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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)    

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2014

or

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: 0-24786



Aspen Technology, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  04-2739697
(I.R.S. Employer
Identification No.)

200 Wheeler Road
Burlington, Massachusetts

(Address of principal executive offices)

 

01803
(Zip Code)

Registrant's telephone number, including area code: 781-221-6400



Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.10 par value per share

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    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 ý

         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 ý    No o

         Indicate by checkmark 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 ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

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

         As of December 31, 2013, the aggregate market value of common stock (the only outstanding class of common equity of the registrant) held by non-affiliates of the registrant was $3,466,534,401 based on a total of 82,931,445 shares of common stock held by non-affiliates and on a closing price of $41.80 on December 31, 2013 for the common stock as reported on The NASDAQ Global Select Market.

         There were 91,269,545 shares of common stock outstanding as of August 6, 2014.

         DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement related to its 2014 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

   


Table of Contents


TABLE OF CONTENTS

 
   
  Page  

PART I

       

Item 1.

 

Business

    3  

Item 1A.

 

Risk Factors

    17  

Item 1B.

 

Unresolved Staff Comments

    23  

Item 2.

 

Properties

    23  

Item 3.

 

Legal Proceedings

    23  

Item 4.

 

Mine Safety Disclosures

    23  

PART II

       

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    24  

Item 6.

 

Selected Financial Data

    27  

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    28  

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

    59  

Item 8.

 

Financial Statements and Supplementary Data

    60  

Item 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

    60  

Item 9A.

 

Controls and Procedures

    61  

Item 9B.

 

Other Information

    64  

PART III

       

Item 10.

 

Directors, Executive Officers and Corporate Governance

    65  

Item 11.

 

Executive Compensation

    65  

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    65  

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

    65  

Item 14.

 

Principal Accounting Fees and Services

    65  

PART IV

       

Item 15.

 

Exhibits, Financial Statement Schedules

    66  

SIGNATURES

       



        Our registered trademarks include aspenONE, Aspen Plus, AspenTech, and HYSYS. All other trademarks, trade names and service marks appearing in this Form 10-K are the property of their respective owners.

        Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2014" refers to the year ended June 30, 2014).

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This Form 10-K 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. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "potential," "should," "target," or the negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our, our customers' or our industry's actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. "Item 1. Business," "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as other sections in this Form 10-K, discuss some of the factors that could contribute to these differences. The forward-looking statements made in this Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in "Item 1A. Risk Factors." Unless the context indicates otherwise, references in this report to "we", "us", "our" mean Aspen Technology, Inc. and its subsidiaries.


PART I

Item 1.    Business.

Overview

        We are a leading global provider of mission-critical process optimization software solutions designed to manage and optimize plant and process design, operational performance, and supply chain planning. Our aspenONE software and related services have been developed specifically for companies in the process industries, including the energy, chemicals, and engineering and construction industries. Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, and decreasing working capital requirements.

        Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process industries for over 30 years. We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain. We are a recognized market and technology leader in providing process optimization software for each of these business areas.

        We have established sustainable competitive advantages within our industry based on the following strengths:

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        We have approximately 2,000 customers globally. Our customers in the process industries include energy, chemicals, engineering and construction, as well as consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals and biofuels.

Industry Background

        The process industries consist of companies that typically manufacture finished products by applying a controlled chemical process either to a raw material that is fed continuously through the plant or to a specific batch of raw material. The process industries include energy, chemicals, engineering and construction, as well as consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals and biofuels.

        Process manufacturing is often complex because small changes in the feedstocks used, or to the chemical process applied, can have a significant impact on the efficiency and cost-effectiveness of manufacturing operations. As a result, process manufacturers, as well as the engineering and construction firms that partner with these manufacturers, have extensive technical requirements and need sophisticated, integrated software to help design, operate and manage their complex manufacturing environments. The unique characteristics associated with process manufacturing create special demands for business applications that frequently exceed the capabilities of generic software applications or non-process manufacturing software packages.

Industry Specific Challenges Facing the Process Industries

        Companies in different process industries face specific challenges that are driving the need for software solutions that design, operate and manage manufacturing environments more effectively:

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        Companies in the consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals and biofuels industries are also seeking process optimization solutions that help them deliver improved financial and operating results in the face of varied process manufacturing challenges.

Increasing Complexity of the Process Industries

        Companies in the process industries constantly face pressure on margins causing them to continually seek ways to operate more efficiently. At the same time, these manufacturers battle growing complexity as a result of the following industry trends:

Market Opportunity

        Technology solutions play a major role in helping companies in the process industries improve their manufacturing productivity. In the 1980s, process manufacturers implemented distributed control systems, or DCS, to automate the management of plant hardware. DCS use computer hardware, communication networks and industrial instruments to measure, record and automatically control process variables. In the 1990s, these manufacturers adopted enterprise resource planning, or ERP,

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systems to streamline back office functions and interact with DCS. These systems allowed process manufacturers to track, monitor and report the performance of each plant, rather than rely on traditional paper and generic desktop spreadsheets.

        Many process manufacturers have implemented both DCS and ERP systems but have realized that their investments in hardware and back-office systems are inadequate. DCS are only able to control and monitor processes based on fixed sets of parameters and cannot dynamically react to changes in the manufacturing process unless instructed by end users. ERP systems can only record what is produced in operations. Although DCS and ERP systems help manage manufacturing performance, neither of these systems can optimize what is produced, how it is produced or where it is produced. Moreover, neither can help a process manufacturer understand how to improve its processes or how to identify opportunities to decrease operating expenses.

        Process optimization software addresses the gap between DCS and ERP systems. Process optimization software focuses on the design and optimization of the manufacturing process; how the process is run and the economics of the process. By connecting DCS and ERP systems with intelligent, dynamic applications, process optimization software allows a manufacturer to make better, faster economic decisions. Examples of how process optimization software can optimize a manufacturing environment include incorporating process manufacturing domain knowledge, supporting real-time decision making, and providing the ability to forecast and simulate potential actions. Furthermore, these solutions can optimize the supply chain by helping a manufacturer to understand the operating conditions in each plant, which enables a manufacturer to decide where best to manufacture products.

        Process manufacturers employ highly skilled technical personnel specializing in areas such as process design, equipment design, control engineering, planning, scheduling, and supply chain management. To drive efficiency and improve operating margins, these personnel need to collaborate across functional areas and increasingly rely on software to enable this collaboration as well as automate complex tasks associated with their jobs.

aspenONE Solutions

        We provide integrated process optimization software solutions designed and developed specifically for the process industries. Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, enabling collaboration among different functions and decreasing working capital requirements. Our aspenONE software applications are organized into two suites, which are centered on our principal business areas of engineering, manufacturing and supply chain:

        In July 2009, we introduced our aspenONE licensing model, which is a subscription offering under which customers receive access to all of the products within the aspenONE suite(s) they license, including the right to any new unspecified future software products and updates that may be introduced into a licensed aspenONE software suite. This affords customers the ability to use our software whenever required and to experiment with different applications to best solve whatever critical business challenges they face.

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        We offer customer support, professional services and training services to our customers. Under our aspenONE licensing model, and for point product arrangements entered into since July 2009, software maintenance and support is included for the term of the arrangement. Professional services are offered to customers as a means to further implement and extend our technology across their corporations.

        The key benefits of our aspenONE solutions include:

Our Competitive Strengths

        In addition to the breadth and depth of our integrated aspenONE software and the flexibility of our aspenONE licensing model, we believe our key competitive advantages include the following:

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Growth Strategy

        We seek to maintain and extend our position as a leading global provider of process optimization software and related services to the process industries. Our primary growth strategy is to expand organically within our core verticals by leveraging our market leadership position and driving increased usage and product adoption (UPA) of the broad capabilities in our aspenONE offerings. Additionally, we seek opportunistic acquisitions to accelerate our overall growth. To accomplish this, we will pursue the following activities:

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Products

        Our integrated process optimization software solutions are designed and developed specifically for the process industries. Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, and decreasing working capital requirements. We have designed and developed our software applications across three principal business areas:

        Our software applications are organized into two suites: aspenONE Engineering and aspenONE Manufacturing and Supply Chain. These suites are integrated applications that allow end users to design process manufacturing environments, forecast and simulate potential actions, monitor operational performance, and manage planning and scheduling activities as well as collaborate across these functions and activities. The two suites are designed around core modules and applications that

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allow customers to design, manage and operate their process manufacturing environments, as shown below:


aspenONE Engineering

Business Area
  aspenONE Module   Major Products   Product Description
Engineering   Engineering   Aspen HYSYS   Process modeling software for the design and optimization of hydrocarbon processes

 

 

 

 

Aspen Plus

 

Process modeling software for the design and optimization of chemical processes

 

 

 

 

Aspen Economic Evaluation

 

Economic evaluation software for estimating project capital costs and lifecycle asset
economics—from conceptual definition through detailed engineering

 

 

 

 

Aspen Exchanger Design and Rating

 

Software for the design, simulation and rating of various types of heat exchangers

 

 

 

 

Aspen Basic Engineering

 

Process engineering platform for producing front-end design deliverables such as multi-disciplinary datasheets, PFDs, P&IDs, and equipment lists

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aspenONE Manufacturing and Supply Chain

Business Area
  aspenONE Module   Major Products   Product Description
Manufacturing   Advanced Process Control   Aspen DMCplus   Multi-variable controller software for maintaining processes at their optimal operating point under changing process conditions

 

 

Manufacturing Execution Systems

 

Aspen Info Plus.21

 

Data historian software for storing, visualizing and analyzing large volumes of data to improve production execution and enhance performance management

Supply Chain

 

Petroleum Supply Chain

 

Aspen PIMS

 

Refinery planning software for optimizing feedstock selection, product slate and operational execution

 

 

 

 

Aspen Petroleum Scheduler

 

Refinery scheduling software for scheduling and optimization of refinery operations with integration to refinery planning, blending and dock operations

 

 

 

 

Aspen Petroleum Supply Chain Planner

 

Economic planning software for optimizing the profitability of the petroleum distribution network, including transportation, raw materials, sales demands, and processing facilities

 

 

 

 

Aspen Collaborative Demand Manager

 

Software for forecasting market demand and managing forecast through changes in the business environment by combining historical and real time data

 

 

 

 

Aspen Fleet Optimizer

 

Software for inventory management and truck transportation optimization in secondary petroleum distribution

 

 

Supply Chain Management

 

Aspen Supply Planner

 

Software for determining the optimal production plan taking into account labor and equipment, feedstock, inbound /outbound transportation, storage capacity, and other variables

 

 

 

 

Aspen Plant Scheduler

 

Software for generating optimal production schedules to meet total demand

        Our product development activities are currently focused on strengthening the integration of our applications and adding new capabilities that address specific mission-critical operational business processes in each industry. As of June 30, 2014, we had a total of 459 employees in our products group, which is comprised of product management, software development and quality assurance. Research and development expenses were $68.4 million in fiscal 2014, $62.5 million in fiscal 2013 and $56.2 million in fiscal 2012.

Sales and Marketing

        We employ a value-based sales approach, offering our customers a comprehensive suite of software and services that enhance the efficiency and productivity of their engineering, manufacturing and supply chain operations. We have increasingly focused on positioning our products as a strategic investment and therefore devote an increasing portion of our sales efforts to our customers' senior management,

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including senior decision makers in manufacturing, operations and technology. Our aspenONE solution strategy supports this value-based approach by broadening the scope of optimization across the entire enterprise and expanding the use of process models in the operations environment. We offer a variety of training programs focused on illustrating the capabilities of our applications as well as online training built into our applications. We have implemented incentive compensation programs for our sales force to reward efforts that increase customer usage of our products. Furthermore, we believe our aspenONE licensing model enables our sales force to develop consultative sales relationships with our customers.

        Historically, most of our license sales have been generated through our direct Field Sales organization. In order to market the specific functionality and other technical features of our software, our account managers work with specialized teams of technical sales personnel and product specialists organized for each sales and marketing effort. Our technical sales personnel typically have degrees in chemical engineering or related disciplines and actively consult with a customer's plant engineers. Product specialists share their detailed knowledge of the specific features of our software solutions as they apply to the unique business processes of different vertical industries. In addition to our direct Field Sales organization, we employ an inside sales team that targets customers in the SMB segment. The SMB organization focuses on opportunities in two segments: Engineering & Construction and Process Manufacturers. We believe that this sales channel is a productive and efficient go-to-market approach for these customers.

        We have established reseller relationships with select companies that we believe can help us increase sales in specific regions and non-core target markets. We also license our software products to universities that agree to use our products in teaching and research. We believe that students' familiarity with our products will stimulate future demand once the students enter the workplace.

        We supplement our sales efforts with a variety of marketing initiatives, including industry analyst and public relations activities, campaigns to promote awareness, user group meetings and customer relationship programs. Our broad user base spans multiple verticals and geographies and these users possess a variety of skills, experience and business needs. In order to reach each of them in an effective, productive and leveraged manner we will increasingly capitalize on digital customer engagement solutions. Using webinars, digital communities, social media, videos, email and other digital means, we seek to engage our extensive user base with targeted messages intended to address the specific needs of each market, customer and user.

        Our overall sales force, which consists of sales account managers, technical sales personnel, indirect channel personnel, inside sales personnel, and marketing personnel, consisted of 375 employees as of June 30, 2014.

Software Maintenance and Support, Professional Services and Training

        Software maintenance and support consists primarily of providing customer technical support and access to software fixes and upgrades. Customer technical support services are provided throughout the world by our three global call centers as well as via email and through our support website. For license term arrangements entered into subsequent to our transition to a subscription-based licensing model, SMS is included with the license arrangement. For license arrangements that don't include SMS, customers can purchase standalone SMS.

        We offer professional services focused on implementation of our solution. Our professional services team primarily consists of project engineers with degrees in chemical engineering or a similar discipline, or who have significant relevant industry experience. Our employees include experts in fields such as thermophysical properties, distillation, adsorption processes, polymer processes, industrial reactor modeling, the identification of empirical models for process control or analysis, large-scale optimization, supply distribution systems modeling and scheduling methods. Our primary focus is the successful implementation and usage of our software, and in many instances, this work can be

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professionally performed by qualified third parties. As a result, we often compete with third-party consulting firms when bidding for professional services contracts, particularly in developed markets. We offer our services on either a time-and-material or fixed-price basis.

        We offer a variety of training solutions ranging from standardized training, which can be delivered in a public forum, on-site at a customer's location or over the Internet, to customized training sessions, which can be tailored to fit customer needs. As of June 30, 2014, we had a total of 295 employees in our customer support, professional services and training groups.

Business Segments

        We have two operating and reportable segments: i) subscription and software and ii) services. The subscription and software segment is engaged in the licensing of process optimization software solutions and associated support services. The services segment includes professional services and training.

        Prior to fiscal 2014, we had three operating and reportable segments: license; SMS, training and other; and professional services. Effective July 1, 2013, we re-aligned our operating and reportable segments into i) subscription and software and ii) services. For additional information on segment realignment, revenues and their operating results, please refer to Note 10 "Segment and Geographic Information" to our consolidated financial statements included under "Item 8, Financial Statements and Supplementary Data" of this Form 10-K. Our prior period reportable segment information has been reclassified to reflect the current segment structure and conform to the current period presentation.

Competition

        Our markets in general are competitive, and we expect the intensity of competition in our markets to increase as existing competitors enhance and expand their product and service offerings and as new participants enter the market. Increased competition may result in price reductions, reduced profitability and loss of market share. We cannot ensure that we will be able to compete successfully against existing or future competitors. Some of our customers and companies with which we have strategic relationships also are, or may become, competitors.

        Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they also have adopted and may continue to pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. For example, some competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand their customer relationships by offering process optimization software at a discount. In addition, competitors with greater financial resources may make strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products. Furthermore, we face challenges in selling our solutions to large companies in the process industries that have internally developed their own proprietary software solutions.

        We seek to develop and offer integrated suites of targeted, high-value vertical industry solutions that can be implemented with relatively limited service requirements. We believe this approach provides us with an advantage over many of our competitors that offer software products that are point solutions or are more service-based. Our key competitive differentiators include:

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Key License Agreements

Honeywell

        We acquired Hyprotech Ltd. and related subsidiaries of AEA Technology plc in May 2002. The Federal Trade Commission alleged in an administrative complaint filed in August 2003 that this acquisition was improperly anticompetitive. In December 2004, we entered into a consent decree with the FTC to resolve the matter. In connection with the consent decree, we and certain of our subsidiaries entered into a purchase and sale agreement with Honeywell International Inc. and certain of its subsidiaries, pursuant to which we sold intellectual property and other assets to Honeywell relating to our operator training business and our Hyprotech engineering software products.

        Under the terms of the transactions, we retained a perpetual, irrevocable, worldwide, royalty-free non-exclusive license (with the limited rights to sublicense) to the Hyprotech engineering software and have the right to continue to develop and sell the Hyprotech engineering products. We retained certain agreements with third parties other than customers or distributors for HYSYS and related products.

        We are subject to ongoing compliance obligations under the FTC consent decree. Under a modification order that became final in August 2009, we are required to continue to provide the ability for users to save input variable case data for Aspen HYSYS and Aspen HYSYS Dynamics software in a standard "portable" format, which will make it easier for users to transfer case data from later versions of the products to earlier versions. We also must provide documentation to Honeywell of the Aspen HYSYS and Aspen HYSYS Dynamics input variables, as well as documentation of the covered heat exchanger products. These requirements will apply to all versions of the covered products released on or before December 31, 2014. In addition, we provided to Honeywell a license to modify and distribute (in object code form) certain versions of our flare system analyzer software.

        There is no assurance that the actions required by the FTC's modified order and related settlement with Honeywell will not provide Honeywell with additional competitive advantages that could materially adversely affect our results of operations.

Massachusetts Institute of Technology

        In March 1982, we entered into a System License Agreement with the Massachusetts Institute of Technology, or MIT, granting us a worldwide, perpetual non-exclusive license (with the right to sublicense) to use, reproduce, distribute and create derivative works of the computer programs known as "ASPEN". The ASPEN program licensed from MIT provides a framework for simulating the steady-state behavior of chemical processes that we utilize in the simulation engine for our Aspen Plus product. MIT agreed that we would own any derivative works and enhancements. A one-time license fee of $30,000 was paid in full. MIT has the right to terminate the agreement if we breach the agreement and do not cure the breach within 90 days after receiving a written notice from MIT; if we cease to carry on our business; or if certain bankruptcy or insolvency proceedings are commenced and not dismissed. In the event of such termination, sublicenses granted to our customers prior to termination will remain in effect.

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Intellectual Property

        Our software is proprietary. Our strategy is to rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions, and to rely on license and confidentiality agreements and software security measures to further protect our proprietary technology and brand. The laws of many countries in which our products are licensed may not protect our intellectual property rights to the same extent as the laws of the United States.

        We have obtained or applied for patent protection with respect to some of our intellectual property, but generally do not rely on patents as a principal means of protecting intellectual property.

        We conduct business under our trademarks and use trademarks on some of our products. We believe that having distinctive marks may be an important factor in marketing our products. We have registered or applied to register some of our significant trademarks in the United States and in selected other countries. Although we have a foreign trademark registration program for selected marks, the laws of many countries protect trademarks solely on the basis of registration and we may not be able to register or use such marks in each foreign country in which we seek registration. We actively monitor use of our trademarks and have enforced, and will continue to enforce, our rights to our trademarks.

        We rely on trade secrets to protect certain of our technology. We generally seek to protect these trade secrets by entering into non-disclosure agreements with our employees and customers, and historically have restricted access to our software and source code, which we regard as proprietary information. In certain cases, we have provided copies of code to customers for the purpose of special product customization or have deposited the source code with a third-party escrow agent as security for ongoing service and license obligations. In these cases, we rely on non-disclosure and other contractual provisions to protect our proprietary rights. Trade secrets may be difficult to protect, and it is possible that parties may breach their confidentiality agreements with us.

        The steps we have taken to protect our proprietary rights may not be adequate to deter misappropriation of our technology or independent development by others of technologies that are substantially equivalent or superior to our technology. Any misappropriation of our technology or development of competitive technologies could harm our business. We could incur substantial costs in protecting and enforcing our intellectual property rights.

        We believe that the success of our business depends more on the quality of our proprietary software products, technology, processes and know-how than on trademarks, copyrights or patents. While we consider our intellectual property rights to be valuable, we do not believe that our competitive position in the industry is dependent simply on obtaining legal protection for our software products and technology. Instead, we believe that the success of our business depends primarily on our ability to maintain a leadership position by developing proprietary software products, technology, information, processes and know-how. Nevertheless, we attempt to protect our intellectual property rights with respect to our products and development processes through trademark, copyright and patent registrations, both foreign and domestic, whenever appropriate as part of our ongoing research and development activities.

Employees

        As of June 30, 2014, we had a total of 1,344 full-time employees, of whom 766 were located in the United States. None of our employees are represented by a labor union, except for two employees of our subsidiary Hyprotech UK Limited who belong to the Prospect union for professionals. We have experienced no work stoppages and believe that our employee relations are satisfactory.

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Corporate Information

        Aspen Technology, Inc. was formed in Massachusetts in 1981 and reincorporated in Delaware in 1998. Our principal executive offices are at 200 Wheeler Road, Burlington, MA 01803, and our telephone number at that address is (781) 221-6400. Our website address is http://www.aspentech.com. The information on our website is not part of this Form 10-K, unless expressly noted.

Available Information

        Our website address is http://www.aspentech.com. Information contained on our website is not incorporated by reference into this Form 10-K unless expressly noted. We file reports with the Securities and Exchange Commission, or the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

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Item 1A.    Risk Factors.

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before purchasing our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties may also impair our business operations. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows would likely suffer. In that case, the trading price of our common stock could fall, and you may lose all or part of your investment in our common stock.

Risks Related to Our Business

If we fail to increase usage and product adoption of our aspenONE offerings, and fail to continue to provide innovative, market-leading solutions, we may be unable to implement our growth strategy successfully, and our business could be seriously harmed.

        The maintenance and extension of our market leadership and our future growth is largely dependent upon our ability to develop new software products that achieve market acceptance with acceptable operating margins, and increase usage and product adoption of our aspenONE offerings. Our strategy is to further penetrate our existing customer base, invest in high-growth markets, deploy a comprehensive digital engagement strategy, pursue selective acquisitions and expand our Total Addressable Market. Enterprises are requiring their application software vendors to provide greater levels of functionality and broader product offerings. We must continue to enhance our current product line and develop and introduce new products and services that keep pace with increasingly sophisticated customer requirements and the technological developments of our competitors. Our business and operating results could suffer if we cannot successfully execute our strategy and drive usage and product adoption.

        We have implemented a product strategy that unifies our software solutions under the aspenONE brand with differentiated aspenONE vertical solutions targeted at specific process industry segments. We cannot ensure that our product strategy will result in products that will continue to meet market needs and achieve significant usage and product adoption. If we fail to increase usage and product adoption or fail to develop or acquire new software products that meet the demands of our customers or our target markets, our operating results and cash flows from operations will grow at a slower rate than we anticipate and our financial condition could suffer.

Our business could suffer if the demand for, or usage of, our aspenONE software declines for any reason, including declines due to adverse changes in the process industries.

        Our aspenONE suites account for a significant majority of our revenue and will continue to do so for the foreseeable future. If demand for, or usage of, our software declines for any reason, our operating results, cash flows from operations and financial position would suffer. Our business could be adversely affected by:

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        Because of the nature of their products and manufacturing processes and their global operations, companies in the process industries are subject to risk of adverse or even catastrophic environmental, safety and health accidents or incidents and are often subject to changing standards and regulations worldwide.

        In addition, in the past, worldwide economic downturns and pricing pressures experienced by energy, chemical, engineering and construction, and other process industries have led to consolidations and reorganizations.

        Any such adverse environmental, safety or health incident, change in regulatory standards, or economic downturn that affects the process industries, as well as general domestic and foreign economic conditions and other factors that reduce spending by companies in these industries, could harm our operating results in the future.

Unfavorable economic and market conditions or a lessening demand in the market for process optimization software could adversely affect our operating results.

        Our business is influenced by a range of factors that are beyond our control and difficult or impossible to predict. If the market for process optimization software grows more slowly than we anticipate, demand for our products and services could decline and our operating results could be impaired. Further, the state of the global economy may deteriorate in the future. Our operating results may be adversely affected by unfavorable global economic and market conditions as well as a lessening demand for process optimization software generally.

        Customer demand for our products is linked to the strength of the global economy. If weakness in the global economy persists, many customers may delay or reduce technology purchases. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies, increased price competition or reduced use of our products by our customers. We will lose revenue if demand for our products is reduced because potential customers experience weak or deteriorating economic conditions, catastrophic environmental or other events, and our business, results of operations, financial condition and cash flow from operations would likely be adversely affected.

The majority of our revenue is attributable to operations outside the United States, and our operating results therefore may be materially affected by the economic, political, military, regulatory and other risks of foreign operations or of transacting business with customers outside the United States.

        As of June 30, 2014, we operated in 31 countries. We sell our products primarily through a direct sales force located throughout the world. In the event that we are unable to adequately staff and maintain our foreign operations, we could face difficulties managing our international operations.

        Customers outside the United States accounted for the majority of our total revenue during the fiscal years ended June 30, 2014, 2013 and 2012. We anticipate that revenue from customers outside the United States will continue to account for a significant portion of our total revenue for the foreseeable future. Our operating results attributable to operations outside the United States are subject to additional risks, including:

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Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results.

        During fiscal 2014, 2013 and 2012, 15.7%, 19.1% and 21.6% of our total revenue was denominated in a currency other than the U.S. dollar. In addition, certain of our operating expenses incurred outside the United States are denominated in currencies other than the U.S. dollar. Our reported revenue and operating results are subject to fluctuations in foreign exchange rates. Foreign currency risk arises primarily from the net difference between non-U.S. dollar receipts from customers outside the United States and non-U.S. dollar operating expenses for subsidiaries in foreign countries. Currently, our largest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Canadian dollar and Japanese Yen against the U.S. dollar. During fiscal 2014, 2013 and 2012, we did not enter into, and were not a party to any, derivative financial instruments, such as forward currency exchange contracts, intended to manage the volatility of these market risks. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our revenue and operating results. Any hedging policies we may implement in the future may not be successful, and the cost of those hedging techniques may have a significant negative impact on our operating results.

Competition from software offered by current competitors and new market entrants, as well as from internally developed solutions by our customers, could adversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that reduces our margins.

        Our markets in general are competitive and differ among our principal product areas: engineering, manufacturing, and supply chain management. We face challenges in selling our solutions to large companies in the process industries that have internally developed their own proprietary software solutions. Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they also have adopted and may continue to pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. For example, some competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand their customer relationships by offering process optimization software at a discount. In addition, many of our competitors have established, and may in the future continue to establish, cooperative relationships with third parties to improve their product offerings and to increase the availability of their products in the marketplace. Competitors with greater financial resources may make strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products.

        Competition could seriously impede our ability to sell additional software products and related services on terms favorable to us. Businesses may continue to enhance their internally developed solutions, rather than investing in commercial software such as ours. Our current and potential commercial competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, if these competitors develop products with similar or superior functionality to our products, we may need to decrease the prices for our products in order to remain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected.

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We cannot ensure that we will be able to compete successfully against current or future competitors or that competitive pressures will not materially adversely affect our business, financial condition and operating results.

Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.

        Our software products are complex and may contain undetected defects or errors. We have not suffered significant harm from any defects or errors to date, but we have from time to time found defects in our products and we may discover additional defects in the future. We may not be able to detect and correct defects or errors before releasing products. Consequently, we or our customers may discover defects or errors after our products have been implemented. We have in the past issued, and may in the future need to issue, corrective releases of our products to remedy defects or errors. The occurrence of any defects or errors could result in:

Defects and errors in our software products could result in claims for substantial damages against us.

We may be subject to significant expenses and damages because of product-related claims.

        In the ordinary course of business, we are, from time to time, involved in product-related lawsuits, claims, investigations, proceedings and threats of litigation. These matters include an April 2004 claim by a customer that certain of our software products and implementation services failed to meet the customer's expectations. In March 2014, a judgment issued in favor of the claimant customer against us in the amount of approximately $2.6 million plus interest and a portion of legal fees. We have filed an appeal of the judgment; however, the results of such appeal, and of claims in general related to our products and services, cannot be predicted with certainty, and could materially adversely affect our results of operations, cash flows or financial position.

If we fail to comply or are deemed to have failed to comply with our ongoing Federal Trade Commission, or FTC, consent decree, our business may suffer.

        In December 2004, we entered into a consent decree with the FTC with respect to a civil administrative complaint filed by the FTC in August 2003 alleging that our acquisition of Hyprotech Ltd. and related subsidiaries of AEA Technology plc in May 2002 was anticompetitive in violation of Section 5 of the Federal Trade Commission Act and Section 7 of the Clayton Act. In July 2009, we announced that the FTC closed an investigation relating to the alleged violations of the decree, and issued an order modifying the consent decree, which became final in August 2009. We are subject to ongoing compliance obligations under the FTC consent decree. There is no assurance that the actions required by the FTC's modified order and related settlement with Honeywell International, Inc. will not require significant attention and resources of management, which could have

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a material adverse effect on our business. Further, if we fail to comply, or are deemed to have failed to comply, with such consent decree, our business may suffer.

Claims that we infringe the intellectual property rights of others may be costly to defend or settle and could damage our business.

        We cannot be certain that our software and services do not infringe issued patents, copyrights, trademarks or other intellectual property rights, so infringement claims might be asserted against us. In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against infringement claims that third parties may assert against our customers based on use of our software or services. Such claims may have a material adverse effect on our business, may be time-consuming and may result in substantial costs and diversion of resources, including our management's attention to our business. Furthermore, a party making an infringement claim could secure a judgment that requires us to pay substantial damages and could also include an injunction or other court order that could prevent us from selling our software or require that we re-engineer some or all of our products. Claims of intellectual property infringement also might require us to enter costly royalty or license agreements. We may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Our business, operating results and financial condition could be harmed significantly if any of these events were to occur, and the price of our common stock could be adversely affected.

We may not be able to protect our intellectual property rights, which could make us less competitive and cause us to lose market share.

        Our software is proprietary. Our strategy is to rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions, and to rely on license and confidentiality agreements and software security measures to further protect our proprietary technology and brand. We have obtained or applied for patent protection with respect to some of our intellectual property, but generally do not rely on patents as a principal means of protecting our intellectual property. We have registered or applied to register some of our trademarks in the United States and in selected other countries. We generally enter into non-disclosure agreements with our employees and customers, and historically have restricted third-party access to our software and source code, which we regard as proprietary information. In certain cases, we have provided copies of source code to customers for the purpose of special product customization or have deposited copies of the source code with a third-party escrow agent as security for ongoing service and license obligations. In these cases, we rely on non-disclosure and other contractual provisions to protect our proprietary rights.

