UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

Commission file number: 000-50784

 

Blackboard Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		52-2081178
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
650 Massachusetts Ave, N.W.		20001
Washington D.C.		(Zip Code)
(Address of Principal Executive Offices)

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

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

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

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

     The aggregate market value of outstanding voting stock held by non-affiliates of the registrant as of June 30, 2010 was approximately $1,128.9 million based on the last reported sale price of the registrant’s common stock on The NASDAQ Global Select Market as of the close of business on that day.

     There were 34,675,434 shares of the registrant’s common stock outstanding as of January 31, 2011.

     Portions of the registrant’s definitive proxy statement for its 2011 annual meeting of stockholders to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2010, are incorporated by reference into Part III of this Form 10-K.

 

 

BLACKBOARD INC.

Form 10-K

TABLE OF CONTENTS

		Page
		Number
PART I
Item 1. Business			1
Item 1A. Risk Factors			12
Item 1B. Unresolved Staff Comments			22
Item 2. Properties			22
Item 3. Legal Proceedings			23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
Item 6. Selected Financial Data			26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			45
Item 8. Financial Statements and Supplementary Data			46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			81
Item 9A. Controls and Procedures			81
Item 9B. Other Information			81
PART III
Item 10. Directors, Executive Officers and Corporate Governance			85
Item 11. Executive Compensation			85
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			85
Item 13. Certain Relationships and Related Transactions, and Director Independence			85
Item 14. Principal Accounting Fees and Services			85
PART IV
Item 15. Exhibits, Financial Statement Schedules			86
EX-10.13
EX-10.18
EX-10.19
EX-10.20
EX-10.21
EX-17.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

     This report contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by such statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” under Item 1A. When used in this report, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intended to identify forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this report. Blackboard assumes no obligation and does not intend to update these forward-looking statements.

PART I

Item 1. Business.

General

     We are a leading provider of enterprise software applications and related services to the education industry. Our clients use our software to integrate technology into the education experience and campus life, and to support activities such as a professor assigning digital materials on a class website; a student collaborating with peers and participating in class discussions online or on their mobile device; an administrator managing a departmental website; a superintendent sending mass communications via voice, email and text messages to parents and students; or a merchant conducting cash-free transactions with students and faculty. Our clients include colleges, universities, schools and other education providers, textbook publishers, student-focused merchants, and corporate and government clients.

     Our various software applications are delivered in our six product lines, Blackboard Learn^tm, Blackboard Transact^tm, Blackboard Connect^tm, Blackboard Mobile^tm, Blackboard Collaborate^tm, and Blackboard Analytics^SM. We license these products primarily on a renewable basis, typically for annual terms. We also offer application hosting for clients who prefer to outsource the management of their Blackboard Learn systems, and our Blackboard Student Services^SM offering includes student lifecycle management and IT support services. In addition, we offer a variety of professional services, including strategic consulting, project management, custom application development and training.

     Blackboard Learn is our web-based teaching and learning platform. We launched Blackboard Learn^tm, Release 9.1 in June 2010 as part of our multi-year, multi-release plan to deliver the next generation of Blackboard^® solutions. Clients on the Blackboard Learn platform may license packages featuring combinations of the following modules: Course Delivery, Community Engagement, Content Management, Portfolio Management, and Outcomes Assessment.

     Blackboard Transact^tm is our platform for our commerce and security solutions and financial services and Blackboard Connect is our alert and notification platform for our comprehensive communications and notification system solutions, providing clients the ability to send mass communications via voice, email and text messages. Blackboard Mobile is our comprehensive mobile platform designed to deliver education and campus life services and content to mobile devices to connect students, parents, faculty, prospective students and alumni to the campus experience. Blackboard Collaborate is our web-based platform for synchronous learning and collaboration. Our newest platform is Blackboard Analytics, which provides metrics and analytics, data reporting and business intelligence for higher education. Our new Blackboard Student Services offering includes student lifecycle management services for admissions and enrollment, and financial aid, as well as IT and helpdesk support for students and faculty for various learning management systems and other institutional technologies, and expands our capability to support all aspects of the student experience.

     In June 2007, we issued and sold $165.0 million aggregate principal amount of 3.25% convertible senior notes due 2027 in a public offering, which we refer to in this report as the Notes. The first possible redemption date by the holders of the Notes occurs on July 1, 2011. In August 2010, we entered into a five-year $175.0 million senior secured revolving credit facility agreement with a syndicate of banks led by JPMorgan Chase Bank, N.A. as administrative agent, which we refer to in this report as the Credit Agreement.

     We have grown through internal growth and strategic relationships and acquisitions. In 2008, we acquired The NTI Group, Inc., or NTI, and in March 2010, we acquired Saf-T-Net, Inc., or Saf-T-Net. The technology we acquired in these transactions provides the foundation for our Blackboard Connect platform, including the AlertNow

service. In 2009, we acquired ANGEL Learning, Inc., or ANGEL, a leading developer of e-learning software to the U.S. education industry. Also in 2009, we acquired the business assets of Terriblyclever Design, LLC, or Terriblyclever, including the technology that is the foundation for our Blackboard Mobile platform. In August 2010, we acquired Elluminate Inc., or Elluminate, and Wimba Inc., or Wimba, to create our Blackboard Collaborate platform, and we acquired the business assets of iStrategy, LLC to create our new Blackboard Analytics platform. In December 2010, we acquired Presidium Inc., or Presidium, a company for which we held a warrant exercisable for 9.9% of the equity interest, to create our new Blackboard Student Services offering. We believe these acquisitions support our long-term strategic direction and the demands for innovative technology in the education industry, have helped us create stronger, more flexible technology in support of teaching, learning and student engagement, and accelerate the pace of innovation and interoperability in e-learning.

Corporate Information

     We began operations in 1997 as a limited liability company organized under the laws of the state of Delaware and served as a primary contractor to an education industry technical standards organization. In 1998, we incorporated under the laws of the state of Delaware and acquired CourseInfo LLC, which had developed an internal online learning system used by faculty at Cornell University, and had begun marketing its technology to universities and school districts in the United States and Canada.

Customer Overview

     We have grown from approximately 26 licenses of one software application in 1998 to more than 12,700 licenses of our software applications as of December 31, 2010. Our customer base consists primarily of U.S. postsecondary education clients and U.S. K-12 education clients, which accounted for approximately 50% and 15%, respectively, of our total revenues for 2010. We also sell our products and services to international clients, which accounted for approximately 17% of our total revenues for 2010, and others, including primarily education publishers, commercial education providers, U.S. government organizations and corporations, which accounted for approximately 18% of our total revenues for 2010.

     We currently operate predominantly in the United States and substantially all of our material identifiable assets are located in the United States. Our revenues derived from operations in foreign countries for fiscal years 2008, 2009 and 2010 were $60.9 million, $69.2 million and $77.6 million, respectively, which represented 20%, 18% and 17% of our total revenues in those years.

Products and Services

     We offer a comprehensive line of enterprise software applications and related services focused on the education industry. We offer Blackboard Learn in all of our markets, Blackboard Transact primarily to U.S. and Canadian postsecondary clients, Blackboard Connect to primarily U.S. K-12, postsecondary and government clients, Blackboard Mobile primarily to U.S. postsecondary and K-12 clients, Blackboard Collaborate primarily to U.S. and Canadian postsecondary and K-12 clients, Blackboard Analytics primarily to U.S. postsecondary clients, and Blackboard Student Services primarily to U.S. postsecondary and K-12 clients. We also offer application hosting for clients who prefer to outsource the management of their Blackboard Learn systems. In addition to our products, we offer a variety of professional services, including strategic consulting, project management, custom application development and training.

Blackboard Learn

     Blackboard Learn provides a scalable and easy-to-use technology platform for delivering education online, managing digital content and aggregating access to tools, information and content through an integrated Web portal environment. It enables our client institutions to:

	•		Increase faculty adoption of technology for teaching,
	•		Drive student engagement through personalized experiences and active learning tools,
	•		Securely share and collaborate around content across the institution, and

•

Meet diverse assessment needs of institutions.

     The Blackboard Learn platform offers capabilities for course delivery, learning content, assessment, document management, hosting, and community engagement. Clients may license software applications in packages designed to provide a variety of options and tailored to meet the diverse needs of our client base. The Blackboard Learn platform packages include enterprise and foundation licenses for the following modules: Course Delivery, Community Engagement, Content Management, Portfolio Management, and Outcomes Assessment. The Blackboard Learn platform includes the products formerly known as WebCT Campus Edition^tm and WebCT Vista^tm, which we acquired in our merger with WebCT, Inc. in 2006, and the ANGEL Learning Management Suite, which we acquired in our merger with ANGEL in 2009.

Blackboard Learn — Course Delivery Module

     The Course Delivery module of the Blackboard Learn platform, formerly known as the Blackboard Learning System, allows educational institutions to support an online teaching and learning environment that can be used to augment a classroom-based program or for distance learning. The major capabilities of the Course Delivery module include:

	•		Teaching and Learning. Instructors can post syllabi and course materials, including documents, graphics, audio, video and multimedia; create, deliver and automatically score online assignments and tests; and report grades and grading analysis along with other information to students.
	•		Advanced features. The Course Delivery module also provides integrated email, discussion forums and live virtual classrooms. It also provides tools to facilitate group collaboration, communication, file-sharing, self-evaluation and peer review. Additionally, we offer Scholartm by Blackboard, a service which allows users to build a network of peers who share similar educational interests, and SafeAssigntm, a plagiarism prevention service.
	•		Extending the learning environment. Our products can be integrated with existing campus student information systems and campus registrar systems to access user, course and enrollment information stored throughout the institution. Additional capabilities are available through the integration of third-party Blackboard Building Blocks™ or Blackboard PowerLinks™ tools developed by our clients or independent parties. These extensions of the core software applications allow institutions to download, install and manage third-party enhancements. These third-party applications add functionality to our products, and several client-managed online communities exist to foster open source development of enhancements to our products as well.
	•		System administration. Our products allow clients to configure our applications to the specific needs of their institutions. The appearance and configuration of our products are customizable by each client for multiple independent user populations within the institution on the same system hardware and database. In addition, clients have the ability to define multiple user roles and set access policies for guest accounts and observers, such as parents, advisors, mentors and supervisors.

     We offer the Course Delivery module of Blackboard Learn through different licenses to appeal to all sizes and types of clients. Foundation licenses provide entry-level versions of the Course Delivery module suitable for small-scale implementations, while enterprise licenses provide functionality to support larger or more advanced implementations and various language configurations, including English, Spanish, Italian, Dutch, German, French, Japanese, Portuguese, Russian, Swedish, Finnish, Danish, Welsh, Arabic and Chinese.

Blackboard Learn — Community Engagement Module

     The Community Engagement module of the Blackboard Learn platform, formerly known as the Blackboard Community System, is an enterprise information portal application designed specifically for the education industry and is licensed as an extension of the Course Delivery module. The Community Engagement module allows institutions to extend their learning environments and to further engage students by connecting them with each other, with campus services, and with faculty beyond the classroom. The Community Engagement module extends the Blackboard Learn platform to include functionality for student organizations, faculty and staff, departmental collaboration, information distribution and single sign-on access to existing administrative systems. The major academic capabilities of the Community Engagement module include:

	•		Configurable portal environment enabling one-stop access to services. Through a customizable Web portal, the Community Engagement module enables institutions to provide their users access to multiple content sources, campus services, administrative systems and personal information management tools, such as email and calendar. The Community Engagement module can provide single sign-on access to a variety of campus systems, eliminating the need for multiple access points and identification verifications. Institutions and independent software vendors can create custom portal applications that provide views into content and data from other systems or integrate other applications.
	•		Facilitating academic and co-curricular collaboration using community and communication tools. The Community Engagement module facilitates the creation of meaningful campus connections by allowing institutions to define dedicated online environments for departments, clubs and other groups. Members of organizations can manage their own operations, as well as upload and share documents, and use their own communication tools, conserving the resources of campus information technology departments.
	•		Maintaining distinct campus identities. An institution can configure the Community Engagement module to support multiple identities or brands within the institution, such as multiple campuses, a law school, medical school or continuing education program, and deliver content to targeted, institution-defined roles. In addition, users can customize the Community Engagement interface according to their needs and preferences.

Blackboard Learn — Content Management Module

     The Content Management module of the Blackboard Learn platform, formerly known as the Blackboard Content System, provides enterprise content management capabilities and is licensed as an extension of the Course Delivery and Community Engagement modules. The Content Management module supports activities that require enterprise management of electronic files, such as teaching, learning, research, archival and library needs, and extracurricular and departmental pursuits. All of these activities require the central management, tagging, sharing and re-use of electronic files, such as lecture notes for multiple sections of a course, learning resources, test banks and library electronic reserve materials. In addition, the Content Management module supports advanced workflow capabilities across the institution and provides a secure way to share sensitive institutional content. The major capabilities of the Content Management module include:

	•		Storing and accessing learning materials. Institutions can make secure, web-based, drag-and-drop file storage space available to all users, who can then use a configurable permissions structure to share files with individuals or groups, track versions and add comments. To assure appropriate usage of the file space, administrators can manage disk space quotas and set bandwidth controls.
	•		Learning content management. Instructors can manage versions of documents and other course material and can re-use content across multiple courses or sections. Institutions can create content repositories administered at the departmental, school or institutional levels to facilitate the sharing and searching of digital content.
	•		Integrating library resources into the learning environment. Librarians can create and manage collections of digital assets for use by specific courses, disciplines or the entire institution.
	•		Collecting and sharing materials within electronic portfolios. Users can collect and organize their academic work as electronic portfolios to showcase their accomplishments, which can be shared with other users on the system, as well as published externally. These portfolios can be used for personal reflection, academic assignments, program completion, alignment with educational standards, or for professional development, such as résumés and job applications.

     The Content Management family of products also includes the Portfolio Management module of Blackboard Learn and the enterprise document management applications we acquired in our merger with Xythos Software, Inc. in 2007. The Portfolio Management module is a personal portfolio application that enables users to collect and organize their academic work. The Xythos enterprise document management applications enable clients to securely store, manage and share data across the enterprise. The Xythos applications also provide clients with flexible workflow and document scanning capabilities. The Xythos products are mainly used for research and administrative

activities in higher education but are also used by corporate and governmental organizations for basic content management services.

