Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
15,392
|
|
|
$
|
2,902
|
|
|
$
|
5,095
|
|
|
$
|
5,192
|
|
|
$
|
2,203
|
|
Non-cancellable inventory purchase commitments(1)
|
|
|
20,324
|
|
|
|
20,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
35,716
|
|
|
$
|
23,226
|
|
|
$
|
5,095
|
|
|
$
|
5,192
|
|
|
$
|
2,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We outsource the production of our hardware to third-party
manufacturing suppliers. We enter into various inventory related
purchase agreements with these suppliers. Generally, under these
agreements, 40% of the order quantities can be rescheduled or
are cancelable by giving notice 60 days prior to the
expected shipment date, and 20% of the order quantities can be
rescheduled or are cancelable by giving notice 30 days
prior to the expected shipment date. Orders are not cancelable
within 30 days prior to the expected shipment date. |
As of July 31, 2010, our unrecognized tax benefits were
$6.3 million which were mostly reflected as a reduction to
deferred tax assets, offset by a valuation allowance. As such,
there are no material amounts of contractual obligations
associated with these unrecognized benefits to be included in
the table above.
47
Off-Balance
Sheet Arrangements
At July 31, 2010 and 2009, we did not have any
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign
Currency Risk
Most of our sales contracts are denominated in United States
dollars, and therefore, our revenue is not subject to
significant foreign currency risk. Our operating expenses and
cash flows are subject to fluctuations due to changes in foreign
currency exchange rates, particularly changes in the British
Pound, Euro and Japanese Yen. To date, we have not entered into
any hedging contracts because expenses in foreign currencies
have been insignificant to date, and exchange rate fluctuations
have had little impact on our operating results and cash flows.
Interest
Rate Sensitivity
We had cash, cash equivalents and short-term investments
totaling $155.4 million and $123.1 million at
July 31, 2010 and July 31, 2009, respectively. The
cash, cash equivalents and short-term investments are held for
working capital purposes. We do not use derivative financial
instruments in our investment portfolio. We have an investment
portfolio of fixed income securities that are classified as
available-for-sale
securities. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in
value if market interest rates increase. We attempt to limit
this exposure by investing primarily in short-term securities.
Due to the short duration and conservative nature of our
investment portfolio, a movement of 10% in market interest rates
would not have a material impact on our operating results and
the total value of the portfolio over the next fiscal year. If
overall interest rates had fallen by 10% in fiscal 2010, our
interest income on cash, cash equivalents and short-term
investments would have declined less than $0.1 million
assuming consistent investment levels.
48
|
|
ITEM 8.
|
CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Index to
Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
49
REPORT ON
MANAGEMENTS ASSESSMENT OF
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of our Company is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
and 15(d)-15(f) under the Securities Exchange Act of 1934. Our
internal control over financial reporting is 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. Internal control over financial reporting
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of our Company;
|
|
|
|
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 our Company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
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 and that the degree
of compliance with the policies or procedures may change over
time.
Management assessed the effectiveness of our internal control
over financial reporting as of July 31, 2010. In making
this assessment, our management used the criteria set forth in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment of internal controls over financial
reporting, management has concluded that, as of July 31,
2010, our internal control over financial reporting was
effective 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.
The effectiveness of the Companys internal control over
financial reporting as of July 31, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears on
page 51.
|
|
|
|
|
/s/ Steffan
Tomlinson
|
|
|
|
Dominic P. Orr
President, Chief Executive Officer and Chairman of the Board
|
|
Steffan Tomlinson
Chief Financial Officer
|
50
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Aruba Networks, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations,
stockholders equity, and cash flows present fairly, in all
material respects, the financial position of Aruba Networks,
Inc. and its subsidiaries at July 31, 2010 and
July 31, 2009, and the results of their operations and
their cash flows for each of the three years in the period ended
July 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
July 31, 2010, based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for these
financial statements, 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 Report on Managements
Assessment of Internal Control over Financial Reporting. Our
responsibility is to express opinions on these financial
statements and on the Companys internal control over
financial reporting based on our integrated 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 audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
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 (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) 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 (iii) 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.
/s/ PricewaterhouseCoopers
LLC
San Jose, California
September 24, 2010
51
ARUBA
NETWORKS, INC.
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,254
|
|
|
$
|
41,298
|
|
Short-term investments
|
|
|
124,167
|
|
|
|
81,839
|
|
Accounts receivable, net
|
|
|
41,269
|
|
|
|
33,466
|
|
Inventory
|
|
|
15,159
|
|
|
|
8,450
|
|
Deferred costs
|
|
|
5,451
|
|
|
|
5,152
|
|
Prepaids and other
|
|
|
5,108
|
|
|
|
2,350
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222,408
|
|
|
|
172,555
|
|
Property and equipment, net
|
|
|
9,919
|
|
|
|
7,426
|
|
Goodwill
|
|
|
7,656
|
|
|
|
7,656
|
|
Intangible assets, net
|
|
|
9,287
|
|
|
|
14,091
|
|
Other assets
|
|
|
1,437
|
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
250,707
|
|
|
$
|
203,054
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,082
|
|
|
$
|
930
|
|
Accrued liabilities
|
|
|
36,458
|
|
|
|
20,722
|
|
Income taxes payable
|
|
|
519
|
|
|
|
610
|
|
Deferred revenue, current
|
|
|
43,422
|
|
|
|
34,654
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
88,481
|
|
|
|
56,916
|
|
Deferred revenue, long-term
|
|
|
10,976
|
|
|
|
8,524
|
|
Other long-term liabilities
|
|
|
595
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
100,052
|
|
|
|
65,469
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock: $0.0001 par value; 350,000 shares
authorized at July 31, 2010 and 2009, respectively; 93,606
and 86,744 shares issued and outstanding at July 31,
2010 and 2009, respectively
|
|
|
9
|
|
|
|
9
|
|
Additional paid-in capital
|
|
|
326,178
|
|
|
|
279,026
|
|
Accumulated other comprehensive income
|
|
|
98
|
|
|
|
182
|
|
Accumulated deficit
|
|
|
(175,630
|
)
|
|
|
(141,632
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
150,655
|
|
|
|
137,585
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
250,707
|
|
|
$
|
203,054
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
52
ARUBA
NETWORKS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
221,474
|
|
|
$
|
161,927
|
|
|
$
|
148,550
|
|
Professional services and support
|
|
|
44,323
|
|
|
|
35,946
|
|
|
|
26,244
|
|
Ratable product and related professional services and support
|
|
|
737
|
|
|
|
1,386
|
|
|
|
3,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
266,534
|
|
|
|
199,259
|
|
|
|
178,260
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
77,070
|
|
|
|
59,917
|
|
|
|
48,126
|
|
Professional services and support
|
|
|
8,775
|
|
|
|
7,437
|
|
|
|
7,761
|
|
Ratable product and related professional services and support
|
|
|
229
|
|
|
|
483
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
86,074
|
|
|
|
67,837
|
|
|
|
57,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
180,460
|
|
|
|
131,422
|
|
|
|
121,145
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
51,619
|
|
|
|
40,293
|
|
|
|
37,393
|
|
Sales and marketing
|
|
|
109,393
|
|
|
|
90,241
|
|
|
|
86,008
|
|
General and administrative
|
|
|
30,953
|
|
|
|
23,198
|
|
|
|
17,740
|
|
Acquisition related severance expenses
|
|
|
|
|
|
|
|
|
|
|
197
|
|
Restructuring expense
|
|
|
|
|
|
|
1,447
|
|
|
|
|
|
Litigation reserves
|
|
|
21,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
213,865
|
|
|
|
155,179
|
|
|
|
141,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(33,405
|
)
|
|
|
(23,757
|
)
|
|
|
(20,193
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
834
|
|
|
|
1,837
|
|
|
|
4,083
|
|
Other income (expense), net
|
|
|
(699
|
)
|
|
|
(705
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
135
|
|
|
|
1,132
|
|
|
|
4,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(33,270
|
)
|
|
|
(22,625
|
)
|
|
|
(16,157
|
)
|
Provision for income taxes
|
|
|
728
|
|
|
|
788
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,998
|
)
|
|
$
|
(23,413
|
)
|
|
$
|
(17,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per common
share
|
|
|
89,978
|
|
|
|
84,612
|
|
|
|
79,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
1,397
|
|
|
$
|
1,018
|
|
|
$
|
704
|
|
Research and development
|
|
|
10,716
|
|
|
|
7,577
|
|
|
|
6,200
|
|
Sales and marketing
|
|
|
14,205
|
|
|
|
10,520
|
|
|
|
8,953
|
|
General and administrative
|
|
$
|
9,763
|
|
|
$
|
5,464
|
|
|
$
|
3,421
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
53
ARUBA
NETWORKS, INC.
STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at July 31, 2007
|
|
|
76,927
|
|
|
$
|
8
|
|
|
$
|
213,545
|
|
|
$
|
29
|
|
|
$
|
(101,095
|
)
|
|
$
|
112,487
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
(74
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,124
|
)
|
|
|
(17,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares issued to non-employees
|
|
|
68
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
Fair value of stock options issued to non-employees
|
|
|
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
(279
|
)
|
Exercise of common stock options
|
|
|
3,280
|
|
|
|
|
|
|
|
6,330
|
|
|
|
|
|
|
|
|
|
|
|
6,330
|
|
Shares purchased under employee stock purchase plan
|
|
|
781
|
|
|
|
|
|
|
|
4,827
|
|
|
|
|
|
|
|
|
|
|
|
4,827
|
|
Exercise of warrants
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
(715
|
)
|
|
|
|
|
|
|
|
|
|
|
(715
|
)
|
Repurchase of common stock
|
|
|
(66
|
)
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Stock-based compensation expense related to stock options and
awards issued to employees
|
|
|
215
|
|
|
|
|
|
|
|
19,149
|
|
|
|
|
|
|
|
|
|
|
|
19,149
|
|
Common stock issued in purchase acquisition
|
|
|
1,519
|
|
|
|
|
|
|
|
8,002
|
|
|
|
|
|
|
|
|
|
|
|
8,002
|
|
Repurchase of common stock under stock repurchase program
|
|
|
(407
|
)
|
|
|
|
|
|
|
(2,142
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,142
|
)
|
Excess tax benefit associated with stock based compensation
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008
|
|
|
82,836
|
|
|
$
|
8
|
|
|
$
|
249,131
|
|
|
$
|
(45
|
)
|
|
$
|
(118,219
|
)
|
|
$
|
130,875
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
227
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,413
|
)
|
|
|
(23,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares issued to non-employees
|
|
|
69
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
392
|
|
Fair value of stock options issued to non-employees
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Exercise of common stock options
|
|
|
1,436
|
|
|
|
|
|
|
|
1,943
|
|
|
|
|
|
|
|
|
|
|
|
1,943
|
|
Shares purchased under employee stock purchase plan
|
|
|
1,114
|
|
|
|
|
|
|
|
3,827
|
|
|
|
|
|
|
|
|
|
|
|
3,827
|
|
Repurchase of common stock
|
|
|
(18
|
)
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
Stock-based compensation expense related to stock options and
awards issued to employees
|
|
|
1,498
|
|
|
|
1
|
|
|
|
24,150
|
|
|
|
|
|
|
|
|
|
|
|
24,151
|
|
Repurchase of common stock under stock repurchase program
|
|
|
(191
|
)
|
|
|
|
|
|
|
(991
|
)
|
|
|
|
|
|
|
|
|
|
|
(991
|
)
|
Excess tax benefit associated with stock based compensation
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009
|
|
|
86,744
|
|
|
$
|
9
|
|
|
$
|
279,026
|
|
|
$
|
182
|
|
|
$
|
(141,632
|
)
|
|
$
|
137,585
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investments, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
(84
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,998
|
)
|
|
|
(33,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares issued to non-employees
|
|
|
199
|
|
|
|
|
|
|
|
2,385
|
|
|
|
|
|
|
|
|
|
|
|
2,385
|
|
Fair value of stock options issued to non-employees
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Exercise of common stock options
|
|
|
2,974
|
|
|
|
|
|
|
|
8,116
|
|
|
|
|
|
|
|
|
|
|
|
8,116
|
|
Shares purchased under employee stock purchase plan
|
|
|
1,808
|
|
|
|
|
|
|
|
4,515
|
|
|
|
|
|
|
|
|
|
|
|
4,515
|
|
Repurchase of common stock
|
|
|
(16
|
)
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
Stock-based compensation expense related to stock options and
awards issued to employees
|
|
|
1,897
|
|
|
|
|
|
|
|
31,683
|
|
|
|
|
|
|
|
|
|
|
|
31,683
|
|
Excess tax benefit associated with stock based compensation
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010
|
|
|
93,606
|
|
|
$
|
9
|
|
|
$
|
326,178
|
|
|
$
|
98
|
|
|
$
|
(175,630
|
)
|
|
$
|
150,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
54
ARUBA
NETWORKS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,998
|
)
|
|
$
|
(23,413
|
)
|
|
$
|
(17,124
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,091
|
|
|
|
9,686
|
|
|
|
5,640
|
|
Provision for doubtful accounts
|
|
|
265
|
|
|
|
138
|
|
|
|
283
|
|
Write downs for excess and obsolete inventory
|
|
|
2,949
|
|
|
|
3,397
|
|
|
|
1,209
|
|
Compensation related to stock options and share awards
|
|
|
36,081
|
|
|
|
24,579
|
|
|
|
19,278
|
|
Accretion/ (amortization) of purchase discounts on short-term
investments
|
|
|
837
|
|
|
|
(271
|
)
|
|
|
(1,381
|
)
|
Change in carrying value of preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
(715
|
)
|
Loss/ (gain) on disposal of fixed assets
|
|
|
(3
|
)
|
|
|
(15
|
)
|
|
|
51
|
|
Excess tax benefit associated with stock-based compensation
|
|
|
(107
|
)
|
|
|
(88
|
)
|
|
|
(52
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,069
|
)
|
|
|
(924
|
)
|
|
|
(8,352
|
)
|
Inventory
|
|
|
(10,653
|
)
|
|
|
(766
|
)
|
|
|
(5,092
|
)
|
Prepaids and other
|
|
|
(2,757
|
)
|
|
|
847
|
|
|
|
(660
|
)
|
Deferred costs
|
|
|
(290
|
)
|
|
|
(606
|
)
|
|
|
(617
|
)
|
Other assets
|
|
|
50
|
|
|
|
(50
|
)
|
|
|
(773
|
)
|
Accounts payable
|
|
|
5,937
|
|
|
|
(4,926
|
)
|
|
|
3,394
|
|
Deferred revenue
|
|
|
11,220
|
|
|
|
8,698
|
|
|
|
10,957
|
|
Other current and noncurrent liabilities
|
|
|
14,360
|
|
|
|
4,184
|
|
|
|
1,924
|
|
Income taxes payable
|
|
|
(79
|
)
|
|
|
122
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
25,834
|
|
|
|
20,592
|
|
|
|
8,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
(122,750
|
)
|
|
|
(101,088
|
)
|
|
|
(119,856
|
)
|
Proceeds from sales and maturities of short-term investments
|
|
|
79,279
|
|
|
|
83,746
|
|
|
|
119,556
|
|
Net realized (gain) /loss on short-term investments
|
|
|
147
|
|
|
|
(7
|
)
|
|
|
(22
|
)
|
Purchases of property and equipment
|
|
|
(5,299
|
)
|
|
|
(4,405
|
)
|
|
|
(5,408
|
)
|
Proceeds from sales of property and equipment
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Cash paid in purchase acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(16,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(48,581
|
)
|
|
|
(21,754
|
)
|
|
|
(21,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
12,631
|
|
|
|
5,761
|
|
|
|
10,560
|
|
Repurchase of unvested common stock
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
Repurchase of common stock under stock repurchase program
|
|
|
|
|
|
|
(991
|
)
|
|
|
(2,142
|
)
|
Excess tax benefit associated with stock-based compensation
|
|
|
107
|
|
|
|
88
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
12,702
|
|
|
|
4,858
|
|
|
|
8,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(10,044
|
)
|
|
|
3,696
|
|
|
|
(4,968
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
41,298
|
|
|
|
37,602
|
|
|
|
42,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
31,254
|
|
|
$
|
41,298
|
|
|
$
|
37,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
899
|
|
|
$
|
673
|
|
|
$
|
652
|
|
Supplemental disclosure of non-cash investing and
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in purchase acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,852
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
55
|
|
1.
|
The
Company and its Significant Accounting Policies
|
The
Company
Aruba Networks, Inc. (the Company) was incorporated
in the state of Delaware on February 11, 2002. The Company
securely connects local and remote users to corporate IT
resources via distributed enterprise networks. The
Companys portfolio of campus, branch office, teleworker,
and mobile solutions simplify operations and provide secure
access to all corporate applications and services
regardless of a users device, location, or network. The
products the Company licenses and sells include high-speed
802.11n wireless local area networks; Virtual Branching
Networking solutions for branch offices and teleworkers; and
network operations tools - including spectrum analyzers,
wireless intrusion prevention systems, and the AirWave Wireless
Management Suite for managing wired, wireless, and
mobile device networks. The Company has offices in North
America, Europe, the Middle East and the Asia Pacific region and
employs staff around the world.
Significant
Accounting Policies
Basis of
Presentation
The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America. During the first
quarter of fiscal 2008, the Company determined that the fair
values assigned to certain warrants to purchase preferred stock
issued to non-employees were not computed correctly as of the
IPO closing date when they automatically converted to warrants
to purchase common stock which resulted in $715,000 of excess
warrant expense being recognized in other income (expense), net
in the third quarter of fiscal 2007. During the first quarter of
fiscal 2008, the Company corrected the valuation of these
warrants resulting in the inclusion of other income of $715,000
within other income (expense), net and a reduction of additional
paid-in capital of $715,000. In addition, during the first
quarter of fiscal 2008, the Company determined that stock-based
compensation related to its employee stock purchase plan was
understated by $48,000 and $87,000 in the third and fourth
quarters of fiscal 2007, respectively. During the first quarter
of fiscal 2008, the Company corrected these errors resulting in
the inclusion of $135,000 of additional stock-based compensation
within the consolidated statement of operations for the three
months ended October 31, 2007. The Company and its Audit
Committee concluded that these errors were not material to the
third and fourth quarters of fiscal 2007, the fiscal year ended
July 31, 2007 or the results for the year ending
July 31, 2008, and therefore, the corrections were recorded
in the first quarter of fiscal 2008.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Use of
Estimates
The preparation of these financial statements requires that the
Company make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including
those related to provisions for doubtful accounts, sales
returns, inventory, warranties useful lives of property and
equipment, useful lives of intangible assets, income taxes and
the valuation of equity instruments and contingencies, amongst
others. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ from the estimates made by
management with respect to these and other items.
56
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency Accounting
While the majority of the Companys revenue contracts are
denominated in United States dollars, the Company has foreign
operations that incur expenses in various foreign currencies.
The functional currency of the Companys subsidiaries is
U.S. dollar. Monetary assets and liabilities are remeasured
using the current exchange rate at the balance sheet date.
Nonmonetary assets and liabilities and capital accounts are
remeasured using historical exchange rates. Revenues and
expenses are remeasured using the average exchange rates in
effect during the period. Foreign currency exchange gains and
losses, which have not been material for any periods presented,
are included in the consolidated statements of operations under
other income (expense), net.
Risks and
Uncertainties
The Company is subject to all of the risks inherent in operating
in the networking and communications industry. These risks
include, but are not limited to, a limited operating history,
new and rapidly evolving markets, a lengthy sales cycle,
dependence on the development of new products and services,
unfavorable economic and market conditions, customer acceptance
of new products, competition from larger and more established
companies, limited management resources, dependence on a limited
number of contract manufacturers and suppliers, and the changing
nature of the networking and communications industry. Failure by
the Company to anticipate or to respond adequately to
technological developments in its industry, changes in customer
or supplier requirements, changes in regulatory requirements or
industry standards, or any significant delays in the development
or introduction of products and services, would have a material
adverse effect on the Companys business and operating
results.
Fair
Value of Financial Instruments
The reported amounts of the Companys financial instruments
including cash equivalents, short-term investments, accounts
receivable and accounts payable approximate fair value due to
their short maturities.
Cash and
Cash Equivalents
The Company considers all highly liquid marketable securities
purchased with an original maturity of 90 days or less at
the time of purchase to be cash equivalents. Cash and cash
equivalents is comprised of cash, sweep funds and money market
funds and are stated at cost, which approximates fair value.
Short-Term
Investments
Short-term investments comprise marketable securities that
consist primarily of corporate bonds, U.S. government
agency securities, U.S. treasury bills, commercial paper
and certificates of deposit with original maturities beyond
90 days. As the Company views all securities as
representing the investment of funds available for current
operations, and management has the ability and intent, if
necessary, to liquidate any of these investments in order to
meet the Companys liquidity needs within the next
12 months, the short-term investments are classified as
current assets. The Companys policy is to protect the
value of its investment portfolio and minimize principal risk by
earning returns based on current interest rates. All of the
Companys marketable securities are classified as
available-for-sale.
The Company reviews the individual securities in its portfolio
to determine whether a decline in a securitys fair value
below the amortized cost basis is other than temporary. If other
than temporary impairment (OTTI) has been incurred,
and it is more likely than not that the Company will not sell
the investment security before the recovery of its amortized
cost basis, then the OTTI is separated into (a) the amount
representing the credit loss and (b) the amount related to
all other factors. The amount of the total OTTI related to the
credit loss is recognized in earnings. The amount of the total
OTTI related to other factors is recognized in accumulated other
comprehensive
57
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income. The Company determined that there were no investments in
its portfolio that were
other-than-temporarily
impaired as of July 31, 2010 and 2009.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk include cash, cash equivalents and
short-term investments. The Company has not experienced any
losses on its deposits of its cash and cash equivalents, and its
short-term investments.
The Companys accounts receivables are derived from revenue
earned from customers located in the Americas, Europe, the
Middle East, Africa and Asia Pacific. The Company performs
ongoing credit evaluations of its customers financial
condition and generally requires no collateral from its
customers. The Company maintains a provision for doubtful
accounts receivable based upon the expected collectibility of
accounts receivable, and to date such losses have been within
managements expectations. As of July 31, 2010, two
customers accounted for more than 10% of accounts receivable.
One customer accounted for 31.6% and one customer accounted for
18.2% of accounts receivable. As of July 31, 2009, two
customers accounted for more than 10% of accounts receivable.
One customer accounted for 23.0% and one customer accounted for
19.1% of accounts receivable. During fiscal 2010, three
customers accounted for more than 10% of total revenues. During
fiscal 2009, two customers accounted for more than 10% of
revenues and in fiscal 2008, one customer accounted for more
than 10% of revenues. See Note 10 in these Notes to
Consolidated Financial Statements for more details.