        The steps we have taken to protect our proprietary rights may not be adequate to deter misappropriation of our technology or independent development by others of technologies that are substantially equivalent or superior to our technology. Our intellectual property rights may expire or be challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses on commercially reasonable terms. Any misappropriation of our technology or development of competitive technologies could harm our business and could diminish or cause us to lose the competitive advantages associated with our proprietary technology, and could subject us to substantial costs in protecting and enforcing our intellectual property rights, including costs of proceedings we have instituted to enforce our intellectual property rights, such as those described in "Item 3. Other Proceedings," and/or temporarily or permanently disrupt our sales and marketing of the affected products or services. The laws of some countries in which our products are licensed do not protect our intellectual property rights to the same extent as the laws of the United States. Moreover, in some non-U.S. countries, laws affecting intellectual property rights are uncertain in their application, which can affect the scope of enforceability of our intellectual property rights.

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Our software research and development initiatives and our customer relationships could be compromised if the security of our information technology is breached as a result of a cyber-attack. This could have a material adverse effect on our business, operating results and financial condition, and could harm our competitive position.

        We devote significant resources to continually updating our software and developing new products, and our financial performance is dependent in part upon our ability to bring new products and services to market. Our customers use our software to optimize their manufacturing processes, and they rely on us to provide updates and releases as part of our software maintenance and support services, and to provide remote on-line troubleshooting support. The security of our information technology environment is therefore important to our research and development initiatives, and an important consideration in our customers' purchasing decisions. If the security of our systems is impaired, our development initiatives might be disrupted, and we might be unable to provide service. Our customer relationships might deteriorate, our reputation in the industry could be harmed, and we could be subject to liability claims. This could reduce our revenues, and expose us to significant costs to detect, correct and avoid recurrences of any breach of security and to defend any claims against us.

Risks Related to Our Common Stock

Our common stock may experience substantial price and volume fluctuations.

        The equity markets have from time to time experienced extreme price and volume fluctuations, particularly in the high technology sector, and those fluctuations often have been unrelated to the operating performance of particular companies. In addition, the market price of our common stock may be affected by factors, such as: (i) our financial performance; (ii) we become a U.S. corporate cash taxpayer in fiscal 2016 based on our current projections; (iii) announcements of technological innovations or new products by us or our competitors; and (iv) market conditions in the computer software or hardware industries.

        In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been instituted against that company. This type of litigation against us could result in substantial liability and costs and divert management's attention and resources.

Our corporate documents and provisions of Delaware law may prevent a change in control or management that stockholders may consider desirable.

        Section 203 of the Delaware General Corporation Law, our charter and our by-laws contain provisions that might enable our management to resist a takeover of our company. These provisions include:

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These provisions could:

Item 1B.    Unresolved Staff Comments.

        None.

Item 2.    Properties.

        Our principal executive offices are located in leased facilities in Burlington, Massachusetts, consisting of approximately 75,000 square feet of office space to accommodate our product development, sales, marketing, operations, finance and administrative functions. The lease for our executive offices expires on January 31, 2015.

        In January 2014, we entered into a lease agreement for our new principal executive offices to be located in Bedford, Massachusetts. The newly leased space will accommodate our product development, sales, marketing, operations, finance and administrative functions. The initial term of the lease with respect to 105,874 square feet of office space will commence on November 1, 2014, and on February 1, 2015 with respect to an additional 36,799 square feet of space. The initial term of the lease will expire approximately ten years and five months following the term commencement date. Subject to the terms and conditions of the lease, we may extend the term of the lease for two successive terms of five years each.

        We also lease approximately 76,000 square feet in Houston, Texas, which includes approximately 8,000 square feet of subleased space. In addition to our Burlington and Houston locations, we lease office space in Shanghai, Reading (UK), Singapore, Tokyo and Nashua, New Hampshire, to accommodate sales, services and product development functions.

        In the remainder of our other locations, the majority of our leases have lease terms of one year or less that are generally based on the number of workstations required. We believe this facilities strategy provides us with significant flexibility to adjust to changes in our business environment. We do not own any real property. We believe that our leased facilities are adequate for our anticipated future needs.

Item 3.    Legal Proceedings.

        In July 2010 we filed an action in the U.S. District Court for the Southern District of Texas against M3 Technology, Inc. (M3) for misappropriation of our trade secrets, infringement of our copyrights, and tortious interference. The jury returned a verdict in our favor on May 18, 2012, and a final judgment and permanent injunction was entered on June 6, 2012. The permanent injunction prohibits M3 from using, marketing, selling, distributing, licensing, modifying, servicing, copying, or offering for sale or license versions of the following products: SIMTO Scheduling/M-Blend/Global; SIMTO Scheduling/M-Blend; SIMTO Scheduling; and SIMTO Distribution. M3 filed a Notice of Appeal on June 7, 2012. On May 29, 2014, the United States Court of Appeal for the Fifth Circuit (the "Court of Appeal") substantially affirmed the final judgment and permanent injunction, but ordered that the damages award be reduced to $10,800,000. On June 7, 2013, M3 petitioned for bankruptcy relief under Chapter 11 in proceedings pending in the U.S. Bankruptcy Court for the Southern District of Texas (Case 12-3444). On June 5, 2014, the Chapter 11 case was converted to a case under Chapter 7.

Item 4.    Mine Safety Disclosures

        None

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

        Our common stock currently trades on The NASDAQ Global Select Market under the symbol "AZPN." The closing price of our common stock on June 30, 2014 was $46.40. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by The NASDAQ Global Select Market:

 
  2014   2013  
Period
  Low   High   Low   High  

Quarter ended June 30

  $ 37.60   $ 46.40   $ 27.55   $ 31.72  

Quarter ended March 31

    40.43     47.84     27.55     32.48  

Quarter ended December 31

    33.75     42.22     24.05     27.64  

Quarter ended September 30

    29.29     35.27     22.22     26.22  

Holders

        On August 6, 2014, there were 485 holders of record of our common stock. The number of record holders does not include persons who held our common stock in nominee or "street name" accounts through brokers.

Dividends

        We have never declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of the Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition and future prospects and such other factors as the Board of Directors may deem relevant.

Purchases of Equity Securities by the Issuer

        As of June 30, 2014, we had repurchased an aggregate of 9,371,890 shares of our common stock pursuant a series of repurchases beginning on November 1, 2010.

        On April 23, 2014, our Board of Directors approved a share repurchase program for up to $200 million worth of our common stock. This share repurchase program replaced and terminated the prior program approved by the Board of Directors on April 23, 2013 that provided for repurchases of up to $150 million.

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        The following table sets forth, for the month indicated, our purchases of common stock during the fourth quarter of fiscal 2014:


Issuer Purchases of Equity Securities

Period
  Total Number
of Shares
Purchased
  Average Price
Paid per Share
  Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
  Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Program
 

April 1 to 30, 2014

    260,322   $ 40.18     260,322   $  

May 1 to 31, 2014

    235,600     44.29     235,600      

June 1 to 30, 2014

    267,758     44.68     267,758        
                     

    763,680   $ 43.02     763,680   $ 175,110,835  
                     
                     

Securities Authorized for Issuance Under Equity Compensation Plans

        The following table provides information about the securities authorized for issuance under our equity compensation plans as of June 30, 2014:

Plan Category
  Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
  Weighted-average
exercise
price of
outstanding
options,
warrants and
rights
  Number of securities
remaining available for
future issuance under
equity compensation
plans
 

Equity compensation plans approved by security holders

    1,863,797   $ 22.10     4,710,155  

Equity compensation plans not approved by security holders

             
               

Total

    1,863,797   $ 22.10     4,710,155  
               
               

        Equity compensation plans approved by security holders consist of our 2005 stock incentive plan and our 2010 equity incentive plan.

        The securities remaining available for future issuance under equity compensation plans approved by our security holders as of June 30, 2014 consisted of:

        Options issuable under the 2005 stock incentive plan have a maximum term of seven years. Options issuable under the 2010 equity incentive plan have a maximum term of ten years. As of April 1, 2015, we will no longer be able to grant options under the 2005 stock incentive plan.

Stockholder Return Comparison

        The information included in this section is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act or to the liabilities of Section 18 of the Securities Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.

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        The graph below matches the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Computer & Data Processing index. The graph assumes that the value of the investment in our common stock and in each of the indexes (including reinvestment of dividends) was $100 on June 30, 2009 and tracks it through June 30, 2014.


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Aspen Technology, Inc., the NASDAQ Composite Index,
and the NASDAQ Computer & Data Processing Index

GRAPHIC


*
$100 invested on 6/30/09 in stock or index, including reinvestment of dividends.

Fiscal year ending June 30.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

 
  Year Ended June 30,  
 
  2009   2010   2011   2012   2013   2014  

Aspen Technology, Inc. 

    100.00     127.67     201.41     271.40     337.51     543.96  

NASDAQ Composite

    100.00     117.06     154.79     167.05     197.48     259.41  

NASDAQ Computer & Data Processing

    100.00     107.16     139.51     148.60     178.27     240.30  

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Item 6.    Selected Financial Data.

        The following table presents selected consolidated financial and other data for Aspen Technology, Inc. The consolidated statements of operations data set forth below for fiscal 2014, 2013 and 2012 and the consolidated balance sheets data as of June 30, 2014, and 2013, are derived from our consolidated financial statements included beginning on page F-1 of this Form 10-K. The consolidated statements of operations data for fiscal 2011 and 2010 and the consolidated balance sheets data as of June 30, 2012, 2011, and 2010 are derived from our consolidated financial statements that are not included in this Form 10-K. The data presented below should be read in conjunction with our consolidated financial statements and accompanying notes beginning on page F-1 and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  Year Ended June 30,  
 
  2014   2013   2012   2011   2010  
 
  (in Thousands)
 

Consolidated Statements of Operations Data:

                               

Revenue (1)

  $ 391,453   $ 311,387   $ 243,134   $ 198,154   $ 166,344  

Gross profit

    338,765     261,039     190,857     145,809     100,234  

Income (loss) from operations

    129,724     55,600     (15,007 )   (54,576 )   (109,370 )
                       

Net income (loss) (2)

  $ 85,783   $ 45,262   $ (13,808 ) $ 10,257   $ (107,445 )

Basic income (loss) per share

  $ 0.93   $ 0.48   $ (0.15 ) $ 0.11   $ (1.18 )

Diluted income (loss) per share

  $ 0.92   $ 0.47   $ (0.15 ) $ 0.11   $ (1.18 )

Weighted average shares outstanding—Basic

    92,648     93,586     93,780     93,488     91,247  

Weighted average shares outstanding—Diluted

    93,665     95,410     93,780     95,853     91,247  

(1)
In July 2009, we introduced our aspenONE licensing model under which license revenue is recognized over the term of a license contract. We previously recognized a substantial majority of our license revenue upfront, upon shipment of software. Refer to "Item 7. Management's Discussion and Analysis and Results of Operations—Transition to the aspenONE Licensing Model."

(2)
Our provision for income taxes provided a net benefit of $54.0 million in fiscal 2011, due to the reversal of a significant portion of our U.S. valuation allowance in the fourth quarter of fiscal 2011.


 
  Year Ended June 30,  
 
  2014   2013   2012   2011   2010  
 
  (Dollars in Thousands)
 

Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

  $ 199,526   $ 132,432   $ 165,242   $ 149,985   $ 124,945  

Marketable securities

    98,889     92,368              

Working capital

    63,178     69,890     65,744     80,188     94,466  

Accounts receivable, net

    38,532     36,988     31,450     27,866     31,738  

Installments receivable, net

    1,451     14,732     47,230     86,476     128,598  

Collateralized receivables, net

            6,297     25,039     51,430  

Total assets

    407,972     382,748     368,335     399,794     393,359  

Deferred revenue

    274,882     231,353     187,173     128,943     87,279  

Secured borrowings

            10,756     24,913     76,135  

Total stockholders' equity

    83,676     101,898     113,592     157,803     140,970  

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

        You should read the following discussion in conjunction with our consolidated financial statements and related notes beginning on page F-1. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read "Item 1A. Risk Factors" for a discussion of important factors that could cause our actual results to differ materially from our expectations.

        Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2014" refers to the year ended June 30, 2014).

Business Overview

        We are a leading global provider of mission-critical process optimization software solutions designed to manage and optimize plant and process design, operational performance, and supply chain planning. Our aspenONE software and related services have been developed specifically for companies in the process industries, including the energy, chemicals, and engineering and construction industries. Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, and decreasing working capital requirements.

        Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process industries for over 30 years. We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain. We are a recognized market and technology leader in providing process optimization software for each of these business areas.

        We have established sustainable competitive advantages within our industry based on the following strengths:

        We have approximately 2,000 customers globally. Our customers in the process industries include energy, chemicals, engineering and construction, as well as consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals and biofuels.

        We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model. Our aspenONE products are organized into two suites: 1) engineering and 2) manufacturing and supply chain, or MSC. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. Customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement, called tokens, licensed in quantities determined by the customer. This licensing system enables customers to use products as needed and to experiment with different products to best solve whatever critical business challenges they face. Customers can increase their usage of our software by purchasing additional tokens as business needs evolve. We believe easier access to all of the aspenONE products will lead to increased software usage and higher revenue over time.

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Transition to the aspenONE Licensing Model

        Prior to fiscal 2010, we offered term or perpetual licenses to specific products, or specifically defined sets of products, which we refer to as point products. The majority of our license revenue was recognized under an "upfront revenue model," in which the net present value of the aggregate license fees was recognized as revenue upon shipment of the point products, provided all revenue recognition criteria were met. Customers typically received one year of post-contract software maintenance and support, or SMS, with their license agreements and then could elect to renew SMS annually. Revenue from SMS was recognized ratably over the period in which the SMS was delivered.

        In fiscal 2010, we introduced the following changes to our licensing model:

Revenue related to our aspenONE licensing model and point product arrangements with Premier Plus SMS are both recognized over the term of the arrangement on a ratable basis. The changes to our licensing model introduced in fiscal 2010 did not change the method or timing of customer billings or cash collections. The revenue transition will not be fully completed until fiscal 2016. As of June 30, 2014, over 95% of the value of our active term license agreements have been transitioned to our aspenONE licensing model.

Impact of Licensing Model Changes

        The principal accounting implications of the changes to our licensing model in fiscal 2010 are as follows:

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Introduction of our Premier Plus SMS Offering

        Beginning in fiscal 2012, we introduced our Premier Plus SMS offering to provide more value to our customers. As a part of this offering, customers receive 24x7 support, faster response times, dedicated technical advocates and access to web-based training modules. The Premier Plus SMS offering is only provided to customers that commit to SMS for the entire term of the arrangement. Our annually renewable legacy SMS offering continues to be available to customers with legacy term and perpetual license agreements.

        The introduction of our Premier Plus SMS offering in fiscal 2012 resulted in a change to the revenue recognition of point product arrangements that include Premier Plus SMS for the term of the arrangement. Since we do not have vendor-specific objective evidence of fair value, or VSOE, for our Premier Plus SMS offering, the SMS element of our point product arrangements is not separable, resulting in revenue being recognized ratably over the term of the arrangement, once the other revenue recognition criteria have been met. Prior to fiscal 2012, license revenue was recognized on the due date of each annual installment, provided all revenue recognition criteria were met. The introduction of our Premier Plus SMS offering did not change the revenue recognition for our aspenONE licensing arrangements.

Segments Re-alignment

        Prior to fiscal 2014, we had three operating and reportable segments: license; SMS, training and other; and professional services. As our customers have transitioned to our aspenONE licensing model, legacy SMS revenue has decreased and been offset by a corresponding increase in revenue from aspenONE licensing arrangements and from point product arrangements with Premier Plus. As a result, legacy SMS revenue is no longer significant in relation to our total revenue and no longer represents a significant line of business.

