Pro forma financial information

EX-99.1 2 dex991.htm PRO FORMA FINANCIAL INFORMATION Pro forma financial information

Exhibit 99.1

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA FINANCIAL INFORMATION

On November 15, 2010, Ariba, Inc. (“Ariba” or the “Company”) completed its previously announced disposition of its sourcing services and BPO assets (the “Business”) pursuant to an Asset Purchase and Sale Agreement (the “Asset Purchase Agreement”) with Accenture LLP and Accenture Global Services Ltd. (“Buyers”) for $51 million in cash and the assumption by the Buyers of certain liabilities.

On November 15, 2010, the Buyers placed $12 million of the purchase price into an escrow fund, which will be released on a periodic basis on the assignment and performance of certain customer related assets for a period equal to the longer of (i) two years and (ii) the life of certain assets. Ariba agreed to enter into a four year non-competition agreement with the Buyers with respect to the provision of defined services provided by the Business.

The Business is comprised of professional services based offerings that support customers with strategic sourcing execution, category expertise, supplier identification and outsourced transaction management. The Business is aimed at delivering financial savings for customers by supporting the negotiation process and driving compliance against supplier contracts.

The unaudited Pro Forma Condensed Consolidated Balance Sheet set forth below has been presented after giving effect to the sale of the Business (the “Sale”) as if it had occurred on June 30, 2010. The unaudited Pro Forma Condensed Consolidated Statement of Operations for the years ended September 30, 2009, 2008 and 2007 and for the nine months ended June 30, 2010 and 2009 set forth below have been presented after giving effect to the Sale as if it had occurred on October 1, 2006.

The unaudited Pro Forma Condensed Consolidated Statements of Operations for the years September 30, 2009, 2008 and 2007 have been derived primarily from the audited Consolidated Financial Statements of the Company included in its fiscal 2009 Annual Report on Form 10-K. The unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine months ended June 30, 2010 and 2009 and the unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2010 have been derived primarily from the unaudited Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. The unaudited pro forma financial statement information is based upon available information and assumptions that the Company believes are reasonable. Some of the assumptions involve judgments by management, and changes in the assumptions could cause significant changes in the adjustments used to calculate the unaudited pro forma financial information. The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial information.

The unaudited pro forma financial information has been provided for informational purposes only. The pro forma information is not necessarily indicative of what the Company’s financial position or results of operations actually would have been had the Sale occurred as of the dates indicated. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial position or operating results of the Company. The unaudited pro forma condensed consolidated financial information, including the notes thereto, should be read in conjunction with the historical consolidated financial statements of the Company included in its fiscal 2009 Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, that have been filed with the SEC.

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

June 30, 2010

(in thousands)


	As Reported (1)			Sourcing Services Business Disposal Group			Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	167,728		$	39,000	(2)	$	206,728
Short-term investments		18,922			—			18,922
Restricted cash		104			—			104
Accounts receivable, net		19,899			—			19,899
Prepaid expenses and other current assets		8,651			12,000	(3)		20,651

Total current assets		215,304			51,000			266,304
Property and equipment, net		16,425			(7	) (4)		16,418
Long-term investments		23,353			—			23,353
Restricted cash		29,137			—			29,137
Goodwill		406,507			(11,789	) (5)		394,718
Other intangible assets, net		14,179			—			14,179
Other assets		3,582			—			3,582

Total assets	$	708,487		$	39,204		$	747,691

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,474		$	—		$	10,474
Accrued compensation and related liabilities		26,333			—			26,333
Accrued liabilities		15,590			818	(6)		16,408
Restructuring obligations		17,148			—			17,148
Deferred revenue		107,504			—			107,504

Total current liabilities		177,049			818			177,867
Deferred rent obligations		10,463			(245	) (7)		10,218
Restructuring obligations, less current portion		27,664			—			27,664
Deferred revenue, less current portion		7,076			—			7,076
Other liabilities		6,704			—			6,704

Total liabilities		228,956			573			229,529

Commitments and contingencies

Stockholders’ equity:
Convertible preferred stock		—			—			—
Common stock		181			—			181
Additional paid-in capital		5,222,220			—			5,222,220
Accumulated other comprehensive loss		(3,114	)		—			(3,114	)
Accumulated deficit		(4,739,756	)		38,631	(8)		(4,701,125	)