Blackboard Learn — Outcomes Assessment Module

     The Outcomes Assessment module of the Blackboard Learn platform is licensed as an extension of the Course Delivery, Community Engagement, and Content Management modules and is available to our higher education clients. The first version of this application, the Blackboard Outcomes System^tm, was released in December 2006 and is also currently available to customers with the Blackboard Learning System enterprise license. Supplemented by strategic and technical professional services, the Outcomes Assessment module supports and coordinates the academic and administrative assessment processes taking place across an institution’s many departments. The Outcomes Assessment module enables the planning and measuring of student, teaching and institutional outcomes and provides a comprehensive set of instruments for student and program assessment. The major capabilities of the Outcomes Assessment module include:

	•		Planning outcomes. The “Standards, Goals and Student Learning Objectives” feature enables institutions to document intended outcomes of courses, programs, departments, colleges, universities and standards bodies. Rubrics, or standard evaluation criteria, facilitate shared and consistent evaluation of outcomes, while curriculum maps highlight the connection between program goals and courses and co-curricular educational experiences.
	•		Measuring learning and administrative outcomes. Various assessment tools simplify the collection of student work and its evaluation against shared rubrics. Surveys and course evaluations enable users to collect useful indirect assessment data, soliciting attitudes and opinions from on-campus and off-campus constituents.
	•		Improving learning and institutional effectiveness. Operational and analytic reports provide insight into assessment plans, activities, data, follow-up actions and correlations to all levels of an institution.

Blackboard Transact

     Blackboard Transact is our platform for our commerce and security solutions and financial services, and can be used for on- and off-campus commerce management, online e-commerce and payment management, meal plan administration, vending, laundry services, copy and print management and student and staff identification, as well as offering security management capabilities such as access control and video surveillance technology. Our financial services offerings provide students with access to their financial aid credit balances, student payroll and other student credit balances on their campus ID card, as well as the ability to monitor and manage their campus accounts.

     We license our Blackboard Transact solutions, along with various hardware devices, separately and in packages designed to provide a variety of options that are tailored to meet the diverse needs of our client base. The campus commerce software allows clients to establish an integrated student closed-loop debit account program for charging incidental expenses such as meals and academic materials, typically using the campus ID card. The hardware that we sell as part of the Blackboard Transact commerce management solution includes servers, ID/stored-value cards, card readers and point-of-sale devices. Blackboard Transact supports activities such as facilities access and identity verification, and provides data and payment security features, additional reporting and commerce management capabilities. The principal features of the platform include:

•

Commerce. Transaction processing capabilities of Blackboard Transact support the creation and management of student closed-loop debit accounts, as well as the processing of payments against those accounts using student ID cards on and around campus, such as in dining facilities, bookstores, and a variety of off-campus and online transactions. Micro-payment applications are served as well including vending, copy/print machines, and laundry machines. In addition, the latest release of the Blackboard Transact platform offers data and application security capabilities that comply with the Payment Application Data Security Standard (PA-DSS), allowing clients to host the application in a manner which is in line with the Payment Card Industry Data Security Standard (PCI-DSS). Our clients use the Blackboard Transact commerce management solution to manage point-of-sale transactions, such as prepaid closed-loop debit cards, meal plan administration, cash equivalency, privilege verification and discounts, and self-service or unattended transactions, such as vending, laundry, printing, copying and parking.

	•		Activities management and security. The access-rights capabilities of the Blackboard Transact security management solution enable a variety of applications using the client’s investment in a single-card environment for commerce. These include event admission, student government voting, wireless eligibility verification on buses, library authorization and computer lab access and tracking. In addition, the system interfaces directly with door access points to manage identification and secure access control to facilities using the same student ID card. The Blackboard Transact security management solution offers improved operational and security features, including a user interface with web-like search capability and access control that integrates completely with Blackboard Video SurveillanceSM.
	•		Financial services. The financial transaction solutions of the Blackboard Transact platform are designed to allow institutions to streamline their operations while providing students with improved access to and online account management of their financial aid information and other student credit balances, facilitating off-campus commerce activities and community merchant network programs with the campus card, and offering advanced payment processing and fraud management services. BlackboardPay™ is a prepaid account that can be integrated with a campus ID card to automate delivery of financial aid credit balances, student payroll and other student credit balances. BbOneSM, our off-campus commerce management solution, enables students and faculty to use their campus ID cards as a form of payment off-campus within a university-approved merchant network. In connection with this offering, we recruit local and national-brand merchants to accept student debit accounts as a form of payment, facilitate authorization of each transaction, and manage the post-transaction settlement to the merchant on a daily basis. By utilizing the existing Blackboard Transact closed-loop debit account at the university, BbOne provides students with a secure, cashless way to make purchases. Our financial services solutions also offer account monitoring, payment processing, fraud management, and security features.

Blackboard Connect

     Blackboard Connect provides comprehensive communication systems that enable rapid dissemination of critical information via voice, text and email devices. The Blackboard Connect family, including the AlertNow service that we acquired in our acquisition of Saf-T-Net in March 2010, includes offerings specifically designed for education, municipal, government and military clients. Blackboard Connect is a fully hosted, web-based application that enables clients to record, schedule, send and track personalized voice messages, e-mail, SMS or text messages to tens of thousands of constituents in minutes. Blackboard Connect provides a bundled set of mass notification, survey and community outreach tools through a service that eliminates the need for clients to purchase or deploy equipment, hardware or software, or to incur long distance phone charges. Blackboard Connect is also available in the Blackboard Learn platform through an integration toolkit that allows instructors to send customized messages from within the course environment to enrolled students, and allows students to choose how they receive alerts and updates. The Blackboard Connect for Teachers service allows teachers to send targeted and customized messages to parents, to help improve parental involvement and student achievement.

Blackboard Mobile

     The Blackboard Mobile platform allows us to offer our clients a comprehensive suite of mobile web applications for education and enables educational institutions to deliver education and campus life services and content to mobile devices to connect students, parents, faculty, prospective students and alumni to the campus experience. Blackboard Mobile includes Blackboard Mobile™ Central, formerly known as MobilEdu^tm, which we acquired from our acquisition of Terriblyclever in 2009, and Blackboard Mobile™ Learn. Blackboard Mobile Central is a mobile-based set of applications that provide student services and campus information to an institution’s end-users, including students, faculty, community constituents and alumni, on their mobile devices. Blackboard Mobile Learn extends an institution’s existing Blackboard Learn platform functionality to make online learning and education services available to students, parents, faculty and administrators on their mobile devices.

     The Blackboard Mobile Central applications are customized on behalf of an institution and deployed as a single mobile application, branded with that institution’s logo and images. Blackboard Mobile Central is available as a native application for the Apple^® iPhone^® and iPod touch^®, Android™, and certain BlackBerry^® devices. Blackboard Mobile Central is also available in mobile web versions, allowing other mobile, web-enabled devices to access the same information.

     The Blackboard Mobile Learn platform gives students and faculty mobile access to the courses, content, and organizations available in their existing Blackboard Learn implementation, and allows them to create and upload

content, post announcements and comment on blogs, journals, and discussion threads from their mobile devices. Blackboard Mobile Learn is available as a native application for a variety of devices including the Apple^® iPhone^®, iPod touch^®, iPad™, Android™, BlackBerry^® and Palm^® smartphones.

Blackboard Collaborate

          Blackboard Collaborate provides a web-based platform for synchronous learning and collaboration designed specifically for education and includes web, video and audio conferencing solutions. We acquired the technology underlying the Blackboard Collaborate platform through our acquisitions of Elluminate and Wimba in August 2010. The solutions will continue to integrate with the Blackboard Learn platform as well as other course management systems. Blackboard Collaborate provides clients the ability to create virtual classrooms, office and meeting spaces, and to hold classes or meetings online with interactive elements such as instant messaging, content creation whiteboard and desktop sharing capabilities, to enable effective instruction, meetings, support, educational collaboration and social learning.

Blackboard Analytics

          Blackboard Analytics provides a platform for data models, metrics, dashboards, analytics and business intelligence solutions for higher education. The Blackboard Analytics offering consists of a suite of applications focused on student management, financial aid, institutional financial performance, human resources and student advancement. The platform maps to existing data sources on campus, with tools and applications designed to integrate with the leading student information, human resources and financial systems. Blackboard Analytics provides clients with access to accurate information, analytical reports and dashboard applications to help them assess institutional performance, measure progress against goals, and make better use of available data to optimize resources and inform important decisions across the institution.

Blackboard Student Services

          We launched Blackboard Student Services in January 2011 following our acquisition of Presidium. Blackboard Student Services provides student lifecycle management services for admissions, enrollment and financial aid, as well as IT and helpdesk support for students and faculty relating to learning management systems and other institutional technologies.

          The Blackboard Student Services offering consists of the following service offerings, each of which is designed to correlate closely with and improve the overall user experience.

     e-Learning Support Services — Blackboard Student Services offers students, faculty and administrators around-the-clock support for their institution’s learning management system, including the Blackboard Learn platform. This offering is designed to respond to the increased reliance by our clients on learning management systems, for both campus-based and online programs, with the goal of improving our clients’ e-learning deployment efforts and increasing e-learning adoption rates.

     Student Lifecycle Management Services — Blackboard Student Services provides a number of additional services, including:

	•		Enrollment Management: Help institutions maximize enrollment of qualified students with recruiting and engagement strategies and technologies to effectively reach and communicate with prospects and admitted students throughout the application and enrollment process.
	•		Financial Aid: Help an institution’s financial aid office expedite the financial aid packaging process, enhance the student service experience with the financial aid office, and improve staff morale.
	•		Student Accounts: Answer routine questions from students regarding their accounts, allowing the bursar’s office to focus on resolving more complex problems.
	•		Retention: Help identify at-risk student populations so clients can engage with targeted students and offer assistance to improve program completion rates and decrease drops due to delays in financial aid disbursement and other related causes.

     IT Support Services — Blackboard Student Services provides around-the-clock IT support to students, faculty and staff, such as for password resets and other frequent requests.

Professional Services

     Our professional services support the implementation and maintenance of our systems and software in the educational environment in order to help clients maximize the value of our various enterprise software applications. Our services group offers:

	•		project management;
	•		integration of our applications with existing campus systems;
	•		user interface customization;
	•		installation and configuration;
	•		training and instructional design;
	•		course and content migration; and
	•		custom Blackboard Building Blocks and Blackboard PowerLinks application development.

     In 2010 we expanded our strategic business consulting services offerings to help clients more efficiently use their educational technology investments. These services include:

	•		functional consulting relating to on-line learning and associated business processes;
	•		expanding an institution’s presence through on-line learning;
	•		improving education effectiveness and outcomes; and
	•		using mobile technology to improve teaching, learning and the student experience.

Competition

     The market for education enterprise software is highly fragmented and rapidly evolving, and we expect competition in this market to persist and intensify. Our primary competitors for the Blackboard Learn platform are companies and open source solutions that provide course management systems, such as Desire2Learn Inc., Jenzabar, Inc., Microsoft, IBM, Oracle, Moodle, Pearson, The Sakai Project, UCompass Educator and WebTycho; learning content management systems, such as Giunti Labs S.r.I. and Concord USA, Inc.; and education enterprise information portal technologies, such as SunGard Higher Education Inc., an operating unit of SunGard Data Systems Inc.

     Our competitors for the Blackboard Transact platform include companies that provide transaction systems, security and access systems and off-campus merchant relationship programs, such as CBORD and CardSmith. Our competitors for the Blackboard Connect service include a variety of companies or products such as SchoolMessenger that provide mass notification technologies, including voice, email and text messaging communications. Our competitors for the Blackboard Mobile products include in-house IT departments that customize their own mobile presence and companies such as Datatel that provide customized mobile websites and applications. Our competitors for the Blackboard Collaborate platform launched in August 2010 include a variety of companies that provide software applications for synchronous learning and similar technology, including Cisco Systems and Adobe. Our competitors for the Blackboard Student Services offering, launched in January 2011, include clients and potential clients who handle student support calls in-house and various companies, including PerceptIS, that provide IT help desk support and student management services to institutions of higher learning. Our competitors for the Blackboard Analytics platform launched in January 2011 include clients and potential clients who have in-house analytic capability and various companies, including several major ERP system providers, that offer analytic and business intelligence reporting services to institutions of higher learning. We also face competition from clients and potential clients who develop their own applications internally, large diversified software vendors who offer products in numerous markets including the education market and other open source software applications.

     We believe that the primary competitive factors in our markets are:

•

base of reference clients;

	•		functional breadth and depth of solution offered;
	•		ease of use;
	•		complexity of installation and upgrade;
	•		scalability of solution to meet growing needs;
	•		client service;
	•		availability of third-party application and content add-ons;
	•		total cost of ownership;
	•		financial stability; and
	•		company reputation.

     We believe that we compete favorably on the basis of these factors.

Our Growth Strategy

     We seek to capitalize on our position as a leader in our primary markets to grow our business by supporting several significant aspects of education, including teaching, learning, commerce and campus life. We have grown through internal growth and strategic relationships and acquisitions. Key elements of our growth strategy include:

	•		Growing annual license revenues. We intend to increase annual license revenues with existing clients through upgrades to current products, cross-selling of complementary applications and increased total license value commensurate with the value of our offerings.
	•		Increasing penetration with U.S. postsecondary and K-12 clients. We intend to capitalize on our experience in U.S. postsecondary and K-12 education to further enhance our leadership position.
	•		Offering new products to our target markets. Using feedback gathered from our clients and our sales and technical support groups, we intend to continue to develop and offer new upgrades, applications and application suites to increase our presence on campuses and expand the value provided to our clients.
	•		Increasing sales in our emerging markets. We intend to continue to expand sales and marketing efforts to increase sales of our various offerings within the less mature domestic and international markets we serve.
	•		Pursuing strategic relationships and acquisition opportunities. We intend to continue to pursue strategic relationships with, acquisitions of, and investments in, companies that would enhance the technological features of our products, offer complementary products, services and technologies, or broaden the scope of our product offerings into other areas.

Research and Development

     Our software products are developed and maintained by a dedicated team of software engineers, product managers, designers and documentation specialists. In addition, we organize our teams to address specialized functional areas, such as: a maintenance experience team, which focuses on highly technical product support issues; a quality control team, which tests our applications to identify and correct software errors and usability issues before a new product or update is released; performance engineering and security teams, which focus on product scalability and security; and a research and development engineering team, which works on software development projects that sometimes involve third parties, including software tools for integrating our products with other campus systems. Our research and development group receives feedback on product improvement suggestions and new products from clients, either directly or through our sales and client support organizations. We periodically release maintenance updates to and new versions of our existing products. In addition, our research and development group works on new product initiatives as appropriate. Our products are primarily developed internally or through acquisitions. In addition, in support of the development of our products, we have acquired or licensed specialized products and technologies from other software firms. Our research and development expenses were $40.6 million, $46.0 million and $55.0 million in the years ended December 31, 2008, 2009 and 2010, respectively.

Marketing and Sales

Marketing

     We engage in a variety of traditional and online marketing activities designed to provide sales lead generation, sales support and increasing market awareness. Our specific marketing activities include print advertising in trade publications, direct mail campaigns, speaking engagements and industry trade-shows and seminars, all of which help create awareness of our brand and products and services. Examples of specific marketing events include BbWorld^®, our annual global user conferences; the Blackboard Developers Conference, the Blackboard Teaching and Learning Conference, BbSummit^tm and BbForum, which are smaller and more regionally-focused annual meetings of educational and technology leaders from the United States and abroad; and Blackboard Days, which provide information sessions at current client sites for current and prospective clients.

