##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
   þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended July
    31, 2008o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from            to   Commission file number:
    001-33347
 Aruba Networks, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

02-0579097(I.R.S. Employer
    Identification No.)   1344
    Crossman Ave.
    Sunnyvale, California
    94089-1113(408) 227-4500 (Address,
    including zip code, and telephone number,
    including area code, of registrants principal executive
    offices)
  Securities registered pursuant to Section 12(b) of the
    Act:
 Common Stock, par value $0.0001
 Securities registered pursuant to 12(g) of the Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


4Item 1A.


Risk Factors


12Item 1B.


Unresolved Staff Comments


25Item 2.


Properties


26Item 3.


Legal Proceedings


26Item 4.


Submission of Matters to a Vote of Security
    Holders


26PART IIItem 5.


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


27Item 6.


Selected Consolidated Financial Data


30Item 7.


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


31Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


48Item 8.


Consolidated Financial Statements and
    Supplementary Data


49Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


85Item 9A.


Controls and Procedures


85Item 9B.


Other Information


85PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


85Item 11.


Executive Compensation


85Item 12.


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


86Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


86Item 14.


Principal Accountant Fees and Services


86PART IVItem 15.


Exhibits and Financial Statement Schedule


86Signatures


87Index to Exhibits


88EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   2




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PART I
  In addition to historical information, this report contains
    forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933 and
    Section 21E of the Securities Exchange Act of 1934. These
    statements include, among other things, statements concerning
    our expectations:
  
    that we will continue to enhance the functionality and
    performance of our ArubaOS operating system, our centralized
    mobility management architecture and our multi-vendor AirWave
    Wireless management platform;
    that we intend to increase our market penetration and extend
    our geographic reach through the expansion of our network of
    channel partners;
    that we plan to realize increased operating efficiencies by
    growing our offshore research and development and customer
    support capabilities and establishing additional offshore
    capabilities for certain general and administrative
    functions;
    that we will continue to expand our network of technology
    companies that enhance and complement our unified mobility
    solutions with security solutions, management tools,
    connectivity devices, and mobility applications;
    that revenues from our indirect channels will continue to
    constitute a substantial majority of our future revenues;
    that international revenues will increase in absolute dollars
    and as a percentage of total revenues in future periods as we
    expand into international locations and introduce our products
    in new markets;
    that, as our customer base grows, we expect the proportion of
    our revenues represented by support revenues to increase;
    that we will strategically hire employees throughout the
    company;
    that we will continue to invest significantly in our research
    and development efforts, which we believe are essential to
    maintaining our competitive position;
    that research and development expenses will increase on an
    absolute dollar basis and as a percentage of revenue compared
    with fiscal 2008;
    that we will continue to invest heavily in our sales and
    marketing efforts, and in particular, that we will increase the
    number of sales personnel worldwide, which we believe will
    generate future business;
    that sales and marketing expenses will continue to be our
    most significant operating expense and will increase on an
    absolute dollar basis and decrease as a percentage of revenue
    compared with fiscal 2008;
    that we will incur significant additional legal costs related
    to defending ourselves against claims made by outside
    parties;
    that general and administrative expenses will increase on an
    absolute dollar basis and as a percentage of revenue compared
    with fiscal 2008;
    that ratable product and related professional services and
    support revenues will decrease in absolute dollars and as a
    percentage of total revenues in future periods;
    that, as we expand internationally, we plan to continue to
    hire additional technical support personnel to support our
    growing international customer base; and
    regarding the sufficiency of our existing cash, cash
    equivalents, short-term investments and cash generated from
    operations,  as well as other statements regarding our future operations,
    financial condition and prospects and business strategies. These
    forward-looking statements are subject to certain risks and
    uncertainties that could cause our actual results to differ
    materially from those reflected in the forward-looking
    statements. Factors that could cause or contribute to such
    differences include, but are not limited to, those discussed in
    this report, and in particular, the risks discussed under the
    heading Risk Factors in Part I, Item 1A of
    this report, and those discussed in other documents we file with
    the Securities and Exchange Commission. We undertake no
    obligation to revise or publicly release the results of any
    revision to these forward-looking statements. Given these risks
    and uncertainties, readers are cautioned not to place undue
    reliance on such forward-looking statements.
 3




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ITEM 1.
    BUSINESS  Overview
          Industry
    Background
      
    Enabling both security and mobility  Radio
    waves cannot be confined within a buildings walls,
    challenging traditional wired network physical security models
    that depended on an impenetrable perimeter. To 4




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enable mobility, network access privileges and permissions must
    be clearly defined on a per-user basis to enable secure access
    and the reliable delivery of data, voice, video, and other
    applications to mobile users. Finally, unauthorized wireless
    devices can circumvent network security and must be detected and
    prevented  
    Delivering applications in a mobile
    environment  Many applications are intended to be
    delivered over a fixed network and may perform sub-optimally in
    a mobile environment. This is especially true for
    mission-critical data and latency-sensitive voice and video
    applications. Enabling a network to recognize and adapt to an
    application  so-called application
    awareness  allows data, voice and video to be
    more reliably delivered, thereby enhancing the performance and
    utility of the application
    System integration  Enterprise-class mobility
    solutions require more than basic wireless access. Security,
    application, network, and radio frequency (RF)
    management services are required, too, potentially increasing
    the complexity of a system as it grows in size and scope. To be
    effective, a mobility solution must minimize deployment and
    integration complexity, and support massive scalability, without
    requiring expensive upgrades to existing infrastructure
    Management  Network management is the heart of
    any secure mobility solution because it so profoundly affects
    ease-of-use and on-going operating costs associated with
    set-up,
    diagnostics, maintenance, and upgrades. Centralized management
    allows even the largest enterprise to be supported with minimal
    IT overhead, while support for multiple vendors allows legacy
    infrastructure to coexist with the newest technologies like
    802.11n
    Support for emerging mobile applications 
    Secure mobility solutions need to be future-proof, ready to
    support emerging applications such as enterprise fixed mobile
    convergence (eFMC), cellular-to-Wi-Fi applications,
    and location-based services such as asset tracking and inventory
    management  User-Centric
    Technology
      
    Follow-Me Connectivity Our adaptive
    802.11a/b/g/n wireless LANs enhance productivity and
    collaboration by delivering high performance wireless data,
    voice, and video connections even in dense deployments and noisy
    RF environments. Our solutions scale for campus applications
    while remaining cost-effective for branch deployments, can be
    used both indoors and outdoors, and support secure enterprise
    mesh for completely wireless networking
    Follow-Me Security  Our solutions enable IT
    departments to deliver authentication, encryption, and access
    control services to all users using a single integrated,
    low-power appliance. Additional services such as VPNs or access
    control firewalls are not required, reducing IT overhead and
    expenses
    Follow-Me Applications Our user-centric
    network is application-aware, and the network dynamically
    adjusts to improve the performance of data, voice, and video
    applications delivered in a mobile enterprise 5




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environment. IT managers can use our architecture to implement
    policies that prioritize and optimize services based on the
    specific user
    and/or the
    application being delivered  Follow-Me Management 
  
    Ease of deployment and integration  We have
    designed our architecture as a non-disruptive overlay to
    existing enterprise networks, allowing quick deployment by
    leveraging existing infrastructure. Additionally, we have
    integrated all of the disparate elements of enterprise
    mobility  security, application, network and RF
    management services  into a single architecture,
    making it easy and less expensive for IT departments to deploy
    our solution together with existing networks and security
    infrastructure
    Cost-effective scalability  We believe our
    architecture provides industry leading scalability through its
    ability to support up to 100,000 concurrent users from a single
    centralized point of control. In addition, our integrated
    solution reduces the amount and type of equipment required to
    enable mobility within a given location. As a result, our
    architecture enhances management efficiency and reduces
    equipment and personnel costs, allowing enterprise IT managers
    to scale enterprise mobility solutions in a cost-effective manner
    Flexible platform for emerging mobile
    applications  Our mobility solution architecture
    combines the flexibility of modular software with
    high-performance, programmable hardware. This combination
    enables us to rapidly introduce new applications, such as
    enterprise fixed mobile convergence and location-based services
    to track users and assets  Our
    Strategy
    
    Drive adoption across the enterprise  Many
    enterprises initially deploy our solutions at corporate
    headquarters or main campus locations. Our objective is to
    penetrate remote locations and gain adoption by mobile users
    across corporate, government or educational campuses, as well as
    in branch and home offices. We intend to do so by emphasizing
    the productivity enhancements and cost-efficiency of our
    approach. We are also targeting business-continuity
    opportunities that require network access from remote locations,
    over 3G broadband connections, and via newly adopted
    business tools such as dual-mode Wi-Fi-cellular handsets.  
    Maintain and extend our software offerings  We
    believe that the integrated encryption, authentication, and
    network access technology embedded in the ArubaOS operating
    system is a key competitive differentiator. We intend to
    continue enhancing the ArubaOS operating system and our
    centralized mobility management architecture to maintain our
    position as a technology innovator. We also intend to extend the
    functionality and performance of the ArubaOS operating system
    with additional software modules such as mobile voice-over-IP
    and location-based services. Finally, we intend to continue
    enhancing the capabilities of our multi-vendor AirWave Wireless
    management platform to both support additional competitive
    products and enhance the underlying features of this
    market-leading product.
    Utilize channel partners to expand our global market
    penetration  We intend to increase our market
    penetration and extend our geographic reach through the
    expansion of our network of channel partners. In late 2007 we
    partnered with three leading value-added distributors in the
    U.S. as part of a program to increase our reach into value-added
    resellers. We plan to expand our growing channel footprint and
    will tailor training and support programs to help drive this
    expansion.
    Realize increased operating efficiencies  We
    currently outsource our hardware manufacturing to Flextronics,
    an overseas contract manufacturer, and have established our own
    offshore research and development 6