Total stockholders’ equity		479,531			38,631			518,162

Total liabilities and stockholders’ equity	$	708,487		$	39,204		$	747,691

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended June 30, 2010

(in thousands, except per share amounts)


	As Reported (9)			Sourcing Services Business Disposal Group (10)			Pro Forma
Revenues:
Subscription and maintenance	$	177,897		$	—		$	177,897
Services and other		88,153			30,544			57,609

Total revenues		266,050			30,544			235,506

Cost of revenues:
Subscription and maintenance		38,358			—			38,358
Services and other		61,116			20,775			40,341
Amortization of acquired technology and customer intangible assets		3,377			—			3,377

Total cost of revenues		102,851			20,775			82,076

Gross profit		163,199			9,769			153,430

Operating expenses:
Sales and marketing		88,280			4,901			83,379
Research and development		34,112			—			34,112
General and administrative		25,822			2,054			23,768
Litigation benefit		(7,000	)		—			(7,000	)
Amortization of other intangible assets		104			—			104
Restructuring costs		8,579			—			8,579

Total operating expenses		149,897			6,955			142,942

Income from operations		13,302			2,814			10,488
Interest and other (expense) income, net		(59	)		(185	)		126

Income before income taxes		13,243			2,629			10,614
Provision for income taxes		993			113	(11)		880

Net income	$	12,250		$	2,516		$	9,734

Net income per share—basic	$	0.14		$	0.03		$	0.11

Net income per share—diluted	$	0.14		$	0.03		$	0.11

Weighted average shares used in computing net income per share—basic		86,300			86,300			86,300

Weighted average shares used in computing net income per share—diluted		88,783			88,783			88,783

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended June 30, 2009

(in thousands, except per share amounts)


	As Reported (9)			Sourcing Services Business Disposal Group (10)			Pro Forma
Revenues:
Subscription and maintenance	$	164,348		$	—		$	164,348
Services and other		90,306			41,658			48,648

Total revenues		254,654			41,658			212,996

Cost of revenues:
Subscription and maintenance		35,638			—			35,638
Services and other		56,873			25,751			31,122
Amortization of acquired technology and customer intangible assets		4,163			—			4,163

Total cost of revenues		96,674			25,751			70,923

Gross profit		157,980			15,907			142,073

Operating expenses:
Sales and marketing		79,019			5,598			73,421
Research and development		32,142			—			32,142
General and administrative		33,116			3,537			29,579
Insurance reimbursement		(7,527	)		—			(7,527	)
Amortization of other intangible assets		630			255			375
Restructuring costs		10,837			680			10,157

Total operating expenses		148,217			10,070			138,147

Income from operations		9,763			5,837			3,926
Interest and other (expense) income, net		(6,020	)		(446	)		(5,574	)

Income (loss) before income taxes		3,743			5,391			(1,648	)
Provision for income taxes		1,158			91	(11)		1,067

Net income (loss)	$	2,585		$	5,300		$	(2,715	)

Net income (loss) per share—basic	$	0.03		$	0.06		$	(0.03	)

Net income (loss) per share—diluted	$	0.03		$	0.06		$	(0.03	)

Weighted average shares used in computing net income (loss) per share—basic		82,269			82,269			82,269

Weighted average shares used in computing net income (loss) per share— diluted		84,712			84,712			82,269

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended September 30, 2009

(in thousands, except per share amounts)


	As Reported (12)			Sourcing Services Business Disposal Group (10)			Pro Forma
Revenues:
Subscription and maintenance	$	222,206		$	—		$	222,206
Services and other		116,766			53,267			63,499

Total revenues		338,972			53,267			285,705

Cost of revenues:
Subscription and maintenance		47,907			—			47,907
Services and other		75,465			33,242			42,223
Amortization of acquired technology and customer intangible assets		5,550			—			5,550

Total cost of revenues		128,922			33,242			95,680

Gross profit		210,050			20,025			190,025

Operating expenses:
Sales and marketing		103,739			7,432			96,307
Research and development		43,483			—			43,483
General and administrative		43,289			4,557			38,732
Insurance reimbursement		(7,527	)		—			(7,527	)
Amortization of other intangible assets		755			255			500
Restructuring costs		10,837			680			10,157

Total operating expenses		194,576			12,924			181,652

Income from operations		15,474			7,101			8,373
Interest and other (expense) income, net		(6,055	)		(442	)		(5,613	)

