8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

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

Date of report: June 9, 2009
(Date of earliest event reported)

ArcSight, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

001-33923	52-2241535
(Commission File Number)	(IRS Employer Identification No.)

5 Results Way
Cupertino, California	95014
(Address of Principal Executive Offices)	(Zip Code)

(408) 864-2600
(Registrant’s Telephone Number, Including Area Code)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On June 11, 2009, ArcSight, Inc. (“ArcSight”) issued a press release announcing its financial results for the fourth fiscal quarter and full fiscal year ended April 30, 2009 and providing its business outlook. A copy of the press release is attached as Exhibit 99.01 to this Current Report on Form 8-K.

The information in Item 2.02 of this Current Report, including Exhibit 99.01 to this Current Report, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained in this Item 2.02 and in the accompanying Exhibit 99.01 shall not be incorporated by reference into any registration statement or other document filed by ArcSight with the Securities and Exchange Commission, whether made before or after the date of this Current Report, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On July 17, 2008, the Compensation Committee (the “Committee”) of the Board of Directors of ArcSight approved and adopted a management bonus and profit sharing plan for fiscal 2009 to reward officers of the company, including executive officers (the “2009 Bonus Plan”). Each of our named executive officers is a participant in the 2009 Bonus Plan (although Kevin Mosher only participates with respect to the equity portion of the 2009 Bonus Plan). In light of Mr. Mosher’s position as Senior Vice President of Worldwide Field Operations, which primarily involves responsibility for our sales and pre-sales efforts, the Committee determined to provide variable cash compensation to him under his separate Sales Commission Plan — FY 2009 (the “Mosher 2009 Plan”), which also was approved and adopted by the Committee on July 17, 2008.

The 2009 Bonus Plan provided for cash bonuses at specified rates, based on specified levels of achievement of performance of ArcSight’s revenue and operating income targets. The 2009 Bonus Plan also provided for a pool of 557,000 shares of ArcSight common stock to be granted during the first quarter of fiscal 2010 to ArcSight’s officers, including ArcSight’s executive officers, on the achievement of the targeted revenues goal, and, for the officers other than ArcSight’s chief executive officer, individual performance objectives. Under the 2009 Mosher Plan, Mr. Mosher is entitled to quarterly commission payments based on achievement relative to quarterly revenues targets. In addition, under the Mosher 2009 Plan, Mr. Mosher would receive an additional commission in the event that he achieved or exceeded his revenues target and either (i) actual operating expenses for the sales department were less than or equal to the sales operating expense target, or (ii) actual contribution margins for the sales department were equal to or greater than the sales contribution margin target. For a more detailed description of the 2009 Bonus Plan and the Mosher 2009 Plan, see Item 5.02 of the Current Report on Form 8-K filed by ArcSight on July 22, 2008.

Based on ArcSight’s actual financial performance in fiscal 2009, ArcSight achieved at the level of more than 95% but less than 100% of its revenue target, and achieved operating income at the level equivalent to the target if revenues had been achieved at the level of at least 105% but less than 110% of target. As a result, executive officers other than Mr. Mosher would have been eligible for bonuses under the 2009 Bonus Plan based on achievement at the level of at least 95% but less than 100% of target, based on our performance under the applicable scale. However, on June 9, 2009, in light of the exceedingly difficult macroeconomic and market conditions in which that ArcSight’s actual level of performance was achieved, the Committee elected to exercise its discretion and determined to award bonuses to ArcSight’s

executive officers other than Mr. Mosher (and other employees covered by the 2009 Bonus Plan) as if ArcSight’s actual achievement had been at the level of at least 105% but less than 110% of target. In addition, based on the same considerations discussed above with respect to the award of bonuses to executive officers, the Committee elected to exercise its discretion and determined to award to Mr. Mosher a cash bonus of $80,000 (in addition to the quarterly commissions to which Mr. Mosher is entitled under the Mosher 2009 Plan).

In conjunction with its determination of cash bonuses, in light of the expanded number of executives covered by the 2009 Bonus Plan since the size of the pool was initially set, the level of ArcSight’s actual revenue and operating income performance for fiscal 2009 and the exceedingly difficult macroeconomic and market conditions in which that level of performance was achieved, the Committee exercised its discretion to make 297,000 additional shares of ArcSight common stock (in addition to the 557,000 share pool described above) available for award in connection with the completion of fiscal 2009 to reward performance and in recognition of ArcSight’s benchmark targets in light of compensation data reviewed by the Committee, and approved grants to plan participants for the aggregate 854,000 shares available, including an aggregate of 438,845 granted to executive officers.

Item 9.01. Financial Statements and Exhibits.

     (d) Exhibits.