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and customer support capabilities. We plan to continue to
    realize increased operating efficiencies by growing these
    offshore operations and by establishing additional offshore
    capabilities for certain general and administrative functions.  
    Expand our base of technology partners  We
    will continue expanding our network of technology companies that
    enhance and complement our unified mobility solutions with
    security solutions, management tools, connectivity devices, and
    mobility applications.  Products
    ArubaOS
    Additional
    Software Modules for ArubaOS
    
    Policy enforcement firewall  delivers user and
    group policy enforcement. Policies can be centrally defined and
    enforced on a per-user or per-group basis, following users as
    they move throughout the enterprise network;
    Wireless intrusion protection  identifies and
    protects against malicious attacks on wireless networks, as well
    as vulnerabilities caused by unauthorized access points and
    client devices;
    Remote Access Point  extends the enterprise
    network to roaming users, telecommuters, home/branch offices,
    construction trailers, and disaster recovery sites that have a
    wired or 3G backhaul Internet connection. Used in conjunction
    with any of our access points, this software allows seamless
    connectivity for remote users;
    VPN server  extends the mobile enterprise
    network to large branch offices and individual users over the
    public Internet, eliminating the need for separate external VPN
    equipment;
    External services interface  delivers a set of
    control and management interfaces to seamlessly integrate
    third-party network devices, incremental software modules, and
    services into user-centric networks;
    Secure Enterprise Mesh allows our access
    points to connect wirelessly to other access points to provide
    LAN-to-LAN bridging, outdoor coverage without wires, or wireless
    offices and workspaces;
    xSec  provides wired and wireless Federal
    Information Processing Standard (FIPS)
    140-2
    validated encryption technology designed for high-security
    networks; and
    Voice Services  Delivers standards-based voice
    over Wi-Fi plus voice control and management innovations enabled
    by our application-aware architecture. Voice Services Module
    supports large-scale voice deployments and provides a foundation
    for fixed mobile convergence. 7




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Aruba
    Multi-Service Mobility Controllers
      Wireless
    Access Points and Wired Access Concentrators
      Management
    Analytics and Threat Prevention
    AirWave
    Wireless Management Suite
    side-by-side,
  best-in-class tm tm
 8




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Customers
    United States

EMEA

Asia Pacific and OtherCalifornia State University

BAA

NTT Data CorporationDrexel University

Norwegian Ministry of Foreign Affairs

Samsung Medical CenterGolden Living

Saudi AramcoHess CorporationMicrosoftNavy Exchange Service CommandUnited States Air Force     Sales and
    Marketing
    
    Our sales force  We have a sales force in each
    of the following regions: the Americas, Europe, Middle East and
    Africa (EMEA), the Asia Pacific (APAC)
    region and throughout the rest of the world. Each sales force is
    responsible for managing all direct as well as channel business
    within its designated geographic territory.
    VARs, VADs and OEMs  With over 100 new
    partners since the implementation of our partner program we now
    have over 600 channel partners worldwide. Our VARs, VADs and
    OEMs market and sell our products to a broad array of
    organizations. Some of these VARs also purchase our solutions
    and offer them to their end customers as a managed service.      Customer
    Service, Support and Training
  when-and-if on-site
 9




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Research
    and Development
    Manufacturing
            Competition
   10




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Intellectual
    Property
          Corporate
    Information
  94089-1113, (408) 227-4500. www.arubanetworks.com
  Employees
    Website
    Posting of SEC Filings
  Form 10-K, Form 10-Q, Form 8-K Form 10-K 1-800-SEC-0330. www.sec.gov.
 11




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ITEM 1A.
    RISK
    FACTORS  Risks
    Related to Our Business and Industry
  We
    compete in new and rapidly evolving markets and have a limited
    operating history, which makes it difficult to predict our
    future operating results
      Our
    operating results may fluctuate significantly, which makes our
    future results difficult to predict and could cause our
    operating results to fall below expectations.
        
    general economic conditions in our domestic and international
    markets, especially given the recent crisis in our domestic
    financial markets;
    our ability to develop and maintain our two-tier distribution
    model;
    fluctuations in demand, sales cycles and prices for our products
    and services;
    reductions in customers budgets for information technology
    purchases and delays in their purchasing cycles;
    the sale of our products in the timeframes we anticipate,
    including the number and size of orders in each quarter;
    our ability to develop, introduce and ship in a timely manner,
    new products and product enhancements that meet customer
    requirements;
    our dependence on several large vertical markets, including the
    federal, education and general enterprise vertical markets;
    the timing of product releases or upgrades by us or by our
    competitors; 12




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
    any significant changes in the competitive dynamics of our
    markets, including new entrants, or further consolidation;
    our ability to control costs, including our operating expenses,
    and the costs of the components we purchase;
    product mix and average selling prices, as well as increased
    discounting of products by us and our competitors;
    the proportion of our products that are sold through direct
    versus indirect channels;
    our ability to attain volume manufacturing pricing from
    Flextronics Sales and Marketing North Asia (L) Ltd. and our
    component suppliers;
    growth in our headcount and other related costs incurred in our
    customer support organization;
    the timing of revenue recognition in any given quarter as a
    result of revenue recognition rules;
    the regulatory environment for the certification and sale of our
    products; and
    seasonal demand for our products, some of which may not be
    currently evident due to our revenue growth.    We
    have a history of losses and may not achieve profitability in
    the future.
    Our
    sales cycles can be long and unpredictable, and our sales
    efforts require considerable time and expense. As a result, our
    sales are difficult to predict and may vary substantially from
    quarter to quarter, which may cause our operating results to
    fluctuate significantly.
   13




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The
    market in which we compete is highly competitive, and
    competitive pressures from existing and new companies may have a
    material adverse effect on our business, revenues, growth rates
    and market share.
    
    comprehensiveness of the solution;
    total cost of ownership;
    performance of software and hardware products;
    ability to deploy easily into existing networks;
    interoperability with other devices;
    scalability of solution;
    ability to provide secure mobile access to the network;
    speed of mobile connectivity offering;
    ability to allow centralized management of products; and
    ability to obtain regulatory and other industry certifications.       14




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Our
    business, operating results and growth rates may be adversely
    affected by unfavorable economic and market conditions, as well
    as the volatile geopolitical environment.
    We
    depend upon the development of new products and enhancements to
    our existing products. If we fail to predict and respond to
    emerging technological trends and our customers changing
    needs, we may not be able to remain competitive.
         15




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As a
    result of the fact that we outsource the manufacturing of our
    products to Flextronics, we do not have the ability to ensure
    quality control over the manufacturing process. Furthermore, if
    there are significant changes in the financial or business
    condition of Flextronics, our ability to supply quality products
    to our customers may be disrupted.
        Flextronics
    purchases some components, subassemblies and products from a
    single supplier or a limited number of suppliers, and with
    respect to some of these suppliers, we have entered into license
    agreements that allow us to use their components in our
    products. The loss of any of these suppliers or the termination
    of any of these license agreements may cause us to incur
    additional
    set-up
    costs, result in delays in manufacturing and delivering our
    products, or cause us to carry excess or obsolete
    inventory.
     16




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We
    sell a majority of our products through VADs, VARs, and OEMs. If
    the third-party distribution sources on which we rely do not
    perform their services adequately or efficiently or if they exit
    the industry, and we are not able to quickly find adequate
    replacements, there could be a material adverse effect on our
    revenues.
  Alcatel-Lucent
     17




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Our
    international sales and operations subject us to additional
    risks that may adversely affect our operating
    results.
    
    the difficulty of managing and staffing international offices
    and the increased travel, infrastructure and legal compliance
    costs associated with multiple international locations;
    difficulties in enforcing contracts and collecting accounts
    receivable, and longer payment cycles, especially in emerging
    markets;
    the need to localize our products for international customers;
    tariffs and trade barriers, export regulations and other
    regulatory or contractual limitations on our ability to sell or
    develop our products in certain foreign markets;
    increased exposure to foreign currency exchange rate risk;
    reduced protection for intellectual property rights in some
    countries; and
    increased cost of terminating international employees in some
    countries.    If we
    are unable to protect our intellectual property rights, our
    competitive position could be harmed or we could be required to
    incur significant expenses to enforce our rights.
  and/or
 18




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We are
    currently subject to a lawsuit involving intellectual property
    claims brought by Symbol Technologies, Inc. and Wireless Valley
    Communications, Inc., both Motorola subsidiaries, which could
    cause us to incur significant additional costs or prevent us
    from selling our products which could adversely affect our
    results of operations and financial condition.
    Claims
    by others that we infringe their proprietary technology could
    harm our business.
    We may
    engage in future acquisitions that could disrupt our business,
    cause dilution to our stockholders and harm our business,
    operating results and financial condition.
   19




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Impairment
    of our goodwill or other assets would negatively affect our
    results of operations.
    If we
    lose members of our senior management or are unable to recruit
    and retain key employees on a cost-effective basis, we may not
    be able to successfully grow our business.
    If we
    fail to manage future growth effectively, our business would be
    harmed.
      Our
    ability to sell our products is highly dependent on the quality
    of our support and services offerings, and our failure to offer
    high quality support and services would have a material adverse
    effect on our sales and results of operations.
   20