Income before income taxes		9,419			6,659			2,760
Provision for income taxes		1,226			122	(11)		1,104

Net income	$	8,193		$	6,537		$	1,656

Net income per share—basic	$	0.10		$	0.08		$	0.02

Net income per share—diluted	$	0.10		$	0.08		$	0.02

Weighted average shares used in computing net income per share—basic		82,733			82,733			82,733

Weighted average shares used in computing net income per share—diluted		85,424			85,424			85,424

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended September 30, 2008

(in thousands, except per share amounts)


	As Reported (12)			Sourcing Services Business Disposal Group (10)			Pro Forma
Revenues:
Subscription and maintenance	$	187,150		$	—		$	187,150
Services and other		140,910			63,603			77,307

Total revenues		328,060			63,603			264,457

Cost of revenues:
Subscription and maintenance		40,088			—			40,088
Services and other		94,189			38,086			56,103
Amortization of acquired technology and customer intangible assets		14,257			9,864			4,393

Total cost of revenues		148,534			47,950			100,584

Gross profit		179,526			15,653			163,873

Operating expenses:
Sales and marketing		110,834			7,881			102,953
Research and development		52,270			—			52,270
General and administrative		48,919			6,151			42,768
Litigation provision		5,900			—			5,900
Amortization of other intangible assets		739			340			399
Restructuring costs		10,108			29			10,079
Other income—Softbank		(566	)		—			(566	)

Total operating expenses		228,204			14,401			213,803

(Loss) income from operations		(48,678	)		1,252			(49,930	)
Interest and other (expense) income, net		8,359			263			8,096

(Loss) income before income taxes		(40,319	)		1,515			(41,834	)
Provision for income taxes		743			99	(11)		644

Net (loss) income	$	(41,062	)	$	1,416		$	(42,478	)

Net (loss) income per share—basic	$	(0.53	)	$	0.02		$	(0.55	)

Net (loss) income per share—diluted	$	(0.53	)	$	0.02		$	(0.55	)

Weighted average shares used in computing net (loss) income per share—basic		77,318			77,318			77,318

Weighted average shares used in computing net (loss) income per share—diluted		77,318			82,250			77,318

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

ARIBA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended September 30, 2007

(in thousands, except per share amounts)


	As Reported (12)			Sourcing Services Business Disposal Group (10)			Pro Forma
Revenues:
Subscription and maintenance	$	142,309		$	—		$	142,309
Services and other		159,358			69,544			89,814

Total revenues		301,667			69,544			232,123

Cost of revenues:
Subscription and maintenance		32,709			—			32,709
Services and other		114,615			47,713			66,902
Amortization of acquired technology and customer intangible assets		14,074			13,152			922

Total cost of revenues		161,398			60,865			100,533

Gross profit		140,269			8,679			131,590

Operating expenses:
Sales and marketing		93,904			6,591			87,313
Research and development		51,159			—			51,159
General and administrative		39,780			6,025			33,755
Amortization of other intangible assets		525			340			185
Restructuring and integration benefit		(4,194	)		—			(4,194	)
Other income—Softbank		(13,564	)		—			(13,564	)

Total operating expenses		167,610			12,956			154,654

Loss from operations		(27,341	)		(4,277	)		(23,064	)
Interest and other (expense) income, net		14,301			198			14,103

Loss before income taxes		(13,040	)		(4,079	)		(8,961	)
Provision for income taxes		1,937			191	(11)		1,746

Net loss	$	(14,977	)	$	(4,270	)	$	(10,707	)

Net loss per share—basic and diluted	$	(0.21	)	$	(0.06	)	$	(0.15	)

Weighted average shares used in computing net loss per share—basic and diluted		70,106			70,106			70,106

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.

ARIBA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(1)	Represents balances as reported on the unaudited Condensed Consolidated Balance Sheet included in the Company’s Form 10-Q as of June 30, 2010.

(2)	Represents cash proceeds received from the Buyers on the Closing Date.

(3)	Represents estimated escrowed purchase consideration of $12 million to be released to the Company on a periodic basis based on the assignment and performance of certain customer related assets for a period equal to the longer of (i) two years and (ii) the life of certain assets.

(4)	Represents net property and equipment of the Business acquired by the Buyers pursuant to the Asset Purchase Agreement.

(5)	Represents the portion of the Company’s goodwill that was allocated to the Business based on relative fair value at the date the Business was classified as held for sale.