Sales

     We sell our products through a direct sales force and, in some emerging international markets, through re-sellers. The majority of our sales professionals are responsible for both retention and growth of existing clients, including maintaining software and service renewal rates, as well the sale of additional products and services to those clients. A portion of the sales team is dedicated exclusively to the acquisition of new clients for a particular Blackboard solution set. The sales force is organized by focus on a single Blackboard platform and in some cases, further segmented by client market served. In addition, our sales organization includes technical sales engineers, who are experts in the technical aspects of our products and client implementations.

     In our experience, colleges, universities and schools frequently rely on references from peer institutions when selecting a vendor and often involve a variety of internal constituencies, such as instructors and students, when evaluating a product. In addition, most public education institutions and many private institutions utilize request for proposal, or RFP, processes, by which they announce their interest in purchasing an application and detail their requirements so that vendors may bid accordingly. As a result, we generate sales leads from sources such as interacting with attendees at conferences, visiting potential clients’ sites to provide briefings on the industry and our products, responding to inbound calls based on client recommendations and monitoring and responding to RFPs. We often structure our licenses in a manner that anticipates expansion from one product to multiple products on our platforms, and we engage in state or regional agreements when appropriate to provide umbrella pricing and contractual terms for a group of institutions. We have U.S. sales offices in Washington, D.C.; Reston, Virginia; Owings Mills, Maryland; Raleigh, North Carolina; Phoenix, Arizona; Los Angeles, California; San Francisco, California; Pleasanton, California; and New York, New York. We have international sales offices in Amsterdam, Netherlands; Calgary, Canada; Cambridge, United Kingdom; and Sydney, Australia.

Intellectual Property

     We rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions, as well as confidentiality agreements and other contractual arrangements, to establish and protect our proprietary and intellectual property rights. We have a variety of patents and pending patent applications in the United States and in various international jurisdictions related to the products we offer.

Executive Officers

     The following table lists our executive officers and their ages as of January 31, 2011.

Name		Age		Position
Michael L. Chasen		39		Chief executive officer, president, director
John E. Kinzer		42		Chief financial officer
Matthew H. Small		38		Chief business officer, chief legal officer and secretary
Ray Henderson		46		Chief technology officer, president, Blackboard Learn
Jonathan R. Walsh		38		Vice president for finance and accounting

     Michael Chasen has served as chief executive officer since January 2001, as president since February 2004 and as a director since our founding in 1997. From June 1997 to January 2001, Mr. Chasen served as president.

Before co-founding Blackboard, from May 1996 to June 1997, Mr. Chasen was a consultant with KPMG Consulting serving colleges and universities. Mr. Chasen received a B.S. degree from American University and a M.B.A. degree from Georgetown University School of Business.

     John Kinzer has served as chief financial officer since March 2010. From September 2006 to March 2010, Mr. Kinzer served as senior vice president for finance, and from September 2001 to August 2006, he worked in various finance roles in our company with increasing responsibilities. Prior to joining us, from 1999 to 2001, Mr. Kinzer worked for two years building a finance function at a technology startup company. Mr. Kinzer was with MCI Communications from 1995 to 1999 and began his career at Arthur Andersen & Co. where he worked on audits and consulting engagements. Mr. Kinzer received a B.S. degree from Virginia Polytechnic Institute and State University.

     Matthew Small has served as chief business officer and chief legal officer since May 2008 and secretary since February 2004. Mr. Small served as chief legal officer from January 2006 to May 2008, and as senior vice president for legal and general counsel from January 2004 to January 2006, corporate counsel from September 2002 to January 2004 and assistant secretary from November 2002 to February 2004. Prior to joining us, from September 1999 to September 2002, Mr. Small was an associate at the law firm of Testa, Hurwitz & Thibeault LLP. Mr. Small received a B.A. degree from the University of Denver, a M.B.A. degree from the University of Connecticut School of Business and a J.D. degree from the University of Connecticut Law School.

     Ray Henderson is our chief technology officer and has served as president of Blackboard Learn since July 2009. Mr. Henderson served as chief products officer of ANGEL Learning Inc. from 2005 until our acquisition of ANGEL in 2009. From 2000 to 2005 he served as president for digital product development at Pearson Education, and prior to that he led the product strategy and product development efforts at eCollege. He has extensive experience in educational publishing and technology platform development, and is a recognized leader within the education technology standards community. Mr. Henderson received a B.A. degree from Trinity University in San Antonio, Texas.

     Jonathan Walsh has served as vice president for finance and accounting since September 2006. From July 2001 to August 2006, he served as controller. Prior to joining us, from July 1998 to June 2001, Mr. Walsh held financial reporting and financial planning positions at Sunrise Assisted Living, Inc., AppNet, Inc. and CommerceOne, Inc. and from January 1995 to July 1998 Mr. Walsh was an audit senior at the public accounting firm of Ernst & Young LLP. Mr. Walsh received a B.B.A. degree from James Madison University.

Employees

     As of December 31, 2010, we had 1,780 full-time employees, including 335 in sales; 167 in marketing and business development; 327 in support, managed hosting and production; 374 in research and development; 172 in professional services; and 209 in general administration and 196 professional staff from the Presidium acquisition. None of our employees are represented by a labor union. We have never experienced a work stoppage and believe our relationship with our employees is good.

Website Access to U.S. Securities and Exchange Commission Reports

     Our Internet address is http://www.blackboard.com. Through our website, we make available, free of charge, access to all reports filed with the U.S. Securities and Exchange Commission including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to these reports, as filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Copies of any materials we file with, or furnish to, the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The information available on our website is not incorporated into this report.

Item 1A. Risk Factors.

A. RISKS RELATED TO ECONOMIC CONDITIONS

Current challenging economic conditions may adversely affect our business.

     Challenging economic conditions related to the protracted worldwide economic downturn that began in 2008 may affect our sales and renewals of our products and services, and could negatively affect our revenues and our ability to maintain or grow our business. Instability in the financial markets associated with the economic downturn has resulted in a tightening of credit markets, which could impair the ability of our customers to obtain credit to finance purchases of our products or impair our ability to obtain credit to finance investments in our business. Our client base is diverse and each client or potential client faces a unique set of risks. These risks include, for example, the availability of public funds and the possibility of state and local budget cuts, reduced enrollment, or lower revenues, any of which could lead to a reduction in overall spending, including information technology spending, by our current and potential clients and a corresponding decline in demand for our products and services. A prolonged economic disruption may result in a reduction in overall demand for educational software products and services, which could cause a decline in both new sales and renewals of our existing products and difficulty in establishing a market for our new products and services. In addition, we have experienced some lengthening of sales cycles and, depending on the future economic climate, may see a continuation of this trend. Furthermore, our accounts receivable may increase and the relative aging of our receivables may deteriorate if our clients delay or are unable to make their payments due to the tightening of credit markets and the lack of available funding. A prolonged economic downturn may make it difficult for potential clients to buy our products and might compromise the ability of existing clients to renew their licenses.

We could lose revenues if there are changes in the spending policies or budget priorities for government funding of colleges, universities, schools and other education providers.

     Most of our clients and potential clients are colleges, universities, schools and other education providers who depend substantially on government funding. Accordingly, any general decrease, delay or change in federal, state or local funding for colleges, universities, schools and other education providers could cause our current and potential clients to reduce their purchases of our products and services, to exercise their right to terminate licenses, or to decide not to renew licenses, any of which would cause us to lose revenues. In addition, a specific reduction in governmental funding support for products such as ours would also cause us to lose revenues. In light of the severe economic downturn experienced in the United States and globally since 2008, many of our clients have experienced and may continue to experience budgetary pressures, which may have a negative impact on sales of our products.

B. RISKS RELATED TO OUR PRODUCTS AND SERVICES

If the products we develop and acquire do not gain market acceptance, our revenues may decrease and we may not realize a return on such investments.

     We make substantial investments to develop and improve our products and acquire products through mergers and acquisitions, and there can be no assurance that our investments will be successful. Our ability to grow our business will be compromised if we do not develop and acquire products and services that achieve broad market acceptance with our current and potential clients. We have recently released a new version, Release 9.1, of our Blackboard Learn platform which offers enhanced functionality over prior versions. If clients do not upgrade to the latest version of the Blackboard Learn platform, the functionality of their existing installed versions will not compare as favorably to competing products which may cause a reduction in renewal rates. Further, if the latest version of our software does not become widely adopted by clients, we may not be able to justify the investments we have made and our financial results will suffer.

     We acquired the technology underlying our newest products and services, including the Blackboard Mobile product line, Blackboard Collaborate, Blackboard Student Services, and Blackboard Analytics through a number of strategic acquisitions. Our ability to grow our business will depend, in part, on client acceptance of these products. If we are not successful in gaining market acceptance of these products and services, our revenues may fall below our expectations.

If our products contain errors, new product releases are delayed or our services are disrupted, we could lose new sales and be subject to significant liability claims.

     Because our software products are complex, they may contain undetected errors or defects, known as bugs. Bugs can be detected at any point in a product’s life cycle, but are more common when a new product is introduced or when new versions are released. We have frequent new product and functionality releases, and those releases may be delayed from their scheduled date due to a wide range of factors. Finally, our service offerings may be disrupted causing delays or interruptions in the services provided to our clients. In the past, we have encountered defects in our product releases, product development delays and interruptions in our service offerings. Despite our product testing, planning and other quality control efforts, we anticipate that our products and services may encounter undetected defects, release delays and service interruptions in the future. Significant errors in our products, delays in product releases or disruptions in the provision of our services could lead to:

	•		delays in or loss of market acceptance of our products;
	•		diversion of our resources;
	•		a lower rate of license renewals or upgrades;
	•		injury to our reputation; and
	•		increased service expenses or payment of damages.

     Because our clients use our products to store, retrieve and utilize critical information, we may be subject to significant liability claims if our products do not work properly or if the provision of our services is disrupted. Such claims could result in significant expenses, disrupt sales and affect our reputation and that of our products. We cannot be certain that the limitations of liability set forth in our licenses and agreements would be enforceable or would otherwise protect us from liability, and our insurance may not cover all or any of the claims. A material liability claim against us, regardless of its merit or its outcome, could result in substantial costs, significantly harm our business reputation and divert management’s attention from our operations.

We face intense and growing competition, which could result in price reductions, reduced operating margins and loss of market share.

     We operate in highly competitive markets and generally encounter intense competition to win contracts. If we are unable to successfully compete for new business and license renewals, our revenue growth and operating margins may decline. The markets for our products are rapidly changing, and barriers to entry are relatively low. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. Some of our principal competitors offer their products at a lower price, which has resulted in pricing pressures. Such pricing pressures and increased competition in general could result in reduced sales, reduced margins or the failure of our product and service offerings to achieve or maintain more widespread market acceptance.

     Our primary competitors for the Blackboard Learn platform are companies and open source projects that provide course management systems, such as Desire2Learn Inc., Jenzabar, Inc., Microsoft, IBM, Oracle, Moodle, Pearson, The Sakai Project, UCompass Educator and WebTycho; learning content management systems, such as Giunti Labs S.r.I. and Concord USA, Inc.; and education enterprise information portal technologies, such as SunGard Higher Education Inc., an operating unit of SunGard Data Systems Inc. We also face competition from clients and potential clients who develop their own applications internally, large diversified software vendors who offer products in numerous markets including the education market and open source software applications.

     Our competitors for the Blackboard Transact platform include companies that provide transaction systems, security and access systems and off-campus merchant relationship programs such as CBORD and CardSmith. Our competitors for the Blackboard Connect service include a variety of companies or products such as SchoolMessenger that provide mass notification technologies including voice, email and text messaging communications. Our competitors for the Blackboard Mobile products include in-house IT departments that

customize their own mobile presence and companies such as Datatel that provide customized mobile websites and applications. Our competitors for the Blackboard Collaborate platform launched in August 2010 include a variety of companies that provide software applications for synchronous learning and similar technology, including Cisco Systems and Adobe. Our competitors for the Blackboard Student Services offering launched in January 2011 include clients and potential clients who handle student support calls in-house and various companies, including PerceptIS, that provide IT help desk support and student management services to institutions of higher learning. Our competitors for the Blackboard Analytics platform launched in January 2011 include clients and potential clients who have in-house analytic capability and various companies, including several major ERP providers, that offer analytic and business intelligence reporting services to institutions of higher learning.

     We face current and potential competitors that are substantially larger than we are and have significantly greater financial, technical and marketing resources, and established, extensive direct and indirect sales and distribution channels. Similarly, our competitors may be acquired by larger and better-funded companies which have more resources than our competitors currently have. These larger companies may be able to respond more quickly to new or emerging technologies and changes in client requirements, or to devote greater resources to the development, promotion and sale of their products than we can. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or prospective clients. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share to our detriment.

If potential clients or competitors use open source software to develop products that are competitive with our products and services, we may face decreased demand and pressure to reduce the prices for our products.

     Open source software can be modified or used to develop new software that competes with proprietary software applications such as ours. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies. The growing acceptance and prevalence of open source software may make it easier for competitors or potential competitors to develop software applications that compete with our products, or for clients and potential clients to internally develop software applications that they would otherwise have licensed from us. As open source offerings become more prevalent, customers may defer or forego purchases of our products, which could reduce our sales to new clients, lengthen the sales cycle for our products or result in the loss of current clients to open source solutions. If we are unable to differentiate our products from competitive products based on open source software, demand for our products and services may decline, and we may face pressure to reduce the prices of our products, which would hurt our profitability.

If we do not maintain the compatibility of our products with third-party applications that our clients use in conjunction with our products, demand for our products could decline.

     Our software applications can be used with a variety of third-party applications used by our clients to extend the functionality of our products, which we believe contributes to the attractiveness of our products in the market. If we are not able to maintain the compatibility of our products with third-party applications, demand for our products could decline, and we could lose sales. We may desire in the future to make our products compatible with new or existing third-party applications that achieve popularity within the education marketplace, and these third-party applications may not be compatible with our designs. Any failure on our part to modify our applications to ensure compatibility with such third-party applications would reduce demand for our products and services.

If we are unable to obtain sufficient quantities of the hardware products we sell in a timely manner, our sales could decline.

     We rely on various third-party companies to provide us with hardware products that we sell to our clients. Such companies include manufacturers of third-party software products and manufacturers of Blackboard Transact hardware products to which we have outsourced our manufacturing operations. The failure to obtain sufficient quantities of the products we sell to our clients or any substantial delays or product quality problems associated with our obtaining such products could decrease our sales, reduce our operating margins and harm our financial performance.

Operational failures in our network infrastructure could disrupt our remote hosting and application services, could cause us to lose clients and sales to potential clients and could result in increased expenses and reduced revenues.

