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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K







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

For the fiscal year ended December 31, 2010

or



| ̈ | 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: 000-51299





TALEO CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 52-2190418                             
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification Number)

4140 Dublin Boulevard,
Suite 400

Dublin, California 94568

(Address of principal executive offices, including zip code)

(925) 452-3000

(Registrants telephone number, including area code)

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



|                                         |  |                                          
|---------------------------------------- |  | -----------------------------------------
|Title of Each Class                      |  | Name of Each Exchange on Which Registered
|Class A Common Stock, $0.00001 par value |  | The Nasdaq Stock Market LLC              

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

None





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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  x    No   ̈

Indicate by check mark 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 (§ 229.405 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   ̈    No   ̈

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

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 definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



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

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

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2010 was approximately
$805 million (based on the closing sale price of such shares on the Nasdaq Global Market on June 30, 2010). This calculation excludes the shares of Class A common stock held by executive officers and directors at June 30, 2010. This
calculation does not reflect a determination that such persons are affiliates for any other purposes.

On February 23,
2011, the registrant had 40,809,183 shares of Class A common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for
the registrants 2011 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.









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TALEO CORPORATION

FORM 10-K

TABLE OF CONTENTS



|           |  |                                                                                                              |     |  |     | 
|---------- |  | ------------------------------------------------------------------------------------------------------------ | --- |  | --- | 
|PART I     | 
|           |  |                                                                                                             
|ITEM 1     |  | Business                                                                                                     |     |  | 3   | 
|ITEM 1A    |  | Risk Factors                                                                                                 |     |  | 15  | 
|ITEM 1B    |  | Unresolved Staff Comments                                                                                    |     |  | 33  | 
|ITEM 2     |  | Properties                                                                                                   |     |  | 33  | 
|ITEM 3     |  | Legal Proceedings                                                                                            |     |  | 33  | 
|ITEM 4     |  | Reserved                                                                                                     |     |  | 35  | 
|          
|PART II    | 
|           |  |                                                                                                             
|ITEM 5     |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |     |  | 36  | 
|ITEM 6     |  | Selected Financial Data                                                                                      |     |  | 38  | 
|ITEM 7     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |     |  | 39  | 
|ITEM 7A    |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |     |  | 63  | 
|ITEM 8     |  | Financial Statements and Supplementary Data                                                                  |     |  | 64  | 
|ITEM 9     |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |     |  | 107 | 
|ITEM 9A    |  | Controls and Procedures                                                                                      |     |  | 107 | 
|ITEM 9B    |  | Other Information                                                                                            |     |  | 108 | 
|          
|PART III   | 
|           |  |                                                                                                             
|ITEM 10    |  | Directors, Executive Officers and Corporate Governance                                                       |     |  | 109 | 
|ITEM 11    |  | Executive Compensation                                                                                       |     |  | 109 | 
|ITEM 12    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters               |     |  | 109 | 
|ITEM 13    |  | Certain Relationships and Related Transactions, and Director Independence                                    |     |  | 109 | 
|ITEM 14    |  | Principal Accounting Fees and Services                                                                       |     |  | 109 | 
|          
|PART IV    | 
|           |  |                                                                                                             
|ITEM 15    |  | Exhibits and Financial Statements Schedules                                                                  |     |  | 109 | 
|Signatures |  |                                                                                                              | 110 | 



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FORWARD-LOOKING INFORMATION

This Form 10-K, including Part I, Item 1  Business and Part II, Item 7
 Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements identify prospective information, particularly statements referencing our expectations regarding revenue and operating expenses, cost of revenue, tax and accounting estimates, cash, cash
equivalents and cash provided by operating activities, the demand and expansion opportunities for our products, our customer base and our competitive position. In some cases, forward-looking statements can be identified by the use of words such as
may, could, would, might, will, should, expect, forecast, predict, potential, continue, anticipates,
expects, intends, plans, believes, seeks, estimates, is scheduled for, targeted, and variations of such words and similar expressions. Such
forward-looking statements are based on current expectations, estimates, and projections about our industry, managements beliefs, and assumptions made by management. These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Such risks and uncertainties
include those set forth herein under Part I, Item 1A  Risk Factors or included elsewhere in this Annual Report on Form 10-K. Unless required by law, we undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.

PART I



|ITEM 1. | BUSINESS
|------- | --------

Overview

Taleo Corporation and its subsidiaries (we, us, our) are leading global providers
of on-demand talent management software solutions. Our goal is to help our customers improve business results through better talent management. We offer recruiting, onboarding, performance management, compensation, succession planning, leadership
development, learning and analytics software solutions that help our customers attract and retain high quality talent, more effectively match workers skills to business needs, reduce the time and costs associated with manual and inconsistent
processes, ease the burden of regulatory compliance, and increase workforce productivity through better alignment of workers goals, career plans and compensation with corporate objectives. In addition, our solutions are highly configurable
which allows our customers to implement talent management processes that are tailored to accommodate different candidate and employee types (including professional and hourly), in different geographies, business units and regulatory environments.

We deliver our solutions on-demand as a service that is accessed through an Internet connection and a standard web browser.
Our solution delivery model, also called software-as-a-service or SaaS, eliminates the need for our customers to install and maintain hardware and software in order to use our solutions. We believe our SaaS model significantly reduces the time, cost
and complexity associated with deployment in comparison to traditional, on-premise software solutions, and generally offers a lower up-front and total cost of ownership than traditional software solutions. We offer our solutions as a
subscription-based service for which our customers pay a recurring annual or quarterly fee during the subscription term.

We
market Taleo Enterprise, our suite of talent management solutions for medium and large enterprises with more complex needs, through our direct sales force and indirectly through our strategic partners. On October 1, 2010, we completed our
acquisition of Learn.com, Inc. (Learn.com), a private company headquartered in Florida that provides SaaS learning solutions to enable businesses to more seamlessly develop, deliver and manage education and training to employees,
customers, partners and resellers. We expect the Learn.com learning management solution to complement our existing talent management modules. We also



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completed our acquisition of Worldwide Compensation, Inc. (WWC) on January 1, 2010, which allows us to directly offer a compensation management solution to larger, more complex
organizations. We market Taleo Business Edition, our suite of talent management solutions for smaller more centralized organizations, primarily through our inside sales team and Internet marketing efforts. Our customer base ranges in size from
large, global organizations, including 47 of the Fortune 100, to small, private companies with few employees.

The Talent Management Market

Talent management encompasses multiple complex processes that together play a vital role in helping organizations attract,
develop, motivate, compensate and retain human capital to more effectively achieve business objectives. Most organizations no longer view human capital as an expense to be minimized, but instead as an asset to be developed and optimized. Modern,
innovative organizations now recognize that much of their value resides in human capital. This shift in thinking has mirrored the evolution of talent management from discrete, manual, paper-based processes to a technology-enabled, strategic
initiative that integrates multiple processes. At the same time as this shift in thinking, demographic trends in certain working populations and the increasing rate of voluntary and involuntary job turn-over, what we refer to as job velocity, have
made the ability to manage talent wisely a pressing need in organizations today.

To increase their return on investment in
human capital, organizations now understand the need to systematically focus on measures such as quality of hire, time-to-productivity, internal employee mobility, employee retention, employee engagement, employee contribution and pay for
performance. Systematically pursuing these goals requires the comprehensive, unified view of talent management that our solution provides.

Software-as-a-Service Delivery Model

Our software-as-a-service, delivery model enables our proprietary software solutions to be implemented, accessed and used by our customers remotely through an Internet connection, a standard web browser
and a variety of other access points such as smart phones, hand-held devices, and productivity tools, like Microsoft Outlook. Our solutions are hosted and maintained by us, thus eliminating for our customers the time, risk, headcount and costs
associated with installing and maintaining applications within their own information technology infrastructures. As a result, we believe our solutions require less initial investment in third-party software, hardware and implementation services, and
have lower ongoing support costs than traditional enterprise software. The SaaS model also allows advanced information technology infrastructure management, security, disaster recovery and other best practices to be leveraged by smaller customers
that might not otherwise be able to implement such practices in their own information technology environments. Our SaaS delivery model also enables us to take advantage of operational efficiencies. Since updates and upgrades to our solutions are
managed by us on behalf of our customers, we are able to implement improvements to our solutions in a more rapid and uniform way. As a result, we are required to support fewer old versions of our solutions. This allows our development resources to
focus more effort on innovative new products.

We believe our SaaS delivery model, coupled with our subscription-based license
model, effectively replaces the large, front-loaded cost, typical of most traditional licensed enterprise software deployments, with a lower risk, pay-as-you-go model. We believe the SaaS model is well suited to the talent management market in which
we operate.

Our Products

We offer two suites of talent management solutions: Taleo Enterprise and Taleo Business Edition. Taleo Enterprise is designed for medium and large enterprises with more complex needs. Our Taleo Enterprise
suite provides support for unified, end-to-end talent management processes ranging from sourcing, recruiting and onboarding to performance management, goals management, development planning, succession planning, compensation and learning. Taleo
Business Edition is designed for smaller more centralized organizations,



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stand-alone departments and divisions of larger organizations, and staffing companies. Taleo Business Edition supports recruiting, onboarding, performance management, compensation and learning.
Our solutions are designed to address multiple types of candidates and employees, including professional and hourly, with support for multiple languages as well as differing geographic and cultural requirements.

Our solutions are accessed through intuitive role-specific user interfaces, which allows only the content and functionality relevant to a
specific user  whether a candidate, current employee, corporate recruiter, agency, line manager or system administrator  to be easily accessed by that user. The candidate-facing portions of Taleo Enterprise solutions are available in 30
languages. Taleo Business Edition is currently available in 4 languages.

Taleo Enterprise

Taleo Enterprise consists of several talent management modules.

Taleo Recruiting enables organizations to manage the recruitment process for professional and hourly job seekers, including attracting and evaluating candidates and existing
employees, matching skills against job opportunities, managing the selection process and managing candidate relationships.

Taleo Onboardinghelps organizations accelerate time to productivity for new employees
by streamlining new hire paperwork and the provisioning of equipment and other key resources.

Taleo
Performanceprovides tools to help transform traditional employee assessment from an annual event to an
ongoing, business-driven, evaluation and process improvement tool.

Taleo Development helps employees and managers create focused and dynamic career and development plans to improve individual
performance and increase retention.

Taleo Goals helps organizations to better manage business outcomes by automating the creation, alignment and monitoring of organizational goals.

Taleo Succession provides access to a complete view of available, qualified talent and helps identify the best candidates to deliver on business goals.

Taleo Compensation provides a single view of compensation budgets and plans and offers tools to help update base and variable pay budgets as organization structures change.

Taleo Learn helps organizations create, deliver, and track learning and training programs tied to compliance, regulatory, job role, and onboarding requirements. Organizations
can tailor the mix of formal and social learning to include both structured curriculum and communities where experts share what they know. Taleo Learn also functions as an ecommerce site where organizations can sell their expertise, content, and
intellectual property to external audiences.

Talent Management Platform Modules

Taleo Enterprise also includes several platform modules that may be used in conjunction with any of our talent management modules. These
platform modules help organizations gain strategic visibility across all of their talent management functions and integrate our products to other systems.

Taleo Analytics gives customers a tool to gain strategic
insights into their talent management practices through a metrics configuration tool, standard analytics dashboards, and dashboard authoring tools.



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Taleo Anywhere provides access to Taleos solutions through many alternative platforms, such as Blackberry, smartphones, common productivity tools like Microsoft Outlook, and
through alternate Web 2.0 means such as RSS feeds.

Taleo Connect uses a services-oriented integration framework to enable customer-managed and Taleo-managed integrations between
our solutions and other systems.

Taleo Passport offers pre-built integrations with certified solution partners for background checks, assessments, tax credit screening and more.

Taleo Business Edition

Taleo Business Edition includes six distinct product sets, Taleo Recruit, Taleo Onboard, Taleo Perform, Taleo Comp, Taleo Learn and Taleo Insight.

Taleo Recruit facilitates an organizations employee recruiting process. Taleo Recruit offers three service options that enable small businesses to acquire talent. The user
interface allows users to create a customer specific talent management system with configurable objects, fields, layouts, views, workflow, reports, and integration.

Taleo Onboard automates the new hire process by enabling every department involved in the onboarding process to receive task assignments and update progress as tasks are
completed.

Taleo Perform allows companies to define and monitor the full employee review cycle. Managers can initiate the review process and support employee self-appraisals, manager
assessments, and multi-rater reviews. Taleo Performs goals management module allows managers to establish quantitative and qualitative employee goals, and align employee goals to broader company goals. A secure employee portal enables
employees to submit self-assessments online and provides access to basic employee data, company messaging, assigned goals, and performance reviews.

Taleo Comp enables small enterprises to determine the
total cost of a compensation cycle and apply maximum and minimum limits. Managers may use multiple performance reviews to allocate merit and bonus pay based on employee achievement over a period of time.

Taleo Learn helps organizations create, deliver, and track learning and training programs tied to compliance, regulatory, job role, and onboarding requirements. Organizations
can tailor the mix of formal and social learning to include both structured curriculum and communities where experts share what they know. Taleo Learn also functions as an ecommerce site where organizations can sell their expertise, content, and
intellectual property to external audiences.

Taleo Insight provides customers with reporting and analysis to gain strategic insight into their talent management practices.
Customers are able to optimize their talent processes through standard reports, custom reports, dashboards, and scheduling,

Taleo Talent Grid

The Taleo Talent Grid provides a comprehensive online community for Taleo customers, partners and job seekers to share best and next practices, select and deploy innovative solutions and
interact to match jobs with the best talent. The Talent Grid includes: (1) Knowledge Exchange, an online customer forum and social network for Taleo customers to share and discuss talent management topics, product ideas, and best practices in a
quick, social manner; (2) Solution Exchange, an online partner application and solution marketplace that enables customers to explore, evaluate, demo, and compare products and services from Taleos partner ecosystem, which



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includes a wide variety of talent management categories including sourcing, assessments, tax credit screening, background checks, and more; and (3) Talent Exchange, a crowd-sourced talent
marketplace through which Taleos community of customers can share candidates, source active and passive candidates, and enable job seekers to find the right positions and easily apply for open positions using their universal profile. These
online communities are built on a collaborative Web 2.0 framework. The Talent Grid is accessible through Taleo's on-demand talent management solutions for companies of all sizes.

Our Growth Strategy

Our objective is to become the leading global provider
of unified talent management solutions. Key elements of our strategy include:

Expanding our target market opportunity.
We intend to continue to expand and better serve our potential customer base by tailoring solutions, service offerings and marketing campaigns to address the needs of specific vertical markets, geographies, government entities and organizational
sizes. We also intend to implement marketing campaigns targeted to the needs and requirements of various segments of the talent management market.

Extending our multinational customer base. We believe the increasing globalization of large organizations provides us with substantial opportunities to capitalize on our leadership in global
deployments. We intend to expand our efforts to deploy our solutions to more organizations that are based outside of North America. We also intend to continue to enhance our multinational functionality and to expand our investment in our
international operations to support organizations of all sizes globally.

Expanding our solution offerings. With the
acquisitions of WWC and Learn.com in January 2010 and October 2010, respectively, we now offer what we believe to be one of the broadest sets of talent management capabilities of any SaaS vendor in our market, covering the core talent management
pillars of recruiting, performance management, succession, compensation, and learning. We intend to continue our efforts to gain market share across all of these product categories. We also plan to continue to enhance and expand our suite of talent
management solutions to deliver additional functionality that we can sell to our customer base and to new customers. We will continue this expansion through our internal development initiatives, such as our development of a compensation management
solution for smaller, less complex organizations. We may also pursue strategic acquisitions like our acquisitions of Learn.com, through which we added solutions for learning management, and WWC, through which we added solutions for compensation
management and incentive compensation for larger, more complex organizations. We intend to further extend our solutions by offering talent intelligence and associated analytical functionality that leverages data from all of our core pillars and
enables our customers to gain strategic insight and assist in making decisions regarding their human capital resources.

Expanding adoption of the Taleo Talent Grid. In September 2009, we launched the Taleo Talent Grid, a set of three online exchanges
that provides a forum for our customers, solution partners and job seekers to share information, best practices and innovative solutions to common problems. The Talent Grid is accessible as a convenient extension of our on-demand talent management
software. We intend to continue to encourage adoption of the Talent Grid to enhance the value of our solutions to our customers and make our solutions more difficult to replace.

Extending our technology leadership. We believe we have established advanced technological capabilities and competitive advantages
through our SaaS based and service oriented architectures. Our advanced technologies have enabled us to develop our solutions on a common and native talent management platform. We intend to utilize our experience and our internal and third-party
development resources to continue to develop our technology platform, infrastructure and applications to leverage new technologies and methodologies, such as Web 2.0 design principles, to capitalize on the talent management market opportunity. For
example, Taleo 10,



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the latest version of our talent management solutions, includes a new, streamlined Web 2.0 user interface and greater mobile accessibility options, among other new features. In addition, we have
an open platform, which enables us to have one of the broadest partner eco-systems in the industry.

Enhancing our human
capital resources. We believe we have a competent and competitive work force, which we will continue to enhance both the quantity and quality of, through internal and external training facilities and through selective hiring. Having a competent
and competitive workforce is of outmost importance, and we intend to reinforce our best practices to acquire and retain the best possible talent in the industry.

Technology

Our Software Applications

Our Taleo Enterprise solutions for recruiting and performance management reside on a common technology platform. Our component-based
platform includes reporting and analytics capabilities, self-service integration and configuration tools, our proprietary method for contextualizing the user experience based upon a variety of organizational, location and job function attributes
(which we refer to as our SmartOrg feature), the Talent Master Structured Data Platform (described in further detail below), and global language and currency capabilities. Because Taleo Recruiting and Taleo Performance share a common, native
platform, we can provide clients superior interoperability between applications and a unified view of all talent management information. The self-service tools and SmartOrg make our solutions configurable for complex operations, giving companies
enterprise-wide data and process consistency while being able to adapt the solution locally according to the organization, location, applicable laws, local staffing model, types of hires and internal mobility requirements.

The Talent Master Structured Data Platform maintains all employee, candidate, job and performance data elements required by our
solutions. The data structure within the Talent Master Structured Data Platform includes information on skills, competencies, experience, behaviors and level of interest in a skill or competency that can be matched precisely to job requirements and
business plans. The Talent Master Structured Data Platform enables organizations to inventory and search the skills of their external candidates and current employees in a common format to help managers and recruiters to decide between internal and
external hires for new business initiatives, measure skills gaps in the existing workforce and prepare succession plans using both internal and external talent profiles.

Our Taleo Enterprise software applications for recruiting and performance management are written in Java and use Oracle as the relational database management system.

Our Taleo Business Edition solutions reside on a common technology platform that is separate from the Taleo Enterprise platform. The
Taleo Business Edition platform enables us to deliver superior usability and functionality focused on small businesses, and allows for predictive modeling throughout the talent management lifecycle. Self-service tools within the platform provide
standard and custom reporting and the ability to configure all Taleo Business Edition modules. The common platform also allows users to localize language and currency across the modules and within the configurable career websites and employee
portals. It also exposes some data through a standard open web service for integration, allowing customers to integrate Taleo Business Edition with any third party software application that accepts such standard protocols. These self-service
configuration and integration tools, together with pre-configured templates for specific industry verticals, enable our small and midsize customers to use Taleo Business Edition for both simple and complex talent management operations.

Our Taleo Business Edition software applications are written in Java and use Microsoft SQL Server® as the relational database management system.

Our Taleo Compensation software applications, which we added through our recent purchase of WWC, and the Taleo Talent
Grid are on a separate technology platform, are written in Java and use MySQL® as the relational database
management system.



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Our On-Demand Infrastructure

Taleo Enterprise

Our infrastructure is designed to achieve high levels of security, scalability, performance and availability. We use commercially available hardware in our data centers. Our software architecture runs on
the Linux operating system. Our solutions use some proprietary and commercially available software as well as open-source software components for enhanced reliability, scalability and a secure computing environment which can scale to accommodate
transaction load increases. Our secure Internet facing infrastructure includes load balancing and secure socket layer encrypting devices, anti-virus appliances and security technology that allows us to detect and prevent unauthorized access to our
infrastructure. Our tiered and virtualized application architecture deploys specialized systems and application functions on distinct clusters for web, application, database management, search, reporting, utilities, and storage services. Each server
cluster is implemented with n+1 redundancy which allows us to scale systems and application capacity and provide high on demand availability of our solutions. All of our equipment and systems are remotely operated, monitored and managed by our
personnel working on a 24/7 schedule. Key technology specialists and managers are also on call at all times on a rotating basis. Our monitoring technology uses industry leading system monitoring and performance monitoring tools and we have also
developed our own customized monitoring tools for added insight into the performance and availability of our systems.

We
provide a highly secure computing environment as well as high application availability. Each customer is provided with its own secure virtual application instance, which we refer to as a Zone. Each customer Zone includes the customers own
standard encrypted database schema, text translation management, configuration settings, reporting tools and data integration tools. Customers share hardware infrastructure at all tiers. The scalable design of the software and hardware
infrastructure allows us to deploy customer Zones and balance transaction load across any number of servers to ensure consistent high performance of applications. Our business continuity measures include daily incremental database backups to disk
and full weekly backup to disk which we store in an encrypted format off-site in an alternate Taleo data center for recovery capabilities.

DataCenters

We currently deliver our Taleo Enterprise solutions
from secure datacenters operated by third parties in which we have purchased cage space, electrical power and internet bandwidth. We currently deliver our Taleo Business Edition solutions from datacenters operated via third party managed services
arrangements through which the datacenter provider provides electrical power, hardware, and internet bandwidth. We deliver our Talent Grid solutions via a similar managed services arrangement with third parties.

Taleo Services

Our
professional services organization leverages our consultants and educators domain expertise and our proprietary tools, best practices, and methodologies to provide implementation services, solution optimization and expansion services,
technical services and education services that help our customers maximize their return on investment. We also subcontract or refer consulting engagements or portions of consulting engagements to our third-party implementation partners from time to
time.

Taleo Services Methodologies

We have developed methodologies that enable us to accelerate the deployment of our solutions across a variety of industries and talent management environments:

Taleo Implementation MethodologyWorking with Fortune 500 companies as well as smaller sized organizations, we have developed
methods to optimize critical business processes, while maintaining the integrity of our customers business drivers. The Taleo Implementation Methodology addresses specific



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processes for Talent Management key initiatives such as recruiting, onboarding, performance reviews, goals management, career management, development planning, succession planning, learning and
compensation. Our Taleo Enterprise consultants work with our customers to implement our solutions by mapping solution workflows and best practices to the organizations structure, business requirements, and processes, and ultimately configuring
a skills-based platform for complete talent management configured uniquely for each customer.

Talent Practices Knowledge
BaseOur talent practices knowledge base (which we call Green Pages) enables us to understand an organizations overall talent management environment, including internal and external business drivers, talent management processes
and to recommend best practices to optimize talent management processes. Green Pages is a searchable database of descriptions of the complex enterprise talent management challenges faced within different industries and geographies. Green Pages also
provides specific details of the solutions our consultants implemented to address these challenges, and the results obtained. This knowledge base reflects years of talent management experience across a wide variety of industries. Our consultants use
the collective data from our knowledge base to help our new customers solve their complex talent management challenges, and to help our existing customers hone their talent management practices and processes.

Implementation Services

Our Taleo Enterprise implementation services begin with a complete evaluation of a customers current talent management practices. Services include process definition, to determine the configuration
of the solutions, and integration with existing applications to fit each organizations dynamic business requirements. We have a dedicated project management office that equips our consultants with a library of toolkits, forms, training
documentation and workshop templates. The project management office also audits active customer engagements quarterly to help ensure consistent quality.

Solution Optimization and Expansion

We provide ongoing solution
optimization and expansion services to help our customers achieve desired results in quality improvement, increased productivity, cost savings and operational effectiveness after the initial deployment of our solution. We work with our customers to
measure improvement in their talent management processes and we modify and expand configuration of our solutions to increase their effectiveness, when necessary. In collaboration with customer project leaders, we establish an ongoing process for
continual evolution and solution optimization. Using this process, our customers can promote best practice usage and end user adoption after our solutions have been deployed.

Technical Services

We offer comprehensive technical services to
help our customers integrate our solutions with other third-party solutions within our customers system portfolios. Many of our Taleo Enterprise clients leverage our technical expertise to assist with technical engagements such as data
conversion, ongoing data interfaces, single sign-on for internal users, third-party integration and technical readiness assessments. We also provide services to identify and develop reports and dashboards using our advanced reporting technology. We
work with our clients in various ways, from knowledge transfer to help them better use our self-service technology, to full-service, on-site implementation projects.

Training

Through Taleo University, we offer a full range of
educational services to foster customer self-sufficiency. These services include: pre-deployment classroom training, train-the-trainer programs, system administrator training, post-deployment specialty training, upgrade training and a full catalogue
of interactive, self-study eLearning/web-based training courses. We also offer a variety of training tools to drive user adoption, including



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solution user manuals, process user guides, feature training exercises, a self-service website for training scheduling and registration, post-training assessment and certification, and both
synchronous and asynchronous web-based training options for remote users. Customers may license Taleo University courseware and trainer kits for in-house use or license the Taleo Proficiency learning content development tools to build their own
custom elearning programs. Our solutions are designed to meet the requirements of customers of various sizes, and we measure all training engagements for quality and customer satisfaction.

Customer Support

Our global customer support organization for Taleo
Enterprise provides both proactive and customer-initiated support. We deliver customer assistance via universal toll-free telephone access, internet click-to-chat technology, and our web-based incident management system to
our customers designated points-of-contacts, 24 hours a day, seven days a week. Our customer support organization tracks all customer support requests in our incident management system and displays the status of these requests to the user
through our Customer Support Portal, enabling users to know the status of their support requests, the person responsible for resolving them, and the targeted timing and process for resolution. Our Customer Support Portal, directly accessible through
our Taleo Enterprise solutions, gives customers easy access to: our incident management system; our knowledge database, which enables easy search of documentation and solutions; our reporting system which allows customers to see real-time support
metrics for their issues; and our production portal, which provides real-time views and reports on the health, performance, and activity of a customers Zone.

Customer support is provided from support centers in five locations operating globally in a follow-the-sun model. In North America, customer support operates from Quebec City, Canada, Jacksonville,
Florida, and our corporate headquarters in Dublin, California. Internationally, customer support operates from the Greater London area and Sydney, Australia. We utilize our corporate VOIP telephone system coupled with web-based tools and systems to
deliver seamless service to our customers, irrespective of the point of delivery.

Our customer support management team
utilizes real-time analytic dashboards to monitor performance and make rapid adjustments to ensure consistency in our service levels. Our senior customer support executives receive automated alerts for escalated issues, review the analytic
dashboards, customer satisfaction reports, and take appropriate action to ensure that we maintain customer satisfaction.

Customers

We market our Taleo Enterprise solutions to medium and large organizations with more complex needs, typically with more than 5,000 employees. We market our Taleo Business Edition solutions to smaller,
more centralized organizations, typically with fewer than 5,000 employees. Our customers include organizations in the business services, consumer goods, energy, financial services, healthcare, manufacturing, technology, transportation, government
and retail sectors, and range in size from smaller, private companies to large, global corporations with more than 300,000 employees. No single customer has accounted for more than ten percent of our revenue or accounts receivable in any of the last
three years.

Sales and Marketing

We sell subscriptions to our Taleo Enterprise solutions through our global direct sales force and through our strategic partners. Our direct sales organization has field sales professionals in
metropolitan areas throughout the United States, Canada, Europe and Australia. Our Taleo Enterprise direct sales force consists of regional sales managers, solutions consultants and business development representatives that sell our solutions to new
customers. We also maintain a separate team of account executives that focuses on renewing and selling new solutions and services to existing Taleo Enterprise customers. In addition, we have developed partnerships and direct sales relationships with
business process outsourcing, or BPO, human resources outsourcing, or HRO, and



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recruitment process outsourcing, or RPO, providers. Our BPO, HRO and RPO partners use our solutions to manage talent management for their customers as part of their broader human resource
offerings. We also have a number of partners who resell our Taleo Learn solution. Our Taleo Business Edition offerings are sold primarily through a telesales team.

Our marketing programs are designed to increase awareness of our solutions within our target markets and enhance the perception of our brand. Our marketing initiatives include market research, product and
strategy updates with industry analysts, public relations activities, web and social media marketing, direct mail and relationship marketing programs, seminars, industry specific trade shows, speaking engagements and cooperative marketing with
customers and partners. Our marketing team generates qualified leads and provides programs for prospects and customers that build awareness and generate demand for our existing solutions as well as new products and services. Our marketing department
also produces materials that include brochures, data sheets, white papers, presentations, demonstrations, and other marketing tools on our corporate website. We also generate awareness through electronic and print advertising in trade magazines,
websites, search engines, seminars, and direct customer and partner events.

Research and Development

Our research and development organization consists of product management, development and quality assurance employees. Our research and
development organization is primarily located in Quebec City, Canada and Jacksonville, Florida. We also have development staff in Dublin, California and other locations. We use independent development firms or contractors for portions of our
development related work, with current research and development efforts occurring in Budapest, Hungary, and Kiev, Ukraine. Our development methodology allows us to implement flexible development cycles that result in more timely and efficient
delivery of new solutions and enhancements to existing solutions. We focus our research and development efforts on improving and enhancing our existing solution offerings as well as developing new solutions. The responsibilities of our research and
development organization include product management, product development, and software maintenance. We allocate a portion of our research and development budget to the development of our technology platform, including our Talent Master Structured
Data Platform (discussed above) and the platform underlying the configuration capabilities of our solutions (what we refer to as Configurable Staffing Process Platform). Our research and development expenditures, net of provincial investment credits
we receive from the province of Quebec for qualifying research and development expenditures, are expensed as incurred.

Competition

The market for talent management solutions is highly competitive and rapidly evolving. We believe that the principal
competitive factors in this market include:



| |  |  | product performance and functionality;
| | - |  | --------------------------------------



| |  |  | breadth and depth of functionality;
| | - |  | -----------------------------------



| |  |  | multinational capabilities;
| | - |  | ---------------------------



| |  |  | ease of implementation and use;
| | - |  | -------------------------------



| |  |  | security and data privacy;
| | - |  | --------------------------



| |  |  | ability to integrate with third-party solutions;
| | - |  | ------------------------------------------------



| |  |  | scalability and reliability;
| | - |  | ----------------------------



| |  |  | company reputation;
| | - |  | -------------------



| |  |  | financial stability; and
| | - |  | ------------------------



| |  |  | price.
| | - |  | ------



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We believe that we compete favorably with respect to these factors. Our solutions compete
with enterprise resource planning software from vendors such as Oracle Corporation and SAP AG, and also with products and services from vendors such as ADP, Cezanne, Cornerstone OnDemand Inc., Halogen Software Inc., Healthcare Source, HRSmart,
iCIMs, Jobpartners, Jobvite, Kenexa Corporation, Kronos, Peopleclick Authoria Inc., Plateau Systems Ltd., Saba Software, SilkRoad Technology, Stepstone Solutions, SuccessFactors Inc., SumTotal Systems Inc., and Workday, Inc.

Our current and potential competitors include large, multi-national companies who have a larger installed base of users, longer operating
histories, greater name recognition and substantially greater technical, marketing, and financial resources. In addition, we compete with smaller companies who may adapt better to changing conditions in the market. Our competitors may develop
products or services that will be superior to our products, or that will achieve greater market acceptance.

Intellectual Property

We rely on a combination of trademark, copyright and trade secret laws in the United States and other jurisdictions as
well as confidentiality procedures and contractual provisions to protect our proprietary technology, services methodology and brand. We have registered trademarks for certain of our products and services and will continue to evaluate the
registration of additional trademarks as appropriate. Taleo is a registered trademark in the United States, European Union, Australia, Canada and Singapore and in various other jurisdictions. We also enter into confidentiality and proprietary
rights agreements with our employees, consultants and other third parties and control access to software, documentation and other proprietary information.

Employees

As of December 31, 2010, we had
1,164 employees, including 144 employees from our acquisition of Learn.com and 15 employees from our acquisition of WWC. None of our employees are represented by a collective bargaining agreement and we have never experienced a strike or
similar work stoppage. We consider our relationship with our employees to be good.

Business Combinations

Over the past three years, we expanded our market share, acquired new technology or supplemented our technology by
purchasing businesses and assets focused in the talent management market. During this time period, we acquired the following businesses:



|                                     |  |                                                                                                                                                                  
|------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Company                              |  | Details                                                                                                                                                          
|Learn.com, Inc.(Learn.com)         |  | Taleo acquired Learn.com on October 1, 2010, which allows us to provide learning and development solutions to complement our existing talent management products.
|                                     | 
|Worldwide Compensation, Inc. (WWC) |  | Taleo acquired WWC on January 1, 2010, which allows us to directly offer a compensation management solution to larger, more complex organizations.               
|                                     | 
|Vurv Technology, Inc. (Vurv)       |  | Taleo acquired Vurv on July 1, 2008, which provided new customer relationships and intellectual property.                                                        



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Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports
furnished or filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on the Investor Relations section of our website (www.taleo.com) as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. Information available on, or that can be accessed through, our website is not part of this report. The public may 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 D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements and other information regarding us that we file electronically with the SEC.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

RISK
FACTORS

Because of the following factors, as well as other variables affecting our operating results and financial
condition, past performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occurs, our business, financial condition or results of operation
could be materially and adversely affected. In that case, the trading price of our stock could decline, and you may lose some or all of your investment.

We have a history of losses, and we cannot be certain that we will sustain profitability.

With the exception of the years ended December 31, 2007, 2009 and 2010, we have incurred annual losses in every year since our inception. As of December 31, 2010, our accumulated deficit was
$76.6 million, comprised of aggregate net losses of $62.8 million and $13.8 million of dividends and issuance costs for preferred stock. In the three months and year ended December 31, 2010, we reported a net loss of $0.6 million and a net
income of $0.4 million, respectively. We cannot be certain that we will be able to sustain profitability on a quarterly or annual basis in the future. As we continue to incur costs associated with initiatives to grow our business, which may include,
among other things, acquisitions, international expansion, significant hiring, and new product development, any failure to increase revenue or manage our cost structure could prevent us from achieving or sustaining profitability. For instance, in
the year ended December 31, 2010, our results were negatively impacted by amortization expense associated with acquisitions. In the near term, we expect to continue to incur significant amortization expense associated with our past
acquisitions. In addition, we may incur losses as a result of revenue shortfalls or increased expenses associated with our business. As a result, our business could be harmed and our stock price could decline.

Unfavorable economic conditions could limit our ability to grow our business or result in less favorable commercial terms in our customer agreements.

Our operating results may vary based on the impact of changes in economic conditions globally and within the industries in
which our customers operate. The revenue growth and profitability of our business depends on the overall demand for enterprise application software and services. Our revenue is derived from organizations whose businesses may fluctuate with global
economic and business conditions. Historically, economic downturns have resulted in overall reductions in corporate information technology spending. Accordingly, any downturn in global economic conditions may weaken demand for our software and
services generally, or an economic decline impacting a particular industry may negatively impact demand for our software and services in the affected industry. Many of the industries we serve, including financial services, manufacturing (including
automobile manufacturing), technology and retail, have recently suffered a downturn in economic and business conditions and may continue to do so. A softening of demand for enterprise application software and services, and in particular enterprise
talent management solutions, caused by a weakening global economy or economic downturn in a particular sector would adversely affect our business and likely cause a decline in our revenue.

Unfavorable economic conditions may also cause increased delays in our sales cycles and increased pressure from prospective customers to
offer higher discounts or less favorable payment, billing or other commercial terms than our historical practices, and may also cause increased pressure from existing customers to renew expiring software subscriptions agreements at lower rates,
delay or cancel consulting or education services engagements, purchase fewer products upon renewal, or demand other less favorable commercial terms. In addition, certain of our customers may attempt to negotiate lower software subscription fees for
existing arrangements because of downturns in their businesses. If we accept certain requests for higher discounts, lower fees or less favorable commercial terms, our business may be adversely affected and our revenues may decline.



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Additionally, certain of our customers have become or may become bankrupt or insolvent as a
result of an economic downturn, and we may lose all future revenue from such customers and payment of receivables may be lower or delayed as a result of bankruptcy proceedings.

Acquisitions and investments present many risks, and we may not realize the anticipated financial and strategic goals for any such transactions, which would harm our business, operating results and
overall financial condition.

We have made, continue to make and routinely evaluate acquisitions or investments in
companies, products, services, and technologies to expand our product offerings, customer base and business. For example, in 2008, we completed our acquisition of Vurv, in January 2010, we completed our acquisition of WWC, and on October 1,
2010 we completed our acquisition of Learn.com. We have limited experience in executing acquisitions and investments. Acquisitions and investments involve a number of risks, including the following:



| |  |  | being unable to achieve the anticipated benefits from our acquisitions;
| | - |  | -----------------------------------------------------------------------



| |  |  | difficulty integrating the accounting systems, operations, and personnel of the acquired business;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | difficulty retaining the key personnel of the acquired business;
| | - |  | ----------------------------------------------------------------



| |  |  | our ongoing business and managements attention may be disrupted or diverted by transition or integration issues and the complexity of managing
geographically and culturally diverse locations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties and additional expenses associated with integrating or incorporating the acquired technologies or products into our existing code base and
hosting infrastructure;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties and additional expenses associated with supporting the legacy products and hosting infrastructure of the acquired business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | problems arising from differences in applicable accounting standards or practices of the acquired business (for instance, non-U.S. businesses may not
prepare their financial statements in accordance with GAAP) or difficultly identifying and correcting deficiencies in the internal controls over financial reporting of the acquired business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | problems arising from differences in the revenue, licensing (for instance, an acquired business may offer perpetual licenses), support (for instance,
an acquired business may offer customer specific customizations of product code to certain customers) or consulting model of the acquired business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | customer confusion regarding the positioning of acquired technologies or products;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | difficulty maintaining uniform standards, controls, procedures and policies across locations;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | difficulty retaining the acquired business customers;
| | - |  | ------------------------------------------------------



| |  |  | difficulty converting the customers of the acquired business onto Taleos technology platform and contract terms; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | problems or liabilities associated with product quality, data privacy, data security, regulatory compliance, technology and legal contingencies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

The consideration paid in connection with an investment or acquisition also affects our financial results.
If we should proceed with one or more significant acquisitions in which the consideration includes cash, we could be required to use a substantial portion of our available cash to consummate any such acquisition. To the extent that we issue shares
of stock or other rights to purchase stock, existing stockholders may be diluted and earnings per share may decrease. In addition, acquisitions may result in our incurring debt, material one-time write-offs, or purchase accounting adjustments and
restructuring charges. They may also result in recording goodwill and other intangible assets in our financial statements which may be subject to future impairment charges or ongoing amortization costs, thereby reducing future earnings. In addition,
from time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. Such negotiations could result in significant diversion of management time, as well as incurring expenses that may impact
operating results.



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Because we recognize software subscription revenue over the term of the agreements for our software
subscriptions, a significant downturn in our business may not be reflected immediately in our operating results, which increases the difficulty of evaluating our future financial position.

We generally recognize revenue from software subscription agreements ratably over the terms of these agreements, which are typically three
or more years for our Taleo Enterprise customers and one year for our Taleo Business Edition customers. As a result, a substantial majority of our software subscription revenue in each quarter is generated from software subscription agreements
entered into during prior periods. Consequently, a decline in new software subscription agreements in any one quarter may not affect our results of operations in that quarter, but will reduce our revenue in future quarters. Additionally, the timing
of renewals or non-renewals of a software subscription agreement during any one quarter may affect our financial performance in that particular quarter or may not affect our financial performance until the next quarter. For example, because we
recognize application revenue ratably, the non-renewal of a software subscription agreement late in a quarter will have very little impact on revenue for that quarter, but will reduce our revenue in future quarters. Accordingly, the effect of
significant declines in sales and market acceptance of our solutions may not be reflected in our short-term results of operations, which would make these reported results less indicative of our future financial results. By contrast, a non-renewal
occurring early in a quarter may have a significant negative impact on revenue for that quarter and we may not be able to offset a decline in revenue due to such non-renewals with revenue from new software subscription agreements entered into in the
same quarter. In addition, we may be unable to adjust our costs in response to reduced revenue.

Because of the way we are required to
recognize our consulting revenue under applicable accounting guidance, consulting revenue reported for a particular period may not be indicative of trends in our consulting business, which increases the difficulty of evaluating our future financial
position.

During 2009 and prior years, when we sold software subscriptions and consulting services in a single arrangement
(sometimes referred to as a multi-element arrangement), we recognized revenue from consulting services ratably over the term of the software subscription agreement, which is typically three or more years, rather than as the consulting services were
delivered, which is typically during the first six to twelve months of a software subscription agreement. Accordingly, a significant portion of the revenue for consulting services performed in any quarterly reporting period prior to 2010 was
deferred to future periods. However, under accounting guidance which we adopted on January 1, 2010, substantially all of our revenue from consulting service arrangements entered into on or after January 1, 2010 is recognized as the
consulting services are delivered. In addition, if we materially modify a multi-element arrangement entered into prior to 2010, the revenue associated with consulting services delivered in prior periods that would have been recognized ratably under
our pre-2010 policy, will be recognized in the period of the material modification. The application of these revenue recognition methodologies will result in our consulting revenue for the foreseeable future including a mix of revenue from
consulting services delivered during the reporting period and consulting services delivered in previous reporting periods, which may make our results more difficult to understand and less indicative of our current operational trends. Further, since
we recognize expenses related to our consulting services in the period in which the expenses are incurred, the consulting margins we report in any quarterly reporting period may not be indicative of the actual gross margin on consulting services
delivered during the reporting period.