        We manage legacy SMS as a part of our broader software licensing business and assess business performance on a combined basis. Our President and Chief Executive Officer evaluates software licensing and maintenance on an aggregate basis in deciding how to assess performance. Effective July 1, 2013, we re-aligned our operating and reportable segments into i) subscription and software and ii) services.

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        The subscription and software segment is engaged in the licensing of process optimization software solutions and associated support services. The services segment includes professional services and training.

        For additional information on segment revenues and their operating results, please refer to Note 10 "Segment and Geographic Information" to our consolidated financial statements included under "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Our prior period reportable segment information has been reclassified to reflect the current segment structure and conform to the current period presentation.

Revenue

        We generate revenue primarily from the following sources:

        Four basic criteria must be satisfied before software license revenue can be recognized: persuasive evidence of an arrangement between us and an end user; delivery of our product has occurred; the fee for the product is fixed or determinable; and collection of the fee is probable.

        Persuasive evidence of an arrangement—We use a signed contract as evidence of an arrangement for software licenses and SMS. For professional services we use a signed contract and a work proposal to evidence an arrangement. In cases where both a signed contract and a purchase order are required by the customer, we consider both taken together as evidence of the arrangement.

        Delivery of our product—Software and the corresponding access keys are generally delivered to customers via disk media with standard shipping terms of Free Carrier, our warehouse (i.e., FCA, named place). Our software license agreements do not contain conditions for acceptance.

        Fee is fixed or determinable—We assess whether a fee is fixed or determinable at the outset of the arrangement. Significant judgment is involved in making this assessment.

        Under our upfront revenue model, we are able to demonstrate that the fees are fixed or determinable for all arrangements, including those for our term licenses that contain extended payment terms. We have an established history of collecting under the terms of these contracts without providing concessions to customers. In addition, we also assess whether a contract modification to an existing term arrangement constitutes a concession. In making this assessment, significant analysis is performed to ensure that no concessions are given. Our software license agreements do not include a right of return or exchange. For license arrangements executed under the upfront revenue model, we recognize

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license revenue upon delivery of the software product, provided all other revenue recognition requirements are met.

        We cannot assert that the fees under our aspenONE licensing model and point product arrangements with Premier Plus SMS are fixed or determinable because the rights provided to customers, and the economics of the arrangements, are not comparable to our transactions with other customers under the upfront revenue model. As a result, the amount of revenue recognized for these arrangements is limited by the amount of customer payments that become due.

        Collection of fee is probable—We assess the probability of collecting from each customer at the outset of the arrangement based on a number of factors, including the customer's payment history, its current creditworthiness, economic conditions in the customer's industry and geographic location, and general economic conditions. If in our judgment collection of a fee is not probable, revenue is recognized as cash is collected, provided all other conditions for revenue recognition have been met.

        We have established VSOE for certain SMS offerings, professional services, and training, but not for our software products or our Premier Plus SMS offering. We assess VSOE for SMS, professional services, and training based on an analysis of standalone sales of these offerings using the bell-shaped curve approach. We do not have a history of selling our Premier Plus SMS offering to customers on a standalone basis, and as a result are unable to establish VSOE for this deliverable. As of July 1, 2014, we are no longer able to establish VSOE for legacy SMS offerings sold with our perpetual license arrangements. As a result, all perpetual license agreements that include legacy SMS entered into subsequent to June 30, 2014 will be recognized ratably over the legacy SMS service period. Loss of VSOE on legacy SMS offerings sold with our perpetual license arrangements is not expected to have a material impact on our revenue in fiscal 2015.

        We allocate the arrangement consideration among the elements included in our multi-element arrangements using the residual method. Under the residual method, the VSOE of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue upon delivery of the software, assuming all other revenue recognition criteria are met. If VSOE does not exist for an undelivered element in an arrangement, revenue is deferred until such evidence does exist for the undelivered elements, or until all elements are delivered, whichever is earlier. Under the upfront revenue model, the residual license fee is recognized upon delivery of the software provided all other revenue recognition criteria were met. Arrangements that qualified for upfront recognition during fiscal 2014 and prior periods included sales of perpetual licenses, amendments to existing legacy term arrangements and renewals of legacy term arrangements.

Subscription and Software Revenue

        Subscription and software revenue consists of product and related revenue from our (i) aspenONE licensing model, including Premier Plus SMS; (ii) point product arrangements with our Premier Plus SMS offering included for the contract term; (iii) legacy arrangements including (a) amendments to existing legacy term arrangements, (b) renewals of legacy term arrangements and (c) legacy arrangements that are being recognized over time as a result of not previously meeting one or more of the requirements for recognition under the upfront revenue model; (iv) legacy SMS arrangements; and (v) perpetual arrangements.

        When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. Due to our obligation to provide

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unspecified future software products and updates, we are required to recognize revenue ratably over the term of the arrangement, once the other revenue recognition criteria noted above have been met.

        Our point product arrangements with Premier Plus SMS include SMS for the term of the arrangement. Since we do not have VSOE for our Premier Plus SMS offering, the SMS element of our point product arrangements is not separable. As a result, revenue associated with point product arrangements with Premier Plus SMS included for the contract term is recognized ratably over the term of the arrangement, once all other revenue recognition criteria have been met.

        Perpetual and legacy term license arrangements do not include the same rights as those provided to customers under the aspenONE licensing model and point product arrangements with Premier Plus SMS. Legacy SMS revenue is generated from legacy SMS offerings provided in support of perpetual and legacy term license arrangements. Customers typically receive SMS for one year and then can elect to renew SMS annually. During fiscal 2014 and prior periods, we had VSOE for certain legacy SMS offerings sold with perpetual and term license arrangements and could therefore separate the undelivered elements. Accordingly, license fee revenue for perpetual and legacy term license arrangements was recognized upon delivery of the software products using the residual method, provided all other revenue recognition requirements were met. VSOE of fair value for the undelivered SMS component sold with our perpetual and term license arrangements was deferred and subsequently amortized into revenue ratably over the contractual term of the SMS arrangement. As of July 1, 2014, we are no longer able to establish VSOE for legacy SMS offerings sold with our perpetual license arrangements. As a result, all perpetual license agreements that include legacy SMS entered into subsequent to June 30, 2014 will be recognized ratably over the legacy SMS service period. Loss of VSOE on legacy SMS offerings sold with our perpetual license arrangements is not expected to have a material impact on our revenue in fiscal 2015.

        We expect legacy SMS revenue to continue to decrease as additional customers transition to our aspenONE licensing model. Prior to fiscal 2014, legacy SMS revenue was significant in relation to our total revenue and was classified within services and other revenue in our consolidated statements of operations. Beginning with fiscal 2014, legacy SMS revenue is included within subscription and software revenue in our consolidated statements of operations. For further information, please refer to the "Revenue Reclassification" section.

Services and Other Revenue

        Professional services are provided to customers on a time-and-materials (T&M) or fixed-price basis. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.

        In certain circumstances, professional services revenue may be recognized over a longer time period than the period over which the services are performed. If the costs to complete a project are not estimable or the completion is uncertain, the revenue is recognized upon completion of the services. In circumstances in which professional services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed or (ii) the license term. When we provide professional services considered essential to the functionality of the software, we recognize the combined revenue from the sale of the software and related services using the completed contract or percentage-of-completion method.

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        We have occasionally been required to commit unanticipated additional resources to complete projects, which resulted in losses on those contracts. Provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated.

        We provide training services to our customers, including on-site, Internet-based, public and customized training. Revenue is recognized in the period in which the services are performed. In circumstances in which training services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed or (ii) the license term.

Key Components of Operations

Revenue

        Subscription and Software Revenue.    Our subscription and software revenue consists of product and related revenue from the following sources:

Revenue Reclassification

        Prior to fiscal 2014, legacy SMS revenue was classified within services and other revenue in our consolidated statements of operations. Cost of legacy SMS revenue was included within cost of services and other revenue. Beginning with fiscal 2014, legacy SMS revenue is included within subscription and software revenue in our consolidated statements of operations. We reclassified legacy SMS revenue into subscription and software revenue in our consolidated statements of operations based on the following rationale:

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        The following table summarizes the impact of revenue and cost of revenue reclassifications for fiscal 2013 and 2012:

 
  Classification in Consolidated Statements of
Operations for the Year Ended June 30,
  Year Ended June 30,  
 
  2014   2013 and 2012   2014   2013   2012  
 
   
   
  (Dollars in Thousands)
 

Legacy SMS revenue

  Subscription and software   Services and other   $ 30,341   $ 36,931   $ 46,777  

Cost of Legacy SMS revenue

 

Subscription and software

 

Services and other

 
$

5,571
 
$

7,360
 
$

10,152
 

        Prior to fiscal 2014, services and other revenue included revenue related to professional services, training, legacy SMS and other revenue. Beginning with fiscal 2014, legacy SMS revenue is included within subscription and software revenue in our consolidated statements of operations.

        The following tables summarize the impact of legacy SMS revenue and cost of revenue reclassification on our previously presented consolidated statements of operations for fiscal 2013 and 2012:

 
  Impact on Consolidated Statements
of Operations for the
Year Ended June 30, 2013
 
 
  As Previously
Reported
  Reclassifications   As Currently
Reported
 
 
  (Dollars in Thousands)
 

Subscription and software revenue:

                   

Legacy SMS

  $   $ 36,931   $ 36,931  

Subscription and software

    239,654         239,654  
               

  $ 239,654   $ 36,931   $ 276,585  
               
               

Services and other revenue:

                   

Legacy SMS

  $   $ (36,931 ) $ (36,931 )

Professional services, training and other

    71,733         71,733  
               

  $ 71,733   $ (36,931 ) $ 34,802  
               
               

Cost of subscription and software revenue:

                   

Cost of legacy SMS revenue

  $   $ 7,360   $ 7,360  

Cost of subscription and software revenue

    12,788         12,788  
               

  $ 12,788   $ 7,360   $ 20,148  
               
               

Cost of services and other revenue:

                   

Cost of legacy SMS revenue

  $   $ (7,360 ) $ (7,360 )

Cost of professional services, training and other revenue

    37,560         37,560  
               

  $ 37,560   $ (7,360 ) $ 30,200  
               
               

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  Impact on Consolidated Statements
of Operations for the
Year Ended June 30, 2012
 
 
  As Previously
Reported
  Reclassifications   As Currently
Reported
 
 
  (Dollars in Thousands)
 

Subscription and software revenue:

                   

Legacy SMS

  $   $ 46,777   $ 46,777  

Subscription and software

    166,688         166,688  
               

  $ 166,688   $ 46,777   $ 213,465  
               
               

Services and other revenue:

                   

Legacy SMS

  $   $ (46,777 ) $ (46,777 )

Professional services, training and other

    76,446         76,446  
               

  $ 76,446   $ (46,777 ) $ 29,669  
               
               

Cost of subscription and software revenue:

                   

Cost of legacy SMS revenue

  $   $ 10,152   $ 10,152  

Cost of subscription and software revenue

    10,617         10,617  
               

  $ 10,617   $ 10,152   $ 20,769  
               
               

Cost of services and other revenue:

                   

Cost of legacy SMS revenue

  $   $ (10,152 ) $ (10,152 )

Cost of professional services, training and other revenue

    41,660         41,660  
               

  $ 41,660   $ (10,152 ) $ 31,508  
               
               

        Services and Other Revenue.    Our services and other revenue consists primarily of revenue related to professional services and training. The amount and timing of this revenue depend on a number of factors, including:

Cost of Revenue

        Cost of Subscription and Software.    Our cost of subscription and software revenue consists of (i) royalties, (ii) amortization of capitalized software and purchased technology intangibles, (iii) distribution fees, (iv) costs of providing Premier Plus SMS bundled with our aspenONE licensing and point product arrangements; and (v) costs of providing legacy SMS.

        Prior to fiscal 2014, costs of providing legacy SMS were presented within cost of services and other revenue in our consolidated statements of operations. Beginning with fiscal 2014, costs of our legacy SMS business are presented within cost of subscription and software revenue in our consolidated

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statements of operations. For further information, please refer to the "Revenue Reclassification" section.

        Cost of Services and Other.    Our cost of services and other revenue consists primarily of personnel-related and external consultant costs associated with providing customers professional services and training.

Operating Expenses

        Selling and Marketing Expenses.    Selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license our products and services to current and potential customers, as well as for overall management of customer relationships. Marketing expenses include expenses needed to promote our company and our products and to conduct market research to help us better understand our customers and their business needs.

        Research and Development Expenses.    Research and development expenses consist primarily of personnel expenses related to the creation of new software products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility.

        General and Administrative Expenses.    General and administrative expenses include the costs of corporate and support functions, such as executive leadership and administration groups, finance, legal, human resources and corporate communications, and other costs, such as outside professional and consultant fees and provision for bad debts.

        Restructuring Charges.    Restructuring charges result from the closure or consolidation of our facilities, or from qualifying reductions in headcount.

Other Income and Expenses

        Interest Income.    Interest income is recorded for the accretion of interest on the installment payments of our term software license contracts when revenue is recognized upfront at net present value, and from the investment in marketable securities and short-term money market instruments.

        Interest Expense.    During fiscal 2013 and 2012, interest expense consisted primarily of charges related to our secured borrowings which were repaid in full in fiscal 2013. During fiscal 2014, interest expense was comprised of miscellaneous interest charges.

        Other Income (Expense), Net.    Other income (expense), net is comprised primarily of foreign currency exchange gains (losses) generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.

        Provision for (Benefit from) Income Taxes.    Provision for income taxes is comprised of domestic and foreign taxes. Benefits from income taxes are comprised of any deferred benefit for tax deductions and credits that we expect to utilize in the future. We record interest and penalties related to income tax matters as a component of income tax expense. We expect the amount of income tax expense to vary each reporting period depending upon fluctuations in our taxable income by jurisdiction.

Key Business Metrics

        The changes to our licensing model in fiscal 2010 resulted in a reduction in our product-related revenue for each period starting with fiscal 2010 through fiscal 2012, as compared to the fiscal years preceding our licensing model changes. By fiscal 2013, the number of license arrangements renewed on

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the aspenONE licensing model resulted in ratable revenue sufficient to generate an operating profit, but we do not expect to recognize levels of revenue reflective of the value of our active license agreements until the remaining term license agreements executed under our upfront revenue model (i) reach the end of their original terms and (ii) are renewed. As a result, we believe that a number of our performance indicators based on GAAP, including revenue, gross profit, operating income (loss), net income (loss), and trend in deferred revenue, should be reviewed in conjunction with certain non-GAAP and other business measures in assessing our performance, growth and financial condition. We utilize the following non-GAAP and other key business metrics to track our business performance as we continue transitioning to our aspenONE licensing model:

        None of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with GAAP.

Total Term Contract Value

        Total term contract value, or TCV, is an estimate of the renewal value, as of a specific date, of our active portfolio of term license agreements. TCV is calculated by multiplying the terminal annual payment for each active term license agreement by the original length of the existing license term, and then aggregating this amount for all active term license agreements. Accordingly, TCV represents the full renewal value of all of our current term license agreements under the hypothetical assumption that all of those agreements are simultaneously renewed for the identical license terms and at the same terminal annual payment amounts. TCV includes the value of SMS for any multi-year license agreements for which SMS is committed for the entire license term. TCV does not include any amounts for perpetual licenses, professional services, training or standalone renewal SMS. TCV is calculated using constant currency assumptions for agreements denominated in currencies other than U.S. dollars in order to remove the impact of currency fluctuations between comparison dates.

        We also estimate a license-only TCV, which we refer to as TLCV, by removing the SMS portion of TCV using our historic estimated selling price for SMS. Our portfolio of active license agreements currently reflects a mix of (a) license agreements that include SMS for the entire license term and (b) legacy license agreements that do not include SMS. TLCV provides a consistent basis for assessing growth, particularly while customers are continuing to transition to arrangements that include SMS for the term of the arrangement.