     Unanticipated problems affecting our network systems could cause interruptions or delays in the delivery of the hosting services and other application services we provide to some of our clients. We provide remote hosting and other application services through computer hardware that is currently located in third-party co-location facilities in various locations in the United States, Canada, the Netherlands, Australia, the United Kingdom, and Norway. We do not control the operation of these co-location facilities. Lengthy interruptions in our hosting service or other application services could be caused by the occurrence of a natural disaster, power loss, vandalism or other telecommunications problems at the co-location facilities or if these co-location facilities were to close without adequate notice. Although we have developed redundancies in some of our systems, we have experienced problems of this nature from time to time in the past, and we will continue to be exposed to the risk of network failures in the future. We currently do not have adequate computer hardware and systems to provide alternative service for most of our hosting or application service clients in the event of an extended loss of service at the co-location facilities. Though some of our co-location facilities are served by data backup redundancy at other facilities, they are not equipped to provide full disaster recovery to all of our hosting and application services clients. If there are operational failures in our network infrastructure that cause interruptions, slower response times, loss of data or extended loss of service for our hosting and application services clients, we may be required to issue credits or pay penalties, current clients may terminate their contracts or elect not to renew them, and we may lose sales to potential clients. If we determine that we need additional hardware and systems, we may be required to make further investments in our network infrastructure, reducing our operating margins and diverting capital from other efforts.

Because most of our licenses are renewable on an annual basis, a reduction in our license renewal rate could significantly reduce our revenues.

     Our clients have no obligation to renew their licenses for our products after the expiration of the initial license period, which is typically one year, and some clients have elected not to do so. A decline in license renewal rates could cause our revenues to decline. We cannot accurately predict future renewal rates. Our license renewal rates may fluctuate as a result of a number of factors, including changes in client satisfaction with our products and services, our ability to update our products to maintain their attractiveness in the market or budgetary constraints or changes in budget priorities faced by our clients. In addition, we often obtain renewable client contracts in acquisitions, and if we experience a decrease in the renewal rate from expected levels it could reduce revenues below our expectations.

Because we generally recognize revenues ratably over the term of our contract with a client, downturns or upturns in sales will not be fully reflected in our operating results until future periods.

     We recognize most of our revenues from clients monthly over the terms of their agreements, which are typically 12 months, although terms can range from one month to over 60 months. As a result, much of the revenue we report in each quarter is attributable to agreements entered into during previous quarters. Consequently, a decline in sales, client renewals, or market acceptance of our products in any one quarter would not necessarily be fully reflected in the revenues in that quarter, and would negatively affect our revenues and profitability in future quarters. This ratable revenue recognition also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new clients generally are recognized over the applicable agreement term.

Our operating margins may suffer if our lower margin revenues increase in proportion to total revenues as our products and services have different gross margins.

     Because the revenues derived from each of our products and services typically have different levels of gross margin, an increase in the percentage of total revenues represented by lower margin products and services could have a detrimental impact on our overall gross margins, and could adversely affect our operating results. In addition, we sometimes subcontract professional services and hardware to third parties, which further reduces our gross margins on these revenue items. As a result, an increase in the percentage of these revenue items provided by third parties could lower our overall gross margins.

The length and unpredictability of the sales cycle for our product and services could delay new sales and cause our revenues and cash flows for any given quarter to fall short of our projections or market expectations.

     The sales cycle between our initial contact with a potential client and the signing of a contract with that client typically ranges from 6 to 18 months. Potential clients often conduct extensive and lengthy evaluations before committing to our products and services and may require us to expend substantial time, effort and money educating them as to the value of our offerings. In addition, our sales cycle varies widely, reflecting differences in our potential clients’ decision-making processes, procurement requirements and budget cycles, and is subject to significant risks over which we have little or no control, including:

	•		clients’ budgetary constraints and priorities;
	•		the timing of our clients’ budget cycles;
	•		the need by some clients for lengthy evaluations that often include both their administrators and faculties; and
	•		the length and timing of clients’ approval processes.

     As a result of the length and variability of our sales cycle, we have only a limited ability to forecast the timing of sales. An increase in the length of our sales cycles, or an increase in the variability of the sales cycle across our products or our client base, could harm our business and financial results, and could cause our financial results to vary significantly from quarter to quarter. In light of the ongoing economic disruption in the U.S. and globally, we have experienced some lengthening of sales cycles and, depending on the future economic climate, may see a continuation of this trend. Our client base is diverse and each component faces a unique set of risks, including, for example, the possibility of state and local budget cuts for K-12 institutions or reduced enrollment in higher education, which may affect our revenues and our ability to grow our business. If the economic downturn worsens or is prolonged, our clients and prospective clients may defer or cancel their purchases with us.

Our sales cycle with international postsecondary education providers and U.S. K-12 schools may be longer than our historical U.S. postsecondary sales cycle, which could increase costs and reduce our operating margins.

     As we target more of our sales efforts at international postsecondary education providers and U.S. K-12 schools, we could face greater costs, longer sales cycles and less predictability in completing some of our sales, which may harm our business. A international postsecondary or U.S. K-12 potential client’s decision to use our products and services is more likely to be a decision involving multiple institutions and, if so, these types of sales would require us to provide greater levels of education to prospective clients regarding the use and benefits of our products and services. In addition, we expect that potential international postsecondary and U.S. K-12 clients may demand more customization, integration services and features. As a result of these factors, these sales opportunities may require us to devote greater sales support and professional services resources to individual sales, thereby increasing the costs and time required to complete sales and diverting sales and professional services resources to a smaller number of international and U.S. K-12 transactions, which would reduce our revenue opportunities and operating margins associated with these potential clients.

C. RISKS RELATED TO BUSINESS OPERATIONS AND FINANCING

Our recent acquisition transactions present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of the transactions.

     We have entered into a number of acquisition transactions as part of our growth strategy. We completed acquisitions of Saf-T-Net, Elluminate, Wimba, Presidium, and the business assets of iStrategy in 2010. We have entered into these transactions with the expectation that each would result in long-term benefits, including improved revenue and profits and enhancements to our product portfolio and customer base. We may encounter risks in seeking to realize the benefits of these and other potential acquisition transactions, including:

	•		we may not realize the anticipated financial benefits if we are unable to sell the acquired products or services to our current or future customers, if a larger than predicted number of customers decline to renew their contracts, or if the acquired contracts do not allow us to recognize revenues on a timely basis;
	•		we may have difficulty incorporating the acquired technologies, products or services with our existing product lines and maintaining uniform standards, controls, procedures and policies;
	•		we may face contingencies related to product liability, intellectual property, financial disclosures, accounting practices or internal controls;
	•		we may have higher than anticipated costs in supporting and continuing development of the acquired company products and services and in servicing new and existing clients of a company we acquire;
	•		we may not be able to retain key employees from the companies we acquire;
	•		we may experience operational challenges due to the increased size and complexity of the combined company after our acquisitions; and
	•		we may lose anticipated tax benefits or have additional legal or tax exposures.

Our business strategy contemplates future business combinations and acquisitions which may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.

     A key element of our growth strategy is to pursue additional acquisitions in the future. Any acquisition could be expensive, disrupt our ongoing business and distract our management and employees. We may not be able to identify suitable acquisition candidates, and if we do identify suitable candidates, we may not be able to make these acquisitions on acceptable terms or at all. If we make an acquisition, we could have difficulty integrating the acquired technology, employees or operations. In addition, the key personnel of the acquired company may decide not to work for us. Acquisitions also involve the risk of potential unknown liabilities associated with the acquired business.

     As a result of these risks, we may not be able to achieve the expected benefits of any acquisition. If we are unsuccessful in completing or integrating past or future acquisitions, we would be required to reevaluate our growth strategy, and we may have incurred substantial expenses and devoted significant management time and resources in seeking to complete and integrate the acquisitions.

     As has been the case with our historical acquisition transactions, future business combinations could involve the acquisition of significant tangible and intangible assets, which could require us to record ongoing amortization expense with respect to identified intangible assets acquired. In addition, we may need to record write-downs from future impairments of identified tangible and intangible assets and goodwill. These and other similar accounting charges would reduce any future earnings or increase any losses. In future acquisitions, we could also incur debt to pay for acquisitions or issue additional equity securities as consideration, either of which could cause our stockholders to suffer significant dilution. Additionally, our ability to utilize net operating loss carryforwards, if any, acquired in any acquisitions may be significantly limited or unusable by us under Section 382 or other sections of the Internal Revenue Code.

International expansion will subject our business to additional economic and operational risks that could increase our costs and make it difficult to operate profitably.

     One of our key growth strategies is to pursue international expansion. Expansion of our international operations may require significant expenditure of financial and management resources and result in increased administrative and compliance costs. As a result of such expansion, we will be increasingly subject to the risks inherent in conducting business internationally, including:

•

foreign currency fluctuations, which could result in reduced revenues and increased operating expenses;

	•		longer or less predictable payment and sales cycles;
	•		difficulty in collecting accounts receivable;
	•		applicable foreign tax structures, including tax rates that may be higher than tax rates in the United States or taxes that may be duplicative of those imposed in the United States;
	•		tariffs and trade barriers;
	•		general economic and political conditions in each country;
	•		inadequate intellectual property protection in foreign countries;
	•		uncertainty regarding liability for information retrieved and replicated in foreign countries;
	•		the difficulties and increased expenses of complying with a variety of foreign laws, regulations and trade standards; and
	•		unexpected changes in regulatory requirements.

     As a result of these risks, we may not be able to achieve the expected benefits of our international strategy. If we are unsuccessful in this international expansion, we would be required to reevaluate our growth strategy, and we may have incurred substantial expenses and devoted significant management time and resources in pursuing international growth.

The restrictive covenants contained in, and any indebtedness incurred under, our revolving credit facility could constrict our liquidity and adversely affect our ability to operate our business successfully and to obtain financing in the future.

     We entered into a five-year $175.0 million senior secured revolving credit facility in August 2010. The restrictive covenants contained in the Credit Agreement limit our ability to incur additional indebtedness, create liens, make investments, make restricted payments, and merge, consolidate, sell or acquire assets, among other things. In addition, we are required to comply with certain leverage and other financial maintenance tests. As we borrow amounts under this facility, this debt may impair our ability to obtain future additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes, and a substantial portion of our cash flows from operations may be dedicated to the debt repayment, thereby reducing the funds available to us for other purposes, increasing our vulnerability to industry downturns and competitive pressures. Any breach of our covenants set forth in the credit agreement, or our failure to satisfy our obligations with respect to these debt obligations could result in a default under the credit facility, which could result in acceleration of the debt and certain other financial obligations. As of December 31, 2010 and February 18, 2011, no amounts were outstanding under the revolving credit facility.

Our existing indebtedness could adversely affect our financial condition and we may not be able to fulfill our debt obligations.

     The outstanding Notes in the principal amount of $165.0 million pose the following risks to our overall business:

	•		upon conversion or redemption of the Notes, the first possible redemption date for which occurs on July 1, 2011, we will be required to repay the principal amount of $165.0 million in cash;
	•		we will use a significant portion of our cash flow to pay interest on our outstanding debt, limiting the amount available for working capital, capital expenditures and other general corporate purposes;

	•		lenders may be unwilling to lend additional amounts to us for future working capital needs, additional acquisitions or other purposes or may only be willing to provide funding on terms we would consider unacceptable;
	•		if our cash flow were inadequate to make interest and principal payments on our debt, we might have to refinance our indebtedness or issue additional equity or other securities and may not be successful in those efforts or may not obtain terms favorable to us; and
	•		our ability to finance working capital needs and general corporate purposes for the public and private markets, as well as the associated cost of funding, is dependent, in part, on our credit ratings, which may be adversely affected if we experience declining revenues.

     We may be more vulnerable to adverse economic conditions than less leveraged competitors and thus less able to withstand competitive pressures. Any of these events could reduce our ability to generate cash available for investment or debt repayment or to make improvements or respond to events that would enhance profitability. We may incur significantly more debt in the future, which will increase each of the foregoing risks related to our indebtedness.

We may not be able to repurchase the Notes when required by the holders, including upon a defined fundamental change or other specified dates at the option of the holder, or pay cash upon conversion of the Notes.

     Upon the occurrence of a fundamental change as defined in the Notes, holders of the Notes would have the right to require us to repurchase the Notes at a price in cash equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. Any future credit agreement or other agreements relating to indebtedness to which we become a party may contain similar provisions. Holders will also have the right to require us to repurchase the Notes for cash or a combination of cash and our common stock on July 1, 2011, July 1, 2017 or July 1, 2022. Moreover, upon conversion of the Notes, we are required to settle a portion of the conversion obligation in cash. In the event that we are required to repurchase the Notes or upon conversion of the Notes, we may not have sufficient financial resources to satisfy all of our obligations under the Notes and our other debt instruments. Our failure to pay the repurchase price when due, to pay cash upon conversion of the Notes or to meet other payment obligations would result in a default under the indenture governing the Notes.

Conversion of the Notes may affect the market price of our common stock and may dilute the ownership of existing stockholders.

     The conversion of some or all of the Notes and any sales in the public market of our common stock issued upon such conversion could adversely affect the market price of our common stock. The existence of the Notes may encourage short selling by market participants because the conversion of the Notes could depress our common stock price. In addition, the conversion of some or all of the Notes could dilute the ownership interests of existing stockholders to the extent that shares of our common stock are issued upon conversion.

Our reported earnings per share may be more volatile because of the contingent conversion provision of the Notes.

     The Notes may have a dilutive effect on earnings per share in any period in which the market price of our common stock exceeds the conversion price for the Notes as a result of the inclusion of the underlying shares in the fully diluted earnings per share calculation. Volatility in our stock price could cause this condition or other conversion conditions to be met in one quarter and not in a subsequent quarter, increasing the volatility of fully diluted earnings per share.

The investment of our cash balances is subject to risks that may cause losses and affect the liquidity of these investments.

     We hold our cash in a variety of marketable investments which are generally investment grade, liquid, short-term securities and money market instruments denominated in U.S. dollars. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which would be reflected in our statement of operations for that period.

With a continued unstable credit environment, we might incur significant realized, unrealized or impairment losses associated with these investments.

Our future success depends on our ability to continue to retain and attract qualified employees.

     Our future success depends upon the continued service of our key management, technical, sales and other critical personnel, including employees who joined Blackboard in connection with our recent acquisitions. Whether we are able to execute effectively on our business strategy will depend in large part on how well key management and other personnel perform in their positions and are integrated within our company. Departure of key officers and senior managers could hinder our future success. Our executive management team is critical to Blackboard’s management, strategy, culture, and technology. Key personnel have left our company over the years, including our former Chief Financial Officer during 2010, and there may be additional departures of key personnel from time to time. In addition, as we seek to expand our global organization, the hiring of qualified sales, technical and support personnel has been difficult due to the limited number of qualified professionals. Failure to attract, integrate and retain key personnel would result in disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives and the results of our operations.