Provision
for Doubtful Accounts
The Company records a provision for doubtful accounts based on
historical experience and a detailed assessment of the
collectibility of its accounts receivable. In estimating the
allowance for doubtful accounts, management considers, among
other factors, (i) the aging of the accounts receivable,
including trends within and ratios involving the age of the
accounts receivable, (ii) the Companys historical
write-offs, (iii) the credit-worthiness of each customer,
(iv) the economic conditions of the customers
industry, and (v) general economic conditions. In cases
where the Company is aware of circumstances that may impair a
specific customers ability to meet their financial
obligations to it, the Company records a specific allowance
against amounts due from the customer, and thereby reduces the
net recognized receivable to the amount it reasonably believes
will be collected.
Charges to the income statement relating to allowance for
doubtful accounts were $0.3 million, $0.1 million, and
$0.3 million, for the fiscal years ended July 31,
2010, 2009, and 2008, respectively.
Inventory
Inventory consists of hardware and related component parts and
is stated at the lower of cost or market. Cost is computed using
the standard cost, which approximates actual cost, on a
first-in,
first-out basis. The Company records inventory write-downs for
potentially excess inventory based on forecasted demand,
economic trends and technological obsolescence of its products.
At the point of loss recognition, a new, lower-cost basis for
that inventory is established, and subsequent changes in facts
and circumstances do not result in the restoration or increase
in that newly established cost basis. Inventory write-downs are
reflected as cost of product revenues and amounted to
approximately$2.9 million, $3.4 million, and
$1.2 million, for the fiscal years ended July 31,
2010, 2009, and 2008, respectively.
Deferred
Costs
When the Companys products have been delivered, but the
product revenue associated with the arrangement has been
deferred as a result of not meeting the revenue recognition
criteria, the Company also defers the related inventory costs
for the delivered items.
58
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment, net
Property and equipment, net are stated at historical cost less
accumulated depreciation. Depreciation is computed using the
straight-line method over the shorter of the estimated useful
lives of the respective assets, generally ranging from two to
five years, or the lease term, if applicable. Leasehold
improvements are recorded at cost with any reimbursement from
the landlord being accounted for as part of rent expense using
the straight-line method over the lease term.
Upon retirement or sale, the cost of assets disposed of and the
related accumulated depreciation are removed from the accounts
and any resulting gain or loss is credited or charged to the
statement of operations, under other income (expense), net.
Expenditures for maintenance and repairs are charged to expense
as incurred.
Impairment
of Long-lived Assets
Intangible assets with finite lives are amortized using the
straight-line method over the estimated economic lives of the
assets, which range from two to seven years. Long-lived assets,
including intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable.
Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the
asset and its eventual disposition. Measurement of an impairment
loss for long-lived assets that management expects to hold and
use are based on the fair value of the asset. The Company did
not recognize impairment charges in any of the periods presented.
Goodwill
The Company performs an annual goodwill impairment test and when
triggering events are present. For purposes of impairment
testing, the Company determined that it has only one reporting
unit. The identification and measurement of goodwill impairment
involves the estimation of the fair value of the Company. The
estimates of fair value of the Company are based on the best
information available as of the date of the assessment, which
primarily includes the Companys market capitalization. As
of the date of the assessment, the market capitalization of the
Company was substantially in excess of its carrying value. As a
result, the Company did not recognize impairment charges in any
of the periods presented.
Revenue
Recognition and Sales Returns
The Companys revenues are derived primarily from two
sources: (1) product revenue, including hardware and
software products, and (2) related professional services
and support revenue, estimated net of sales returns and earned
reseller rebates. Support typically includes software updates,
on a when and if available basis, telephone and internet access
to technical support personnel and hardware support. The Company
provides its customers with rights to unspecified software
product upgrades and to maintenance releases and patches
released during the term of the support period. Revenues for
support services are recognized on a straight-line basis over
the service contract term, which is typically between one year
and five years.
The Company accounts for revenues as multiple elements because
its products are integrated with software that is essential to
their functionality and because it provides unspecified software
upgrades and enhancements related to the equipment through
support agreements. The Companys product sales may also
include support, training
and/or
consulting services. When a sale involves multiple elements, the
Company allocates the entire fee from the arrangement to each
respective element based on its VSOE of fair value and
recognizes revenue when each elements revenue recognition
criteria are met. VSOE of fair value for each element is
established based on the sales price the Company charges when
the same element is sold separately. If VSOE of fair value
cannot be established for the undelivered element of an
agreement, when the undelivered element is support, the entire
amount of revenue from the arrangement is deferred and
recognized ratably over the period that the support is
delivered. Prior to the second quarter of fiscal 2006, the
Company had not been able to establish VSOE of fair value at the
outset of its
59
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
arrangements. Accordingly, prior to the second quarter of 2006,
the Company recognized revenue for the entire transaction
ratably over the support period, as the only undelivered element
was typically support.
Beginning in the second quarter of fiscal 2006, the Company was
able to establish VSOE of fair value at the outset of its
arrangements as it established a new support and services
pricing policy, with different services and support offerings
than were previously sold. The Company also began selling
support services separately from its arrangements in the form of
support renewals. Accordingly, beginning in the second quarter
of fiscal 2006, the Company began recognizing product revenues
upon delivery using the residual method for transactions where
all other revenue recognition criteria were met. As the Company
had not been able to establish VSOE on its prior services and
support offerings, all transactions prior to the second quarter
of fiscal 2006 continue to be recognized ratably over the
support period. This revenue is recorded in the Consolidated
Statements of Operations as ratable product and related
professional services and support.
The Company recognizes revenue only when persuasive evidence of
an arrangement exists, delivery has occurred, the fee is fixed
or determinable, and collectibility is probable. Additionally,
the Company recognizes revenue from indirect sales channel
partners upon persuasive evidence provided by its indirect
channel partners of a sale to an end customer. If a sale to an
end customer has not occurred by the end of the month in which
the Company ships its products to the channel partner, the
revenue is deferred and the goods that remain in the
partners inventory pending a sale to an end customer are
classified on the consolidated balance sheet as deferred costs
until the sale to an end customer occurs and the persuasive
evidence of the sale is provided. The amount of inventory held
by resellers pending a sale to an end customer was
$3.7 million, $0.4 million and $1.7 million as of
July 31, 2010, 2009 and 2008, respectively.
The related sale of support services to a reseller occurs when a
specific sale to an end customer occurs. If the sale of support
services occurs at the same time as the Company receives the
initial purchase order from the reseller, the support services
are included on that purchase order and recognized ratably over
the related support period, commencing on the date of delivery
to the end customer. If the sale of support services occurs
after the Company receives the initial purchase order, the
support services for the specific product sales are purchased on
a subsequent purchase order. The subsequent purchase order is
received at the time the
point-of-sale
(POS) report is provided for all product sales that
occurred during the month. The support services are recognized
ratably over the related support period, commencing from the
delivery date to each respective end customer.
PCS that the Company provides to its channel partners differs
from PCS that the Company provides to its end customers in that
the Company is only obligated to provide support services to the
channel partner directly, while the channel partner is obligated
to provide support services directly to the end customer. The
channel partner is obligated to provide Level 1 and
Level 2 support services to the end customer, including
technical support and RMA fulfillment, while the Companys
obligations are only to provide software upgrades and
Level 3 technical support in the unusual scenario in which
the channel partner is unable to provide the technical support
that the end customer requires.
Shipping charges billed to customers are included in product
revenues and the related shipping costs are included in cost of
product revenues.
The Company records estimated sales returns as a reduction to
revenues upon shipment based on its contractual obligations and
historical returns experience. In cases where the Company is
aware of circumstances that will likely result in a specific
customers request to return purchased equipment, the
Company records a specific sales returns reserve.
Research
and Development Expenses
Research and development expenditures are charged to operations
as incurred and consist primarily of compensation costs,
including stock compensation costs, outside services, expensed
materials, depreciation and an
60
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allocation of overhead expenses, including facilities and IT
costs. Software development costs incurred prior to the
establishment of technological feasibility are included in
research and development and are expensed as incurred.
After technological feasibility is established, material
software development costs are capitalized. The capitalized cost
is amortized on a straight-line basis over the estimated product
life, or on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period
between achieving technological feasibility, which the Company
has defined as the establishment of a working model, which
typically occurs when beta testing commences, and the general
availability of such software has been short and software
development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any
software development costs.
Stock-Based
Compensation
The Company measures and recognizes compensation expense for all
share-based payment awards made to employees and directors based
on estimated fair values. The Companys share-based payment
awards include stock options, restricted stock units and awards,
employee stock purchase plan awards, and performance-based
awards, which require an assessment of the probability of
vesting. The Company calculates the fair value of restricted
stock and performance-based awards which are paid in restricted
stock, based on the fair market value of its stock on the date
of grant. The Company calculates the fair value of stock options
and employee stock purchase plan shares on the date of grant
using the Black-Scholes option-pricing model. This methodology
requires the use of subjective assumptions such as expected
stock price volatility over the term of the awards, actual and
projected employee stock option exercise behaviors, risk-free
interest rates and expected dividends. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period.
The Company determines the amount of stock-based compensation
expense based on awards that it ultimately expects to vest,
reduced for estimated forfeitures. In addition, compensation
expense includes the effects of awards modified, repurchased or
cancelled.
Income
Taxes
The Company uses the asset and liability method of accounting
for income taxes. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets are
recognized for deductible temporary differences, along with net
operating loss carryforwards, if it is more likely than not that
the tax benefits will be realized. The ultimate realization of
the deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those
temporary differences, research and credit carryforwards and net
operating loss carryforwards are deductible. To the extent
deferred tax assets cannot be recognized under the preceding
criteria, a valuation allowance is established.
Income tax contingencies are accounted for and may require
significant management judgment in estimating final outcomes.
Actual results could differ materially from these estimates and
could significantly affect the effective tax rate and cash flows
in future years. At July 31, 2010, the Company had
$6.3 million of unrecognized tax benefits, none of which
would materially affect its income tax expense if recognized to
the extent that the Company continues to maintain a full
valuation allowance against its deferred tax assets.
Comprehensive
Income (Loss)
Comprehensive income (loss) consists of other comprehensive
income (loss) and net loss. Other comprehensive income (loss)
consists of unrealized investment gains and losses from
available-for-sale
securities. No other-than temporary impairment has been recorded
by the Company during fiscal years 2010, 2009 and 2008.
61
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
Accounting Pronouncements
In October 2009, FASB issued Accounting Standards Update (ASU)
No. 2009-14,
Topic 985: Certain Revenue Arrangements That Include Software
Elements (a Consensus of the FASB Emerging Issues Task Force
Issue (EITF)). ASU
No. 2009-14
modifies
ASC 985-605,
Software Revenue, such that the following products would
be considered non-software deliverables and therefore excluded
from the scope of
ASC 985-605:
|
|
|
|
|
Tangible products that contain software elements and
non-software elements that function together to deliver the
tangible products essential functionality.
|
|
|
|
Undelivered elements that are essential to the above described
tangible products functionality.
|
In October 2009, FASB issued ASU
No. 2009-13,
Revenue Recognition (Topic 605): Multiple Deliverable
Revenue Arrangements (a Consensus of the FASB EITF). ASU
No. 2009-13
modifies
ASC 605-25,
Revenue Recognition Multiple-Element Arrangements
(formerly
EITF 00-21).
ASU
No. 2009-13
requires an entity to allocate the revenue at the inception of
an arrangement to all of its deliverables based on their
relative selling prices. This guidance eliminates the residual
method of allocation of revenue in multiple deliverable
arrangements and requires the allocation of revenue based on the
relative-selling-price method. The determination of the selling
price for each deliverable requires the use of a hierarchy
designed to maximize the use of available objective evidence,
including, VSOE, third party evidence of selling price (TPE), or
estimated selling price (ESP).