        We believe TCV and TLCV are useful metrics for analyzing our business performance, particularly while we are transitioning to our aspenONE licensing model or to point product arrangements with Premier Plus SMS included for the full term, and revenue comparisons between fiscal periods do not reflect the actual growth rate of our business. Comparing TCV and TLCV for different dates provides insight into the growth and retention rate of our business during the period between those dates.

        TCV and TLCV increase as the result of:

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        The renewal of an existing license agreement will not increase TCV and TLCV unless the renewal results in higher license fees or a longer license term. TCV and TLCV are adversely affected by customer non-renewals and by renewals that result in lower license fees or a shorter license term. Our standard license term historically has been between five and six years, and we do not expect this standard term to change in the future. Many of our contracts have escalating annual payments throughout the term of the arrangement. By calculating TCV and TLCV based on the terminal year annual payment, we are typically using the highest annual fee from the existing arrangement to calculate the hypothetical renewal value of our portfolio of term arrangements.

        We estimate that TLCV grew by approximately 12.2% during fiscal 2014, from $1.65 billion at June 30, 2013 to $1.85 billion at June 30, 2014. We estimate that TCV grew by approximately 13.7% during fiscal 2014, from $1.93 billion at June 30, 2013 to $2.2 billion at June 30, 2014. The growth was attributable primarily to an increase in the number of tokens or products sold.

Annual Spend

        Annual spend is a derivative metric that is closely related to TCV. TCV is an estimate of the renewal value of our active portfolio of term license agreements, as of a specific date. Annual spend is an estimate of the annualized value of our active portfolio of term agreements, as of a specific date. Annual spend is calculated by taking the most recent annual invoice value of each of our active term contracts and then aggregating this amount for all active term licenses. Annual spend also includes the annualized value of standalone SMS agreements purchased in conjunction with term license agreements. We believe that the annual spend metric may be helpful to investors attempting to analyze and model subscription and software revenue while we transition to our aspenONE licensing model. Comparing annual spend for different dates provides insight into the growth and retention rates of our business, and since annual spend represents the estimated annualized billings associated with our active term license agreements, it provides insight into a normalized value for subscription and software revenue.

        Annual spend increases as a result of:

        Annual spend is adversely affected by term license and standalone SMS agreements that are not renewed. Unlike TCV and TLCV, the value of annual spend is not impacted by changes to contract duration.

        We estimate that annual spend grew by approximately 12.3% during fiscal 2014, from $337.9 million at June 30, 2013 to $379.5 million at June 30, 2014. The growth was attributable primarily to an increase in the number of tokens or products sold.

Adjusted Total Costs

        We use a non-GAAP measure of adjusted total costs, which excludes certain non-cash and non-recurring expenses, to supplement our presentation of total cost of revenue and total operating costs presented on a GAAP basis. Management believes that this financial measure is useful to investors because it approximates the cash operating costs of the business. The presentation of adjusted total costs is not meant to be considered as an alternative to total cost of revenue and total operating costs as a measure of our total costs.

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        The following table presents our total cost of revenue and total operating expenses, as adjusted for stock-based compensation expense, non-capitalized acquired technology, restructuring charges, and amortization of purchased technology intangibles, for the indicated periods:

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Total cost of revenue

  $ 52,688   $ 50,348   $ 52,277   $ 2,340     4.6 % $ (1,929 )   (3.7 )%

Total operating expenses

    209,041     205,439     205,864     3,602     1.8     (425 )   (0.2 )
                               

Total expenses

    261,729     255,787     258,141     5,942     2.3     (2,354 )   (0.9 )

Less:

                                           

Stock-based compensation

    (14,056 )   (14,637 )   (12,406 )   581     (4.0 )   (2,231 )   18.0  

Non-capitalized acquired technology

    (4,856 )           (4,856 )   (100.0 )        

Restructuring charges

    15     5     301     10     *     (296 )   (98.3 )

Amortization of purchased technology intangibles

    (922 )   (702 )   (142 )   (220 )   31.3     (560 )   *  
                               

Adjusted total costs (non-GAAP)

  $ 241,910   $ 240,453   $ 245,894   $ 1,457     0.6 % $ (5,441 )   (2.2 )%
                               
                               

*
Not meaningful

        In fiscal 2014, we acquired certain technology that we plan to modify and enhance prior to release as a commercially available product. At the time we acquired the technology, the project to develop a commercially available product did not meet the accounting definition of having reached technological feasibility and therefore the cost of the acquired technology was expensed as a research and development expense. We continue to expect that we will develop the acquired technology into a commercially available product. Since the expensing of the acquired technology is a one-time, non-recurring item, we exclude it from our calculation of adjusted total costs.

        Total expenses increased by $5.9 million during fiscal 2014 as compared to the prior fiscal year. Please refer to the "Results of Operations" section below for additional information on year-over-year expense fluctuations.

        Adjusted total costs consist of total cost of revenue and total operating expenses, adjusted to exclude stock-based compensation, non-capitalized acquired technology, restructuring charges and amortization of purchased technology intangibles.

        Adjusted total costs increased by $1.5 million during fiscal 2014 as compared to the prior fiscal year. The year-over-year increase was primarily attributable to higher cost of revenue of $3.9 million recognized on professional service projects accounted for under the completed contract method, higher commissions of $1.8 million, higher net costs of $1.8 million related to legal matters, higher facility-related costs of $0.6 million and other expenses of $0.1 million. These increases were partially offset by lower third-party legal costs of $3.0 million, lower employee benefit costs of $1.5 million, lower third-party subcontractor costs of $0.9 million related to professional services, lower marketing-related costs of $0.8 million and lower severance costs of $0.5 million.

        Stock-based compensation expense decreased by $0.6 million primarily due to award forfeitures resulting from terminations that occurred in fiscal 2014 and certain awards reaching the end of their vesting period in fiscal 2013, partially offset by the incremental expense associated with our August 2013 annual program grant.

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        Total expenses decreased by $2.4 million during fiscal 2013 as compared to fiscal 2012. Please refer to the "Results of Operations" section below for additional information on year-over-year expense fluctuations.

        Adjusted total costs decreased by $5.4 million during fiscal 2013 as compared to fiscal 2012. The year-over-year decrease in adjusted total costs was primarily attributable to a reduction in legal costs of $6.0 million, lower compensation and related costs of $1.6 million and lower third-party commissions of $0.4 million. These decreases were partially offset by increases in marketing costs of $0.6 million and other items of $0.3 million. In addition, fiscal 2012 benefited from the recognition of a $1.7 million gain associated with an insurance recovery, which resulted in a reduction in expense during the period. No similar events occurred in fiscal 2013.

        Stock-based compensation expense increased $2.2 million primarily due to the incremental expense associated with the August 2012 annual program grant, which had a higher valuation than awards granted in previous periods. Amortization of purchased technology intangibles increased $0.6 million associated with the assets acquired during fiscal 2013 and the second half of fiscal 2012.

Free Cash Flow

        We use a non-GAAP measure of free cash flow to analyze cash flows generated from our operations. Management believes that this financial measure is useful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our goals. We believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives and a basis for comparing our performance with that of our competitors. The presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

        Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of (a) purchases of property, equipment and leasehold improvements, (b) insurance proceeds, (c) capitalized computer software development costs, (d) excess tax benefits from stock-based compensation and (e) non-capitalized acquired technology.

        We do not expect to recognize levels of revenue reflective of the value of our active license agreements until the remaining term license agreements executed under our upfront revenue model (i) reach the end of their original terms and (ii) are renewed. Many of our license arrangements were five or six years in duration when the aspenONE licensing model was introduced at the start of fiscal 2010, and consequently, the revenue transition is expected to be completed by fiscal 2016. As a result, we believe that our income statement profitability measures based on GAAP, such as total revenue, gross profit, operating income (loss) and net income (loss), should be reviewed in conjunction with free cash flow to measure our financial performance. Customer collections and, consequently, cash flows from operating activities and free cash flow are primarily driven by license and services billings, rather than the timing of revenue. The introduction of our aspenONE licensing model has not had an adverse impact on cash receipts.

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        The following table provides a reconciliation of net cash flows provided by operating activities to free cash flow for the indicated periods:

 
  Year Ended June 30,  
 
  2014   2013   2012  
 
  (Dollars in Thousands)
 

Net cash provided by operating activities

  $ 200,131   $ 146,562   $ 104,637  

Purchase of property, equipment, and leasehold improvements

    (4,011 )   (4,507 )   (4,241 )

Insurance proceeds

        2,222      

Capitalized computer software development costs

    (685 )   (1,156 )   (511 )

Excess tax benefits from stock-based compensation

    727     478      

Non-capitalized acquired technology

    3,856          
               

Free cash flow (non-GAAP)

  $ 200,018   $ 143,599   $ 99,885  
               
               

        Total free cash flow increased $56.4 million during fiscal 2014 as compared to the prior fiscal year.

        Excess tax benefits are related to stock-based compensation tax deductions in excess of book compensation expense and reduce our income taxes payable. We have excluded excess tax benefits from free cash flow to be consistent with the treatment of other tax benefits.

        During fiscal 2014, we acquired certain technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development. We have excluded the expense of the acquired technology from free cash flow to be consistent with past treatment of other transactions where the acquired assets were capitalized.

        We have realized steadily improving free cash flow due to growth of our portfolio of term license contracts as well as from the renewal of customer contracts on an installment basis that were previously paid upfront.

        Total free cash flow increased $43.7 million during fiscal 2013 as compared to fiscal 2012 due to the growth of our portfolio of term license contracts and from the renewal of customer contracts on an installment basis that were previously paid upfront.

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Results of Operations

        The following table sets forth the results of operations, percentage of total revenue and the year-over-year percentage change in certain financial data for fiscal 2014, 2013 and 2012:

 
  Year Ended June 30,   2014
Compared
to 2013
%
  2013
Compared
to 2012
%
 
 
  2014   2013   2012  
 
  (Dollars in Thousands)
 

Revenue:

                                                 

Subscription and software

  $ 350,486     89.5 % $ 276,585     88.8 % $ 213,465     87.8 %   26.7 %   29.6 %

Services and other

    40,967     10.5     34,802     11.2     29,669     12.2     17.7     17.3  
                                       

Total revenue

    391,453     100.0     311,387     100.0     243,134     100.0     25.7     28.1  
                                       

Cost of revenue:

                                                 

Subscription and software

    20,141     5.2     20,148     6.5     20,769     8.5         (3.0 )

Services and other

    32,547     8.3     30,200     9.7     31,508     13.0     7.8     (4.1 )
                                       

Total cost of revenue

    52,688     13.5     50,348     16.2     52,277     21.5     4.6     (3.7 )
                                       

Gross profit

    338,765     86.5     261,039     83.8     190,857     78.5     29.8     36.8  
                                       

Operating expenses:

                                                 

Selling and marketing

    94,827     24.2     93,655     30.1     96,400     39.6     1.3     (2.8 )

Research and development

    68,410     17.5     62,516     20.1     56,218     23.2     9.4     11.2  

General and administrative

    45,819     11.7     49,273     15.8     53,547     22.0     (7.0 )   (8.0 )

Restructuring charges

    (15 )       (5 )       (301 )   (0.1 )   *     (98.3 )
                                       

Total operating expenses

    209,041     53.4     205,439     66.0     205,864     84.7     1.8     (0.2 )
                                       

Income (loss) from operations

    129,724     33.1     55,600     17.8     (15,007 )   (6.2 )   *     *  

Interest income

    1,124     0.3     3,379     1.1     7,578     3.1     (66.7 )   (55.4 )

Interest expense

    (37 )       (424 )   (0.1 )   (4,204 )   (1.7 )   (91.3 )   (89.9 )

Other (expense) income, net

    (2,278 )   (0.6 )   (1,117 )   (0.4 )   (3,519 )   (1.5 )   *     (68.3 )
                                       

Income (loss) before provision for (benefit from) income taxes

    128,533     32.8     57,438     18.4     (15,152 )   (6.3 )   *     *  

Provision for (benefit from) income taxes

    42,750     10.9     12,176     3.9     (1,344 )   (0.6 )   *     *  
                                       

Net income (loss)

  $ 85,783     21.9 % $ 45,262     14.5 % $ (13,808 )   (5.7 )%   89.5 %   * %
                                       
                                       

*
Not meaningful

Revenue

        Total revenue increased by $80.1 million during fiscal 2014 as compared to the prior fiscal year. The increase was due to higher subscription and software revenue of $73.9 million and higher services and other revenue of $6.2 million.

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        Total revenue recognized during fiscal 2014 included $7.6 million related to the completion of a significant customer arrangement recognized under completed contract accounting. This amount was recognized as $4.9 million of subscription and software revenue and as $2.7 million of services and other revenue.

        Total revenue increased by $68.3 million during fiscal 2013 as compared to fiscal 2012. The increase was due to higher subscription and software revenue of $63.1 million and higher services and other revenue of $5.1 million.

Subscription and Software Revenue

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Subscription and software revenue

  $ 350,486   $ 276,585   $ 213,465   $ 73,901     26.7 % $ 63,120     29.6 %

As a percent of revenue

    89.5 %   88.8 %   87.8 %                        

        The increase in subscription and software revenue during fiscal 2014 as compared to the prior fiscal year was primarily the result of a larger base of license arrangements being recognized on a ratable basis combined with revenue recognition of $4.9 million on the significant customer arrangement recognized under completed contract accounting, as noted above.

        We expect subscription and software revenue to continue to increase as customers transition to our aspenONE licensing model. The transition will not be complete until fiscal 2016 since many of our license arrangements were five or six years in duration when the aspenONE licensing model was introduced at the start of fiscal 2010.

        The increase in subscription and software revenue during fiscal 2013 as compared to fiscal 2012 was primarily the result of a larger base of arrangements being recognized on a ratable basis during fiscal 2013 as customers renewed expiring contracts formerly on the upfront revenue model.

Services and Other Revenue

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Services and other revenue

  $ 40,967   $ 34,802   $ 29,669   $ 6,165     17.7   $ 5,133     17.3 %

As a percent of revenue

    10.5 %   11.2 %   12.2 %                        

        Services and other revenue consists primarily of revenue related to professional services and training.

        The increase in services and other revenue of $6.2 million during fiscal 2014 as compared to the prior fiscal year was attributable to higher professional services revenue of $5.3 million and higher training revenue of $0.9 million.

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        The year-over-year increase in professional services revenue of $5.3 million was primarily attributable to the recognition of $2.7 million of previously deferred professional services revenue on the significant customer arrangement noted above and a revenue increase of $2.3 million from professional service arrangements bundled with and recognized over the term of aspenONE transactions.

        Under the aspenONE licensing model, revenue from committed professional service arrangements that are sold as a single arrangement with, or in contemplation of, a new aspenONE licensing transaction is deferred and recognized on a ratable basis over the longer of (a) the period the services are performed or (b) the term of the related software arrangement. As our typical contract term approximates five years, professional services revenue on these types of arrangements will usually be recognized over a longer period than the period over which the services are performed.

        The increase in services and other revenue of $5.1 million during fiscal 2013 as compared to fiscal 2012 was attributable to higher professional services revenue of $4.4 million and higher training revenue of $0.7 million.

        The year-over-year increase in professional services revenue was primarily attributable to increased professional services activity and a reduction in the net revenue deferrals on professional service arrangements bundled with aspenONE transactions. During fiscal 2013, we had net revenue deferrals of $2.5 million on such arrangements compared to $4.1 million during fiscal 2012. Additionally, during fiscal 2013, we deferred $1.3 million of professional services revenue accounted for under the completed contract method compared to $1.9 million of revenue on such arrangements during the prior fiscal year.