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Enterprises
    are increasingly concerned with the security of their data, and
    to the extent they elect to encrypt data between the end-user
    and the server, our products will become less
    effective.
    Our
    products are highly technical and may contain undetected
    hardware errors or software bugs, which could cause harm to our
    reputation and adversely affect our business.
    Our
    use of open source software could impose limitations on our
    ability to commercialize our products.
    We
    rely on the availability of third-party licenses.
   21




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Enterprises
    may have slow WAN connections between some of their locations
    that may cause our products to become less
    effective.
  dial-up.
  New
    safety regulations or changes in existing safety regulations
    related to our products may result in unanticipated costs or
    liabilities, which could have a material adverse effect on our
    business, results of operations and future sales, and could
    place additional burdens on the operations of our
    business.
        Compliance
    with environmental matters and worker health and safety laws
    could be costly, and noncompliance with these laws could have a
    material adverse effect on our results of operations, expenses
    and financial condition.
  and/or
  and/or and/or
 22




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and/or
  We are
    subject to governmental export and import controls that could
    subject us to liability or impair our ability to compete in
    international markets.
    Our
    business is subject to the risks of earthquakes, fire, floods
    and other natural catastrophic events, and to interruption by
    manmade problems such as computer viruses or
    terrorism.
    Risks
    Related to Ownership of our Common Stock
  Our
    stock price may be volatile.
    
    variations in our operating results;
    announcements of technological innovations, new products or
    product enhancements, strategic alliances or significant
    agreements by us or by our competitors;
    the gain or loss of significant customers;
    recruitment or departure of key personnel;
    changes in estimates of our operating results or changes in
    recommendations by any securities analysts who follow our common
    stock;
    significant sales, or announcement of significant sales, of our
    common stock by us or our stockholders; and
    adoption or modification of regulations, policies, procedures or
    programs applicable to our business. 23




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If
    securities or industry analysts do not publish research or
    reports about our business, or if they issue an adverse or
    misleading opinion regarding our stock, our stock price and
    trading volume could decline.
    Insiders
    have substantial control over us and will be able to influence
    corporate matters.
    We may
    choose to raise additional capital. Such capital may not be
    available, or may be available on unfavorable terms, which would
    adversely affect our ability to operate our
    business.
    Provisions
    in our charter documents, Delaware law, employment arrangements
    with certain of our executive officers, and our OEM supply
    agreement with Alcatel-Lucent could discourage a takeover that
    stockholders may consider favorable.
    
    our board of directors has the right to elect directors to fill
    a vacancy created by the expansion of the board of directors or
    the resignation, death or removal of a director, which prevents
    stockholders from being able to fill vacancies on our board of
    directors;
    our stockholders may not act by written consent or call special
    stockholders meetings; as a result, a holder, or holders,
    controlling a majority of our capital stock would not be able to
    take certain actions other than at annual stockholders
    meetings or special stockholders meetings called by the
    board of directors, the chairman of the board, the chief
    executive officer or the president;
    our certificate of incorporation prohibits cumulative voting in
    the election of directors, which limits the ability of minority
    stockholders to elect director candidates;
    stockholders must provide advance notice to nominate individuals
    for election to the board of directors or to propose matters
    that can be acted upon at a stockholders meeting, which
    may discourage or deter a potential acquiror from conducting a
    solicitation of proxies to elect the acquirors own slate
    of directors or otherwise attempting to obtain control of our
    company; and 24




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
    our board of directors may issue, without stockholder approval,
    shares of undesignated preferred stock; the ability to issue
    undesignated preferred stock makes it possible for our board of
    directors to issue preferred stock with voting or other rights
    or preferences that could impede the success of any attempt to
    acquire us.        We
    have incurred and will continue to incur significant increased
    costs as a result of operating as a public company, and our
    management will be required to devote substantial time to new
    compliance initiatives.
    Form 10-K
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   25




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ITEM 2.
    PROPERTIES      ITEM 3.
    LEGAL
    PROCEEDINGS      ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   26




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER REPURCHASES OF EQUITY SECURITIES  intra-day
  High


Low2007Third Quarter (beginning March 27, 2007)

$
14.67


$
13.50Fourth Quarter

$
23.78


$
13.472008First Quarter

$
21.05


$
15.67Second Quarter

$
18.70


$
9.03Third Quarter

$
10.96


$
4.69Fourth Quarter

$
7.00


$
4.29      27




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##### Table of Contents



COMPARISON
    OF 16 MONTH CUMULATIVE TOTAL RETURN*
    Among Aruba Networks Inc, The NASDAQ Composite Index
    And The NASDAQ Computer Index
  
  *
    $100 invested on 3/27/07 in stock or 2/28/07 in index-including
    reinvestment of dividends.
    Fiscal year ending July 31.  Use of
    Proceeds from Public Offering of Common Stock
  333-139419 333-141592) Form S-1
   28




---



##### Table of Contents



Dividend
    Policy
    Repurchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
  Total Number of


Approximate Dollar ValueShares Purchased as


of Shares That MayPart of Publicly


Yet be PurchasedTotal Number of


Average Price


Announced Plans or


Under the Plans orShares Purchased(1)(2)


Paid per Share


Programs(2)


Programs (in 000s)May 1 - May 31, 2008


11,875


$
0.30






$
June 1 - June 30, 2008


93,600



5.27



93,600



7,858July 1 - July 31, 2008


46,711



0.94







Total


152,186


$
3.55



93,600


$
7,858     (1)
    
    The shares purchased in May and July 2008, represent unvested
    shares of common stock repurchased by us upon the termination of
    employment or service pursuant to the provisions of our 2002
    Stock Plan.(2)
    
    The shares purchased in June 2008, were under our stock
    repurchase program that was announced in February 2008 with an
    authorized level of $10.0 million, not to exceed
    $2.5 million per quarter. This program will expire in
    February 2010. 29




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##### Table of Contents



ITEM 6.
    SELECTED
    CONSOLIDATED FINANCIAL DATA  Form 10-K. Form 10-K.
  Years Ended July 31,2008


2007


2006


2005


2004(In thousands)Consolidated Statements of Operations Data:Revenues:Product

$
148,550


$
107,939


$
43,171


$



$
Professional services and support


26,244



12,847



2,985







Ratable product and related professional services and support


3,466



6,713



26,347



12,043



1,147Total Revenues


178,260



127,499



72,503



12,043



1,147Cost of revenues(1):Product


48,126



36,035



16,904







Professional services and support


7,761



4,863



2,409







Ratable product and related professional services and support


1,228



2,470



10,572



9,077



2,696Total cost of revenues


57,115



43,368



29,885



9,077



2,696Gross profit (loss)


121,145



84,131



42,618



2,966



(1,549
)Operating expenses:Research and development(1)


37,393



25,654



14,130



9,353



6,982Sales and marketing(1)


86,008



60,115



33,765



22,369



11,277General and administrative(1)


17,740



14,600



5,963



3,576



2,531In-process research and development






632











Acquisition related severance expense


197















Total operating expenses


141,338



101,001



53,858



35,298



20,790Operating loss


(20,193
)


(16,870
)


(11,240
)


(32,332
)


(22,339
)Other income (expense), net


4,036



(7,137
)


(529
)


(147
)


(129
)Loss before provision for income taxes and cumulative effect of
    change in accounting principle


(16,157
)


(24,007
)


(11,769
)


(32,479
)


(22,468
)Provision for income taxes


967



375



306



156



34Loss before cumulative effect of change in accounting principle


(17,124
)


(24,382
)


(12,075
)


(32,635
)


(22,502
)Cumulative effect of change in accounting principle










66







Net loss

$
(17,124
)

$
(24,382
)

$
(12,009
)

$
(32,635
)

$
(22,502
)Net loss per common share; basic and diluted

$
(0.22
)

$
(0.70
)

$
(1.07
)

$
(4.66
)

$
(6.35
)     (1)
    
    Includes stock-based compensation as follows:  30




---



##### Table of Contents



Years Ended July 31,2008


2007


2006


2005


2004(In thousands)Cost of revenues

$
704


$
327


$
34


$
23


$
5Research and development


6,200



2,925



259



179



42Sales and marketing


8,953



4,362



749



678



272General and administrative


3,421



5,103



213



194



71Total stock-based compensation

$
19,278


$
12,717


$
1,255


$
1,074


$
390   As of July 31,2008


2007


2006


2005


2004(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
37,602


$
42,570


$
9,263


$
4,293


$
27,390Short-term investments


64,130



62,430







899



1,000Working capital (deficit)


103,097



109,496



(10,472
)


(884
)


26,749Total assets


188,801



152,133



38,017



30,337



38,273Equipment loans payable










613



1,867



2,885Deposit for Series D redeemable convertible preferred stock










19,329







Redeemable convertible preferred stock










58,009



58,009



56,310Common stock and additional
    paid-in-capital


249,139



213,553



6,077



4,831



2,241Total stockholders equity (deficit)

$
130,875


$
112,487


$
(73,000
)

$
(62,459
)

$
(31,137
)   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    Overview
     31