If our existing customers do not renew their software subscriptions and buy additional solutions
from us, or if our customers renew at lower fee levels, our business will suffer.

We expect to continue to derive a
significant portion of our revenue from renewal of software subscriptions and, to a lesser extent, service fees from our existing customers. As a result, maintaining the renewal rate of our software subscriptions is critical to our future success.
Factors that may affect the renewal rate for our solutions include:



| |  |  | the price, performance and functionality of our solutions;
| | - |  | ----------------------------------------------------------



| |  |  | the availability, price, performance and functionality of competing products and services;
| | - |  | ------------------------------------------------------------------------------------------



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| |  |  | the effectiveness of our maintenance and support services;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to develop complementary products and services;
| | - |  | -----------------------------------------------------------



| |  |  | the stability, performance and security of our hosting infrastructure and hosting services; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the business environment of our customers and, in particular, headcount reductions by our customers.
| | - |  | ----------------------------------------------------------------------------------------------------

Most of our Taleo Enterprise customers enter into software subscription agreements with duration of three years or more from the initial
contract date. Most of our Taleo Business Edition customers enter into annual software subscription agreements. Our customers have no obligation to renew their subscriptions for our solutions after the expiration of the initial term of their
agreements. In addition, our customers may negotiate terms less advantageous to us upon renewal, which may reduce our revenue from these customers. Factors that are not within our control may contribute to such fee reductions. For instance, many
companies reduced their total employee populations during the recent economic downturn. As our software subscriptions are often based on the total number of employees for which our software applications may be used by a customer, a significant
employee count reduction by a customer during the term of an agreement may result in a renewal that is based on a lower maximum employee limit for the use of our products and thus a lower renewal fee. Under certain circumstances, our customers may
cancel their subscriptions for our solutions prior to the expiration of the term. Our future success also depends, in part, on our ability to sell new products and services to our existing customers. If our customers terminate their agreements, fail
to renew their agreements, renew their agreements upon less favorable terms or at lower fee levels, or fail to buy new products and services from us, our revenue may decline or our future revenue may be constrained.

If our efforts to attract new customers are not successful or we do not compete effectively with other companies offering talent management solutions,
our revenue may not grow and could decline.

In order to grow our business, we must continually add new customers. Our
ability to attract new customers will depend in large part on the success of our sales and marketing efforts and our ability to compete with other talent management solution providers. Many of our prospective customers have traditionally used other
products and services for their talent management requirements or have developed internal solutions to address certain talent management requirements. If our sales and marketing efforts are not successful, our prospective customers may not be
familiar with us or our solutions or may not consider our solutions to be of sufficiently high value and quality and, as a result, we may not be considered in such prospective customers sale cycles.

Additionally, in the past we have experienced, and expect to continue to experience, intense competition from a number of companies. Our
solutions compete with enterprise resource planning software from vendors such as Oracle Corporation and SAP AG, and also with products and services from vendors such as ADP, Cezanne, Cornerstone OnDemand Inc., Halogen Software Inc., Healthcare
Source, HRSmart, iCIMs, Jobpartners, Jobvite, Kenexa Corporation, Kronos, Peopleclick Authoria Inc., Plateau Systems Ltd., Saba Software, SilkRoad Technology, Stepstone Solutions, SuccessFactors Inc., SumTotal Systems Inc., and Workday, Inc. Our
competitors may announce new products, services or enhancements that better meet changing industry standards or the price or performance needs of customers. Increased competition may cause pricing pressure and loss of market share, either of which
could have a material adverse effect on our business, results of operations and financial condition.

Certain of our
competitors and potential competitors have significantly greater financial, technical, development, marketing, sales, service and other resources than we have. Some of these companies also have a larger installed base of customers, longer operating
histories and greater brand recognition than we have. Certain of our competitors provide products that incorporate capabilities which are not available in our current suite of solutions, such as automated payroll and benefits, or services that we do
not currently offer, such as recruitment process outsourcing services. Products with such additional functionalities may be appealing to some customers because they can reduce the number of different types of software or applications used to run
their business and



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such additional services may be viewed by some customers as enhancing the effectiveness of a competitors solutions. In addition, our competitors products may be more effective than
our products at performing particular talent management functions or may be more customized for particular customer needs in a given market. Further, our competitors may be able to respond more quickly than we can to changes in customer
requirements.

Our customers often require our products to be integrated with software provided by our existing or potential
competitors. These competitors could alter their products in ways that inhibit integration with our products, or they could deny or delay access by us to advance software releases, which would restrict our ability to adapt our products to facilitate
integration with these new releases and could result in lost sales opportunities.

We have had to restate our historical financial
statements and have identified internal control weaknesses.

In October 2009, we announced that, after upgrading to a new
version of the equity program administration software that we license from a third-party provider, we identified differences in the stock-based compensation expense of prior periods and, after reviewing such differences, identified an error in our
accounting for stock-based compensation expense. As a result of identifying the error, in October 2009, we concluded that accounting adjustments were necessary to correct certain previously issued financial statements. Accordingly, we restated those
financial statements and recorded total cumulative additional stock-based compensation expense of approximately $2.6 million for the fiscal years ended December 31, 2008, 2007 and 2006 and the quarters ended June 30, 2009 and
March 31, 2009. Specifically, we recorded increases in stock-based compensation expense of approximately $1.3 million in fiscal 2007, $1.2 million in fiscal 2006 and $0.3 million in the quarter ended June 30, 2009, and recorded
reductions in stock-based compensation expense of approximately $0.1 million in fiscal 2008 and $0.1 million in the quarter ended March 31, 2009. In connection with this restatement, we determined that there was a material weakness in our
internal control over financial reporting as of December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009. Specifically, our controls to calculate stock-based compensation expense related to the application of
the forfeiture rate were not designed effectively, and a material weakness existed in the design of the controls over the calculation of stock-based compensation expense related to the application of the forfeiture rate as of those periods.

In addition, in March 2009, we announced that we had completed a review of our revenue recognition practices and, as a result
of this review, we restated certain financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008. The restatement resulted in the deferral to future periods of $18 million of consulting services revenue and
approximately $0.2 million in application revenue previously recognized through June 30, 2008. Amounts in our previously issued consolidated financial statements for the years ended December 31, 2003 through 2007, and the interim
consolidated financial statements for each of the periods ended March 31, 2008 and June 30, 2008, have been corrected for the timing of revenue recognition for consulting services revenue during these periods, as well as to correct an
error relating to the timing of revenue recognition for set-up fees, an element of our application services revenue. In connection with such review we identified certain control deficiencies relating to the application of applicable accounting
literature related to revenue recognition. These deficiencies constituted a material weakness in internal control over financial reporting as of September 30, 2008, which led to items requiring correction in our historical financial statements
and our conclusion to restate such financial statements to correct those items. Specifically, the control deficiencies related to our failure to correctly interpret the multi-element accounting guidance in determining the proper accounting treatment
when application and consulting services are sold together.

We cannot be certain that the measures we have taken since these
restatements will ensure that restatements will not occur in the future. Execution of restatements like the ones described above could create a significant strain on our internal resources and cause delays in our filing of quarterly or annual
financial results, increase our costs and cause management distraction.

As part of our ongoing processes, we continue to
focus on improvements in our internal control over financial reporting. We have discussed deficiencies in our financial reporting and our remediation of such



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deficiencies with the audit committee of our board of directors and will continue to do so as required. However, we cannot be certain that we will be able to detect, prevent or remediate all
deficiencies which may exist now or in the future, including deficiencies which may constitute a material weakness in our internal control over financial reporting. Any such current or future deficiencies could materially and adversely affect our
ability to provide timely and accurate financial information.

Our financial performance may be difficult to forecast as a result of our
historical focus on large customers and the long sales cycle associated with our solutions.

The majority of our revenue is
currently derived from organizations with complex talent management requirements. Accordingly, in a particular quarter the majority of our bookings from new customers on an aggregate contract value basis are from large sales made to a relatively
small number of customers. As such, our failure to close a sale in a particular quarter will impede desired revenue growth unless and until the sale closes. In addition, sales cycles for our Taleo Enterprise clients are generally between three
months and one year, and in some cases can be longer. As a result, substantial time and cost may be spent attempting to secure a sale that may not be successful. The period between our first sales call on a prospective customer and a contract
signing is relatively long due to several factors such as:



| |  |  | the complex nature of our solutions;
| | - |  | ------------------------------------



| |  |  | the need to educate potential customers about the uses and benefits of our solutions;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the relatively long duration of our contracts;
| | - |  | ----------------------------------------------



| |  |  | the discretionary nature of our customers purchases;
| | - |  | -----------------------------------------------------



| |  |  | the timing of our customers budget cycles;
| | - |  | -------------------------------------------



| |  |  | the competitive evaluation of our solutions;
| | - |  | --------------------------------------------



| |  |  | fluctuations in the staffing management requirements of our prospective customers;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | announcements or planned introductions of new products by us or our competitors; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the lengthy purchasing approval processes of our prospective customers.
| | - |  | -----------------------------------------------------------------------

If our sales cycles unexpectedly lengthen, our ability to forecast accurately the timing of sales in any given period will be adversely
affected and we may not meet our forecasts for that period.

If we fail to develop or acquire new products or enhance our existing products
to meet the needs of our existing and future customers, our sales will decline.

To keep pace with technological
developments, satisfy increasingly sophisticated customer requirements, and achieve market acceptance, we must enhance and improve existing products and continue to introduce new products and services. For instance, the Taleo Talent Grid, a
foundation for sharing industry knowledge, technology and candidates, became generally available to our customers in September 2009, and Taleo 10, the newest version of our talent management solutions, became generally available to our customers in
February 2010. Additionally, on January 1, 2010, we completed our acquisition of WWC, which allows us to offer a compensation management solution directly to our customers, and on October 1, 2010, we completed our acquisition of Learn.com,
which allows us to offer a learning management solution directly to our customers. Any new products we develop or acquire may not be introduced in a timely manner, may not achieve the broad market acceptance necessary to generate significant
revenue, and may generate additional development or integration expenses and resulting losses. If we are unable to develop or acquire new products that appeal to our target customer base or enhance our existing products or if we fail to price our
products to meet market demand or if the products we develop or acquire do not meet performance expectations or have a higher than expected cost structure to host and maintain, our business and operating results will be adversely affected.
Additionally, our efforts to expand our solutions beyond our current offerings or beyond the talent management market may divert management resources from existing operations and require us to commit significant financial resources to an
unprofitable business, which may harm our existing business.



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If our security measures are breached and unauthorized access is obtained to customer data or personal
information, customers may curtail or stop their use of our solutions, which would harm our reputation, operating results, and financial condition.

Our solutions involve the storage and transmission of customers proprietary information and users personal information, including the personal information of our customers job
candidates. As part of our solution, we may also offer third-party proprietary solutions which require us to transmit our customers proprietary data and the personal information of job candidates to such third parties. Security breaches could
expose us to loss of this information, and we could be required to undertake an investigation, notify affected data subjects and appropriate legal authorities and regulatory agencies, and conduct remediation efforts, which could include
modifications to our current security practices and ongoing monitoring for users whose data might have been subject to unauthorized access. Accordingly, security breaches may result in investigation, remediation and notification expenses,
litigation, liability, and financial penalties.

While we have administrative, technical, and physical security measures in
place, and we contractually require third parties to whom we transfer data to have appropriate security measures, if any of these security measures are breached as a result of third-party action, employee error, criminal acts by an employee,
malfeasance, or otherwise, and, as a result, someone obtains unauthorized access to customer data or personal information, our reputation will be damaged, our business may suffer and we could incur significant liability. Techniques used to obtain
unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we and our partners to whom we transfer data may be unable to anticipate these techniques or to implement
adequate preventative measures. Applicable law may require that a security breach involving certain types of data be disclosed to each data subject or publicly disclosed. If an actual or perceived breach of our security occurs, the market perception
of our security measures could be harmed and we could lose sales and customers. Our insurance policies may not adequately compensate us for any losses that may occur due to failures in our security measures.

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

Our products may contain defects or errors, which could materially and adversely affect our
reputation, result in significant costs to us and impair our ability to sell our products in the future. The costs incurred in correcting any product defects or errors may be substantial and could adversely affect our operating results. While we
test our products for defects or errors prior to product release, defects or errors have been identified from time to time by our customers and may continue to be identified in the future.

Any defects that cause interruptions in the availability or functionality of our solutions could result in:



| |  |  | lost or delayed market acceptance and sales of our products;
| | - |  | ------------------------------------------------------------



| |  |  | loss of customers;
| | - |  | ------------------



| |  |  | product liability and breach of warranty claims against us;
| | - |  | -----------------------------------------------------------



| |  |  | diversion of development and support resources;
| | - |  | -----------------------------------------------



| |  |  | injury to our reputation;
| | - |  | -------------------------



| |  |  | increased billing disputes and customer claims for fee credits; and
| | - |  | -------------------------------------------------------------------



| |  |  | failure to meet our contractual service level commitments and associated contractual liabilities.
| | - |  | -------------------------------------------------------------------------------------------------

While our software subscription agreements typically contain limitations and disclaimers that should limit our liability for damages
related to defects in our software, such limitations and disclaimers may not be upheld by a court or other tribunal or otherwise protect us from such claims.



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If we fail to manage our datacenter operations satisfactorily, our existing customers may experience
service outages and data loss, and our new customers may experience delays in the deployment of our solution.

Our hosting
infrastructure is a critical part of our business operations. Our customers access our solutions through a standard web browser via the internet and depend on us to enable fast and reliable access to our applications. We have experienced, and may in
the future experience, disruptions within our hosting infrastructure, some of which have been significant, which have prevented customers from using our solutions from time to time. Factors that may cause such disruptions include:



| |  |  | software errors or defects;
| | - |  | ---------------------------



| |  |  | equipment failures or defects;
| | - |  | ------------------------------



| |  |  | human error;
| | - |  | ------------



| |  |  | physical or electronic security breaches;
| | - |  | -----------------------------------------



| |  |  | telecommunications outages from third-party providers;
| | - |  | ------------------------------------------------------



| |  |  | computer viruses or other malicious code;
| | - |  | -----------------------------------------



| |  |  | acts of terrorism or sabotage;
| | - |  | ------------------------------



| |  |  | fire, earthquake, flood and other natural disasters; and
| | - |  | --------------------------------------------------------



| |  |  | power loss.
| | - |  | -----------

Although we back up customer data stored on our systems at least daily our infrastructure does not currently include real-time, or near
real-time, mirroring of data storage and production capacity in more than one geographically distinct location. Thus, in the event of a physical disaster, or certain other failures of our computing infrastructure, customer data from recent
transactions may be permanently lost.

We have also experienced significant growth in the number of users, transactions, and
data that our hosting infrastructure supports. Failure to address the increasing demands on our hosting infrastructure satisfactorily may result in service outages, delays or disruptions. We seek to maintain sufficient excess capacity in our hosting
infrastructure to meet the needs of all of our customers. We also maintain excess capacity to facilitate the rapid provisioning of new customer deployments and expansion of existing customer deployments. The development of new hosting infrastructure
to keep pace with expanding storage and processing requirements could be a significant cost to us that we are not able to predict accurately and for which we are not able to budget significantly in advance. Such outlays could raise our cost of goods
sold and be detrimental to our financial results. At the same time, the development of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, our existing customers may
experience service outages that may subject us to financial penalties, financial liabilities and the loss of customers. If our hosting infrastructure capacity fails to keep pace with sales, customers may experience delays as we seek to obtain
additional capacity, which could harm our reputation and adversely affect our revenue growth.

We currently deliver our Taleo
Enterprise solutions from datacenters in which we have purchased cage space, electrical power and internet bandwidth. We currently deliver our Taleo Business Edition solutions from datacenters operated via managed services arrangements through which
the datacenter provider provides electrical power, hardware, and internet bandwidth. We deliver our Talent Grid solutions via similar managed services arrangements with third parties. We do not control the operation of any of the datacenter
facilities mentioned above and must rely on our vendors to provide the physical security, facilities management and communications infrastructure services to ensure the reliable and consistent delivery of our solutions to our customers. Although we
believe we would be able to enter into a similar relationship with another third party should one of these relationships fail or terminate for any reason, we believe our reliance on any third-party vendor exposes us to risks outside of our control.
If these third-party vendors encounter financial difficulty such



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as bankruptcy or other events beyond our control that cause them to fail to secure adequately and maintain their hosting facilities or provide the required data communications capacity, our
customers may experience interruptions in our service or the loss or theft of important customer data.

We may in the future
consolidate certain of our data centers with our other existing data centers, or move certain data center operations to new facilities. For example, we recently consolidated our U.S. production data center operations for our Taleo Enterprise
solution into a new facility in the Chicago, Illinois area. When we consolidated these data center operations, we relocated existing hardware, purchased new hardware, and migrated all of our Taleo Enterprise customers proprietary information
and their users personal information. Although we take reasonable precautions designed to mitigate the risks of such a move, such transitions create increased risk of service disruptions, outages and the theft or loss of important customer and
user data that could harm our reputation, subject us to financial liability, and adversely affect our revenue and earnings. We may also elect to open computing and communications hardware operations at additional third-party facilities located in
the United States, Europe or other regions. We are not experienced at operating such facilities in jurisdictions outside the United States and doing so may pose additional risk to us.

If, as a result of our datacenter operations, our customers experience service interruptions or the loss or theft of their data caused by
us, we may be required to issue credits pursuant to the terms of our contracts and may also be subject to financial liability or customer losses. Such credits could reduce our revenues below the levels that we have indicated we expect to achieve and
adversely affect our margins and operating results.

Our insurance policies may not adequately compensate us for any losses
that may occur due to any failures or interruptions in our systems.

The consolidation or acquisition of our competitors or other similar
strategic alliances or changes in product offerings could weaken our competitive position or reduce our revenue.

There has
been vendor consolidation in the market in which we operate and we believe such consolidation is likely to continue. There may also be consolidation by one or more vendors with respect to the product sets currently offered by distinct talent
management and human resource software vendors. Additional consolidation within our industry may change the competitive landscape in ways that adversely affect our ability to compete effectively.

Our competitors may also establish or strengthen cooperative relationships with our current or future BPO partners, HRO partners, systems
integrators, third-party consulting firms or other parties with whom we have relationships, thereby limiting our ability to promote our products and limiting the number of consultants available to implement our solutions. Disruptions in our business
caused by these events could reduce our revenue.

We must hire and retain key employees and recruit qualified personnel or our future
success and business could be harmed.

Our success depends on the continued employment of our senior management and other
key employees, such as our chief executive officer and our chief financial officer, and on our ability to attract and hire qualified senior management and executives. If we lose the services of one or more of our senior management or key employees,
or if one or more of them decides to join a competitor or otherwise to compete with us, our business could be harmed. We do not maintain key person life insurance on any of our executive officers.

Additionally, our continued success depends, in part, on our ability to attract and retain qualified personnel in the software design and
development, sales, and other functions of the business. In certain of the jurisdictions in which we operate the talent pool for such qualified personnel may be limited and we may find it difficult to attract and retain qualified personnel. For
instance, a significant portion of our software development function is



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conducted in Quebec City, a relatively limited labor market. Additionally, we may find it difficult or more costly to attract and retain qualified personnel in alternative jurisdictions in which
the talent pool is less limited, or the personnel we hire in such jurisdictions may be less effective than we expect. It may also be particularly challenging to retain employees as we integrate newly acquired entities due to uncertainty among
employees regarding their career options and cultural differences between us and the newly acquired entities.

We may lose sales
opportunities if we do not successfully develop and maintain strategic relationships to sell and deliver our solutions.

We
have partnered with a number of BPO and HRO providers that resell our solutions as a component of their outsourced human resource services and we intend to partner with more BPOs and HROs in the future. If customers or potential customers begin to
outsource their talent management functions to BPOs or HROs that do not resell our solutions, or to BPOs or HROs that choose to develop their own solutions, our business will be harmed. In addition, we have relationships with third-party consulting
firms, system integrators and software and service vendors who provide us with customer referrals, integrate their complementary products with ours, cooperate with us in marketing our products and provide our customers with system implementation or
other consulting services. If we fail to establish new strategic relationships or expand our existing relationships, or should any of these partners fail to work effectively with us or go out of business, our ability to sell our products into new
markets and to increase our penetration into existing markets may be impaired.

A portion of our revenue is generated by sales to
government entities, which are subject to a number of challenges and risks.

Sales to U.S. and foreign federal, state and
local governmental agency end-customers have accounted for a small portion of our revenue, and we may in the future increase sales to government entities. Sales into government entities are subject to a number of risks. Selling to government
entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully sell our products and services to such governmental entity. Government entities
may require contract terms that differ from our standard arrangements. In addition, government demand and payment for our products may be affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays
adversely affecting public sector demand for our products. Some of our sales to government entities have been made indirectly through third-party prime contractors that resell our solutions. Government entities may have contractual or other
legal rights to terminate contracts with our resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations.

Additionally, governments routinely audit and investigate government contractors, and we may be subject to such audits and investigations. For example, we have been subject
to government contract audits in the past and we are currently responding to subpoenas from the Department of Homeland Securitys inspector generals office relating to our commercial pricing for the Transportation Security
Administration, a government entity that accessed our services through a third party prime contractor. As a result of an audit or investigation, we may be subject to civil or criminal penalties and administrative sanctions, including
termination of contracts, forfeiture or refund of profits or certain fees collected, suspension of payments, fines, and suspension or prohibition from doing business with the government entity. In addition, we could suffer serious reputational harm
if allegations of impropriety are made against us.

If we are required to reduce our prices to compete successfully, our margins and
operating results could be adversely affected.

The intensely competitive market in which we do business may require us to
reduce our prices. If our competitors offer discounts on certain products or services, we may be required to lower prices or offer our solutions on less favorable terms to compete successfully. Some of our larger competitors have significantly
greater resources than we have and are better able to absorb short-term losses. Any such changes would likely



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reduce our margins and could adversely affect our operating results. Some of our competitors may provide bundled product offerings that compete with ours for promotional purposes or as a
long-term pricing strategy. These practices could, over time, limit the prices that we can charge for our products or services. If we cannot offset price reductions with a corresponding increase in the quantity of applications sold, our margins and
operating results would be adversely affected.

We currently derive a significant portion of our revenue from international operations and
expect to expand our international operations. However, we do not have substantial experience in international markets, and may not achieve the expected results.

During the year ended December 31, 2010, application revenue generated outside of the United States was 17% of total application revenue, based on the location of the legal entity of the customer
with which we contracted. Of the application revenue generated outside the United States, 5% was generated in Canada. We conduct research and development in Quebec, Canada as well as other international locations. We currently have international
offices outside of North America in Australia, France, the Netherlands, and the United Kingdom, which focus primarily on selling and implementing our solutions in those regions. In the future, we may expand to other international locations. Our
current international operations and future initiatives will involve a variety of risks, including:



| |  |  | potentially degrading general economic conditions and credit environments in Europe and elsewhere;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | differing regulations in Quebec, Canada with regard to maintaining operations, products and public information in both French and English;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | differing labor and employment regulations, especially in the European Union and Quebec, Canada where labor laws are generally more advantageous to
employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations and employee termination restrictions or related costs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | more stringent regulations relating to data privacy and the unauthorized use of, or access to, commercial and personal information, particularly in
Europe and Canada;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reluctance to allow personally identifiable data related to non-U.S. citizens to be stored in databases within the United States, due to concerns over
the United States governments right to access personally identifiable data of non-U.S. citizens stored in databases within the United States or other concerns;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | greater difficulty in supporting and localizing our products;
| | - |  | -------------------------------------------------------------



| |  |  | greater difficulty in localizing our marketing materials and legal agreements, including translations of these materials into local language;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in a specific countrys or regions political or economic conditions;
| | - |  | -----------------------------------------------------------------------------



| |  |  | challenges inherent in efficiently managing an increased number of employees or independent contractors over large geographic distances, including the
need to implement appropriate systems, policies, benefits and compliance programs;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limited or unfavorable intellectual property protection; and
| | - |  | ------------------------------------------------------------



| |  |  | restrictions on repatriation of earnings.
| | - |  | -----------------------------------------

If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.



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Fluctuations in the exchange rate of foreign currencies could result in currency transaction losses,
which could harm our operating results and financial condition.

We currently have foreign sales denominated in foreign
currencies, including the Australian dollar, British pound sterling, Canadian dollar and the euro, and may in the future have sales denominated in the currencies of additional countries. We also incur a substantial portion of our operating expenses
in Canadian dollars and, to a much lesser extent, other foreign currencies. Any fluctuation in the exchange rate of these foreign currencies may positively or negatively affect our business, financial condition and operating results. For instance,
in 2010, the impact of changes in foreign currency exchange rates compared to the average rates in effect during 2009 was a $2.1 million gain. In 2011, the volatility in exchange rates for foreign currencies has continued and may continue and, as a
result, we may continue to see fluctuations in our revenue and expenses, which may impact our operating results. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure, we may not be able to
hedge effectively due to lack of experience, unreasonable costs or illiquid markets.

If we fail to defend our proprietary rights
aggressively, our competitive advantage could be impaired and we may lose valuable assets, experience reduced revenue, and incur costly litigation fees to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of copyrights, trademarks, service
marks, trade secret laws, and contractual restrictions to establish and protect our proprietary rights in our products and services. We do not significantly rely on patent registrations to protect our intellectual property. We will not be able to
protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use
information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our licensed products may be unenforceable under the
laws of certain jurisdictions and foreign countries in which we operate. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities,
our exposure to unauthorized copying and use of our products and proprietary information may increase. We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements
with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further,
these agreements do not prevent our competitors from developing technologies independently that are substantially equivalent or superior to our products. Initiating legal action has been and may continue to be necessary in the future to enforce our
intellectual property rights. Litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management resources, either of which could seriously harm our business.

Current and future litigation against us could be costly and time consuming to defend.

We are sometimes subject to legal proceedings and claims that arise in the course of business. For example, we are currently defendant in
a suit alleging patent infringement which is described in more detail in Note 11 of the Notes to Condensed Consolidated Financial Statements. Litigation may result in substantial costs, including lengthened or discontinued sales cycles due to
concerns of existing or prospective customers with respect to litigation, and may divert managements attention and resources, which may seriously harm our business, overall financial condition, and operating results. In addition, legal claims
that have not yet been asserted against us may be asserted in the future. See Note 11 of the Notes to Condensed Consolidated Financial Statements, for further information regarding pending and threatened litigation and potential claims.



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Our results of operations may be adversely affected if we are subject to a protracted infringement claim
or a claim that results in a significant award for damages.

Software product developers such as us may continue to receive
infringement claims as the number of products and competitors in our space grows and the functionality of products in different industry segments overlaps. For example, Kenexa, a competitor, filed suit against us for patent infringement in August
2007. Additionally, in the first half of 2010, we became aware that Taleo customers had been contacted by an intellectual property licensing firm asserting that a usability feature of the Taleo software was subject to patents held by the
intellectual property licensing firm, and we are in discussions with the patent holder with respect to these assertions. Other infringement claims have been threatened against us. We can give no assurance that such claims will not be filed in the
future. Our competitors or other third parties may also challenge the validity or scope of our intellectual property rights. A claim may also be made relating to technology that we acquire or license from third parties. If we were subject to a claim
of infringement, regardless of the merit of the claim or our defenses, the claim could:



| |  |  | require costly litigation to resolve and the payment of substantial damages;
| | - |  | ----------------------------------------------------------------------------



| |  |  | require significant management time;
| | - |  | ------------------------------------



| |  |  | cause us to enter into unfavorable royalty or license agreements;
| | - |  | -----------------------------------------------------------------



| |  |  | require us to discontinue the sale of our products;
| | - |  | ---------------------------------------------------



| |  |  | damage our relationship with existing or prospective customers and disrupt our sales cycles;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | require us to indemnify our customers or third-party service providers; or
| | - |  | --------------------------------------------------------------------------



| |  |  | require us to expend additional development resources to redesign our products.
| | - |  | -------------------------------------------------------------------------------

We entered into standard indemnification agreements in the ordinary course of business and may be required to indemnify our customers for
our own products and third-party products that are incorporated into our products and that infringe the intellectual property rights of others. Although many of the third parties from which we purchase are obligated to indemnify us if their products
infringe the rights of others, this indemnification may not be adequate.

Our insurance policies will not compensate us for
any losses or liabilities resulting from patent infringement claims.

We use open source software in our products, which could subject us to
litigation or other actions.

We use open source software in our products and may use more open source software in the
future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership
of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our
products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software
products. If we inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products or take other remedial actions.

We employ technology licensed from third parties for use in or with our solutions, and the loss or inability to maintain these licenses or errors in the software we license could result in increased
costs, or reduced service levels, which would adversely affect our business.

Our hosted solutions incorporate certain
technology obtained under licenses from other companies, such as Oracle for database software. We anticipate that we will continue to license technology and development tools



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from third parties in the future. Although we believe that there are commercially reasonable software alternatives to the third-party software we currently license, this may not always be the
case, or we may license third-party software that is more difficult or costly to replace than the third party software we currently license. In addition, integration of our products with new third-party software may require significant work and
require substantial allocation of our time and resources. Also, to the extent that our products depend upon the successful operation of third-party products in conjunction with our products, any undetected errors in these third-party products could
prevent the implementation or impair the functionality of our products, delay new product introductions and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third
parties, which could result in higher costs.

Difficulties that we may encounter in managing changes in the size of our business could
affect our operating results adversely.

In order to manage our business effectively, we must continually manage headcount
in an efficient manner. In the past, we have undergone facilities consolidations and headcount reductions in certain locations and departments. As a result, we have incurred, and may incur, charges for employee severance. We may experience
additional facilities consolidations and headcount reductions in the future. As many employees are located in jurisdictions outside of the United States, we are required to pay the severance amounts legally required in such jurisdictions, which may
exceed those of the United States. Further, we believe reductions in our workforce and facility consolidation create anxiety and uncertainty, and may adversely affect employee morale.

These measures could adversely affect our employees that we wish to retain and may also adversely affect our ability to hire new
personnel. They may also negatively affect customers.

Failure to manage our customer deployments effectively could increase our expenses
and cause customer dissatisfaction.

Enterprise deployments of our products require a substantial understanding of our
customers businesses, and the resulting configuration of our solutions to their business processes and integration with their existing systems. We may encounter difficulties in managing the timeliness of these deployments and the allocation of
personnel and resources by us or our customers. In certain situations, we also work with third-party service providers in the implementation or software integration-related services of our solutions, and we may experience difficulties in managing
such third parties. Failure to manage customer implementation or software integration-related services successfully by us or our third-party service providers could harm our reputation and cause us to lose existing customers, face potential customer
disputes or limit the rate at which new customers purchase our solutions.

Our ability to conclude that a control deficiency is not a
material weakness or that an accounting error does not require a restatement can be affected by a number of factors, including our level of pre-tax income.

Under the Sarbanes-Oxley Act of 2002, our management is required to assess the impact of control deficiencies based upon both quantitative and qualitative factors, and depending upon that analysis we
classify such identified deficiencies as either a control deficiency, significant deficiency or a material weakness.

One
element of our analysis of the significance of any control deficiency is its actual or potential financial impact. This assessment will vary depending on our level of pre-tax income or loss. For example, a smaller pre-tax income or loss will
increase the likelihood of a quantitative assessment of a control deficiency as a significant deficiency or material weakness.

Because our pre-tax income (loss) is relatively small, if management or our independent registered public accounting firm identify an
error in our interim or annual financial statements, it is more likely that such an error



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may be determined to be a material weakness or may meet the quantitative threshold established under Staff Accounting Bulletin No. 99, Materiality, that could, depending upon the
complete quantitative and qualitative analysis, result in our having to restate previously issued financial statements.

Our reported
financial results may be adversely affected by changes in generally accepted accounting principles or changes in our operating history that impact the application of generally accepted accounting principles.

Accounting principles generally accepted in the United States, or GAAP, are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the SEC, the American Institute of Certified Public Accountants, or AICPA, the Public Company Accounting Oversight Board and various other organizations formed to promulgate and interpret accounting principles. A change in
these principles or interpretations could have a significant effect on our historical or future financial results.

The
application of GAAP to our operations may also require significant judgment and interpretation as to the appropriate treatment of a specific issue. These judgments and interpretations are complicated by the relative newness of the on-demand,
vendor-hosted software business model, also called software-as-a-service, or SaaS, and the relative lack of interpretive guidance with respect to the application of GAAP to the SaaS model. For example in October 2009, the FASB issued accounting
guidance related to the recognition of multiple element arrangements, which superseded the guidance used during 2009. The new guidance, which we adopted as of January 1, 2010, will generally require us to recognize the majority of consulting
services revenue from multiple element arrangements as the consulting services are delivered for arrangements we have entered into after January 1, 2010. We cannot ensure that our interpretations and judgments with respect to the application of
GAAP will be correct in the future and any incorrect interpretations and judgments could adversely affect our business.

If benefits
currently available under the tax laws of Canada, the province of Quebec and other jurisdictions are reduced or repealed, or if we have taken an incorrect position with respect to tax matters under discussion with the Canadian Revenue Agency or
other domestic or foreign taxing authorities, our business could suffer.

The majority of our research and development
activities are conducted through our Canadian subsidiary, Taleo (Canada) Inc. We participate in a provincial government program in Quebec that provides refundable investment tax credits based upon qualifying research and development expenditures.
These expenditures primarily consist of the salaries for the persons conducting research and development activities. We have participated in the program since 1999, and expect that we will continue to receive these refundable investment tax credits
through December 2010. In 2009 and 2010, we recorded, respectively, a $2.4 million and $2.8 million reduction in our research and development expenses as a result of this program. This particular refundable investment tax credit program in Quebec
has been eliminated for 2011 and beyond. We have applied for an alternative provincial investment tax credit program that will replace the expiring December 2010 Quebec program and our application is under review by the Quebec revenue authorities.
It is uncertain whether we will qualify under this new program, and if we do qualify, the total amount of refundable tax credits we will receive is uncertain. If we are unsuccessful in qualifying for this alternative provincial tax credit program
our financial condition and operating results may be adversely affected.

In addition to the provincial research and
development refundable investment tax credit program described above, our Canadian subsidiary is participating in a scientific research and experimental development, or SRED, program administered by the Canadian federal government that provides
income tax credits based upon qualifying research and development expenditures. For tax years 2009 and 2010, we recorded an estimated SRED credit claim of approximately $1.0 million and $1.1 million respectively. Our Canadian subsidiary is eligible
to remain in the SRED program for future tax years as long as its development projects continue to qualify. These Canadian federal SRED tax credits can only be applied to offset Canadian federal taxes payable



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and are reported as a credit to our tax provision to the extent they reduce taxes payable to zero with any residual benefits recorded as a net deferred tax asset. We believe that our Canadian
subsidiary is in compliance with these government programs and that all amounts recorded will be fully realized. If these SRED investment tax credits are reduced or disallowed by the federal Canada Revenue Agency (CRA), our financial
condition and operating results may be adversely affected.

In December 2008, we were notified by the CRA of their intention
to audit tax years 2002 through 2007. To date, CRA has issued assessment notices for tax years 2002 and 2003 seeking increases to taxable income of CAD $3.8 million and CAD $6.9 million, respectively. In December of 2010, we received a proposal
letter from CRA with regards to tax year 2004, detailing their initial proposal of increasing taxable income of CAD $7.2 million. These adjustments relate, principally, to our treatment of Canadian Development Technology Incentives
(CDTI) tax credits and income and expense allocations recorded between us and our Canadian subsidiary. We disagree with the CRAs basis for these adjustments and have appealed their assessments through applicable administrative and
judicial procedures.

There could be significant changes to unrecognized tax benefits over the next twelve months depending on
the outcome of any tax audit. We have recorded income tax reserves believed to be sufficient to cover any potential tax assessments for the open tax years. In the event the CRA audit results in adjustments that exceed our recorded tax reserves, we
may have to accrue additional tax expense, and to the extent the CRA audit results in adjustments that exceed both our tax reserves and our available deferred tax assets, we may be required to accrue and pay additional tax, penalties and interest,
the amount of which cannot be reasonably estimated at this time.

We have sought U.S. tax treaty relief through the
appropriate Competent Authority tribunals for the 2002 and 2003 assessments received by the CRA, and have indicated our intent to do so for 2004 when CRA issues their final assessment. Although we believe we have reasonable basis for our tax
positions, it is possible an adverse outcome could have a material effect upon our financial condition, operating results or cash flows in a particular quarter or annual period.

As we continue to expand domestically and internationally, we are increasingly subject to reviews by various U.S. and foreign taxing
authorities the outcomes of which could negatively impact our financial results. While we have reserved for these uncertainties and do not expect the outcomes of these reviews to be material to our operations, our current assessment as to the
potential financial impact of these reviews could prove incorrect and we may incur additional income tax expense in the period the uncertainty is resolved.

We are currently under review by the province of Quebec regarding the application of the contribution to the Fonds des services de santé (FSS), pursuant to the Act
respecting the Régie de lassurance maladie du Québec with respect to the stock option benefits derived by Taleo Canada employees participating in the Taleo Corporation stock option plan. We
disagree with the conclusion that we are subject to the contribution requirements. We have received proposed assessments that we continue to discuss and reconcile with representatives of the Quebec government and have received a final
assessment for 2006. We plan to formally object to this assessment and any future final assessments. Based upon a recent court ruling in Quebec that was adverse to a taxpayer in a fact scenario similar to ours, we have recorded a reserve
for a potential contribution liability. We believe our reserve recorded is sufficient to cover any potential final assessments for the open years. In the event the audit results in adjustments that exceed our recorded reserve, we may have to accrue
additional liabilities which could have a material adverse impact on our operating results.

Our reported financial results may be
adversely affected by changes in tax laws or changes in the application of tax laws.

Changes in applicable tax laws
and regulations, and the related rulings, interpretations, and developments can affect our overall effective income tax rate. For instance, we have historically applied existing and available net operating loss carryforward balances to reduce our
income tax liabilities in various taxing jurisdictions. In



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2008 and 2009, the State of California suspended the ability of corporations to apply net operating losses to reduce taxable income in these years. In October 2010, the State of California
suspended the use of net operating losses for California income tax purposes for our tax years ended December 31, 2010 and December 31, 2011. In addition, Illinois has suspended the use of net operating losses for Illinois income tax purposes for
our tax years ending December 31, 2011 through December 31, 2014. If additional states curtail the use of net operating losses, our tax expense may increase. Furthermore, as we expand our international operations, complete acquisitions, develop new
products and new distribution models, implement changes to our operating structure or undertake intercompany transactions, changes in tax laws may result in an increase to our tax expense.

An adverse determination with respect to our application of tax laws may negatively impact our tax rates and financial results.

We are subject to income taxes in the United States and in various foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes, and, in the ordinary course of our business, there are many transactions where the ultimate tax determination is uncertain.

Although we believe our tax estimates are reasonable, the estimation process and interpretations of applicable laws are
inherently uncertain, and our estimates are not binding on tax authorities. The tax laws treatment of software and internet-based transactions is particularly uncertain and in some cases currently applicable tax laws are ill-suited to
address these kinds of transactions. For instance, the application of U.S. state and local sales/use tax laws to our business model is not uniform across all state taxing jurisdictions with some jurisdictions addressing the taxability of our
revenue streams through statutes, regulations and public rulings, other jurisdictions taking positions through unpublished private rulings, while still others are silent. We believe we have appropriately reserved for any potential uncollected
sales/use taxes; however, our interpretations are not binding on tax authorities and the outcome of any future audit is uncertain and could have a material impact on our operations.

In the ordinary course of a global business, there are many intercompany transactions where the ultimate tax determination is
uncertain. Although we believe we are in compliance with transfer pricing laws and regulations in all jurisdictions in which we conduct business, there is no assurance that the final determination of any tax audits or tax
disputes will not be different from what is reflected in our historical income tax provisions and accruals. The ultimate resolution of these issues may take extended periods of time due to examinations by tax authorities and statutes of
limitations.

Evolving regulation of the Internet or changes in the infrastructure underlying the Internet may adversely affect our
financial condition by increasing our expenditures and causing customer dissatisfaction.

As Internet commerce continues to
evolve, increasing regulation by federal, state or foreign agencies may become more likely. We are particularly sensitive to these risks because the Internet is a critical component of our business model. For example, we believe increased regulation
is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our customers ability to use and share data, potentially reducing
demand for solutions accessed via the Internet and restricting our ability to store, process and share data with our customers via the Internet. In addition, taxation of services provided over the Internet or other charges imposed by government
agencies or by private organizations for accessing the Internet may also be imposed. Legislation has been proposed, from time to time, that may impact the way that internet service providers treat Internet traffic. The outcome of such proposals is
uncertain but certain outcomes may negatively impact our business or increase our operating costs. Any regulation imposing greater fees for internet use or restricting information exchange over the Internet could result in a decline in the use of
the Internet and the viability of internet-based services, which could harm our business.

The rapid and continual growth of
traffic on the Internet has resulted at times in slow connection and download speeds among Internet users. Our business expansion may be harmed if the Internet infrastructure



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cannot handle our customers demands or if hosting capacity becomes insufficient. If our customers become frustrated with the speed at which they can utilize our software over the Internet,
our customers may discontinue use of our products and choose not to renew their contract with us.

Our stock price is likely to be volatile
and could decline.

The stock market in general and the market for technology-related stocks in particular have been highly
volatile. As a result, the market price of our stock is likely to be similarly volatile, and investors in our stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects. The
price of our stock could be subject to wide fluctuations in response to a number of factors, including those listed in this Risk Factors section and others such as:



| |  |  | our operating performance and the performance of other similar companies;
| | - |  | -------------------------------------------------------------------------



| |  |  | overall performance of the equity markets;
| | - |  | ------------------------------------------



| |  |  | developments with respect to intellectual property rights;
| | - |  | ----------------------------------------------------------



| |  |  | publication of unfavorable research reports about us or our industry or withdrawal of research;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | coverage by securities analysts or lack of coverage by securities analysts;
| | - |  | ---------------------------------------------------------------------------



| |  |  | speculation in the press or investment community;
| | - |  | -------------------------------------------------



| |  |  | general economic conditions and data and the impact of such conditions and data on the equity markets;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | terrorist acts; and
| | - |  | -------------------



| |  |  | announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital
commitments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

We may need to raise additional capital, which may not be available, thereby adversely affecting our
ability to operate our business.