Gross Profit

        Gross profit increased from $190.9 million in fiscal 2012 to $261.0 million in fiscal 2013 and $338.8 million in fiscal 2014, respectively. The year-to-year increase in gross profit was primarily attributable to the growth of our subscription and software revenue, while our cost of subscription and software revenue remained consistent during these fiscal periods.

        Gross profit margin increased from 78.5% during fiscal 2012 to 83.8% and 86.5% in fiscal 2013 and 2014, respectively. For further discussion of subscription and software gross profit and services and other gross profit, please refer to the "Cost of Subscription and Software Revenue" and "Cost of Services and Other Revenue" sections below.

Expenses

Cost of Subscription and Software Revenue

 
  Year Ended June 30,   2014
Compared
to 2013
  2013
Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Cost of subscription and software revenue

  $ 20,141   $ 20,148   $ 20,769   $ (7 )   % $ (621 )   (3.0 )%

As a percent of revenue

    5.2 %   6.5 %   8.5 %                        

        Cost of subscription and software revenue was consistent during fiscal 2014, 2013 and 2012. Subscription and software gross profit margin increased from 90.3% in fiscal 2012 to 92.7% and 94.3% in fiscal 2013 and 2014, respectively, due to increased revenue and consistent costs of revenue.

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Cost of Services and Other Revenue

 
  Year Ended June 30,   2014
Compared to
2013
  2013
Compared to
2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Cost of services and other revenue

  $ 32,547   $ 30,200   $ 31,508   $ 2,347     7.8 % $ (1,308 )   (4.1 )%

As a percent of revenue

    8.3 %   9.7 %   13.0 %                        

        Cost of services and other revenue includes the cost of providing professional services and training.

        Cost of services and other revenue increased by $2.3 million during fiscal 2014 as compared to the prior fiscal year. The increase was due to higher cost of professional services revenue of $2.0 million and higher cost of training revenue of $0.3 million.

        The year-over-year increase of $2.0 million in cost of professional services revenue is attributable to higher cost of revenue of $3.9 million recognized on professional service projects accounted for under completed contract method, partially offset by lower third-party subcontractor costs of $0.9 million, lower compensation-related costs of $0.6 million and other net costs of $0.4 million.

        The timing of revenue and expense recognition on professional service arrangements can impact the comparability of cost of professional services revenue from year to year. During fiscal 2014, we recognized net costs of $2.3 million on a significant customer arrangement recognized under completed contract accounting and deferred costs of $0.3 million on this arrangement during fiscal 2013, as discussed in the "Revenue" section. Additionally, we recognized net costs of $1.0 million during fiscal 2014 and deferred net costs of $0.2 million during fiscal 2013 on professional service arrangements bundled with aspenONE transactions.

        Gross profit margin on services and other revenue increased from 13.2% during fiscal 2013 to 20.5% during fiscal 2014 primarily due to higher revenue, lower compensation and other professional services costs, including the impact of cost deferrals, as noted above.

        Cost of services and other revenue decreased by $1.3 million during fiscal 2013 as compared fiscal 2012 due to lower cost of professional services revenue. The decrease was primarily attributable to lower compensation and related costs for professional services revenue, partially offset by reduced cost deferrals on projects accounted for under the completed contract method.

        The timing of expense recognition on professional service arrangements can impact the comparability of cost of professional services revenue from year to year. In fiscal 2013, we deferred net costs of $0.6 million on certain large arrangements. By comparison, we deferred costs of $2.5 million on similar arrangements during fiscal 2012.

        Gross profit margin on services and other revenue increased from (6.2%) in fiscal 2012 to 13.2% in fiscal 2013 primarily due to the increased professional services revenues and the reduction in compensation and related costs on professional services, as noted above.

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Selling and Marketing Expense

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Selling and marketing expense

  $ 94,827   $ 93,655   $ 96,400   $ 1,172     1.3 % $ (2,745 )   (2.8 )%

As a percent of revenue

    24.2 %   30.1 %   39.6 %                        

        The year-over-year increase in selling and marketing expense during fiscal 2014 as compared to the prior fiscal year was primarily the result of higher commissions of $1.8 million and higher overhead allocations of $1.2 million. These increases were partially offset by lower marketing-related costs of $0.8 million as a result of hosting our global customer conference during fiscal 2013, lower stock-based compensation expense of $0.6 million and other net costs of $0.4 million. We typically host our global customer conference every other fiscal year.

        The year-over-year decrease in selling and marketing expense during fiscal 2013 as compared to fiscal 2012 was primarily the result of lower compensation and related costs of $4.0 million, which includes lower commissions, and lower third-party commissions of $0.4 million, partially offset by higher marketing costs of $0.6 million, higher travel expenses of $0.5 million and other net costs of $0.6 million.

Research and Development Expense

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Research and development expense

  $ 68,410   $ 62,516   $ 56,218   $ 5,894     9.4 % $ 6,298     11.2 %

As a percent of revenue

    17.5 %   20.1 %   23.2 %                        

        Research and development expenses increased by approximately $5.9 million during fiscal 2014 as compared to the prior fiscal year. The increase resulted primarily from expensing $4.9 million of acquired technology, higher stock based compensation expense of $1.1 million and higher overhead allocations of $1.1 million. These increases were partially offset by lower severance costs of $0.9 million and other net costs of $0.3 million.

        During fiscal 2014, we acquired certain technology that we plan to modify and enhance for release as a commercially available product. At the time we acquired the technology, the project to develop a commercially available product did not meet the accounting definition of having reached technological feasibility and as such, the cost of the acquired technology was expensed as research and development expense. We continue to expect that we will develop the acquired technology into a commercially available product.

        The year-over-year increase in research and development expense during fiscal 2013 as compared to fiscal 2012 was primarily the result of higher compensation and related costs of $6.6 million.

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Table of Contents

General and Administrative Expense

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

General and administrative expense

  $ 45,819   $ 49,273   $ 53,547   $ (3,454 )   (7.0 )% $ (4,274 )   (8.0 )%

As a percent of revenue

    11.7 %   15.8 %   22.0 %                        

        The year-over-year decrease in general and administrative expense during fiscal 2014 as compared to the prior fiscal year was primarily attributable to lower third-party legal costs of $3.0 million, lower overhead allocations of $0.9 million, lower stock-based compensation expense of $1.1 million resulting from an increase of forfeitures in the period and other net costs of $0.3 million. These decreases were partially offset by higher costs of $1.8 million related to legal matters.

        The year-over-year decrease in general and administrative expense during fiscal 2013 as compared to fiscal 2012 was primarily attributable to a reduction in legal costs of $6.0 million and other net costs of $0.6 million, partially offset by higher compensation and related costs of $0.6 million. Additionally, the 2012 period benefited from the recognition of a $1.7 million gain associated with an insurance recovery. No similar event occurred in 2013.

Interest Income

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Interest income

  $ 1,124   $ 3,379   $ 7,578   $ (2,255 )   (66.7 )% $ (4,199 )   (55.4 )%

As a percent of revenue

    0.3 %   1.1 %   3.1 %                        

        The year-over-year decrease in interest income during fiscal 2014 as compared to the prior fiscal year was primarily attributable to the decrease of our installments receivable portfolio. We expect interest income to continue to decrease going forward as our installments receivable balance continues to decrease.

        The year-over-year decrease in interest income during fiscal 2013 as compared to fiscal 2012 was primarily attributable to the decrease of our installments receivable portfolio.

Interest Expense

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Interest expense

  $ (37 ) $ (424 ) $ (4,204 ) $ (387 )   (91.3 )% $ (3,780 )   (89.9 )%

As a percent of revenue

    %   (0.1 )%   (1.7 )%                        

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        The year-over-year decrease in interest expense during fiscal 2014 as compared to the prior fiscal year was attributable to the pay-down of our secured borrowings which were repaid in full during fiscal 2013.

        The year-over-year decrease in interest expense during fiscal 2013 as compared to fiscal 2012 was attributable to the pay-down of our secured borrowings which were repaid in full during fiscal 2013.

Other Income (Expense), Net

 
  Year Ended June 30,   2014 Compared
to 2013
  2013 Compared
to 2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Other income (expense), net

  $ (2,278 ) $ (1,117 ) $ (3,519 ) $ (1,161 )   * % $ (2,402 )   (68.3 )%

As a percent of revenue

    (0.6 )%   (0.4 )%   (1.5 )%                        

*
Not meaningful

        Other income (expense), net is comprised primarily of unrealized and realized foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Other income (expense), net also includes miscellaneous non-operating gains and losses.

        During fiscal 2014 and 2013, other income (expense), net was comprised primarily of $2.3 million and $1.2 million of net currency losses, respectively.

        During fiscal 2013 and 2012, other income (expense), net was comprised primarily of $1.2 million and $3.7 million of net currency losses, respectively.

Provision for (Benefit from) Income Taxes

 
  Year Ended June 30,   2014
Compared to
2013
  2013
Compared to
2012
 
 
  2014   2013   2012   $   %   $   %  
 
  (Dollars in Thousands)
 

Provision for (benefit from) income taxes

  $ 42,750   $ 12,176   $ (1,344 ) $ 30,574     *   $ 13,520     *  

Effective tax rate

    33.3 %   21.2 %   (8.9 )%                        

*
Not meaningful

        The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income tax rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.

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        Our effective tax rate was 33.3% and 21.2% during fiscal 2014 and 2013, respectively.

        We recognized an income tax expense of $42.8 million during fiscal 2014 compared to $12.2 million during fiscal 2013. The $30.6 million year-over-year increase was primarily attributable to additional income tax expense of $23.7 million primarily resulting from higher U.S. pre-tax profit combined with $6.9 million of discrete tax benefit items.

        As of June 30, 2014, we maintain a valuation allowance in the U.S. primarily for certain deferred tax assets related to capital losses that are anticipated to expire unused. We also maintain a valuation allowance on certain foreign subsidiary NOL carryforwards because it is more likely than not that a benefit will not be realized. As of June 30, 2014 and 2013, our total valuation allowance was $10.0 million and $9.9 million, respectively.

        We made cash tax payments totaling $8.5 million during fiscal 2014. The majority of these tax payments were related to foreign liabilities. These payments were partially offset by cash tax refunds of $1.3 million.

        Our effective tax rate was 21.2% during fiscal 2013 compared to a benefit rate of 8.9% during fiscal 2012.

        We recognized an income tax expense of $12.2 million during fiscal 2013 compared to a benefit of $1.3 million during fiscal 2012. Income tax expense during fiscal 2013 was driven primarily by pre-tax profitability in our domestic and foreign operations and the impact of non-deductible stock-based compensation. Additionally, income tax expense during fiscal 2013 included a benefit of $9.3 million due to the reversal of a deferred tax liability related to restructuring of a foreign affiliate.

        The tax benefit during fiscal 2012 was derived primarily from taxable losses incurred, and our assessment that it is more likely than not that we will recognize these benefits in the future. In addition, our benefit from income taxes included the impact of the reversal of certain tax contingencies determined under the provisions of ASC Topic 740, Income Taxes (ASC 740).

        We made cash tax payments totaling $5.1 million during fiscal 2013. The majority of these tax payments were related to foreign liabilities. These payments were partially offset by cash tax refunds of $0.5 million.

Liquidity and Capital Resources

Resources

        In recent years, we have financed our operations with cash generated from operating activities. As of June 30, 2014, our principal sources of liquidity consisted of $199.5 million in cash and cash equivalents and $98.9 million of marketable securities. As of June 30, 2013, our principal sources of liquidity consisted of $132.4 million in cash and cash equivalents and $92.4 million of marketable securities.

        We believe our existing cash and cash equivalents and marketable securities, together with our cash flows from operating activities, will be sufficient to meet our anticipated cash needs for at least the next twelve months. We may need to raise additional funds in the event we decide to make one or more acquisitions of businesses, technologies or products. If additional funding is required, we may not be able to effect a receivable, equity or debt financing on terms acceptable to us or at all.

        Our cash equivalents of $175.9 million and $117.0 million consisted primarily of money market funds as of June 30, 2014 and 2013, respectively. Our investments in marketable securities of $98.9 million and $92.4 million as of June 30, 2014 and 2013 consist primarily of investment grade fixed

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income corporate debt securities with maturities ranging from less than one month to 23 months and less than 1 month to 19 months, respectively. The fair value of our portfolio is affected by interest rate movements, credit and liquidity risks. The objective of our investment policy is to manage our cash and investments to preserve principal and maintain liquidity, while earning a return on our investment portfolio by investing available funds. We diversify our investment portfolio by investing in multiple types of investment-grade securities and attempt to mitigate a risk of loss by using a third-party investment manager.

        The following table summarizes our cash flow activities for the periods indicated:

 
  Year Ended June 30,  
 
  2014   2013   2012  
 
  (Dollars in Thousands)
 

Cash flow provided by (used in):

                   

Operating activities

  $ 200,131   $ 146,562   $ 104,637  

Investing activities

    (13,187 )   (97,391 )   (7,369 )

Financing activities

    (120,170 )   (81,771 )   (81,699 )

Effect of exchange rates on cash balances

    320     (210 )   (312 )
               

Increase (decrease) in cash and cash equivalents

  $ 67,094   $ (32,810 ) $ 15,257  
               
               

Operating Activities

        Our primary source of cash is from the annual installments associated with our software license arrangements and related software support services, and to a lesser extent from professional services and training. We believe that cash inflows from our term license business will grow as we benefit from the continued growth of our portfolio of term license contracts.

        Cash from operating activities provided $200.1 million during fiscal 2014. This amount resulted from net income of $85.8 million, adjusted for non-cash items of $58.7 million, and net sources of cash of $55.6 million due to decreases in operating assets of $11.6 million and increases in operating liabilities of $44.0 million.

        Cash flow from operations for fiscal 2014 was reduced by our expensing of a $3.9 million payment related to the purchase of non-capitalized acquired technology. Other past acquisitions of technology qualified for capitalization and therefore the cash outflow was shown in the investing section of the consolidated statements of cash flows. Refer to the Adjusted Total Costs, Free Cash Flow and Results of Operations sections included under "Item 7. Managements' Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K for further discussion of the non-capitalized acquired technology transaction.

        Non-cash expenses within net income consisted primarily of deferred income tax expense of $34.6 million, stock-based compensation expense of $14.1 million, depreciation and amortization expense of $5.2 million and excess tax benefits of $0.7 million related to stock-based compensation tax deductions in excess of book compensation expense.

        A decrease in operating assets of $11.6 million and an increase in operating liabilities of $44.0 million contributed $55.6 million to net cash from operating activities. Sources of cash consisted of increases in deferred revenue of $42.3 million, decreases in installments receivable totaling $13.6 million, decreases in prepaid expenses, prepaid income taxes and other assets totaling $0.9 million, net increases in accounts payable, accrued expenses and other current liabilities of

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$1.6 million and decreases in unbilled services of $0.3 million. Partially offsetting these sources of cash were increases in accounts receivable of $3.2 million.

        Cash from operating activities provided $146.6 million during fiscal 2013. This amount resulted from net income of $45.3 million, adjusted for non-cash items of $24.9 million, and a net source of cash of $76.4 million due to net decreases in operating assets of $36.8 million and net increases in operating liabilities of $39.6 million.

        Non-cash expenses within net income consisted primarily of stock-based compensation expense of $14.6 million, depreciation and amortization expense of $5.2 million and deferred income tax expense of $5.1 million.