---



##### Table of Contents



Revenues,
    Cost of Revenues and Operating Expenses
  Revenues
           32




---



##### Table of Contents



Cost
    of Revenues
      Gross
    Margin
    
    the proportion of our products that are sold through direct
    versus indirect channels;
    new product introductions and enhancements both by us and by our
    competitors;
    product mix and average selling prices;
    demand for our products and services;
    our ability to attain volume manufacturing pricing from
    Flextronics and our component suppliers;
    losses associated with excess and obsolete inventory;
    growth in our headcount and other related costs incurred in our
    customer support organization; and
    amortization expense from our purchased intangible assets.    Operating
    Expenses
   33




---



##### Table of Contents



Stock-Based
    Compensation
  Share Based Payment
  Other
    Income (Expense), net
  non-U.S. dollar
  Critical
    Accounting Policies
   34




---



##### Table of Contents



Revenue
    Recognition
    No. 97-2, Software Revenue Recognition (SOP 97-2)
  and/or SOP 97-2
      Stock-Based
    Compensation
   35




---



##### Table of Contents



No. 96-18, Accounting for Equity Instruments That are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services
  Goodwill
    and intangibles
  Goodwill and Other
    Intangible Assets
    
    significant underperformance relative to estimated results;
    significant changes in the manner of our use of the acquired
    assets or the strategy for our overall business; and
    significant negative industry or economic trends.     36




---



##### Table of Contents



Inventory
    Valuation
  first-in,
  Allowances
    for Doubtful Accounts
    Income
    Taxes
  Accounting for Income Taxes
    Accounting for Uncertainty in Income Taxes- an
    Interpretation of FASB Statement No. 109,
  Recent
    Accounting Pronouncements
   37




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##### Table of Contents



Results
    of Operations
    Years Ended July 31,2008


2007


2006Revenues:Product


83.3
%


84.6
%


59.6
%Professional services and support


14.7
%


10.1
%


4.1
%Ratable product and related professional services and support


2.0
%


5.3
%


36.3
%Total revenues


100.0
%


100.0
%


100.0
%Cost of revenues:Product


27.0
%


28.3
%


23.3
%Professional services and support


4.4
%


3.8
%


3.3
%Ratable product and related professional services and support


0.6
%


1.9
%


14.6
%Gross margin


68.0
%


66.0
%


58.8
%Operating expenses:Research and development


21.0
%


20.1
%


19.5
%Sales and marketing


48.2
%


47.1
%


46.6
%General and administrative


10.0
%


11.5
%


8.2
%In-process research and development






0.5
%


Acquisition related expenses


0.1
%






Operating margin


(11.3
)%


(13.2
)%


(15.5
)%Other income (expense), net


2.2
%


(5.6
)%


(0.7
)%Loss before income taxes


(9.1
)%


(18.8
)%


(16.2
)%Provision for income taxes


0.5
%


0.3
%


0.4
%Net loss


(9.6
)%


(19.1
)%


(16.6
)%  38




---



##### Table of Contents



Revenues
  Years Ended July 31,2008


2007


2006(In thousands)Total revenues

$
178,260


$
127,499


$
72,503Type of revenues:Product


148,550



107,939



43,171Professional services and support


26,244



12,847



2,985Ratable product and related professional services and support


3,466



6,713



26,347Total revenues

$
178,260


$
127,499


$
72,503Revenues by geography:United States


118,647



84,878



53,132Europe, the Middle East and Africa


31,149



20,710



7,711Asia Pacific


20,231



13,301



7,232Rest of World (including Japan)


8,233



8,610



4,428Total revenues

$
178,260


$
127,499


$
72,503            39




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##### Table of Contents



Cost
    of Revenues and Gross Margin
  Years Ended July 31,2008


2007


2006(In thousands)Total revenues

$
178,260


$
127,499


$
72,503Cost of product


48,126



36,035



16,904Cost of professional services and support


7,761



4,863



2,409Cost of ratable product and related professional services and
    support


1,228



2,470



10,572Total cost of revenues


57,115



43,368



29,885Gross profit

$
121,145


$
84,131


$
42,618Gross margin


68.0
%


66.0
%


58.8
%              40




---



##### Table of Contents



Research
    and Development Expenses
  Years Ended July 31,2008


2007


2006(In thousands)Research and development expenses

$
37,393


$
25,654


$
14,130Percent of total revenues


21.0
%


20.1
%


19.5
%       Sales
    and Marketing Expenses
  Years Ended July 31,2008


2007


2006(In thousands)Sales and marketing expenses

$
86,008


$
60,115


$
33,765Percent of total revenues


48.2
%


47.1
%


46.6
%      41




---



##### Table of Contents



General
    and Administrative Expenses
  Years Ended July 31,2008


2007


2006(In thousands)General and administrative expenses

$
17,740


$
14,600


$
5,963Percent of total revenues


10.0
%


11.5
%


8.2
%       In-Process
    Research and Development Expense
  and/or
  Acquisition
    Related Severance Expenses
    Other
    Income (Expense), Net
    Years Ended July 31,2008


2007


2006(In thousands)Interest income

$
4,083


$
2,221


$
551Interest expense






(88
)


(315
)Other income (expense), net


(47
)


(9,270
)


(765
)Total other income (expense), net

$
4,036


$
(7,137
)

$
(529
)  42




---



##### Table of Contents



paid-in-capital
    Provision
    for Income Taxes
     43




---



##### Table of Contents



Quarterly
    Fluctuations in Operating Results
    For the Three Months Ended2008

July 31,


April 30,


January 31,


October 31,(In thousands, except per share data)RevenuesProduct

$
40,444


$
35,478


$
34,170


$
38,458Professional services and support


7,136



6,287



5,548



7,273Ratable product and related professional services and support


699



841



927



999Total revenues


48,279



42,606



40,645



46,730Cost of revenuesProduct


14,049



11,236



10,984



11,857Professional services and support


1,908



1,650



1,386



2,817Ratable product and related professional services and support


242



294



330



362Total cost of revenues


16,199



13,180



12,700



15,036Gross profit


32,080



29,426



27,945



31,694Operating expensesResearch and development


10,245



9,762



9,086



8,300Sales and marketing


24,252



21,230



18,826



21,700General and administrative


4,416



4,730



4,403



4,191Acquisition related severance expenses






197







Total operating expenses


38,913



35,919



32,315



34,191Operating loss


(6,833
)


(6,493
)


(4,370
)


(2,497
)Other income, net


304



530



1,120



2,082Loss before provision for income taxes


(6,529
)


(5,963
)


(3,250
)


(415
)Provision for income taxes


255



260



228



224Net loss

$
(6,784
)

$
(6,223
)

$
(3,478
)

$
(639
)Net loss per common share, basic and diluted

$
(0.08
)

$
(0.08
)

$
(0.04
)

$
(0.01
)   44




---



##### Table of Contents



For the Three Months Ended2007

July 31,


April 30,


January 31,


October 31,(In thousands, except per share data)RevenuesProduct

$
36,394


$
29,777


$
22,662


$
19,106Professional services and support


4,254



3,816



2,656



2,121Ratable product and related professional services and support


1,038



1,068



1,329



3,278Total revenues


41,686



34,661



26,647



24,505Cost of revenuesProduct


11,251



8,921



8,562



7,301Professional services and support


1,420



1,138



1,131



1,174Ratable product and related professional services and support


382



397



505



1,186Total cost of revenues


13,053



10,456



10,198



9,661Gross profit


28,633



24,205



16,449



14,844Operating expensesResearch and development


7,902



6,890



5,771



5,091Sales and marketing


20,921



16,240



12,146



10,808General and administrative


3,703



4,889



3,395



2,613In-process research and development


632











Total operating expenses


33,158



28,019



21,312



18,512Operating loss


(4,525
)


(3,814
)


(4,863
)


(3,668
)Other income (expense), net


1,257



(5,390
)


(2,250
)


(754
)Loss before provision for income taxes


(3,268
)


(9,204
)


(7,113
)


(4,422
)Provision for income taxes


82



82



123



88Net loss

$
(3,350
)

$
(9,286
)

$
(7,236
)

$
(4,510
)Net loss per common share, basic and diluted

$
(0.04
)

$
(0.26
)

$
(0.52
)

$
(0.34
)         FSP 150-5, paid-in-capital,
 45




---



##### Table of Contents



Liquidity
    and Capital Resources
  As of July 31,2008


2007(In thousands)Working capital

$
103,097


$
109,496Cash and cash equivalents

$
37,602


$
42,570Short-term investments

$
64,130


$
62,430   Years Ended July 31,2008


2007


2006(In thousands)Cash provided by (used in) operating activities

$
8,295


$
(4,208
)

$
(13,518
)Cash used in investing activities


(21,738
)


(70,490
)


(1,193
)Cash provided by financing activities


8,470



107,920



19,678         Cash
    Flows from Operating Activities
        Cash
    Flows from Investing Activities
   46




---



##### Table of Contents



Cash
    Flows from Financing Activities
        Other
    Uses of Cash
    Contractual
    Obligations
    MoreThanTotal


2009


2010


2011


2012


2013


5 Years(In thousands)Operating leases

$
7,625


$
3,286


$
3,310


$
879


$
150


$



$
Non-cancellable inventory purchase commitments(1)


12,447



12,447



















Other purchase commitments


394



394



















Total contractual obligations

$
20,466


$
16,127


$
3,310


$
879


$
150


$



$
     (1)
    
    We outsource the production of our hardware to third-party
    manufacturing suppliers. We enter into various inventory related
    purchase agreements with these suppliers. Generally, under these
    agreements, 40% of the orders are cancelable by giving notice
    60 days prior to the expected shipment date, and 20% of
    orders are cancelable by giving notice 30 days prior to the
    expected shipment date. Orders are not cancelable within
    30 days prior to the expected shipment date. 47