If we need to raise additional funds due to unforeseen circumstances, we cannot be
certain that we will be able to obtain additional financing on favorable terms, if at all, and any additional financings could result in additional dilution to our stockholders. If we need additional capital and cannot raise it on acceptable terms,
we may not be able to meet our business objectives, our stock price may fall and you may lose some or all of your investment.

If
securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts
cover our company, the trading price for our stock would be negatively impacted. If one or more of the analysts who covers us downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely
decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

Provisions in our charter documents and Delaware law may delay or prevent a third party from acquiring us.

Our certificate of incorporation and bylaws contain provisions that could increase the difficulty for a third party to acquire us without
the consent of our board of directors. For example, if a potential acquirer were to make a hostile bid for us, the acquirer would not be able to call a special meeting of stockholders to remove our



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board of directors or act by written consent without a meeting. In addition, our board of directors has staggered terms, which means that replacing a majority of our directors would require at
least two annual meetings. The acquirer would also be required to provide advance notice of its proposal to replace directors at any annual meeting, and will not be able to cumulate votes at a meeting, which will require the acquirer to hold more
shares to gain representation on the board of directors than if cumulative voting were permitted.

Our board of directors also
has the ability to issue preferred stock that could significantly dilute the ownership of a hostile acquirer. In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% or greater
stockholders that have not been approved by the board of directors. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the offer may be
considered beneficial by some stockholders.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not applicable.



|ITEM 2. | PROPERTIES
|------- | ----------

We believe
that our current offices and facilities are adequate to meet our requirements for the foreseeable future.

Our executive
offices and principal office for domestic marketing, sales, professional services and development occupy approximately 47,500 square feet in Dublin, California under a lease that expires in June 2013. We lease approximately 41,000 square feet of
space in Quebec City, Canada where we primarily perform product development, production, and customer support activities. We lease additional offices for sales, account management and support activities in the United States, including offices in
Jacksonville, Florida, Naperville, Illinois and Petaluma, California. We also lease offices for our sales and services personnel in London, United Kingdom, Melbourne and Sydney, Australia and Paris, France.

In connection with our acquisition of Learn.com, we assumed the lease of approximately 20,500 square feet of office space in Sunrise,
Florida and approximately 5,000 square feet of office space in Redwood Shores, California. The facility in Sunrise, Florida, which at the time of the acquisition was Learn.coms principal office, is used for customer training and other
general operations, while the facility in Redwood Shores, California, is used for customer training and other general operations.

We also operate data centers in the U.S. and Europe pursuant to various lease agreements and co-location arrangements.

We believe that our existing facilities and offices are adequate to meet our current requirements. If we require additional space, we believe that we will be able to obtain such space on acceptable,
commercially reasonable terms.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

Kenexa Litigations Kenexa BrassRing, Inc., (Kenexa) filed suit against us in the United States
District Court for the District of Delaware on August 27, 2007. Kenexa alleges that we infringed Patent Nos. 5,999,939 and 6,996,561, and seeks monetary damages and an order enjoining us from further infringement. We answered Kenexas
complaint on January 28, 2008. On May 9, 2008, Kenexa filed a similar lawsuit against Vurv Technology, Inc. (now known as Vurv Technology LLC) (Vurv) in the United States District Court for the District of Delaware, alleging
that Vurv has infringed Patent Nos. 5,999,939 and 6,996,561, and seeking



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monetary damages and an order enjoining further infringement. Vurv answered Kenexas complaint on May 29, 2008. We acquired Vurv on July 1, 2008. We have reviewed these matters and
believe that neither our nor Vurvs software products infringe any valid and enforceable claim of the asserted patents. We have engaged in settlement discussions with Kenexa, but no settlement agreement has been reached. Litigation is ongoing
with respect to these matters, and both parties have filed summary judgment motions. Trial scheduled for the week of December 6, 2010, was postponed and rescheduled to begin on June 27, 2011.

On June 30, 2008, we filed a reexamination request with the United States Patent and Trademark Office (USPTO), seeking
reconsideration of the validity of Patent No. 6,996,561 based on prior art that we presented with our reexamination request. Finding that our reexamination request raised a substantial new question of patentability, the USPTO
ordered reexamination of Patent No. 6,996,561 on September 5, 2008. On November 13, 2008, the USPTO issued an office action rejecting all of the claims of Patent No. 6,996,561 because they are either anticipated by or
unpatentable over the prior art. After comments by both parties to the reexamination, on June 4, 2009 the USPTO issued a subsequent action standing by its determination that certain claims of Patent No. 6,996,561 are unpatentable, but
indicating patentability of other claims. Both parties have since provided additional comments on this subsequent action and both parties have since filed appeals to elements of the reexamination to the USPTOs Board of Patent Appeals and
Interferences. The USPTO Board of Patent Appeals and Interferences has set an oral hearing for April 6, 2011. Accordingly, the USPTOs reexamination of Patent No. 6,996,561 is ongoing.

In a separate action filed on June 25, 2008 in the United States District Court for the District of Delaware, Kenexas parent,
Kenexa Technology, Inc. (Kenexa Technology), asserted claims against us for tortious interference with contract, unfair competition, unfair trade practices, and unjust enrichment arising from our refusal to allow Kenexa Technology
employees to access and use our proprietary applications to provide outsourcing services to a customer. Kenexa Technology seeks monetary damages and injunctive relief. We answered Kenexa Technologys complaint on July 23, 2008. On
October 16, 2008, we amended our answer and filed counterclaims against Kenexa Technology, alleging copyright infringement, misappropriation of trade secrets, interference with contractual relations, and unfair competition arising from Kenexa
Technologys unauthorized access and use of our products in the course of providing outsourcing services to its customers. We sought declaratory judgment, monetary damages, and injunctive relief. We filed a motion to dismiss Kenexa
Technologys claims on July 21, 2009 and a motion for preliminary injunction to enjoin Kenexa Technology employees from accessing its solutions deployed at joint customers of both companies on July 22, 2009. These motions are pending
before the Court. In addition, Kenexa has joined the litigation, and claims similar to those discussed above have been asserted against and by Kenexa. This matter is ongoing.

On November 7, 2008, Vurv sued Kenexa, Kenexa Technology, and two of Vurvs former employees (who now work for Kenexa and/or
Kenexa Technology) in the United States District Court for the Northern District of Georgia. In this action, Vurv asserts claims for breach of contract, computer theft, misappropriation of trade secrets, tortious interference, computer fraud and
abuse, and civil conspiracy. The defendants answered Vurvs complaint on December 12, 2008 without asserting any counterclaims. This matter is ongoing.

On July 17, 2009, Kenexa and Kenexa Recruiter (together, the Kenexa Plaintiffs) filed suit against us, a current employee of our and a former employee of ours in Massachusetts
Superior Court (Middlesex County). The Kenexa Plaintiffs amended the complaint on August 27, 2009 and added Vurv Technology LLC, two of our former employees and two of our current employees. The Kenexa Plaintiffs assert claims for
breach of contract and the implied covenant of good faith and fair dealing, unfair trade practices, computer theft, misappropriation of trade secrets, tortious interference, unfair competition, unjust enrichment, computer fraud and
abuse. Vurv removed the complaint to the United States District Court for the District of Massachusetts and we and Vurv, along with two other defendants, answered the complaint on October 5, 2009. Additionally, four other defendants
(our current and former employees) moved to dismiss for lack of jurisdiction on October 5 and October 26, 2009. The Court dismissed the case for lack of personal jurisdiction as to two individual defendants. It denied the
motion with respect to the two other individual defendants. The matter is ongoing.



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Other Matters In addition to the matters described above, we are
subject to various claims and legal proceedings that arise in the ordinary course of our business from time to time, including claims and legal proceedings that have been asserted against us by customers, former employees and advisors and
competitors. We are also subject to legal proceedings or discussions that may result in litigation, settlements or other liabilities in the future. For instance: (1) we have received and are currently responding to a subpoenas from
the Department of Homeland Securitys inspector generals office relating to our commercial pricing for the Transportation Security Administration, a government entity that accessed our services through a third party prime contractor,
and as a result of this inquiry, we may be subject to penalties, sanctions, or other damages, including forfeiture or refund of profits or certain fees collected, fines and suspension or prohibition from doing business with the involved government
entity; (2) in the first half of 2010, we became aware that certain Taleo customers had been contacted by an intellectual property licensing firm asserting that a usability feature of the Taleo software was subject to patents held by the
intellectual property licensing firm, and we are in discussions with the patent holder with respect to these assertions; (3) we were recently notified of a potential collective and/or class action claim under federal and state wage and hour
laws with respect to a portion of our employee population, and we are in discussions with the potential claimants with respect to these assertions; and (4) we were recently notified by a former customer that the former customer intends to seek
indemnification from us with respect to costs arising from an alleged data privacy breach involving the Vurv product that we acquired in 2008. Taleo is currently awaiting more information about this potential claim from the former customer.

We accrue for estimated losses in the accompanying consolidated financial statements for matters with respect to which we
believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. Based on currently available information, we do not believe that the ultimate outcome of these unresolved matters, individually or in
the aggregate, is likely to have a material adverse effect on our financial position, results of operations or cash flows. However litigation is subject to inherent uncertainties and our view on these matters may change in the future. Were an
unfavorable outcome to occur in any one or more of those matters or the matters described above, over and above the amount, if any, that has been estimated and accrued in the our consolidated financial statements, it could have a material adverse
effect on our business, financial condition, results of operations and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.



|ITEM 4. | RESERVED
|------- | --------

None.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Our Class A common stock has been listed on the Nasdaq Global Market under the symbol TLEO since September 29, 2005.
Prior to that time, there was no public market for our Class A common stock. The following table sets forth the range of high and low sales prices on the Nasdaq Global Market of the Class A common stock for the periods indicated.



|                                     |  |      |       |  |     |   |       | 
|------------------------------------ |  | ---- | ----- |  | --- | - | ----- | 
|                                     |  | High |       |  | Low |  
|For the year ended December 31, 2010 |  |      |       |  |     |   |       | 
|Fourth quarter                       |  | $    | 32.66 |  |     | $ | 27.28 | 
|Third quarter                        |  |      | 30.43 |  |     |   | 23.05 | 
|Second quarter                       |  |      | 27.93 |  |     |   | 21.97 | 
|First quarter                        |  |      | 27.22 |  |     |   | 19.17 | 
|For the year ended December 31, 2009 |  |      |       |  |     |   |       | 
|Fourth quarter                       |  | $    | 23.86 |  |     | $ | 19.72 | 
|Third quarter                        |  |      | 22.65 |  |     |   | 16.39 | 
|Second quarter                       |  |      | 19.03 |  |     |   | 11.60 | 
|First quarter                        |  |      | 12.30 |  |     |   | 7.09  | 

As of
February 23, 2011, there were approximately 127 holders of record of our Class A common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholder, we are unable
to estimate the total number of stockholders represented by these record holders.

Issuer Purchases of Equity
Securities(1)



|                                           |  |                                |        |  |                    |   |       |                                                                            |  |  |                                                                                |  |  |  |   | 
|------------------------------------------ |  | ------------------------------ | ------ |  | ------------------ | - | ----- | -------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------ |  |  |  | - | 
|Period                                     |  | Total Numberof SharesPurchased |        |  | PricePaid perShare |   |       | Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlans
orPrograms |  |  | MaximumDollarValue of Sharesthat May YetBe Purchasedunder the Plansor
Programs | 
|October 1, 2010 through October 31, 2010   |  |                                | 22,697 |  |                    | $ | 29.57 | (2)                                                                        |  |  |                                                                               |  |  |  |  | 
|November 1, 2010 through November 30, 2010 |  |                                |       |  |                    |   |      |                                                                            |  |  |                                                                               |  |  |  |  | 
|December 1, 2010 through December 31, 2010 |  |                                |       |  |                    |   |      |                                                                            |  |  |                                                                               |  |  |  |  | 
|                                           |  |                                |        |  |                    |   |       |                                                                            |  |  |                                                                                |  |  |  |   | 
|                                           |  |                                | 22,697 |  |                    | $ | 29.57 | (2)                                                                        |  |  |                                                                               |  |  |  |  | 
|                                           |  |                                |        |  |                    |   |       |                                                                            |  |  |                                                                                |  |  |  |   | 



|(1) | In connection with our awards of restricted stock and/or performance shares, we repurchase common stock from employees as consideration for the payment of required
withholding taxes.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the price per share.
|--- | -------------------------------

Dividend Policy

We have never declared or paid any cash dividends on our Class A common stock. We currently expect to retain any future earnings for use in the operation and expansion of our business and do not
anticipate paying any cash dividends on our Class A common stock in the foreseeable future.



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Stock Performance Graph

The following graph shows a comparison from December 31, 2005 through December 31, 2010 of cumulative total return for
Taleos Class A common stock, the Nasdaq stock Market (U.S.) Index and the Nasdaq Computer and Data Processing Index. The graph assumes that $100 was invested on December 31, 2005 in Taleos Class A common stock and each of
the indices as noted below, including reinvestment of dividends. No dividends have been paid or declared on Taleos Class A common stock. Note that historic stock price performance is not necessarily indicative of future stock price
performance.

LOGO

Information used in the graph was obtained from Research Data Group Inc, a third party investment research
firm, a source believed to be reliable, but we are not responsible for any errors or omissions in such information.

The stock
performance graph shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by
reference into any filing of Taleo under the Securities Act of 1933, as amended, or the Exchange Act.



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|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The information below is derived from our consolidated financial statements and should be read in conjunction with Item 8.
Financial Statements and Supplementary Data and Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. The consolidated statement of operations data for each of the years ended
December 31, 2007 and 2006 and the consolidated balance sheet data as of December 31, 2008, 2007 and 2006 are derived from our consolidated financial statements which are not included in this report. Our historical results are not
necessarily indicative of results for any future period.



|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                                                                  |  | Year Ended December 31,               |        
|                                                                                  |  | 2010                                  |         |   | 2009 |   |         | 2008 |  |   | 2007    |   |  | 2006 |        
|                                                                                  |  | (In thousands, except per share data) |        
|Consolidated Statements of Operations Data(1):                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Revenue:                                                                          |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Application                                                                       |  | $                                     | 199,302 |   |      | $ | 173,495 |      |  | $ | 138,628 |   |  | $    | 105,032 |   |  | $ | 79,116 |  
|Consulting                                                                        |  |                                       | 37,973  |   |      |   | 24,917  |      |  |   | 29,791  |   |  |      | 23,038  |   |  |   | 15,864 |  
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total revenue                                                                     |  |                                       | 237,275 |   |      |   | 198,412 |      |  |   | 168,419 |   |  |      | 128,070 |   |  |   | 94,980 |  
|Cost of revenue:                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Application                                                                       |  |                                       | 48,765  |   |      |   | 41,478  |      |  |   | 32,376  |   |  |      | 22,642  |   |  |   | 19,394 |  
|Consulting                                                                        |  |                                       | 29,671  |   |      |   | 24,614  |      |  |   | 25,269  |   |  |      | 18,098  |   |  |   | 12,857 |  
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total cost of revenue                                                             |  |                                       | 78,436  |   |      |   | 66,092  |      |  |   | 57,645  |   |  |      | 40,740  |   |  |   | 32,251 |  
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Gross profit                                                                      |  |                                       | 158,839 |   |      |   | 132,320 |      |  |   | 110,774 |   |  |      | 87,330  |   |  |   | 62,729 |  
|Operating expenses:                                                               |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Sales and marketing                                                               |  |                                       | 77,721  |   |      |   | 65,731  |      |  |   | 53,827  |   |  |      | 37,172  |   |  |   | 29,841 |  
|Research and development                                                          |  |                                       | 43,431  |   |      |   | 34,847  |      |  |   | 30,994  |   |  |      | 23,197  |   |  |   | 19,722 |  
|General and administrative                                                        |  |                                       | 43,834  |   |      |   | 33,152  |      |  |   | 32,382  |   |  |      | 24,281  |   |  |   | 21,619 |  
|Restructuring and severance expense                                               |  |                                       |        |   |      |   |        |      |  |   | 1,914   |   |  |      |        |   |  |   | 414    |  
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total operating expenses                                                          |  |                                       | 164,986 |   |      |   | 133,730 |      |  |   | 119,117 |   |  |      | 84,650  |   |  |   | 71,596 |  
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Operating income (loss)                                                           |  |                                       | (6,147  | ) |      |   | (1,410  | )    |  |   | (8,343  | ) |  |      | 2,680   |   |  |   | (8,867 | )
|Other income (expense):                                                           |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Interest income                                                                   |  |                                       | 482     |   |      |   | 329     |      |  |   | 1,717   |   |  |      | 3,045   |   |  |   | 2,891  |  
|Interest expense                                                                  |  |                                       | (106    | ) |      |   | (166    | )    |  |   | (199    | ) |  |      | (137    | ) |  |   | (107   | )
|Fees for early extinguishment of debt                                             |  |                                       |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       |  
|Gain on re-measurement of previously held interest in WWC                         |  |                                       | 885     |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       |  
|WWC purchase option write-off                                                     |  |                                       |        |   |      |   | (1,084  | )    |  |   |        |   |  |      |        |   |  |   |       |  
|Settlement of Vurv escrow account                                                 |  |                                       |        |   |      |   | 2,471   |      |  |   |        |   |  |      |        |   |  |   |       |  
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total other income (expense), net                                                 |  |                                       | 1,261   |   |      |   | 1,550   |      |  |   | 1,518   |   |  |      | 2,908   |   |  |   | 2,784  |  
|Income (loss) before provision for (benefit from) income taxes                    |  |                                       | (4,886  | ) |      |   | 140     |      |  |   | (6,825  | ) |  |      | 5,588   |   |  |   | (6,083 | )
|Provision for (benefit from) for income taxes                                     |  |                                       | (5,306  | ) |      |   | (1,153  | )    |  |   | 1,303   |   |  |      | 3,083   |   |  |   | (323   | )
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss) attributable to Class A common stockholders                     |  | $                                     | 420     |   |      | $ | 1,293   |      |  | $ | (8,128  | ) |  | $    | 2,505   |   |  | $ | (5,760 | )
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss) attributable to Class A common stockholders per share  basic   |  | $                                     | 0.01    |   |      | $ | 0.04    |      |  | $ | (0.29   | ) |  | $    | 0.10    |   |  | $ | (0.29  | )
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss) attributable to Class A common stockholders per share  diluted |  | $                                     | 0.01    |   |      | $ | 0.04    |      |  | $ | (0.29   | ) |  | $    | 0.09    |   |  | $ | (0.29  | )
|                                                                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Weighted-average Class A common shares  basic                                    |  |                                       | 39,685  |   |      |   | 31,507  |      |  |   | 27,569  |   |  |      | 24,116  |   |  |   | 20,031 |  
|Weighted-average Class A common shares  diluted(2)                               |  |                                       | 40,915  |   |      |   | 32,406  |      |  |   | 27,569  |   |  |      | 28,777  |   |  |   | 20,031 |  



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|                                                        |  |                    |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|------------------------------------------------------- |  | ------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                        |  | As of December 31, |        
|                                                        |  | 2010               |         |  | 2009 |   |         | 2008 |  |   | 2007    |  |  | 2006 |        
|                                                        |  | (In thousands)     |        
|Consolidated balance sheet data:                        |  |                    |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash and cash equivalents                               |  | $                  | 141,588 |  |      | $ | 244,229 |      |  | $ | 49,462  |  |  | $    | 86,135  |  |  | $ | 58,785  | 
|Working capital                                         |  |                    | 87,937  |  |      |   | 202,524 |      |  |   | 19,594  |  |  |      | 60,515  |  |  |   | 49,310  | 
|Total assets                                            |  |                    | 523,836 |  |      |   | 456,377 |      |  |   | 283,189 |  |  |      | 164,821 |  |  |   | 118,571 | 
|Long-term debt(3)                                       |  |                    | 46      |  |      |   | 107     |      |  |   | 519     |  |  |      | 16      |  |  |   | 17      | 
|Total preferred stock and exchangeable share obligation |  |                    |        |  |      |   |        |      |  |   |        |  |  |      | 331     |  |  |   | 796     | 
|Total stockholders equity                              |  |                    | 368,515 |  |      |   | 337,209 |      |  |   | 172,421 |  |  |      | 85,668  |  |  |   | 61,155  | 



|(1) | We acquired Learn.com in October 2010, WWC in January 2010, Vurv in July 2008, certain assets of Wetfeet, Inc. in July 2007, and certain assets of JobFlash, Inc. in
March 2007. Our consolidated statement of operations and balance sheet data include the results of Learn.com, WWC, Vurv Technology, Wetfeet, Inc., and JobFlash, Inc. only for periods subsequent to October, 1, 2010, January 1, 2010,
July 1, 2008, July 3, 2007, and March 7, 2007, respectively. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 2 Business
Combinations and Dispositions of the Notes to Consolidated Financial Statements for additional information regarding these acquisitions.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Exchangeable shares, redeemable convertible preferred stock, stock options, and warrants are not included if antidilutive for the periods presented. See
Note 7 Common Stock of the Notes to Consolidated Financial Statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes and capital leases related to production equipment and internal use software. See Note 9 Commitments and Contingencies of the Notes to
Consolidated Financial Statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with our Item 8  Financial Statements and Supplementary Data.

We are a leading global provider of on-demand talent management software solutions. Our goal is to help our customers improve
business results through better talent intelligence. We offer recruiting, performance management, compensation, succession planning, learning management, leadership development and analytics software solutions that help our customers attract and
retain high quality talent, more effectively match workers skills to business needs, reduce the time and costs associated with manual and inconsistent processes, ease the burden of regulatory compliance, and increase workforce productivity
through better alignment of workers goals, skills and training, career plans and compensation with corporate objectives. In addition, our solutions are highly configurable which allows our customers to implement talent intelligence processes
that are tailored to accommodate different employee types (including professional and hourly), in different locations, business units and regulatory environments.

We offer two suites of talent management solutions: Taleo Enterprise and Taleo Business Edition. Taleo Enterprise is designed for medium and large enterprises with more complex needs. Taleo Business
Edition is designed for smaller, more centralized organizations, stand-alone departments and divisions of larger organizations, and staffing companies. Our revenue is primarily earned through subscription fees charged for accessing and using
these solutions. Our customers generally are billed in advance for their use of our solutions, and we use these cash receipts to fund our operations. Our customers generally pay us on a quarterly or annual basis.

We focus our evaluation of our operating results and financial condition on certain key metrics, as well as certain non-financial aspects
of our business. Included in our evaluation of our financial condition are our revenue composition and growth, net income, and our overall liquidity that is primarily comprised of our cash



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and accounts receivable balances. Non-financial data is also evaluated, including purchasing trends for software applications across industries and geographies, input from current and prospective
customers relating to product functionality and general economic data. We use the financial and non-financial data described above to assess our historic performance, and also to plan our future strategy. We continue to believe that our
strategy and our ability to execute that strategy may enable us to improve our relative competitive position in a difficult economic environment and may provide long-term growth opportunities given the cost saving benefits of our solutions and the
business requirements our solutions address. However, if general economic conditions do not continue to improve, we may experience increased delays in our sales cycles, increased pressure from prospective customers to offer discounts higher than our
historical practices, and increased pressure from existing customers to renew expiring software subscriptions agreements for lower amounts.

On October 1, 2010, we completed our acquisition of Learn.com, a private company headquartered in Florida that provides SaaS learning and development solutions designed to enable businesses to more
seamlessly develop, deliver and manage education and training to employees, customers, partners and resellers. We expect the Learn.com learning and development management solutions to complement our existing performance management products. The
total consideration paid by us to acquire all of the outstanding common stock and vested options of Learn.com was approximately $124 million in cash. The acquisition of Learn.com did not significantly contribute to our revenues for the quarter ended
December 31, 2010, primarily due to the ratable nature of the revenues.

On January 1, 2010, we completed the
acquisition of WWC, a private company with headquarters in California that provides compensation management solutions, when we purchased the remaining 84% equity interest from the former shareholders of WWC. Previously, in the third quarter of
2008, we made an investment of $2.5 million for a 16% equity investment in and an option to purchase WWC at a later date. Accordingly, the assets, liabilities and operating results of WWC have been reflected in our consolidated financial statements
from the date of acquisition. The total consideration paid by us for the portion of WWC that we did not already own was approximately $14.1 million in cash, including approximately $0.3 million in transaction costs and $0.4 million in incentive
compensation. No contingent cash payments remain for this transaction. Additionally, we re-measured the previously held 16% equity interest to its fair value resulting in a $0.9 million gain being recorded in the statement of operations for the
three months ending March 31, 2010. We expect the WWC compensation management solutions to complement our existing performance management products.

Sources of Revenue

We derive our revenue from two sources:
application revenue and consulting revenue.

Application Revenue

Application revenue generally consists of subscription fees from customers for the right to access and use our applications, which
includes the data hosting and maintenance of the application. The majority of our application subscription revenue is recognized ratably on a monthly basis over the life of the application agreement, based on a stated, fixed-dollar amount. The
majority of our application revenue in any quarter comes from transactions entered into in previous quarters.

The term of our
application agreements signed with new customers purchasing Taleo Enterprise in 2010 and 2009 was typically three or more years. The term of application agreements for new customers purchasing Taleo Business Edition in 2010 and 2009 was typically
one year.

Application agreements entered into during 2010 and 2009 are generally non-cancelable, or contain significant
penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform our material obligations.



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Consulting Revenue

Consulting revenue consists primarily of fees associated with application process definition, configuration, integration, change
management, optimization, expansion and education and training services associated with our applications. Our consulting engagements are typically billed on a time and materials basis. These services are generally performed within six to twelve
months after the consummation of the arrangement. From time to time, certain of our consulting projects are subcontracted to third parties. Our customers may also elect to use unrelated third parties for the types of consulting services that we
offer. Our typical consulting contract provides for payment within 30 to 60 days of receipt of the invoice.

For multi-element
arrangements entered into or materially modified in 2010, we allocate consideration in multi-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for each separate element based on its fair value. The
consulting revenue associated with the consulting services element of such multi-element arrangements is generally recognized as the consulting services are performed, or using a proportional performance model based on services performed for fixed
fee consulting engagements.

For multi-element arrangements entered into prior to 2010, the related consulting revenues are
recognized ratably over the remaining subscription term, unless the transaction is materially modified. In the event of a material modification to such multi-element arrangements, the transaction is evaluated in accordance with the new
accounting guidance which will most likely result in any deferred services revenue being recognized at the time of the material modification.

This change in policy significantly increased consulting revenue and related gross margins in 2010 as we recognized previously deferred services revenue ratably for multi-element arrangements that
occurred prior to fiscal year 2010, while consulting revenue from new transactions in 2010 was generally recognized as performed.

Consulting revenue recognized in 2010 related to multi-element arrangements entered into prior to 2010 was approximately $13.4 million. Additionally, in 2010 we deferred revenue of $9.7 million for
services performed related to multi-element arrangements entered into prior to 2010. For 2010, the impact on our revenue under the new accounting guidance as compared to our previous methodology resulted in approximately $8.8 million of revenue
recognized as performed that would have previously been deferred and recognized ratably.

For consulting services sold
separately from application services, we recognize consulting revenues as services are performed for hourly consulting engagements, or using a proportional performance model based on services performed for fixed fee consulting engagements.

Expenses associated with delivering all consulting services are recognized as incurred when the services are performed.
Associated out-of-pocket travel costs and expenses related to the delivery of consulting services are typically reimbursed by the customer and are accounted for as both revenue and expense in the period the cost is incurred.

Cost of Revenue and Operating Expenses

Cost of Revenue

Cost of application revenue primarily consists of expenses
related to hosting our application and providing support, including employee-related costs, depreciation expense associated with computer equipment and amortization of intangibles from acquisitions. We allocate overhead such as rent and occupancy
charges, information system cost, employee benefit costs and depreciation expense to all departments based on employee count. As such, overhead expenses are reflected in each cost of revenue and operating expense category.

We currently deliver our Taleo Enterprise solutions from secure datacenters operated by third parties in which we have purchased cage
space, electrical power and internet bandwidth. We currently deliver our Taleo



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Business Edition solutions from datacenters operated via third party managed services arrangements through which the datacenter provider provides electrical power, hardware, and internet
bandwidth. We deliver our Talent Grid solutions via a similar managed services arrangement with third parties.

Cost of
consulting revenue consists primarily of employee-related costs associated with these services and allocated overhead. The cost associated with providing consulting services is significantly higher as a percentage of revenue than for our application
revenue, primarily due to labor costs. We also subcontract to third parties for a portion of our consulting business. We recognize expenses related to our consulting services in the period in which the expenses are incurred. To the extent
that our customer base grows, we intend to continue to invest additional resources in our consulting services. The timing of these additional expenses could affect our cost of revenue, both in dollar amount and as a percentage of revenue, in a
particular quarterly or annual period.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and related expenses for our sales and marketing staff, including commissions,
marketing programs, allocated overhead and amortization of intangibles from acquisitions. Marketing programs include advertising, events, corporate communications, and other brand building and product marketing expenses. As our business grows, we
plan to continue to increase our investment in sales and marketing by adding personnel, building our relationships with partners, expanding our domestic and international selling and marketing activities, building brand awareness, and sponsoring
additional marketing events.

Research and Development

Research and development expenses consist primarily of salaries and related expenses and allocated overhead, and third-party consulting
fees. Our expenses are net of the provincial investment credits we receive from the province of Quebec. We focus our research and development efforts on increasing the functionality and enhancing the ease of use and quality of our applications, as
well as developing new products and enhancing our infrastructure.

General and Administrative

General and administrative expenses consist of salaries and related expenses for executive, finance and accounting, human resource, legal,
operations and management information systems personnel, professional fees, board compensation and expenses, expenses related to potential mergers and acquisitions, and other corporate expenses.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period.
Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial
condition, results of operations and cash flows will be affected.

In many cases, the accounting treatment of a particular
transaction is specifically dictated by GAAP and does not require managements judgment in its application, while in other cases, managements judgment is



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required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We believe that the accounting policies discussed below
are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving managements judgments and estimates. Our management has reviewed these critical accounting policies, our use
of estimates and the related disclosures with our audit committee.

Revenue Recognition

We derive revenue from fixed subscription fees for access to and use of our on-demand application services and from consulting fees from
services to support the implementation, configuration, education, and optimization of the applications. We present revenue and deferred revenue from each of these sources separately in its consolidated financial statements.

In addition to fixed subscription fees arrangements, we have on limited occasions, entered into, or acquired, arrangements which include
perpetual licenses with hosting services to be provided over a fixed term. For hosted arrangements, revenues are recognized in accordance with the standards established by the FASB for hosting arrangements that includes a right of the customer to
use the software on another entitys hardware.

Our application and consulting fee revenue is recognized when all
of the following conditions have been satisfied:



| |  |  | persuasive evidence of an agreement exists;
| | - |  | -------------------------------------------



| |  |  | delivery has occurred;
| | - |  | ----------------------



| |  |  | fees are fixed or determinable; and
| | - |  | -----------------------------------



| |  |  | the collection of fees is considered probable.
| | - |  | ----------------------------------------------

If collection is not considered probable, we recognize revenues when the fees for the services performed are collected. Application agreements entered into are generally non-cancelable, or contain
significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform our material obligations. However, if non-standard acceptance periods or non-standard performance
criteria, cancellation or right of refund terms are required, we recognize revenue upon the satisfaction of such criteria, as applicable.

Application Revenue

The majority of our application revenue is recognized
monthly over the life of the application agreement, based on stated, fixed-dollar amount contracts with our customers and consists of:



| |  |  | fees paid for subscription services;
| | - |  | ------------------------------------



| |  |  | amortization of any related set-up fees; and
| | - |  | --------------------------------------------



| |  |  | amortization of fees paid for hosting services and software maintenance services under certain software license arrangements
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

Set up fees paid by customers in connection with subscription services are deferred and recognized ratably
over the longer of the life of the application agreement or the expected lives of customer relationships, which generally range from three to seven years. We continue to evaluate the length of the amortization period of the set up fees as we gain
more experience with customer contract renewals.

Consulting Revenue

Consulting revenue consists primarily of fees associated with application configuration, integration, business process re-engineering,
change management, and education and training services. Our consulting



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engagements are typically billed on a time and materials basis. These services are generally performed within six to twelve months after the consummation of the arrangement. From time to time,
certain of our consulting projects are subcontracted to third parties. Customers may also elect to use unrelated third parties for the types of consulting services that it offers. Our typical consulting contract provides for payment within 30 to 60
days of invoice.

In October 2009, the FASB amended the accounting standards for revenue recognition for multiple deliverable
revenue arrangements to:



| |  |  | provide updated guidance on how the deliverables of an arrangement should be separated, and how the consideration should be allocated:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | require an entity to allocate revenue to an arrangement using the estimated selling prices (ESP) of deliverables if it does not have
vendor-specific objective evidence (VSOE) or third-party evidence (TPE) of selling price.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Valuation terms are defined as set forth below:



| |  |  | VSOE  the price at which we sell the element in a separate stand-alone transaction
| | - |  | -----------------------------------------------------------------------------------



| |  |  | TPE  evidence from us or other companies of the value of a largely interchangeable element in a transaction
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | ESP  our best estimate of the selling price of an element in a transaction.
| | - |  | ----------------------------------------------------------------------------

We elected to early adopt this accounting guidance for the year ending December 31, 2010 on a prospective basis.

We follow accounting guidance for revenue recognition of multiple-element arrangements to determine whether such arrangements contain
more than one unit of accounting. Multiple-element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. To qualify as a separate unit of accounting, the delivered item must have value to the
customer on a standalone basis. Our consulting services have standalone value because those services are sold separately by other vendors, and we have VSOE for determining fair value for consulting services based on the consistency in pricing when
sold separately. Our application services have standalone value as such services are often sold separately. However, we use ESP to determine fair value for application services when sold in a multi-element arrangement as we do not have VSOE for
these application services and TPE is not a practical alternative due to differences in features and functionality of other companies offerings. When new application services products are acquired or developed that require significant consulting
services in order to deliver the application service, and the application and consulting services cannot support standalone value, then such application and consulting services will be evaluated as one unit of accounting. We determined our ESP of
fair value for our application services based on the following:



| |  |  | We have defined processes and controls to ensure our pricing integrity. Such controls include oversight by a pricing committee that includes a cross
functional team and members of executive management. Significant factors considered when establishing pricing include market conditions, underlying costs, promotions, and pricing history of similar services. Based on this information, management
establishes or modifies pricing that is approved by the pricing committee.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We analyzed application services pricing history and stratified the population based on actual pricing trends within certain markets and established
ESP for each market.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For multi-element arrangements entered into or materially modified in 2010, we
allocate consideration in multi-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for



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each separate element based on its fair value. The consulting revenue associated with the consulting services element of such multi-element arrangements is generally recognized as the consulting
services are performed, or using a proportional performance model based on services performed for fixed fee consulting engagements.

For multi-element arrangements entered into prior to 2010, the related consulting revenues are recognized ratably over the remaining subscription term, unless the transaction is materially modified.
In the event of a material modification to such multi-element arrangements, the transaction is evaluated in accordance with the new accounting guidance which will most likely result in any deferred services revenue being recognized at the time of
the material modification.

This change in policy significantly increased consulting revenue and related gross margins in 2010
as we recognized previously deferred services revenue ratably for multi-element arrangements that occurred prior to fiscal year 2010, while consulting revenue from new transactions in 2010 were generally recognized as performed.

Consulting revenue recognized in 2010 related to multi-element arrangements entered into prior to 2010 was approximately $13.4 million.
Additionally, in 2010 we deferred revenue of $9.7 million for services performed related to multi-element arrangements entered into prior to 2010. For 2010, the impact on our revenue under the new accounting guidance as compared to our previous
methodology resulted in approximately $8.8 million of revenue recognized as performed that would have previously been deferred and recognized ratably.

For consulting services sold separately from application services, we recognize consulting revenues as services are performed for hourly consulting engagements, or using a proportional performance model
based on services performed for fixed fee consulting engagements.

Expenses associated with delivering all consulting services
are recognized as incurred when the services are performed. Associated out-of-pocket travel costs and expenses related to the delivery of consulting services are typically reimbursed by the customer. This is accounted for as both revenue and expense
in the period the cost is incurred.

Stock-based Compensation

We measure all share-based payments to employees, including grants of stock options, based on the grant date fair value of the awards and
recognize these amounts in our consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally over the vesting period of the award). We amortize the fair value of
share-based payments on a straight-line basis.

To estimate the fair value of an award, we use the Black-Scholes pricing
model. This model requires inputs such as expected term, expected volatility and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop. We estimate the expected volatility of common
stock at the date of grant based on a combination of our historical volatility and the volatility of comparable companies. We estimate the expected term using the simplified method. We elected to use the simplified method due to a lack of term
length data as we completed our initial public offering in October 2005 and our options meet the criteria of the plain-vanilla options. The simplified method calculates the expected term as the average of the vesting and contractual
terms of the award. The dividend yield assumption is based on historical dividend payouts. Commencing in the first quarter of 2011, we expect to estimate the expected term based upon the historical exercise behavior of our employees. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant appropriate for the expected term of employee options. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation
expense only for those awards that are expected to vest.



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We will continue to use judgment in evaluating the expected term, volatility and forfeiture
rate related to our own stock-based compensation on a prospective basis, and incorporate these factors into the Black-Scholes pricing model. As a result, if factors change, our stock-based compensation expense could be materially different in the
future.

Impairment of Goodwill, Other Intangible Assets and Long-Lived Assets

We perform a goodwill impairment test annually during the fourth quarter of our fiscal year and more frequently if an event or
circumstance indicates that an impairment may have occurred. Such events or circumstances may include significant adverse changes in the general business climate, among other things. The impairment test is performed by determining the fair value of
the reporting unit based on estimated discounted future cash flows and also considering the market price of our common stock. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. We did not record any charges related to goodwill impairment during 2010 as our assessment indicated that the estimated fair value of our reporting units was substantially in excess of their carrying values.

Identified intangible assets primarily consist of acquisition-related developed technology, customer relationships, trade names and
non-compete agreements which are generally amortized over the periods of benefit, ranging from one to seven years. We review the carrying value of long-lived assets including intangible assets when impairment indicators arise. If such facts and
circumstances exist, we assess the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective
carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining
carrying value over the new shorter useful life. There were no material impairment charges related to identified intangible assets during 2010.

Income Taxes

We are subject to income taxes in the United States and
foreign jurisdictions based upon actual and estimated amounts. We record deferred tax assets and liabilities on the balance sheet as temporary differences arise. Our temporary differences arise because tax laws and financial accounting standards
differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses, gains and losses. A difference between the tax basis of an asset or a liability and its reported amount in the statement of financial position will
result in taxable or deductible amounts in some future year(s) when the reported amounts of assets are recovered and the reported amounts of liabilities are settled. Deferred tax assets, related valuation allowances, and deferred tax liabilities are
determined separately by tax jurisdiction. This process involves estimating current tax expense (benefit) together with assessing temporary differences. Our deferred tax assets consist primarily of net operating loss carryforward balances, Canadian
federal investment tax credits, and temporary differences related to deferred revenue and stock based compensation. Our deferred tax liabilities consist primarily of acquired intangible assets that are amortizable for financial reporting purposes
only.

We assess the likelihood that our deferred tax assets will be deductible in some future year(s) and a valuation
allowance is recorded if it is deemed more likely than not that they will not be deductible. As of December 31, 2010 we continue to maintain a valuation allowance against our U.S. deferred tax assets. In addition, we expect to provide a
valuation allowance on future U.S. tax benefits until significant positive evidence arises that demonstrates that these assets are more likely than not to be deductible in some future year(s). We consider all available evidence, both positive and
negative, to determine whether a valuation allowance is needed. In making this determination, we give significant weight to evidence that can be objectively verified. It is generally difficult to conclude that a valuation allowance is not needed
when there is significant negative evidence, such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results. Therefore, cumulative losses weigh heavily in our overall assessment.
In



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addition to considering forecasts of future taxable income, we also evaluate and quantify, when available, other possible sources of taxable income, namely the reversal of existing taxable
temporary differences, taxable income in prior carryback years(s) if carryback is permitted under the tax law, and the implementation of tax planning strategies. Evaluating and quantifying these amounts involves significant judgment. Certain taxable
temporary differences that are not expected to reverse during the carryforward periods cannot be considered a source of future taxable income. In determining the valuation allowance we did not include the taxable temporary difference related to
certain transaction costs realized during our acquisition of Vurv. These transaction costs were deducted for tax purposes and capitalized for financial reporting. This difference creates a deferred tax liability which is not expected to reverse in
the future (i.e. is considered to have an indefinite life) and cannot be used as a source of future taxable income.

Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there
are many transactions and calculations where the ultimate tax outcome is uncertain. Compliance with income tax regulations requires us to make decisions relating to the transfer pricing of revenue and expenses between each of our legal entities that
are located in several countries. Our determinations include many estimates based on our knowledge of the underlying assets of the business, the legal ownership of these assets, and the ultimate transactions conducted with customers and other
third-parties. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. Although we believe that our estimates are reasonable, the final tax outcome of these matters could be different
from amounts reported in our historical statements. Such differences could have a material effect on our income tax provision in the period in which such determination is made.