(6)	Represents accrued liabilities for estimated transaction costs to be incurred in connection with the Sale.

(7)	Represents deferred rent assumed by the Buyers upon signing of a sub-lease agreement for office space previously used by the Business.

(8)	Represents estimated pre-tax gain on the Sale.

(9)	Represents results of operations as reported on the unaudited Condensed Consolidated Statement of Operations included in the Company’s Form 10-Q for the nine months ended June 30, 2010.

(10)	Represents results of operations of the Business.

(11)

For purposes of presenting tax effects on pro forma financial information, statutory rates were not used. Tax effects were estimated as a portion of the Company’s foreign tax provision. No provision for federal or state income taxes was applied because the Company applied net operating loss and tax credit carryforwards to offset any domestic tax liabilities during each period presented.

(12)	Represents results of operations as reported on the audited Consolidated Statement of Operations included in the Company’s Form 10-K for the year ended September 30, 2009.

Non-GAAP Financial Measures

The accompanying pro forma financial information contains financial information prepared and reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and reconciles them to the non-GAAP financial information for the given periods. These non-GAAP financial measures consist of non-GAAP net income, non-GAAP net income per share amounts and weighted average shares used in computing non-GAAP net income per share.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, GAAP financial measures, which should be considered as the primary financial metrics for evaluating our financial performance. Significantly, non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles. Instead, they are based on subjective determinations by management designed to supplement our GAAP financial measures. They are subject to a number of important limitations and should be considered only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For example, our non-GAAP financial measures have the effect of excluding a purchase accounting adjustment, costs and expenses from our operating results that should be properly considered under a system of accrual accounting. In addition, our non-GAAP financial measures differ from GAAP measures with the same names, may vary over time and may differ from non-GAAP financial measures with the same or similar names used by other companies. Accordingly, investors should exercise caution when evaluating our non-GAAP financial measures.

Despite these limitations, we believe our non-GAAP financial measures provide meaningful supplemental information about our operating results, primarily because they exclude a purchase accounting adjustment and costs and expenses that we do not believe are indicative of the ongoing operating performance of our business and our senior management. Although these items should properly be considered in our GAAP financial measures, we believe they should be excluded when evaluating our current operating performance. The non-GAAP financial measures disclosed in the accompanying pro forma financial information are used by our Board of Directors and senior management to evaluate our current operating performance, are used in evaluating the performance of our senior management, and are used in our budget and planning processes. We believe that our non-GAAP financial measures are helpful to investors by facilitating comparisons of our current and prior operating results and by facilitating comparisons of our operating results with those of other software companies.

The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP operating results for the nine months ended June 30, 2010:


	As Reported			Sourcing Services Business Disposal Group		Pro Forma
Net income reconciliation:
GAAP net income	$	12,250		$	2,516	$	9,734
Amortization of intangible assets		3,481			—		3,481
Stock-based compensation		36,272			1,207		35,065
Tax accrual reversal		(3,089	)		—		(3,089	)
Restructuring costs		8,579			—		8,579
Litigation benefit		(7,000	)		—		(7,000	)

Non-GAAP net income	$	50,493		$	3,723	$	46,770

Net income per share reconciliation:
GAAP net income per share—basic	$	0.14		$	0.03	$	0.11
Amortization of intangible assets		0.04			—		0.04
Stock-based compensation		0.42			0.01		0.41
Tax accrual reversal		(0.04	)		—		(0.04	)
Restructuring costs		0.10			—		0.10
Litigation benefit		(0.08	)		—		(0.08	)

Non-GAAP net income per share—basic	$	0.58		$	0.04	$	0.54

Non-GAAP net income per share—diluted	$	0.57		$	0.04	$	0.53

Weighted average shares used in computing non-GAAP net income per share—basic		86,300			86,300		86,300

Weighted average shares used in computing non-GAAP net income per share—diluted		88,783			88,783		88,783

The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP operating results for the nine months ended June 30, 2009:


	As Reported		Sourcing Services Business Disposal Group		Pro Forma
Net income (loss) reconciliation:
GAAP net income (loss)	$	2,585	$	5,300	$	(2,715	)
Purchase accounting adjustment		355		—		355
Amortization of intangible assets		4,793		255		4,538
Stock-based compensation		25,262		908		24,354
Restructuring costs		10,837		680		10,157
Other-than-temporary decline in long-term investment		1,414		—		1,414