Number	Description
99.01	Press release issued by ArcSight, Inc., dated June 11, 2009.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ArcSight, Inc.
By:	/s/ Stewart Grierson
	Stewart Grierson
	Chief Financial Officer

Date: June 11, 2009

EXHIBIT INDEX

Number	Description
99.01	Press release issued by ArcSight, Inc., dated June 11, 2009.

EX-99.01

Exhibit 99.01

5 Results Way
Cupertino, CA 95014
t 408.864.2600
f 408.342.1615
www.arcsight.com

ArcSight Reports 34% Year-over-Year Growth
for Fiscal Fourth Quarter and Fiscal Year Ended April 30, 2009

Company Posts Total Revenues of $39.3M for Fiscal Fourth Quarter and
GAAP and Non-GAAP Earnings per Diluted Share of $0.13 and $0.18, Respectively

For the Fiscal Fourth Quarter:

• Total Revenue: $39.3M, a 34% increase year-over-year

• GAAP Net Income: $4.3M or $0.13 per diluted share

• Non-GAAP Net Income: $6.1M or $0.18 per diluted share

• Positive Cash Flows from Operations: $4.5M

For the 2009 Fiscal Year:

• Total Revenue: $136.2M, a 34% increase year-over-year

• GAAP Net Income: $9.9M or $0.30 per diluted share

• Non-GAAP Net Income: $16.9M or $0.50 per diluted share

• Positive Cash Flows from Operations: $16.8M

CUPERTINO, CA — June 11, 2009 — ArcSight, Inc. (NASDAQ: ARST), a leading global provider of compliance and security management solutions that protect enterprises and government agencies, today announced financial results for its fiscal fourth quarter and fiscal year ended April 30, 2009.

For the fourth quarter of fiscal 2009, ArcSight reported total revenues of $39.3 million compared to total revenues of $29.4 million reported in the fourth quarter of fiscal 2008. Net income on a GAAP basis for the fourth quarter of fiscal 2009 was $4.3 million, or $0.13 per diluted share, including $211,000 in amortization of intangible assets and $1.6 million in stock-based compensation expense. This compares to a GAAP net loss of $1.1 million, or $0.04 per diluted share, reported in the fourth quarter of fiscal 2008, including $143,000 in amortization of intangible assets and $1.5 million in stock-based compensation expense.

Non-GAAP net income for the fourth quarter of fiscal 2009 was $6.1 million, or $0.18 per diluted share, excluding the above-mentioned amortization and stock-based compensation charges. This compares to a non-GAAP net income of $0.6 million, or $0.02 per diluted share, reported in the fourth quarter of fiscal 2008, excluding the above-mentioned charges.

During the fourth quarter of fiscal 2009, the company generated $4.5 million in cash from operations and closed the fourth quarter with cash and cash equivalents of $90.5 million.

For the fiscal year ended April 30, 2009, ArcSight reported total revenues of $136.2 million compared to $101.5 million reported for fiscal 2008. GAAP net income for fiscal year 2009 was

$9.9 million, or $0.30 per diluted share, including $842,000 in amortization of intangible assets and $6.2 million in stock-based compensation expense. This compares to a net loss of $2.0 million, or $0.08 per diluted share, reported for fiscal 2008, including $573,000 in amortization of intangible assets and $4.9 million in stock-based compensation expense.

Non-GAAP net income for the fiscal year ended April 30, 2009 was $16.9 million, or $0.50 per diluted share, excluding the above-mentioned charges. This compares to a non-GAAP net income of $3.5 million, or $0.12 per diluted share, reported for fiscal 2008, excluding the above-mentioned charges.

“We believe that our strong results for the fourth quarter as well as the entire fiscal year reflect the increasing risk that corporations and government agencies face globally with rising cyber-warfare, cyber-theft, and cyber-fraud, particularly where the increasing sophistication of attacks are leading to tighter regulatory controls and compliance mandates, as well as the strength of our products and the dedication of our employees,” commented Tom Reilly, president and CEO of ArcSight. “We plan to leverage these drivers in fiscal 2010 by focusing on our customer’s success, extending our value proposition with a richer, more robust platform and expanding our market opportunity by utilizing a more mature channel and broader array of products.”

Business Outlook

The following forward-looking statements reflect expectations as of June 11, 2009. Results may be materially different and could be affected by the factors detailed in this release and in recent ArcSight SEC filings.

First Quarter Expectations — Ending July 31, 2009

Based on current business trends, anticipated seasonally lower first quarter and the visibility the company has from fourth quarter performance, ArcSight expects revenue for the first quarter of fiscal 2010 to be in the range of $31 million to $34 million, representing growth in the range of 12-23% over the same quarter of fiscal 2009.

ArcSight expects non-GAAP net income for the first quarter of fiscal 2010 to be in the range of $1.0 million to $2.9 million, or $0.03 to $0.08 per diluted share, which excludes stock-based compensation expense and amortization of intangibles.