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Foreign
    Currency Risk
    Interest
    Rate Sensitivity
   48




---



##### 



ITEM 8.
    CONSOLIDATED
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  Index to
    Consolidated Financial Statements
   
 PageReport on Managements Assessment of
    Internal Control Over Financial Reporting


50Report of Independent Registered Public
    Accounting Firm


51Consolidated Balance Sheets


52Consolidated Statements of Operations


53Consolidated Statements of Redeemable Convertible
    Preferred Stock and Stockholders Equity (Deficit)


54Consolidated Statements of Cash Flows


55Notes to Consolidated Financial Statements


56   49




---



##### Table of Contents



REPORT ON
    MANAGEMENTS ASSESSMENT OF
    INTERNAL CONTROL OVER FINANCIAL REPORTING  Rules 13a-15(f)
  
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of the assets of our Company;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the Company are being made
    only in accordance with authorizations of management and
    directors of our Company; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    Companys assets that could have a material effect on the
    financial statements.        /s/  Dominic
    P. Orr

/s/  Steffan
    TomlinsonDominic P. Orr 
    President, Chief Executive Officer and Chairman of the Board

Steffan Tomlinson 
    Chief Financial Officer  50




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   
  Internal Control  Integrated Framework
        
    51




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  CONSOLIDATED
    BALANCE SHEETS
  July 31,


July 31,2008


2007(In thousands exceptshare data)ASSETSCurrent assetsCash and cash equivalents

$
37,602


$
42,570Short-term investments


64,130



62,430Accounts receivable, net


32,679



23,722Inventory


11,644



8,991Deferred costs


4,317



3,217Prepaids and other


3,196



2,432Total current assets


153,568



143,362Property and equipment, net


7,181



3,709Goodwill


7,656



Intangible assets, net


19,027



3,912Deferred costs


239



722Other assets


1,130



428Total assets

$
188,801


$
152,133LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities Accounts payable

$
5,844


$
2,201Accrued liabilities


16,908



15,317Income taxes payable


576



281Deferred revenue


27,143



16,067Total current liabilities


50,471



33,866Deferred revenue


7,338



5,780Other long-term liabilities


117



Total liabilities


57,926



39,646Commitments and contingencies (Note 14)Stockholders equityPreferred stock: $0.0001 par value; 10,000 shares
    authorized at July 31, 2008 and 2007, no shares issued and
    outstanding at July 31, 2008 and 2007






Common stock: $0.0001 par value; 350,000 shares
    authorized at July 31, 2008 and 2007; 82,836 and
    76,927 shares issued and outstanding at July 31, 2008
    and 2007


8



8Additional paid-in capital


249,131



213,545Accumulated other comprehensive income (loss)


(45
)


29Accumulated deficit


(118,219
)


(101,095
)Total stockholders equity


130,875



112,487Total liabilities and stockholders equity

$
188,801


$
152,133    52




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended July 31,2008


2007


2006(In thousands, except per share data)RevenuesProduct

$
148,550


$
107,939


$
43,171Professional services and support


26,244



12,847



2,985Ratable product and related professional services and support


3,466



6,713



26,347Total revenues


178,260



127,499



72,503Cost of revenuesProduct


48,126



36,035



16,904Professional services and support


7,761



4,863



2,409Ratable product and related professional services and support


1,228



2,470



10,572Total cost of revenues


57,115



43,368



29,885Gross profit


121,145



84,131



42,618Operating expensesResearch and development


37,393



25,654



14,130Sales and marketing


86,008



60,115



33,765General and administrative


17,740



14,600



5,963In-process research and development






632



Acquisition related severance expenses


197







Total operating expenses


141,338



101,001



53,858Operating loss


(20,193
)


(16,870
)


(11,240
)Other income (expense), netInterest income


4,083



2,221



551Interest expense






(88
)


(315
)Other income (expense), net


(47
)


(9,270
)


(765
)Total other income (expense), net


4,036



(7,137
)


(529
)Loss before provision for income taxes and cumulative effect of
    change in accounting principle


(16,157
)


(24,007
)


(11,769
)Provision for income taxes


967



375



306Loss before cumulative effect of change in accounting principle


(17,124
)


(24,382
)


(12,075
)Cumulative effect of change in accounting principle










66Net loss

$
(17,124
)

$
(24,382
)

$
(12,009
)Net loss per common share, basic and diluted

$
(0.22
)

$
(0.70
)

$
(1.07
)Shares used in computing basic and diluted net loss per common
    share


79,467



34,808



11,211Stock-based compensation expense included in above:Cost of revenues

$
704


$
327


$
34Research and development


6,200



2,925



259Sales and marketing


8,953



4,362



749General and administrative


3,421



5,103



213    53




---



##### Table of Contents





ARUBA
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
 STOCKHOLDERS
    EQUITY (DEFICIT)
  AccumulatedReedemable















Additional


Deferred


OtherConvertible Preferred Stock



Preferred Stock


Common Stock


Paid-in


Stock-Based


Comprehensive


AccumulatedShares


Amount



Shares


Amount


Shares


Amount


Capital


Compensation


Income (Loss)


Deficit


Total(In thousands)Balance at July 31, 2005

$
45,108


$
58,009



$



$



$
14,723


$
2


$
4,829


$
(2,586
)

$



$
(64,704
)

$
(62,450
)Fair value of shares issued to employees



















3







2















2Fair value of shares issued to non-employees



















16







24















24Fair value of stock options issued to non-employees



























306















306Exercise of common stock options



















1,896







612















612Repurchase of common stock



















(1,381
)






(162
)














(162
)Deferred compensation related to issuance of common stock
    options, net



























804



(804
)










Amortization of deferred stock-based compensation































1,026











1,026Reclassification of preferred stock warrants to liability



























(340
)














(340
)Cumulative effect of change in accounting principle related to
    preferred stock warrants







































66



66Net loss







































(12,075
)


(12,075
)Balance at July 31, 2006


45,108



58,009












15,257



2



6,075



(2,364
)






(76,713
)


(73,000
)Comprehensive loss:Unrealized gain on short-term investments



































29







29Net loss







































(24,382
)


(24,382
)Total comprehensive loss











































(24,353
)Issuance of Series D redeemable convertible preferred
    stock, net of issuance costs of $127


4,573



29,829




































Conversion of redeemable convertible preferred stock into common
    stock upon completion of initial public offering


(49,681
)


(87,838
)











49,681



5



87,833















87,838Proceeds from initial public offering of common stock, net of
    issuance costs of $2,307



















9,200



1



91,808















91,809Fair value of shares issued to employees



















44







245















245Fair value of shares issued to non-employees



















50







534















534Fair value of stock options issued to non-employees



























577















577Fair value of of shares issued to charitable foundation



















100







1,415















1,415Exercise of common stock options



















2,339







4,112















4,112Exercise of warrants



















114























Repurchase of common stock



















(176
)






(70
)














(70
)Reclassification of liability relating to preferred stock
    warrants upon conversion of such warrants to common stock
    warrants in connection with initial public offering



























9,933















9,933Issuance of common stock under stock issuance agreement with
    customer



















318







3,500















3,500Reclassification of unamortized stock-based compensation upon
    adoption of SFAS 123R



























(2,364
)


2,364











Stock-based compensation expense related to stock options issued
    to employees



























9,947















9,947Balance at July 31, 2007



















76,927



8



213,545







29



(101,095
)


112,487Comprehensive loss:Unrealized loss on short-term investments



































(74
)






(74
)Net loss







































(17,124
)


(17,124
)Total comprehensive loss











































(17,198
)Fair value of shares issued to non-employees



















68







408















408Fair value of stock options issued to non-employees



























(279
)














(279
)Exercise of common stock options



















3,280







6,330















6,330Shares purchased under employee stock purchase plan



















781







4,827















4,827Exercise of warrants



















519























Change in carrying value of preferred stock warrants



























(715
)














(715
)Repurchase of common stock



















(66
)






(46
)














(46
)Stock-based compensation expense related to stock options and
    awards issued to employees



















215







19,149















19,149Common stock issued in purchase acquisition



















1,519







8,002















8,002Repurchase of common stock under stock repurchase program



















(407
)






(2,142
)














(2,142
)Excess tax benefit associated with stock based compensation



























52















52Balance at July 31, 2008





$








$




82,836


$
8


$
249,131


$



$
(45
)

$
(118,219
)

$
130,875


54




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended July 31,2008


2007


2006(In thousands)Cash flows from operating activitiesNet loss

$
(17,124
)

$
(24,382
)

$
(12,009
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Depreciation and amortization


5,640



2,008



1,549Provision for doubtful accounts


283



199



254Write downs for excess and obsolete inventory


1,209



1,110



939Compensation related to stock options and share awards


19,278



11,302



1,255Net realized gains on short-term investments


(22
)






Stock issued to charitable foundation






1,415



Non-cash interest expense






44



167Accretion of purchase discounts on short-term investments


(1,381
)


(261
)


Change in carrying value of preferred stock warrants


(715
)


8,992



601Loss on disposal of fixed assets


51



5



6In-process research and development






632



Excess tax benefit associated with stock-based compensation


(52
)






Changes in operating assets and liabilities, net of acquisitions:Accounts receivable


(8,352
)


(10,550
)


(4,737
)Inventory


(5,092
)


(3,955
)


(3,110
)Prepaids and other


(660
)


(774
)