ASU
No. 2009-13
and ASU
No. 2009-14
must be adopted no later than the beginning of the
Companys fiscal year 2011 and early adoption is allowed
and may be adopted either under the prospective method, whereby
the guidance will apply to all revenue arrangements entered into
or materially modified after the effective date, or under the
retrospective application, whereby the guidance will apply to
all revenue arrangements for all periods presented. An entity
may elect to adopt ASU
No. 2009-13
and ASU
No. 2009-14
in a period other than their first reporting period of a fiscal
year under the prospective method but must adjust the revenue of
prior reported periods such that all new revenue arrangements
entered into, or materially modified, during the fiscal year of
adoption are accounted for under this guidance.
The adoption of ASU
No. 2009-13
and ASU
No. 2009-14
will allow the separation of deliverables under more
arrangements which may result in less revenue deferral. For such
arrangements, the application of the relative-selling price
method of allocating the revenue of an arrangement and the
elimination of the residual method of allocation may result in a
different reallocation of revenue from product revenue, which is
recognized upon delivery, to support revenue, which is
recognized ratably over the support period.
The Company is currently evaluating the impact of these
pronouncements on its financial position and results of
operations.
62
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents details of the Companys total
purchased intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Useful Lives
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
As of July 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing Technology
|
|
4 years
|
|
$
|
9,283
|
|
|
$
|
(5,914
|
)
|
|
$
|
3,369
|
|
Patents/Core Technology
|
|
4 years
|
|
|
3,046
|
|
|
|
(1,940
|
)
|
|
|
1,106
|
|
Customer Contracts
|
|
6 to 7 years
|
|
|
5,083
|
|
|
|
(2,020
|
)
|
|
|
3,063
|
|
Support Agreements
|
|
5 to 6 years
|
|
|
2,717
|
|
|
|
(1,284
|
)
|
|
|
1,433
|
|
Tradenames/Trademarks
|
|
5 years
|
|
|
600
|
|
|
|
(284
|
)
|
|
|
316
|
|
Non-Compete Agreements
|
|
2 years
|
|
|
712
|
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
21,441
|
|
|
$
|
(12,154
|
)
|
|
$
|
9,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Useful Lives
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
As of July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing Technology
|
|
4 years
|
|
$
|
9,283
|
|
|
$
|
(3,593
|
)
|
|
$
|
5,690
|
|
Patents/Core Technology
|
|
4 years
|
|
|
3,046
|
|
|
|
(1,178
|
)
|
|
|
1,868
|
|
Customer Contracts
|
|
6 to 7 years
|
|
|
5,083
|
|
|
|
(1,185
|
)
|
|
|
3,898
|
|
Support Agreements
|
|
5 to 6 years
|
|
|
2,717
|
|
|
|
(741
|
)
|
|
|
1,976
|
|
Tradenames/Trademarks
|
|
5 years
|
|
|
600
|
|
|
|
(164
|
)
|
|
|
436
|
|
Non-Compete Agreements
|
|
2 years
|
|
|
712
|
|
|
|
(489
|
)
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
21,441
|
|
|
$
|
(7,350
|
)
|
|
$
|
14,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fiscal years ended July 31, 2010, 2009 and 2008,
the Company recorded $4.8 million, $4.9 million and
$2.4 million, respectively, of amortization expense related
to its purchased intangible assets. Amortization expense is
recorded in the Consolidated Statements of Operations under the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cost of product revenues
|
|
$
|
3,082
|
|
|
$
|
3,082
|
|
|
$
|
1,663
|
|
Cost of professional services and support revenues
|
|
|
540
|
|
|
|
540
|
|
|
|
196
|
|
Sales and marketing
|
|
|
1,182
|
|
|
|
1,315
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense
|
|
$
|
4,804
|
|
|
$
|
4,937
|
|
|
$
|
2,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated future amortization expense of purchased
intangible assets as of July 31, 2010 is as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Years ending July 31,
|
|
|
|
|
2011
|
|
$
|
4,555
|
|
2012
|
|
|
2,917
|
|
2013
|
|
|
1,259
|
|
2014
|
|
|
556
|
|
|
|
|
|
|
Total
|
|
$
|
9,287
|
|
|
|
|
|
|
|
|
3.
|
Net Loss
Per Common Share
|
Basic net loss per common share is calculated by dividing net
loss by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share is
calculated by giving effect to all potentially dilutive common
shares, including options and common stock subject to repurchase
unless the result is anti-dilutive. The following table sets
forth the computation of net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Net loss
|
|
$
|
(33,998
|
)
|
|
$
|
(23,413
|
)
|
|
$
|
(17,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding net of
weighted-average common shares subject to repurchase
|
|
|
89,978
|
|
|
|
84,612
|
|
|
|
79,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.38
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares subject to repurchase are included in other
accrued liabilities in the consolidated balance sheets.
The following outstanding options, common stock subject to
repurchase, and restricted stock awards were excluded from the
computation of diluted net loss per common share for the periods
presented because including them would have had an anti-dilutive
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Options to purchase common stock
|
|
|
23,641
|
|
|
|
21,542
|
|
|
|
19,518
|
|
Common stock subject to repurchase
|
|
|
1
|
|
|
|
156
|
|
|
|
430
|
|
Restricted stock awards
|
|
|
2,256
|
|
|
|
2,859
|
|
|
|
3,365
|
|
64
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Short-Term
Investments
|
Short-term investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
$
|
23,802
|
|
|
$
|
69
|
|
|
$
|
(4
|
)
|
|
$
|
23,867
|
|
U.S. government agency securities
|
|
|
80,683
|
|
|
|
78
|
|
|
|
(9
|
)
|
|
|
80,752
|
|
U.S. treasury bills
|
|
|
12,816
|
|
|
|
57
|
|
|
|
|
|
|
|
12,873
|
|
Commercial paper
|
|
|
4,495
|
|
|
|
|
|
|
|
|
|
|
|
4,495
|
|
Certificates of deposit
|
|
|
2,179
|
|
|
|
1
|
|
|
|
|
|
|
|
2,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
123,975
|
|
|
$
|
205
|
|
|
$
|
(13
|
)
|
|
$
|
124,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
$
|
10,667
|
|
|
$
|
41
|
|
|
$
|
|
|
|
$
|
10,708
|
|
U.S. government agency securities
|
|
|
63,720
|
|
|
|
144
|
|
|
|
(6
|
)
|
|
|
63,858
|
|
U.S. treasury bills
|
|
|
995
|
|
|
|
1
|
|
|
|
|
|
|
|
996
|
|
Commercial paper
|
|
|
6,275
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
6,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
81,657
|
|
|
$
|
189
|
|
|
$
|
(7
|
)
|
|
$
|
81,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cost basis and fair value of debt securities by contractual
maturity, are presented below:
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair
|
|
|
|
Basis
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2010
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
93,597
|
|
|
$
|
93,700
|
|
One to two years
|
|
|
30,378
|
|
|
|
30,467
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
123,975
|
|
|
$
|
124,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair
|
|
|
|
Basis
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2009
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
55,634
|
|
|
$
|
55,781
|
|
One to two years
|
|
|
26,023
|
|
|
|
26,058
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
81,657
|
|
|
$
|
81,839
|
|
|
|
|
|
|
|
|
|
|
The Company reviews the individual securities in its portfolio
to determine whether a decline in a securitys fair value
below the amortized cost basis is other than temporary. The
Company determined that there were no investments in its
portfolio, related to credit losses or otherwise, that were
other-than temporarily impaired during fiscal 2010, 2009 or 2008.
65
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the fair value and gross
unrealized losses of the Companys investments with
unrealized losses aggregated by type of investment instrument
and length of time that individual securities have been in a
continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2010
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
$
|
7,400
|
|
|
$
|
(4
|
)
|
U.S. government agency securities
|
|
|
15,245
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,645
|
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2009
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
6,277
|
|
|
$
|
(1
|
)
|
U.S. government agency securities
|
|
|
63,858
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,135
|
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
There were no short-term investments in a continuous unrealized
loss position for more than 12 months as of July 31,
2010.
Fair
Value of Financial Instruments
Cash and cash equivalents consist primarily of bank deposits
with third-party financial institutions and highly liquid money
market securities with original maturities at date of purchase
of 90 days or less and are stated at cost which
approximates fair value.
Short-term investments are recorded at fair value, defined as
the exit price in the principal market in which the Company
would transact representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants. Level 1
instruments are valued based on quoted market prices in active
markets for identical instruments and include the Companys
investments in money market funds. Level 2 securities are
valued using quoted market prices for similar instruments,
nonbinding market prices that are corroborated by observable
market data, or discounted cash flow techniques and include the
Companys investments in corporate bonds and notes,
U.S. government agency securities, treasury bills, and
commercial paper. Level 3 instruments are valued based on
unobservable inputs that are supported by little or no market
activity and reflect the Companys own assumptions in
measuring fair value. The Company has no level 3
instruments.
66
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of July 31, 2010, the fair value measurements of the
Companys cash, cash equivalents and short-term investments
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
(In thousands)
|
|
|
Corporate bonds and notes
|
|
$
|
23,867
|
|
|
$
|
|
|
|
$
|
23,867
|
|
U.S. government agency securities
|
|
|
80,752
|
|
|
|
|
|
|
|
80,752
|
|
U.S. treasury bills
|
|
|
12,873
|
|
|
|
|
|
|
|
12,873
|
|
Commercial paper
|
|
|
4,495
|
|
|
|
|
|
|
|
4,495
|
|
Money market funds
|
|
|
9,895
|
|
|
|
9,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and short-term investments
|
|
|
131,882
|
|
|
$
|
9,895
|
|
|
$
|
121,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
2,180
|
|
|
|
|
|
|
|
|
|
Cash deposits with third-party financial institutions
|
|
|
21,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
155,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between different levels during fiscal
2010.
|
|
5.
|
Balance
Sheet Components
|
The following tables provide details of selected balance sheet
items:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Accounts Receivable, net
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
41,731
|
|
|
$
|
33,856
|
|
Less: Allowance for doubtful accounts
|
|
|
(462
|
)
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,269
|
|
|
$
|
33,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Inventory
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
294
|
|
|
$
|
486
|
|
Finished goods
|
|
|
14,865
|
|
|
|
7,964
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,159
|
|
|
$
|
8,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
11,363
|
|
|
$
|
6,777
|
|
Inventory
|
|
|
9,381
|
|
|
|
5,145
|
|
Marketing
|
|
|
7,176
|
|
|
|
2,434
|
|
Other
|
|
|
8,538
|
|
|
|
6,366
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,458
|
|
|
$
|
20,722
|
|
|
|
|
|
|
|
|
|
|
67
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property
and Equipment, Net
|
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
Useful Lives
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands)
|
|
|
Computer equipment
|
|
|
2 years
|
|
|
$
|
7,993
|
|
|
$
|
7,220
|
|
Computer software
|
|
|
2- 5 years
|
|
|
|
4,558
|
|
|
|
4,175
|
|
Machinery and equipment
|
|
|
2 years
|
|
|
|
10,441
|
|
|
|
7,160
|
|
Furniture and fixtures
|
|
|
5 years
|
|
|
|
2,397
|
|
|
|
1,765
|
|
Leasehold improvements
|
|
|
2-6 years
|
|
|
|
2,174
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, gross
|
|
|
|
|
|
|
27,563
|
|
|
|
20,957
|
|
Less: Accumulated depreciation and amortization
|
|
|
|
|
|
|
(17,644
|
)
|
|
|
(13,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
|
|
$
|
9,919
|
|
|
$
|
7,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense totaled $5.3 million,
$4.7 million, and $3.3 million, for the fiscal years
ended July 31, 2010, 2009, and 2008, respectively.