Conference Call and Webcast Information

ArcSight will host a conference call and live webcast to discuss these financial results for investors and analysts at 2:00 p.m. Pacific Time on June 11, 2009. To access the conference call, dial 877-723-9509 for the U.S. or Canada and 719-325-4757 for international callers. The webcast will be available live on the Investor Relations section of the company’s website at www.arcsight.com. An audio replay of the call will also be available to investors by phone beginning at approximately 4:00 p.m. Pacific Time on June 11, 2009 until 11:59 p.m. Pacific Time on June 18, 2009, by dialing 888-203-1112 for the U.S. or Canada or 719-457-0820 for international callers, and entering passcode 1340292. In addition, an archived webcast will be available on the Investor Relations section of the company’s website at www.arcsight.com.

Use of Non-GAAP Financial Measures

ArcSight reports all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement the ArcSight unaudited condensed consolidated financial statements presented in accordance with GAAP, ArcSight uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the results of ArcSight operations as determined in accordance with GAAP. The non-GAAP financial measures used by ArcSight include historical non-GAAP net income (loss) and non-GAAP basic and diluted earnings (loss) per share. These non-GAAP financial measures exclude amortization of intangible assets and stock-based compensation from the ArcSight statement of operations.

For a description of these items, including the reasons why management adjusts for them, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled “Use of Non-GAAP Financial Information” as well as the related tables that precede it. ArcSight may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

ArcSight believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the performance of ArcSight by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook. ArcSight management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing operating results of ArcSight, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the performance of ArcSight to prior periods.

Cautionary Statement Regarding Forward Looking Statements

This news release contains forward-looking statements, including without limitation those regarding ArcSight’s “Business Outlook” (“First Quarter Expectations — Ending July 31, 2009”); ArcSight’s belief that corporations and government agencies will face increasing risk globally with rising cyber-warfare, cyber-theft, and cyber-fraud, particularly where the increasing sophistication of attacks may lead to tighter regulatory controls and compliance mandates, its products will remain strong and its employees will remain dedicated; and ArcSight’s plan to focus on our customer’s success, extend its value proposition with a richer, more robust platform and expand its market opportunity by utilizing a more mature channel and broader array of products in fiscal 2010. These forward-looking statements are subject to material risks and uncertainties that may cause actual results to differ substantially from expectations. Investors should consider important risk factors, which include: the risk that demand for our compliance and security management solutions may not increase and may decrease; the risk that competitors may be perceived by customers to be better positioned to help handle compliance violations and security threats and protect their businesses from major risk; the risk that the growth of ArcSight may be lower than anticipated; and other risks detailed under the caption “Risk Factors” in the ArcSight Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission, or the SEC, on March 12, 2009 and the company’s other filings with the SEC. You can obtain

copies of the company’s Quarterly Report on Form 10-Q and its other SEC filings on the SEC’s website at www.sec.gov.

The foregoing information represents the company’s outlook only as of the date of this press release, and ArcSight undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, new developments or otherwise.

About ArcSight

ArcSight (NASDAQ: ARST) is a leading global provider of compliance and security management solutions that protect enterprises and government agencies. ArcSight helps customers comply with corporate and regulatory policy, safeguard their assets and processes, and control risk. The ArcSight platform collects and correlates user activity and event data across the enterprise so that businesses can rapidly identify, prioritize, and respond to compliance violations, policy breaches, cybersecurity attacks, and insider threats. For more information, visit www.arcsight.com. (ARST-IR)

© 2009 ArcSight, Inc. All rights reserved. ArcSight and the ArcSight logo are trademarks of ArcSight, Inc.

Investor Relations Contact:
Robert Dougherty
FD
415-293-4427
robert.dougherty@fd.com

ARCSIGHT, INC.
Condensed Consolidated Balance Sheets
(In thousands)

	As of			As of
	April 30,			April 30,
	2009			2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	90,467		$	71,946
Accounts receivable, net		34,184			26,658
Other prepaid expenses and current assets		3,861			5,565
Total current assets		128,512			104,169
Property and equipment, net		4,416			4,834
Goodwill		5,746			5,746
Acquired intangibles assets, net		1,319			2,161
Other long-term assets		1,168			1,669
Total assets	$	141,161		$	118,579
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,432		$	3,115
Accrued compensation and benefits		11,671			11,864
Other accrued liabilities		4,700			5,967
Deferred revenues, current		36,160			36,512
Total current liabilities		53,963			57,458
Deferred revenues, non-current		8,888			4,754
Other long-term liabilities		1,637			1,598
Total liabilities		64,488			63,810
Stockholders’ equity:
Additional paid-in capital		113,781			101,574
Deferred stock-based compensation		—			(53	)
Accumulated other comprehensive loss		(314	)		(45	)
Accumulated deficit		(36,794	)		(46,707	)
Total stockholders’ equity		76,673			54,769
Total liabilities and stockholders’ equity	$	141,161		$	118,579