Non-GAAP net income	$	45,246	$	7,143	$	38,103

Net income (loss) per share reconciliation:
GAAP net income (loss) per share—basic	$	0.03	$	0.06	$	(0.03	)
Purchase accounting adjustment		0.00		—		0.00
Amortization of intangible assets		0.06		0.00		0.06
Stock-based compensation		0.31		0.01		0.30
Restructuring costs		0.13		0.01		0.12
Other-than-temporary decline in long-term investment		0.02		—		0.02

Non-GAAP net income per share—basic	$	0.55	$	0.08	$	0.47

Non-GAAP net income per share—diluted	$	0.53	$	0.08	$	0.45

Weighted average shares used in computing non-GAAP net income per share—basic		82,269		82,269		82,269

Weighted average shares used in computing non-GAAP net income per share—diluted		84,712		84,712		84,712

The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP operating results for the year ended September 30, 2009:


	As Reported		Sourcing Services Business Disposal Group		Pro Forma
Net income reconciliation:
GAAP net income	$	8,193	$	6,537	$	1,656
Purchase accounting adjustment		355		—		355
Amortization of intangible assets		6,305		255		6,050
Stock-based compensation		33,941		1,288		32,653
Restructuring costs		10,837		680		10,157
Other-than-temporary decline in long-term investment		1,414		—		1,414

Non-GAAP net income	$	61,045	$	8,760	$	52,285

Net income per share reconciliation:
GAAP net income per share—basic	$	0.10	$	0.08	$	0.02
Purchase accounting adjustment		0.00		—		0.00
Amortization of intangible assets		0.08		0.00		0.08
Stock-based compensation		0.41		0.02		0.39
Restructuring costs		0.13		0.01		0.12
Other-than-temporary decline in long-term investment		0.02		—		0.02

Non-GAAP net income per share—basic	$	0.74	$	0.11	$	0.63

Non-GAAP net income per share—diluted	$	0.71	$	0.10	$	0.61

Weighted average shares used in computing non-GAAP net income per share—basic		82,733		82,733		82,733

Weighted average shares used in computing non-GAAP net income per share—diluted		85,424		85,424		85,424

The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP operating results for the year ended September 30, 2008:


	As Reported			Sourcing Services Business Disposal Group		Pro Forma
Net (loss) income reconciliation:
GAAP net (loss) income	$	(41,062	)	$	1,416	$	(42,478	)
Purchase accounting adjustment		5,007			—		5,007
Amortization of intangible assets		14,996			10,204		4,792
Stock-based compensation		40,859			1,158		39,701
Restructuring costs		10,108			29		10,079
Litigation provision		5,900			—		5,900

Non-GAAP net income	$	35,808		$	12,807	$	23,001

Net (loss) income per share reconciliation:
GAAP net (loss) income per share—basic	$	(0.53	)	$	0.02	$	(0.55	)
Purchase accounting adjustment		0.06			—		0.06
Amortization of intangible assets		0.19			0.13		0.06
Stock-based compensation		0.53			0.02		0.51
Restructuring costs		0.13			0.00		0.13
Litigation provision		0.08			—		0.08

Non-GAAP net income per share—basic	$	0.46		$	0.17	$	0.29

Non-GAAP net income per share—diluted	$	0.44		$	0.16	$	0.28

Weighted average shares used in computing non-GAAP net income per share—basic		77,318			77,318		77,318

Weighted average shares used in computing non-GAAP net income per share—diluted		82,250			82,250		82,250

The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP operating results for the year ended September 30, 2007:


	As Reported			Sourcing Services Business Disposal Group			Pro Forma
Net (loss) income reconciliation:
GAAP net loss	$	(14,977	)	$	(4,270	)	$	(10,707	)
Amortization of intangible assets		14,599			13,492			1,107
Stock-based compensation		32,449			977			31,472
Restructuring costs		(4,194	)		—			(4,194	)

Non-GAAP net income	$	27,877		$	10,199		$	17,678

Net (loss) income per share reconciliation:
GAAP net loss per share—basic	$	(0.21	)	$	(0.06	)	$	(0.15	)
Amortization of intangible assets		0.21			0.19			0.02
Stock-based compensation		0.46			0.01			0.45
Restructuring costs		(0.06	)		—			(0.06	)