D. RISKS RELATED TO INTELLECTUAL PROPERTY AND GOVERNMENT REGULATION

If we are unable to protect our proprietary technology and other rights, it will reduce our ability to compete for business.

     If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products similar to our products, which could decrease demand for our products. In addition, we may be unable to prevent the use of our products and services by persons who have not paid the required fees, which could reduce our revenues. We rely on a combination of copyright, patent, trademark and trade secret laws, as well as licensing agreements, third-party nondisclosure agreements and other contractual provisions and technical measures, to protect our intellectual property rights. These protections may not be adequate to prevent our competitors from copying or reverse-engineering our products and services, and these protections may be costly and difficult to enforce. Our competitors may independently develop technologies that are substantially equivalent or superior to our technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. The protective mechanisms we include in our products and services may not be sufficient to prevent unauthorized copying. Existing copyright laws afford only limited protection for our intellectual property rights and may not protect such rights in the event competitors independently develop products or services similar to ours. In addition, the laws of some countries in which our products are or may be licensed do not protect our products and intellectual property rights to the same extent as do the laws of the United States.

If we are found to have infringed the proprietary rights of others, we could be required to redesign our products, pay significant royalties or enter into license agreements with third parties.

     A third party may assert that our technology violates its intellectual property rights. As the number of products and services in our markets increases and the functionality of these products and services further overlaps, we believe that infringement claims may become more common. Any claims, regardless of their merit, could:

	•		be expensive and time consuming to defend;
	•		force us to stop offering our products or services that incorporate the challenged intellectual property;
	•		require us to redesign our products or services and reimburse certain costs to our clients;
	•		divert management’s attention and other company resources; and

•

require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies, which may not be available on terms acceptable to us, or at all.

The nature of our business and our reliance on intellectual property and other proprietary information subjects us to the risks of litigation.

     We are in an industry where litigation is common, including litigation related to copyright, patent, trademark and trade secret rights, and other types of claims. Litigation can be expensive and disruptive to normal business operations. The results of litigation are inherently uncertain and may result in adverse rulings or decisions. We may enter into settlements or be subject to judgments that may result in an obligation to pay significant monetary damages, prevent us from operating one or more elements of our business or otherwise hurt our operations.

Unauthorized disclosure of data, whether through breach of our computer systems or otherwise, could expose us to protracted and costly litigation or cause us to lose clients.

     Maintaining the security of our systems is of critical importance for our clients because they may involve the storage and transmission of proprietary and confidential client and student information, including personal student information and consumer financial data, such as credit card numbers. This area is heavily regulated in many countries in which we operate, including the United States. Individuals and groups may develop and deploy viruses, worms and other malicious software programs that attack or attempt to infiltrate our products. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, we could be subject to liability or our business could be interrupted. Penetration of our network security could have a negative impact on our reputation, could lead our present and potential clients to choose competing offerings, and could result in legal or regulatory action against us. Even if we do not encounter a security breach ourselves, a well-publicized breach of the consumer data security of another company could lead to a general public loss of confidence in the use of our products, which could significantly diminish the attractiveness of our products and services.

Government regulation of our products and services in the U.S. and abroad could cause us to incur significant compliance expenses or face legal action, which could make our business less efficient or even impossible.

     The impact of existing laws and regulations potentially applicable to our products and services, including regulations relating to issues such as privacy, telecommunications, defamation, pricing, advertising, taxation, consumer protection, content regulation, quality of products and services and intellectual property ownership and infringement, can be unclear. It is possible that U.S., state, local and foreign governments might attempt to regulate our products and services or prosecute us for violations of their laws. In addition, these laws may be modified and new laws may be enacted in the future, which could increase the costs of regulatory compliance for us or force us to change our business practices. Any existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary to comply with such laws and regulations, and dampen the growth in use of our products and services.

We could be subject to current or future state and federal financial services regulation that could expose us to liability, force us to change our business practices or force us to stop selling or modify our products and services.

     Our financial transaction processing products and financial service offerings could be subject to state and federal financial services regulation or industry-mandated requirements. The Blackboard Transact platform supports the creation and management of student debit accounts and the processing of payments against those accounts for both on-campus vendors and off-campus merchants. For example, one or more federal or state governmental agencies that regulate or monitor banks or other types of providers of electronic commerce services may conclude that we are engaged in banking or other financial services activities that are regulated by the Federal Reserve under the U.S. Federal Electronic Funds Transfer Act or Regulation E thereunder or by state agencies under similar state statutes or regulations. Regulatory requirements may include, for example:

•

disclosure of consumer rights and our business policies and practices;

	•		restrictions on uses and disclosures of customer information;
	•		error resolution procedures;
	•		limitations on consumers’ liability for unauthorized account activity;
	•		data security requirements;
	•		government registration; and
	•		reporting and documentation requirements.

     A number of states have enacted legislation regulating check sellers, money transmitters or transaction settlement service providers as banks. If we were deemed to be in violation of any current or future regulations, we could be exposed to financial liability and adverse publicity or forced to change our business practices or stop selling some of our products and services. As a result, we could face significant legal fees, delays in extending our product and services offerings, and damage to our reputation that could harm our business and reduce demand for our products and services. Even if we are not required to change our business practices, we could be required to obtain licenses or regulatory approvals that could cause us to incur substantial costs.

We may have exposure to greater than anticipated tax liabilities.

     We are subject to income taxes and other taxes in a variety of jurisdictions and are subject to review by both domestic and foreign taxation authorities. The determination of our provision for income taxes and other tax liabilities requires significant judgment and the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements, which may materially affect our financial results in the period or periods for which such determination is made.

Our ability to utilize our net operating loss carryforwards may be limited.

     Our federal net operating loss carryforwards are subject to limitations on how much may be utilized on an annual basis. The use of the net operating loss carryforwards may have additional limitations resulting from future ownership changes or other factors under Section 382 of the Internal Revenue Code.

     If our net operating loss carryforwards are further limited, and we have taxable income which exceeds the available net operating loss carryforwards for that period, we would incur an income tax liability even though net operating loss carryforwards may be available in future years prior to their expiration. Any such income tax liability may adversely affect our future cash flow, financial position and financial results.

Item 1B. Unresolved Staff Comments.

     None.

Item 2. Properties.

     Our corporate headquarters office is located in Washington, D.C. We lease approximately 134,000 square feet of office space at this location under a lease expiring in June 2018. We also lease offices in Northern Virginia; Phoenix, Arizona; Lynnfield, Massachusetts; Owings Mills, Maryland; Los Angeles, California; San Francisco, California; Pleasanton, California; Indianapolis, Indiana; New York, New York; Raleigh, North Carolina; Rome, Georgia; Killeen, Texas; Somerset, Kentucky; Amsterdam, Netherlands; Vancouver, Canada; Calgary, Canada; Brno, Czech Republic; Cambridge, United Kingdom; Reading, United Kingdom; and Sydney, Australia.

Item 3. Legal Proceedings.

     We may be involved in various legal proceedings from time to time incidental to the ordinary conduct of our business. We believe that any ultimate liability resulting from any such litigation will not have a material adverse effect on our results of operations, financial position or cash flows.

PART II

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

     Our common stock trades on the NASDAQ Global Select Market under the symbol “BBBB.” The following table sets forth, for the period indicated, the range of high and low closing sales prices for our common stock by quarter.

		High				Low
Year Ended December 31, 2009:
First Quarter		$	32.70			$	23.00
Second Quarter			34.03				27.45
Third Quarter			37.92				27.55
Fourth Quarter			46.30				35.47
Year Ended December 31, 2010:
First Quarter		$	45.92			$	37.27
Second Quarter			45.43				37.33
Third Quarter			39.82				33.09
Fourth Quarter			42.96				35.54

     As of January 31, 2011 there were 141 holders of record of our outstanding common stock.

     We have not paid or declared any cash dividends on our common stock. We currently expect to retain all of our earnings for use in developing our business and do not anticipate paying any cash dividends in the foreseeable future.

     We did not repurchase any of our equity securities in 2010.

     The equity compensation plan information required under this Item is incorporated by reference to the information provided under the heading “Equity Compensation Plan Information” in our proxy statement to be filed within 120 days after the fiscal year end of December 31, 2010.

STOCK PERFORMANCE GRAPH

     The following graph compares the yearly change in the cumulative total stockholder return on our common stock during the five-year period from December 31, 2005 through December 31, 2010, with the cumulative total return of a SIC Code Index that includes all U.S. public companies in the Standard Industrial Classification (SIC) Code 7372-Prepackaged Software and a NASDAQ Market Index. The comparison assumes that $100 was invested on December 31, 2005 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG BLACKBOARD INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX

Assumes $100 invested on December 31, 2005
Assumes dividend reinvested

				12/31/2005					12/31/2006					12/31/2007					12/31/2008					12/31/2009					12/31/2010
	Blackboard Inc.			$	100.00				$	103.66				$	138.89				$	90.51				$	156.63				$	142.51
	NASDAQ Market Index				100.00					110.26					121.89					73.10					106.23					125.37
	SIC Code Index				100.00					114.78					134.81					80.75					121.34					136.88

Item 6. Selected Financial Data.

     The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this annual report. The statement of operations data for the years ended December 31, 2006, 2007, 2008, 2009 and 2010 and the balance sheet data as of December 31, 2006, 2007, 2008, 2009 and 2010 are derived from, and are qualified by reference to, our audited consolidated financial statements that have been audited by Ernst & Young, LLP, our independent registered public accounting firm.

		Year Ended December 31,
		2006				2007				2008				2009				2010
		(In thousands, except per share amounts)
Statement of operations data:
Revenues:
Product		$	160,392			$	213,631			$	283,258			$	342,144			$	412,641
Professional services			22,671				25,817				28,876				34,856				34,677
Total revenues			183,063				239,448				312,134				377,000				447,318
Operating expenses:
Cost of product revenues, excludes $9,333, $11,654, $17,803, $10,649 and $10,161 respectively, of amortization of acquired technology included in amortization of intangibles resulting from acquisitions shown below(1)			39,594				47,444				75,237				90,968				110,105
Cost of professional services revenues(1)			16,001				16,941				19,555				20,024				22,717
Research and development(1)			27,162				28,278				40,580				45,967				55,009
Sales and marketing(1)			58,340				66,033				91,076				98,751				121,190
General and administrative(1)			35,823				38,667				50,757				56,387				65,962
Patent-related (proceeds) impairment and other costs			—				—				(3,313	)			10,984				—
Amortization of intangibles resulting from acquisitions			17,969				22,122				37,866				34,994				38,320
Total operating expenses			194,889				219,485				311,758				358,075				413,303
(Loss) income from operations			(11,826	)			19,963				376				18,925				34,015
Interest expense, net			(2,974	)			(2,479	)			(10,168	)			(11,769	)			(12,080	)
Other (expense) income			(519	)			575				4,124				1,453				1,352
(Loss) income before (benefit) provision for income taxes			(15,319	)			18,059				(5,668	)			8,609				23,287
(Benefit) provision for income taxes			(4,582	)			7,580				(3,732	)			697				6,643
Net (loss) income		$	(10,737	)		$	10,479			$	(1,936	)		$	7,912			$	16,644

		Year Ended December 31,
		2006				2007				2008				2009				2010
		(In thousands, except per share amounts)
Net (loss) income per common share:
Basic		$	(0.39	)		$	0.36			$	(0.06	)		$	0.25			$	0.49
Diluted		$	(0.39	)		$	0.35			$	(0.06	)		$	0.24			$	0.48
Weighted average number of common shares:
Basic			27,858				28,789				30,886				32,066				34,083
Diluted			27,858				30,114				30,886				33,101				34,849
(1)      Includes the following amounts related to stock-based compensation:
Cost of product revenues		$	386			$	672			$	949			$	1,225			$	1,205
Cost of professional services revenues			524				631				321				524				662
Research and development			733				467				777				1,018				1,177
Sales and marketing			2,951				4,359				5,984				6,101				8,067
General and administrative			3,462				5,914				7,096				7,091				8,870
The following table sets forth a summary of our balance sheet data:
		December 31,
		2006				2007				2008				2009				2010
		(In thousands)
Balance sheet data:
Cash and cash equivalents		$	30,776			$	206,558			$	141,746			$	167,353			$	70,314
Working capital (deficit)			(36,976	)			125,286				43,300				45,249				(231,101	)
Total assets			307,299				496,912				637,441				724,934				847,150
Deferred revenues, current portion			117,972				126,600				166,727				186,702				211,752
Total debt, net of debt discount			23,623				143,556				149,923				156,177				162,326
Total stockholders’ equity			140,121				194,273				273,475				331,472				408,083

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

     You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under Item 1A “Risk Factors” and elsewhere in this annual report.

General

     We are a leading provider of enterprise software applications and related services to the education industry. Our clients use our software to integrate technology into the education experience and campus life, and to support activities such as a professor assigning digital materials on a class website; a student collaborating with peers and participating in class discussions online or on their mobile device; an administrator managing a departmental website; a superintendent sending mass communications via voice, email and text messages to parents and students; or a merchant conducting cash-free transactions with students and faculty. Our clients include colleges, universities, schools and other education providers, textbook publishers, student-focused merchants, and corporate and government clients.

     We generate revenues from sales and licensing of products and from professional services. Our product revenues consist principally of revenues from annual software licenses, subscription fees from customers accessing our on-demand application services and student support services. We also offer application hosting for clients who prefer to outsource the management of their Blackboard Learn systems. We typically sell our licenses, student support services and hosting services under annually renewable agreements, and our clients generally pay the annual fees at the beginning of the contract term. We generally price our software licenses on the basis of full-time equivalent students or users. Accordingly, annual license fees are generally greater for larger institutions. We recognize revenues from these agreements ratably over the contractual term, which is typically 12 months. We initially record billings associated with licenses and hosting services as deferred revenues and then recognize them ratably into revenues over the contract term. We also generate product revenues from the sale of hardware, including third-party hardware. As a result of new accounting guidance adopted on January 1, 2010, we generally recognize these revenues upon shipment of the products to our clients.

     In addition to our products, we offer a variety of professional services, including training, implementation, installation and other consulting services such as strategic consulting, project management, custom application development. We perform substantially all of our professional services on a time-and-materials basis. We recognize these revenues as the services are performed.