(650
)Deferred costs


(617
)


1,381



4,479Other assets


(773
)


(99
)


(216
)Accounts payable


3,394



(2,184
)


147Deferred revenue


10,957



3,322



(3,921
)Other current and noncurrent liabilities


1,924



7,522



1,528Income taxes payable


347



65



200Net cash provided by (used in) operating activities


8,295



(4,208
)


(13,518
)Cash flows from investing activitiesPurchases of short-term investments


(119,856
)


(67,897
)


Proceeds from sales and maturities of short-term investments


119,556



5,744



899Purchases of property and equipment


(5,408
)


(3,737
)


(2,092
)Cash paid in purchase acquisitions, net of cash acquired


(16,030
)


(4,600
)


Net cash used in investing activities


(21,738
)


(70,490
)


(1,193
)Cash flows from financing activitiesRepayments on equipment loan obligations






(654
)


(1,358
)Deposit for Series D redeemable convertible preferred
    stock, net










19,232Cash received under stock issuance agreement






2,130



1,354Proceeds from issuance of redeemable convertible preferred
    stock, net






10,597



Proceeds from initial public offering, net






91,809



Proceeds from issuance of common stock


10,560



4,038



450Repurchase of common stock under stock repurchase program


(2,142
)






Excess tax benefit associated with stock-based compensation


52







Net cash provided by financing activities


8,470



107,920



19,678Effect of exchange rate changes on cash and cash equivalents


5



85



3Net increase (decrease) in cash and cash equivalents


(4,968
)


33,307



4,970Cash and cash equivalents, beginning of period


42,570



9,263



4,293Cash and cash equivalents, end of period

$
37,602


$
42,570


$
9,263Supplemental disclosure of cash flow informationIncome taxes paid

$
652


$
294


$
161Interest paid

$



$
37


$
136Supplemental disclosure of non-cash investing and
    financing activitiesReclassification of warrant liability to equity upon initial
    public offering

$



$
9,933


$
Reclassification of non-current liability to equity upon initial
    public offering

$



$
3,500


$
Common stock issued in purchase acquisition

$
7,852


$



$
    55




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    The
    Company and its Significant Accounting Policies  The
    Company
    Initial
    Public Offering
  paid-in-capital,
    Significant
    Accounting Policies
  Basis of
    Presentation
    Principles
    of Consolidation
   56




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Use of
    Estimates
    Foreign
    Currency Accounting
    Risks and
    Uncertainties
    Fair
    Value of Financial Instruments
    Cash and
    Cash Equivalents
    Short-Term
    Investments
   57




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting For Certain
    Investments in Debt and Equity Securities
  Concentrations
    of Credit Risk
      Provision
    for Doubtful Accounts
      Inventory
  first-in,
  Deferred
    Costs
  SOP 97-2
 58




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property
    and Equipment, Net
      Impairment
    of Long-lived Assets
    Goodwill
    Revenue
    Recognition
  No. 97-2, Software Revenue Recognition, (SOP 97-2).
     59




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SOP 97-2
      
    Evidence of an arrangement:  Contracts
    and/or
    customer purchase orders are used to determine the existence of
    an arrangement.
    Delivery:  Delivery is considered to occur when
    the ordered equipment and the media containing the licensed
    programs are provided to a common carrier and title has
    transferred or, in the case of electronic delivery of the
    licensed programs, the customer is given access to download the
    programs. The Company recognizes revenue from indirect sales
    channels upon persuasive evidence provided by the reseller of a
    sale to the end customer.
    Fixed or determinable fee:  The Company
    assesses whether fees are fixed or determinable at the time of
    sale. The Company only considers the fee to be fixed or
    determinable if the fee is not subject to refund or adjustment.
    The Companys payment terms may vary based on the country
    in which the agreement is executed and the credit standing of
    the individual customer, among other factors. If the arrangement
    fee is not fixed or determinable, revenue is recognized as
    amounts become due and payable. In instances where final
    acceptance of the product, system, or solution is specified by
    the customer, revenue is deferred until all acceptance criteria
    have been met.
    Collection is deemed probable:  Collection is
    deemed probable if the Company expects that the customer will be
    able to pay amounts under the arrangement as payments become
    due. If the Company determines that collection is not probable,
    it defers the revenue and recognizes the revenue upon cash
    collection.    Stock-Based
    Compensation
  Accounting for Stock Issued to Employees Accounting for Certain Transactions Involving Stock
    Compensation, an Interpretation of APB Opinion
    No. 25 Accounting for Stock Appreciation Rights and Other Variable
    Stock Option or Award Plans Accounting for
    Stock-Based Compensation , Accounting for Stock-Based
    Compensation  Transition and Disclosure
  Share-Based Payment ,
 60




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 96-18, Accounting for Equity Instruments that are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services
  Capitalized
    Software Development Costs
  Accounting for
    Costs of Computer Software to be Sold, Leased, or Otherwise
    Marketed
  Advertising
    Income
    Taxes
  Accounting for Income Taxes.
 61




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for Uncertainty in
    Income Taxes- an Interpretation of FASB Statement No. 109,
  Comprehensive
    Income (Loss)
    Recent
    Accounting Pronouncements
  Fair Value Measurements FAS 157-1, Application of FASB Statement No. 157 to FASB Statement
    No. 13 and Other Accounting Pronouncements That Address
    Fair Value Measurements for Purposes of Lease Classification or
    Measurement under Statement 13 Accounting for Leases FAS 157-2, Effective Date of FASB Statement No. 157
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, including an amendment of FASB Statement
    No. 115
  Business Combinations
 62




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Noncontrolling Interests in Consolidated Financial Statements
  SFAS No. 142-3, Determination of the Useful Life of Intangible Assets FAS 142-3). FAS 142-3 Goodwill and Other Intangible Assets Business Combinations,
  The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of Present Fairly in Conformity With Generally
    Accepted Accounting Principles
  2.
    Change in
    Accounting Principle  150-5, Issuers Accounting under FASB Statement No. 150 for Freestanding Warrants and
    Other Similar Instruments on Shares That Are Redeemable (FSP 150-5). FSP 150-5 No. 96-18, Accounting for Equity Instruments that are Issued to Other
    than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services (EITF 96-18).
  FSP 150-5 paid-in-capital,
 63




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Acquisitions  AirWave
    Wireless, Inc.
      Cash

$
16,326Common stock (1,518,774 shares at $5.17 per share)


7,852Vested portion of assumed stock options


150Transaction costs


265Total consideration

$
24,593       EstimatedUseful LivesCash and cash equivalents

$
560Current assets


978Property and equipment


96Non-current assets


15Total tangible assets acquired


1,649Amortizable intangible assets:Existing and core technology/patents


8,900


4 yearsCustomer contracts


4,600


6 yearsSupport agreements


2,700


5 yearsTradenames/trademarks


600


5 yearsNon-compete agreements


700


2 yearsGoodwill


7,655Total assets acquired


26,804Current liabilities


(1,738
)Non-current liabilities


(473
)Total liabilities assumed


(2,211
)Total

$
24,593    64




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended July 31,2008


2007Revenues

$
183,211


$
134,609Net loss

$
(22,325
)

$
(29,682
)Net loss per share-basic & diluted

$
(0.28
)

$
(0.82
)   Network
    Chemistry, Inc.
        EstimatedUseful LivesTangible assets acquired

$
140In-process research and development


632Amortizable intangibles assets:Developed technology and patents


3,401


4 yearsCustomer contracts


483


7 yearsSupport and non-compete agreements


29


2 to 6 yearsTotal assets acquired


4,685Liabilities assumed


(85
)Total consideration

$
4,600    65




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
    4.
    Intangible
    Assets    As of July 31, 2008Estimated

Gross


Accumulated


NetUseful Lives

Value


Amortization


Value(In thousands)Intangible Assets, netExisting Technology

4 years

$
9,283


$
(1,272
)

$
8,011Patents/Core Technology

4 years


3,046



(417
)


2,629Customer Contracts

6 to 7 years


5,083



(349
)


4,734Support Agreements

5 to 6 years


2,717



(199
)


2,518Tradenames/Trademarks

5 years


600



(44
)


556Non-Compete Agreements

2 years


712



(133
)


579Total



$
21,441


$
(2,414
)

$
19,027   As of July 31, 2007Estimated

Gross


Accumulated


NetUseful Lives

Value


Amortization


Value(In thousands)Intangible Assets, netExisting Technology

4 years

$
2,583


$
(20
)

$
2,563Patents/Core Technology

4 years


846



(7
)


839Customer Contracts

7 years


483



(2
)


481Support Agreements

6 years


17







17Non-Compete Agreements

2 years


12







12Total



$
3,941


$
(29
)

$
3,912    66




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Amount(In thousands)Year Ending July 31,2009

$
4,9372010


4,8042011


4,5552012


2,9172013


1,259Thereafter


555Total

$
19,027   5.
    Net Loss
    Per Common Share    Years Ended July 31,2008


2007


2006(In thousands, except per share data)Net loss

$
(17,124
)

$
(24,382
)

$
(12,009
)Weighted-average common shares outstanding net of
    weighted-average common shares subject to repurchase


79,467



34,808



11,211Basic and diluted net loss per common share

$
(0.22
)

$
(0.70
)

$
(1.07
)     July 31,2008


2007


2006(In thousands)Options to purchase common stock


19,518



21,918



14,993Common stock subject to repurchase


430



1,047



2,246Redeemable convertible preferred stock (as converted basis)