We are periodically examined by domestic and foreign tax authorities. These examinations include questions regarding the timing and
amount of income and deductions and the allocation among various tax jurisdictions. Our estimate of the potential outcome for any uncertain tax position is highly judgmental. We account for uncertain tax positions by recognizing and measuring tax
benefits taken or expected to be taken on a tax return. A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the
relevant taxing authoritys widely understood administrative practices and precedents. If the recognition threshold is met, only the portion of the tax benefit that is greater than 50 percent likely to be realized upon settlement with a taxing
authority (that has full knowledge of all relevant information) is recorded. The tax benefit that is not recorded is considered an unrecognized tax benefit and disclosed in our financial statements. The assessment of the recognition threshold and
the measurement of the associated tax benefit might change as new information becomes available. Although we believe we have adequately recognized and measured our uncertain tax positions, no assurance can be given with respect to the final outcome
of these matters. We adjust the recognition and measurement of our uncertain tax positions based upon changing facts and circumstances, such as the closing of a tax audit, judicial rulings, or realization of revenues or expenses that differ from our
estimates. We do not adjust our recognition or measurement based upon a reassessment of existing facts. The effective settlement with a taxing authority of an unrecognized tax benefit balance will generally result in the recognition of a tax benefit
in the settlement period.

Historically, we have considered undistributed earnings of our foreign subsidiaries to be
indefinitely reinvested outside of the U.S. and, accordingly, no U.S. taxes have been provided thereon. We intend to continue to indefinitely reinvest the undistributed earnings of our foreign subsidiaries outside of the United States.



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Results of Operations

The following tables set forth certain consolidated statements of operations data expressed as a percentage of total revenue for the
periods indicated. Period-to-period comparisons of our financial results are not necessarily meaningful and you should not rely on them as an indication of future performance.



|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|-------------------------------------------------------------- |  | ----------------------- | --- | -- | ---- |  | --- | ---- |  |  | --- | --
|                                                               |  | Year Ended December 31, |    
|                                                               |  | 2010                    |     |    | 2009 |  |     | 2008 | 
|Condensed Consolidated Statement of Operations Data:           |  |                         |     |    |      |  |     |      |  |  |     |   
|Revenue:                                                       |  |                         |     |    |      |  |     |      |  |  |     |   
|Application                                                    |  |                         | 84  | %  |      |  | 87  | %    |  |  | 82  | % 
|Consulting                                                     |  |                         | 16  | %  |      |  | 13  | %    |  |  | 18  | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Total revenue                                                  |  |                         | 100 | %  |      |  | 100 | %    |  |  | 100 | % 
|Cost of revenue (as a percent of related revenue):             |  |                         |     |    |      |  |     |      |  |  |     |   
|Application                                                    |  |                         | 24  | %  |      |  | 24  | %    |  |  | 23  | % 
|Consulting                                                     |  |                         | 78  | %  |      |  | 99  | %    |  |  | 85  | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Total cost of revenue                                          |  |                         | 33  | %  |      |  | 33  | %    |  |  | 34  | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Gross profit                                                   |  |                         | 67  | %  |      |  | 67  | %    |  |  | 66  | % 
|Operating expenses:                                            |  |                         |     |    |      |  |     |      |  |  |     |   
|Sales and marketing                                            |  |                         | 33  | %  |      |  | 33  | %    |  |  | 32  | % 
|Research and development                                       |  |                         | 18  | %  |      |  | 18  | %    |  |  | 18  | % 
|General and administrative                                     |  |                         | 19  | %  |      |  | 17  | %    |  |  | 19  | % 
|Restructuring                                                  |  |                         | 0   | %  |      |  | 0   | %    |  |  | 1   | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Total operating expenses                                       |  |                         | 70  | %  |      |  | 68  | %    |  |  | 71  | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Operating income (loss)                                        |  |                         | (3  | )% |      |  | (1  | )%   |  |  | (5  | )%
|Other income (expense):                                        |  |                         |     |    |      |  |     |      |  |  |     |   
|Interest income                                                |  |                         | 0   | %  |      |  | 0   | %    |  |  | 1   | % 
|Interest expense                                               |  |                         | 0   | %  |      |  | 0   | %    |  |  | 0   | % 
|Other income                                                   |  |                         | 1   | %  |      |  | 1   | %    |  |  | 0   | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Total other income, net                                        |  |                         | 1   | %  |      |  | 1   | %    |  |  | 1   | % 
|Income (loss) before provision for (benefit from) income taxes |  |                         | (2  | )% |      |  | 0   | %    |  |  | (4  | )%
|Provision for (benefit from) income taxes                      |  |                         | (2  | )% |      |  | (1  | )%   |  |  | 1   | % 
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   
|Net income (loss)                                              |  |                         | 0   | %  |      |  | 1   | %    |  |  | (5  | )%
|                                                               |  |                         |     |    |      |  |     |      |  |  |     |   

Comparison of the Years ended December 31, 2010 and 2009

Revenue



|                    |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  
|------------------- |  | -------------- | ------- |  | ---- | - | ------- | -------- |  | - | ------ |  |  |  | -- | -
|                    |  | 2010           |         |  | 2009 |   |         | $ Change |  |   | %      | 
|                    |  | (In thousands) |         |  |      |   |         |          | 
|Application revenue |  | $              | 199,302 |  |      | $ | 173,495 |          |  | $ | 25,807 |  |  |  | 15 | %
|Consulting revenue  |  |                | 37,973  |  |      |   | 24,917  |          |  |   | 13,056 |  |  |  | 52 | %
|                    |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  
|Total revenue       |  | $              | 237,275 |  |      | $ | 198,412 |          |  | $ | 38,863 |  |  |  | 20 | %
|                    |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  

Application revenue increased due to sales to new customers, successful renewals of existing
customers, sales of additional applications and broader roll out of our applications by existing customers and the addition of customers through our acquisition of WWC on January 1, 2010 and Learn.com on October 1, 2010. Application
revenue from our products for medium and larger, more complex organizations increased by $21.0 million in



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2010 as compared to 2009 and application revenue from our small business product lines increased by $4.8 million for 2010 as compared to 2009. Our list prices for application services have
remained relatively consistent on a year-over-year basis, and renewals of application services for medium and larger more complex organization, on a dollar-for-dollar basis, remained strong at approximately 97%. The increase in application
revenues was due primarily to new customers, upgrades and additional subscriptions from existing customers and improvement in renewal rates over the past twelve months, and incremental revenue resulting from the acquisition of Learn.com in October
2010. For 2011, we expect to see renewals in the same percentage range, but unexpected events, such as significant staff reductions within our customer base, may negatively impact our renewal trends. We expect total application revenue to increase
in 2011 as we continue to increase our sales of new and existing applications into our installed customer base, new customers and customers acquired from Learn.com.

Our consulting revenue comes from two kinds of engagements: standalone consulting engagements which are not associated with new product implementations and consulting engagements which are associated with
new product implementations. Standalone consulting engagement revenue is generally recognized when the services are performed. Consulting revenue for engagements which are associated with new product implementation entered into prior to 2010 is
generally recognized ratably over the term of the associated application services term with a significant portion of revenue deferred to periods beyond the period in which services were performed. Consulting revenue for engagements which
are associated with new product implementation entered into during 2010 is generally recognized when the services are performed.

For 2010, consulting revenue increased as a result of an increase in revenue recognized from consulting services associated with new product implementations that were delivered in past periods and are
recognized ratably. Also, consulting revenue recognized as services are performed increased in 2010 when compared to 2009 resulting from higher demand for services from an increased number of customers. We expect total consulting revenue to increase
in 2011 due to an increase in services to be performed in 2011 while we continue to recognize revenue ratably for pre-2010 multi-element arrangements. The utilization rate for our consultants is the percentage of time billable out of a
2,080 hour year and we experienced a slight increase in 2010 from 65% in 2009 to 67% in 2010. The prices of our consulting services were relatively consistent on a period-to-period comparative basis.

Our U.S. company is the contracting party for all sales agreements in the United States and our Canadian subsidiary is the contracting
party for all Taleo Enterprise Edition sales agreements in Canada. Prior to January 1, 2005, certain of our subsidiaries outside of North America were the contracting parties for sales transactions within their regions. After January 1,
2005, our U.S. company has been the contracting party for all new sales agreements and renewals of existing sales agreements entered into with customers outside of North America. Accordingly, as our customers renew their agreements with us over
time, the percentage of total revenue identified to our subsidiaries outside of North America declined. Accordingly, the geographic mix of total revenue, based on the country of location of the Taleo contracting entity, in the year ended
December 31, 2010 was about 96% and 4% in the United States and Canada, respectively, as compared to about 96%, less than 4% and less than 1%, respectively, in the United States, Canada and rest of the world in the year ended December 31,
2009.

We also track the geographic mix of our revenue on the basis of the location of the contracting entity for our
customers. The geographic mix of application revenue based on the region of location of the customer contracting in the year ended December 31, 2010 was 83% from the United States, 4% from Canada, 9% from Europe, and 4% from the rest of
the world. The geographic mix of application revenue based on the region of location of the customer contracting in the year ended December 31, 2009 was 81% from the United States, 4% from Canada, 11% from Europe, and 4% from the rest of the
world and for the year ended December 31, 2008, it was 83% from the United States, 5% from Canada, 8% from Europe, and 4% from the rest of the world. Due to the nature of consulting services revenue recognition, it is impracticable to determine
revenue by location of the contracting customer however, the trends for contracted consulting services would be expected to be similar to the geographic mix of application revenue.



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Cost of Revenue



|                              |  |                |        |  |      |   |        |          |  |   |        |  |  |  |    |  
|----------------------------- |  | -------------- | ------ |  | ---- | - | ------ | -------- |  | - | ------ |  |  |  | -- | -
|                              |  | 2010           |        |  | 2009 |   |        | $ Change |  |   | %      | 
|                              |  | (In thousands) |        |  |      |   |        |          | 
|Cost of revenue  application |  | $              | 48,765 |  |      | $ | 41,478 |          |  | $ | 7,287  |  |  |  | 18 | %
|Cost of revenue  consulting  |  |                | 29,671 |  |      |   | 24,614 |          |  |   | 5,057  |  |  |  | 21 | %
|                              |  |                |        |  |      |   |        |          |  |   |        |  |  |  |    |  
|Cost of revenue  total       |  | $              | 78,436 |  |      | $ | 66,092 |          |  | $ | 12,344 |  |  |  | 19 | %
|                              |  |                |        |  |      |   |        |          |  |   |        |  |  |  |    |  

Cost of revenue  application  summary of changes



|                              |  |                          |       |  
|----------------------------- |  | ------------------------ | ----- | -
|                              |  | Change from 2009 to 2010 |      
|Employee-related costs        |  | $                        | 1,881 |  
|Hosting facility costs        |  |                          | 2,582 |  
|Software support              |  |                          | 1,472 |  
|Depreciation and amortization |  |                          | 1,098 |  
|Other professional services   |  |                          | (33   | )
|Various other expenses        |  |                          | 287   |  
|                              |  |                          |       |  
|                              |  | $                        | 7,287 |  
|                              |  |                          |       |  

The increase in cost of application revenue in 2010 was primarily driven by an increase in hosting facility
costs, employee-related costs, software support costs and depreciation and amortization expense. Hosting facility expenses increased due to increased capacity, and costs resulting from infrastructure investments and support cost associated with
our new U.S. production data center which went into service in the second quarter of 2010 in the Chicago, Illinois area. Employee-related costs increased as a result of the hiring of additional employees primarily in connection with the
acquisition of Learn.com, an increase in compensation cost due to merit pay raises, and an increase in incentive compensation as compared to the prior year. Software support costs increased due to additional third-party software purchases used
to support our product offerings. Depreciation and amortization expense increased due to the amortization of intangible assets obtained in connection with the acquisitions of Learn.com and WWC. Other professional services decreased slightly in 2010
compared to 2009 due to a reduction in outsourced support. We expect cost of application revenue to increase in terms of absolute dollars for 2011 in support of increased revenues.

Cost of revenue  consulting  summary of changes



|                         |  |                          |       | 
|------------------------ |  | ------------------------ | ----- | 
|                         |  | Change from 2009 to 2010 |      
|Employee-related costs   |  | $                        | 2,999 | 
|Professional services    |  |                          | 1,030 | 
|Stock-based compensation |  |                          | 507   | 
|Various other expenses   |  |                          | 521   | 
|                         |  |                          |       | 
|                         |  | $                        | 5,057 | 
|                         |  |                          |       | 

Expenses associated with delivering consulting services are generally recognized as incurred when the
services are performed. For 2010, cost of consulting revenue increased as a result of an increase in employee-related costs as well as professional services cost as compared to 2009. Employee-related costs increased as a result of increase in
headcount as we hired additional employees in order to meet the current and anticipated demand for our consulting and training services as well as the hiring of additional employees in connection with the acquisition of Learn.com, an increase in
compensation cost due to merit pay raises, and an increase in incentive compensation as compared to the same period in the prior year. We increased the professional services headcount. Professional services cost increased due to additional
outsourced services consulting costs



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corresponding with the increase in consulting revenue. Additionally, stock-based compensation costs increased as a result of incremental grants in 2010 combined with an overall higher stock price
per share in 2010 compared to 2009. We expect cost of consulting revenue to increase in absolute dollars for 2011 to meet higher anticipated demand for our professional services.

Gross Profit and Gross Profit Percentage



|                           |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  
|-------------------------- |  | -------------- | ------- |  | ---- | - | ------- | -------- |  | - | ------ |  |  |  | -- | -
|                           |  | 2010           |         |  | 2009 |   |         | $ Change |  |   | %      | 
|                           |  | (In thousands) |         |  |      |   |         |          | 
|Gross profit  application |  | $              | 150,537 |  |      | $ | 132,017 |          |  | $ | 18,520 |  |  |  | 14 | %
|Gross profit  consulting  |  | $              | 8,302   |  |      | $ | 303     |          |  | $ | 7,999  |  |  |  | *  |  
|                           |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  
|Gross profit  total       |  | $              | 158,839 |  |      | $ | 132,320 |          |  | $ | 26,519 |  |  |  | 20 | %
|                           |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  



|* | not meaningful
|- | --------------

Gross Profit
percentage



|                           |  |      |    |   |      |  |    |         |  |  |    |  
|-------------------------- |  | ---- | -- | - | ---- |  | -- | ------- |  |  | -- | -
|                           |  | 2010 |    |   | 2009 |  |    | %Change | 
|Gross profit  application |  |      | 76 | % |      |  | 76 | %       |  |  | 0  | %
|Gross profit  consulting  |  |      | 22 | % |      |  | 1  | %       |  |  | 21 | %
|Gross profit  total       |  |      | 67 | % |      |  | 67 | %       |  |  | 0  | %

Gross profit 
application

The gross profit percentage on application revenue for 2010 remained unchanged from 2009 due to an overall
increase in application revenue being offset by an increase in hosting costs which escalated during the second quarter of 2010 when the new data center in Chicago, Illinois went live. We expect gross profit on application revenue to increase in
absolute dollars and increase slightly as a percentage of revenues in 2011 as we continue to support additional customers.

Gross profit  consulting

Historically, a significant percentage of consulting revenue is recognized ratably over the term of the subscription agreement while expenses associated with delivering these services are recognized as
incurred when the services are performed. The difference of the timing of revenue recognition compared to the timing of recognizing expenses as performed can cause fluctuations in gross profit for consulting services.

The higher gross profit percentage on consulting revenue in 2010 compared to 2009 resulted from the combined impact of the increase in
revenue from consulting services associated with new product implementations delivered in prior periods that are being recognized ratably and an increase in standalone consulting revenue recognized related to services performed during 2010. During
2010, we benefited from recognizing revenue for which the related expense was recorded in the prior period. In 2010, gross margins on consulting have been positively affected by the recognition of previously deferred revenue with no related expense
for engagements entered into prior to 2010, and the change in accounting guidance in 2010 whereby consulting revenue for new engagements is generally recognized when the services are performed. We expect the rate for 2011 to continue to be
positively impacted.



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Operating expenses



|                           |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  
|-------------------------- |  | -------------- | ------- |  | ---- | - | ------- | -------- |  | - | ------ |  |  |  | -- | -
|                           |  | 2010           |         |  | 2009 |   |         | $ Change |  |   | %      | 
|                           |  | (In thousands) |         |  |      |   |         |          | 
|Sales and marketing        |  | $              | 77,721  |  |      | $ | 65,731  |          |  | $ | 11,990 |  |  |  | 18 | %
|Research and development   |  |                | 43,431  |  |      |   | 34,847  |          |  |   | 8,584  |  |  |  | 25 | %
|General and administrative |  |                | 43,834  |  |      |   | 33,152  |          |  |   | 10,682 |  |  |  | 32 | %
|                           |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  
|Total operating expenses   |  | $              | 164,986 |  |      | $ | 133,730 |          |  | $ | 31,256 |  |  |  | 23 | %
|                           |  |                |         |  |      |   |         |          |  |   |        |  |  |  |    |  

Sales and marketing  summary of changes



|                                |  |                          |        |  
|------------------------------- |  | ------------------------ | ------ | -
|                                |  | Change from 2009 to 2010 |       
|Employee-related costs          |  | $                        | 7,885  |  
|Professional services           |  |                          | 612    |  
|Stock-based compensation        |  |                          | 1,054  |  
|Depreciation and amortization   |  |                          | (945   | )
|Marketing programs              |  |                          | 1,384  |  
|Business development and travel |  |                          | 1,105  |  
|Various other expenses          |  |                          | 895    |  
|                                |  |                          |        |  
|                                |  | $                        | 11,990 |  
|                                |  |                          |        |  

The increase in sales and marketing expense for 2010 was primarily driven by an increase in employee-related
costs, costs related to marketing programs and business development and travel costs, offset in part by a decline in depreciation and amortization expense. Employee-related costs increased due to an increase in headcount primarily from our
acquisition of Learn.com as well additional sales personnel hired to focus on adding new customers and increasing penetration within our existing customer base, merit pay raises, an increase in incentive compensation due an increase in sales, and
severance and relocation costs. Additionally, stock-based compensation costs increased as a result of incremental grants in 2010 combined with a higher average stock price per share in 2010 compared to 2009. The decline in depreciation and
amortization expense was as a result of a decrease in amortization expense related to intangible assets acquired in connection with the Vurv acquisition. We amortize the Vurv intangible assets in proportion to our conversion of Vurv customers to
Taleo products. There were fewer customers to convert in 2010 than 2009 resulting in a reduction in amortization expense for 2010 compared to 2009. This decline was offset in part by the increase in amortization expense related to the acquisition of
Learn.com. We expect sales and marketing costs to increase in terms of absolute dollars in 2011 as we continue our efforts to grow our business.

Research and development  summary of changes



|                         |  |                          |       | 
|------------------------ |  | ------------------------ | ----- | 
|                         |  | Change from 2009 to 2010 |      
|Employee-related costs   |  | $                        | 5,805 | 
|Professional services    |  |                          | 1,364 | 
|Stock-based compensation |  |                          | 1,127 | 
|Various other expenses   |  |                          | 288   | 
|                         |  |                          |       | 
|                         |  | $                        | 8,584 | 
|                         |  |                          |       | 

The increase in research and development expense during 2010 was primarily driven by an increase in
employee-related costs and professional services costs. Employee-related costs increased primarily due to an increase in headcount from the acquisitions of WWC and Learn.com in 2010, merit pay raises, and an increase in incentive compensation costs
when compared to 2009. Stock-based compensation costs increased as a result of incremental grants in 2010 combined with a higher average stock price per share in 2010 compared to 2009.



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Also, during 2010, research and development operating expenses were adversely affected by the negative impact of foreign currency movements against the U.S. dollar. We expect our research and
development expenses to increase in absolute dollars in 2011 as we integrate the operations of Learn.com and continue our efforts to expand our development activities.

General and administrative  summary of changes



|                             |  |                          |        |  
|---------------------------- |  | ------------------------ | ------ | -
|                             |  | Change from 2009 to 2010 |       
|Employee-related costs       |  | $                        | 3,784  |  
|Legal                        |  |                          | 2,410  |  
|Audit and tax related        |  |                          | 490    |  
|Professional services, other |  |                          | 2,968  |  
|Bad debt reserve             |  |                          | (924   | )
|Stock-based compensation     |  |                          | 939    |  
|Various other expenses       |  |                          | 1,015  |  
|                             |  |                          |        |  
|                             |  | $                        | 10,682 |  
|                             |  |                          |        |  

General and administrative expenses increased in 2010 as compared to 2009 primarily due to an increase in
employee-related costs, professional services costs, which included transaction costs associated with acquisition of Learn.com, an increase in legal costs associated with on-going litigation, and an increase in audit and tax-related costs and other
corporate development activities, offset in part by lower bad debt expense in 2010. Employee-related costs increased due to an increase in headcount primarily from our acquisition of Learn.com, merit pay raises, an increase in incentive
compensation, and severance and relocation costs. Stock-based compensation costs increased as a result of incremental grants in 2010 combined with a higher average stock price per share in 2010 compared to 2009. We expect our general and
administrative expenses to increase in absolute dollars in 2011 as we integrate the operations of Learn.com.

Contribution
Margin  Operating Segments



|                                  |  |                 |         |  |      |   |        |          |  |   |        |  |  |  |     | 
|--------------------------------- |  | --------------- | ------- |  | ---- | - | ------ | -------- |  | - | ------ |  |  |  | --- | 
|                                  |  | 2010            |         |  | 2009 |   |        | $ Change |  |   | %      | 
|                                  |  | (In thousands ) |         |  |      |   |        |          | 
|Contribution Margin(1)            |  |                 |         |  |      |   |        |          |  |   |        |  |  |  |     | 
|Contribution margin  application |  | $               | 107,106 |  |      | $ | 97,170 |          |  | $ | 9,936  |  |  |  | 10% | 
|Contribution margin  consulting  |  |                 | 8,302   |  |      |   | 303    |          |  |   | 7,999  |  |  |  | *   | 
|                                  |  |                 |         |  |      |   |        |          |  |   |        |  |  |  |     | 
|Contribution margin  total       |  | $               | 115,408 |  |      | $ | 97,473 |          |  | $ | 17,935 |  |  |  | 18% | 
|                                  |  |                 |         |  |      |   |        |          |  |   |        |  |  |  |     | 



|(1) | The contribution margins reported reflect only the expenses of the segment and do not represent the actual margins for each operating segment since they do not contain
an allocation for selling and marketing, general and administrative, and other corporate expenses incurred in support of the line of business.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Application contribution margin increased in absolute dollars primarily due to an increase in revenues, offset in part by increased hosting cost and an increase in product development expenses. The
explanation for the change in consulting contribution margin is consistent with the explanation for the change in consulting gross profit.

Other income (expense)



|                        |  |                |       |   |      |   |       |          |  |   |      |   |  |  |       | 
|----------------------- |  | -------------- | ----- | - | ---- | - | ----- | -------- |  | - | ---- | - |  |  | ----- | 
|                        |  | 2010           |       |   | 2009 |   |       | $ Change |  |   | %    |  
|                        |  | (In thousands) |       |   |      |   |       |          | 
|Interest income         |  | $              | 482   |   |      | $ | 329   |          |  | $ | 153  |   |  |  | 47%   | 
|Interest expense        |  |                | (106  | ) |      |   | (166  | )        |  |   | 60   |   |  |  | (36)% | 
|Other income (expense)  |  |                | 885   |   |      |   | 1,387 |          |  |   | (502 | ) |  |  | *     | 
|                        |  |                |       |   |      |   |       |          |  |   |      |   |  |  |       | 
|Total other income, net |  | $              | 1,261 |   |      | $ | 1,550 |          |  | $ | (289 | ) |  |  | *     | 
|                        |  |                |       |   |      |   |       |          |  |   |      |   |  |  |       | 



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Interest income  The increase in interest income in 2010 is attributable to a
higher average cash balance during 2010 compared to 2009. Our stock offering in November 2009 resulted in our cash balance during 2010 being significantly higher than the prior year balance. Interest rates remained unchanged between the two periods.

Interest expense  There was no significant change in interest expense during 2010 as compared to 2009.

Other income (expense)  Other income for 2010 consists of $0.9 million of gain recorded upon the completion of
the acquisition of WWC on January 1, 2010. In accordance with the acquisition method of accounting for a business combination, our 16% previously owned equity investment in WWC was re-measured to its $2.3 million fair value on the acquisition
date and the difference between the fair value of equity investment and the $1.4 million carrying value was recorded as gain.

Other income (expense) in 2009 consists of $2.5 million settlement of the Vurv escrow account offset by the $1.1 million write-off of the
WWC purchase option. We received 111,167 shares of our Class A common stock valued at $2.5 million from the Vurv escrow account as a result of a settlement with the former shareholders of Vurv. In the third quarter of 2009, we recorded an
impairment of the WWC purchase option obtained in September 2008 as the terms of the September 19, 2009 merger agreement were more favorable than the terms of the purchase option.

Provision for (benefit from) income taxes



|                                          |  |                |        |   |      |   |        |          |  |   |        |   |  |  |     |  
|----------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -------- |  | - | ------ | - |  |  | --- | -
|                                          |  | 2010           |        |   | 2009 |   |        | $ Change |  |   | %      |  
|                                          |  | (In thousands) |        |   |      |   |        |          | 
|Provision for/(benefit from) income taxes |  | $              | (5,306 | ) |      | $ | (1,153 | )        |  | $ | (4,153 | ) |  |  | 360 | %

We recorded an income tax
benefit of approximately $5.3 million in 2010 compared to an income tax benefit of $1.2 million in 2009. The change is primarily attributable to (i) the release of our valuation allowance associated with the recording of significant deferred
tax liabilities related to the purchase accounting of our Learn.com acquisition which increased our tax benefit in 2010 (ii) a foreign tax benefit generated from a favorable income tax audit settlement with the Canadian government covering tax
years 2000 and 2001 which increased our tax benefit in 2009 and (iii) the changing mix of permanent book versus tax differences relative to taxable income and the utilization of acquired and operating net operating losses not previously
benefited. The difference between the statutory rate of 34% and our effective tax rate benefit of 109% was due primarily to the release of our valuation allowance associated with the recording of significant deferred tax liabilities related to the
purchase accounting of our Learn.com acquisition which increased our tax benefit in 2010, permanent differences related to non-deductible stock compensation expenses, non-deductible transaction costs, state taxes, adjustments related to the WWC
acquisition, Canadian research and development tax credits and the utilization of acquired and operating net operating losses not previously benefited. At December 31, 2010, we maintained a valuation allowance against our U.S. deferred tax
assets as we determined it was more likely than not that these assets will not be realized. If we are to conclude the U.S. deferred tax assets will more likely than not be realized in the future, we will reverse the valuation allowance, which would
likely have a material impact on our financial results in the form of reduced tax expense or increased tax benefits in the period the reversal occurs. There can be no assurances that we will reverse our valuation allowance in 2011.



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Comparison of the Years Ended December 31, 2009 and 2008

Dollar amounts in tables are shown in thousands.

Revenue



|                    |  |                |         |  |      |   |         |          |  |   |          |   |  |  |     |  
|------------------- |  | -------------- | ------- |  | ---- | - | ------- | -------- |  | - | -------- | - |  |  | --- | -
|                    |  | 2009           |         |  | 2008 |   |         | $ change |  |   | % change |  
|                    |  | (In thousands) |         |  |      |   |         |          | 
|Application revenue |  | $              | 173,495 |  |      | $ | 138,628 |          |  | $ | 34,867   |   |  |  | 25  | %
|Consulting revenue  |  |                | 24,917  |  |      |   | 29,791  |          |  |   | (4,874   | ) |  |  | -16 | %
|                    |  |                |         |  |      |   |         |          |  |   |          |   |  |  |     |  
|Total revenue       |  | $              | 198,412 |  |      | $ | 168,419 |          |  | $ | 29,993   |   |  |  | 18  | %
|                    |  |                |         |  |      |   |         |          |  |   |          |   |  |  |     |  

The increase in application revenue was due to increased renewals by existing customers, sales to
new customers, sales of additional applications to existing customers, broader roll out of our applications by existing customers and the addition of customers through our acquisition of Vurv on July 1, 2008. In 2009, we had 65 new Taleo
Enterprise customers and 599 new Taleo Business Edition customers. Application revenue associated with our product lines for Taleo Enterprise customers increased by $30.3 million as compared to 2008. Additionally, application revenue includes a
full year of revenue from the legacy Vurv customers as compared to the prior year which included six months of revenue from the acquisition date, July 1, 2008. Application revenue associated with Taleo Business Edition customers increased by
$4.6 million as compared to 2008. Our list prices for application services have remained relatively consistent on a year-over-year basis, however; we have experienced increased pressure from competitors and the economic environment to discount our
prices. Renewals of application services for larger more complex organizations, on a dollar-for-dollar basis, remained at approximately 95%.

In 2009, our consulting revenue came from two kinds of engagements: standalone consulting engagements which are not associated with new product implementations and bundled consulting engagements which are
associated with new product implementations. Standalone consulting engagement revenue is generally recognized when the services are performed, while bundled consulting engagement revenue is generally recognized ratably over the term of the
associated application services agreement with a significant portion of revenue deferred to periods beyond the period in which services were performed.

In 2009, consulting revenue decreased due to a decrease in standalone consulting engagements, where revenue is recognized as the consulting services are performed, as well as a reduction in consulting
services for legacy Vurv products. In 2009, consulting services revenue for legacy Vurv engagements decreased significantly compared to the prior year as we have completed a significant portion of the consulting engagements assumed in connection
with the July 2008 acquisition of Vurv. We have entered into a very limited number of new consulting agreements related to legacy Vurv products since we no longer sell those products. The utilization rate for our consultants is the percentage of
time billable out of a 2,080 hour year and we experienced a slight decrease in 2009 from 66% in 2008 to 65% in 2009. The prices of our consulting services were relatively consistent on a period-to-period comparative basis.

Our U.S. company is the contracting party for all sales agreements in the United States and our Canadian subsidiary is the contracting
party for all Taleo Enterprise Edition sales agreements in Canada. Prior to January 1, 2005, certain of our subsidiaries outside of North America were the contracting parties for sales transactions within their regions. After January 1,
2005, our U.S. company has been the contracting party for all new sales agreements and renewals of existing sales agreements entered into with customers outside of North America. Accordingly, as our customers renew their agreements with us over
time, the percentage of total revenue identified to our subsidiaries outside of North America should decline. Accordingly, the geographic mix of total revenue, based on the country of location of the Taleo contracting entity, in the year ended
December 31, 2009 was about 96%, less than 4% and less than 1% in the United States, Canada and the rest of the world, respectively, as compared to about 95%, less than 5% and less than 1%, respectively, in the year ended



55



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December 31, 2008. We also track the geographic mix of our revenue on the basis of the location of the contracting entity for our customers. The geographic mix of application revenue
based on the region of location of the customer contracting in the year ended December 31, 2009 was 81% from the United States, 4% from Canada, 11% from Europe, and 4% from the rest of the world. For the year ended December 31, 2008, it
was 83% from the United States, 5% from Canada, 8% from Europe, and 4% from the rest of the world. Due to the nature of consulting services revenue recognition, it is impracticable to determine revenue by location of the customer contracting,
however the trends for contracted consulting services would be expected to be similar to the geographic mix of application revenue.

Cost of Revenue



|                              |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |    |  
|----------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | -------- |  | - | -------- | - |  |  | -- | -
|                              |  | Year ended December 31, |        |  |      |   |        |          | 
|                              |  | 2009                    |        |  | 2008 |   |        | $ change |  |   | % change |  
|                              |  | (In thousands)          |        |  |      |   |        |          | 
|Cost of revenue  application |  | $                       | 41,478 |  |      | $ | 32,376 |          |  | $ | 9,102    |   |  |  | 28 | %
|Cost of revenue  consulting  |  |                         | 24,614 |  |      |   | 25,269 |          |  |   | (655     | ) |  |  | -3 | %
|                              |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |    |  
|Cost of revenue  total       |  | $                       | 66,092 |  |      | $ | 57,645 |          |  | $ | 8,447    |   |  |  | 15 | %
|                              |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |    |  

Cost of revenue  application  summary of changes



|                              |  |                          |       | 
|----------------------------- |  | ------------------------ | ----- | 
|                              |  | Change from 2008 to 2009 |      
|Hosting facility cost         |  | $                        | 4,160 | 
|Employee-related costs        |  |                          | 2,009 | 
|Depreciation and amortization |  |                          | 1,519 | 
|Various other expense         |  |                          | 1,414 | 
|                              |  |                          |       | 
|                              |  | $                        | 9,102 | 
|                              |  |                          |       | 

The increase in cost of application revenue was primarily driven by an increase in hosting facility
expenses. Hosting facility expenses increased primarily due to the opening of our production data center in Amsterdam in the fourth quarter of 2008. We also incurred a full year of additional hosting facility costs, including third-party software
costs, internet bandwidth costs, depreciation and other costs associated with legacy Vurv hosting facilities added July 1, 2008. Our employee related costs increased due to additional headcount assumed in connection with the acquisition of
Vurv. Additionally, we incurred additional amortization expenses attributable to the amortization of intangible assets obtained from the acquisition of Vurv as compared to 2008.

Cost of revenue  consulting  summary of changes



|                         |  |                          |        |  
|------------------------ |  | ------------------------ | ------ | -
|                         |  | Change from 2008 to 2009 |       
|Employee-related costs   |  | $                        | 783    |  
|Professional services    |  |                          | (1,245 | )
|Travel and entertainment |  |                          | (536   | )
|Various other expense    |  |                          | 343    |  
|                         |  |                          |        |  
|                         |  | $                        | (655   | )
|                         |  |                          |        |  

Expenses associated with delivering consulting services are generally recognized as incurred when the
services are performed. During 2009, cost of consulting revenue decreased primarily due to a reduction in outsourced consulting services. In the past, we have outsourced a portion of consulting services engagements to third-party providers however,
as a result of the overall decrease in demand for consulting services during 2009



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our need for these third-party providers decreased as well. During 2009, employee-related costs increased due to a net headcount increase as a result of the July 2008 Vurv acquisition which
increased costs in the first six months of 2009 compared to same period in 2008.

Gross Profit and Gross Profit Percentage



|                                      |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  
|------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  |  | --- | -
|                                      |  | Year ended December 31, |         |   |      |   |         |          | 
|                                      |  | 2009                    |         |   | 2008 |   |         | $ change |  |   | % change |  
|                                      |  | (In thousands)          |         |   |      |   |         |          | 
|Gross profit                          |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  
|Gross profit  application            |  | $                       | 132,017 |   |      | $ | 106,252 |          |  | $ | 25,765   |   |  |  | 24  | %
|Gross profit  consulting             |  |                         | 303     |   |      |   | 4,522   |          |  |   | (4,219   | ) |  |  | -93 | %
|                                      |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  
|Gross profit  total                  |  | $                       | 132,320 |   |      | $ | 110,774 |          |  | $ | 21,546   |   |  |  | 19  | %
|                                      |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  
|                                      |  |                         |        
|                                      |  | Year ended December 31, |         |   |      |   |         |          | 
|                                      |  | 2009                    |         |   | 2008 |   |         | % change |  |   |          |  
|Gross profit percentage               |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  
|Gross profit percentage  application |  |                         | 76      | % |      |   | 77      | %        |  |   | -1       | % |  |  |     |  
|Gross profit percentage  consulting  |  |                         | 1       | % |      |   | 15      | %        |  |   | -14      | % |  |  |     |  
|                                      |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  
|Gross profit percentage  total       |  |                         | 67      | % |      |   | 66      | %        |  |   | 1        | % |  |  |     |  
|                                      |  |                         |         |   |      |   |         |          |  |   |          |   |  |  |     |  

Gross profit  application

The decrease in gross profit percentage on application revenue during 2009 compared to 2008 was driven predominantly by increased hosting
costs associated with increasing the scalability of the existing Taleo hosting environment and incremental hosting costs as a result of the Vurv acquisition. Additionally, Vurvs gross profit percentage on application revenue was lower
than Taleos on a standalone basis and as a result negatively impacted the consolidated gross profit percentage on application revenue for 2009. Gross profit was further reduced by amortization of intangibles associated with the
acquisition of Vurv.

Gross profit  consulting

For services performed on new product implementations, revenue in 2009 was generally recognized ratably over the term of the associated
application services agreement with a significant portion of revenue deferred to periods beyond the period in which services were performed. We generally recognize revenue for services performed on stand-alone consulting engagements as the
services are performed. Expenses associated with delivering these services are recognized as incurred when the services are performed. The difference of the timing of revenue recognition compared to the timing of recognizing expenses as performed
can cause fluctuations in gross profit for consulting services.

The lower gross profit percentage on consulting revenue in
2009 compared to 2008 resulted from a reduction in standalone consulting engagements, where revenue and the related expenses are typically recognized in the same period. There was also an increase in cost of consulting revenue resulting from
increased employee related expenses compared to the same period in 2008. In 2009, gross profit on consulting was also negatively impacted by a reduction in revenue related to legacy Vurv consulting engagements, and the deferral of revenue related to
certain bundled agreements being deferred to future periods while the related expenses are reflected in the current period.



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Operating expenses



|                                    |  |                         |         |  |      |   |         |          |  |   |          |   |  |  |    |  
|----------------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | -------- |  | - | -------- | - |  |  | -- | -
|                                    |  | Year ended December 31, |         |  |      |   |         |          | 
|                                    |  | 2009                    |         |  | 2008 |   |         | $ change |  |   | % change |  
|                                    |  | (In thousands)          |         |  |      |   |         |          | 
|Sales and marketing                 |  | $                       | 65,731  |  |      | $ | 53,827  |          |  | $ | 11,904   |   |  |  | 22 | %
|Research and development            |  |                         | 34,847  |  |      |   | 30,994  |          |  |   | 3,853    |   |  |  | 12 | %
|General and administrative          |  |                         | 33,152  |  |      |   | 32,382  |          |  |   | 770      |   |  |  | 2  | %
|Restructuring and severance expense |  |                         |        |  |      |   | 1,914   |          |  |   | (1,914   | ) |  |  | *  |  
|                                    |  |                         |         |  |      |   |         |          |  |   |          |   |  |  |    |  
|Total operating expenses            |  | $                       | 133,730 |  |      | $ | 119,117 |          |  | $ | 14,613   |   |  |  |    |  
|                                    |  |                         |         |  |      |   |         |          |  |   |          |   |  |  |    |  



|* | not meaningful
|- | --------------

Sales and
marketing  summary of changes



|                       |  |                          |        | 
|---------------------- |  | ------------------------ | ------ | 
|                       |  | Change from 2008 to 2009 |       
|Amortization           |  | $                        | 7,151  | 
|Employee-related costs |  |                          | 3,107  | 
|Marketing expenses     |  |                          | 876    | 
|Various other expense  |  |                          | 770    | 
|                       |  |                          |        | 
|                       |  | $                        | 11,904 | 
|                       |  |                          |        | 

The increase in sales and marketing expense was primarily driven by an increase in amortization expenses
attributable to the amortization of intangible assets obtained from the acquisition of Vurv namely customer relationships. Employee-related expenses increased due to a net headcount increase of 16 persons as compared to the prior year and marketing
expenditures related to tradeshows and demand generation efforts primarily related to the sale of our application products. Overall, sales and marketing expense increased as a result of the acquisition of Vurv and the overall expansion of our
operations.

Research and development  summary of changes



|                       |  |                          |       | 
|---------------------- |  | ------------------------ | ----- | 
|                       |  | Change from 2008 to 2009 |      
|Employee-related costs |  | $                        | 3,641 | 
|Various other expense  |  |                          | 212   | 
|                       |  |                          |       | 
|                       |  | $                        | 3,853 | 
|                       |  |                          |       | 

The increase in research and development expense was primarily driven by a net headcount increase of
20 persons as compared to the same period in the prior year. In 2009, we increased our product development team to focus on our new recruiting product, Taleo 10, and our new product functionality, Taleo Development and Taleo Anywhere. Also in
2009, research and development expenses were favorably affected by the positive impact of foreign currency movements against the U.S. dollar as the operational costs of our Quebec City facility are denominated in the local currency, Canadian
dollars.

General and administrative  summary of changes



|                             |  |                          |       |  
|---------------------------- |  | ------------------------ | ----- | -
|                             |  | Change from 2008 to 2009 |      
|Employee-related costs       |  | $                        | 1,104 |  
|Consultants / temporary help |  |                          | 626   |  
|Legal                        |  |                          | (714  | )
|Audit                        |  |                          | (576  | )
|Bad debt reserve             |  |                          | 603   |  
|Various other expense        |  |                          | (273  | )
|                             |  |                          |       |  
|                             |  | $                        | 770   |  
|                             |  |                          |       |  



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The increase in general and administrative expenses resulted primarily from increases in
employee-related costs from additional headcount added in 2009. The outside consulting and temporary help expense increased during 2009 primarily due to the evaluation of our historical revenue practices associated with the restatement reflected in
our annual report on Form 10-K for the period ended December 31, 2008 filed on April 30, 2009 and the correction of stock-based compensation expense associated with the restatement reflected in Amendment No. 1 on Form 10-K/A for the
period ended December 31, 2008 filed on October 27, 2009. Additionally, we decreased our legal reserves due to current developments in on-going litigation. Audit fees decreased during the year primarily due to a change in the methodology
for recording fees associated with the annual audit and a general decrease in the overall annual audit cost. In prior years, we recognized annual audit fees ratably over the year but we now record the expense in the period in which the work is
performed. Additionally, annual audit fee rates decreased for 2009. These decreases were partially offset by audit fees related to our two financial reporting restatements of our annual report on Form 10-K for the period ended December 31,
2008. During 2009, bad debt expense increased primarily from at-risk receivables associated with legacy Vurv customers. Various other expenses decreased primarily from cost management during the year.