     We have grown through internal growth and strategic relationships and acquisitions. In 2008, we acquired The NTI Group, Inc., or NTI, and in March 2010, we acquired Saf-T-Net, Inc., or Saf-T-Net. The technology we acquired in these transactions provides the foundation for our Blackboard Connect platform, including the AlertNow service. In 2009, we acquired ANGEL Learning, Inc., or ANGEL, a leading developer of e-learning software to the U.S. education industry. Also in 2009, we acquired the business assets of Terriblyclever Design, LLC, or Terriblyclever, including the technology that is the foundation for our Blackboard Mobile platform. In August 2010, we acquired Elluminate Inc., or Elluminate, and Wimba Inc., or Wimba, to create our Blackboard Collaborate platform, and we acquired the business assets of iStrategy, LLC to create our new Blackboard Analytics platform. In December 2010, we acquired Presidium Inc., or Presidium, a company for which we held a warrant exercisable for 9.9% of the equity interest, to create our new Blackboard Student Services offering. We believe these acquisitions support our long-term strategic direction and the demands for innovative technology in the education industry, have helped us create stronger, more flexible technology in support of teaching, learning and student engagement, and accelerate the pace of innovation and interoperability in e-learning.

     We typically license our individual software applications either on a stand-alone basis or bundled as part of one of our six product lines: Blackboard Learn; Blackboard Transact; Blackboard Connect; Blackboard Mobile; Blackboard Collaborate; and Blackboard Analytics.

     We offer Blackboard Learn in all of our markets, Blackboard Transact primarily to U.S. and Canadian postsecondary clients, Blackboard Connect to primarily U.S. K-12, postsecondary and government clients, Blackboard Mobile primarily to U.S. postsecondary and K-12 clients, Blackboard Collaborate primarily to U.S. and Canadian postsecondary and K-12 clients, and Blackboard Analytics primarily to U.S. postsecondary clients.

     Our operating expenses consist of cost of product revenues, cost of professional services revenues, research and development expenses, sales and marketing expenses, general and administrative expenses and amortization of intangibles resulting from acquisitions.

     Major components of our cost of product revenues include license and other fees that we owe to third parties upon licensing software. We initially defer these costs and recognize them into expense over the period in which we recognize the related revenue. Cost of product revenues also includes amortization of internally developed technology available for sale, telecommunications costs related to the Blackboard Connect platform, all direct materials and shipping and handling costs, employee compensation, including bonuses, stock-based compensation and benefits for personnel supporting our hosting, support, production functions and student support costs, as well as related facility rent, communication costs, utilities, depreciation expense and cost of external professional services used in these functions. We expense all of these costs as incurred. We also expense the costs of hardware as we incur these costs, normally upon delivery to our client. Cost of product revenues excludes amortization of acquired technology intangibles resulting from acquisitions, which is included as amortization of intangibles acquired in acquisitions. Amortization expense related to acquired technology was $17.8 million, $10.6 million and $10.2 million for the years ended December 31, 2008, 2009 and 2010, respectively.

     Cost of professional services revenues primarily includes the costs of compensation, including bonuses, stock-based compensation and benefits for employees and external consultants who are involved in the performance of professional services engagements for our clients, as well as travel and related costs, facility rent, communication costs, utilities and depreciation expense used in these functions. We expense all of these costs as incurred.

     Research and development expenses include the costs of compensation, including bonuses, stock-based compensation and benefits for employees who are associated with the creation and testing of the products we offer, as well as the costs of external professional services, travel and related costs attributable to the creation and testing of our products, related facility rent, communication costs, utilities and depreciation expense used in these functions. We expense all of these costs as incurred.

     Sales and marketing expenses include the costs of compensation, including bonuses and commissions, stock-based compensation and benefits for employees who are associated with the generation of revenues, as well as marketing expenses, costs of external marketing-related professional services, investor relations, facility rent, utilities, communications, travel attributable to those sales and marketing employees in the generation of revenues and bad debt expense. We expense all of these costs as incurred.

     General and administrative expenses include the costs of compensation, including bonuses, stock-based compensation and benefits for employees in the human resources, legal, finance and accounting, management information systems, facilities management, executive management and other administrative functions that are not directly associated with the generation of revenues or the creation and testing of products. In addition, general and administrative expenses include the costs of external professional services and insurance, as well as related facility rent, communication costs, utilities and depreciation expense used in these functions. We expense all of these costs as incurred.

     Amortization of intangibles includes the amortization of costs associated with products, acquired technology, customer lists, non-compete agreements and other identifiable intangible assets. We recorded these intangible assets at the time of our acquisitions and relate to contractual agreements, technology and products that we continue to utilize in our business.

Critical Accounting Policies and Estimates

     The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. During the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, fair value measures, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, fixed assets, long-lived assets, including purchase accounting and goodwill, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements. Our critical accounting policies have been discussed with the audit committee of our board of directors.

     We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

     Revenue recognition. We derive revenues from two sources: product sales and professional services sales. Product revenues include software license fees, subscription fees from customers accessing our on-demand application services, student support services, hardware, premium support and maintenance, and hosting revenues. Professional services revenues include revenues from training and consulting services. Our software does not require significant modification and customization services. Where services are not essential to the functionality of the software, we begin to recognize software licensing revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the fee is fixed and determinable; and (4) collectibility is probable.

     We do not have vendor-specific objective evidence, known as VSOE, of fair value for our support and maintenance and hosting separate from our software for the majority of our products. Accordingly, when licenses are sold in conjunction with our support and maintenance and hosting, we recognize the license revenue over the term of the service period. When licenses of certain offerings are sold in conjunction with our support and maintenance and hosting where we do have VSOE, we recognize the license revenue upon delivery of the license and recognize the support and maintenance and hosting revenues over the term of the service period.

     We recognize software and hosting set-up fees ratably over the term of the agreements.

     After any necessary installation services are performed, we recognize hardware revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the fee is fixed and determinable; and (4) collectibility is probable.

     We early adopted new accounting guidance on January 1, 2010 that impacts our accounting for (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. We have applied this guidance on a prospective basis for arrangements executed or significantly modified after December 31, 2009. We allocate the overall consideration from such sales to each deliverable using a best estimate of the selling price of individual deliverables in the arrangement in the absence of VSOE or other third-party evidence of the selling price. Prior to the adoption of this new accounting guidance, in the absence of VSOE, all revenue from such sales was recognized ratably over the term of the applicable maintenance service period.

     As a result of the adoption of this new accounting guidance, the product revenues and cost of product revenues related to hardware and software sales in the Blackboard Transact product line will generally be recognized upfront upon delivery of the product to the customer. Product revenues in the Blackboard Transact product line generally consist of hardware, software and support. Generally, the consideration allocated to the hardware and software deliverables is determined using a best estimate of selling price which we estimate based on an analysis of market data and our internal cost to deliver each element. Generally, the consideration allocated to the support deliverable is based on third party evidence. During the year ended December 31, 2010, we recognized product revenues of approximately $35.2 million under this new accounting guidance, which related to ratable and non-ratable revenue streams and is comprised of arrangements executed or significantly modified after December 31, 2009. In addition, approximately $3.9 million is recorded as deferred revenues on the consolidated balance sheet as of December 31, 2010 related to these arrangements executed or significantly modified after December 31, 2009. The effect of changes in either selling price or the method or assumptions used to determine selling price for a specific deliverable could have a material effect on the allocation of the overall consideration of an arrangement.

     As a result of the adoption of this new accounting guidance, revenues, income from operations, net income and basic and diluted earnings per share are approximately $14.3 million, $11.0 million, $7.9 million, $0.23 and $0.23, respectively, higher during the year ended December 31, 2010 than if we had accounted for these sales under the accounting guidance in effect prior to January 1, 2010. We expect the adoption of this new accounting guidance to continue to have a material effect on our consolidated results of operations and financial condition.

     Our sales arrangements may include professional services sold separately under professional services agreements that include training and consulting services. We account for revenues from these arrangements separately from the license revenue because they meet the criteria for separate accounting. The more significant factors we consider in determining whether revenue should be accounted for separately include the nature of the professional services, such as consideration of whether the professional services are essential to the functionality of the licensed product, degree of risk, availability of professional services from other vendors and timing of payments. We recognize professional services revenues that are sold separately from license revenue as the professional services are performed on a time-and-materials basis.

     We do not offer specified upgrades or incrementally significant discounts. We record advance payments as deferred revenues until the product is shipped, services are delivered or obligations are met and the revenue can be recognized. Deferred revenues represent the excess of amounts invoiced over amounts recognized as revenues. We provide non-specified upgrades of our product only on a when-and-if-available basis. Any contingencies, such as rights of return, conditions of acceptance, warranties and price protection are accounted for as a separate element. The effect of accounting for these contingencies included in revenue arrangements has not historically been material.

     Fair Value Measurements. We evaluate the fair value of certain assets and liabilities using the following fair value hierarchy which ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value:

     Level 1 — quoted prices in active markets for identical assets and liabilities

     Level 2 — inputs other than Level 1 quoted prices that are directly or indirectly observable

     Level 3 — unobservable inputs that are not corroborated by market data

     We evaluate assets and liabilities subject to fair value measurements on a recurring and nonrecurring basis to determine the appropriate level to classify them for each reporting period. This determination requires us to make significant judgments. Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. We recognize these items at fair value when they are considered to be impaired. During the year ended December 31, 2010, there were no fair value adjustments for assets and liabilities measured on a non-recurring basis.

     During the year ended December 31, 2009, we transferred our investment in a common stock warrant of Presidium out of Level 2 to Level 3. The classification of an instrument as Level 2 or Level 3 involves judgment based on a variety of subjective factors, including determining whether a market is considered inactive based on an evaluation of the frequency and size of transactions occurring in a certain financial instrument or similar class of financial instruments. Determining an inactive market requires a judgmental evaluation that includes comparing the recent trading activities to historical experience. During the year ended December 31, 2009, we determined that although some market data was available, the investment in the common stock warrant was principally valued using our own assumptions in calculating the estimate of fair value including a discounted cash flow and comparable company analysis.

     We evaluated the fair value of this instrument on a quarterly basis. In connection with our acquisition of Presidium in December 2010, we remeasured our investment in the common stock warrant of Presidium at its acquisition-date fair value of $4.6 million. In determining the acquisition-date fair value of the common stock warrant, we considered comparable market transactions, as well as other measures, including the existence of a control premium, that we evaluated in calculating fair value. We recorded approximately $1.5 million in other

income in the consolidated statements of operations related to this fair value adjustment and we recognized the settlement of this investment as a reduction of the merger consideration paid. With the exercise of this warrant, we no longer have any assets subject to fair value measurements classified as Level 3.

     We disclose fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to their short-term nature, the carrying amounts reported in the consolidated financial statements approximate the fair value for accounts receivable, accounts payable and accrued expenses.

     Business combinations. We recognize all of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. We recognize acquisition-related transaction costs, including investment banking, legal and accounting fees, and other external costs directly related to the transaction, separately from the acquisition and expense them as incurred in general and administrative expenses in the consolidated statements of operations. We expense restructuring costs in periods subsequent to the acquisition date. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowance or uncertain tax positions are recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required. For acquisitions prior to 2009, we capitalized acquisition-related costs as part of the purchase price.

     Long-lived assets. We record our long-lived assets, such as property and equipment, at cost. We review the carrying value of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate these assets by examining estimated future cash flows to determine if their current recorded value is impaired. We evaluate these cash flows by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will record a write-down of the carrying value of the identified asset and charge the impairment as an operating expense in the period in which the determination is made. Although we believe that the carrying values of our long-lived assets are appropriately stated, changes in strategy or market conditions or significant technological developments could significantly impact these judgments and require adjustments to recorded asset balances.

     Goodwill and intangible assets. As a result of acquisitions, we record any excess purchase price over the net tangible and identifiable intangible assets acquired as goodwill. A preliminary allocation of the purchase price to tangible and intangible net assets acquired is based upon a preliminary valuation, and our estimates and assumptions may be subject to change. We test our goodwill for impairment annually on October 1, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that an impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. Although we believe goodwill is appropriately stated in our consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance in the future.

     We also analyze our patents to determine whether some or all of the costs of defending and protecting patents may be capitalized. We expense all costs incurred prior to filing a patent application as incurred.

     Notes payable. In June 2007, we issued and sold $165.0 million aggregate principal amount of 3.25% Convertible Senior Notes due 2027, which we refer to in this report as the Notes, in a public offering. The liability and equity components of the Notes are separately accounted for in a manner that reflects our nonconvertible debt borrowing rate because their terms include partial cash settlement. We amortize the resulting debt discount over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. We have determined that our nonconvertible borrowing rate at the time the Notes were issued was 6.9%. Accordingly, we estimated the fair value of the liability (debt) component as $144.1 million upon issuance of the Notes. We allocated the excess of the proceeds received over the estimated fair value of the liability component totaling $20.9 million, to the conversion (equity) component. We recorded the carrying amount of the equity

component of the Notes of $8.2 million and $2.6 million at December 31, 2009 and 2010, respectively, as a debt discount and netted the amounts against the remaining principal amount outstanding on our consolidated balance sheets.

     In connection with obtaining the Notes, we incurred $4.5 million in debt issuance costs, of which we allocated $4.0 million to the liability component and $0.5 million to the equity component. We recorded the carrying amount of the liability component of the debt issuance costs of $0.6 million and $0.1 million at December 31, 2009 and 2010, respectively, as a debt discount and netted the amounts against the remaining principal amount outstanding on our consolidated balance sheets.

     We amortize the debt discount, which includes the equity component and the liability component of the debt issuance costs, as interest expense using the effective interest method through July 1, 2011, the first redemption date of the Notes. We recorded total interest expense of approximately $11.7 million and $11.6 million for the years ended December 31, 2009 and 2010, respectively, which consisted of $5.4 million in interest expense at a rate of 3.25% per year for each of the years ended December 31, 2009 and 2010, and $6.3 million and $6.2 million in amortization of the debt discount for the years ended December 31, 2009 and 2010, respectively.

     The principal amount of the liability component of the Notes was $165.0 million at December 31, 2009 and 2010. The unamortized debt discount was $8.8 million and $2.7 million at December 31, 2009 and 2010, respectively. The net carrying amount of the liability component of the Notes was $156.2 million and $162.3 million at December 31, 2009 and 2010, respectively.

     Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting bases and the tax bases of assets and liabilities. We also recognize deferred tax assets for tax net operating loss carryforwards. We measure these deferred tax assets and liabilities using the enacted tax rates and laws that will be in effect when such amounts are expected to reverse or be utilized. The realization of total deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.

     Income tax provision or benefit includes U.S. federal, state and local and foreign income taxes and is based on pre-tax income or loss. All tax years since 1998 are subject to examination.

     We account for income taxes using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured as the largest amount of the tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. We recognize interest and penalties related to income tax matters in income tax expense. All of our unrecognized tax benefit liability would affect our effective tax rate if recognized. We do not expect our unrecognized tax benefit liability as of December 31, 2010 to change significantly over the next 12 months.

     Stock-Based Compensation. We measure and recognize compensation expense for stock-based awards based on estimated fair values on the date of grant. We estimate the fair value of each stock option-based award on the date of grant using the Black-Scholes option-pricing model. Fair value estimates determined in accordance with this model are affected by our stock price, as well as estimates regarding a number of variables including expected stock price volatility over the term of the award and projected employee stock option exercise activity. We estimate the fair value of our restricted stock-based awards on the fair value of our common stock on the date of grant.