45,108Restricted stock awards


3,365



271



Redeemable convertible preferred stock warrants (as converted
    basis)










677Warrants to purchase common stock






556



  67




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Short-Term
    Investments    Gross


GrossCost


Unrealized


Unrealized


FairBasis


Gains


Losses


Value(In thousands)Balance at July 31, 2008Corporate bonds and notes

$
11,930


$
5


$
(23
)

$
11,912U.S. government agency securities


44,724



19



(47
)


44,696Commercial paper


7,521



1







7,522Total short-term investments

$
64,175


$
25


$
(70
)

$
64,130   Gross


GrossCost


Unrealized


Unrealized


FairBasis


Gains


Losses


Value(In thousands)Balance at July 31, 2007Auction rate securities

$
5,209


$



$



$
5,209Corporate bonds and notes


832











832U.S. government agency securities


47,387



23







47,410Asset-backed securities


4,518



5







4,523Commercial paper


4,455



1







4,456Total short-term investments

$
62,401


$
29


$



$
62,430     July 31, 2008Cost


FairBasis


Value(In thousands)One year or less

$
47,455


$
47,455One to two years


16,720



16,675Total short-term investments

$
64,175


$
64,130        68




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Less than 12 MonthsFair


UnrealizedValue


Loss(In thousands)July 31, 2008Corporate bonds and notes

$
10,428


$
(23
)U.S. government agencies


26,221



(47
)Total

$
36,649


$
(70
)     7.
    Balance
    Sheet Components    July 31,


July 31,2008


2007(In thousands)Accounts Receivable, NetTrade accounts receivable

$
33,237


$
24,229Less: Allowance for doubtful accounts


(558
)


(507
)Total

$
32,679


$
23,722   July 31,


July 31,2008


2007(In thousands)InventoryRaw materials

$
283


$
543Work in process


179



167Finished goods


11,182



8,281Total

$
11,644


$
8,991   July 31,


July 31,2008


2007(In thousands)Accrued LiabilitiesCompensation and benefits

$
8,768


$
7,017Inventory


1,033



3,444Other


7,107



4,856Total

$
16,908


$
15,317  69




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    Property
    and Equipment, Net    Estimated


July 31,


July 31,Useful Lives


2008


2007(In thousands)Property and Equipment, netComputer equipment


2 years


$
6,197


$
3,846Computer software


2 years



3,582



1,587Machinery and equipment


2 years



5,032



3,454Furniture and fixtures


5 years



863



426Leasehold improvements


2-5 years



551



232Total property and equipment, gross






16,225



9,545Less: Accumulated depreciation and amortization






(9,044
)


(5,836
)Total property and equipment, net





$
7,181


$
3,709     9.
    Deferred
    Revenue    July 31,


July 31,2008


2007(In thousands)Deferred RevenueProduct

$
9,351


$
2,587Professional services and support


16,399



10,021Ratable product and related services and support


1,393



3,459Total deferred revenue, current


27,143



16,067Professional services and support, long-term


6,563



3,618Ratable product and related services and support, long-term


775



2,162Total deferred revenue, long-term


7,338



5,780Total deferred revenue

$
34,481


$
21,847     and/or
 70




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    10.
    Income
    Taxes    Years Ended July 31,2008


2007


2006(In thousands)Domestic

$
(17,804
)

$
(24,144
)

$
(12,387
)International


1,647



137



618Loss before provision for income taxes

$
(16,157
)

$
(24,007
)

$
(11,769
)     Years Ended July 31,2008


2007


2006(In thousands)CurrentState

$
281


$
25


$
10Foreign


686



350



296Total provision for income taxes

$
967


$
375


$
306     As of July 31,2008


2007(In thousands)Deferred tax assetsNet operating loss carryforwards

$
20,914


$
20,255Research and development credits


6,986



5,267Accruals and reserves


20,911



9,509Depreciation and amortization






2,460Total deferred tax assets


48,811



37,491Valuation allowance


(45,337
)


(37,491
)Net deferred tax assets


3,474



Deferred tax liabilitiesDepreciation and amortization


(3,474
)


Total deferred tax liabilities


(3,474
)


Net deferred tax asset (liability)

$



$
    71




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##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Years Ended July 31,2008


2007


2006Federal income tax expense (benefit)


(34.0
)%


(34.0
)%


(34.0
)%State income tax (benefit), net of federal benefit


(3.7
)%


(3.9
)%


(6.2
)%Foreign taxes


0.6
%


1.3
%


0.6
%Stock compensation and warrant expense


7.7
%


18.7
%


0.0
%Non-deductible expenses


1.5
%


0.7
%


5.2
%Research and developments credits


(15.0
)%


(9.6
)%


(2.8
)%Change in valuation allowance


48.9
%


28.4
%


39.8
%Total provision for income taxes


6.0
%


1.6
%


2.6
%          72




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##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Amount(In thousands)Balance at August 1, 2007

$
1,903Additions for tax positions related to current year


1,763Reductions for tax positions related to prior year


Settlements


Balance at July 31, 2008

$
3,666       11.
    Capital
    Stock     73




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Non-Vested Shares

SharesNon-vested as of July 31, 2006


2,245,686Early exercise of options


1,577,348Vested


(2,600,714
)Forfeited


(175,721
)Non-vested as of July 31, 2007


1,046,599Early exercise of options


131,748Vested


(682,131
)Forfeited


(66,646
)Non-vested as of July 31, 2008


429,570   Stock
    Repurchase Program
    Warrants
    12.
    Stock
    Option and Other Benefit Plans  2002
    Stock Plan
      2007
    Equity Incentive Plan
   74




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##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    all shares of the Companys common stock reserved under the
    2002 Plan which have been reserved but are not issued or subject
    to outstanding grants, up to a maximum of
    7,000,000 shares; and
    any shares of common stock issued under the 2002 Plan that are
    returned to the 2002 Plan as a result of the termination of
    options or that are repurchased by the Company pursuant to the
    terms of the plan, up to a maximum of 10,000,000 shares.    
    5% of the outstanding shares of the Companys common stock
    on the last day of the immediately preceding fiscal year; or
    15,000,000 shares.        Employee
    Stock Purchase Plan
  6-month
 75




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Purchase date

September 4, 2007Shares issued

262,084Weighted average purchase price per share

$9.35Purchase date

March 3, 2008Shares issued

518,767Weighted average purchase price per share

$4.58    76




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Option Activity
    Options OutstandingWeighted





WeightedAverage


Weighted


AverageShares





Exercise


Average


Remaining


AggregateAvailable for


Number of


Price


Fair Value


Contractual


IntrinsicGrant


Shares


per Share


per Share


Term (Years)


Value(5)Balance at July 31, 2005


1,690,379



4,500,883


$
0.28Issuance of share awards


(17,550
)


Shares reserved for issuance


12,347,261



Options grantedAt fair value(1)


(9,381,580
)


9,381,580



2.26


$
1.27At less than fair value(2)


(3,456,000
)


3,456,000



1.20



1.01In excess of fair value(3)


(252,800
)


252,800



2.65



1.09Options exercised






(1,896,082
)


0.73










$
1,446,903Options repurchased


1,381,480







0.12Options cancelled


702,417



(702,417
)


0.53Balance at July 31, 2006


3,013,607



14,992,764



1.70Shares reserved for issuance


9,800,000



Issuance of share awards and units


(366,990
)


Options grantedAt fair value(1)


(10,303,200
)


10,303,200



5.98



2.85In excess of fair value(3)


(10,000
)


10,000



19.25



7.88Options exercised






(2,338,566
)


1.72











8,489,885Options repurchased


175,721







0.40Options cancelled


1,049,787



(1,049,787
)


2.90Balance at July 31, 2007


3,358,925



21,917,611



3.66Shares reserved for issuance


3,846,366



Restricted stock awards granted


(3,671,208
)


Restricted stock awards cancelled


293,255



Options granted


(2,994,860
)


2,994,860



8.35



3.71Options granted in purchase acquisition






155,409



0.72


$
4.63Options exercised






(3,279,536
)


1.76











39,772,972Options repurchased


66,646







0.74Options cancelled


2,270,342



(2,270,342
)


5.97Balance at July 31, 2008


3,169,466



19,518,002


$
4.41







7.43


$
44,913,703Options vested and expected to vest as of July 31, 2008(4)






18,371,440


$
4.33







7.42


$
43,183,731Options exercisable as of July 31, 2008






7,334,886


$
3.28







6.98


$
21,992,214  77




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (1)
    
    Options granted at fair value represent options whose exercise
    price equals the estimated fair value of the common stock on the
    date of the grant.(2)
    
    Options granted at less than fair value represent options whose
    exercise price is less than the estimated fair value of the
    common stock on the date of the grant.(3)
    
    Options granted in excess of fair value represent options whose
    exercise price is greater than the estimated fair value of the
    common stock on the date of the grant.(4)
    
    Options expected to vest are the result of applying the
    pre-vesting forfeiture rate assumption to total outstanding
    options.(5)
    
    The aggregate intrinsic value is calculated as the difference
    between the exercise price of the underlying stock option awards
    and the fair value of the Companys common stock on the
    date of each option exercise.      Restricted
    Stock Award Activity
    Weighted AverageGrant DateFair ValueShares


per ShareBalance at July 31, 2006





$
Awards granted


366,990



14.97Awards vested


(96,290
)


8.08Balance at July 31, 2007


270,700



17.43Awards granted


3,671,208



6.78Awards vested


(283,703
)