Contribution Margin  Operating Segments



|                                  |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |     |  
|--------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | -------- |  | - | -------- | - |  |  | --- | -
|                                  |  | Year ended December 31, |        |  |      |   |        |          | 
|                                  |  | 2009                    |        |  | 2008 |   |        | $ change |  |   | % change |  
|                                  |  | (In thousands)          |        |  |      |   |        |          | 
|Contribution Margin(1)            |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |     |  
|Contribution margin  application |  | $                       | 97,170 |  |      | $ | 75,258 |          |  | $ | 21,912   |   |  |  | 29  | %
|Contribution margin  consulting  |  |                         | 303    |  |      |   | 4,522  |          |  |   | (4,219   | ) |  |  | -93 | %
|                                  |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |     |  
|Contribution margin  total       |  | $                       | 97,473 |  |      | $ | 79,780 |          |  | $ | 17,693   |   |  |  | 22  | %
|                                  |  |                         |        |  |      |   |        |          |  |   |          |   |  |  |     |  



|(1) | Contribution margins equals gross profit minus research and development expenses
|--- | --------------------------------------------------------------------------------

Application contribution margin increased 29% year over year. This was primarily due to the 25% increase in application revenue over the same period. Consulting contribution margin decreased by 93% year
over year as a result of expenses incurred to deliver services in advance of the revenue recognition for a significant percentage of our consulting services and a decrease in higher margin standalone consulting engagements.

Interest income and interest expense



|                                     |  |                         |       |   |      |   |       |          |  |   |          |   |  |  |     |  
|------------------------------------ |  | ----------------------- | ----- | - | ---- | - | ----- | -------- |  | - | -------- | - |  |  | --- | -
|                                     |  | Year ended December 31, |       |   |      |   |       |          | 
|                                     |  | 2009                    |       |   | 2008 |   |       | $ change |  |   | % change |  
|                                     |  | (In thousands)          |       |   |      |   |       |          | 
|Interest income                      |  | $                       | 329   |   |      | $ | 1,717 |          |  | $ | (1,388   | ) |  |  | -81 | %
|Interest expense                     |  |                         | (166  | ) |      |   | (199  | )        |  |   | 33       |   |  |  | -17 | %
|Other income                         |  |                         | 1,387 |   |      |   |      |          |  |   | 1,387    |   |  |  | *   |  
|                                     |  |                         |       |   |      |   |       |          |  |   |          |   |  |  |     |  
|Total interest and other income, net |  | $                       | 1,550 |   |      | $ | 1,518 |          |  | $ | 32       |   |  |  | 2   | %
|                                     |  |                         |       |   |      |   |       |          |  |   |          |   |  |  |     |  



|* | not meaningful.
|- | ---------------

Interest
Income. The decrease in interest income is primarily attributable to a decline in the average rate earned on our cash balance from 2.26% in 2008 to 0.42% in 2009.

Interest Expense. The decrease in interest expense is attributable to the decrease in capital lease obligations payments during 2009.



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Other Income. Other income consists of a $2.5 million settlement of the Vurv
escrow account offset by the $1.1 million write-off of the WWC purchase option. We received 111,167 shares of our Class A common stock valued at $2.5 million from the Vurv escrow account as a result of a settlement with the former shareholders
of Vurv. In the third quarter of 2009, we recorded an impairment of the WWC purchase option obtained in September 2008 as the terms of the September 19, 2009 merger agreement were more favorable than the terms of the purchase option.

Provision for (Benefit from) for Income Taxes



|                                          |  |                         |        |   |      |   |       |          |  |   |          |   |  |  |      |  
|----------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- | -------- |  | - | -------- | - |  |  | ---- | -
|                                          |  | Year ended December 31, |        |   |      |   |       |          | 
|                                          |  | 2009                    |        |   | 2008 |   |       | $ change |  |   | % change |  
|                                          |  | (In thousands)          |        |   |      |   |       |          | 
|Provision for (Benefit from) income taxes |  | $                       | (1,153 | ) |      | $ | 1,303 |          |  | $ | (2,456   | ) |  |  | -188 | %

We recorded an income tax
benefit of approximately $1.2 million in 2009 compared to an income tax provision of $1.3 million in 2008. The change is primarily attributable to (i) a foreign tax benefit generated from a favorable income tax audit settlement with the
Canadian government covering tax years 2000 and 2001 which increased our tax benefit in 2009 and (ii) the changing mix of permanent book versus tax differences relative to taxable income and the utilization of acquired and operating net
operating losses not previously benefited. The difference between the statutory rate of 34% and our effective tax rate benefit of (821)% was due primarily to permanent differences related to non-deductible stock compensation expenses, non-deductible
acquisition-related payments, state taxes, Canadian research and development tax credits and the utilization of acquired and operating net operating losses not previously benefited. At December 31, 2009, we maintained a valuation allowance
against our U.S. deferred tax assets as we determined it was more likely than not that these assets will not be realized. If we are to conclude the U.S. deferred tax assets will more likely than not be realized in the future, we will reverse the
valuation allowance, which would likely have a material impact on our financial results in the form of reduced tax expense or increased tax benefits in the period the reversal occurs.

Liquidity and Capital Resources

We have funded our operations primarily
through cash flow from operations, the 2005 initial public offering of our common stock as well as the 2009 offering of our common stock. As of December 31, 2010, we had cash and cash equivalents totaling $141.6 million, net accounts receivable
of $58.1 million, and investment credits receivable of $6.0 million. In addition, we have $0.2 million in restricted cash for security deposits on our property leases.



|                                      |  |                |          |   |      |   |         |          |  |   |          |   |  |  |      |  
|------------------------------------- |  | -------------- | -------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  |  | ---- | -
|                                      |  | 2010           |          |   | 2009 |   |         | $ Change |  |   | %        |  
|                                      |  | (In thousands) |          |   |      |   |         |          | 
|Cash provided by operating activities |  | $              | 35,792   |   |      | $ | 50,672  |          |  | $ | (14,880) |   |  |  | (29) | %
|Cash used in investing activities     |  |                | (151,620 | ) |      |   | (8,722  | )        |  |   | (142,898 | ) |  |  | *    |  
|Cash provided by financing activities |  |                | 12,613   |   |      |   | 151,728 |          |  |   | (139,115 | ) |  |  | (92) | %
|                                      |  |                |          |  
|                                      |  | 2009           |          |   | 2008 |   |         | $ Change |  |   | %        |  
|                                      |  | (In thousands) |          |   |      |   |         |          | 
|Cash provided by operating activities |  | $              | 50,672   |   |      | $ | 17,754  |          |  | $ | 32,918   |   |  |  | 185  | %
|Cash used in investing activities     |  |                | (8,722   | ) |      |   | (62,843 | )        |  |   | 54,121   |   |  |  | (86) | %
|Cash provided by financing activities |  |                | 151,728  |   |      |   | 8,499   |          |  |   | 143,229  |   |  |  | *    |  



|* | not meaningful
|- | --------------



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##### Table of Contents

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $35.8 million in 2010. Consistent with prior years, cash provided by operating activities
has historically been affected by revenues, changes in working capital accounts, particularly changes in deferred revenue, customer deposits, and deferred income-taxes and add-backs of non-cash expense items such as depreciation, amortization, and
the expense associated with stock-based awards. Cash flows from operating activities in 2010 were also negatively impacted by the use of cash for operating liabilities assumed from the acquisitions of Learn.com and WWC.

Stock-based compensation expense for 2010 was $14.9 million as compared to $11.0 million for 2009. This increase resulted new grants to
employees partially offset by reductions from fully vested, fully amortized stock options, which no longer impact expenses in 2010. Additionally, depreciation and amortization expense increased by $1.3 million in 2010 compared to the prior
year, due to additions to fixed assets and increased amortization expense related to intangible assets associated with the acquisitions of WWC and Learn.com, offset in part by intangible assets associated with the acquisition of Vurv becoming fully
amortized.

The change in deferred revenues was due to the addition of new customers and fluctuations resulting from the mix of
annual and quarterly application billings combined with the timing of billings and the timing of the application revenue recognized associated with those contracts. The change in accounts payable and accrued liabilities was due to the timing of
additional liabilities and payments in general, and does not reflect any significant change in the nature of accrued liabilities.

Our net accounts receivable balance fluctuates from period to period, depending on the timing of sales and billing activity, cash collections, and changes to our allowance for doubtful accounts. At
December 31, 2010, this balance increased by $14.2 million compared to December 31, 2009 and decreased by $5.3 million at December 31, 2009 compared to December 31, 2008. We use days sales outstanding, or DSO, calculated on
a quarterly basis, as a measurement of the quality and status of our receivables. We define DSO as (1) accounts receivable, net of allowance for doubtful accounts, divided by total revenue for the most recent quarter, multiplied by (2) the
number of days in that quarter. DSO remained relatively flat at 80 days at December 31, 2010 compared to 81 days at December 31, 2009.

Net Cash Used in Investing Activities

Net cash used in investing
activities was $151.6 million for 2010 compared to net cash used in investing activities of $8.7 million for 2009. The decrease resulted from $124.1 million and $13.4 million in net cash outlay to complete the acquisitions of Learn.com and WWC in
2010. Additionally, we increased capital expenditures in connection with our new production data center in the Chicago, Illinois area resulting in an increase in payments for property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in 2010 resulted primarily from proceeds from stock option exercises and proceeds from the employee stock purchase in May and October 2010. This was offset by
capital lease payments, payments for accrued costs associated with our November 2009 public offering and increases in treasury stock tax withholdings. Net cash provided by financing activities in 2009 of $151.7 million resulted primarily from the
November 19, 2009 sale of 7,475,000 Class A common shares for $20.25 resulting in net proceeds of $144.4 million.

We had capital lease obligations of $0.2 million and $0.5 million outstanding as of December 31, 2010 and 2009
respectively. These leases to unrelated third parties are subject to interest rates ranging from 4.6% to 6% and mature at varying dates through 2013.



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We acquired Learn.com on October 1, 2010 for $124.2 million in cash. We believe our
remaining cash and cash equivalents and cash provided by operating activities will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. Our future capital requirements will depend on many
factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of introductions of new
applications and enhancements to existing applications, the continuing market acceptance of our applications, the timing of general and administrative expenses as we grow our administrative infrastructure and the extent to which we acquire or invest
in complimentary business products or technologies. To the extent that existing cash and cash equivalents, and cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private
equity or debt financing. We will likely enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, applications or technologies in the future, which could also require us to
seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

Off
Balance Sheet Arrangements

We have historically not participated in transactions that involve unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. Excluding operating leases for office space, computer equipment, software, and third party facilities that host our applications, which are described below, and our indemnification agreements, we do not engage in off-balance sheet
financing arrangements.

Contractual Obligations

We generally do not enter into long-term minimum purchase commitments. Our principal commitments, which are not included in our debt
agreements discussed above, consist of obligations under leases for office space, operating leases for computer equipment and to a lesser extent, leases for third-party facilities that host our applications. The following table summarizes our
commitments to settle contractual obligations in cash under operating leases and other purchase obligations, as of December 31, 2010:

Contractual obligations (in thousands)



|                                   |  |                 |       |  |           |   |       |           |  |   |                   |  |  |   |       | 
|---------------------------------- |  | --------------- | ----- |  | --------- | - | ----- | --------- |  | - | ----------------- |  |  | - | ----- | 
|                                   |  | Less Than1 Year |       |  | 23 Years |   |       | 45 Years |  |   | More than 5 Years | 
|                                   |  | (In thousands)  |      
|Capital lease obligations          |  | $               | 105   |  |           | $ | 46    |           |  | $ |                  |  |  | $ |      | 
|Interest payments                  |  |                 | 7     |  |           |   | 2     |           |  |   |                  |  |  |   |      | 
|Facility leases                    |  |                 | 2,719 |  |           |   | 3,886 |           |  |   | 1,587             |  |  |   | 1,894 | 
|Operating equipment leases         |  |                 | 68    |  |           |   | 45    |           |  |   |                  |  |  |   |      | 
|Third party hosting facilities     |  |                 | 1,950 |  |           |   | 2,545 |           |  |   | 1,179             |  |  |   |      | 
|Software contracts                 |  |                 | 4,309 |  |           |   | 474   |           |  |   |                  |  |  |   |      | 
|                                   |  |                 |       |  |           |   |       |           |  |   |                   |  |  |   |       | 
|Total contractual cash obligations |  | $               | 9,158 |  |           | $ | 6,998 |           |  | $ | 2,766             |  |  | $ | 1,894 | 
|                                   |  |                 |       |  |           |   |       |           |  |   |                   |  |  |   |       | 

We have excluded $6.2 million in liabilities for uncertain tax benefits from the contractual obligations
table because we cannot make a reasonable reliable estimate of the periodic cash settlements with the respective taxing authorities. See Note 8 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for a discussion of
income taxes.



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Legal expenditures could also affect our liquidity. We are regularly subject to legal
proceedings and claims that arise in the ordinary course of business, see Note 9 Commitments and Contingencies in Notes to the Consolidated Financial Statements. Litigation may result in substantial costs and may divert managements
attention and resources, which may seriously harm our business, financial condition, operating results and cash flows.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Foreign Currency Exchange Risk

Our revenue is generally denominated
in the local currency of the contracting party. The majority of our revenue is denominated in U.S. dollars. For 2010, 4% and 11% of our revenue was denominated in Canadian dollars and currencies other than the U.S. or Canadian dollar,
respectively. Our expenses are generally denominated in the currencies in which our operations are located. Our expenses are incurred primarily in the United States and Canada, including the expenses associated with our largest research and
development operations that are maintained in Canada, with a small portion of expenses incurred outside of North America where our other international sales offices are located. Our results of operations and cash flows are therefore subject to
fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar, and to a lesser extent, to the Australian dollar, British pound sterling, the euro, Singapore dollar and New Zealand dollar, in which
certain of our customer contracts are denominated. For 2010, the Canadian dollar strengthened by approximately 11% against the U.S. dollar on an average basis compared to the prior year. Assuming a constant currency rate as last year, the negative
impact on our operating results was $2.1 million. If the currencies noted above uniformly fluctuated by plus or minus 500 basis points from our estimated rates, we would expect our net results to change by approximately minus or plus $0.3 million.
We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies or any derivative financial instruments for trading or speculative purposes. In the future, we may consider entering into hedging
transactions to help mitigate our foreign currency exchange risk.

Interest Rate Sensitivity

We had cash and cash equivalents of $141.6 million at December 31, 2010. This compares to $244.2 million at
December 31, 2009. These amounts were held primarily in cash or money market accounts. Cash and cash equivalents are held for working capital purposes, and restricted cash amounts are held as security against various lease obligations. We do
not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes
in interest rates. Declines in interest rates, however, will reduce future interest income.



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders

of Taleo Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statement of operations, stockholders equity and comprehensive income and cash flows present fairly, in all
material respects, the financial position of Taleo Corporation and its subsidiaries (the Company) at December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the two years in
the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is
responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Report on
Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for multiple element
revenue arrangements in 2010.

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the 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.

/s/    PricewaterhouseCoopers LLP

San Jose, California

February 28, 2011



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Taleo Corporation

We have
audited the consolidated statements of operations, stockholders equity and comprehensive income (loss), and cash flows of Taleo Corporation and its subsidiaries (the Company) for the year ended December 31, 2008. 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 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 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 audit provides a reasonable
basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the
results of operations and cash flows of the Company for the year ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 16, the accompanying consolidated financial statements for the year ended December 31, 2008 have been restated.

/s/    Deloitte & Touche LLP

San Jose, California

April 30, 2009 (October 27, 2009 as to the effects of the Restatement
 Stock-based Compensation discussed in Note 16)



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TALEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except shares and share data)



|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                          |  | December 31, |        
|                                                                                                                                                                                          |  | 2010         |         |   | 2009 |  
|ASSETS                                                                                                                                                                                    |  |              |         |   |      |   |         |  
|Current assets:                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                 |  | $            | 141,588 |   |      | $ | 244,229 |  
|Restricted cash                                                                                                                                                                           |  |              | 8       |   |      |   | 409     |  
|Accounts receivable, net of allowances of $354 at December 31, 2010 and $759 at December 31, 2009                                                                                         |  |              | 58,120  |   |      |   | 43,928  |  
|Prepaid expenses and other current assets                                                                                                                                                 |  |              | 18,065  |   |      |   | 10,126  |  
|Investment credits receivable                                                                                                                                                             |  |              | 6,034   |   |      |   | 5,499   |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Total current assets                                                                                                                                                                      |  |              | 223,815 |   |      |   | 304,191 |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Property and equipment, net                                                                                                                                                               |  |              | 26,552  |   |      |   | 23,510  |  
|Restricted cash                                                                                                                                                                           |  |              | 210     |   |      |   | 210     |  
|Goodwill                                                                                                                                                                                  |  |              | 206,418 |   |      |   | 91,027  |  
|Intangible assets, net                                                                                                                                                                    |  |              | 59,478  |   |      |   | 30,544  |  
|Other assets                                                                                                                                                                              |  |              | 7,363   |   |      |   | 6,895   |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Total assets                                                                                                                                                                              |  | $            | 523,836 |   |      | $ | 456,377 |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                      |  |              |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                                      |  |              |         |   |      |   |         |  
|Accounts payable and accrued liabilities                                                                                                                                                  |  | $            | 36,377  |   |      | $ | 23,592  |  
|Deferred revenue  application services and customer deposits                                                                                                                             |  |              | 79,704  |   |      |   | 60,140  |  
|Deferred revenue  consulting services                                                                                                                                                    |  |              | 19,692  |   |      |   | 17,523  |  
|Capital lease obligations, short-term                                                                                                                                                     |  |              | 105     |   |      |   | 412     |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                 |  |              | 135,878 |   |      |   | 101,667 |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Long-term deferred revenue  application services and customer deposits                                                                                                                   |  |              | 150     |   |      |   | 201     |  
|Long-term deferred revenue  consulting services                                                                                                                                          |  |              | 10,006  |   |      |   | 13,220  |  
|Other liabilities                                                                                                                                                                         |  |              | 9,241   |   |      |   | 3,973   |  
|Capital lease obligations, long-term                                                                                                                                                      |  |              | 46      |   |      |   | 107     |  
|Commitments and contingencies (Note 9)                                                                                                                                                    |  |              |         |   |      |   |         |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                         |  |              | 155,321 |   |      |   | 119,168 |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Stockholders equity:                                                                                                                                                                     |  |              |         |   |      |   |         |  
|Class A Common Stock; par value, $0.00001 per share; 150,000,000 shares authorized; 40,672,092 and 39,507,837 shares
outstanding at December 31, 2010 and December 31, 2009, respectively |  |              | 1       |   |      |   | 1       |  
|Additional paid-in capital                                                                                                                                                                |  |              | 442,514 |   |      |   | 414,106 |  
|Accumulated deficit                                                                                                                                                                       |  |              | (76,609 | ) |      |   | (77,029 | )
|Treasury stock, at cost, 34,738 and 111,167 outstanding at December 31, 2010 and December 31, 2009,
respectively                                                                          |  |              | (776    | ) |      |   | (2,471  | )
|Accumulated other comprehensive income                                                                                                                                                    |  |              | 3,385   |   |      |   | 2,602   |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                |  |              | 368,515 |   |      |   | 337,209 |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                |  | $            | 523,836 |   |      | $ | 456,377 |  
|                                                                                                                                                                                          |  |              |         |   |      |   |         |  

See Accompanying Notes to Consolidated Financial Statements



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TALEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                               |  | Year ended December 31, |        
|                                                               |  | 2010                    |         |   | 2009 |   |         | 2008 | 
|Revenue:                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Application                                                    |  | $                       | 199,302 |   |      | $ | 173,495 |      |  | $ | 138,628 |  
|Consulting                                                     |  |                         | 37,973  |   |      |   | 24,917  |      |  |   | 29,791  |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Total revenue                                                  |  |                         | 237,275 |   |      |   | 198,412 |      |  |   | 168,419 |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Cost of revenue:                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Application                                                    |  |                         | 48,765  |   |      |   | 41,478  |      |  |   | 32,376  |  
|Consulting                                                     |  |                         | 29,671  |   |      |   | 24,614  |      |  |   | 25,269  |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Total cost of revenue                                          |  |                         | 78,436  |   |      |   | 66,092  |      |  |   | 57,645  |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                                   |  |                         | 158,839 |   |      |   | 132,320 |      |  |   | 110,774 |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating expenses:                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Sales and marketing                                            |  |                         | 77,721  |   |      |   | 65,731  |      |  |   | 53,827  |  
|Research and development                                       |  |                         | 43,431  |   |      |   | 34,847  |      |  |   | 30,994  |  
|General and administrative                                     |  |                         | 43,834  |   |      |   | 33,152  |      |  |   | 32,382  |  
|Restructuring and severance expense                            |  |                         |        |   |      |   |        |      |  |   | 1,914   |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                       |  |                         | 164,986 |   |      |   | 133,730 |      |  |   | 119,117 |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating loss                                                 |  |                         | (6,147  | ) |      |   | (1,410  | )    |  |   | (8,343  | )
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Other income (expense):                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest income                                                |  |                         | 482     |   |      |   | 329     |      |  |   | 1,717   |  
|Interest expense                                               |  |                         | (106    | ) |      |   | (166    | )    |  |   | (199    | )
|Other income (Note 11)                                         |  |                         | 885     |   |      |   | 1,387   |      |  |   |        |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Total other income (expense), net                              |  |                         | 1,261   |   |      |   | 1,550   |      |  |   | 1,518   |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before provision for (benefit from) income taxes |  |                         | (4,886  | ) |      |   | 140     |      |  |   | (6,825  | )
|Provision for (benefit from) income taxes                      |  |                         | (5,306  | ) |      |   | (1,153  | )    |  |   | 1,303   |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                              |  | $                       | 420     |   |      | $ | 1,293   |      |  | $ | (8,128  | )
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss) per share attributable to Class A common     |  | $                       | 0.01    |   |      | $ | 0.04    |      |  | $ | (0.29   | )
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss) per share attributable to Class A common     |  | $                       | 0.01    |   |      | $ | 0.04    |      |  | $ | (0.29   | )
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Weighted-average Class A common shares  basic                 |  |                         | 39,685  |   |      |   | 31,507  |      |  |   | 27,569  |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Weighted-average Class A common shares  diluted               |  |                         | 40,915  |   |      |   | 32,406  |      |  |   | 27,569  |  
|                                                               |  |                         |         |   |      |   |         |      |  |   |         |  

See Accompanying Notes to Consolidated Financial Statements.



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TALEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2010,
2009, and 2008

(In thousands)



|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|----------------------------------------------------------- |  | ------------ | ---------- | - | ------------------------- | - | - | ------------------ |  | - | ------------- | - |  | ------------------------------------------ | ------- | - | ------------------------ | -- | ------ | -------------------------- |  | - | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                                            |  | Common Stock |            |   | AdditionalPaid-In-Capital |   |   | AccumulatedDeficit |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveIncome (Loss) |         |   | TotalStockholders'Equity |    |        | ComprehensiveIncome (Loss) | 
|                                                            |  | Shares       |            |   | ParValue                  |   |   |                    |  |   |               |  
|Balances, December 31, 2007                                 |  |              | 25,442,373 |   |                           |   |  |                    |  | $ | 154,051       |   |  | ($                                         | 70,194  | ) |                          | ($ | 195    | )                          |  | $ | 2,006  |   |  | $ | 85,668  |   |  | $ | 4,266  |  
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|Employee stock options exercised                            |  |              | 698,231    |   |                           |   |  |                    |  |   | 7,742         |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 7,742   |   |  |   |        |  
|Class A Common stock issued for acquisition of Vurv         |  |              | 3,823,192  |   |                           |   |  |                    |  |   | 73,444        |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 73,444  |   |  |   |        |  
|Class A Common stock exchange for Vurv stock options        |  |              |           |   |                           |   |  |                    |  |   | 1,745         |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 1,745   |   |  |   |        |  
|Issuance of ESPP shares                                     |  |              | 175,669    |   |                           |   |  |                    |  |   | 1,173         |   |  |                                            |        |   |                          |    | 1,263  |                            |  |   |       |   |  |   | 2,436   |   |  |   |        |  
|Class B Common stock exchanged for Class A Common Stock     |  |              | 655,652    |   |                           |   |  |                    |  |   | 282           |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 282     |   |  |   |        |  
|Shares acquired for payroll tax payments                    |  |              | (49,326    | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    | (1,068 | )                          |  |   |       |   |  |   | (1,068  | ) |  |   |        |  
|Restricted shares reacquired or forfeited                   |  |              | (81,743    | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   |        |   |  |   |        |  
|Issuance of restricted shares                               |  |              | 456,566    |   |                           |   |  |                    |  |   | 242           |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 242     |   |  |   |        |  
|Stock-based compensation                                    |  |              |           |   |                           |   |  |                    |  |   | 11,433        |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 11,433  |   |  |   |        |  
|Excess tax benefit associated with stock based compensation |  |              |           |   |                           |   |  |                    |  |   | 56            |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 56      |   |  |   |        |  
|Net loss                                                    |  |              |           |   |                           |   |  |                    |  |   |              |   |  |                                            | (8,128  | ) |                          |    |       |                            |  |   |       |   |  |   | (8,128  | ) |  | $ | (8,128 | )
|Foreign currency translation adjustments                    |  |              |           |   |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   | (1,431 | ) |  |   | (1,431  | ) |  |   | (1,431 | )
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|Balances, December 31, 2008                                 |  |              | 31,120,614 |   |                           |   |  |                    |  | $ | 250,168       |   |  | $                                          | (78,322 | ) |                          | $  |       |                            |  | $ | 575    |   |  | $ | 172,421 |   |  | $ | (9,559 | )
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|Employee stock options exercised                            |  |              | 616,806    |   |                           |   |  |                    |  |   | 7,438         |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 7,438   |   |  |   |        |  
|Issuance of restricted shares                               |  |              | 300,592    |   |                           |   |  |                    |  |   | 247           |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 247     |   |  |   |        |  
|Issuance of ESPP shares                                     |  |              | 182,608    |   |                           |   |  |                    |  |   | 1,137         |   |  |                                            |        |   |                          |    | 1,066  |                            |  |   |       |   |  |   | 2,203   |   |  |   |        |  
|Stock offering                                              |  |              | 7,475,000  |   |                           |   | 1 |                    |  |   | 151,370       |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 151,371 |   |  |   |        |  
|Stock offering transaction cost                             |  |              |           |   |                           |   |  |                    |  |   | (7,584        | ) |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | (7,584  | ) |  |   |        |  
|Shares received from Vurv escrow settlement                 |  |              | (111,167   | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    | (2,471 | )                          |  |   |       |   |  |   | (2,471  | ) |  |   |        |  
|Shares acquired for payroll tax payments                    |  |              | (67,865    | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    | (1,066 | )                          |  |   |       |   |  |   | (1,066  | ) |  |   |        |  
|Restricted shares reacquired or forfeited                   |  |              | (8,751     | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   |        |   |  |   |        |  
|Stock-based compensation                                    |  |              |           |   |                           |   |  |                    |  |   | 11,029        |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 11,029  |   |  |   |        |  
|Excess tax benefit associated with stock-based compensation |  |              |           |   |                           |   |  |                    |  |   | 301           |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 301     |   |  |   |        |  
|Net income                                                  |  |              |           |   |                           |   |  |                    |  |   |              |   |  |                                            | 1,293   |   |                          |    |       |                            |  |   |       |   |  |   | 1,293   |   |  | $ | 1,293  |  
|Foreign currency translation adjustments                    |  |              |           |   |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   | 2,027  |   |  |   | 2,027   |   |  |   | 2,027  |  
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|Balances, December 31, 2009                                 |  |              | 39,507,837 |   |                           | $ | 1 |                    |  | $ | 414,106       |   |  | $                                          | (77,029 | ) |                          | $  | (2,471 | )                          |  | $ | 2,602  |   |  | $ | 337,209 |   |  | $ | 3,320  |  
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|Employee stock options exercised                            |  |              | 970,329    |   |                           |   |  |                    |  |   | 13,678        |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 13,678  |   |  |   |        |  
|Issuance of restricted shares                               |  |              | 45,807     |   |                           |   |  |                    |  |   | 240           |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 240     |   |  |   |        |  
|Issuance of ESPP shares                                     |  |              | 186,786    |   |                           |   |  |                    |  |   | (742          | ) |  |                                            |        |   |                          |    | 4,519  |                            |  |   |       |   |  |   | 3,777   |   |  |   |        |  
|Vested restricted stock units converted to shares           |  |              | 140,139    |   |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   |        |   |  |   |        |  
|Shares acquired for payroll tax payments                    |  |              | (110,357   | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    | (2,824 | )                          |  |   |       |   |  |   | (2,824  | ) |  |   |        |  
|Restricted shares reacquired or forfeited                   |  |              | (68,449    | ) |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   |        |   |  |   |        |  
|Stock-based compensation                                    |  |              |           |   |                           |   |  |                    |  |   | 14,939        |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 14,939  |   |  |   |        |  
|Excess tax benefit associated with stock-based compensation |  |              |           |   |                           |   |  |                    |  |   | 293           |   |  |                                            |        |   |                          |    |       |                            |  |   |       |   |  |   | 293     |   |  |   |        |  
|Net income                                                  |  |              |           |   |                           |   |  |                    |  |   |              |   |  |                                            | 420     |   |                          |    |       |                            |  |   |       |   |  |   | 420     |   |  | $ | 420    |  
|Foreign currency translation adjustments                    |  |              |           |   |                           |   |  |                    |  |   |              |   |  |                                            |        |   |                          |    |       |                            |  |   | 783    |   |  |   | 783     |   |  |   | 783    |  
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  
|Balances, December 31, 2010                                 |  |              | 40,672,092 |   |                           | $ | 1 |                    |  | $ | 442,514       |   |  | $                                          | (76,609 | ) |                          | $  | (776   | )                          |  | $ | 3,385  |   |  | $ | 368,515 |   |  | $ | 1,203  |  
|                                                            |  |              |            |   |                           |   |   |                    |  |   |               |   |  |                                            |         |   |                          |    |        |                            |  |   |        |   |  |   |         |   |  |   |        |  

See Accompanying Notes to Consolidated Financial Statements.



68



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##### Table of Contents

TALEO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                         |  | Year Ended December 31, |         
|                                                                                         |  | 2010                    |          |   | 2009 |   |         | 2008 | 
|Cash flows from operating activities:                                                    |  |                         |          |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                        |  | $                       | 420      |   |      | $ | 1,293   |      |  | $ | (8,128  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                         |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                            |  |                         | 28,720   |   |      |   | 27,437  |      |  |   | 16,453  |  
|(Gain) / loss on disposal of fixed assets and other assets                               |  |                         | 98       |   |      |   | 17      |      |  |   | (64     | )
|Tenant inducements from landlord                                                         |  |                         |         |   |      |   | 114     |      |  |   |        |  
|Amortization of tenant inducements                                                       |  |                         | (176     | ) |      |   | (152    | )    |  |   | (152    | )
|Stock-based compensation expense                                                         |  |                         | 14,939   |   |      |   | 11,029  |      |  |   | 11,433  |  
|Director fees paid with stock in lieu of cash                                            |  |                         | 240      |   |      |   | 247     |      |  |   | 242     |  
|Worldwide Compensation purchase option write-off                                         |  |                         |         |   |      |   | 1,084   |      |  |   |        |  
|Settlement of Vurv escrow account                                                        |  |                         |         |   |      |   | (2,471  | )    |  |   |        |  
|Gain on remeasurement of previously held interest in Worldwide Compensation, Inc.        |  |                         | (885     | ) |      |   |        |      |  |   |        |  
|Excess tax benefits on the exercise of stock options                                     |  |                         | (293     | ) |      |   | (301    | )    |  |   |        |  
|Bad debt provision (reduction)                                                           |  |                         | (83      | ) |      |   | 840     |      |  |   | 237     |  
|Changes in assets and liabilities, net of effect of acquisitions:                        |  |                         |          |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                      |  |                         | (11,046  | ) |      |   | 4,440   |      |  |   | (11,663 | )
|Prepaid expenses and other assets                                                        |  |                         | (8,436   | ) |      |   | (1,576  | )    |  |   | (3,836  | )
|Investment credit receivable                                                             |  |                         | (275     | ) |      |   | 1,471   |      |  |   | (2,637  | )
|Income tax benefit related to the acquisition of Learn.com                               |  |                         | (6,546   | ) |      |   |        |      |  |   |        |  
|Accounts payable and accrued liabilities                                                 |  |                         | 8,371    |   |      |   | (2,249  | )    |  |   | (5,329  | )
|Deferred revenues and customer deposits                                                  |  |                         | 10,744   |   |      |   | 9,449   |      |  |   | 21,198  |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                |  |                         | 35,792   |   |      |   | 50,672  |      |  |   | 17,754  |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                    |  |                         |          |   |      |   |         |      |  |   |         |  
|Purchases of property and equipment                                                      |  |                         | (14,517  | ) |      |   | (9,140  | )    |  |   | (11,055 | )
|Change in restricted cash                                                                |  |                         | 401      |   |      |   | 418     |      |  |   | 375     |  
|Purchase of investment                                                                   |  |                         |         |   |      |   |        |      |  |   | (2,498  | )
|Acquisition of business, net of cash acquired                                            |  |                         | (137,504 | ) |      |   |        |      |  |   | (49,665 | )
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                    |  |                         | (151,620 | ) |      |   | (8,722  | )    |  |   | (62,843 | )
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                    |  |                         |          |   |      |   |         |      |  |   |         |  
|Principal payments on capital lease obligations                                          |  |                         | (1,652   | ) |      |   | (1,591  | )    |  |   | (667    | )
|Excess tax benefits on the exercise of stock options                                     |  |                         | 293      |   |      |   | 301     |      |  |   | 56      |  
|Treasury stock acquired to settle employee withholding liability                         |  |                         | (2,824   | ) |      |   | (1,066  | )    |  |   | (1,068  | )
|Net proceeds from stock offering                                                         |  |                         |         |   |      |   | 144,444 |      |  |   |        |  
|Payments for expenses associated with 2009 equity offering                               |  |                         | (659     | ) |      |   |        |      |  |   |        |  
|Proceeds from stock options exercised and ESPP Shares                                    |  |                         | 17,455   |   |      |   | 9,640   |      |  |   | 10,178  |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                |  |                         | 12,613   |   |      |   | 151,728 |      |  |   | 8,499   |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                             |  |                         | 574      |   |      |   | 1,089   |      |  |   | (83     | )
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Increase (decrease) in cash and cash equivalents                                         |  |                         | (102,641 | ) |      |   | 194,767 |      |  |   | (36,673 | )
|Cash and cash equivalents:                                                               |  |                         |          |   |      |   |         |      |  |   |         |  
|Beginning of period                                                                      |  |                         | 244,229  |   |      |   | 49,462  |      |  |   | 86,135  |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|End of period                                                                            |  | $                       | 141,588  |   |      | $ | 244,229 |      |  | $ | 49,462  |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Supplemental cash flow disclosures:                                                      |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash paid for interest                                                                   |  | $                       | 18       |   |      | $ | 64      |      |  | $ | 60      |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash paid for income taxes                                                               |  | $                       | 2,469    |   |      | $ | 275     |      |  | $ | 278     |  
|                                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of non-cash financing and investing activities:                  |  |                         |          |   |      |   |         |      |  |   |         |  
|Property and equipment acquired under capital lease                                      |  | $                       | 104      |   |      | $ |        |      |  | $ |        |  
|Property and equipment purchases included in accounts payable and accrued liabilities    |  | $                       | 2,771    |   |      | $ | 2,636   |      |  | $ | 1,416   |  
|Accrued offering expenses                                                                |  | $                       |         |   |      | $ | 659     |      |  | $ |        |  
|Class B common stock exchanged for Class A common stock                                  |  | $                       |         |   |      | $ |        |      |  | $ | 282     |  
|Stock and stock options issued in connection with Vurv acquisition                       |  | $                       |         |   |      | $ |        |      |  | $ | 75,189  |  

See Accompanying Notes
to Consolidated Financial Statements.



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##### Table of Contents

TALEO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Nature of Business  We provide on-demand talent management solutions that enable organizations of all sizes to assess,
acquire, develop, compensate and align their workforces for improved business performance. Our software applications are offered to customers primarily on a subscription basis.

Taleo Corporation was incorporated under the laws of the state of Delaware in May 1999 as Recruitsoft, Inc. and changed its name to Taleo
Corporation in March 2004. Our principal offices are in Dublin, California and we conduct our business worldwide, with wholly owned subsidiaries in Canada, France, the Netherlands, the United Kingdom, Singapore, and Australia. The subsidiary in
Canada primarily performs product development, production, and customer support activities, and the other foreign subsidiaries are generally engaged in providing sales, account management and support activities.

Basis of Presentation  The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The consolidated financial statements include the accounts of Taleo Corporation and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. For the year
ended December 31, 2010, we recorded adjustments that accumulated to $0.1 million related to prior years that impacted revenue, net income and certain balance sheet accounts. Such adjustments were assessed according to the SECs Staff
Accounting Bulletin 108 and deemed immaterial to the current or previously reported financial statements.

Allocation of
Overhead Costs  We allocate overhead such as rent and occupancy charges, employee benefit costs and depreciation expense to all departments based on employee count. As such, overhead expenses are reflected in each cost of revenue and
operating expense category.

Use of Estimates  The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America, or GAAP, requires our management to make estimates and assumptions that affect the amount of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Items subject to the use of estimates include revenue recognition, recoverability of
accounts receivable, impairment of goodwill, other intangible assets and other long-lived assets, amortization of acquired intangible assets, stock-based compensation expense and provision for (benefit from) income taxes.

Revenue Recognition  We derive revenue from fixed subscription fees for access to and use of our on-demand application
services and from consulting fees from services to support the implementation, configuration, education, and optimization of the applications. We present revenue and deferred revenue from each of these sources separately in our consolidated
financial statements.

In addition to fixed subscription fees arrangements, we have on limited occasions, entered into, or
acquired arrangements which include perpetual licenses with hosting services to be provided over a fixed term. For hosted arrangements, revenues are recognized in accordance with the standards established by the FASB for hosting arrangements that
includes a right of the customer to use the software on another entitys hardware.

Our application and
consulting fee revenue is recognized when all of the following conditions have been satisfied:



| |  |  | persuasive evidence of an agreement exists;
| | - |  | -------------------------------------------



| |  |  | delivery has occurred;
| | - |  | ----------------------



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##### Table of Contents

TALEO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| |  |  | fees are fixed or determinable; and
| | - |  | -----------------------------------



| |  |  | the collection of fees is considered probable.
| | - |  | ----------------------------------------------

If collection is not considered probable, we recognize revenues when the fees for the services performed are collected. Application agreements entered into are generally non-cancelable, or contain
significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform our material obligations. However, if non-standard acceptance periods or non-standard performance
criteria, cancellation or right of refund terms are required, we recognize revenue upon the satisfaction of such criteria, as applicable.

Application Revenue

The majority of our application revenue is
recognized monthly over the life of the application agreement, based on stated, fixed-dollar amount contracts with our customers and consists of:



| |  |  | fees paid for subscription services;
| | - |  | ------------------------------------



| |  |  | amortization of any related set-up fees; and
| | - |  | --------------------------------------------



| |  |  | amortization of fees paid for hosting services and software maintenance services under certain software license arrangements
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

Set up fees paid by customers in connection with subscription services are deferred and recognized ratably
over the longer of the life of the application agreement or the expected lives of customer relationships, which generally range from three to seven years. We continue to evaluate the length of the amortization period of the set up fees as we gain
more experience with customer contract renewals.

Consulting Revenue

Consulting revenue consists primarily of fees associated with application configuration, integration, business process re-engineering,
change management, and education and training services. Our consulting engagements are typically billed on a time and materials basis. These services are generally performed within six to twelve months after the consummation of the arrangement.
From time to time, certain of our consulting projects are subcontracted to third parties. Customers may also elect to use unrelated third parties for the types of consulting services that it offers. Our typical consulting contract provides for
payment within 30 to 60 days of invoice.

In October 2009, the FASB amended the accounting standards for revenue recognition
for multiple deliverable revenue arrangements to:



| |  |  | provide updated guidance on how the deliverables of an arrangement should be separated, and how the consideration should be allocated:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | require an entity to allocate revenue to an arrangement using the estimated selling prices (ESP) of deliverables if it does not have
vendor-specific objective evidence (VSOE) or third-party evidence (TPE) of selling price.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Valuation terms are defined as set forth below:



| |  |  | VSOE  the price at which we sell the element in a separate stand-alone transaction
| | - |  | -----------------------------------------------------------------------------------



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TALEO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| |  |  | TPE  evidence from us or other companies of the value of a largely interchangeable element in a transaction
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | ESP  our best estimate of the selling price of an element in a transaction.
| | - |  | ----------------------------------------------------------------------------

We elected to early adopt this accounting guidance for the year ending December 31, 2010 on a prospective basis.

We follow accounting guidance for revenue recognition of multiple-element arrangements to determine whether such arrangements contain
more than one unit of accounting. Multiple-element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. To qualify as a separate unit of accounting, the delivered item must have value to the
customer on a standalone basis. Our consulting services have standalone value because those services are sold separately by other vendors, and we have VSOE for determining fair value for consulting services based on the consistency in pricing when
sold separately. Our application services have standalone value as such services are often sold separately. However, we use ESP to determine fair value for application services when sold in a multi-element arrangement as we do not have VSOE for
these application services and TPE is not a practical alternative due to differences in features and functionality of other companies offerings. When new application services products are acquired or developed that require significant consulting
services in order to deliver the application service, and the application and consulting services cannot support standalone value, then such application and consulting services will be evaluated as one unit of accounting. We determined our ESP of
fair value for our application services based on the following:



| |  |  | We have defined processes and controls to ensure our pricing integrity. Such controls include oversight by a pricing committee that includes a cross
functional team and members of executive management. Significant factors considered when establishing pricing include market conditions, underlying costs, promotions, and pricing history of similar services. Based on this information, management
establishes or modifies pricing that is approved by the pricing committee.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We analyzed application services pricing history and stratified the population based on actual pricing trends within certain markets and established
ESP for each market.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For multi-element arrangements entered into or materially modified in 2010, we
allocate consideration in multi-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for each separate element based on its fair value. The consulting revenue associated with the consulting services
element of such multi-element arrangements is generally recognized as the consulting services are performed, or using a proportional performance model based on services performed for fixed fee consulting engagements.