Deferred revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Product
|
|
$
|
16,087
|
|
|
$
|
10,911
|
|
Professional services and support
|
|
|
27,298
|
|
|
|
23,006
|
|
Ratable product and related services and support
|
|
|
37
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue, current
|
|
|
43,422
|
|
|
|
34,654
|
|
Professional services and support, long-term
|
|
|
10,976
|
|
|
|
8,487
|
|
Ratable product and related services and support, long-term
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue, long-term
|
|
|
10,976
|
|
|
|
8,524
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue
|
|
$
|
54,398
|
|
|
$
|
43,178
|
|
|
|
|
|
|
|
|
|
|
Deferred product revenue relates to arrangements where not all
revenue recognition criteria have been met. The increase in
deferred product revenue was primarily due to increases in the
amount of products stocked by the Companys VADs, offset by
the recognition of revenue on previously deferred transactions
that included acceptance criteria from the related customers.
The Company will not recognize revenue for the deferred product
revenue held by the VADs until it receives persuasive evidence
from the VADs of a sale to an end customer.
Deferred professional services and support revenue primarily
represents customer payments made in advance for support
contracts. Support contracts are typically billed on an annual
basis in advance and revenue is recognized ratably over the
support period, typically one to five years.
Deferred ratable product and related services and support
revenue consists of revenue on transactions where VSOE of fair
value of support has not been established and the entire
arrangement is being recognized ratably over the support period,
which typically ranges from one year to five years.
68
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income (loss) before income tax provision for the fiscal years
ended July 31, 2010, 2009, and 2008 consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
(36,628
|
)
|
|
$
|
(24,762
|
)
|
|
$
|
(17,804
|
)
|
International
|
|
|
3,358
|
|
|
|
2,137
|
|
|
|
1,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
$
|
(33,270
|
)
|
|
$
|
(22,625
|
)
|
|
$
|
(16,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes for the fiscal
years ended July 31, 2010, 2009, and 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(283
|
)
|
|
$
|
15
|
|
|
$
|
|
|
State
|
|
|
231
|
|
|
|
260
|
|
|
|
281
|
|
Foreign
|
|
|
874
|
|
|
|
513
|
|
|
|
686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision for income taxes
|
|
|
822
|
|
|
|
788
|
|
|
|
967
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
State
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision for income taxes
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
728
|
|
|
$
|
788
|
|
|
$
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deferred income tax provision and benefit for fiscal year
2010, requires, in certain circumstances, items reported in
accumulated other comprehensive income to be considered in the
realization of the tax benefit associated with a net loss. The
specific circumstance relates to pre-tax other accumulated
comprehensive income (loss) related to the Companys
available-for-sales
securities, and as a result the Company recorded a deferred
income tax liability of less than $0.1 million for fiscal
2010.
69
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities as
of July 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
18,504
|
|
|
$
|
18,863
|
|
Capital loss
|
|
|
77
|
|
|
|
|
|
Research and development credits
|
|
|
11,653
|
|
|
|
9,988
|
|
Depreciation and amortization
|
|
|
345
|
|
|
|
|
|
Accruals and reserves
|
|
|
37,087
|
|
|
|
28,215
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
67,666
|
|
|
|
57,066
|
|
Valuation allowance
|
|
|
(67,572
|
)
|
|
|
(54,879
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
94
|
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
(2,187
|
)
|
Unrealized loss in other comprehensive income
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(94
|
)
|
|
|
(2,187
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
In assessing the realization of deferred tax assets, the Company
considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences and net operating loss
carryforwards are deductible.
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, all federal and state deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance
increased approximately $12.7 million, $9.5 million,
and $7.9 million, during the fiscal years ended
July 31, 2010, 2009, and 2008, respectively.
The differences between the provision for income taxes computed
at the federal statutory rate of 34% and the Companys
actual provision for income taxes for 2010, 2009, and 2008, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal income tax benefit
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income tax (benefit), net of federal benefit
|
|
|
(3.5
|
)%
|
|
|
0.0
|
%
|
|
|
(3.7
|
)%
|
Foreign taxes
|
|
|
(0.9
|
)%
|
|
|
(1.2
|
)%
|
|
|
0.6
|
%
|
Stock compensation and warrant expense
|
|
|
6.0
|
%
|
|
|
10.6
|
%
|
|
|
7.7
|
%
|
Non-deductible expenses
|
|
|
3.0
|
%
|
|
|
(5.3
|
)%
|
|
|
1.5
|
%
|
Research and developments credits
|
|
|
(6.5
|
)%
|
|
|
(8.6
|
)%
|
|
|
(15.0
|
)%
|
Change in valuation allowance
|
|
|
38.1
|
%
|
|
|
41.9
|
%
|
|
|
48.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
|
2.2
|
%
|
|
|
3.4
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended July 31, 2010, 2009, and 2008,
the Company had $97.4 million, $84.1 million, and
$88.0 million, respectively, of federal net operating loss
carryforwards (NOLs), and $74.4 million,
$71.1 million,
70
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and $72.9 million, respectively, of state NOLs, available
to reduce future taxable income. These NOLs will begin to expire
in 2022 and 2013 for federal and state tax purposes,
respectively. As of the fiscal year ended July 31, 2010 the
Company had $0.2 million of federal capital loss
carryforwards which will begin to expire in 2014. Approximately
$68.9 million of federal net operating losses relates to
stock compensation deductions in excess of book deductions, the
tax effect of which would be to credit to
additional-paid-in-capital if realized. The Internal Revenue
Code limits the use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the
stock ownership of a company. In the event the Company may have
a change in ownership, utilization of the carryforwards could be
restricted.
The Company has research credit carryforwards for the fiscal
years ended July 31, 2010, 2009, and 2008, of approximately
$6.4 million, $6.0 million, and $3.7 million,
respectively, for federal and $8.0 million,
$5.7 million, and $4.8 million, respectively, for
state income tax purposes. If not utilized, the federal
carryforwards will expire in various amounts beginning in 2024.
The California credit can be carried forward indefinitely. The
Company has minimum-alternative tax (MAT) tax
credits of approximately $0.1 million from its subsidiary
in India. The subsidiary in India is operating under tax holiday
which will expire in year 2011. It is more likely than not the
benefit of the MAT credits will be utilizable after expiration
of the tax holiday.
Deferred tax liabilities have not been recognized for
undistributed earnings for foreign subsidiaries because it is
managements intention to reinvest such undistributed
earnings outside the U.S. The cumulative amount of such
undistributed earnings upon which no U.S. income taxes have
been provided as of July 31, 2010 was approximately
$6.4 million. Generally, such earnings are subject to
potential foreign withholding tax and U.S. tax upon
remittance of dividends and under certain other circumstances.
Determination of the amount of unrecognized deferred tax
liability for temporary differences related to investments in
these
non-U.S. subsidiaries
that are essentially permanent in duration is not practicable.
At July 31, 2010, the Company had $6.3 million of
unrecognized tax benefits, none of which would materially affect
its income tax expense if recognized to the extent that the
Company continues to maintain a full valuation allowance against
its deferred tax assets. A reconciliation of the beginning and
ending amount of the consolidated liability for unrecognized tax
benefits during the year is as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Balance at July 31, 2007
|
|
$
|
1,903
|
|
Additions for tax positions related to current year
|
|
|
1,763
|
|
|
|
|
|
|
Balance at July 31, 2008
|
|
|
3,666
|
|
Additions for tax positions related to current year
|
|
|
1,458
|
|
|
|
|
|
|
Balance at July 31, 2009
|
|
|
5,124
|
|
Additions for tax positions related to current year
|
|
|
1,212
|
|
Reductions for tax positions related to prior year
|
|
|
(16
|
)
|
|
|
|
|
|
Balance at July 31, 2010
|
|
$
|
6,320
|
|
|
|
|
|
|
The Company recognizes interest and penalties related to income
tax matters as part of the provision for income taxes. To date,
these charges have been immaterial.
The Company files annual income tax returns in the
U.S. federal jurisdiction, various U.S. state and
local jurisdictions, and in various foreign jurisdictions. The
Company remains subject to tax authority review for all material
jurisdictions for all years.
71
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Common
Stock and Equity Incentive Plans
|
2002
Stock Plan
The Companys 2002 Stock Plan (2002 Plan) was
adopted by its board of directors and approved by its
stockholders in April 2002. The administration and features of
the 2002 Plan and the terms of the options granted under the
plan are substantially similar to the corresponding features of
the 2007 Equity Incentive Plan.
As provided by the 2007 Equity Incentive Plan, all of the
remaining shares reserved for issuance under the 2002 Plan, were
transferred to the 2007 Plan upon the closing of the IPO.
However, the 2002 Plan will continue to govern the terms and
conditions of the outstanding awards previously granted under
such plan.
2007
Equity Incentive Plan
In December 2006, the Companys board of directors approved
the 2007 Equity Incentive Plan (the 2007 Plan). The
2007 Plan provides for the grant of incentive stock options to
employees and any parent and subsidiary corporations
employees, and for the grant of nonstatutory stock options,
restricted stock, restricted stock units, stock appreciation
rights, performance shares and deferred stock units to the
Companys employees, directors, consultants and its parent
and subsidiary corporations employees and consultants.
The Company reserved the following shares of common stock for
issuance under the 2007 Plan:
|
|
|
|
|
all shares of the Companys common stock reserved under the
2002 Plan which have been reserved but not issued or subject to
outstanding grants, up to a maximum of
7,000,000 shares; and
|
|
|
|
any shares of the Companys common stock issued under the
2002 Plan that are returned to the 2002 Plan as a result of the
termination of options or that are repurchased by the Company
pursuant to the terms of the plan, up to a maximum of
10,000,000 shares.
|
Additionally, the Companys 2007 Plan provides for annual
increases in the number of shares available for issuance
thereunder on the first day of each fiscal year, beginning with
fiscal 2008, equal to the lesser of:
|
|
|
|
|
5% of the outstanding shares of the Companys common stock
on the last day of the immediately preceding fiscal year; or
|
|
|
|
15,000,000 shares.
|
Incentive and nonstatutory stock options under the 2007 Plan may
be granted at prices not less than 100% of the closing price of
the stock on the Nasdaq Global Market as of the date of grant.
For options granted to an employee who owns more than 10% of the
voting power of all classes of stock of the Company, the
exercise price shall be no less than 110% of the estimated value
of the stock at the date of grant. Options generally vest over a
four year period and expire no later than ten years after the
date of grant.
Restricted stock awards granted under the 2007 Plan are shares
of common stock that vest in accordance with terms and
conditions established by the plan administrator. The plan
administrator may impose whatever conditions to vesting it
determines to be appropriate. Shares of restricted stock that do
not vest are subject to the Companys right of repurchase
or forfeiture.
Restricted stock units granted under the 2007 Plan are awards
that will result in a payment to a participant only if
performance goals established by the plan administrator are
achieved or the awards otherwise vest. The plan administrator
will determine the terms and conditions of restricted stock
units, including vesting criteria and the form and timing of
payment. Payment for restricted stock units will be made in
shares of the Companys common stock.
72
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Bonus
Pltan
In December 2009, the Compensation Committee of the Board of
Directors approved the Executive Officer Bonus Plan and the
Corporate Bonus Plan (the Bonus Plans), which offers
the Companys executive officers and employees the
opportunity to earn stock bonuses based on the achievement of
specified performance targets during each performance period.