Important Factors Considered by Management

     We consider several factors in evaluating both our financial position and our operating performance. These factors, while primarily focused on relevant financial information, also include other measures such as general market and economic conditions, competitor information and the status of the regulatory environment.

     To understand our financial results, it is important to understand our business model and its impact on our consolidated financial statements. The accounting for the majority of our contracts requires us to initially record deferred revenues on our consolidated balance sheet upon invoicing the sale and then to recognize revenue in subsequent periods ratably over the term of the contract in our consolidated statements of operations. Therefore, to better understand our operations, we believe investors should look at both our revenues and deferred revenues.

     In evaluating our revenues, we analyze them in two categories: recurring revenues and non-recurring revenues.

	•		Recurring revenues include those product revenues that recur each year, assuming that clients renew their contracts. These revenues include revenues from the licensing of all of our software products, hosting arrangements, subscription fees from customers accessing our on-demand application services, student support services and enhanced support and maintenance contracts related to our software products, including certain professional services performed by our professional services groups.
	•		Non-recurring revenues include those product revenues that do not contractually recur. These revenues include certain hardware components of our Blackboard Transact products, certain third-party hardware and software sold to our clients in conjunction with our software licenses, professional services, fees from our off-campus payment merchant program and certain sales of licenses, as well as the supplies and commissions we earn from publishers related to digital course supplement downloads.

     Many of our product revenues are recognized ratably over the contract term, which is typically one year. As a result, in the case of both recurring revenues and non-recurring revenues, an increase or decrease in the revenues in one period may be attributable primarily to increases or decreases in sales in prior periods. Unlike recurring revenues, which benefit both from new sales and from the renewal of previously existing sales, non-recurring revenues primarily reflect one-time sales that do not contractually renew.

     We adopted new accounting standards on January 1, 2010. Under these new accounting standards, we generally recognize the product revenues and cost of product revenues related to hardware and software sales in the Blackboard Transact product line upfront upon delivery of product to customers. Prior to the adoption of these new accounting standards, we generally recognized revenues on such sales ratably over the term of the agreement.

     Other factors that we consider in making strategic cash flow and operating decisions include cash flows from operations, capital expenditures, total operating expenses and earnings.

     Financial markets have not yet recovered from the significant dislocation experienced in connection with the severe global economic slowdown that began in 2008. While our subscription license model and our focus on educational institution clients has partially insulated us from the negative impact experienced by other technology companies, we were not unaffected by these developments.

     While our financial results for fiscal year 2010 were generally within our expectations, we believe that our financial results for 2010 would have been stronger had normal economic conditions prevailed during 2010. We believe that the economic slowdown and dislocation in the financial markets have caused some clients to delay their purchases with us causing a general lengthening of our sales cycles. Also, we believe that some clients may reduce or eliminate their purchases with us due to budgetary concerns and the uncertainty of operating in this environment. Budgetary restrictions are a particular concern for clients that rely on public funding as the budgets of many national, state or local governments have been negatively impacted by the economic slowdown and other factors. Though our products have often proven to be mission-critical applications to our clients, we expect the continuing economic disruption to significantly impact some of our clients, which could result in the loss of expected new sales or our failure to retain existing clients.

     In response to the changing economic climate, during 2010, we continued to manage our expenses more stringently. Similarly in 2011, we expect to continue to manage our expenses in response to our sales and financial performance through the year. In addition, our treasury policies favor lower-yielding investments, such as investments issued or backed by the U.S. Treasury, in order to mitigate investment risks. As the dislocation in the financial markets has continued, the yields on our investments have declined and reduced our interest income. We expect to continue to earn yields on our cash and cash equivalents for the foreseeable future at rates which are below historic rates, which will negatively impact our profitability.

     We believe that the full impact of the economic situation cannot currently be assessed and as a result, we will be required to make regular adjustments to our operating strategy in response to changing economic conditions.

Results of Operations

     The following table sets forth selected statements of operations data expressed as a percentage of total revenues for each of the periods indicated.

		Year Ended
		December 31,
		2008				2009				2010
Revenues:
Product			91	%			91	%			92	%
Professional services			9				9				8
Total revenues			100				100				100
Operating expenses:
Cost of product revenues			24				24				24
Cost of professional services revenues			6				6				5
Research and development			13				12				12
Sales and marketing			29				26				27
General and administrative			17				15				15
Patent (proceeds) impairment and other costs			(1	)			3				0
Amortization of intangibles resulting from acquisitions			12				9				9
Total operating expenses			100				95				92
Operating margin			0	%			5	%			8	%

     The following table sets forth, for each component of revenues, the cost of these revenues expressed as a percentage of the related revenues for each of the periods indicated.

		Year Ended
		December 31,
		2008				2009				2010
Cost of product revenues			27	%			27	%			27	%
Cost of professional services revenues			68	%			57	%			66	%

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

     Our total revenues for the year ended December 31, 2010 were $447.3 million, representing an increase of $70.3 million, or 19%, as compared to $377.0 million for the year ended December 31, 2009.

     A detail of our total revenues by classification is as follows:

		Year Ended December 31,
		2009												2010
		Product				Professional								Product				Professional
		Revenues				Services Revenues				Total				Revenues				Services Revenues				Total
		(In millions)
		(Unaudited)
Recurring revenues		$	299.7			$	7.4			$	307.1			$	360.6			$	7.7			$	368.3
Non-recurring revenues			42.4				27.5				69.9				52.0				27.0				79.0
Total revenues		$	342.1			$	34.9			$	377.0			$	412.6			$	34.7			$	447.3

     Product revenues. Product revenues, including domestic and international, for the year ended December 31, 2010 were $412.6 million, representing an increase of $70.5 million, or 21%, as compared to $342.1 million for the year ended December 31, 2009. Recurring product revenues increased by $60.9 million, or 20%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase in recurring product revenues was primarily due to a $17.2 million increase in revenues recognized from Blackboard Learn enterprise licenses, which was attributable to current and prior period sales to new and existing clients, the continued shift of our existing clients from Blackboard Learn basic products to Blackboard Learn enterprise products and the cross-selling of other enterprise products to existing clients. Blackboard Learn enterprise products have additional functionality that is not available in Blackboard Learn basic products and consequently some Blackboard Learn basic product clients upgrade to Blackboard Learn enterprise products. Licenses of the enterprise version of Blackboard Learn products have higher average pricing, which normally results in at least twice the contractual value as compared to Blackboard Learn basic product licenses.

     Further, the increase in recurring product revenues resulted from a $11.1 million increase in hosting revenues, an $8.7 million increase in Blackboard Mobile product revenues, a $6.1 million increase resulting from the

Elluminate and Wimba acquisitions that closed in August 2010 and led to the launch of our Blackboard Collaborate product and a $3.6 million increase in our Blackboard Connect product, driven by our Saf-T-Net acquisition that closed in March 2010. The remaining increase in recurring product revenues relates to an increase in revenues from Blackboard Transact sales to new and existing clients, including an $8.6 million increase in recurring product revenues due to our early adoption on January 1, 2010 of the change in revenue recognition guidance under which more revenue is recognized upfront.

     The increase in non-recurring product revenues primarily relates to an increase in revenues from Blackboard Transact hardware and third-party hardware sales to new and existing clients, including a $5.7 million increase in non-recurring product revenues due to our early adoption of the change in revenue recognition guidance.

     Of our total revenues, our total international revenues for the year ended December 31, 2010 were $77.6 million, representing an increase of $8.4 million, or 12%, as compared to $69.2 million for the year ended December 31, 2009. International revenues as a percentage of total revenues decreased to 17% for the year ended December 31, 2010 from 18% for the year ended December 31, 2009 due to a higher rate of increase in domestic revenues associated with the increase in revenues for products that are generally only sold in the United States.

     International product revenues, which consist primarily of recurring product revenues, were $72.8 million for the year ended December 31, 2010, representing an increase of $8.8 million, or 14%, as compared to $64.0 million for the year ended December 31, 2009. The increase in international recurring product revenues was primarily due to an increase in international revenues from Blackboard Learn enterprise products and hosting resulting from prior period sales to new and existing clients. In addition, the increase in international revenues also reflects our investment in increasing the size of our international sales force and international marketing efforts during prior periods, which expanded our international presence and enabled us to sell more of our products to new and existing clients in our international markets.

     Professional services revenues. Professional services revenues for the year ended December 31, 2010 were $34.7 million, representing a decrease of $0.2 million, or 1%, as compared to $34.9 million for the year ended December 31, 2009. The decrease in professional services revenues was primarily attributable to the timing of delivery of service engagements. As a percentage of total revenues, professional services revenues for the years ended December 31, 2009 and 2010 were 9% and 8%, respectively.

     Cost of product revenues. Our cost of product revenues for the year ended December 31, 2010 was $110.1 million, representing an increase of $19.1 million, or 21%, as compared to $91.0 million for the year ended December 31, 2009. The increase in cost of product revenues was primarily due to an increase of $8.8 million in expenses related to hosting services due to the increase in the number of clients contracting for new hosting services and existing clients expanding their existing hosting arrangements. In addition, product costs related to Blackboard Transact sales increased by $7.6 million due to sales to new and existing clients, as well as our early adoption of the change in revenue recognition guidance under which more revenue and related costs are recognized upfront. The remaining increase was primarily due to increases in our technical support expenses associated with increased headcount and personnel costs to support an increase in licenses held by new and existing clients, including those associated with our acquisitions of Elluminate and Wimba. Cost of product revenues as a percentage of product revenues was 27% for each of the years ended December 31, 2009 and 2010.

     Cost of product revenues excludes amortization of acquired technology intangibles resulting from acquisitions, which is included as amortization of intangibles resulting from acquisitions. Amortization expense related to acquired technology was $10.6 million and $10.2 million for the years ended December 31, 2009 and 2010, respectively. This decrease was attributable to the completion of the amortization of acquired technology acquired in our acquisition of WebCT in 2006 and ANGEL in 2009, offset, in part, by the increase in amortization of acquired technology related to the acquisitions of Saf-T-Net, Elluminate and Wimba in 2010. Cost of product revenues, including amortization of acquired technology, as a percentage of product revenues was 29% for the year ended December 31, 2010 as compared to 30% for the year ended December 31, 2009.

     Cost of professional services revenues. Our cost of professional services revenues for the year ended December 31, 2010 was $22.7 million, representing an increase of $2.7 million, or 13%, as compared to $20.0 million for the year ended December 31, 2009. The increase in the cost of professional services revenues was primarily attributable to an increase in personnel-related costs associated with new professional service engagements sold in current and prior periods, as well as the inclusion of additional personnel associated with the acquisitions of Elluminate and Wimba in 2010. Cost of professional services revenues as a percentage of professional services revenues increased to 66% for the year ended December 31, 2010 from 57% for the year ended December 31, 2009.

     Research and development expenses. Our research and development expenses for the year ended December 31, 2010 were $55.0 million, representing an increase of $9.0 million, or 20%, as compared to $46.0 million for the year ended December 31, 2009. This increase was primarily attributable to increased personnel-related costs due to higher average headcount during the year ended December 31, 2010 as compared to the year ended December 31, 2009, including increased personnel-related costs associated with the inclusion of a full year of costs related to the acquisition of ANGEL in 2009, as well as inclusion of the acquisitions of Saf-T-Net, Elluminate and Wimba in 2010.

     Sales and marketing expenses. Our sales and marketing expenses for the year ended December 31, 2010 were $121.2 million, representing an increase of $22.4 million, or 23%, as compared to $98.8 million for the year ended December 31, 2009. This increase was primarily attributable to increased personnel-related costs due to higher average headcount during the year ended December 31, 2010 as compared to the year ended December 31, 2009, including increased personnel-related costs associated with the inclusion of a full year of costs related to the acquisition of ANGEL in 2009, as well as inclusion of the acquisitions of Saf-T-Net, Elluminate and Wimba in 2010.

     General and administrative expenses. Our general and administrative expenses for the year ended December 31, 2010 were $66.0 million, representing an increase of $9.6 million, or 17%, as compared to $56.4 million for the year ended December 31, 2009. This increase was primarily attributable to increased personnel-related costs due to higher average headcount during the year ended December 31, 2010 as compared to the year ended December 31, 2009, including increased personnel-related costs associated with the inclusion of a full year of costs related to the acquisition of ANGEL in 2009, as well as inclusion of the acquisitions of Saf-T-Net, Elluminate and Wimba in 2010. The increase in general and administrative expenses was also attributable to acquisition and integration-related expenses of approximately $5.0 million related to the 2010 acquisitions, as compared to approximately $2.5 million in acquisition and integration-related expenses for 2009, primarily attributable to the acquisition of ANGEL in 2009.

     Patent-related (proceeds) impairment and other costs. During the year ended December 31, 2009, we recorded a charge of approximately $3.5 million related to the reversal of a prior favorable judgment in our patent dispute with Desire2Learn, Inc. Additionally, during the year ended December 31, 2009, we recorded a non-cash charge of approximately $7.4 million as the result of impairment of capitalized patent costs due to the reversal of the judgment.

     Amortization of intangibles resulting from acquisitions. Our amortization of intangibles resulting from acquisitions for the year ended December 31, 2010 was $38.3 million, representing an increase of $3.3 million, or 10%, as compared to $35.0 million for the year ended December 31, 2009. This increase was attributable to amortization of certain intangible assets acquired following the ANGEL acquisition in 2009, as well as the Saf-T-Net, Elluminate and Wimba acquisitions in 2010 offset, in part, by the completion of the amortization of intangible assets acquired in connection with our acquisition of WebCT in 2006.

     Net interest expense. Our net interest expense for the year ended December 31, 2010 was $12.1 million, representing an increase of $0.3 million, or 3%, as compared to $11.8 million for the year ended December 31, 2009. Our net interest expense during 2009 and 2010 was primarily the result of the interest expense incurred on our convertible senior notes, which does not vary significantly from period to period. The year ended December 31, 2010 also includes $0.5 million in interest expense associated with our revolving credit facility entered into during 2010.

     Other income. Our other income for the year ended December 31, 2010 was $1.4 million, representing a decrease of $0.1 million, or 7%, as compared to $1.5 million for the year ended December 31, 2009. We previously held a common stock warrant to purchase up to 9.9% of the common shares of Presidium. In connection with our acquisition of Presidium during the year ended December 31, 2010, we remeasured our investment in the common stock warrant of Presidium at its acquisition-date fair value and recorded approximately $1.5 million of other income related to this fair value adjustment. During the year ended December 31, 2009, we recorded other income of $1.1 million as a fair value adjustment of the Presidium warrant due to an increase in the fair value of the underlying investment.

     The remaining changes in other income during 2009 and 2010 were related to the remeasurement of our foreign subsidiaries’ ledgers, which are denominated in the respective subsidiary’s local currency, into U.S. dollars.