ARCSIGHT, INC.
Consolidated Statement of Operations
(On a GAAP basis)
(In thousands, except per share amounts)
(Unaudited)

	For the Three Months Ended						Fiscal Year Ended
	April 30,			April 30,			April 30,			April 30,
	2009			2008			2009			2008
Revenues:
Products	$	23,870		$	18,192		$	80,616		$	63,765
Maintenance		10,419			7,980			38,521			27,607
Services		4,989			3,204			17,031			10,173
Total revenues		39,278			29,376			136,168			101,545
Cost of revenues:
Products		2,459			1,466			8,595			4,767
Maintenance(1)		1,930			1,608			6,861			5,691
Services(1)		2,858			1,906			9,875			5,800
Total cost of revenues		7,247			4,980			25,331			16,258
Gross profit		32,031			24,396			110,837			85,287
Operating expenses(1):
Research and development		6,598			5,592			22,537			19,762
Sales and marketing		14,758			16,086			56,279			53,453
General and administrative		6,123			3,495			20,278			13,422
Total operating expenses		27,479			25,173			99,094			86,637
Income (loss) from operations		4,552			(777	)		11,743			(1,350	)
Interest income		82			435			991			857
Other income and expense, net		(150	)		(101	)		(257	)		(385	)
Income (loss) before provision for income taxes		4,484			(443	)		12,477			(878	)
Provision (benefit) for income taxes		149			617			2,564			1,131
Net income (loss)	$	4,335		$	(1,060	)	$	9,913		$	(2,009	)
Net income (loss) per common share, basic	$	0.14		$	(0.04	)	$	0.32		$	(0.08	)
Net income (loss) per common share, diluted	$	0.13		$	(0.04	)	$	0.30		$	(0.08	)
Shares used in computing basic net income (loss) per common share		31,848			30,195			31,233			25,936
Shares used in computing diluted net income (loss) per common share		34,416			30,195			33,550			25,936

(1) Stock-based compensation expense as included in above

Cost of maintenance revenues	60	44	216	106
Cost of services revenues	36	46	142	115
Research and development	347	416	1,342	1,356
Sales and marketing	482	773	2,451	2,685
General and administrative	628	232	1,994	664

ARCSIGHT, INC.
Consolidated Statement of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share amounts)
(Unaudited)

	For the Three Months Ended					Fiscal Year Ended
	April 30,		April 30,			April 30,		April 30,
	2009		2008			2009		2008
GAAP net income (loss)	$	4,335	$	(1,060	)	$	9,913	$	(2,009	)
Plus:
a) Stock-based expenses		1,553		1,511			6,145		4,926
b) Amortization of intangibles		211		143			842		573
Non-GAAP net income	$	6,099	$	594		$	16,900	$	3,490
GAAP net income (loss) per common share, basic	$	0.14	$	(0.04	)	$	0.32	$	(0.08	)
Plus:
a) Stock-based expenses		0.04		0.05			0.19		0.19
b) Amortization of intangibles		0.01		0.01			0.03		0.02
Non-GAAP net income, basic	$	0.19	$	0.02		$	0.54	$	0.13
Non-GAAP net income, diluted	$	0.18	$	0.02		$	0.50	$	0.12
Shares used in computing basic net income (loss) per common share		31,848		30,195			31,233		25,936
Shares used in computing diluted net income (loss) per common share		34,416		32,535			33,550		28,576

Use of Non-GAAP Financial Information

In addition to the reasons stated above, which are generally applicable to each of the items ArcSight excludes from its non-GAAP financial measures, ArcSight believes it is appropriate to exclude certain items for the following reasons:

Amortization of Intangibles. When analyzing the operating performance of an acquired entity, ArcSight management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, ArcSight management excludes the GAAP impact of the amortization of acquired intangible assets to its financial results. ArcSight believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting amortization expense associated with acquired intangible assets.

In addition, in accordance with GAAP, ArcSight generally recognizes expenses for internally-developed intangible assets as they are incurred until technological feasibility is reached, notwithstanding the potential future benefit such assets may provide. Unlike internally developed intangible assets, however, and also in accordance with GAAP, ArcSight generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally developed intangible assets and acquired intangible assets. Accordingly, ArcSight believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.

Stock-Based Compensation. When evaluating the performance of its consolidated results, ArcSight does not consider stock-based compensation charges. Likewise, the ArcSight management team excludes stock-based compensation expense from its operating plans. In contrast, the ArcSight management team is held accountable for cash-based compensation and such amounts are included in its operating plans. Further, when considering the impact of equity award grants, ArcSight places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants.

ArcSight believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its business.