        A net increase in operating liabilities of $39.6 million and a net decrease in operating assets of $36.8 million contributed $76.4 million to net cash from operating activities. Sources of cash consisted of increases in deferred revenue of $44.6 million, decreases in installment and collateralized receivables totaling $39.4 million and decreases in prepaid expenses, prepaid income taxes, and other assets totaling $3.8 million. Partially offsetting these sources of cash were increases in accounts receivable of $6.1 million and unbilled services of $0.4 million and reductions in accounts payable, accrued expenses and other current liabilities of $4.9 million.

Investing Activities

        During fiscal 2014, we used $13.2 million of cash for investing activities. The uses of cash consisted primarily of $68.4 million for purchases of marketable securities related to a program which we initiated during fiscal 2013 to make direct investments in these assets. Partially offsetting this use of cash was the receipt of $60.3 million from maturities of marketable securities.

        Additional uses of cash during fiscal 2014 included $4.0 million related to capital expenditures, primarily for computer hardware and software, $0.7 million related to capitalized computer software development costs and $0.4 million used for the purchase of technology intangibles.

        In January 2014, we entered into a lease agreement for our new principal executive offices to be located in Bedford, Massachusetts. Aggregate capital expenditures, including leasehold improvements, furniture and equipment, with respect to the leased premises are estimated to total approximately $8.9 million, net of a tenant improvement allowance, and are expected to be funded from our cash flows from operating activities. For further information on the lease agreement, please refer to the "Contractual Obligations and Requirements" section below.

        Except for the commitments under the aforementioned lease agreement, we are not currently a party to any other material purchase contracts related to future capital expenditures, and we do not expect our future investment in capital expenditures to be materially different from recent levels.

        During fiscal 2013, we used $97.4 million of cash for investing activities. The cash used consisted primarily of $97.6 million for purchases of marketable securities related to a program which we initiated during fiscal 2013 to make direct investments in these assets. Partially offsetting this use of cash was the receipt of $4.5 million from maturities of marketable securities.

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        Additional uses of cash during fiscal 2013 included $4.5 million related to capital expenditures, primarily for computer hardware and software, $1.2 million related to capitalized computer software development costs and $0.9 million used for the purchase of technology intangibles. Partially offsetting these uses of cash was the receipt of $2.2 million from insurance proceeds.

Financing Activities

        During fiscal 2014, we used $120.2 million of cash for financing activities. We paid $121.8 million for repurchases of our common stock and paid withholding taxes of $7.8 million on vested and settled restricted stock units. Sources of cash in the period included proceeds of $8.7 million from the exercise of employee stock options. Cash used for financing activities during fiscal 2014 includes $0.7 million related to stock-based compensation tax deductions in excess of book compensation expense that reduced taxes payable and increased additional paid in capital.

        During fiscal 2013, we used $81.8 million of cash for financing activities. We paid $84.7 million for repurchases of our common stock, made net payments on secured borrowings of $11.0 million, and paid withholding taxes of $7.7 million on vested and settled restricted stock units. Sources of cash in the period included proceeds of $21.1 million from the exercise of employee stock options. Cash used for financing activities during fiscal 2013 included $0.5 million related to stock-based compensation tax deductions in excess of book compensation expense.

Contractual Obligations and Requirements

        Our contractual obligations consisted primarily of royalties and operating lease and commitments for our headquarters and other facilities and were as follows as of June 30, 2014:

 
  Payments due by Period  
 
  Total   Less than
1 Year
  1 to 3 Years   3 to 5 Years   More than
5 Years
 
 
  (Dollars in Thousands)
 

Contractual Cash Obligations:

                               

Operating leases

  $ 48,526   $ 8,639   $ 11,055   $ 7,431   $ 21,401  

Fixed fee royalty obligations

    3,819     2,131     1,082     355     251  

Contractual royalty obligations          

    1,979     1,979              

Other obligations

    8,123     5,155     2,867     101      
                       

Total contractual cash obligations

  $ 62,447   $ 17,904   $ 15,004   $ 7,887   $ 21,652  
                       
                       

Other Commercial Commitments:

                               

Standby letters of credit

  $ 2,200   $ 518   $ 1,389   $   $ 293  
                       

Total commercial commitments

  $ 64,647   $ 18,422   $ 16,393   $ 7,887   $ 21,945  
                       
                       

        In January 2014, we entered into a lease agreement for our new principal executive offices to be located in Bedford, Massachusetts. The initial term of the lease with respect to 105,874 square feet of office space will commence on November 1, 2014, and on February 1, 2015 with respect to an additional 36,799 square feet of space. The initial term of the lease will expire approximately ten years and five months following the term commencement date. Subject to the terms and conditions of the lease, we may extend the term of the lease for two successive terms of five years each. We have a one-time option to terminate the lease eight years following the commencement date, subject to a termination penalty of $4.1 million. Base annual rent will range between approximately $2.2 million and

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$3.9 million over the term of the lease in addition to our proportionate share of operating expenses and real estate taxes. Future minimum non-cancelable lease payments amount to approximately $35.8 million over the lease term, including payments of $0.9 million due in fiscal 2015, and are reflected in the table above.

        Aggregate capital expenditures, including leasehold improvements, furniture and equipment, with respect to the leased premises are estimated to total approximately $8.9 million, net of a tenant improvement allowance, and are expected to be funded from our cash flows from operating activities. Payments of $2.0 million for binding contractual obligations related to the new facility capital expenditures are expected to be made in fiscal 2015 and are included within "other obligations" in the table above.

        Except for the commitments under the aforementioned lease agreement, we are not currently a party to any other material purchase contracts related to future capital expenditures, and we do not expect our future investment in capital expenditures to be materially different from recent levels.

        The standby letters of credit were issued by Silicon Valley Bank in the United States and secure performance on professional services contracts and rental agreements.

        The above table does not reflect a liability for uncertain tax positions of $21.2 million as of June 30, 2014. We estimate that none of this amount will be paid within the next year and we are currently unable to reasonably estimate the timing of payments for the remainder of the liability.

Off-Balance Sheet Arrangements

        As of June 30, 2014, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Estimates and Judgments

        Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe 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 may differ from these estimates under different assumptions or conditions.

        We believe that the assumptions and estimates associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements:

        For further information on our significant accounting policies, refer to Note 2 to the consolidated financial statements included under "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

Revenue Recognition

        Four basic criteria must be satisfied before software license revenue can be recognized: persuasive evidence of an arrangement between us and an end user; delivery of our product has occurred; the fee for the product is fixed or determinable; and collection of the fee is probable.

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        Persuasive evidence of an arrangement—We use a signed contract as evidence of an arrangement for software licenses and SMS. For professional services we use a signed contract and a work proposal to evidence an arrangement. In cases where both a signed contract and a purchase order are required by the customer, we consider both taken together as evidence of the arrangement.

        Delivery of our product—Software and the corresponding access keys are generally delivered to customers via disk media with standard shipping terms of Free Carrier, our warehouse (i.e., FCA, named place). Our software license agreements do not contain conditions for acceptance.

        Fee is fixed or determinable—We assess whether a fee is fixed or determinable at the outset of the arrangement. Significant judgment is involved in making this assessment.

        Under our upfront revenue model, we are able to demonstrate that the fees are fixed or determinable for all arrangements, including those for our term licenses that contain extended payment terms. We have an established history of collecting under the terms of these contracts without providing concessions to customers. In addition, we also assess whether a contract modification to an existing term arrangement constitutes a concession. In making this assessment, significant analysis is performed to ensure that no concessions are given. Our software license agreements do not include a right of return or exchange. For license arrangements executed under the upfront revenue model, we recognize license revenue upon delivery of the software product, provided all other revenue recognition requirements are met.

        We cannot assert that the fees under our aspenONE licensing model and point product arrangements with Premier Plus SMS are fixed or determinable because the rights provided to customers, and the economics of the arrangements, are not comparable to our transactions with other customers under the upfront revenue model. As a result, the amount of revenue recognized for these arrangements is limited by the amount of customer payments that become due.

        Collection of fee is probable—We assess the probability of collecting from each customer at the outset of the arrangement based on a number of factors, including the customer's payment history, its current creditworthiness, economic conditions in the customer's industry and geographic location, and general economic conditions. If in our judgment collection of a fee is not probable, revenue is recognized as cash is collected, provided all other conditions for revenue recognition have been met.

        We have established VSOE for certain SMS offerings, professional services, and training, but not for our software products or our Premier Plus SMS offering. We assess VSOE for SMS, professional services, and training based on an analysis of standalone sales of these offerings using the bell-shaped curve approach. We do not have a history of selling our Premier Plus SMS offering to customers on a standalone basis, and as a result are unable to establish VSOE for this deliverable. As of July 1, 2014, we are no longer able to establish VSOE for legacy SMS offerings sold with our perpetual license arrangements. As a result, all perpetual license agreements that include legacy SMS entered into subsequent to June 30, 2014 will be recognized ratably over the legacy SMS service period. Loss of VSOE on legacy SMS offerings sold with our perpetual license arrangements is not expected to have a material impact on our revenue in fiscal 2015.

        We allocate the arrangement consideration among the elements included in our multi-element arrangements using the residual method. Under the residual method, the VSOE of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue upon delivery of the software, assuming all other revenue recognition criteria are met. If VSOE does not exist for an undelivered element in an arrangement, revenue is deferred until such evidence does exist for the undelivered elements, or until all elements are delivered, whichever is earlier. Under the upfront revenue model, the residual license fee is recognized upon delivery of the software provided all

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other revenue recognition criteria were met. Arrangements that qualified for upfront recognition during fiscal 2014 and prior periods included sales of perpetual licenses, amendments to existing legacy term arrangements and renewals of legacy term arrangements.

Subscription and Software Revenue

        Subscription and software revenue consists of product and related revenue from our (i) aspenONE licensing model; (ii) point product arrangements with our Premier Plus SMS offering included for the contract term; (iii) legacy arrangements including (a) amendments to existing legacy term arrangements, (b) renewals of legacy term arrangements and (c) legacy arrangements that are being recognized over time as a result of not previously meeting one or more of the requirements for recognition under the upfront revenue model; (iv) legacy SMS arrangements; and (v) perpetual arrangements.

        When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. Due to our obligation to provide unspecified future software products and updates, we are required to recognize revenue ratably over the term of the arrangement, once the other revenue recognition criteria noted above have been met.

        Our point product arrangements with Premier Plus SMS include SMS for the term of the arrangement. Since we do not have VSOE for our Premier Plus SMS offering, the SMS element of our point product arrangements is not separable. As a result, revenue associated with point product arrangements with Premier Plus SMS included for the contract term is recognized ratably over the term of the arrangement, once all other revenue recognition criteria have been met.

        Perpetual and legacy term license arrangements do not include the same rights as those provided to customers under the aspenONE licensing model and point product arrangements with Premier Plus SMS. Legacy SMS revenue is generated from legacy SMS offerings provided in support of perpetual and legacy term license arrangements. Customers typically receive SMS for one year and then can elect to renew SMS annually. During fiscal 2014 and prior periods, we had VSOE for certain legacy SMS offerings sold with perpetual and term license arrangements and could therefore separate the undelivered elements. Accordingly, license fee revenue for perpetual and legacy term license arrangements was recognized upon delivery of the software products using the residual method, provided all other revenue recognition requirements were met. VSOE of fair value for the undelivered SMS component sold with our perpetual and term license arrangements was deferred and subsequently amortized into revenue ratably over the contractual term of the SMS arrangement. As of July 1, 2014, we are no longer able to establish VSOE for legacy SMS offerings sold with our perpetual license arrangements. As a result, all perpetual license agreements that include legacy SMS entered into subsequent to June 30, 2014 will be recognized ratably over the legacy SMS service period. Loss of VSOE on legacy SMS offerings sold with our perpetual license arrangements is not expected to have a material impact on our revenue in fiscal 2015.

        We expect legacy SMS revenue to continue to decrease as additional customers transition to our aspenONE licensing model. Prior to fiscal 2014, legacy SMS revenue was significant in relation to our total revenue and was classified within services and other revenue in our consolidated statements of operations. Beginning with fiscal 2014, legacy SMS revenue is included within subscription and software revenue in our consolidated statements of operations. For further information, please refer to the "Revenue Reclassification" section.

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Services and Other Revenue

        Professional services are provided to customers on a time-and-materials (T&M) or fixed-price basis. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.

        In certain circumstances, professional services revenue may be recognized over a longer time period than the period over which the services are performed. If the costs to complete a project are not estimable or the completion is uncertain, the revenue is recognized upon completion of the services. In circumstances in which professional services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed, or (ii) the license term. When we provide professional services considered essential to the functionality of the software, we recognize the combined revenue from the sale of the software and related services using the completed contract or percentage-of-completion method.

        We have occasionally been required to commit unanticipated additional resources to complete projects, which resulted in losses on those contracts. Provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated.

        We provide training services to our customers, including on-site, Internet-based, public and customized training. Revenue is recognized in the period in which the services are performed. In circumstances in which training services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed or (ii) the license term.

Accounting for Income Taxes

        We utilize the asset and liability method of accounting for income taxes in accordance with ASC 740. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and statutes that will be in effect when the differences are expected to reverse. Deferred tax assets can result from unused operating losses, research and development (R&D) and foreign tax credit carryforwards and deductions recorded for financial statement purposes prior to them being deductible on a tax return.

        The realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of taxable temporary differences. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. We consider, among other available information, projected future taxable income, limitations on the availability of net operating loss (NOLs) and tax credit carryforwards, scheduled reversals of deferred tax liabilities and other evidence assessing the potential realization of deferred tax assets. Adjustments to the valuation allowance are included in the provision for (benefit from) income taxes in our consolidated statements of operations in the period they become known.

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        Our provision for (benefit from) income taxes includes amounts determined under the provisions of ASC 740, and is intended to satisfy additional income tax assessments, including interest and penalties, that could result from any tax return positions for which the likelihood of sustaining the position on an audit does not meet a threshold of "more likely than not." Penalties and interest are recorded as a component of our provision for (benefit from) income taxes. Tax liabilities under the provisions of ASC 740 were recorded as a component of our income taxes payable and other non-current liabilities. The ultimate amount of taxes due will not be known until examinations are completed and settled or the audit periods are closed by statutes.

        Our U.S. and foreign tax returns are subject to periodic compliance examinations by various local and national tax authorities through periods defined by the tax code in applicable jurisdictions. The years prior to 2007 are closed in the United States, although the utilization of net operating loss carryforwards and tax credits generated in earlier periods will keep these periods open for examination. Similarly, the years prior to 2010 are closed in the United Kingdom, although the utilization of net operating loss carryforwards generated in earlier periods will keep the periods open for examination. Our Canadian subsidiaries are subject to audit from 2007 forward, and certain other of our international subsidiaries are subject to audit from 2003 forward. In connection with examinations of tax filings, tax contingencies can arise from differing interpretations of applicable tax laws and regulations relative to the amount, timing or proper inclusion or exclusion of revenue and expenses in taxable income or loss. For periods that remain subject to audit, we have asserted and unasserted potential assessments that are subject to final tax settlements.

Loss Contingencies

        The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the loss amount. Change in these factors could materially impact our consolidated financial statements.

        Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and damages arising from claims against such customers based on, among other things, allegations that our software products infringe the intellectual property rights of a third party. In most cases, in the event of an infringement claim, we retain the right to procure for the customer the right to continue using the software product or to replace or modify the software product to eliminate the infringement while providing substantially equivalent functionality. These indemnification provisions are accounted for in accordance with ASC Topic 460, Guarantees. In most cases, and where legally enforceable, the indemnification refund is limited to the amount of the license fees paid by the customer.