Non-GAAP net income per share—basic	$	0.40		$	0.14		$	0.26

Non-GAAP net income per share—diluted	$	0.37		$	0.13		$	0.24

Weighted average shares used in computing non-GAAP net income per share—basic		70,106			70,106			70,106

Weighted average shares used in computing non-GAAP net income per share—diluted		74,677			74,677			74,677

Discussion of Specific Items Excluded From Non-GAAP Financial Measures

Our non-GAAP financial measures include a purchase accounting adjustment related to deferred revenues and generally exclude costs and expenses for (i) amortization of intangible assets related to acquisitions, (ii) stock-based compensation, (iii) restructuring costs, (iv) litigation benefit, (v) tax accrual reversal, and (vi) other-than-temporary impairment of long-term investments. We exclude these items because we believe they are not closely related to the ongoing operating performance of our business and the performance of our senior management and are generally excluded from our budget and planning process. In addition to these reasons, we believe our non-GAAP financial measures are also helpful to investors by facilitating comparisons of our operating results over different time periods and by facilitating comparisons of our financial performance with that of other companies. In addition, except for costs and expenses related to restructuring and transaction related costs, these items are non-cash items that do not affect cash flows.

(1) Purchase accounting adjustment – deferred revenue. As announced on December 17, 2007, Ariba acquired Procuri, Inc. In accordance with the fair value provisions, acquired deferred revenue of approximately $4.5 million was recorded on the opening balance sheet, which was approximately $5.9 million lower than the historical carrying value. Although this purchase accounting requirement has no impact on the Company’s business or cash flow, it adversely impacts the Company’s reported GAAP revenue primarily for the first twelve months post- acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company has provided non-GAAP financial measures which exclude the impact of the purchase accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related subscription terms are renewed in future periods.

(2) Amortization of Acquired Intangible Assets. In accordance with GAAP, we amortize intangible assets acquired in connection with acquisitions over the estimated useful lives of the assets. We exclude these amortization costs in our non-GAAP financial measures because they (i) result from prior acquisitions, rather than the ongoing operating performance of our business, and (ii) absent additional acquisitions, are expected to decline over time as the remaining carrying amounts of these assets are amortized. We believe excluding these costs helps investors compare our financial performance with that of other companies with different acquisition histories. However, as with impairment charges, we recognize that amortization costs provide a helpful measure of the financial impact and performance of prior acquisitions and consider our non-GAAP financial measures in conjunction with our GAAP financial results that include amortization costs.

(3) Stock-Based Compensation Expenses. We exclude stock-based compensation expense associated with stock options and stock granted to employees and non-executive directors in our non-GAAP financial measures. While stock-based compensation is a significant component of our expenses, we believe that investors wish to be able to exclude the effects of stock-based compensation expense in comparing our financial performance with that of other companies.

(4) Restructuring costs. We recorded restructuring related to lease abandonment accruals and/or severance and related benefits in the nine months ended June 30, 2010 and 2009 and the twelve months ended September 30, 2009, 2008 and 2007. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations and is significantly impacted by factors outside our control. We believe excluding restructuring costs helps investors compare our operating performance with that of other companies. We recognize, however, that restructuring costs will impact cash flows and that we and investors should carefully consider the impact of these costs on future cash flows.

(5) Litigation provision (benefit). We received $7.0 million from Emptoris in relation to a patent litigation judgment which we recorded as income in the nine months ended June 30, 2010. We recorded a litigation provision related to a patent infringement matter in the year ended September 30, 2008. We exclude these from our non-GAAP financial measures because they are unrelated to our ongoing operations. We believe excluding the litigation provision (benefit) helps investors compare our operating performance with that of other companies. We recognize, however, that the litigation provision (benefit) impacts cash flow and that we and investors should carefully consider the impact of these on cash flow.

(6) Release of tax reserve. We released a tax reserve of approximately $3.1 million in the nine months ended June 30, 2010. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations. We believe excluding the tax reserve release helps investors compare our operating performance with that of other companies.

(7) Other-than-temporary impairment of long-term investments. We recorded an other-than temporary impairment of a long-term investment in the nine months ended June 30, 2009 and the twelve months ended September 30, 2009. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations. We believe excluding the other-than-temporary impairment helps investors compare our operating performance with that of other companies. We recognize, however, that the other-than-temporary impairment may impact cash flows and that we and investors should carefully consider the impact of these costs on future cash flows.