The Bonus Plans consists of two performance periods per fiscal
year. Each performance period lasts for two consecutive fiscal
quarters, with a new performance period beginning on the first
day of the first and third quarters. Under the Bonus Plans a
bonus pool, in an amount determined by the Board of Directors
(the Board), is funded based upon the extent to
which the Company meets or exceeds internal operating plan
revenue and profit targets set by the Board at the start of the
Companys fiscal year. Beginning with fiscal 2011, the
Board may, in its discretion, determine that different
performance metrics will be used to fund the bonus pool. The
Bonus Plans award payout will be based on a percentage of the
participants eligible base pay for the applicable
performance period. Any bonus payment under the Bonus Plans will
be made in the form of a restricted stock unit award granted
under the Companys 2007 Plan and will be subject to the
terms and conditions of the 2007 Plan and an award agreement
between the Company and the participant. Each restricted stock
unit award will be scheduled to vest in full approximately one
year following the date of grant. The ultimate dollar value of a
participants bonus will be based on the target percentage
of their base pay set forth in the Bonus Plans, and adjusted to
reflect personal performance level during the bonus period.
Stock-based compensation expense recognized for the bonus plan
was $1.9 million during fiscal year 2010.
73
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option Activity
The following table summarizes information about stock options
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Exercise
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Available for
|
|
|
Number of
|
|
|
Price
|
|
|
Fair Value
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Grant
|
|
|
Shares
|
|
|
per Share
|
|
|
per Share
|
|
|
Term (Years)
|
|
|
Value(1)
|
|
|
Balance at July 31, 2007
|
|
|
3,358,925
|
|
|
|
21,917,611
|
|
|
$
|
3.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares reserved for issuance
|
|
|
3,846,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
|
|
(3,671,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards cancelled
|
|
|
293,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(2,994,860
|
)
|
|
|
2,994,860
|
|
|
|
8.35
|
|
|
$
|
3.71
|
|
|
|
|
|
|
|
|
|
Options granted in purchase acquisition
|
|
|
|
|
|
|
155,409
|
|
|
|
0.72
|
|
|
|
4.63
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(3,279,536
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
|
$
|
39,772,972
|
|
Options repurchased
|
|
|
66,646
|
|
|
|
|
|
|
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
2,270,342
|
|
|
|
(2,270,342
|
)
|
|
|
5.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008
|
|
|
3,169,466
|
|
|
|
19,518,002
|
|
|
|
4.41
|
|
|
|
|
|
|
|
7.4
|
|
|
|
44,913,703
|
|
Shares reserved for issuance
|
|
|
4,141,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
|
|
(1,626,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards cancelled
|
|
|
565,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(10,491,975
|
)
|
|
|
10,491,975
|
|
|
|
3.82
|
|
|
|
1.55
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(1,436,068
|
)
|
|
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
4,874,878
|
|
Options repurchased
|
|
|
18,333
|
|
|
|
|
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
7,031,994
|
|
|
|
(7,031,994
|
)
|
|
|
7.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2009
|
|
|
2,808,576
|
|
|
|
21,541,915
|
|
|
|
3.32
|
|
|
|
|
|
|
|
6.7
|
|
|
|
120,621,047
|
|
Shares reserved for issuance
|
|
|
4,337,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
|
|
(1,733,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards cancelled
|
|
|
280,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(5,771,745
|
)
|
|
|
5,771,745
|
|
|
|
10.11
|
|
|
$
|
5.60
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(2,974,218
|
)
|
|
|
2.73
|
|
|
|
|
|
|
|
|
|
|
|
28,722,784
|
|
Options repurchased
|
|
|
15,624
|
|
|
|
|
|
|
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
698,918
|
|
|
|
(698,918
|
)
|
|
|
5.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2010
|
|
|
635,877
|
|
|
|
23,640,524
|
|
|
$
|
5.00
|
|
|
|
|
|
|
|
5.9
|
|
|
$
|
283,285,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of July 31, 2010(2)
|
|
|
|
|
|
|
22,676,363
|
|
|
$
|
4.85
|
|
|
|
|
|
|
|
5.8
|
|
|
$
|
275,125,427
|
|
Options exercisable as of July 31, 2010
|
|
|
|
|
|
|
11,957,091
|
|
|
$
|
3.06
|
|
|
|
|
|
|
|
5.7
|
|
|
$
|
166,566,234
|
|
|
|
|
(1) |
|
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying stock option awards
and the fair value of the Companys common stock on the
date of each option exercise. |
|
(2) |
|
Options expected to vest are the result of applying the
pre-vesting forfeiture rate assumption to total outstanding
options. |
74
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-based compensation expense recognized for stock options
was $16.2 million, $11.7 million and
$10.9 million for the years ended July 31, 2010, 2009
and 2008, respectively. As of July 31, 2010,
$39.9 million of total unrecognized compensation cost, net
of forfeitures, related to non-vested stock options is expected
to be recognized over a weighted-average period of
2.6 years.
In the fiscal years ended July 31, 2008 the Company
modified the terms of 55,833 shares, underlying certain
outstanding options held by certain employees. As a result of
the modification to the terms of these stock awards, the Company
recognized additional compensation expense of $0.4 million
for the fiscal year ended July 31, 2008. No other options
held by employees were modified during the fiscal years ended
July 31, 2010 and 2009.
Restricted
Stock Award Activity
The following table summarizes information about unvested
restricted stock awards and units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
As of July 31, 2007
|
|
|
270,700
|
|
|
$
|
17.43
|
|
Awards granted
|
|
|
3,671,208
|
|
|
|
6.78
|
|
Awards vested
|
|
|
(283,703
|
)
|
|
|
12.31
|
|
Awards cancelled
|
|
|
(293,255
|
)
|
|
|
10.92
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2008
|
|
|
3,364,950
|
|
|
|
6.81
|
|
Awards granted
|
|
|
1,626,631
|
|
|
|
4.67
|
|
Awards vested
|
|
|
(1,566,715
|
)
|
|
|
5.86
|
|
Awards cancelled
|
|
|
(565,582
|
)
|
|
|
6.31
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2009
|
|
|
2,859,284
|
|
|
|
6.21
|
|
Awards granted
|
|
|
1,733,374
|
|
|
|
11.51
|
|
Awards vested
|
|
|
(2,096,043
|
)
|
|
|
6.81
|
|
Awards cancelled
|
|
|
(280,683
|
)
|
|
|
6.56
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2010
|
|
|
2,215,932
|
|
|
$
|
9.74
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of restricted stock awards is based on
the market price of the Companys stock on the grant date.
The total fair value of the awards granted during the fiscal
years ended July 31, 2010, 2009 and 2008 was
$19.9 million, $7.6 million and $24.9 million,
respectively. Stock-based compensation related to these awards
for the fiscal years ended July 31, 2010, 2009, and 2008
was $14.1 million, $10.2 million, and
$5.4 million, respectively. As of July 31, 2010,
$16.3 million of total unrecognized compensation cost, net
of forfeitures, related to non-vested restricted stock awards is
expected to be recognized over a weighted-average period of
2.5 years.
Awards
Granted to Non-Employees
During the fiscal years ended July 31, 2010, 2009 and 2008,
the Company issued fully vested stock awards of 207,378, 73,975,
and 31,286, shares, respectively, to consultants. The estimated
fair value of the awards measured on the date of the awards was
$2.3 million, $0.3 million, and $0.4 million, for
the awards granted during the fiscal years ended July 31,
2010, 2009, and 2008, respectively.
In June 2008, the Company granted a restricted stock award of
15,000 shares to one of its board members in exchange for
consulting services. The estimated fair value of the award
measured on the date of the award was $0.1 million. The
award vested in full in June 2009.
75
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee
Stock Purchase Plan
In December 2006, the Companys board of directors approved
the Employee Stock Purchase Plan (ESPP). Under the
Employee Stock Purchase Plan, the Company can grant stock
purchase rights to all eligible employees during a two year
offering period with purchase dates at the end of each six-month
purchase period. The first offering period under the ESPP
commenced in March 2007. Shares are purchased through
employees payroll deductions, up to a maximum of 15% of
employees compensation for each purchase period, at
purchase prices equal to 85% of the lesser of the fair market
value of the Companys common stock at the first trading
day of the applicable offering period or the purchase date. No
participant may purchase more than $25,000 worth of common stock
or 3,000 shares of common stock in any one calendar year
period. The ESPP is compensatory and results in compensation
expense. A total of 2,227,034 shares of common stock have
been reserved for future issuance under the ESPP as of
July 31, 2010. Compensation expense recognized in
connection with the ESPP was $4.0 million,
$2.6 million, and $3.0 million for the fiscal years
ended July 31, 2010, 2009, and 2008, respectively.
The following table shows for each purchase date, the shares
issued and the weighted average purchase price per share:
|
|
|
|
Purchase date
|
|
|
September 1, 2009
|
Shares issued
|
|
|
851,949
|
Weighted average purchase price per share
|
|
$
|
2.34
|
Purchase date
|
|
|
March 1, 2010
|
Shares issued
|
|
|
955,801
|
Weighted average purchase price per share
|
|
$
|
2.64
|
During the fiscal year ended July 31, 2009, the Company
modified the terms of certain existing awards under its ESPP
pursuant to the reset provisions of the plan. Consequently, the
Company will recognize $0.3 million in incremental
stock-based compensation expense over the vesting period. The
Company recognized $0.1 million in incremental stock-based
compensation expense arising from the award modification for the
fiscal year ended July 31, 2009.
During the fiscal year ended July 31, 2008, the Company
modified the terms of certain existing awards under its ESPP
pursuant to the reset provisions of the plan. Consequently, the
Company will recognize $2.6 million in incremental
stock-based compensation expense over the vesting period. The
Company recognized $1.0 million in incremental stock-based
compensation expense arising from the award modification for the
fiscal year ended July 31, 2008.
There were no similar modifications in fiscal 2010.
Fair
Value Disclosures
The total fair value of options and share awards vested in each
of the fiscal years ended July 31, 2010, 2009, and 2008,
was $24.3 million, $15.9 million, and
$7.3 million, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes
model with the following weighted average assumptions:
Employee
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rate
|
|
|
1.8
|
%
|
|
|
2.0
|
%
|
|
|
3.2
|
%
|
Expected term (in years)
|
|
|
4.3
|
|
|
|
4.2
|
|
|
|
4.3
|
|
Dividend yield
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Volatility
|
|
|
71
|
%
|
|
|
66
|
%
|
|
|
51
|
%
|
76
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee
Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Risk-free interest rate
|
|
|
0.2% to 1.0%
|
|
|
|
0.5% to 2.3%
|
|
|
|
1.5% to 4.2%
|
|
Expected term (in years)
|
|
|
0.5 to 2.0
|
|
|
|
0.5 to 2.0
|
|
|
|
0.5 to 2.0
|
|
Dividend yield
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Volatility
|
|
|
43% to 81%
|
|
|
|
53% to 101%
|
|
|
|
43% to 65%
|
|
The expected term of the stock-based awards represents the
period of time that the Company expects such stock-based awards
to be outstanding, giving consideration to the contractual term
of the awards, vesting schedules and expectations of future
employee behavior. The Company gave consideration to its
historical exercises, the vesting term of its options, the post
vesting cancellation history of its options and the
options contractual terms. The contractual term of options
granted from inception of the Company through August 16,
2007 was generally 10 years. On August 17, 2007, the
Companys Compensation Committee revised the 2007 Plan to
provide for a contractual term of seven years on all option
grants on or after such date. Given the Companys limited
operating history, the Company then compared this estimated term
to those of comparable companies from a representative peer
group, the selection of which was based on industry data to
determine the expected term. Similarly, the Company computes
expected volatility based on its historical volatility and the
historical volatility of these comparable companies. The Company
made an estimate of expected forfeitures, and is recognizing
stock-based compensation only for those equity awards that it
expects to vest. The risk-free interest rate for the expected
term of the option is based on the U.S. Treasury Constant
Maturity rate as of the date of grant.