Recently Adopted Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 was issued by the FASB as a part of the joint project with the International Accounting Standards Board (IASB) to clarify revenue recognition principles and develop a common revenue standard for the U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

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        ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption of ASU No. 2014-09 is not permitted. The amendments included within ASU No. 2014-09 should be applied by using one of the following methods:

        We will adopt ASU No. 2014-09 during the first quarter of fiscal 2018. We are currently evaluating the impact of ASU No. 2014-09 on our financial position, results of operations and cash flows.

        In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU No. 2013-11 provides guidance on the financial statement presentation of unrecognized tax benefits when net operating losses, similar tax losses, or tax credit carryforwards exist. ASU No. 2013-11 requires entities to present unrecognized tax benefits as reductions of deferred tax assets for net operating losses, tax credit carryforwards, or similar losses if they are available to settle any additional income tax liabilities as a result of a tax position disallowance under the tax laws of the applicable jurisdiction. Unrecognized tax benefits should be presented as liabilities and should not be combined with deferred tax assets if net operating losses, tax credit carryforwards, or similar losses are not available to settle any additional income tax liabilities as a result of the tax position disallowance, and the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose.

        ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and should be applied prospectively. Early adoption of ASU No. 2013-11 is permitted. We adopted ASU No. 2013-11 during the fourth quarter of fiscal 2013. The adoption of ASU No. 2013-11 did not have a material effect on our financial position, results of operations or cash flows.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

        In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These market risks include changes in currency exchange rates and interest rates which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, if considered appropriate, we may enter into derivative financial instruments such as forward currency exchange contracts.

Foreign Currency Risk

        During fiscal 2014 and 2013, 15.7% and 19.1% of our total revenue was denominated in a currency other than the U.S. dollar. In addition, certain of our operating costs incurred outside the United States are denominated in currencies other than the U.S. dollar. We conduct business on a worldwide basis and as a result, a portion of our revenue, earnings, net assets, and net investments in foreign affiliates is exposed to changes in foreign currency exchange rates. We measure our net exposure for cash balance positions and for cash inflows and outflows in order to evaluate the need to mitigate our foreign exchange risk. We may enter into foreign currency forward contracts to minimize the impact related to unfavorable exchange rate movements, although we have not done so during fiscal 2014 and

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fiscal 2013. Our largest exposures to foreign currency exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, and Japanese Yen.

        During fiscal 2014 and fiscal 2013, we recorded $2.3 million and $1.2 million of net foreign currency exchange losses related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysis of operating results transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased the consolidated results of operations by approximately $6.0 million for fiscal 2014 and by approximately $5.1 million for fiscal 2013, respectively.

Interest Rate Risk

        We place our investments in money market instruments and high quality, investment grade, fixed-income corporate debt securities that meet high credit quality standards, as specified in our investment guidelines.

        We mitigate the risks by diversifying our investment portfolio, limiting the amount of investments in debt securities of any single issuer and using a third-party investment manager. Our debt securities are short- to intermediate- term investments with maturities ranging from less than 1 month to 23 months as of June 30, 2014 and less than 1 month to 19 months as of June 30, 2013, respectively. We do not use derivative financial instruments in our investment portfolio.

        Our analysis of our investment portfolio and interest rates at June 30, 2014 and 2013 indicated that a 100 basis point increase or decrease in interest rates would result in a decrease or increase of approximately $0.8 million for fiscal 2014 and 2013, respectively, in the fair value of our investment portfolio determined in accordance with income-based approach utilizing portfolio future cash flows discounted at the appropriate rates.

Item 8.    Financial Statements and Supplementary Data.

        The following consolidated financial statements specified by this Item, together with the reports thereon of KPMG LLP, are presented following Item 15 of this Form 10-K:

Financial Statements:

   

Report of Independent Registered Public Accounting Firm

   

Consolidated Statements of Operations for the years ended June 30, 2014, 2013 and 2012

   

Consolidated Statements of Comprehensive Income (loss) for the years ended June 30, 2014, 2013 and 2012

   

Consolidated Balance Sheets as of June 30, 2014 and 2013

   

Consolidated Statements of Stockholders' Equity for the years ended June 30, 2014, 2013 and 2012

   

Consolidated Statements of Cash Flows for the years ended June 30, 2014, 2013 and 2012

   

Notes to Consolidated Financial Statements

   

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

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Item 9A.    Controls and Procedures

a)    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 as of June 30, 2014. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2014, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

b)    Management's Report on Internal Control over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, 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, and includes those policies and procedures that:

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

        Our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of June 30, 2014 and concluded that, as of June 30, 2014, our internal control over financial reporting was effective.

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        KPMG LLP, our independent registered public accounting firm, has audited our consolidated financial statements and the effectiveness of our internal control over financial reporting as of June 30, 2014. This report appears below.

c)     Changes in Internal Control over Financial Reporting

        During the three months ended June 30, 2014, no changes were identified to our internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Aspen Technology, Inc.:

        We have audited Aspen Technology, Inc.'s and subsidiaries (the "Company") internal control over financial reporting as of June 30, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's 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 company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained in all material respects, effective internal control over financial reporting as of June 30, 2014, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of June 30, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2014, and our report dated August 13, 2014 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Boston, Massachusetts
August 13, 2014

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Item 9B.    Other Information.

        None.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Incorporation by Reference

        Certain information required under this Item 10 will appear under the sections entitled "Executive Officers of the Registrant," "Election of Directors," "Information Regarding our Board of Directors and Corporate Governance," "Code of Business Conduct and Ethics," and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement for our 2014 annual meeting of stockholders, and is incorporated herein by reference.

Item 11.    Executive Compensation.

Incorporation by Reference

        Certain information required under this Item 11 will appear under the sections entitled "Director Compensation," "Compensation Discussion and Analysis," "Executive Compensation" and "Employment and Change in Control Agreements" in our definitive proxy statement for our 2014 annual meeting of stockholders, and is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        Certain information required under this Item 12 will appear under the sections entitled "Stock Owned by Directors, Executive Officers and Greater-than 5% Stockholders" and "Securities Authorized for Issuance Under Equity Compensation Plans" in our definitive proxy statement for our 2014 annual meeting of stockholders, and is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

        Certain information required under this Item 13 will appear under the sections entitled "Information Regarding the Board of Directors and Corporate Governance" and "Related Party Transactions" in our definitive proxy statement for our 2014 annual meeting of stockholders, and is incorporated herein by reference.

Item 14.    Principal Accounting Fees and Services.

        Certain information required under this Item 14 will appear under the section entitled "Independent Registered Public Accountants" in our definitive proxy statement for our 2014 annual meeting of stockholders, and is incorporated herein by reference.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules.

(a)(1)  Financial Statements

Description
  Page  

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated Statements of Operations for the years ended June 30, 2014, 2013 and 2012

    F-3  

Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2014, 2013 and 2012

    F-4  

Consolidated Balance Sheets as of June 30, 2014 and 2013

    F-5  

Consolidated Statements of Stockholders' Equity for the years ended June 30, 2014, 2013 and 2012

    F-6  

Consolidated Statements of Cash Flows for the years ended June 30, 2014, 2013 and 2012

    F-7  

Notes to Consolidated Financial Statements

    F-8  

        The consolidated financial statements appear immediately following page 58 ("Signatures").

(a)(2)  Financial Statement Schedules

        All schedules are omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3)  Exhibits

        The exhibits listed in the accompanying exhibit index are filed or incorporated by reference as part of this Form 10-K.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    ASPEN TECHNOLOGY, INC.

Date: August 13, 2014

 

By:

 

/s/ ANTONIO J. PIETRI

Antonio J. Pietri
President and Chief Executive Officer

Date: August 13, 2014

 

By:

 

/s/ MARK P. SULLIVAN

Mark P. Sullivan
Executive Vice President and
Chief Financial Officer

        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/ ANTONIO J. PIETRI

Antonio J. Pietri
  President and Chief Executive Officer and Director (Principal Executive Officer)   August 13, 2014

/s/ MARK P. SULLIVAN

Mark P. Sullivan

 

Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

 

August 13, 2014

/s/ ROBERT M. WHELAN, JR.

Robert M. Whelan, Jr.

 

Chairman of the Board of Directors

 

August 13, 2014

/s/ DONALD P. CASEY

Donald P. Casey

 

Director

 

August 13, 2014

/s/ GARY E. HAROIAN

Gary E. Haroian

 

Director

 

August 13, 2014

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Signature
 
Title
 
Date

 

 

 

 

 
/s/ JOAN C. MCARDLE

Joan C. McArdle
  Director   August 13, 2014

/s/ SIMON OREBI GANN

Simon Orebi Gann

 

Director

 

August 13, 2014

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated Statements of Operations for the years ended June 30, 2014, 2013 and 2012

    F-3  

Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2014, 2013 and 2012

    F-4  

Consolidated Balance Sheets as of June 30, 2014 and 2013

    F-5  

Consolidated Statements of Stockholders' Equity for the years ended June 30, 2014, 2013 and 2012

    F-6  

Consolidated Statements of Cash Flows for the years ended June 30, 2014, 2013 and 2012

    F-7  

F-1


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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Aspen Technology, Inc.:

        We have audited the accompanying consolidated balance sheets of Aspen Technology, Inc. and subsidiaries (the "Company") as of June 30, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2014, in conformity with U.S. generally accepted accounting principles.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 13, 2014 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

Boston, Massachusetts
August 13, 2014

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 
  Year Ended June 30,  
 
  2014   2013   2012  
 
  (Dollars in Thousands, Except per Share Data)
 

Revenue:

                   

Subscription and software

  $ 350,486   $ 276,585   $ 213,465  

Services and other

    40,967     34,802     29,669  
               

Total revenue

    391,453     311,387     243,134  
               

Cost of revenue:

                   

Subscription and software

    20,141     20,148     20,769  

Services and other

    32,547     30,200     31,508  
               

Total cost of revenue

    52,688     50,348     52,277  
               

Gross profit

    338,765     261,039     190,857  
               

Operating expenses:

                   

Selling and marketing

    94,827     93,655     96,400  

Research and development

    68,410     62,516     56,218  

General and administrative

    45,819     49,273     53,547  

Restructuring charges

    (15 )   (5 )   (301 )
               

Total operating expenses

    209,041     205,439     205,864  
               

Income (loss) from operations

    129,724     55,600     (15,007 )

Interest income

    1,124     3,379     7,578  

Interest expense

    (37 )   (424 )   (4,204 )

Other income (expense), net

    (2,278 )   (1,117 )   (3,519 )
               

Income (loss) before provision for (benefit from) income taxes

    128,533     57,438     (15,152 )

Provision for (benefit from) income taxes

    42,750     12,176     (1,344 )
               

Net income (loss)

  $ 85,783   $ 45,262   $ (13,808 )
               
               

Net income (loss) per common share:

                   

Basic

  $ 0.93   $ 0.48   $ (0.15 )

Diluted

  $ 0.92   $ 0.47   $ (0.15 )

Weighted average shares outstanding:

                   

Basic

    92,648     93,586     93,780  

Diluted

    93,665     95,410     93,780  

   

See accompanying notes to these consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
  Year Ended June 30,  
 
  2014   2013   2012  
 
  (Dollars in Thousands)
 

Net income (loss)

  $ 85,783   $ 45,262   $ (13,808 )

Other comprehensive income (loss):

                   

Net unrealized gains (losses) on available for sale securities, net of tax effects of ($32) and $28 for fiscal 2014 and 2013

    59     (52 )    

Foreign currency translation adjustments

    2,050     (780 )   (1,020 )
               

Total other comprehensive income (loss)

    2,109     (832 )   (1,020 )
               

Comprehensive income (loss)

  $ 87,892   $ 44,430   $ (14,828 )
               
               

   

See accompanying notes to these consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
  June 30,  
 
  2014   2013  
 
  (Dollars in Thousands,
Except Share Data)

 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 199,526   $ 132,432  

Short-term marketable securities

    67,619     57,015  

Accounts receivable, net

    38,532     36,988  

Current portion of installments receivable, net

    640     13,769  

Unbilled services

    1,656     1,965  

Prepaid expenses and other current assets

    10,567     9,665  

Prepaid income taxes

    605     288  

Current deferred tax assets

    10,537     33,229  
           

Total current assets

    329,682     285,351  

Long-term marketable securities

    31,270     35,353  

Non-current installments receivable, net

    811     963  

Property, equipment and leasehold improvements, net

    7,588     7,829  

Computer software development costs, net

    1,390     1,742  

Goodwill

    19,276     19,132  

Non-current deferred tax assets

    12,765     25,250  

Other non-current assets

    5,190     7,128  
           

Total assets

  $ 407,972   $ 382,748  
           
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Accounts payable

  $ 412   $ 846  

Accrued expenses and other current liabilities

    34,984     34,577  

Income taxes payable

    2,168     1,697  

Current deferred revenue

    228,940     178,341  
           

Total current liabilities

    266,504     215,461  

Non-current deferred revenue

    45,942     53,012  

Other non-current liabilities

    11,850     12,377  

Commitments and contingencies (Note 9)

             

Series D redeemable convertible preferred stock, $0.10 par value—Authorized—3,636 shares as of June 30, 2014 and 2013 Issued and outstanding—none as of June 30, 2014 and 2013

         

Stockholders' equity:

             

Common stock, $0.10 par value—Authorized—210,000,000 shares Issued—101,033,740 shares at June 30, 2014 and 99,945,545 shares at June 30, 2013 Outstanding—91,661,850 shares at June 30, 2014 and 93,683,769 shares at June 30, 2013

    10,103     9,995  

Additional paid-in capital

    591,324     575,770  

Accumulated deficit

    (264,034 )   (349,817 )

Accumulated other comprehensive income

    9,372     7,263  

Treasury stock, at cost—9,371,890 shares of common stock at June 30, 2014 and 6,261,776 at June 30, 2013

    (263,089 )   (141,313 )
           

Total stockholders' equity

    83,676     101,898  
           

Total liabilities and stockholders' equity

  $ 407,972   $ 382,748  
           
           

   

See accompanying notes to these consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 
  Common Stock    
   
   
  Treasury Stock    
 
 
   
   
  Accumulated
Other
Comprehensive
Income
   
 
 
  Number of
Shares
  $0.10 Par
Value
  Additional
Paid-in
Capital
  Accumulated
Deficit
  Number of
Shares
  Cost   Total
Stockholders'
Equity
 
 
  (Dollars in Thousands, Except Share Data)
 

Balance June 30, 2011

    94,939,400   $ 9,494   $ 530,996   $ (381,271 ) $ 9,115     701,030   $ (10,531 ) $ 157,803  

Comprehensive income (loss):

                                                 

Net loss

                (13,808 )               (13,808 )

Other comprehensive income (loss)

                    (1,020 )           (1,020 )

Exercise of stock options

    1,204,010     120     8,793                     8,913  

Issuance of restricted stock units

    520,170     52     (4,649 )                   (4,597 )

Repurchase of common stock

                        2,496,595     (46,105 )   (46,105 )

Stock-based compensation

            12,406                     12,406  
                                   

Balance June 30, 2012

    96,663,580     9,666     547,546     (395,079 )   8,095     3,197,625     (56,636 )   113,592  
                                   
                                   

Comprehensive income (loss):

                                                 

Net income

                45,262                 45,262  

Other comprehensive income (loss)

                    (832 )           (832 )

Exercise of stock options

    2,743,772     275     20,868                     21,143  

Issuance of restricted stock units

    538,193     54     (7,759 )                   (7,705 )

Repurchase of common stock

                        3,064,151     (84,677 )   (84,677 )

Stock-based compensation

            14,637                     14,637  

Excess tax benefits from stock-based compensation

            478                             478  
                                   

Balance June 30, 2013

    99,945,545   $ 9,995   $ 575,770   $ (349,817 ) $ 7,263     6,261,776   $ (141,313 ) $ 101,898