12.31Awards cancelled


(293,255
)


10.92Balance at July 31, 2008


3,364,950


$
6.81    78




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair
    Value Disclosures
    Employee
    Stock Options
  Years Ended July 31,2008


2007AssumptionsRisk-free interest rate


3.2
%


4.7
%Expected term (in years)


4.3



4.3Dividend yield






Volatility


51
%


53
%Weighted average fair value of options granted

$
3.67


$
2.86   Employee
    Stock Purchase Plan
  Years Ended July 31,2008


2007AssumptionsRisk-free interest rate


1.5% to 4.2
%


4.2% to 5.0
%Expected term (in years)


0.5 to 2.0



0.4 to 2.0Dividend yield






Volatility


43% to 65
%


43% to 48
%Weighted average fair value of stock purchase rights granted

$
2.43


$
4.18     Options
    and Awards Granted to Non-Employees
   79




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Stock-based
    Expenses
      Prior
    to the Adoption of SFAS 123R
   80




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year EndedJuly 31,2006(In thousands)Net loss, as reported

$
(12,009
)Add: Employee stock-based compensation expense included in
    reported net loss


1,028Less: Total employee stock-based compensation expense determined
    under the fair value method


(2,642
)Pro forma net loss

$
(13,623
)Basic and diluted net loss per shareAs reported

$
(1.07
)Pro forma

$
(1.22
)     Employee
    Stock Options
  Year EndedJuly 31,2006AssumptionsRisk-free interest rate


4.6
%Expected term (in years)


4.0Dividend yield


Volatility


70
%Weighted average fair value of options granted

$
1.20   401(k)
    Defined Contribution Plan
    13.
    Segment
    Information    Disclosures about Segments of an
    Enterprise and Related Information,
 81




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Years Ended July 31,2008


2007


2006(In thousands)United States

$
118,647


$
84,878


$
53,132Europe, Middle East and Africa


31,149



20,710



7,711Asia Pacific


20,231



13,301



7,232Rest of World (including Japan)


8,233



8,610



4,428Total

$
178,260


$
127,499


$
72,503   14.
    Commitments
    and Contingencies  Legal
    Matters
      Lease
    Obligations
   82




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    OperatingLeases(In thousands)Year Ending July 31,2009

$
3,2862010


3,3102011


8792012


150Thereafter


Total minimum payments

$
7,625   Employee
    Agreements
    Warranties
  12-15 months
        WarrantyAmount(In thousands)Balance as of July 31, 2006

$
35Provision


57Obligations fulfilled during period


(7
)Balance as of July 31, 2007


85Provision


60Obligations fulfilled during period


(20
)Balance as of July 31, 2008

$
125  83




---



##### Table of Contents



ARUBA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Non-Cancelable
    Purchase Commitments
    Indemnification
   84




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
  Rule 13a-15
    Internal
    Control Over Financial Reporting
  Report on Managements Assessment of Internal
    Control Over Financial Reporting Form 10-K.
  Changes
    in Internal Control over Financial Reporting
    ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION   85




---



##### Table of Contents



ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
            Financial Schedules Valuation and Qualifying Accounts
  Balance at








Balance atBeginning








End ofAllowance for Doubtful Accounts

of Year


Additions


Deductions


Year(In thousands)Year ended July 31, 2006

$
164


$
254


$
(66
)

$
352Year ended July 31, 2007

$
352


$
199


$
(44
)

$
507Year ended July 31, 2008

$
507


$
283


$
(232
)

$
558     Exhibits.
 86




---



##### Table of Contents



SIGNATURES    ARUBA NETWORKS, INC.
  
  Dominic P. Orr
 President and Chief Executive Officer
  POWER OF
    ATTORNEY
  Form 10-K
    Signature

Title

Date/s/  Dominic
    P. OrrDominic
    P. Orr

President, Chief Executive Officer, and Chairman of the Board of
    Directors (Principal Executive Officer)

October 7, 2008/s/  Steffan
    TomlinsonSteffan
    Tomlinson

Chief Financial Officer (Principal Accounting and Financial
    Officer)

October 7, 2008/s/  Keerti
    MelkoteKeerti
    Melkote

Co-Founder, Chief Technology Officer, Director

October 7, 2008/s/  Bernard
    GuidonBernard
    Guidon

Director

October 7, 2008/s/  Emmanuel
    HernandezEmmanuel
    Hernandez

Director

October 7, 2008/s/  Michael
    R. KoureyMichael
    R. Kourey

Director

October 7, 2008/s/  Doug
    LeoneDoug
    Leone

Director

October 7, 2008/s/  Shirish
    S. SathayeShirish
    S. Sathaye

Director

October 7, 2008/s/  Daniel
    WarmenhovenDaniel
    Warmenhoven

Director

October 7, 2008  87




---



##### Table of Contents



EXHIBIT INDEX  Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date2
.1*

Agreement and Plan of Reorganization, dated as of
    January 4, 2008

Current Report on Form 8-K

January 9, 20083
.1*

Restated Certificate of Incorporation of Registrant

Current Report on Form 8-K

April 5, 20073
.2*

Amended and Restated Bylaws of Registrant

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 7, 20074
.1*

Specimen common stock certificate

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 7, 20074
.2*

Amended and Restated Investors Rights Agreement, dated
    September 6, 2005

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 20064
.3*

Warrants to purchase preferred stock of Registrant, issued to
    Lighthouse Capital Partners

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 20064
.4*

Warrants to purchase preferred stock of Registrant, issued to
    Costella Kirsch Venture

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.1*

Form of Indemnification Agreement

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 7, 200710
.2*

AirWave Wireless, Inc. 2000 Stock Plan

Registration Statement on Form S-8 (File No. 333-149945)

March 28, 200810
.3A*

2002 Stock Plan of Registrant, as amended

Registration Statement on Form S-l, as amended (File No.
    333-139419)

January 24, 200710
.3B*

Forms of Stock Option Agreements under the 2002 Stock Plan

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200710
.4A*

2007 Equity Incentive Plan of Registrant

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 8, 200710
.4B*

Forms of Stock Option Agreements under the 2007 Equity Incentive
    Plan

Registration Statement on Form S-l, as amended (File No.
    333-139419)

January 24, 200710
.4C*

Forms of Restricted Stock Unit Agreement under the 2007 Equity
    Incentive Plan

Quarterly Report on Form 10-Q for the quarterly period ended
    April 30, 2008

June 6, 200810
.5A*

Employee Stock Purchase Plan

Registration Statement on Form S-8, as amended (File No.
    333-146655)

October 12, 200710
.5B*

Form of Subscription Agreement under the Employee Stock Purchase
    Plan

Registration Statement on Form S-l, as amended (File No.
    333-139419)

January 24, 2007 88




---



##### Table of Contents



Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date10
.6*

Executive Employment Agreement, dated April 4, 2006,
    between Registrant and Dominic P. Orr

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.7*

Employment offer letter, dated April 12, 2002, between
    Registrant and Keerti Melkote

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.8*

Employment offer letter, dated July 18, 2006, between
    Registrant and Sriram Ramachandran

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.9*

Employment offer letter, dated July 14, 2005, between
    Registrant and Steffan Tomlinson

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.10*

Employment offer letter, dated June 2, 2004, between
    Registrant and Richard Wilmer

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.11*

Loan and Security Agreement, dated March 3, 2003, between
    Registrant and Lighthouse Capital Partners

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.12*

Master Loan and Security Agreement, dated July 31, 2003,
    between Registrant and Costella Kirsch Venture Partners

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.13*

Standard Office Lease, dated as of November 30, 2007, for
    1344 Crossman Ave., Sunnyvale, California

Current Report on Form 8-K

December 6, 200710
.14*

Sublease Agreement, dated September 10, 2004, for 1322
    Crossman Ave., Sunnyvale, California

Registration Statement on Form S-l, as amended (File No.
    333-139419)

December 15, 200610
.15*

Flextronics Manufacturing Services Agreement, dated
    January 1, 2005

Registration Statement on Form S-l, as amended (File No.
    333-139419)

January 24, 200710
.16*

Technology License Agreement, dated October 20, 2005,
    between Registrant and Atheros Communications, Inc.

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 20, 200710
.17*

Software License Agreement, dated January 11, 2006, between
    Registrant and Broadcom Corporation

Registration Statement on Form S-l, as amended (File No.
    333-139419)

January 24, 200710
.18*

OEM Supply Agreement, dated March 18, 2005, between
    Registrant and Alcatel Internetworking, Inc.

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 26, 200710
.19*

Amendment No. 1 to OEM Supply Agreement, dated
    August 31, 2006, between Registrant and Alcatel
    Internetworking, Inc.

Registration Statement on Form S-l, as amended (File No.
    333-139419)

March 26, 2007 89




---



##### Table of Contents



Exhibit



Incorporated by Reference HereinNumber

Description

Form

Date21
.1

List of subsidiaries of Registrant23
.1

Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm24
.1

Power of Attorney (incorporated by reference to the signature
    page of this Annual Report on
    Form 10-K)31
.1

Certification of Chief Executive Officer pursuant to Exchange
    Act
    Rules 13a-14(a)
    and 15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act31
.2

Certification of Chief Financial Officer pursuant to Exchange
    Act
    Rules 13a-14(a)
    and 15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act32
.1

Certifications of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act     *
    
    Previously filed.
    
    Confidential treatment has been requested for portions of this
    exhibit.
    
    Indicates management compensatory plan, contract or arrangement. 90