Stock-based
Expenses
Total stock-based compensation for the fiscal years ended
July 31, 2010, 2009, and 2008 was $36.1 million,
$24.6 million, and $19.3 million, respectively. The
amount of capitalized stock-based compensation during the fiscal
year ended July 31, 2010, 2009, 2008 was immaterial.
Stock
Repurchase Program
On February 26, 2008, the Company announced a stock
repurchase program for up to $10.0 million worth of the
Companys common stock. The Company was authorized until
February 26, 2010, to make purchases in the open market and
any such purchases were funded from available working capital.
The number of shares purchased and the timing of purchases was
based on the price of the Companys common stock, general
business and market conditions, and other investment
considerations, and did not exceed $2.5 million per
quarter. Shares were retired upon repurchase. Over the life of
the program, the Company purchased a total of
598,200 shares for a total purchase price of
$3.1 million. The Companys policy related to
repurchases of its common stock is to charge any excess of cost
over par value entirely to additional paid-in capital. This
program expired on February 26, 2010.
401(k)
Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan covering
all employees. Matching contributions to the plan are at the
discretion of the Company. To date, there have been no employer
contributions under this plan.
|
|
10.
|
Segment
Information and Significant Customers
|
The Company operates in one industry segment selling fixed and
modular mobility controllers, wired and wireless access points,
and related software and services.
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or
decision making group, in deciding
77
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
how to allocate resources and in assessing performance. The
Companys chief operating decision maker is its Chief
Executive Officer. The Companys Chief Executive Officer
reviews financial information presented on a consolidated basis
for purposes of allocating resources and evaluating financial
performance. The Company has one business activity, and there
are no segment managers who are held accountable for operations,
operating results and plans for products or components below the
consolidated unit level. Accordingly, the Company reports as a
single operating segment. The Company and its Chief Executive
Officer evaluate performance based primarily on revenue in the
geographic locations in which the Company operates. Revenue is
attributed by geographic location based on the ship-to location
of the Companys customers. The Companys assets are
primarily located in the U.S. and not allocated to any
specific region. Therefore, geographic information is presented
only for total revenue.
The Companys assets are primarily located in the United
States of America and not allocated to any specific region.
Therefore, geographic information is presented only for total
revenue.
The following presents total revenue by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
166,584
|
|
|
$
|
129,991
|
|
|
$
|
118,647
|
|
Europe, Middle East and Africa
|
|
|
38,140
|
|
|
|
34,178
|
|
|
|
31,149
|
|
Asia Pacific
|
|
|
51,110
|
|
|
|
27,023
|
|
|
|
20,231
|
|
Rest of World (including Japan)
|
|
|
10,700
|
|
|
|
8,067
|
|
|
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
266,534
|
|
|
$
|
199,259
|
|
|
$
|
178,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents significant channel partners as a
percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Partner A
|
|
|
17.1
|
%
|
|
|
*
|
|
|
|
*
|
|
Partner B
|
|
|
16.6
|
%
|
|
|
10.1
|
%
|
|
|
*
|
|
Partner C
|
|
|
10.4
|
%
|
|
|
14.5
|
%
|
|
|
11.1
|
%
|
|
|
11.
|
Commitments
and Contingencies
|
Legal
Matters
On August 27, 2007, Symbol Technologies, Inc. and Wireless
Valley Communications, Inc., both Motorola subsidiaries, filed
suit against the Company in the Federal District Court of
Delaware asserting infringement of U.S. Patent Nos.
7,173,922; 7,173,923; 6,625,454; and 6,973,622. The Company
filed its response on October 17, 2007, denying the
allegations and asserting counterclaims. The complaint sought
unspecified monetary damages and injunctive relief. On
September 8, 2008, the Company filed an amended answer and
counterclaims, asserting infringement of Arubas
U.S. Patent Nos. 7,295,524 and 7,376,113 against Motorola,
Inc. as well as its subsidiaries, Symbol Technologies, Inc. and
Wireless Valley Communications, Inc (collectively
Motorola). The counterclaims sought unspecified
monetary damages and injunctive relief. On November 13,
2008, Motorola filed an amended complaint asserting infringement
of U.S. Patent No. 7,359, 676 owned by AirDefense,
Inc., another Motorola subsidiary. On November 4, 2009, the
Company entered into a Patent Cross License and Settlement
Agreement (the Settlement Agreement) with Motorola.
Pursuant to the Settlement Agreement, the Company and Motorola
agreed to:
|
|
|
|
|
jointly execute and file dismissals of patent infringement
actions brought in the United States District Court for the
District of Delaware involving U.S. Patent Nos. 7,173,922;
7,173,923; 6,973,622; 6,625,454; 7,359,676; 7,295,524 and
7,376,113;
|
78
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
release one another of all claims;
|
|
|
|
provide one another with seven year licenses to each of their
respective 802.11 Wireless LAN patent portfolios; and
|
|
|
|
provide one another a covenant not to assert any patent claims
against one anothers current products and commercially
reasonable extensions thereof for four years.
|
As part of the Settlement Agreement, the Company agreed to pay
Motorola $19.8 million.
The determination of the appropriate accounting treatment for
the Settlement Agreement depends to a large extent upon the
ability to reliably value the benefits received. This, in turn,
requires that significant judgment be exercised in arriving at
certain estimates and assumptions. The elements of the
Settlement Agreement that potentially represented benefits to
the Company were comprised of 1) a general release of any
and all asserted and potential infringement claims,
2) license grants to each asserted patent, and 3) a
dismissal of the litigation between the two parties. The Company
concluded that there was no potential future use of the subject
license grants as the Company does not plan to utilize the
license grants in any current or future products, and the
general release and litigation dismissal benefits were period
costs with no future use. Therefore, the Company ascribed no
future value to the Settlement Agreement. As a result, the
Company recorded a $19.8 million charge during the first
quarter of fiscal 2010 for book and tax purposes and made the
corresponding payment to Motorola during the second quarter of
fiscal 2010.
The remaining $2.1 million recorded as legal reserves is
related to settlements entered into during fiscal 2010.
From time to time, the Company is involved in claims and legal
proceedings that arise in the ordinary course of business. If
management believes that a loss arising from these matters is
probable and can be reasonably estimated, the Company records
the amount of the loss. As additional information becomes
available, any potential liability related to these matters is
assessed and the estimates revised. Based on currently available
information, management does not believe that the ultimate
outcomes of these unresolved matters, individually and in the
aggregate, are likely to have a material adverse effect on the
Companys financial position, liquidity or results of
operations. However, litigation is subject to inherent
uncertainties, and managements view of these matters may
change in the future.
Lease
Obligations
The Company leases office space under non-cancelable operating
leases with various expiration dates through July 2016. The
terms of certain operating leases provide for rental payments on
a graduated scale. The Company recognizes rent expense on a
straight-line basis over the respective lease periods and has
accrued for rent expense incurred but not paid. Rent expense for
the fiscal years ended July 31, 2010, 2009, and 2008, was
$3.1 million, $3.0 million, and $2.3 million,
respectively.
79
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum lease payments under non-cancelable operating
leases, are as follows:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
|
(In thousands)
|
|
|
Year Ending July 31,
|
|
|
|
|
2011
|
|
|
2,902
|
|
2012
|
|
|
2,517
|
|
2013
|
|
|
2,578
|
|
2014
|
|
|
2,609
|
|
2015
|
|
|
2,583
|
|
Thereafter
|
|
|
2,203
|
|
|
|
|
|
|
Total minimum payments
|
|
$
|
15,392
|
|
|
|
|
|
|
Employee
Agreements
The Company has signed various employment agreements with
certain executives pursuant to which if their employment is
terminated without cause, the executives are entitled to receive
certain benefits, including, but not limited to, accelerated
stock option vesting.
Warranties
The Company provides for future warranty costs upon product
delivery. The specific terms and conditions of those warranties
vary depending upon the product sold and country in which the
Company does business. In the case of hardware, the warranties
are generally for
12-15 months
from the date of purchase. Beginning in the fourth quarter of
fiscal year 2009, the Company announced a lifetime warranty
program on certain access points, in which customers are
entitled to a lifetime warranty on certain access points
purchased subsequent to the announcement of the program.
The Company warrants that any media on which its software
products are recorded will be free from defects in materials and
workmanship under normal use for a period of 90 days from
the date the products are delivered to the end customer. In
addition, the Company warrants that its hardware products will
substantially conform to the Companys published
specifications. Historically, the Company has experienced
minimal warranty costs. Factors that affect the Companys
warranty liability include the number of installed units,
historical experience and managements judgment regarding
anticipated rates of warranty claims and cost per claim. The
Company assesses the adequacy of its recorded warranty
liabilities every period and makes adjustments to the liability
as necessary.
80
ARUBA
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The warranty liability is included as a component of accrued
liabilities on the balance sheet. Changes in the warranty
liability are as follows:
|
|
|
|
|
|
|
Warranty
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
As of July 31, 2007
|
|
$
|
85
|
|
Provision
|
|
|
60
|
|
Obligations fulfilled during period
|
|
|
(20
|
)
|
|
|
|
|
|
As of July 31, 2008
|
|
|
125
|
|
Provision
|
|
|
256
|
|
Obligations fulfilled during period
|
|
|
(223
|
)
|
|
|
|
|
|
As of July 31, 2009
|
|
|
158
|
|
Provision
|
|
|
266
|
|
Obligations fulfilled during period
|
|
|
(214
|
)
|
|
|
|
|
|
As of July 31, 2010
|
|
$
|
210
|
|
|
|
|
|
|
Non-Cancelable
Purchase Commitments
The Company outsources the production of its hardware to a
third-party contract manufacturer. In addition, the Company
enters into various inventory related purchase commitments with
this contract manufacturer and other suppliers. The Company had
$20.3 million and $14.9 million in non-cancelable
purchase commitments with these providers as of July 31,
2010 and 2009, respectively. The Company expects to sell all
products which it has committed to purchase from these providers.
Indemnification
In its sales agreements, the Company may agree to indemnify its
indirect sales channels and end user customers for certain
expenses or liability resulting from claimed infringements of
patents, trademarks or copyrights of third parties. The terms of
these indemnification provisions are generally perpetual any
time after execution of the agreement. The maximum amount of
potential future indemnification is unlimited. To date the
Company has not paid any amounts to settle claims or defend
lawsuits pursuant to such indemnification provisions. The
Company is unable to reasonably estimate the maximum amount that
could be payable under these provisions since these obligations
are not capped but are conditional to the unique facts and
circumstances involved. Accordingly, the Company has no
liabilities recorded for these agreements as of July 31,
2010 and 2009.
On May 7, 2010, the Company entered into a definitive
agreement to purchase Azalea Networks. The acquisition
subsequently closed on September 2, 2010. In connection
with the closing, the Company will be issuing common stock for
an aggregate value of approximately $27.0 million subject
to certain adjustments and contingent rights associated with
such shares of up to $13.5 million in cash, payable if at
all, over two years. Based on its evaluation of Azalea
Networks financial statements, the Company has determined
that the acquisition does not meet the conditions needed to file
separate financial statements and related pro forma financial
statements for the acquisition.
81
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures pursuant to
Rule 13a-15
under the Securities Exchange Act of 1934 as amended (the
Exchange Act). In designing and evaluating the
disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the
desired control objectives. In addition, the design of
disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required
to apply its judgment in evaluating the benefits of possible
controls and procedures relative to their costs.