For multi-element arrangements entered into prior to 2010, the related consulting revenues are recognized ratably over the remaining
subscription term, unless the transaction is materially modified. In the event of a material modification to such multi-element arrangements, the transaction is evaluated in accordance with the new accounting guidance which will most likely
result in any deferred services revenue being recognized at the time of the material modification.

This change in policy
significantly increased consulting revenue and related gross margins in 2010 as we recognized previously deferred services revenue ratably for multi-element arrangements that occurred prior to fiscal year 2010, while consulting revenue from new
transactions in 2010 were generally recognized as performed.



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Consulting revenue recognized in 2010 related to multi-element arrangements entered into
prior to 2010 was approximately $13.4 million. Additionally, in 2010 we deferred revenue of $9.7 million for services performed related to multi-element arrangements entered into prior to 2010. For 2010, the impact on our revenue under the new
accounting guidance as compared to our previous policy resulted in approximately $8.8 million of revenue recognized as performed that would have previously been deferred and recognized ratably.

For consulting services sold separately from application services, we recognize consulting revenues as services are performed for hourly
consulting engagements, or using a proportional performance model based on services performed for fixed fee consulting engagements.

Expenses associated with delivering all consulting services are recognized as incurred when the services are performed. Associated out-of-pocket travel costs and expenses related to the delivery of
consulting services are typically reimbursed by the customer. This is accounted for as both revenue and expense in the period the cost is incurred.

Deferred Revenue and Customer Deposits  Deferred revenue and customer deposits primarily consists of billings or payments received in advance of revenue recognition from our solutions
described above and are recognized as the revenue recognition criteria are met. We generally invoice our customers for application agreements in quarterly or annual installments. Accordingly, the deferred revenue balance does not represent the total
contract value of all, multi-year, noncancelable subscription agreements in effect. The portion of deferred revenue that we anticipate will be recognized after the succeeding 12-month period is recorded as non-current deferred revenue and the
remaining portion is recorded as current deferred revenue.

Commission Expense  Commissions are the incremental
costs that are directly associated with revenue contracts. In the case of commissions for application revenue contracts, the commissions are calculated based upon a percentage of the revenue for the first contract year. Commissions are expensed over
the twelve-month period following the initiation of a new customer contract. To the extent that a commission is paid before it is expensed, it is recorded as a prepaid expense and amortized over the period benefited by the service period of the
sales person.

Goodwill and Other Intangible Assets  Goodwill represents the excess of the purchase price over
the fair value of net assets acquired in connection with business combinations accounted for using the purchase method of accounting. We perform a goodwill impairment test annually during the fourth quarter of our fiscal year and more frequently if
events or circumstances indicate that an impairment may have occurred. October 1 has been adopted as the date of the annual impairment test. The impairment test compares the fair value of our reporting units to their carrying amount, including
goodwill, to assess whether impairment is present. We estimate the fair value of our reporting units using two methods: quoted market price and a discounted cash flow valuation model. The discounted cash flow method requires estimates of our future
revenues, profits, capital expenditures, working capital, and other relevant factors from a market participants perspective. We estimate these amounts by evaluating historical trends, current budgets, operating plans, industry data, and other
relevant factors. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Based on the most recent impairment test conducted on October 1, 2010, we
concluded that there was no impairment of goodwill as of that date. We will continue to assess the impairment of goodwill annually on October 1 or sooner, if other indicators of impairment arise. See Note 3. Intangible Assets and
Goodwill.

Identified intangible assets primarily consist of acquisition-related developed technology, customer
relationships, trade names and non-compete agreements which are generally amortized over the periods of benefit, ranging from one to seven years. We review the carrying value of long-lived assets including intangible



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assets when impairment indicators arise. If such facts and circumstances exist, we assess the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows
associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is
shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. There were no material impairment charges related to identified intangible assets during 2010.

Impairment of Long-Lived Assets  We assess potential impairment to long-lived assets whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows that are
expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed are
reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes  We are subject to
income taxes in both the United States and foreign jurisdictions based upon actual and estimated amounts. We account for income taxes using the asset/liability method. We record deferred tax assets and liabilities on the balance sheet as temporary
differences arise. Our temporary differences arise because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses, gains and losses. A difference between the tax
basis of an asset or a liability and its reported amount in the statement of financial position will result in taxable or deductible amounts in some future year(s) when the reported amounts of assets are recovered and the reported amounts of
liabilities are settled. A full valuation allowance against our U.S. deferred tax assets is maintained based upon on evidence that demonstrates that our net deferred tax assets are not more likely than not to be deductible in some future year(s).
Deferred tax assets, related valuation allowances, and deferred tax liabilities are determined separately by tax jurisdiction. This process involves estimating current tax expense (benefit) together with assessing temporary differences. Our deferred
tax assets consist primarily of net operating loss carryforward balances, Canadian federal investment tax credits, and temporary differences related to deferred revenue and stock based compensation. Our deferred tax liabilities consist primarily of
acquired intangible assets that are amortizable for financial reporting purposes only.

We account for uncertain tax positions
by recognizing and measuring tax benefits taken or expected to be taken on a tax return. A tax benefit from an uncertain position may be recognized only if it is more likely than not that the position is sustainable, based solely on its technical
merits and consideration of the relevant taxing authoritys widely understood administrative practices and precedents. If the recognition threshold is met, only the portion of the tax benefit that is greater than 50 percent likely to be
realized upon settlement with a taxing authority (that has full knowledge of all relevant information) is recorded. The tax benefit that is not recorded is considered an unrecognized tax benefit and disclosed in our financial statement in accordance
with ASC 740. We recognize interest and penalties related to uncertain tax positions in income tax expense. See Note 8 to the Consolidated Financial Statements of this Form 10-K for a discussion of income taxes.



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Allowance for Doubtful Accounts  We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of customers to make required payments. This allowance is established using estimates formulated by our management based upon factors such as the composition of the accounts receivable
aging, historical bad debts, changes in payments patterns, customer creditworthiness, and current economic trends. The following is a summary of the activity in the allowance for doubtful accounts for the years ended December 31:



|                                      |  |                |      |   |      |   |      |      |  |   |      |  
|------------------------------------- |  | -------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                      |  | 2010           |      |   | 2009 |   |      | 2008 | 
|                                      |  | (In thousands) |     
|Balance at January 1                  |  | $              | 759  |   |      | $ | 884  |      |  | $ | 369  |  
|Additions (Deductions)                |  |                | (83  | ) |      |   | 840  |      |  |   | 237  |  
|Provision related to Vurv acquisition |  |                |     |   |      |   | (241 | )    |  |   | 602  |  
|Write-offs charged against allowance  |  |                | (322 | ) |      |   | (724 | )    |  |   | (324 | )
|                                      |  |                |      |   |      |   |      |      |  |   |      |  
|Balance at December 31                |  | $              | 354  |   |      | $ | 759  |      |  | $ | 884  |  
|                                      |  |                |      |   |      |   |      |      |  |   |      |  

Cash and Cash Equivalents  We define cash and cash equivalents as cash and highly liquid
investments with maturity of three months or less when purchased.

Restricted Cash  Our restricted cash balance
of $0.2 million at December 31, 2010 is maintained in one money market account and is collateralized by a letter of credit issued to our landlord as a security deposit. The money market account bears interest at prevailing market rates. The
rates at December 31, 2010 ranged from 0.15% to 0.75%.

Concentration of Credit and Market Risk and Significant
Customers and Suppliers  Financial instruments that potentially subject us to credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain substantially all of our cash and cash equivalents in financial
institutions that we believe to have good credit ratings and represent minimal risk of loss of principal. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Certain operating cash
accounts may exceed the FDIC limits.

Our allowance for doubtful accounts is based upon historical loss patterns, the number
of days that billings are past due and an evaluation of the potential risk of loss associated with problem accounts. We do not require our customers to provide collateral. Credit risk arising from accounts receivable is mitigated due to the large
number of customers comprising our customer base and their dispersion across various industries. During the years ended December 31, 2010, 2009, and 2008 there was no customer that individually represented greater than 10% of our total revenue,
and at December 31, 2010 and 2009, no customer represented greater than 10% of our accounts receivable.

A portion of our
revenues and expenses are generated in Canadian dollars as well as other foreign currencies and, as a result, we are exposed to market risks from changes in foreign currency exchange rates.

Fair Value of Financial Instruments  The carrying amounts of our financial instruments, which include cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, and other accrued expenses, approximate their fair values due to their short maturities. Based on borrowing rates currently available to us for loans with similar terms, the
carrying value of capital lease obligations approximates fair value.

Foreign Currency Translation  The
U.S. dollar is the reporting currency for all periods presented. The financial information for entities outside the United States is measured using their local currency as the functional currency. Assets and liabilities for foreign entities are
translated into U.S. dollars at the exchange rate



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in effect on the respective balance sheet dates, and revenues and expenses are translated into U.S. dollars based on the average rate of exchange for the corresponding period. Exchange rate
differences resulting from translation adjustments are accounted for as a component of accumulated comprehensive income. Gains or losses from foreign currency transactions are reflected in the consolidated statements of operations within the line
item general and administrative expense, and were $1.1 million, $0.9 million, and $1.0 million in 2010, 2009, and 2008, respectively. Such foreign currency transactions include billings denominated in foreign currencies by our U.S. entity,
which are reported based on the applicable exchange rate in effect on the balance sheet date. The related deferred revenue from such billings is reported in U.S. dollars at the exchange rate in effect at the billing dates when the revenue was
deferred.

Property and Equipment  Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to operations. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets or, for leasehold improvements, the shorter of lease term or useful
life of the asset. The following table presents the estimated useful lives of our property and equipment:



|                               |  |                                              
|------------------------------ |  | ---------------------------------------------
|Computer hardware and software |  | 3 to 5 years                                 
|Furniture and equipment        |  | 5 years                                      
|Leasehold improvements         |  | Shorter of lease term or useful life of asset

Investment Credits  We participate in a provincial government program in Quebec that provides investment credits based upon qualifying research and development expenditures. We have
participated in the program for ten years, and management expects that we will continue to be eligible to earn these refundable investment credits through December 2010, when the program is scheduled to end. The credits are estimated and recognized
when the expenditures are made. The credits earned are reported as a reduction of related research and development expense in the year incurred. During the years ended December 31, 2010, 2009, and 2008, approximately $2.8 million,
$2.4 million, and $2.3 million, respectively, have been recorded as a reduction of research and development expenses. This particular refundable investment credit program in Quebec has been eliminated for 2011 and beyond. We have
applied for an alternative provincial investment program that will replace the expiring December 2010 Quebec program and our application is under review by the Quebec revenue authorities. It is uncertain whether we will qualify under this new
program, and if we do qualify, the total amount of refundable tax credits we will receive is uncertain.

In addition to the
provincial research and development investment credit program described above, our Canadian subsidiary participates in a scientific research and experimental development, or SRED, program administered by the Canadian federal government that provides
income tax credits based upon qualifying research and development expenditures. For tax year 2010, we recorded an estimated SRED credit claim of approximately $1.1 million and we are eligible to remain in the SRED program for future tax years as
long as our development projects continue to qualify. These Canadian federal SRED tax credits can only be applied to offset Canadian federal taxes payable and are reported as a credit to our tax provision to the extent they reduce taxes payable to
zero with any residual benefits recorded as a net deferred tax asset.

Advertising Expenses  The cost of
advertising is expensed as incurred as a component of sales and marketing expense on the consolidated statement of operations. Advertising costs were approximately $1.0 million, $0.7 million, and $1.7 million for the years ended
December 31, 2010, 2009, and 2008, respectively.

Product and Software Development Costs  We incur costs to
develop internal-use software during the application development stage. These costs are capitalized after technological feasibility of the product has been



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established. Due to the frequency of the delivery of our product releases, there have been no material qualifying costs incurred during the application development stage in any of the periods
presented.

Warranties and Indemnification Our application suite is generally warranted to perform substantially
in accordance with our standard documentation. Additionally, our customer agreements generally include provisions for indemnifying customers against liabilities if our services infringe a third partys intellectual property rights or in the
event of certain other damages caused by us. Our customer agreements generally include defined service level commitments for system availability and other measures. Failure to meet these service levels could result in an obligation for us
to issue service credits or, for certain material failures, give rise to a right for the customer to terminate the agreement. To date, we have not accrued any material liabilities related to these agreements in the accompanying consolidated
financial statements.

We also have entered into customary indemnification agreements with each of our officers and directors.

Stock-Based Compensation  We amortize stock-based compensation expense based upon the fair value of stock-based
awards on a straight-line basis over the requisite vesting period as defined in the applicable plan documents. Corporate income tax benefits realized upon exercise or vesting of an award in excess of that previously recognized in earnings, referred
to as an excess tax benefit, are presented in the consolidated statements of cash flows as a financing activity. Realized excess tax benefits are credited to additional paid-in capital in the consolidated balance sheets. Realized shortfall tax
benefits, amounts which are less than that previously recognized in earnings, are first offset against the cumulative balance of excess tax benefits, if any, and then charged directly to income tax expense. See Note 7. Common Stock

Comprehensive Income (Loss)  Comprehensive income (loss) consists of net income (loss) and other comprehensive
income (loss). Other comprehensive income/(loss) consists of foreign currency translation adjustments related to the net assets of the operations of our foreign subsidiaries and is presented in the consolidated statements of stockholders
equity under the caption Accumulated Other Comprehensive Income (Loss). Comprehensive Income (Loss) for the years ended December 31, 2010, 2009, and 2008, was approximately $1.2 million, $3.3 million, and $(9.6) million,
respectively.

Recently Adopted Accounting Pronouncements 

In December 2007, the Financial Accounting Standards Board (FASB) issued revised guidance to address the financial accounting
and reporting for business combinations, which can be found in ASC 805, Business Combinations (ASC 805). ASC 805 supersedes the prior FASB guidance on business combinations and retains the fundamental requirements set forth
therein regarding the purchase method of accounting. However, it expands the guidance to enable proper recognition and measurement, at fair value, the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquired
business. In addition, ASC 805 introduces new accounting guidance on how to recognize and measure contingent consideration, contingencies, acquisition and restructuring costs. These provisions of ASC 805 were effective for acquisitions occurring
after January 1, 2009.

Recent Accounting Pronouncements 

In December 2010, the FASB issued ASU 2010-28, Intangibles  Goodwill and Other (Topic 350): When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. For reporting units with zero or negative carrying amounts, if it is more likely than not that a goodwill impairment exists, ASU 2010-28 requires performance of
an additional test to determine whether goodwill has



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been impaired and to calculate the amount of impairment. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years and interim periods within those years beginning after December 15, 2010. We will adopt ASU 2009-28 in the first quarter of 2011. The
impact of adopting ASU 2010-28 will not be known until we perform our evaluations of goodwill impairment.

In December 2010,
the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. ASU 2010-29 specifies that, for material business combinations when comparative financial statements
are presented, revenue and earnings of the combined entity should be disclosed as though the business combination had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-09 also expands the supplemental pro forma
disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-09 is effective

prospectively for business combinations with an acquisition date on or after the beginning of the first annual reporting
period after December 15, 2010. We will adopt this standard for acquisitions in 2011.

2. Business Combinations and Dispositions

We completed the acquisitions of Learn.com, Inc. (Learn.com) and Worldwide Compensation, Inc.
(WWC) in 2010. We adopted ASC 805 in 2009. There were no acquisitions in 2009 and the acquisitions of Learn.com and WWC in 2010 were accounted for in accordance with ASC 805. The goodwill recorded in connection with the
business combinations is primarily related to the ability of the acquired companies to develop new products and technologies in the future and expected synergies to be achieved in connection with the acquisitions. The goodwill recognized is not
expected to be deductible for income tax purposes. Transaction costs associated with the business combinations are expensed as incurred, and such transaction costs were $6.8 million for the year ended December 31, 2010 and are included general
and administrative expenses in the consolidated statement of operations.

Acquisition of Learn.com

On October 1, 2010, we completed our acquisition of Learn.com, a private company headquartered in Florida that provides SaaS learning
and development solutions to enable businesses to more seamlessly develop, deliver and manage education and training to employees, customers, partners and resellers. We expect the Learn.com learning and development management solutions to complement
our existing talent management products. The total consideration paid by us to acquire all of the outstanding common stock and vested options of Learn.com was $124.2 million in cash. Approximately ten percent (10%) of the consideration has been
placed into escrow for twelve months following the closing to be held as security for losses incurred by us in the event of certain breaches of the representations and warranties by Learn.com. We have no contingent cash payments related to this
transaction. The assets, liabilities and operating results of Learn.com have been reflected in our consolidated financial statements from the date of acquisition.

Allocation of Purchase Price

Under the acquisition method of
accounting, the total purchase price paid for the 100% equity interest has been allocated to the net identifiable assets based on their estimated fair value at the date of acquisition. As part of the process, we performed a valuation analysis to
determine the fair values of certain identifiable intangible



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assets of Learn.com as of the valuation date. The determination of the value of these components required us to make various estimates and assumptions. Critical estimates in valuing certain of
the intangible assets include but are not limited to the net present value of future expected cash flows from product sales and services. The fair value of deferred revenue was determined based on the estimated direct cost of fulfilling the
obligation to the customer while the fair value for all other assets and liabilities acquired was determined based on estimated future benefits or legal obligations associated with the respective asset or liability. The excess of the purchase
price over the net identifiable intangible assets, other identifiable assets and liabilities acquired has been recorded as goodwill. The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed at the
acquisition date. These preliminary estimates are subject to change during the measurement period (up to one year from the acquisition date) as we finalize the valuation of certain assets acquired and liabilities assumed in connection with the
acquisition.

The following table summarizes the fair values of assets acquired and liabilities assumed as of October 1,
2010:



|                                         |  |                |         |  
|---------------------------------------- |  | -------------- | ------- | -
|Purchase Price                           |  | Amount         |        
|                                         |  | (In thousands) |        
|Cash                                     |  | $              | 124,219 |  
|                                         |  |                |         |  
|                                         | 
|Allocation of purchase price             |  | Amount         |        
|                                         |  | (In thousands) |        
|Accounts receivable, net                 |  | $              | 2,616   |  
|Other current assets                     |  |                | 907     |  
|Property and equipment                   |  |                | 1,315   |  
|Other Assets                             |  |                | 304     |  
|Accounts payable and accrued liabilities |  |                | (10,077 | )
|Long term liabilities                    |  |                | (48     | )
|Deferred taxes, net                      |  |                | (6,546  | )
|Deferred revenue                         |  |                | (6,663  | )
|Goodwill                                 |  |                | 103,768 |  
|Intangible assets                        |  |                | 38,643  |  
|                                         |  |                |         |  
|Total purchase price                     |  | $              | 124,219 |  
|                                         |  |                |         |  

We did not record any in-process research and development in connection with the acquisition.

Our results of operations for the year ended December 31, 2010 include $2.7 million in revenues related to Learn.com acquired
deferred revenues. It is impractical to determine results of operations for Learn.com on a standalone basis as the entitys operations have been integrated into our operations.



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Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations of Taleo and Learn.com to
reflect the acquisition as if it occurred on the first date of the twelve months ended December 31, 2009. The pro forma financial information, as presented below, is for informational purposes only and is not indicative of the results of
operations that would have been achieved if the acquisition of Learn.com had taken place as of the beginning of the earliest period presented.



|                                                                         |  |                                       |         |   |      |   |         |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                         |  | Year Ended December 31,               |        
|                                                                         |  | 2010                                  |         |   | 2009 |  
|                                                                         |  | (In thousands, except per share data) |        
|Revenue                                                                  |  | $                                     | 259,082 |   |      | $ | 224,131 |  
|                                                                         |  |                                       |         |   |      |   |         |  
|Net loss attributable to Class A common stockholders                     |  | $                                     | (14,532 | ) |      | $ | (14,240 | )
|                                                                         |  |                                       |         |   |      |   |         |  
|Net loss attributable to Class A common stockholders  basic and diluted |  | $                                     | (0.37   | ) |      | $ | (0.45   | )
|                                                                         |  |                                       |         |   |      |   |         |  
|Weighted average Class A common shares  basic and diluted               |  |                                       | 39,685  |   |      |   | 31,507  |  
|                                                                         |  |                                       |         |   |      |   |         |  

Acquisition of Worldwide Compensation, Inc.

On January 1, 2010, we completed the acquisition of WWC when we purchased the remaining 84% equity interest from the former
shareholders of WWC. Previously, in the third quarter of 2008, we made an investment of $2.5 million for a 16% equity investment in and an option to purchase WWC at a later date. The acquisition of WWC enables us to expand our solution offerings for
compensation management. In connection with the acquisition, we negotiated more favorable terms than the purchase option and also terminated the purchase option. Accordingly, the total consideration paid by us for the issued and outstanding
capital stock, options and warrants of WWC that we did not already own was approximately $14.1 million in cash, including approximately $0.3 million in transaction costs and $0.4 million in incentive compensation. Fifteen percent (15%) of the
consideration was placed into escrow for one year following the closing to be held as security for losses incurred by us in the event of certain breaches of the representations and warranties contained in the merger agreement or certain other
events. We have no contingent cash payments related to this transaction. The assets, liabilities and operating results of WWC are reflected in our consolidated financial statements from the date of acquisition.

Allocation of Purchase Price

Under the acquisition method of accounting, the total purchase price paid for the 100% equity interest has been allocated to the net identifiable assets based on their estimated fair value at the date of
acquisition. As part of the process, we performed a valuation analysis to determine the fair values of certain identifiable intangible assets of WWC as of the valuation date. The determination of the value of these components required us to make
various estimates and assumptions. Critical estimates in valuing certain of the intangible assets include but are not limited to the net present value of future expected cash flows from product sales and services. The fair value of deferred
revenue was determined based on the estimated direct cost of fulfilling the obligation to the customer while the fair value for all other assets and liabilities acquired was determined based on estimated future benefits or legal obligations
associated with the respective asset or liability. The excess of the purchase price over the net identifiable intangible assets, other identifiable assets and liabilities acquired has been recorded as goodwill. None of the goodwill recognized
upon acquisition is deductible for tax purposes. The allocation of the purchase price was completed in the third quarter of 2010.



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The following table summarizes the fair values of assets acquired and liabilities
assumed as of January 1, 2010:



|                                                  |  |                |        |  
|------------------------------------------------- |  | -------------- | ------ | -
|Purchase Price                                    |  | Amount         |       
|                                                  |  | (In thousands) |       
|Cash                                              |  | $              | 13,381 |  
|Fair Value of previously held 16% equity interest |  |                | 2,300  |  
|                                                  |  |                |        |  
|Total purchase price                              |  | $              | 15,681 |  
|                                                  |  |                |        |  
|                                                  | 
|Allocation of purchase price                      |  | Amount         |       
|                                                  |  | (In thousands) |       
|Accounts receivable, net                          |  | $              | 308    |  
|Other current assets                              |  |                | 6      |  
|Property and equipment                            |  |                | 166    |  
|Goodwill                                          |  |                | 11,623 |  
|Intangible assets                                 |  |                | 4,800  |  
|Current liabilities                               |  |                | (391   | )
|Deferred revenue                                  |  |                | (831   | )
|                                                  |  |                |        |  
|Total purchase price                              |  | $              | 15,681 |  
|                                                  |  |                |        |  

We did not record any in-process research and development in connection with the acquisition.

Remeasurement of Previously Held 16% Equity Interest in WWC

On January 1, 2010 when we closed the acquisition of the remaining 84% equity interest in WWC, we took control of the entity and
remeasured the previously held 16% equity interest to its fair value. The difference between the $1.4 million book value and the $2.3 million fair value of the previously held 16% interest was recorded as a gain in the statement of operations as
other income.



|                                                               |  |                |        |  
|-------------------------------------------------------------- |  | -------------- | ------ | -
|Remeasurement of previously held interest in WWC               |  | Amount         |       
|                                                               |  | (In thousands) |       
|Fair value of previously held 16% interest in WWC              |  | $              | 2,300  |  
|Carrying value of previously held 16% equity investment in WWC |  |                | (1,415 | )
|                                                               |  |                |        |  
|Gain on re-measurement of previously held interest in WWC      |  | $              | 885    |  
|                                                               |  |                |        |  

Our results of operations for the year ended December 31, 2010 include $0.3 million in revenues related
to WWC acquired deferred revenues. It is impractical to determine results of operations for WWC on a standalone basis as the entitys operations have been integrated into our operations.



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Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations of Taleo and WWC to reflect
the acquisition as if it occurred on the first date of the twelve months ended December 31, 2009. The pro forma financial information, as presented below, is for informational purposes only and is not indicative of the results of operations
that would have been achieved if the acquisition of WWC had taken place as of the beginning of the period presented.



|                                                                         |  |                                       |         |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------- | -
|                                                                         |  | Year ended December 31, 2009          |        
|                                                                         |  | (In thousands, except per share data) |        
|Revenue                                                                  |  | $                                     | 199,339 |  
|                                                                         |  |                                       |         |  
|Net loss attributable to Class A common stockholders                     |  | $                                     | (3,988  | )
|                                                                         |  |                                       |         |  
|Net loss attributable to Class A common stockholders  basic and Diluted |  | $                                     | (0.13   | )
|                                                                         |  |                                       |         |  
|Weighted average Class A common shares  basic and diluted               |  |                                       | 31,507  |  
|                                                                         |  |                                       |         |  

Acquisition of Vurv Technology, Inc.

On May 5, 2008, we entered into an Agreement and Plan of Reorganization (the Reorganization Agreement) to purchase Vurv,
a private company with headquarters in Florida. Vurv is a provider of on demand talent management software. On July 1, 2008, we completed the acquisition of Vurv. Accordingly, the assets, liabilities and operating results of Vurv are reflected
in our consolidated financial statements from the date of acquisition. The total consideration paid by us in connection with the acquisition was approximately $34.4 million in cash, $2.9 million in third party fees, and approximately
3.8 million shares of Class A common stock, of which approximately $33.8 million in cash and approximately 3.3 million shares of Class A common stock were paid on the closing date. Approximately 0.5 million shares were
placed into escrow for one year following the closing to be held as security for losses incurred by us in the event of certain breaches of the representations and warranties contained in the Reorganization Agreement or certain other events.
Additionally, approximately $0.3 million was placed into escrow to pay for expenses incurred by the stockholder representative in connection with its duties under the Reorganization Agreement, and approximately $0.4 million was placed in escrow to
compensate us in the event certain expenses are incurred in connection with payments to certain Vurv employees. In addition, we assumed obligations for outstanding options to purchase shares of Vurv common stock, which converted into options to
purchase approximately 0.4 million shares of our common stock. We also repaid approximately $9.0 million of Vurv debt on the closing date. No contingent cash payments remain for this transaction.

In November 2008, we entered in an agreement to sell our Optimize product offering (Optimize) and the associated assets and
liabilities. We acquired Optimize in connection with the acquisition of Vurv on July 1, 2008 and the sale of Optimize represents the completion of a disposition plan initiated during the third quarter of 2008. The sale of Optimize did not
result in a significant gain or loss.

In 2009, we settled the Vurv escrow account with the former shareholders of Vurv and
received 111,167 shares of our Class A common stock while the former shareholders of Vurv received 366,732 shares. The 111,167 shares were valued at $2.5 million based on a market price per share of $22.23 on the settlement date,



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November 11, 2009. We have designated these shares as treasury stock for fulfillment of future employee stock purchases under our employee stock purchase plan. The $2.5 million value of the
shares was recorded as other income during the fourth quarter of 2009. Additionally in 2009, we received $0.4 million as reimbursement for severance payments made to certain former Vurv employees, which was recorded as a reduction in operating
expense in the first quarter of 2009. All escrow accounts related to the Vurv acquisition had been settled as of December 31, 2009.

Under purchase accounting, the final purchase price allocated to the net identifiable intangible assets based on their estimated fair value at the date of acquisition. The determination of the value of
these components required us to make various estimates and assumptions. Critical estimates in valuing certain of the intangible assets include but are not limited to future expected cash flows from product sales and services. The fair value of
deferred revenue was determined based the estimated direct cost of fulfilling the obligation to the customer plus a normal profit margin while the fair value for all other assets and liabilities acquired was determined based on estimated future
benefits or legal obligations associated with the respective asset or liability. The excess of the purchase price over the net identifiable intangible assets, other identifiable assets and liabilities acquired has been recorded to goodwill. We did
not record any in-process research and development charges in connection with the acquisition.

Allocation of Purchase Price



|                                         |  |                |         |  
|---------------------------------------- |  | -------------- | ------- | -
|                                         |  | Amount         |        
|                                         |  | (In thousands) |        
|Cash                                     |  | $              | 223     |  
|Accounts receivable, net                 |  |                | 7,779   |  
|Other current assets                     |  |                | 495     |  
|Restricted Cash                          |  |                | 286     |  
|Property and equipment                   |  |                | 4,844   |  
|Goodwill                                 |  |                | 82,425  |  
|Intangible assets                        |  |                | 49,947  |  
|Non-current assets                       |  |                | 101     |  
|Accounts payable and accrued liabilities |  |                | (11,080 | )
|Other current liabilities                |  |                | (1,254  | )
|Deferred revenue                         |  |                | (7,332  | )
|Non-current liabilities                  |  |                | (1,379  | )
|                                         |  |                |         |  
|Total estimated purchase price           |  | $              | 125,055 |  
|                                         |  |                |         |  

Purchase Price



|                                              |  |                |         | 
|--------------------------------------------- |  | -------------- | ------- | 
|                                              |  | Amount         |        
|                                              |  | (In thousands) |        
|Cash                                          |  | $              | 46,542  | 
|Estimated fair value of common stock issued   |  |                | 73,444  | 
|Estimated fair value of stock options assumed |  |                | 1,745   | 
|Accrued transaction cost                      |  |                | 3,324   | 
|                                              |  |                |         | 
|Total estimated purchase price                |  | $              | 125,055 | 
|                                              |  |                |         | 



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Unaudited pro forma results of operations to reflect the acquisition as if it had
occurred on the first date of the acquisition period are shown below:



|                                                                         |  |                                      |         |  
|------------------------------------------------------------------------ |  | ------------------------------------ | ------- | -
|                                                                         |  | Year endedDecember 31, 2008          |        
|                                                                         |  | (In thousands, exceptper share data) |        
|Revenue                                                                  |  | $                                    | 195,437 |  
|                                                                         |  |                                      |         |  
|Net loss attributable to Class A common stockholders                     |  | $                                    | (22,226 | )
|                                                                         |  |                                      |         |  
|Net loss attributable to Class A common stockholders  basic and diluted |  | $                                    | (0.76   | )
|                                                                         |  |                                      |         |  
|Weighted average Class A common shares  basic and diluted               |  |                                      | 29,242  |  
|                                                                         |  |                                      |         |  

3. Intangible Assets and Goodwill

We acquired various identifiable intangible assets as a result of the acquisitions of Learn.com and WWC in 2010. The fair value of these intangible assets was determined based on the present value of the
expected future cash flows from the Learn.com and WWC products acquired. We also capitalized $115.4 million of goodwill, which represents the excess purchase price over the net identifiable assets acquired in connection with these acquisitions. We
acquired WWC primarily for the compensation product technology that is expected to complement our performance management product. With the acquisition of Learn.com, we will extend our Talent Management suite, to include a learning management
solution. We also expect long-term synergies and other benefits from integrating the acquired products on to our unified platform. The goodwill recorded in connection with the acquisitions is primarily related to the expected long-term synergies and
other benefits from integrating the acquired products on to our unified platform. All goodwill is reported in the application services operating segment. None of the goodwill recognized upon acquisition is deductible for tax purposes.

We completed the purchase price allocation related to the WWC acquisition as of December 31, 2010. However, the allocation of the
purchase price for Learn.com is based upon a preliminary valuation. Changes to amounts recorded as assets or liabilities, such as tax assets and liabilities, may result in a corresponding adjustment to goodwill. We expect the allocation of the
purchase price to be final in the third quarter of 2011.

In the second quarter of 2010, we recorded an impairment charge of
$0.1 million related to certain identifiable intangible assets acquired in connection with the WWC acquisition. We did not have any goodwill impairments in the years ended December 31, 2010, 2009, or 2008.

The following schedule presents the gross carrying amount of goodwill as of December 31, 2010:



|                           |  |                          |         | 
|-------------------------- |  | ------------------------ | ------- | 
|Goodwill                   |  | December 31, 2010Balance |        
|Learn.com                  |  | $                        | 103,768 | 
|WWC                        |  |                          | 11,623  | 
|Vurv Technology            |  |                          | 82,425  | 
|WetFeet                    |  |                          | 1,665   | 
|JobFlash                   |  |                          | 2,014   | 
|Recruitforce / White Amber |  |                          | 4,923   | 
|                           |  |                          |         | 
|                           |  | $                        | 206,418 | 
|                           |  |                          |         | 



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The following schedule presents the details of intangible assets as of December 31,
2010 and 2009:



|                                    |  |                      |        |  |                                   |   |         |                   |  |   |                                   |                      |  |  |                         |  |  |     |        |  |  |   |         |   |  |   |        |  |  |  |     | 
|----------------------------------- |  | -------------------- | ------ |  | --------------------------------- | - | ------- | ----------------- |  | - | --------------------------------- | -------------------- |  |  | ----------------------- |  |  | --- | ------ |  |  | - | ------- | - |  | - | ------ |  |  |  | --- | 
|                                    |  | December 31, 2010    |        |  | Weightedaverageuseful life(years) |   |         | December 31, 2009 |  |   | Weightedaverageuseful life(years) |                     
|(Dollars in thousands,except years) |  | Gross CarryingAmount |        |  | AccumulatedAmortization           |   |         | Net               |  |   |                                   | Gross CarryingAmount |  |  | AccumulatedAmortization |  |  | Net |        | 
|Existing technology                 |  | $                    | 25,881 |  |                                   | $ | (11,475 | )                 |  | $ | 14,406                            |                      |  |  | 3.9                     |  |  | $   | 11,811 |  |  | $ | (7,088  | ) |  | $ | 4,723  |  |  |  | 2.8 | 
|Customer relationships              |  |                      | 66,483 |  |                                   |   | (25,102 | )                 |  |   | 41,381                            |                      |  |  | 5.6                     |  |  |     | 41,297 |  |  |   | (15,668 | ) |  |   | 25,629 |  |  |  | 5.5 | 
|Trade name and other                |  |                      | 1,741  |  |                                   |   | (390    | )                 |  |   | 1,351                             |                      |  |  | 4.0                     |  |  |     | 308    |  |  |   | (218    | ) |  |   | 90     |  |  |  | 2.3 | 
|Non-compete agreements              |  |                      | 3,030  |  |                                   |   | (690    | )                 |  |   | 2,340                             |                      |  |  | 2.4                     |  |  |     | 410    |  |  |   | (308    | ) |  |   | 102    |  |  |  | 2.0 | 
|                                    |  |                      |        |  |                                   |   |         |                   |  |   |                                   |                      |  |  |                         |  |  |     |        |  |  |   |         |   |  |   |        |  |  |  |     | 
|                                    |  | $                    | 97,135 |  |                                   | $ | (37,657 | )                 |  | $ | 59,478                            |                      |  |  |                         |  |  | $   | 53,826 |  |  | $ | (23,282 | ) |  | $ | 30,544 |  |  |  |     | 
|                                    |  |                      |        |  |                                   |   |         |                   |  |   |                                   |                      |  |  |                         |  |  |     |        |  |  |   |         |   |  |   |        |  |  |  |     | 

Amortization expense for intangible assets was $14.5 million, $14.3 million, and
$5.8 million for the years ended December 31, 2010, 2009, and 2008, respectively. The estimated amortization expenses for intangible assets for the next five years and thereafter are as follows:



|                               |  |                |        | 
|------------------------------ |  | -------------- | ------ | 
|Estimated Amortization Expense |  | (In thousands) |       
|2011                           |  |                | 15,549 | 
|2012                           |  |                | 13,464 | 
|2013                           |  |                | 11,386 | 
|2014                           |  |                | 10,176 | 
|2015                           |  |                | 6,458  | 
|Thereafter                     |  |                | 2,445  | 
|                               |  |                |        | 
|Total                          |  | $              | 59,478 | 
|                               |  |                |        | 

4. Property and Equipment

Property and equipment consists of the following at December 31, 2010 and 2009:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | 2010           |         |   | 2009 |  
|                                               |  | (In thousands) |        
|Computer hardware and software                 |  | $              | 74,303  |   |      | $ | 59,699  |  
|Furniture and equipment                        |  |                | 3,867   |   |      |   | 3,550   |  
|Leasehold improvements                         |  |                | 4,839   |   |      |   | 4,036   |  
|                                               |  |                |         |   |      |   |         |  
|                                               |  |                | 83,009  |   |      |   | 67,285  |  
|Less accumulated depreciation and amortization |  |                | (56,457 | ) |      |   | (43,775 | )
|                                               |  |                |         |   |      |   |         |  
|Total                                          |  | $              | 26,552  |   |      | $ | 23,510  |  
|                                               |  |                |         |   |      |   |         |  

Property and equipment included capital leases totaling $2.7 million and $3.1 million at December 31,
2010 and 2009, respectively. All of the equipment purchased under capital leases are included in computer hardware and software. Accumulated amortization relating to property and equipment under capital leases totaled $2.5 million and
$2.3 million, respectively, at December 31, 2010 and 2009. Depreciation and amortization expense of property and equipment was $14.2 million, $13.2 million, and $10.7 million for the years ended December 31, 2010, 2009, and
2008, respectively.



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5. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following at December 31, 2010 and 2009:



|                                                     |  |                |        |  |      |   |        | 
|---------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                                     |  | 2010           |        |  | 2009 |  
|Prepaid Expenses and Other Current Assets            |  | (In thousands) |       
|Prepaid expenses                                     |  | $              | 6,559  |  |      | $ | 4,390  | 
|Deferred tax asset, net of valuation allowance       |  |                | 5,192  |  |      |   | 602    | 
|Deferred Commissions and bonus                       |  |                | 4,272  |  |      |   | 2,744  | 
|Other                                                |  |                | 2,042  |  |      |   | 2,390  | 
|                                                     |  |                |        |  |      |   |        | 
|Total                                                |  | $              | 18,065 |  |      | $ | 10,126 | 
|                                                     |  |                |        |  |      |   |        | 
|                                                     |  |               
|                                                     |  | 2010           |        |  | 2009 |  
|Long-term Other Assets                               |  | (In thousands) |       
|Deferred tax asset, net of valuation allowance       |  | $              | 4,719  |  |      | $ | 3,339  | 
|Equity investment(1)                                 |  |                |       |  |      |   | 1,414  | 
|Receivable from sale of Optimize product offering(2) |  |                | 710    |  |      |   | 920    | 
|Other                                                |  |                | 1,934  |  |      |   | 1,222  | 
|                                                     |  |                |        |  |      |   |        | 
|Total                                                |  | $              | 7,363  |  |      | $ | 6,895  | 
|                                                     |  |                |        |  |      |   |        | 



|(1) | In 2008, we made an initial investment of $2.5 million for a 16% equity investment in WWC and an option to purchase WWC at a later date. We assigned $1.4 million to the
16% equity investment and $1.1 million of the initial investment to the purchase option. In connection with the execution of the Merger Agreement in September 2009, we negotiated more favorable terms than the purchase option and also terminated
the purchase option. Accordingly, we recognized an impairment charge for the $1.1 million carrying value of the purchase option in 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In November 2008, we entered in an agreement to sell our Optimize product offering (Optimize) and the associated assets and liabilities. We acquired
Optimize in connection with the acquisition of Vurv on July 1, 2008 and the sale of Optimize represents the completion of a disposition plan initiated during 2008. The sale of Optimize did not result in a significant gain or loss.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6. Accounts Payable and Accrued Liabilities

Accounts payable and accrued expenses consist of the following at December 31, 2010 and 2009:



|                              |  |                |        |  |      |   |        | 
|----------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                              |  | 2010           |        |  | 2009 |  
|                              |  | (In thousands) |       
|Accounts payable              |  | $              | 5,523  |  |      | $ | 5,352  | 
|Accrued compensation          |  |                | 16,624 |  |      |   | 10,969 | 
|Accrued professional fees     |  |                | 2,786  |  |      |   | 1,511  | 
|Accrued income taxes          |  |                | 146    |  |      |   | 1,372  | 
|Accrued liabilities and other |  |                | 11,298 |  |      |   | 4,388  | 
|                              |  |                |        |  |      |   |        | 
|Total                         |  | $              | 36,377 |  |      | $ | 23,592 | 
|                              |  |                |        |  |      |   |        | 



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



7. Common Stock

On November 19, 2009, we completed an offering of 6,500,000 shares of our common stock at a price of $20.25 per share. We sold 7,475,000 shares including 975,000 shares related to an
underwriters option to sell additional shares to cover over-allotments of shares. Upon the closing of the offering, we received net proceeds of $144.6 million, after deducting underwriting discounts and commissions. Additionally, we incurred
$0.8 million of other costs in connection with the offering further reducing net proceeds to approximately $143.8 million.

The following describes our common stock and our stock plans.

Class A Common Stock

Holders of the Class A common stock are entitled to one vote for each share of Class A common stock held.

Class B Common Stock and Exchangeable Shares

In November 1999,
we entered into an exchangeable share transaction with 9090-5415 Quebec Inc., formerly known as Viasite Inc., a corporation organized under the laws of Quebec, Canada. In connection with this transaction, we received 1,000 Class A common shares
of 9090-5415 Quebec Inc. for nominal cash consideration. The remaining shares of 9090-5415 Quebec Inc. consist of two classes of non-voting exchangeable shares and one class of preferred voting shares which, although originally issued, were
cancelled in January 2000.

The first class consisted of 17,879,362 Class A Preferred Exchangeable Shares (Common
Exchangeables) entitling the holder to exchange each share for one sixth of a share of our Class A common stock. The second class consisted of 6,350,400 Class B Preferred Exchangeable Shares (Preferred Exchangeables) that
entitled the holder to exchange each share for one sixth of a share of our Series A Preferred Shares.

Upon the closing
of our initial public offering of our Class A Common Stock, the Preferred Exchangeables entitled the holders of these shares to exchange each share for one sixth of a share of our Class A common stock directly. In addition, holders of all
classes of exchangeable shares were party to an agreement which entitles them to the economic equivalent of dividends declared on Class A common stock without requiring them to exchange their shares. However, until the time that such shares are
exchanged for our Class A common stock, amounts associated with the Preferred Exchangeables were classified outside of stockholders equity.

The holders of exchangeable shares also held our Class B common stock. The holders of Class B common stock are entitled to one vote for each share of Class B common stock held and vote as a
single class with Class A common stock. The Class B common stock is redeemable for $0.00001 per share at the time that either the Common Exchangeables or Preferred Exchangeables are exchanged for Class A common stock. The redemption
feature ensures that holders of exchangeable shares do not get double voting rights following an exchange of their shares, once by virtue of holding class B common shares, and once by virtue of holding class A common shares.

Class B common stock was created in order to allow holders of exchangeable shares the ability to vote as if they had exchanged their
exchangeable shares without having to exchange such shares. Holders of Class B common stock are not entitled to any substantive rights, economic or otherwise, as a result of their ownership of Class B common stock without consideration of
the exchangeable shares of 9090-5415 Quebec Inc. The holders of all classes of exchangeable shares could elect, or we could require them, to exchange their exchangeable



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shares. During the year ended December 31, 2008, exchangeable shares were exchanged for 655,652 shares of Class A common stock leaving no exchangeable shares exchangeable for
Class A common stock in future years. As of December 31, 2010, shares of Class A common stock resulting from the exchange of exchangeable shares totaled 4,038,287.

Class A Common Stock Plans

On May 28, 2009, our stockholders approved the adoption of the 2009 Equity Incentive Plan (2009 EIP) with an initial share reserve of 5,200,000. The 2009 EIP also assumes expired,
unexercised options and forfeited or reacquired shares granted under the 1999 Stock Plan, 2004 Stock Plan and the 2005 Stock Plan and is currently the only stock plan used for issuance of future equity awards.

As of December 31, 2010, we had reserved 7,196,943 shares of authorized but unissued Class A common stock for issuance
under five stock plans. Of these shares, 7,052,045 shares were authorized but unissued under the four plans approved by stockholders, and 144,898 were authorized but unissued under a plan approved by the Board of Directors. Options to purchase
Class A common stock may be granted to employees, directors, and certain consultants. Options issued prior to May 2009 are subject to the vesting provisions associated with each grant, generally vesting one-fourth on the first anniversary of
the grant and ratably thereafter for the following 12 quarters. Options issued subsequent to May 2009 were granted from the 2009 EIP. Under the 2009 EIP, options are subject to the vesting provisions associated with each grant, and continue to
generally vest one-fourth on the first anniversary of the grant, but then vest ratably on a quarterly basis thereafter for the following 12 quarters.

Reserved Shares of Common Stock

We have reserved the following
number of shares of Class A common stock as of December 31, 2010 for the awarding of restricted stock awards, release of performance share awards, exercise of stock options and purchases under the Employee Stock Purchase Plan:



|                                                                                                                             |  |  |           | 
|---------------------------------------------------------------------------------------------------------------------------- |  |  | --------- | 
|Class A Common Stock Plans (2009 EIP, 1999 Stock Plan, 2004 Stock Plan, 2005 Stock Plan, and assumed Vurv stock option
plan) |  |  | 7,196,943 | 
|White Amber Stock Option Plan                                                                                                |  |  | 10,263    | 
|Employee Stock Purchase Plan                                                                                                 |  |  | 1,159,075 | 
|                                                                                                                             |  |  |           | 
|Total                                                                                                                        |  |  | 8,366,281 | 
|                                                                                                                             |  |  |           | 

We have granted stock options to employees during the years ended December 31, 2010, 2009, and 2008 at
exercise prices greater than or equal to the fair value of the Class A common stock at the time of grant. The weighted average grant date fair value of options granted during 2010, 2009 and 2008 was $13.59 per option, $9.06 per option and $9.82
per option, respectively.



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At December 31, 2010, 3,224,818 shares were available for future grants under
all five plans. The following table presents a summary of the Class A common stock option activity since January 1, 2008, and related information:



|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 
|------------------------------------------------ |  | ------------------- | --------- | - | ----------------------------- | - | ----- | ------------------------------------------------ |  |  | ----------------------- |  |  | - | ---------- | 
|                                                 |  | Outstanding Options |           |   |                               |  
|                                                 |  | Number ofShares     |           |   | WeightedAverageExercise Price |   |       | WeightedAverageRemainingContractualLife in Years |  |  | AggregateIntrinsicValue | 
|Outstanding at January 1, 2008                   |  |                     | 3,523,414 |   |                               | $ | 13.61 |                                                  |  |  |                         |  |  |   |            | 
|Options granted                                  |  |                     | 978,327   |   |                               | $ | 20.66 |                                                  |  |  |                         |  |  |   |            | 
|Options exercised                                |  |                     | (696,731  | ) |                               | $ | 11.11 |                                                  |  |  |                         |  |  |   |            | 
|Options forfeited /expired                       |  |                     | (525,748  | ) |                               | $ | 19.30 |                                                  |  |  |                         |  |  |   |            | 
|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 
|Outstanding at December 31, 2008                 |  |                     | 3,279,262 |   |                               | $ | 15.33 |                                                  |  |  |                         |  |  |   |            | 
|Options granted                                  |  |                     | 337,000   |   |                               | $ | 14.53 |                                                  |  |  |                         |  |  |   |            | 
|Options exercised                                |  |                     | (604,024  | ) |                               | $ | 12.30 |                                                  |  |  |                         |  |  |   |            | 
|Options forfeited /expired                       |  |                     | (286,904  | ) |                               | $ | 21.34 |                                                  |  |  |                         |  |  |   |            | 
|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 
|Outstanding at December 31, 2009                 |  |                     | 2,725,334 |   |                               | $ | 15.27 |                                                  |  |  |                         |  |  |   |            | 
|Options granted                                  |  |                     | 692,008   |   |                               | $ | 25.17 |                                                  |  |  |                         |  |  |   |            | 
|Options exercised                                |  |                     | (970,329  | ) |                               | $ | 14.11 |                                                  |  |  |                         |  |  |   |            | 
|Options forfeited /expired                       |  |                     | (193,771  | ) |                               | $ | 18.48 |                                                  |  |  |                         |  |  |   |            | 
|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 
|Outstanding at December 31, 2010                 |  |                     | 2,253,242 |   |                               | $ | 18.54 |                                                  |  |  | 6.18                    |  |  | $ | 21,445,676 | 
|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 
|Vested and expected to vest at December 31, 2010 |  |                     | 2,163,957 |   |                               | $ | 18.27 |                                                  |  |  | 6.07                    |  |  | $ | 21,074,393 | 
|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 
|Exercisable at December 31, 2010                 |  |                     | 1,316,326 |   |                               | $ | 15.54 |                                                  |  |  | 5.61                    |  |  | $ | 16,024,759 | 
|                                                 |  |                     |           |   |                               |   |       |                                                  |  |  |                         |  |  |   |            | 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the
difference between our closing stock price on the last trading day of 2010 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options
on December 31, 2010. This amount changes based on the fair market value of our common stock.

The following table
summarizes stock options outstanding at December 31, 2010:



|                         |  |                             |           |  |                                                   |  |      |                              |  |   |                             |  |  |                              |           |  |  |   |       | 
|------------------------ |  | --------------------------- | --------- |  | ------------------------------------------------- |  | ---- | ---------------------------- |  | - | --------------------------- |  |  | ---------------------------- | --------- |  |  | - | ----- | 
|                         |  |                             |           |  | Options Outstanding                               |  |      | Options Exercisable          | 
|Range of Exercise Prices |  | Number ofOptionsOutstanding |           |  | WeightedAverageRemainingContractualTerm(in years) |  |      | WeightedAverageExercisePrice |  |   | NumberVested andExercisable |  |  | WeightedAverageExercisePrice |          
|$  3.00 - $11.90         |  |                             | 263,117   |  |                                                   |  | 4.57 |                              |  | $ | 8.58                        |  |  |                              | 236,488   |  |  | $ | 8.59  | 
|$12.00 - $14.00          |  |                             | 296,355   |  |                                                   |  | 4.96 |                              |  |   | 13.67                       |  |  |                              | 288,015   |  |  |   | 13.71 | 
|$14.10 - $15.87          |  |                             | 346,271   |  |                                                   |  | 7.02 |                              |  |   | 15.62                       |  |  |                              | 257,515   |  |  |   | 15.55 | 
|$15.92 - $17.28          |  |                             | 250,706   |  |                                                   |  | 7.16 |                              |  |   | 17.12                       |  |  |                              | 148,907   |  |  |   | 17.04 | 
|$17.35 - $18.00          |  |                             | 253,031   |  |                                                   |  | 5.37 |                              |  |   | 17.91                       |  |  |                              | 231,557   |  |  |   | 17.91 | 
|$18.01 - $21.03          |  |                             | 76,816    |  |                                                   |  | 6.17 |                              |  |   | 19.26                       |  |  |                              | 32,473    |  |  |   | 19.73 | 
|$21.18 - $21.18          |  |                             | 239,130   |  |                                                   |  | 6.13 |                              |  |   | 21.18                       |  |  |                              |          |  |  |   |      | 
|$21.31 - $26.00          |  |                             | 229,685   |  |                                                   |  | 7.65 |                              |  |   | 24.31                       |  |  |                              | 76,909    |  |  |   | 23.91 | 
|$26.48 - $30.30          |  |                             | 132,931   |  |                                                   |  | 6.35 |                              |  |   | 28.57                       |  |  |                              | 44,462    |  |  |   | 29.46 | 
|$32.06 - $32.06          |  |                             | 165,200   |  |                                                   |  | 6.85 |                              |  |   | 32.06                       |  |  |                              |          |  |  |   |      | 
|                         |  |                             |           |  |                                                   |  |      |                              |  |   |                             |  |  |                              |           |  |  |   |       | 
|                         |  |                             | 2,253,242 |  |                                                   |  | 6.18 |                              |  | $ | 18.54                       |  |  |                              | 1,316,326 |  |  | $ | 15.54 | 
|                         |  |                             |           |  |                                                   |  |      |                              |  |   |                             |  |  |                              |           |  |  |   |       | 



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The total intrinsic value of options exercised during the years ended December 31,
2010, 2009, and 2008 was $13.2 million, $4.7 million, and $6.5 million, respectively. We received $13.7 million, $7.4 million, and $7.7 million in cash from option exercises during the years ended December 31, 2010, 2009, and 2008,
respectively.

On April 17, 2009, 31,360 exercisable options held by terminated employees were modified to extend their
expiration date to May 30, 2009, which was 30 days after we became current with our SEC filing requirements. The modification of these options resulted in an incremental stock-based compensation expense of $47,000 in 2009. Additionally, we
recorded shared-based compensation expense of $0.3 million in 2008 for acceleration in vesting of stock options and restricted stock related to two employees who were terminated.

We recorded stock-based compensation expense of $4.9 million, $5.5 million, and $7.4 million for the years ended December 31, 2010,
2009, and 2008, respectively related to stock option grants. At December 31, 2010, unamortized compensation cost related to Class A common stock options was $9.7 million, net of assumed forfeitures. The cost is expected to be recognized
over a weighted-average period of 2.7 years. To the extent the actual forfeiture rate is different from what we have anticipated, stock-based compensation related to these awards will be different from our expectations.

White Amber Stock Option Plan

Options issued under the White Amber Stock Option Plan are subject to the vesting provisions associated with each grant, generally for 25% vesting upon issuance, with future vesting over defined periods
for the remaining shares.

The following schedule summarizes the activity relating to the White Amber Option Plan since
January 1, 2008:



|                                |  |                  |         |   |                               |   |      | 
|------------------------------- |  | ---------------- | ------- | - | ----------------------------- | - | ---- | 
|                                |  | Number ofOptions |         |   | Weighted-AverageExercisePrice |  
|Outstanding  January 1, 2008   |  |                  | 24,545  |   |                               | $ | 0.78 | 
|Exercised                       |  |                  | (1,500  | ) |                               | $ | 0.78 | 
|                                |  |                  |         |   |                               |   |      | 
|Outstanding  December 31, 2008 |  |                  | 23,045  |   |                               | $ | 0.78 | 
|Exercised                       |  |                  | (12,782 | ) |                               | $ | 0.78 | 
|                                |  |                  |         |   |                               |   |      | 
|Outstanding  December 31, 2009 |  |                  | 10,263  |   |                               | $ | 0.78 | 
|Exercised                       |  |                  |        |   |                               | $ |     | 
|                                |  |                  |         |   |                               |   |      | 
|Outstanding  December 31, 2010 |  |                  | 10,263  |   |                               | $ | 0.78 | 
|                                |  |                  |         |   |                               |   |      | 

Options under the White Amber Option Plan have a ten year life, with 2.8 years remaining life
as of December 31, 2010. The aggregate intrinsic value of the 10,263 fully vested options outstanding at December 31, 2010 related to the White Amber option Plan was $0.3 million. The total intrinsic value of options exercised during
2010 was $0. We did not record any stock-based compensation expense for the White Amber Stock Plan for the years ended December 31, 2010, 2009 and 2008.

Restricted Stock and Performance Shares

On May 31, 2006, the
Compensation Committee of our Board of Directors approved a form of restricted stock agreement and a form of performance share agreement for use under our 2004 Stock Plan pursuant to



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



which we have granted restricted stock and performance shares through May 2009, when we began to grant restricted stock and performance shares under the EIP. The shares of restricted stock and
performance share awards have a per share price of $0.00001 which equals the par value. Our right to repurchase the restricted stock granted to employees lapses in accordance with a four year schedule and the performance shares granted to employees
vest in accordance with a four year vesting schedule. Restricted stock and performance shares granted prior to May 2009 were subject to quarterly vesting for the 16 quarters following the grant date. Beginning June 1, 2009, restricted stock and
performance shares were granted from the EIP. Under the EIP restricted stock and performance shares generally vest one-fourth on the first anniversary of the vesting start date then quarterly thereafter for the following 12 quarters. Our outside
directors, with the exception of the Lead Independent Director of our Board of Directors, receive 50%, and may elect to receive up to 100%, of their board compensation as restricted stock or performance shares in lieu of cash compensation. The Lead
Independent Director of our Board of Directors may elect to receive his board compensation in any combination of cash and restricted stock. Restricted stock awards to directors made in lieu of cash compensation are granted on the first business day
of each quarter and vest on the last day of each quarter. The fair value is measured based upon the closing Nasdaq market price of our underlying common stock as of the date of grant. We use historical and current data to estimate pre-vesting
forfeitures and record share-based compensation expense only for those awards that are expected to vest. Restricted stock and performance share awards are amortized over the period using the straight-line method. The only performance condition for
unvested performance shares outstanding as of December 31, 2010 is continued service. Upon vesting, performance share awards convert into an equivalent number of shares of common stock. The following table presents a summary of the restricted
stock awards and performance share awards since January 1, 2008:



|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 
|---------------------------------------------------- |  | ---------------------- | --------- | - | --------------------- |  | -------- | ------------------------------------ |  | - | ----- | 
|                                                     |  | PerformanceShareAwards |           |   | RestrictedStockAwards |  |          | Weighted-AverageGrant-DateFair
Value | 
|Repurchasable/nonvested balance at January 1, 2008   |  |                        | 28,125    |   |                       |  | 200,376  |                                      |  | $ | 13.77 | 
|Awarded                                              |  |                        | 29,227    |   |                       |  | 440,582  |                                      |  | $ | 18.53 | 
|Released/vested                                      |  |                        | (15,984   | ) |                       |  | (126,505 | )                                    |  | $ | 14.25 | 
|Forfeited/cancelled                                  |  |                        | (2,090    | ) |                       |  | (81,743  | )                                    |  | $ | 15.65 | 
|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 
|Repurchasable/nonvested balance at December 31, 2008 |  |                        | 39,278    |   |                       |  | 432,710  |                                      |  | $ | 18.12 | 
|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 
|Awarded                                              |  |                        | 468,957   |   |                       |  | 273,171  |                                      |  | $ | 14.67 | 
|Released/vested                                      |  |                        | (27,421   | ) |                       |  | (230,318 | )                                    |  | $ | 16.09 | 
|Forfeited/cancelled                                  |  |                        | (13,359   | ) |                       |  | (8,751   | )                                    |  | $ | 22.98 | 
|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 
|Repurchasable/nonvested balance at December 31, 2009 |  |                        | 467,455   |   |                       |  | 466,812  |                                      |  | $ | 17.01 | 
|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 
|Awarded                                              |  |                        | 1,034,252 |   |                       |  | 45,807   |                                      |  | $ | 20.96 | 
|Released/vested                                      |  |                        | (140,139  | ) |                       |  | (231,948 | )                                    |  | $ | 15.79 | 
|Forfeited/cancelled                                  |  |                        | (106,765  | ) |                       |  | (68,449  | )                                    |  | $ | 17.28 | 
|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 
|Repurchasable/nonvested balance at December 31, 2010 |  |                        | 1,254,803 |   |                       |  | 212,222  |                                      |  | $ | 19.10 | 
|                                                     |  |                        |           |   |                       |  |          |                                      |  |   |       | 

We recorded $8.3 million, $4.6 million, and $3.1 million in stock-based compensation expense
related to restricted stock and performance share agreements for the years ended December 31, 2010, 2009, and 2008, respectively. As of December 31, 2010, the unamortized compensation cost was $23.9 million, net of assumed
forfeitures. The cost is expected to be recognized over a weighted-average period of between 1.4 and 3.3 years.



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Employee Stock Purchase Plan

We adopted the Employee Stock Purchase Plan (ESPP) in 2004, which reserved a total of 500,000 shares of common stock for
issuance. The ESPP also provides for annual increases in the number of shares available for issuance on the first day of each year, beginning in 2005, and ending in 2014, equal to the lesser of:



| |  |  | 2% of the outstanding shares of the common stock on the first day of the applicable year;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | 1,000,000 shares; and
| | - |  | ---------------------



| |  |  | such other amount as our Board of Directors or committee thereof may determine.
| | - |  | -------------------------------------------------------------------------------

Under the ESPP, employees may purchase common stock through accumulated payroll deductions. Stock purchase rights are granted to eligible
employees during six month offering periods with purchase dates at the end of each offering period. The offering periods generally commence each May 1 and November 1. Shares are purchased through employees payroll deductions, up to a
maximum of 10% of employees compensation, at purchase prices equal to 85% of the lesser of the fair market value of our common stock at either the date of the employees entrance to the offering period or the purchase date. No participant
may purchase more than 10,000 shares per offering or $25,000 worth of common stock in one calendar year. During the years ended December 31, 2010, 2009 and 2008, employees purchased approximately 186,786, 182,608 and 175,669 shares at
average prices of $20.22, $12.06 and $13.87 per share, respectively. Cash received from purchases under the ESPP for the years ended December 31, 2010, 2009, and 2008 was $3.8 million, $2.2 million and $2.4 million, respectively. As of
December 31, 2010, 1,159,075 shares were available for future issuance under the ESPP.

Unamortized compensation cost was
$0.6 million at December 31, 2010. This cost is to be recognized over the four months ended April 30, 2011. The following table presents a summary of the ESPP activity since January 1, 2008:



|                                 |  |        |           |   |               |   |       | 
|-------------------------------- |  | ------ | --------- | - | ------------- | - | ----- | 
|                                 |  | Shares |           |   | PurchasePrice |  
|ESPP balance  January 1, 2008   |  |        | 291,495   |   |               |   |      | 
|Employees purchases              |  |        | (175,669  | ) |               | $ | 13.87 | 
|                                 |  |        |           |   |               |   |       | 
|ESPP balance  December 31, 2008 |  |        | 115,826   |   |               |   |      | 
|Increase in share reserve        |  |        | 622,487   |   |               |   |      | 
|Employees purchases              |  |        | (182,608  | ) |               | $ | 12.06 | 
|                                 |  |        |           |   |               |   |       | 
|ESPP balance  December 31, 2009 |  |        | 555,705   |   |               |   |      | 
|Increase in share reserve        |  |        | 790,156   |   |               |   |      | 
|Employees purchases              |  |        | (186,786  | ) |               | $ | 20.22 | 
|                                 |  |        |           |   |               |   |       | 
|ESPP balance  December 31, 2010 |  |        | 1,159,075 |   |               |   |      | 
|                                 |  |        |           |   |               |   |       | 

We recorded stock-based compensation of $1.7 million, $0.9 million, and $0.9 million for the years
ended December 31, 2010, 2009 and 2008, respectively related to our ESPP.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Stock-Based Compensation Expense

The following table summarizes the total stock-based compensation expense included in our Consolidated Statements of Operations for years
ended December 31, 2010, 2009, and 2008.



|                           |  |                |        |  |      |   |        |      |  |   |        | 
|-------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                           |  | 2010           |        |  | 2009 |   |        | 2008 | 
|                           |  | (In thousands) |       
|Cost of revenues           |  | $              | 2,632  |  |      | $ | 1,842  |      |  | $ | 1,525  | 
|Sales and marketing        |  |                | 4,066  |  |      |   | 3,011  |      |  |   | 3,132  | 
|Research and development   |  |                | 2,643  |  |      |   | 1,516  |      |  |   | 1,465  | 
|General and administrative |  |                | 5,598  |  |      |   | 4,660  |      |  |   | 5,311  | 
|                           |  |                |        |  |      |   |        |      |  |   |        | 
|                           |  | $              | 14,939 |  |      | $ | 11,029 |      |  | $ | 11,433 | 
|                           |  |                |        |  |      |   |        |      |  |   |        | 

We recorded $4.9 million in pre-tax share-based compensation expense for stock options,
$8.3 million in share-based compensation expense for restricted stock awards and $1.7 million for purchase rights under the employee stock purchase plan during the year ended December 31, 2010. Additionally, we realized $0.3 million
in excess tax benefits during the year ended December 31, 2010. As of December 31, 2010, there was $34.3 million in total unrecognized compensation cost, net of assumed forfeitures, related to non-vested share-based compensation
arrangements granted under all equity compensation plans.

Determining Fair Value

We measure all share-based payments to employees, including grants of stock options, based on the grant date fair value of the awards and
recognize these amounts in our consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally over the vesting period of the award). We amortize the fair value of
share-based payments on a straight-line basis.

We estimate the fair value of stock options granted using the Black-Scholes
option valuation model. This model requires inputs such as expected term, expected volatility and risk-free interest rate. We estimate the expected volatility of common stock at the date of grant based on a combination of our historical volatility
and the volatility of comparable companies. We estimate the expected term using the simplified method. We elected to use the simplified method due to a lack of term length data as we completed our initial public offering in October 2005 and our
options meet the criteria of the plain-vanilla options. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award. The dividend yield assumption is based on historical dividend
payouts. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant appropriate for the expected term of employee options. We use historical data to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to vest.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The weighted-average fair value of options granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average assumptions used for share-based payment awards during the years ended December 31, 2010, 2009, and 2008:



|                                                             |  |        |  |               |  |              
|------------------------------------------------------------ |  | ------ |  | ------------- |  | -------------
|Stock Options                                                |  | 2010   |  | 2009          |  | 2008         
|Expected volatility                                          |  | 65%    |  | 68 to 69%     |  | 53 to 66%    
|Risk-free interest rate                                      |  | 1.845% |  | 1.63 to 2.95  |  | 1.97 to 3.53%
|Expected life (in years)                                     |  | 4.72   |  | 4.75 to 6.25  |  | 5.5 to 6.25  
|Weighted-average exercise price per share of options granted |  | $25.17 |  | $14.53        |  | $18.00       
|Weighted-average fair value per share of option granted      |  | $13.59 |  | $9.06         |  | $9.82        
|Expected dividend yield                                      |  | 0%     |  | 0%            |  | 0%           
|                                                             |  |        | 
|Employee Stock Purchase Plan                                 |  | 2010   |  | 2009          |  | 2008         
|Expected volatility                                          |  | 65.71% |  | 59 to 78%     |  | 44 to 59%    
|Risk-free interest rate                                      |  | 0.204% |  | 0.17 to 0.29% |  | 1.07 to 3.49%
|Expected life (in weeks)                                     |  | 26     |  | 22 to 26      |  | 26           
|Expected dividend yield                                      |  | 0%     |  | 0%            |  | 0%           

8. Income Taxes

The domestic and foreign components of income (loss) before provision for (benefit from) income taxes are as follows:



|         |  |                         |        |   |      |   |        |      |  |   |        |  
|-------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|         |  | Year Ended December 31, |       
|         |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|         |  | (In thousands)          |       
|Domestic |  | $                       | (7,166 | ) |      | $ | (1,288 | )    |  | $ | (7,228 | )
|Foreign  |  |                         | 2,280  |   |      |   | 1,428  |      |  |   | 403    |  
|         |  |                         |        |   |      |   |        |      |  |   |        |  
|Total    |  | $                       | (4,886 | ) |      | $ | 140    |      |  | $ | (6,825 | )
|         |  |                         |        |   |      |   |        |      |  |   |        |  

The provision for (benefit from) income taxes consisted of:



|                                                |  |                         |        |   |      |   |        |      |  |   |       | 
|----------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | 
|                                                |  | Year Ended December 31, |       
|                                                |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|                                                |  | (In thousands)          |       
|Current                                         |  |                         |        |   |      |   |        |      |  |   |       | 
|Federal                                         |  | $                       | (327   | ) |      | $ | 163    |      |  | $ | 313   | 
|State                                           |  |                         | 1,491  |   |      |   | 666    |      |  |   | 192   | 
|Foreign                                         |  |                         | 150    |   |      |   | 155    |      |  |   | 222   | 
|                                                |  |                         |        |   |      |   |        |      |  |   |       | 
|Total                                           |  | $                       | 1,314  |   |      | $ | 984    |      |  | $ | 727   | 
|                                                |  |                         |        |   |      |   |        |      |  |   |       | 
|Deferred                                        |  |                         |        |   |      |   |        |      |  |   |       | 
|Federal                                         |  | $                       | (5,450 | ) |      | $ | (251   | )    |  | $ | 519   | 
|State                                           |  |                         | (760   | ) |      |   |       |      |  |   |      | 
|Foreign                                         |  |                         | (410   | ) |      |   | (1,886 | )    |  |   | 57    | 
|                                                |  |                         |        |   |      |   |        |      |  |   |       | 
|Total                                           |  |                         | (6,619 | ) |      |   | (2,137 | )    |  |   | 576   | 
|                                                |  |                         |        |   |      |   |        |      |  |   |       | 
|Total provision for (benefit from) income taxes |  | $                       | (5,306 | ) |      | $ | (1,153 | )    |  | $ | 1,303 | 
|                                                |  |                         |        |   |      |   |        |      |  |   |       | 



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The differences between the statutory tax expense (benefit) rate and the effective tax
expense (benefit) rate, expressed as a percentage of income (loss) before provision for (benefit from) income taxes, were as follows:



|                                                                 |  |                         |     |   |      |  |       |      |  |  |     |  
|---------------------------------------------------------------- |  | ----------------------- | --- | - | ---- |  | ----- | ---- |  |  | --- | -
|                                                                 |  | Year Ended December 31, |    
|                                                                 |  | 2010                    |     |   | 2009 |  |       | 2008 | 
|Statutory federal tax expense (benefit) rate                     |  |                         | 34  | % |      |  | 34    | %    |  |  | -34 | %
|State income taxes                                               |  |                         | -31 | % |      |  | 53    | %    |  |  | 1   | %
|U.S. Alternative Minimum Tax (AMT)                               |  |                         | 7   | % |      |  | 0     | %    |  |  | 0   | %
|Difference between statutory rate and foreign effective tax rate |  |                         | 21  | % |      |  | -1578 | %    |  |  | 5   | %
|Non-deductible stock-based compensation                          |  |                         | -21 | % |      |  | 995   | %    |  |  | 22  | %
|Non-taxable Vurv escrow settlement                               |  |                         | 0   | % |      |  | -599  | %    |  |  | 0   | %
|Non-deductible executive compensation                            |  |                         | -7  | % |      |  | 0     | %    |  |  | 0   | %
|Non-deductible acquisition-related costs                         |  |                         | -22 | % |      |  | 0     | %    |  |  | 0   | %
|Non-deductible other expenses                                    |  |                         | -2  | % |      |  | 206   | %    |  |  | 1   | %
|Unbenefitted losses/valuation allowance                          |  |                         | 130 | % |      |  | 68    | %    |  |  | 24  | %
|                                                                 |  |                         |     |   |      |  |       |      |  |  |     |  
|Total                                                            |  |                         | 109 | % |      |  | -821  | %    |  |  | 19  | %
|                                                                 |  |                         |     |   |      |  |       |      |  |  |     |  

The components of our deferred tax assets and liabilities consisted of:



|                                  |  |                         |         |   |      |   |         |  
|--------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                  |  | Year Ended December 31, |        
|                                  |  | 2010                    |         |   | 2009 |  
|                                  |  | (In thousands)          |        
|Deferred tax assets:              |  |                         |         |   |      |   |         |  
|Tax loss carry forwards           |  | $                       | 24,731  |   |      | $ | 19,787  |  
|Reserves and accruals             |  |                         | 4,248   |   |      |   | 2,048   |  
|Deferred revenue                  |  |                         | 5,842   |   |      |   | 5,838   |  
|Alternative Minimum Tax credit    |  |                         |        |   |      |   | 331     |  
|Canadian investment credits       |  |                         | 7,433   |   |      |   | 5,863   |  
|Stock based compensation          |  |                         | 3,173   |   |      |   | 3,085   |  
|Intercompany expense disallowance |  |                         | 1,910   |   |      |   | 1,931   |  
|Other, net                        |  |                         | 958     |   |      |   | 677     |  
|Foreign                           |  |                         |        |   |      |   | 693     |  
|                                  |  |                         |         |   |      |   |         |  
|Total deferred tax assets         |  | $                       | 48,294  |   |      | $ | 40,253  |  
|                                  |  |                         |         |   |      |   |         |  
|Deferred tax liabilities:         |  |                         |         |   |      |   |         |  
|Transaction costs                 |  | $                       | (492    | ) |      | $ | (487    | )
|Property and equipment            |  |                         | (2,237  | ) |      |   | (608    | )
|Acquired intangible assets        |  |                         | (21,266 | ) |      |   | (10,787 | )
|Reserves and accruals             |  |                         |        |   |      |   | (2,726  | )
|Foreign                           |  |                         | (2,750  | ) |      |   |        |  
|                                  |  |                         |         |   |      |   |         |  
|Total deferred tax liabilities    |  | $                       | (26,745 | ) |      | $ | (14,608 | )
|                                  |  |                         |         |   |      |   |         |  
|Net deferred tax asset            |  | $                       | 21,549  |   |      | $ | 25,645  |  
|Valuation allowance               |  |                         | (17,045 | ) |      |   | (21,704 | )
|                                  |  |                         |         |   |      |   |         |  
|Deferred tax asset, net           |  | $                       | 4,504   |   |      | $ | 3,941   |  
|                                  |  |                         |         |   |      |   |         |  



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For 2010, we have current state income tax expense of approximately $1.5 million,
primarily due to the State of California suspending the use of net operating losses.

As of December 31, 2010, we have
U.S. federal net operating loss carryforward amounts of approximately $84.5 million which begin to expire in 2023. We have California net operating loss carryforward amounts of approximately $17.4 million which begin to expire in 2014 and net
operating loss carryforward amounts in other states of approximately $48.2 million which begin to expire in 2011. Included in these carryforward amounts are losses of approximately $19.8 million associated with nonqualified stock option excess tax
deductions that, when realized, will be recorded as an increase to additional paid-in capital. We have federal tax credit carryforward amounts of $0.3 million which begin to expire in 2023. We have Canadian federal investment tax credit carryforward
amounts of approximately $7.4 million which begin to expire in 2025. Utilization of net operating loss and tax credit carryforward amounts are subject to annual limitations pursuant to Internal Revenue Code Section 382. Such limitation could
result in the expiration of net operating loss and tax credit carryforward amounts before utilization.

The valuation
allowance decreased by $4.7 million during 2010, primarily due to a decrease of $6.5 million related to the purchase accounting associated with the acquisition of Learn.com during the fourth quarter. We acquired taxable temporary differences in
excess of deductible temporary differences, which resulted in a reduction of our valuation allowance that was recorded outside of acquisition accounting. Other changes to the valuation allowance related to deferred tax adjustments and unrecognized
tax benefits with no impact on deferred tax expense or benefit. We anticipate finalizing our purchase accounting for the Learn.com acquisition in the second quarter of 2011.

Deferred income tax assets and liabilities are recorded using the asset/liability method and are determined based on the differences between financial reporting and the tax basis of assets and liabilities
using the tax rates and laws in effect when the differences are expected to reverse. The guidance provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur. We have determined that it is more
likely than not that our non-U.S. deferred tax assets will be realized and our U.S. deferred tax assets will not be realized. Should we determine that it is more likely than not that the U.S deferred tax assets will be realized, we will adjust the
related valuation allowance and recognize a material decrease to our income tax expense in the period that such determination is made. Significant judgment is required by management in determining the period in which the reversal of a valuation
allowance should occur. We will continue to evaluate, by jurisdiction and on a quarterly basis, the ability to realize our deferred tax assets.

A reconciliation of the beginning and ending amounts of uncertain tax benefits is as follows:



|                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|---------------------------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                     |  | Year Ended December 31, |     
|                                                     |  | (In millions)           |     
|                                                     |  | 2010                    |      |   | 2009 |   |      | 2008 | 
|Uncertain tax benefits at January 1,                 |  | $                       | 5.1  |   |      | $ | 6.5  |      |  | $ | 6.9  |  
|Increases for uncertain tax benefits in current year |  |                         | 0.9  |   |      |   |     |      |  |   | 2.0  |  
|Increases for uncertain tax benefits of prior years  |  |                         | 0.3  |   |      |   |      |      |  |   | 0.8  |  
|Decreases for uncertain tax benefits of prior years  |  |                         | (0.1 | ) |      |   | (1.2 | )    |  |   | (2.4 | )
|Settlements                                          |  |                         |     |   |      |   |     |      |  |   | (0.8 | )
|Lapse of statute of limitations                      |  |                         | (0.1 | ) |      |   | (0.2 | )    |  |   |     |  
|                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|Uncertain tax benefits at December 31,               |  | $                       | 6.2  |   |      | $ | 5.1  |      |  | $ | 6.5  |  
|                                                     |  |                         |      |   |      |   |      |      |  |   |      |  



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We recognize interest and penalties related to uncertain tax positions in income tax
expense. As of December 31, 2010, interest expense related to uncertain tax positions was less than $0.1 million. The effective settlement of approximately $4.8 million of the unrecognized tax benefit balance of $6.2 million would result in the
recognition of a tax benefit. The effective settlement of the remaining unrecognized tax benefit balance would increase tax attributes which are subject to a full valuation allowance and, as such, would not result in the recognition of a tax
benefit. As we have net operating loss carryforward amounts for federal and state purposes, the statutes of limitation remain open for all tax years to the extent the tax attributes are carried forward into future tax years. There could be a
significant impact to our uncertain tax positions over the next twelve months depending on the outcome of any audit. We anticipate that unrecognized tax benefits will decrease by less than $0.1 million relating to expiring statutes of limitation by
the end of 2011.

There is an ongoing income tax examination of Learn.com by the Internal Revenue Service. With the exception
of Canada, we are no longer subject to foreign income tax examinations by tax authorities for years before 2004. In December 2008, we were notified by the federal Canada Revenue Agency (CRA) of its intent to audit tax years 2002 through
2007. CRA has issued assessment notices for tax years 2002 and 2003 seeking increases to taxable income of CAD $3.8 million and CAD $6.9 million, respectively. In December 2010, we received a proposal letter from CRA, detailing their initial
proposal of increasing 2004 taxable income by CAD $7.2 million. These adjustments relate principally to the treatment of refundable tax credits connected with the Information Technology Development Centres (CDTIs) and income and expense
allocations recorded between us and our Canadian subsidiary. We disagree with the CRAs basis for these adjustments and intend to appeal the assessments through applicable administrative and judicial procedures. We have also sought U.S. tax
treaty relief through the appropriate Competent Authority tribunals for assessments received from the CRA. Although we believe we have reasonable basis for our tax positions, it is possible an adverse outcome could have a material effect
upon our financial condition, operating results or cash flows in a particular quarter or annual period.

As of
December 31, 2010, we have undistributed earnings from foreign subsidiaries of approximately $6.6 million. These earnings are considered to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. Upon
distribution of these earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. It is not practicable
to determine the income tax liability that might be incurred if these earnings were to be distributed.

9. Commitments and
Contingencies

Operating Leases  Our principal commitments consist of obligations under leases for our office
space, computer equipment and furniture and fixtures; and contractual commitments for hosting and other support services

We
lease office space under non-cancelable operating leases with various expiration dates through 2018. The facilities generally require us to pay property taxes, insurance and maintenance costs. Further, several lease agreements contain rent
escalation clauses or rent holidays. For purposes of recognizing minimum rental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to begin amortization. We have the option to extend or renew most
of our leases which may increase the future minimum lease commitments. Rental expense under these agreements for the years ended December 31, 2010, 2009, and 2008 were approximately $2.8 million, $9.7 million, and $6.1 million,
respectively.



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Software Contracts  We have entered into software license and maintenance
agreements for database software used in the production environment. Total payments related to these agreements are included in the software contracts column below.

Capital Leases  See Note 4 Property and Equipment for additional information regarding capital leases.

The minimum non-cancelable scheduled payments under these agreements at December 31, 2010 are as follows:



|                                        |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   |      |   |  |   |        | 
|--------------------------------------- |  | ---------------- | --- |  | -------------- | - | ------ | ---------------------------- |  | - | -------------------- |  |  | ----------------- | ------ |  | ---------------- | - | ----- | ----- |  | - | ---- | - |  | - | ------ | 
|                                        |  | Operating Leases |     |  |                |   |        |                              |  |   |                      | 
|                                        |  | EquipmentLeases  |     |  | FacilityLeases |   |        | Third PartyHostingFacilities |  |   | TotalOperatingLeases |  |  | SoftwareContracts |        |  | CapitalLeases(1) |   |       | Total | 
|                                        |  | (In thousands)   |     |  | (In thousands) |   |        | (In thousands)               |  |   | (In thousands)       | 
|2011                                    |  |                  | 68  |  |                |   | 2,719  |                              |  |   | 1,950                |  |  |                   | 4,737  |  |                  |   | 4,309 |       |  |   | 112  |   |  |   | 9,158  | 
|2012                                    |  |                  | 45  |  |                |   | 2,530  |                              |  |   | 1,588                |  |  |                   | 4,163  |  |                  |   | 463   |       |  |   | 41   |   |  |   | 4,667  | 
|2013                                    |  |                  |    |  |                |   | 1,356  |                              |  |   | 957                  |  |  |                   | 2,313  |  |                  |   | 11    |       |  |   | 7    |   |  |   | 2,331  | 
|2014                                    |  |                  |    |  |                |   | 860    |                              |  |   | 943                  |  |  |                   | 1,803  |  |                  |   |      |       |  |   |     |   |  |   | 1,803  | 
|2015                                    |  |                  |    |  |                |   | 727    |                              |  |   | 236                  |  |  |                   | 963    |  |                  |   |      |       |  |   |     |   |  |   | 963    | 
|Thereafter                              |  |                  |    |  |                |   | 1,894  |                              |  |   |                     |  |  |                   | 1,894  |  |                  |   |      |       |  |   |     |   |  |   | 1,894  | 
|                                        |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   |      |   |  |   |        | 
|Total                                   |  | $                | 113 |  |                | $ | 10,086 |                              |  | $ | 5,674                |  |  | $                 | 15,828 |  |                  | $ | 4,783 |       |  | $ | 160  |   |  | $ | 20,816 | 
|                                        |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   |      |   |  |   |        | 
|Less amounts representing interest      |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   | (9   | ) |  |   |        | 
|                                        |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   |      |   |  |   |        | 
|Present value of minimum lease payments |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  | $ | 151  |   |  |   |        | 
|Less current portion                    |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   | (105 | ) |  |   |        | 
|                                        |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   |      |   |  |   |        | 
|Noncurrent portion                      |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  | $ | 46   |   |  |   |        | 
|                                        |  |                  |     |  |                |   |        |                              |  |   |                      |  |  |                   |        |  |                  |   |       |       |  |   |      |   |  |   |        | 



|(1) | amount includes interest.
|--- | -------------------------

Litigation

Kenexa Litigations Kenexa BrassRing, Inc., (Kenexa) filed suit against us in the United States District Court for the District of Delaware on August 27, 2007.
Kenexa alleges that we infringed Patent Nos. 5,999,939 and 6,996,561, and seeks monetary damages and an order enjoining us from further infringement. We answered Kenexas complaint on January 28, 2008. On May 9, 2008, Kenexa filed a
similar lawsuit against Vurv Technology, Inc. (now known as Vurv Technology LLC) (Vurv) in the United States District Court for the District of Delaware, alleging that Vurv has infringed Patent Nos. 5,999,939 and 6,996,561, and seeking
monetary damages and an order enjoining further infringement. Vurv answered Kenexas complaint on May 29, 2008. We acquired Vurv on July 1, 2008. We have reviewed these matters and believe that neither our nor Vurvs software
products infringe any valid and enforceable claim of the asserted patents. We have engaged in settlement discussions with Kenexa, but no settlement agreement has been reached. Litigation is ongoing with respect to these matters, and both parties
have filed summary judgment motions. Trial scheduled for the week of December 6, 2010, was postponed and rescheduled to begin June 27, 2011.