Based on our evaluation, our chief executive officer and chief
financial officer concluded that, as of July 31, 2010, our
disclosure controls and procedures are designed at a reasonable
assurance level and are effective to provide reasonable
assurance that information we are required to disclose in
reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules
and forms, and that such information is accumulated and
communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
Managements
Report on Internal Control Over Financial Reporting
See Report on Managements Assessment of Internal
Control Over Financial Reporting on page 50. The
effectiveness of our internal control over financial reporting
as of July 31, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included in
Item 8 of this
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during our fourth fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Inherent
Limitations of Internal Controls
Our management, including our CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls
over financial reporting will prevent or detect all error and
all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system will be met. 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 the
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 deterioration in the degree of compliance with the policies
or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
82
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item is incorporated by
reference to our Proxy Statement for our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of the fiscal year ended July 31, 2010.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated by
reference to our Proxy Statement for our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of the fiscal year ended July 31, 2010.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated by
reference to our Proxy Statement for our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of the fiscal year ended July 31, 2010.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to our Proxy Statement for our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of the fiscal year ended July 31, 2010.
|
|
ITEM 14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to our Proxy Statement for our 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after
the end of the fiscal year ended July 31, 2010.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) Financial Statements: The following are
filed as part of Item 8 of this report:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
The unaudited quarterly operating results for the eight quarters
ended July 31, 2010 are filed as part of Item 7 of
this report.
83
(2) Financial Schedules: Schedule II
Valuation and Qualifying Accounts appears below and
should be read in conjunction with the Consolidated Financial
Statements included in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
Beginning
|
|
|
|
|
|
End of
|
|
|
of Year
|
|
Additions
|
|
Deductions
|
|
Year
|
|
|
(In thousands)
|
|
Fiscal year ended July 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
507
|
|
|
$
|
283
|
|
|
$
|
(232
|
)
|
|
$
|
558
|
|
Sales returns
|
|
|
294
|
|
|
|
473
|
|
|
|
(420
|
)
|
|
|
347
|
|
Fiscal year ended July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
558
|
|
|
|
138
|
|
|
|
(306
|
)
|
|
|
390
|
|
Sales returns
|
|
|
347
|
|
|
|
972
|
|
|
|
(799
|
)
|
|
|
520
|
|
Fiscal year ended July 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
390
|
|
|
|
265
|
|
|
|
(193
|
)
|
|
|
462
|
|
Sales returns
|
|
$
|
520
|
|
|
$
|
166
|
|
|
$
|
(461
|
)
|
|
$
|
225
|
|
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
(b) Exhibits. The exhibits listed on the
Exhibit Index (following the Signatures section of this
report) are included, or incorporated by reference, in this
annual report.
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the 24th day of
September 2010.
ARUBA NETWORKS, INC.
Dominic P. Orr
President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Dominic P. Orr
and Steffan Tomlinson, and each of them, his attorneys-in-fact,
each with the power of substitution, for him in any and all
capacities, to sign any and all 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 report 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/ Dominic
P. Orr
Dominic
P. Orr
|
|
President, Chief Executive Officer, and Chairman of the Board of
Directors (Principal Executive Officer)
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Steffan
Tomlinson
Steffan
Tomlinson
|
|
Chief Financial Officer (Principal Accounting and Financial
Officer)
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Keerti
Melkote
Keerti
Melkote
|
|
Co-Founder, Chief Technology Officer and Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Bernard
Guidon
Bernard
Guidon
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Emmanuel
Hernandez
Emmanuel
Hernandez
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Michael
R. Kourey
Michael
R. Kourey
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Doug
Leone
Doug
Leone
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Willem
P. Roelandts
Willem
P. Roelandts
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Shirish
S. Sathaye
Shirish
S. Sathaye
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ Daniel
Warmenhoven
Daniel
Warmenhoven
|
|
Director
|
|
September 24, 2010
|
85
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference Herein
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
|
2
|
.1*
|
|
Agreement and Plan of Reorganization, dated as of
January 4, 2008
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
January 9, 2008
|
|
2
|
.2*
|
|
Arrangement Agreement dated May 7, 2010 by and among
Registrant, Azalea Networks, Felix Zhao, Frank Wang, Fang Wu,
Hans Tai and Samuel Chen, as Principal Shareholders, and with
respect to Articles VII, VIII and IX only, Hans Tai as
Shareholder Representative and U.S. Bank National Association as
Escrow Agent
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
May 10, 2010
|
|
2
|
.3*
|
|
Scheme of Arrangement between Azalea Networks, Registrant, the
Scheme Shareholders (as defined therein) and the Bridge
Noteholders (as defined therein)
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
September 3, 2010
|
|
3
|
.1*
|
|
Restated Certificate of Incorporation of Registrant
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
April 5, 2007
|
|
3
|
.2*
|
|
Amended and Restated Bylaws of Registrant
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
February 17, 2009
|
|
4
|
.1*
|
|
Specimen common stock certificate
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
March 7, 2007
|
|
10
|
.1*
|
|
Form of Indemnification Agreement
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
March 7, 2007
|
|
10
|
.2*
|
|
AirWave Wireless, Inc. 2000 Stock Plan
|
|
Registration Statement on Form S-8 (File No. 333-149945)
|
|
March 28, 2008
|
|
10
|
.3*
|
|
2002 Stock Plan of Registrant, as amended
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
January 24, 2007
|
|
10
|
.4*
|
|
Forms of Stock Option Agreements under the 2002 Stock Plan
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
December 15, 2007
|
|
10
|
.5*
|
|
2007 Equity Incentive Plan of Registrant as amended
|
|
Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 2008 (File No. 001-33347)
|
|
December 10, 2008
|
|
10
|
.6*
|
|
Forms of Stock Option Agreements under the 2007 Equity Incentive
Plan
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
January 24, 2007
|
|
10
|
.7
|
|
2007 Equity Incentive Plan Form of Stock Option Agreement for
Participants Outside the U.S.
|
|
|
|
|
|
10
|
.8*
|
|
Form of Restricted Stock Unit Agreement under the 2007 Equity
Incentive Plan
|
|
Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 2008 (File No. 001-33347)
|
|
December 10, 2008
|
|
10
|
.9
|
|
2007 Equity Incentive Plan Form of Restricted Stock Unit
Agreement for Recipients Outside the U.S.
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference Herein
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
|
10
|
.10*
|
|
Employee Stock Purchase Plan, amended and restated
December 16, 2009
|
|
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 2010 (File No. 001-33347)
|
|
March 3, 2010
|
|
10
|
.11*
|
|
Form of Subscription Agreement under the Employee Stock Purchase
Plan
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
January 24, 2007
|
|
10
|
.12*
|
|
Executive Officer Bonus Plan
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
December 22, 2009
|
|
10
|
.13*
|
|
Executive Employment Agreement, dated April 4, 2006,
between Registrant and Dominic P. Orr
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
December 15, 2006
|
|
10
|
.14*
|
|
Amendment to Executive Employment Agreement, dated December
2008, between Registrant and Dominic P. Orr
|
|
Annual Report on Form 10-K for the fiscal year ended July 31,
2009 (File No. 001-33347)
|
|
October 6, 2009
|
|
|
|
|
|
|
|
|
|
|
10
|
.15*
|
|
Employment offer letter, dated April 12, 2002, between
Registrant and Keerti Melkote
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
December 15, 2006
|
|
10
|
.16*
|
|
Employment offer letter, dated July 18, 2006, between
Registrant and Sriram Ramachandran
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
December 15, 2006
|
|
10
|
.17*
|
|
Amendment to Offer Letter, dated December 2008, between
Registrant and Sriram Ramachandran
|
|
Annual Report on Form 10-K for the fiscal year ended July 31,
2009 (File No. 001-33347)
|
|
October 6, 2009
|
|
10
|
.18*
|
|
Employment offer letter, dated July 14, 2005, between
Registrant and Steffan Tomlinson
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
December 15, 2006
|
|
10
|
.19*
|
|
Amendment to Offer Letter, dated December 2008, between
Registrant and Steffan Tomlinson
|
|
Annual Report on Form 10-K for the fiscal year ended July 31,
2009 (File No. 001-33347)
|
|
October 6, 2009
|
|
10
|
.20*
|
|
Offer Letter to Hitesh Sheth, dated July 16, 2009
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
August 17, 2009
|
|
10
|
.21*
|
|
Description of amendments to change of control arrangements with
certain executive officers
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
March 9, 2010
|
|
10
|
.22*
|
|
Standard Office Lease, dated as of November 30, 2007, for
1344 Crossman Ave., Sunnyvale, California
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
December 6, 2007
|
|
10
|
.23*
|
|
First Amendment to Lease, dated as of August 12, 2009, for
1344 Crossman Ave., Sunnyvale, California
|
|
Annual Report on Form 10-K for the fiscal year ended July 31,
2009 (File No. 001-33347)
|
|
October 6, 2009
|
|
10
|
.24*
|
|
Sublease Agreement, dated September 10, 2004, for 1322
Crossman Ave., Sunnyvale, California
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
December 15, 2006
|
87
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference Herein
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
|
10
|
.25*
|
|
Lease Agreement dated as of September 22, 2009, for 1322
Crossman Ave., Sunnyvale, California
|
|
Annual Report on Form 10-K for the fiscal year ended July 31,
2009 (File No. 001-33347)
|
|
October 6, 2009
|
|
10
|
.26*
|
|
Flextronics Manufacturing Services Agreement, dated
January 1, 2005
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
January 24, 2007
|
|
10
|
.27*
|
|
Technology License Agreement, dated October 20, 2005,
between Registrant and Atheros Communications, Inc.
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
March 20, 2007
|
|
10
|
.28*
|
|
Software License Agreement, dated January 11, 2006, between
Registrant and Broadcom Corporation
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
January 24, 2007
|
|
10
|
.29*
|
|
OEM Supply Agreement, dated March 18, 2005, between
Registrant and Alcatel USA Sourcing, Inc. (fka Alcatel
Internetworking, Inc.)
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
March 26, 2007
|
|
10
|
.30*
|
|
Amendment No. 1 to OEM Supply Agreement, dated
August 31, 2006, between Registrant and Alcatel USA
Sourcing, Inc
|
|
Registration Statement on Form S-l, as amended (File No.
333-139419)
|
|
March 26, 2007
|
|
|
|
|
|
|
|
|
|
|
10
|
.31*
|
|
Amendment #2 to OEM Supply Agreement, dated February 22,
2007, between Registrant and Alcatel USA Sourcing, Inc.
|
|
Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 2009 (File No. 001-33347)
|
|
December 4, 2009
|
|
10
|
.32*
|
|
Master Purchase Agreement, dated as of January 16, 2006,
between Registrant and Raza Microelectronics, Inc.
(RMI)
|
|
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 2009 (File No. 001-33347)
|
|
March 12, 2009
|
|
10
|
.33*
|
|
First Amendment to Master Purchase Agreement, dated as of
February 26, 2007, by and between Registrant and RMI
|
|
Quarterly Report on Form 10-Q for the quarterly period ended
January 31, 2009 (File No. 001-33347)
|
|
March 12, 2009
|
|
10
|
.34*
|
|
Patent Cross License and Settlement Agreement dated
November 4, 2009
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
November 6, 2009
|
|
10
|
.35*
|
|
Letter Agreement dated November 4, 2009
|
|
Current Report on Form 8-K (File No. 001-33347)
|
|
November 6, 2009
|
|
21
|
.1
|
|
List of subsidiaries of Registrant
|
|
|
|
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm
|
|
|
|
|
|
24
|
.1
|
|
Power of Attorney (incorporated by reference to the signature
page of this Annual Report on
Form 10-K)
|
|
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act
Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference Herein
|
Number
|
|
Description
|
|
Form
|
|
Date
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act
Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act
|
|
|
|
|
|
32
|
.1
|
|
Certifications 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
|
|
|
|
|
|
|
|
* |
|
Previously filed. |
|
|
|
Confidential treatment has been requested for portions of this
exhibit. |
|
|
|
Indicates management compensatory plan, contract or arrangement. |
89