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On June 30, 2008, we filed a reexamination request with the United States Patent
and Trademark Office (USPTO), seeking reconsideration of the validity of Patent No. 6,996,561 based on prior art that we presented with our reexamination request. Finding that our reexamination request raised a substantial new
question of patentability, the USPTO ordered reexamination of Patent No. 6,996,561 on September 5, 2008. On November 13, 2008, the USPTO issued an office action rejecting all of the claims of Patent No. 6,996,561 because
they are either anticipated by or unpatentable over the prior art. After comments by both parties to the reexamination, on June 4, 2009 the USPTO issued a subsequent action standing by its determination that certain claims of Patent
No. 6,996,561 are unpatentable, but indicating patentability of other claims. Both parties have since provided additional comments on this subsequent action and both parties have since filed appeals to elements of the reexamination to the
USPTOs Board of Patent Appeals and Interferences. The USPTO Board of Patent Appeals and Interferences has set an oral hearing for April 6, 2011. Accordingly, the USPTOs reexamination of Patent No. 6,996,561 is ongoing.

In a separate action filed on June 25, 2008 in the United States District Court for the District of Delaware,
Kenexas parent, Kenexa Technology, Inc. (Kenexa Technology), asserted claims against us for tortious interference with contract, unfair competition, unfair trade practices, and unjust enrichment arising from our refusal to allow
Kenexa Technology employees to access and use our proprietary applications to provide outsourcing services to a customer. Kenexa Technology seeks monetary damages and injunctive relief. We answered Kenexa Technologys complaint on July 23,
2008. On October 16, 2008, we amended our answer and filed counterclaims against Kenexa Technology, alleging copyright infringement, misappropriation of trade secrets, interference with contractual relations, and unfair competition arising from
Kenexa Technologys unauthorized access and use of our products in the course of providing outsourcing services to its customers. We sought declaratory judgment, monetary damages, and injunctive relief. We filed a motion to dismiss Kenexa
Technologys claims on July 21, 2009 and a motion for preliminary injunction to enjoin Kenexa Technology employees from accessing its solutions deployed at joint customers of both companies on July 22, 2009. These motions are pending
before the Court. In addition, Kenexa has joined the litigation, and claims similar to those discussed above have been asserted against and by Kenexa. This matter is ongoing.

On November 7, 2008, Vurv sued Kenexa, Kenexa Technology, and two of Vurvs former employees (who now work for Kenexa and/or
Kenexa Technology) in the United States District Court for the Northern District of Georgia. In this action, Vurv asserts claims for breach of contract, computer theft, misappropriation of trade secrets, tortious interference, computer fraud and
abuse, and civil conspiracy. The defendants answered Vurvs complaint on December 12, 2008 without asserting any counterclaims. This matter is ongoing.

On July 17, 2009, Kenexa and Kenexa Recruiter (together, the Kenexa Plaintiffs) filed suit against us, a current employee of our and a former employee of ours in Massachusetts
Superior Court (Middlesex County). The Kenexa Plaintiffs amended the complaint on August 27, 2009 and added Vurv Technology LLC, two of our former employees and two of our current employees. The Kenexa Plaintiffs assert claims for
breach of contract and the implied covenant of good faith and fair dealing, unfair trade practices, computer theft, misappropriation of trade secrets, tortious interference, unfair competition, unjust enrichment, computer fraud and
abuse. Vurv removed the complaint to the United States District Court for the District of Massachusetts and we and Vurv, along with two other defendants, answered the complaint on October 5, 2009. Additionally, four other defendants
(our current and former employees) moved to dismiss for lack of jurisdiction on October 5 and October 26, 2009. The Court dismissed the case for lack of personal jurisdiction as to two individual defendants. It denied the
motion with respect to the two other individual defendants. The matter is ongoing.

Other Matters In
addition to the matters described above, we are subject to various claims and legal proceedings that arise in the ordinary course of our business from time to time, including claims and legal proceedings that have been asserted against us by
customers, former employees and advisors and



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competitors. We are also subject to legal proceedings or discussions that may result in litigation, settlements or other liabilities in the future. For instance: (1) we
have received and are currently responding to a subpoenas from the Department of Homeland Securitys inspector generals office relating to our commercial pricing for the Transportation Security Administration, a government
entity that accessed our services through a third party prime contractor, and as a result of this inquiry, we may be subject to penalties, sanctions, or other damages, including forfeiture or refund of profits or certain fees collected, fines and
suspension or prohibition from doing business with the involved government entity; (2) in the first half of 2010, we became aware that certain Taleo customers had been contacted by an intellectual property licensing firm asserting that a
usability feature of the Taleo software was subject to patents held by the intellectual property licensing firm, and we are in discussions with the patent holder with respect to these assertions; (3) we were recently notified of a potential
collective and/or class action claim under federal and state wage and hour laws with respect to a portion of our employee population, and we are in discussions with the potential claimants with respect to these assertions; and (4) we were
recently notified by a former customer that the former customer intends to seek indemnification from us with respect to costs arising from an alleged data privacy breach involving the Vurv product that we acquired in 2008. Taleo is currently
awaiting more information about this potential claim from the former customer.

We have accrued for estimated losses in the
accompanying consolidated financial statements for matters with respect to which we believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. Based on currently available information, we do not
believe that the ultimate outcome of these unresolved matters, individually or in the aggregate, is likely to have a material adverse effect on our financial position, results of operations or cash flows. However litigation is subject to inherent
uncertainties and our view on these matters may change in the future.

10. Employee Benefit Plans

We maintain a 401(k) profit-sharing plan (the 401(k) Plan) covering substantially all U.S. employees. Pursuant to the
401(k) Plan, we may elect to match employee contributions to the 401(k) Plan, not to exceed 6% of an employees compensation. Effective January 1, 2008, we instituted a 401(k) matching program with the following specifics: (i) for
employee contributions to the 401(k) Plan of up to 4% of each employees base salary up to a maximum of $245,000 for the year ended December 31, 2009, we will match such employee contributions at a rate of $0.50 for every $1.00 contributed
by the employee; and (ii) our 401(k) matching program has a three year vesting period. We recorded $0.8 million, $0.8 million and $0.4 million in employee related costs during the year ended December 31, 2010, 2009 and 2008,
respectively, as a result of the adoption of this program.

11. Other Income



|                                                         |  |                         |     |  |      |   |        |  
|-------------------------------------------------------- |  | ----------------------- | --- |  | ---- | - | ------ | -
|                                                         |  | Year Ended December 31, |    
|                                                         |  | 2010                    |     |  | 2009 |  
|                                                         |  | (In thousands)          |    
|Settlement of Vurv escrow account                        |  | $                       |    |  |      | $ | 2,471  |  
|WWC purchase option write-off                            |  |                         |    |  |      |   | (1,084 | )
|Gain on remeasurement of previously held interest in WWC |  |                         | 885 |  |      |   |       |  
|                                                         |  |                         |     |  |      |   |        |  
|Other income                                             |  | $                       | 885 |  |      | $ | 1,387  |  
|                                                         |  |                         |     |  |      |   |        |  

On January 1, 2010 when we closed the acquisition of the remaining 84% equity interest in WWC, we took
control of the entity and re-measured the previously held 16% equity interest to its fair value. The difference of $0.9 million between the $1.4 million book value and the $2.3 million fair value of the previously held 16% interest was recorded as a
gain in the statement of operations as other income.



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In 2009, we settled the Vurv escrow account with the former shareholders of Vurv and
received 111,167 shares of the Companys Class A common stock valued at $2.5 million based on a market price per share of $22.23 on the settlement date, November 11, 2009. The $2.5 million value of the shares was recorded as other
income during the fourth quarter of 2009. See Note 2 Business Combinations and Dispositions.

In the third quarter
of 2008, we made an initial investment of $2.5 million for a 16% equity investment in WWC and an option to purchase WWC at a later date. We assigned $1.4 million to the 16% equity investment and $1.1 million of the initial investment to the purchase
option. In connection with the execution of the Merger Agreement on September 14, 2009, we negotiated more favorable terms than the purchase option and also terminated the purchase option. Accordingly, we wrote-off the $1.1 million
carrying value of the purchase option in the third quarter of 2009.

12. Net Income (Loss) Per Share

Basic and diluted net income (loss) per common share is calculated by dividing the net income (loss) applicable to common stockholders by
the weighted-average number of Class A common shares outstanding during the period. Given that the Class B common shares do not have any economic rights, we have determined that basic earnings per share should be calculated based only on
the outstanding Class A common shares. Diluted net loss per common share is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive. However, during periods of net income, earnings per
share is based on outstanding Class A common shares and exchangeable shares, since the latter are participating securities, but have no legal requirement to fund losses. Class B common shares are non-participating in periods of net income
or net loss and as a result have no attribution of earnings or losses for the purposes of calculating earnings per share. Exchangeable shares and stock options are included only if they are dilutive. These securities aggregated on a weighted-average
share basis to 555,794, 899,685, and 3,823,137 for the years ended December 31, 2010, 2009, and 2008, respectively. They were not included in the diluted net loss per common share for the year ended December 31, 2008 since they were
antidilutive for that period.

A summary of the loss or earnings applicable to each class of common shares is as follows:



|                                              |  |                                       |        |  |                  |  |   |               |  |   |                  |  |  |               |   |  |                  |   |        |   |  |  |     | 
|--------------------------------------------- |  | ------------------------------------- | ------ |  | ---------------- |  | - | ------------- |  | - | ---------------- |  |  | ------------- | - |  | ---------------- | - | ------ | - |  |  | --- | 
|                                              |  | 2010                                  |        |  | 2009             |  |   | 2008          | 
|                                              |  | Class ACommon                         |        |  | Class BCommon(1) |  |   | Class ACommon |  |   | Class BCommon(1) |  |  | Class ACommon |   |  | Class BCommon(1) |  
|                                              |  | (In thousands, except per share data) |       
|Allocation of net income (loss)               |  | $                                     | 420    |  |                  |  |  |               |  | $ | 1,293            |  |  |               |  |  |                  | $ | (8,128 | ) |  |  |    | 
|Weighted-average shares outstanding  basic   |  |                                       | 39,685 |  |                  |  |  |               |  |   | 31,507           |  |  |               |  |  |                  |   | 27,569 |   |  |  | 455 | 
|Weighted-average shares outstanding  diluted |  |                                       | 40,915 |  |                  |  |  |               |  |   | 32,406           |  |  |               |  |  |                  |   | 27,569 |   |  |  | 455 | 
|Net income (loss) per share  basic           |  | $                                     | 0.01   |  |                  |  |  |               |  | $ | 0.04             |  |  |               |  |  |                  | $ | (0.29  | ) |  |  |    | 
|Net income (loss) per share  diluted         |  | $                                     | 0.01   |  |                  |  |  |               |  | $ | 0.04             |  |  |               |  |  |                  | $ | (0.29  | ) |  |  |    | 



|(1) | Class B common shares are non-participating in periods of net income or net losses and as a result have no attribution of earnings or losses for the purposes of
calculating earnings per share. The corresponding exchangeable shares, discussed at Note 7. Common Stock, are participating securities but have no legal requirement to fund such losses, making them antidilutive for 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Effective for interim and annual periods beginning after December 15, 2008, and applied retrospectively,
the FASB issued an accounting standard that requires use of the two-class method to calculate earnings per share when non-vested restricted stock awards are eligible to receive dividends (i.e., participating securities), even if



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



we do not intend to declare dividends. Although our unvested restricted stock awards are eligible to receive dividends, they are not significant as compared with total weighted average diluted
shares outstanding and there is no impact on our earnings per share calculation in applying the two-class method.

13. Segment and
Geographic Information, International Operations, and Customer Concentrations

We report information about operating
segments in our annual financial statements and selected information about operating segments in our interim financial reports issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive
Officer.

We are organized geographically and by line of business and based on this we have identified two major line of
business operating segments: application and consulting services.

The application line of business is engaged in the
development, marketing, hosting and support of our software applications. The consulting services line of business offers implementation, business process reengineering, change management, and education and training services.

The accounting policies of the line of business operating segments are the same as those described in the summary of significant
accounting policies. We do not evaluate assets or capital expenditures by operating segments. Consequently, it is not practical to show assets, capital expenditures, depreciation or amortization by operating segment.

The following table presents a summary of operating segments:



|                       |  |                |         |  |            |   |        |       |  |   |         | 
|---------------------- |  | -------------- | ------- |  | ---------- | - | ------ | ----- |  | - | ------- | 
|                       |  | Application    |         |  | Consulting |   |        | Total | 
|                       |  | (In thousands) |        
|2010                   |  |                |         |  |            |   |        |       |  |   |         | 
|Revenue                |  | $              | 199,302 |  |            | $ | 37,973 |       |  | $ | 237,275 | 
|Contribution margin(1) |  | $              | 107,106 |  |            | $ | 8,302  |       |  | $ | 115,408 | 
|2009                   |  |                |         |  |            |   |        |       |  |   |         | 
|Revenue                |  | $              | 173,495 |  |            | $ | 24,917 |       |  | $ | 198,412 | 
|Contribution margin(1) |  | $              | 97,170  |  |            | $ | 303    |       |  | $ | 97,473  | 
|2008                   |  |                |         |  |            |   |        |       |  |   |         | 
|Revenue                |  | $              | 138,628 |  |            | $ | 29,791 |       |  | $ | 168,419 | 
|Contribution margin(1) |  | $              | 75,258  |  |            | $ | 4,522  |       |  | $ | 79,780  | 



|(1) | Contribution margins equals gross profit minus research and development expenses. The contribution margins reported reflect only the expenses of the line of business
and do not represent the actual margins for each operating segment since they do not contain an allocation for selling and marketing, general and administrative, and other corporate expenses incurred in support of the line of business.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Profit Reconciliation



|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                |  | Year Ended December 31, |        
|                                                |  | 2010                    |         |   | 2009 |   |         | 2008 | 
|                                                |  | (In thousands)          |        
|Contribution margin for reportable segments     |  | $                       | 115,408 |   |      | $ | 97,473  |      |  | $ | 79,780  |  
|Sales and marketing                             |  |                         | (77,721 | ) |      |   | (65,731 | )    |  |   | (53,827 | )
|General and administrative                      |  |                         | (43,834 | ) |      |   | (33,152 | )    |  |   | (32,382 | )
|Restructuring charges                           |  |                         |        |   |      |   |        |      |  |   | (1,914  | )
|Interest and other income, expense, net         |  |                         | 1,261   |   |      |   | 1,550   |      |  |   | 1,518   |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before provision for income taxes |  | $                       | (4,886  | ) |      | $ | 140     |      |  | $ | (6,825  | )
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  

Geographic Information:

Revenue attributed to a country or region includes sales to multinational organizations and is based on the country of location of the Taleo legal entity that is the contracting party. Our
U.S. entity is the contracting party for all sales agreements in the United States and our Canadian entity is the contracting party for all Taleo Enterprise sales agreements in Canada. Prior to January 1, 2005, certain of our subsidiaries
outside of North America were the contracting parties for sales transactions within their regions. After January 1, 2005, the Companys U.S. entity has been the contracting party for all new sales agreements and renewals of existing
sales agreements entered into with customers outside of North America. Revenues and assets and by legal contracting entity by region are as follows:



|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|------------------------------ |  | -------------- | ------- |  | ------ | - | ------ | ------ |  | - | ----- |  |  | ----- | ----- |  |  | - | ------- | 
|                               |  | United States  |         |  | Canada |   |        | Europe |  |   | Other |  |  | Total |      
|                               |  | (In thousands) |        
|Year ended December 31, 2010  |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Revenues                       |  | $              | 226,548 |  |        | $ | 10,727 |        |  | $ |      |  |  | $     |      |  |  | $ | 237,275 | 
|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Assets                         |  | $              | 491,580 |  |        | $ | 24,955 |        |  | $ | 5,527 |  |  | $     | 1,774 |  |  | $ | 523,836 | 
|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Year ended December 31, 2009  |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Revenues                       |  | $              | 191,288 |  |        | $ | 7,036  |        |  | $ | 16    |  |  | $     | 72    |  |  | $ | 198,412 | 
|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Assets                         |  | $              | 430,371 |  |        | $ | 20,179 |        |  | $ | 5,099 |  |  | $     | 728   |  |  | $ | 456,377 | 
|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Year ended December 31, 2008  |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Revenues                       |  | $              | 159,860 |  |        | $ | 7,919  |        |  | $ | 403   |  |  | $     | 237   |  |  | $ | 168,419 | 
|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 
|Assets                         |  | $              | 263,268 |  |        | $ | 15,177 |        |  | $ | 4,304 |  |  | $     | 440   |  |  | $ | 283,189 | 
|                               |  |                |         |  |        |   |        |        |  |   |       |  |  |       |       |  |  |   |         | 

The geographic mix of application revenue based on the region of location of the customers contracting
entity was as follows:



|                  |  |                         |     |   |      |  |     |      |  |  |     |  
|----------------- |  | ----------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                  |  | Year Ended December 31, |    
|                  |  | 2010                    |     |   | 2009 |  |     | 2008 | 
|United States     |  |                         | 83  | % |      |  | 81  | %    |  |  | 83  | %
|Canada            |  |                         | 4   | % |      |  | 4   | %    |  |  | 5   | %
|Europe            |  |                         | 9   | % |      |  | 11  | %    |  |  | 8   | %
|Rest of the world |  |                         | 4   | % |      |  | 4   | %    |  |  | 4   | %
|                  |  |                         |     |   |      |  |     |      |  |  |     |  
|                  |  |                         | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                  |  |                         |     |   |      |  |     |      |  |  |     |  



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TALEO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Due to the nature of consulting services revenue recognition, it is impracticable to
determine revenue by location of the customer.

14. Severance and Exit Costs

Restructuring

During the second quarter of 2008, we initiated a restructuring plan (the Plan) to reorganize as a result of the Vurv acquisition. The Plan was completed in the fourth quarter of 2008 and
resulted in the termination of approximately 34 persons throughout the organization and the closure of certain U.S. and international facilities. During the year ended December 31, 2008, we incurred severance and facility closure expense
of $1.9 million. No restructuring expense was incurred during the years ended December 31, 2010 or 2009.

At
December 31, 2009, we had no future liability related to restructuring charges in its consolidated balance sheet.



|                                           |  |                |      |   |                  |   |   |                |  |   |      |  
|------------------------------------------ |  | -------------- | ---- | - | ---------------- | - | - | -------------- |  | - | ---- | -
|                                           |  | Severance      |      |   | Facility closure |   |   | Totalliability | 
|                                           |  | (In thousands) |     
|Restructuring expense                      |  |                |      |   |                  |   |   |                |  |   |      |  
|Liability at January 1, 2009               |  | $              | 271  |   |                  | $ |  |                |  | $ | 271  |  
|Cash payments in the first quarter of 2009 |  |                | (271 | ) |                  |   |  |                |  |   | (271 | )
|                                           |  |                |      |   |                  |   |   |                |  |   |      |  
|Liability at December 31, 2009             |  | $              |     |   |                  | $ |  |                |  | $ |     |  
|                                           |  |                |      |   |                  |   |   |                |  |   |      |  

Transition of Time and Expense Services Processing

We discontinued the time and expense processing services related to the Taleo Contingent solution in August 2008, as a result of which 34
positions were terminated and 4 were reassigned to other departments. If an employee was terminated and remained employed through the transition date, the terminated employee was entitled to an exit package. Total costs for the year
ended December 31, 2008 were $0.1 million and were recorded as an operating expense. No exit cost was incurred during the years ended December 31, 2010 or 2009.



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TALEO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



15. Selected Quarterly Financial Data (Unaudited)

Selected summarized quarterly financial information for the years ended December 31, 2010 and 2009 is as follows:



|                                                                                  |  |            |        |   |            |   |        |            |  |   |               |   |  |             |        |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---------- | ------ | - | ---------- | - | ------ | ---------- |  | - | ------------- | - |  | ----------- | ------ | - |  | - | ------- | -
|2010                                                                              |  | 1stQuarter |        |   | 2ndQuarter |   |        | 3rdQuarter |  |   | 4thQuarter(1) |   |  | FullYear(2) |       
|(In thousands, except per share data)                                             |  |            |        |   |            |   |        |            |  |   |               |   |  |             |       
|Revenue                                                                           |  | $          | 55,046 |   |            | $ | 56,276 |            |  | $ | 58,737        |   |  | $           | 67,216 |   |  | $ | 237,275 |  
|Gross profit                                                                      |  |            | 37,248 |   |            |   | 37,183 |            |  |   | 40,200        |   |  |             | 44,208 |   |  |   | 158,839 |  
|Operating income/(loss)                                                           |  |            | (164   | ) |            |   | (1,614 | )          |  |   | 1,472         |   |  |             | (5,841 | ) |  |   | (6,147  | )
|Net income (loss)                                                                 |  |            | 818    |   |            |   | (1,410 | )          |  |   | 1,632         |   |  |             | (620   | ) |  |   | 420     |  
|Net income (loss) attributable to Class A common stockholders per share  basic   |  | $          | 0.02   |   |            | $ | 0.04   |            |  | $ | 0.04          |   |  | $           | (0.02  | ) |  | $ | 0.01    |  
|Net income (loss) attributable to Class A common stockholders per share  diluted |  | $          | 0.02   |   |            | $ | (0.04  | )          |  | $ | 0.04          |   |  | $           | (0.02  | ) |  | $ | 0.01    |  
|Weighted average Class A common shares outstanding  basic                        |  |            | 39,156 |   |            |   | 39,444 |            |  |   | 39,815        |   |  |             | 40,339 |   |  |   | 39,685  |  
|Weighted average Class A common shares outstanding  diluted                      |  |            | 40,338 |   |            |   | 39,444 |            |  |   | 40,963        |   |  |             | 40,339 |   |  |   | 40,915  |  
|                                                                                  |  |            |        |   |           
|2009                                                                              |  | 1stQuarter |        |   | 2ndQuarter |   |        | 3rdQuarter |  |   | 4thQuarter    |   |  | FullYear(2) |       
|(In thousands, except per share data)                                             |  |            |        |   |            |   |        |            |  |   |               |   |  |             |       
|Revenue                                                                           |  | $          | 48,083 |   |            | $ | 49,093 |            |  | $ | 50,736        |   |  | $           | 50,500 |   |  | $ | 198,412 |  
|Gross profit                                                                      |  |            | 32,125 |   |            |   | 32,195 |            |  |   | 33,934        |   |  |             | 34,066 |   |  |   | 132,320 |  
|Operating income (loss)                                                           |  |            | (1,948 | ) |            |   | (1,516 | )          |  |   | 301           |   |  |             | 1,753  |   |  |   | (1,410  | )
|Net income (loss)                                                                 |  |            | (2,085 | ) |            |   | (113   | )          |  |   | (1,102        | ) |  |             | 4,593  |   |  |   | 1,293   |  
|Net income (loss) attributable to Class A common stockholders per share  basic   |  | $          | (0.07  | ) |            | $ | (0.00  | )          |  | $ | (0.04         | ) |  | $           | 0.13   |   |  | $ | 0.04    |  
|Net income (loss) attributable to Class A common stockholders per share  diluted |  | $          | (0.07  | ) |            | $ | (0.00  | )          |  | $ | (0.04         | ) |  | $           | 0.13   |   |  | $ | 0.04    |  
|Weighted average Class A common shares outstanding  basic                        |  |            | 30,262 |   |            |   | 30,417 |            |  |   | 30,883        |   |  |             | 34,425 |   |  |   | 31,507  |  
|Weighted average Class A common shares outstanding  diluted                      |  |            | 30,262 |   |            |   | 30,417 |            |  |   | 30,883        |   |  |             | 35,594 |   |  |   | 32,406  |  



|(1) | Operating income (loss) for the fourth quarter of 2010 includes $3.8 million in acquisition-related transaction costs.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | Net income (loss) attributable to Class A common stockholder per share  basic and diluted for the four quarters of each year may not sum to the total for the
year because of the different number of shares outstanding during each period.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16. Restatement

Previously Restated Consolidated Financial Statements for the year ended December 31, 2008

Our current Annual Report on Form 10-K contains financial information related to the fiscal year ended December 31, 2008 which
reflects previously restated financial information. Our Annual Report on Form 10-K for the year ended December 31, 2008, originally filed with the Securities and Exchange Commission (SEC)



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TALEO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



on April 30, 2009 reflected a restatement related to revenue recognition and was subsequently amended on Form 10-K/A filed on October 27, 2009 to reflect the restatement that
resulted from managements determination subsequent to the issuance of the Companys financial statements for the fiscal year ended December 31, 2008 that there was an error in its accounting for stock-based compensation expense (the
Restatement  Stock-based Compensation). These previously reported restatements impacted the financial information included in our current Annual Report on Form 10-K with respect to the year ended December 31, 2008 and as of
December 31, 2008.

RestatementStock-based Compensation

In October 2009, we identified an error in the accounting for stock-based compensation expense after upgrading to a new version of the
equity program administration software that we license from a third-party provider. The third-party provider has advised its users that the new version of the software corrects an error in the prior version with respect to the calculation of
stock-based compensation expense. Specifically, the prior version of the software incorrectly calculated stock-based compensation expense by continuing to apply a weighted average forfeiture rate to the vested portion of stock option awards until
the grants final vest date, rather that reflecting actual forfeitures as awards vested, resulting in an understatement of stock-based compensation expense in certain periods prior to the grants final vest date. The correction of the
error by us resulted in changes to the timing of stock-based compensation expense over the vesting period of the awards during the relevant periods, but did not change the total stock-based compensation expense. As stock-based compensation expense
is a non-cash item, there was no impact to net cash provided by operations in any period.

The effect of correcting this error
was an increase to net income of $0.1 million for the year ended December 31, 2008 compared to amounts previously reported.

The cumulative effect of the stock-based compensation adjustments on the consolidated balance sheet as of the year ended 2008 was an increase in additional paid-in capital offset by a corresponding
increase in accumulated deficit which resulted in no net effect on stockholders equity.

17. Subsequent Events

On February 1, 2011, we entered into a definitive agreement to acquire Cytiva, a Canadian based mid-market provider of on-demand
recruiting software solutions, for approximately $11 million in cash. We expect the acquisition of Cytiva to extend our customer base in the small and medium sized market. The acquisition is subject to customary closing conditions, including
regulatory approval, and is expected to be completed in the second quarter of 2011.

In February 2011, we amended our facility
lease in Dublin, California for additional office space until June 2013. The total commitment under this amendment is approximately $0.6 million.



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A. | 
|-------- | 

(a) Evaluation of
Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2010. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the 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 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 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.

Our management, with the participation of the Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of December 31, 2010, our disclosure controls and procedures were effective at the reasonable assurance level.

Attestation report of the registered public accounting firm.

See
Report of Independent Registered Public Accounting Firm on page 64.

Managements report on internal
control over financial reporting

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2010. Management
reviewed the results of its assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in its report which is included in Item 8 of this Annual Report on Form 10-K.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2010 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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Limitation on Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or
detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

The information required by this item concerning our directors is incorporated by reference to the information set forth in the section titled Directors and Corporate Governance in our 2011
Proxy Statement. Information required by this item concerning our executive officers is incorporated by reference to the information set forth in the section entitled Executive Officers of the Company in our 2011 Proxy Statement.
Information regarding Section 16 reporting compliance is incorporated by reference to the information set forth in the section entitled Section 16(a) Beneficial Ownership Reporting Compliance in our 2011 Proxy Statement.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information regarding executive compensation required by this item is included under the caption Executive Compensation in
the 2011 Proxy Statement and is incorporated herein by reference.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information regarding securities authorized for issuance under equity compensation plans required by this item is included under the
caption Executive Compensation  Equity Compensation Plan Information in the 2011 Proxy Statement and is incorporated herein by reference. The information regarding security ownership of certain beneficial owners and management
required by this item is included under the caption Security Ownership of Certain Beneficial Owners and Management in the 2011 Proxy Statement and is incorporated herein by reference.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

The information regarding transactions with related persons required by this item is included under the caption Certain Relationships and Related Party Transactions in the 2011 Proxy Statement
and is incorporated herein by reference. The information regarding director independence required by this item is included under the caption Corporate Governance in the 2011 Proxy Statement and is incorporated herein by reference.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

The information required by this item is included under the caption Principal Accounting Fees and Services in the 2011 Proxy Statement and is incorporated herein by reference.

PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------

(a) The following documents are filed as part of this Report:

1.
Financial Statements. The information concerning our financial statements, and Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm and Deloitte & Touche LLP, Independent Registered Public
Accounting Firm required by this item is incorporated by reference herein to Item 8  Financial Statement and Supplementary Data.

2. Financial Statement Schedules. The Financial Statement Schedules not listed have been omitted because they are not applicable or are not required or the information required to be set forth
herein is included in Item 8  Financial Statements and Supplementary Data.

3.
Exhibits. We have filed, or incorporated into this report by reference, the exhibits listed on the accompanying Exhibit Index to Exhibits immediately following the signature page 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.



TALEO CORPORATIONBy:

/s/    Douglas C.
JeffriesDouglas C. JeffriesExecutive Vice President and Chief Financial Officer


Date: February 28, 2011



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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Gregoire and Douglas
C. Jeffries, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connections
therewith, with the Securities and Exchange Commission, hereby ratifying and conforming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue of hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.



|                                               |  |                                                                                    |  |                  
|---------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | -----------------
|Signature                                      |  | Title                                                                              |  | Date             
|                                               |  |                                                                                   
|/s/    Michael
Gregoire Michael Gregoire       |  | Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)    |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Douglas C.
Jeffries Douglas C. Jeffries |  | Executive Vice President and Chief Financial Officer (Principal Financial
Officer) |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Carol
Richwood Carol Richwood           |  | Vice President, Principal Accounting Officer
(Principal Accounting Officer)        |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Jeffrey
Stiefler Jeffrey Stiefler       |  | Lead Independent Director of the Board of Directors                                |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Gary
Bloom Gary Bloom                   |  | Director                                                                           |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Patrick
Gross Patrick Gross             |  | Director                                                                           |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Greg
Santora Greg Santora               |  | Director                                                                           |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Jeffrey
Schwartz Jeffrey Schwartz       |  | Director                                                                           |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Jonathan
Schwartz Jonathan Schwartz     |  | Director                                                                           |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    Michael
Tierney Michael Tierney         |  | Director                                                                           |  | February 28, 2011
|                                               |  |                                                                                   
|/s/    James
Tolonen James Tolonen             |  | Director                                                                           |  | February 28, 2011



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|2.1           |  | Asset Purchase Agreement dated as of March 2, 2007, by and among Taleo Corporation, JobFlash, Inc., and, with respect to Articles X, XI and XII thereof only, U.S. Bank
National Association as Escrow Agent (incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on March 8, 2007)                                                                                                                                       
|              | 
|2.2           |  | Agreement and Plan of Reorganization dated as of May 5, 2008, by and among Taleo Corporation, Dolphin Acquisition Corporation, Porpoise Acquisition LLC, Vurv Technology, Inc., and,
with respect to Articles VII, VIII and IX thereof only, Derek Mercer as Stockholder Representative and U.S Bank National Association as Escrow Agent (incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on
Form 8-K, Commission File No. 000-51299, filed on May 7, 2008)            
|              | 
|2.3           |  | Amended and Restated Agreement and Plan of Merger dated as of September 14, 2009, by and among Taleo Corporation, Wyoming Acquisition Corporation, Worldwide Compensation, Inc., and,
with respect to Articles VII, VIII and IX thereof only, Dennis M. Rohan as Stockholder Representative and U.S. Bank National Association as Escrow Agent (incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report
on Form 8-K, Commission File No. 000-51299, filed on September 18, 2009)
|              | 
|2.4           |  | Agreement and Plan of Merger dated September 1, 2010, by and among Taleo Corporation, Cajun Acquisition Corporation, Learn.com, Inc. and with respect to Articles VII, VIII and
IX only, James Riley as Stockholder Representative and U.S. Bank National Association as Escrow Agent (incorporated herein by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on
September 2, 2010)                                                          
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrants Registration Statement on Form S-1,
Commission File No. 333-114093, filed on September 13, 2005)                                                                                                                                                                                                                                                                                    
|              | 
|3.2           |  | Bylaws (incorporated herein by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-1, Commission File No. 333-114093, filed on
May 13, 2004)                                                                                                                                                                                                                                                                                                                                     
|              | 
|4.1           |  | Form of Class A common stock certificate (incorporated herein by reference to Exhibit 4.1 to the Registrants Registration Statement on Form S-1, Commission
File No. 333-114093, filed on September 13, 2005)                                                                                                                                                                                                                                                                                             
|              | 
|4.2           |  | Form of Class B common stock certificate (incorporated herein by reference to Exhibit 4.2 to the Registrants Registration Statement on Form S-1, Commission
File No. 333-114093, filed on September 13, 2005)                                                                                                                                                                                                                                                                                             
|              | 
|10.1*         |  | 1999 Stock Plan and form of agreement thereunder (incorporated herein by reference to Exhibit 10.1 to the Registrants Registration Statement on Form S-1,
Commission File No. 333-114093, filed on March 31, 2004)                                                                                                                                                                                                                                                                                        
|              | 
|10.2*         |  | ViaSite Inc. Stock Plan (incorporated herein by reference to Exhibit 10.2 to the Registrants Registration Statement on Form S-1, Commission File
No. 333-114093, filed on March 31, 2004)                                                                                                                                                                                                                                                                                                                 
|              | 
|10.3          |  | 2003 Series D Preferred Stock Plan and form of agreement thereunder (incorporated herein by reference to Exhibit 10.3 to the Registrants Registration Statement on
Form S-1, Commission File No. 333-114093, filed on March 31, 2004)                                                                                                                                                                                                                                                                     
|              | 
|10.4*         |  | 2004 Stock Plan, as amended April 30, 2009 (incorporated herein by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q, Commission File
No. 000-51299, filed on May 11, 2009)                                                                                                                                                                                                                                                                                                      
|              | 
|10.5*         |  | 2004 Stock Plan  Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q,
Commission File No. 000-51299, filed on May 11, 2009)                                                                                                                                                                                                                                                                                            



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|              |  |                                                                                                                                                                                                                                                                                          
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                              
|              | 
|10.6*         |  | 2004 Stock Plan  Form of Performance Share Agreement (U.S. service providers) (incorporated herein by reference to Exhibit 10.3 to the Registrants Quarterly Report
on Form 10-Q, Commission File No. 000-51299, filed on May 11, 2009)                                                
|              | 
|10.7*         |  | 2004 Stock Plan  Form of Performance Share Agreement (Canada grantees) (incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K, Commission File No. 000-51299, filed on June 6, 2006)                                                          
|              | 
|10.8*         |  | 2004 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.5 to the Registrants Registration Statement on Form S-1, Commission File
No. 333-114093, filed on January 28, 2005)                                                                                   
|              | 
|10.9*         |  | 2005 Stock Plan and form of agreement thereunder (incorporated herein by reference to Exhibit 10.24 to the Registrants Registration Statement on Form S-1, Commission
File No. 333-114093, filed on September 13, 2005)                                                                 
|              | 
|10.10         |  | Vurv Technology, Inc. Stock Option Plan, as amended and restated as of March 23, 2006 (incorporated herein by reference to Exhibit 99.4 to the Registrants
Registration Statement on Form S-8, Commission File No. 333-152720, filed on August 1, 2008)                                 
|              | 
|10.11         |  | Vurv Technology, Inc. Stock Option Plan  Form of Stock Option Agreement (incorporated herein by reference to Exhibit 99.5 to the Registrants Registration Statement
on Form S-8, Commission File No. 333-152720, filed on August 1, 2008)                                              
|              | 
|10.12*        |  | 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Registrants Registration Statement on Form S-8, Commission File
No. 333-160707, filed on July 2, 2009)                                                                                              
|              | 
|10.13*        |  | 2009 Equity Incentive Plan  Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to the Registrants Quarterly Report on Form 10-Q,
Commission File 004Eo. 000-51299, filed on August 6, 2009)                                                              
|              | 
|10.14*        |  | 2009 Equity Incentive Plan  Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.4 to the Registrants Quarterly Report on
Form 10-Q, Commission File No. 000-51299, filed on August 6, 2009)                                                             
|              | 
|10.15*        |  | 2009 Equity Incentive Plan  Form of Performance Share Agreement (incorporated herein by reference to Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q, Commission File No. 000-51299, filed on August 6, 2009)                                                            
|              | 
|10.16*        |  | Employment Agreement, effective as of January 1, 2010, between Taleo Corporation and Michael Gregoire (incorporated herein by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K, Commission File No. 000-51299, filed on January 29, 2010)                        
|              | 
|10.17*        |  | Employment Agreement, effective as of November 8, 2010, between Taleo Corporation and Douglas Jeffries (incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on October 25, 2010)                       
|              | 
|10.18*        |  | Amended and Restated Contract of Employment, effective as of January 1, 2010, between Taleo (Canada) Inc. and Guy Gauvin (incorporated herein by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on January 22, 2010)     
|              | 
|10.19*        |  | First Amended and Restated Employment Agreement, effective as of January 1, 2010, between Taleo Corporation and Neil Hudspith (incorporated herein by reference to Exhibit 10.2
to the Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on January 22, 2010)
|              | 
|10.20*        |  | Description of the Fiscal 2010 Executive Incentive Bonus Plan (incorporated herein by reference to Item 5.02 of the Registrants Current Report on Form 8-K, Commission
File No. 000-51299, filed on December 14, 2009)                                                                  



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|              |  |                                                                                                                                                                                                                                                                                     
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                         
|              | 
|10.21*        |  | Form of Indemnification Agreement entered into by the Registrant and each of its directors and executive officers (incorporated herein by reference to Exhibit 10.6 to the
Registrants Registration Statement on Form S-1, Commission File No. 333-114093, filed on March 31, 2004)
|              | 
|10.22         |  | Agreement, dated September 1, 2002, between the Registrant and Internap Network Services Corporation (incorporated herein by reference to Exhibit 10.13 to the
Registrants Registration Statement on Form S-1, Commission File No. 333-114093, filed on January 28, 2005)          
|              | 
|10.23         |  | Master Services Agreement, dated April 14, 2006, by and between the Registrant and Equinix Operating Co., Inc. (incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on April 20, 2006)            
|              | 
|10.24        |  | Manual Replacement Statement of Work dated March 31, 2010 by and between the Registrant and Equinix Operating Co., Inc (incorporated herein by reference to Exhibit 10.5 to the
Registrants Quarterly Report on Form 10-Q, Commission File No. 000-51299, filed on May 7, 2010)    
|              | 
|10.25         |  | Lease for 4140 Dublin Blvd., Suite 400, Dublin, California (incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K,
Commission File No. 000-51299, filed on March 22, 2006)                                                                
|              | 
|10.26         |  | Master Services Agreement, dated as of June 27, 2008, by and between Taleo (Europe) B.V. and Equinix Netherlands B.V (incorporated herein by reference to Exhibit 10.1 to
the Registrants Quarterly Report on Form 10-Q, Commission File No. 000-51299, filed on August 11, 2008)  
|              | 
|10.27        |  | Oracle License and Service Agreement, dated May 30, 2007, by and between Taleo Corporation and Oracle USA, Inc. (incorporated herein by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q, Commission File No. 000-51299, filed on August 9, 2007)        
|              | 
|10.28        |  | Payment Schedule Agreement, dated May 30, 2007, by and between Taleo Corporation and Oracle Credit Corporation, (incorporated herein by reference to Exhibit 10.2 to
the Registrants Quarterly Report on Form 10-Q, Commission File No. 000-51299, filed on August 9, 2007)        
|              | 
|10.29        |  | Amendment One to Ordering Document, dated May 30, 2009, by and between Taleo Corporation and Oracle USA, Inc. ( incorporated herein by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q, Commission File No. 000-51299, filed on August 6, 2009)         
|              | 
|10.30        |  | Payment Schedule Agreement, dated May 30, 2009, by and between Taleo Corporation and Oracle Credit Corporation, (incorporated herein by reference to Exhibit 10.2 to
the Registrants Quarterly Report on Form 10-Q, Commission File No. 000-51299, filed on August 6, 2009)        
|              | 
|10.31*        |  | Employment Agreement, effective as of July 1, 2010, between Taleo Corporation and Jonathan Faddis (incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, Commission File No. 000-51299, filed on October 5, 2010)                        
|              | 
|21.1          |  | List of Subsidiaries as of December 31, 2010                                                                                                                                                                                                                                        
|              | 
|23.1          |  | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                                     
|              | 
|23.2          |  | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                                
|              | 
|24.1          |  | Power of Attorney (see the signature page of this Annual Report)                                                                                                                                                                                                                    
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Setion 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                  
|              | 
|32.1          |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                                                                                       



|* | Indicates management compensatory plan, contract or arrangement.
|- | ----------------------------------------------------------------

| | Confidential treatment has been granted for portions of this exhibit.
|- | ---------------------------------------------------------------------



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