     Benefit (provision) for income taxes. Our provision for income taxes for the year ended December 31, 2010 was $6.6 million, representing an increase of $5.9 million, as compared to our provision for income taxes of $0.7 million for the year ended December 31, 2009. This change was primarily due to an increase in our income before provision for income taxes for the year ended December 31, 2010, as compared to the year ended December 31, 2009. Our higher effective tax rate for the year ended December 31, 2010 was due to having a larger portion of our worldwide net income generated in the United States compared to lower tax jurisdictions in other countries. In addition, the impact on the tax rate from our available tax credits was greater for the year ended December 31, 2009 because our net income was lower in 2009 as compared to 2010. The provision for income taxes for the year ended December 31, 2010 includes $5.0 million in current income tax expense and $1.6 million in deferred income tax expense. Of the total income tax expense recognized, approximately $6.5 million related to U.S. federal and state income taxes and approximately $0.1 million related to international income tax expense.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

     Our total revenues for the year ended December 31, 2009 were $377.0 million, representing an increase of $64.9 million, or 21%, as compared to $312.1 million for the year ended December 31, 2008.

     A detail of our total revenues by classification is as follows:

		Year Ended December 31,
		2008												2009
		Product				Professional								Product				Professional
		Revenues				Services Revenues				Total				Revenues				Services Revenues				Total
		(In millions)
		(Unaudited)
Recurring revenues		$	240.0			$	8.2			$	248.2			$	299.7			$	7.4			$	307.1
Non-recurring revenues			43.2				20.7				63.9				42.4				27.5				69.9
Total revenues		$	283.2			$	28.9			$	312.1			$	342.1			$	34.9			$	377.0

     Product revenues. Product revenues, including domestic and international, for the year ended December 31, 2009 were $342.1 million, representing an increase of $58.9 million, or 21%, as compared to $283.2 million for the year ended December 31, 2008. Recurring product revenues increased by $59.7 million, or 25%, for the year ended December 31, 2009 as compared to the year ended December 31, 2008. This increase in recurring revenues was primarily due to a $19.5 million increase in revenues recognized for subscription fees from customers accessing our on-demand application services related to Blackboard Connect, which we acquired from NTI in January 2008. The increase was also due to an $18.1 million increase in revenues from Blackboard Learn enterprise licenses, which was attributable to current and prior period sales to new and existing clients, the continued shift of our existing clients from Blackboard Learn basic products to Blackboard Learn enterprise products and the cross-selling of other enterprise products to existing clients. Blackboard Learn enterprise products have additional functionality that is not available in Blackboard Learn basic products and consequently some Blackboard Learn basic product clients upgrade to Blackboard Learn enterprise products. Licenses of the enterprise version of Blackboard Learn products have higher average pricing, which normally results in at least twice the contractual value as compared to Blackboard Learn basic product licenses. The remaining increase in recurring ratable product revenues primarily resulted from a $13.8 million increase in hosting revenues and a $4.0 million increase in revenues related to our arrangements with our technology and content partners.

     Of our total revenues, our total international revenues for the year ended December 31, 2009 were $69.2 million, representing an increase of $8.3 million, or 14%, as compared to $60.9 million for the year ended December 31, 2008. International revenues as a percentage of total revenues decreased to 18% for the year ended December 31, 2009 from 20% for the year ended December 31, 2008 due to the increase in revenues from our Blackboard Connect product, which is primarily sold in the United States. International product revenues, which consist primarily of recurring product revenues, were $64.0 million for the year ended December 31, 2009, representing an increase of $7.8 million, or 14%, as compared to $56.2 million for the year ended December 31, 2008. The increase in international recurring ratable product revenues was primarily due to an increase in

international revenues from Blackboard Learn enterprise products and hosting resulting from prior period sales to new and existing clients. In addition, the increase in international revenues also reflects our investment in increasing the size of our international sales force and international marketing efforts during prior periods, which expanded our international presence and enabled us to sell more of our products to new and existing clients in our international markets.

     Professional services revenues. Professional services revenues for the year ended December 31, 2009 were $34.9 million, representing an increase of $6.0 million, or 21%, as compared to $28.9 million for the year ended December 31, 2008. The increase in professional services revenues was primarily attributable to increased sales of consulting services. As a percentage of total revenues, professional services revenues were 9% for the year ended December 31, 2008 and 2009.

     Cost of product revenues. Our cost of product revenues for the year ended December 31, 2009 was $91.0 million, representing an increase of $15.7 million, or 21%, as compared to $75.2 million for the year ended December 31, 2008. The increase in cost of product revenues was primarily due to a $7.7 million increase in expenses related to hosting services due to the increase in the number of clients contracting for new hosting services or existing clients expanding their existing hosting arrangements and a $2.5 million increase in expenses incurred related to our Blackboard Connect product, including related telecommunications costs. The remaining increase was primarily due to increases in our technical support expenses associated with increased headcount and personnel costs to support increases in the number of licenses held by new and existing clients, including the addition of ANGEL’s technical support groups following the merger that closed in May 2009. Cost of product revenues as a percentage of product revenues were 27% for the years ended December 31, 2008 and 2009.

     Cost of product revenues excludes amortization of acquired technology intangibles resulting from acquisitions, which is included as amortization of intangibles resulting from acquisitions. Amortization expense related to acquired technology was $17.8 million and $10.6 million for the years ended December 31, 2008 and 2009, respectively. This decrease was attributable to the completion of the amortization of acquired technology acquired in connection with our acquisition of WebCT in 2006 offset, in part, by amortization of acquired technology acquired following the ANGEL acquisition in May 2009. Cost of product revenues, including amortization of acquired technology, as a percentage of product revenues was 30% for the year ended December 31, 2009 as compared to 33% for the year ended December 31, 2008.

     Cost of professional services revenues. Our cost of professional services revenues for the year ended December 31, 2009 was $20.0 million, representing an increase of $0.5 million, or 2%, as compared to $19.6 million for the year ended December 31, 2008. Cost of professional services revenues as a percentage of professional services revenues decreased to 57% for the year ended December 31, 2009 from 68% for the year ended December 31, 2008. The increase in professional services revenues margin was primarily attributable to an increase in professional services revenues from new professional service engagements in current and prior periods.

     Research and development expenses. Our research and development expenses for the year ended December 31, 2009 were $46.0 million, representing an increase of $5.4 million, or 13%, as compared to $40.6 million for the year ended December 31, 2008. This increase was primarily attributable to increased personnel-related costs due to higher average headcount during the year ended December 31, 2009 as compared to the year ended December 31, 2008, including increased personnel-related costs associated with the inclusion of ANGEL following the ANGEL acquisition in May 2009 and NTI following the NTI acquisition in January 2008.

     Sales and marketing expenses. Our sales and marketing expenses for the year ended December 31, 2009 were $98.8 million, representing an increase of $7.7 million, or 8%, as compared to $91.1 million for the year ended December 31, 2008. This increase was primarily attributable to increased personnel-related costs due to higher average headcount during the year ended December 31, 2009 as compared to the year ended December 31, 2008 primarily due to the increased headcount following the ANGEL acquisition in May 2009 and the NTI acquisition in January 2008. Further, we incurred approximately $0.8 million in additional bad debt expense during the year ended December 31, 2009 as compared to the year ended December 31, 2008.

     General and administrative expenses. Our general and administrative expenses for the year ended December 31, 2009 were $56.4 million, representing an increase of $5.6 million, or 11%, as compared to $50.8 million for the year ended December 31, 2008. This increase was primarily attributable to approximately $2.5 million in acquisition and integration-related expenses primarily attributable to the ANGEL merger that closed in May 2009. The remaining increase relates to increased personnel-related costs due to higher average headcount

during the year ended December 31, 2009 as compared to the year ended December 31, 2008 primarily due to the increased headcount following the ANGEL acquisition in May 2009 and the NTI acquisition in January 2008.

     Patent-related (proceeds) impairment and other costs. Our operating expenses were reduced during the year ended December 31, 2008 due to the $3.3 million payment from Desire2Learn in June 2008 in satisfaction of the judgment amount plus accrued interest arising from the patent litigation between us and Desire2Learn. During the year ended December 31, 2009, we recorded a $3.5 million expense related to the reversal of this judgment as the result of the outcome of an appeal by Desire2Learn. Additionally, during the year ended December 31, 2009, we recorded a non-cash impairment charge of $7.4 million related to previously capitalized patent costs due to the reversal of the 2008 judgment.

     Amortization of intangibles resulting from acquisitions. Our amortization of intangibles resulting from acquisitions for the year ended December 31, 2009 was $35.0 million, representing a decrease of $2.9 million, or 8%, as compared to $37.9 million for the year ended December 31, 2008. This decrease was attributable to the completion of the amortization of intangible assets acquired in connection with our acquisition of WebCT in 2006 offset, in part, by amortization of certain intangible assets acquired following the ANGEL acquisition in May 2009.

     Net interest expense. Our net interest expense for the year ended December 31, 2009 was $11.8 million, representing an increase of $1.6 million, or 16%, as compared to $10.2 million for the year ended December 31, 2008. This change was primarily attributable to decreased interest income during the year ended December 31, 2009 as compared to the year ended December 31, 2008 due to lower interest yields and lower average interest-bearing cash and cash equivalent balances.

     Other income. Our other income for the year ended December 31, 2009 was $1.5 million, representing a decrease of $2.7 million, or 65%, as compared to $4.1 million for the year ended December 31, 2008. We held a common stock warrant in an entity that provides technology support services to educational institutions, including our customers, to purchase 19.9% of the shares of the entity. In connection with an equity transaction between this entity and a venture capital firm, we exercised approximately one-half of our warrant and sold the related shares to the venture capital firm for approximately $2.0 million on July 1, 2008. We recorded the fair value of the common stock warrant as investment in common stock warrant on our consolidated balance sheets based on the entity’s implied value upon closing of the equity transaction on July 1, 2008. We recorded other income of approximately $3.8 million during the year ended December 31, 2008 related to the fair value adjustment of the common stock warrant. On July 1, 2008, we entered into an amended common stock warrant agreement in which we can purchase up to 9.9% of the shares of the entity.

     During the year ended December 31, 2009, we recorded other income of $1.1 million related to a fair value adjustment of the common stock warrant due to the current year increase in the fair value of the underlying investment.

     The remaining change in other income for the year ended December 31, 2009 as compared to the year ended December 31, 2008 was related to the required remeasurement of our foreign subsidiaries’ ledgers, which are maintained in the respective subsidiary’s local foreign currency, into the United States dollar.

     Benefit (provision) for income taxes. Our provision for income taxes for the year ended December 31, 2009 was $0.7 million as compared to our benefit for income taxes of $3.7 million for the year ended December 31, 2008. This change was primarily attributable to our income before provision for income taxes for the year ended December 31, 2009 as compared to our loss before benefit for income taxes for the year ended December 31, 2008. Our lower effective tax rate for the year ended December 31, 2009 was due to the mix of domestic and international earnings and losses generated by our subsidiaries. The provision for income taxes for the year ended December 31, 2009 includes $3.1 million in current income tax expense, offset by $2.4 million in deferred income tax benefits. Of the total income tax expense recognized, approximately $1.0 million related to international income tax expense offset by $0.3 million in U.S. federal and state income tax benefits.

Quarterly Results

     Our quarterly operating results and operating cash flows normally fluctuate as a result of seasonal variations in our business, principally due to the timing of client budget cycles and student attendance at client facilities. Historically, we have had lower new sales in our first and fourth quarters than in the remainder of the year. Our expenses, however, do not vary significantly with these changes and, as a result, such expenses do not fluctuate

significantly on a quarterly basis. Historically, we have performed a disproportionate amount of our professional services, the revenue from which we recognize as performed, in our second and third quarters each year. We expect quarterly fluctuations in operating results and operating cash flows to continue as a result of the uneven seasonal demand for our licenses and services offerings.

     The following table sets forth selected unaudited statement of operations and cash flow data for each of the quarters in the years ended December 31, 2009 and 2010.

		Quarter Ended
		March 31,				June 30,				September 30,				December 31,
		2009				2009				2009				2009
		(In thousands)
Total revenues		$	86,448			$	92,110			$	98,408			$	100,034
Total operating expenses			83,166				96,538				89,415				88,956
Income (loss) from operations			3,282				(4,428	)			8,993				11,078
Net (loss) income			(37	)			(4,072	)			4,307				7,714
Net cash provided by operating activities			4,386				9,468				75,956				20,041

		Quarter Ended
		March 31,				June 30,				September 30,				December 31,
		2010				2010				2010				2010
		(In thousands)
Total revenues		$	101,066			$	107,728			$	120,822			$	117,702
Total operating expenses			90,216				98,982				109,812				114,293
Income from operations			10,850				8,746				11,010				3,409
Net income			5,036				4,360				5,733				1,515
Net cash (used) provided by operating activities			(1,229	)			(2,338	)			68,049				47,110

     During the quarter ended June 30, 2009, we recorded a charge of approximately $3.5 million related to the reversal of the 2008 judgment in our patent dispute with Desire2Learn as the result of the outcome of an appeal by Desire2Learn. Additionally, during the quarter ended June 30, 2009, we recorded a non-cash impairment charge of $7.4 million related to previously capitalized patent costs due to the reversal of the 2008 judgment.

Liquidity and Capital Resources

Changes in Cash and Cash Equivalents

     Our cash and cash equivalents were $70.3 million at December 31, 2010 as compared to $167.4 million at December 31, 2009. The decrease in cash and cash equivalents was primarily the result of $220.6 million of cash used for acquisitions during 2010. Our cash and cash equivalents consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

     Net cash provided by operating activities. Our net cash provided by operating activities was $111.6 million during the year ended December 31, 2010, representing an increase of $1.7 million or 2%, as compared to $109.9 million during the year ended December 31, 2009. This was due to an increase for the year ended December 31, 2010 as compared to the year ended December 31, 2009, in net income of $8.7 million, deferred tax benefits of $4.5 million, stock-based compensation expense of $4.0 million and amortization of intangibles resulting from acquisitions of $3.3 million. These improvements in operating cash flow were partially offset by a decrease in net operating assets and liabilities of $12.5 million, net of the impact in acquired operating assets and liabilities. The changes in net operating assets during 2010 were driven by an increase in accounts receivable during the year as a result of the increase in sales to new and existing clients. The improvement in operating cash flow during 2010 was further offset by the one-time $7.4 million non-cash patent related impairment charge during 2009, with no comparable impact in 2010.

     Net cash used in investing activities. Our net cash used in investing activities was $242.1 million during the year ended December 31, 2010, representing an increase of $129.3 million, as compared to $112.8 million during the year ended December 31, 2009. This increase was due to the $220.6 million of cash used in the 2010 acquisitions of Saf-T-Net, Elluminate, Wimba and Presidium and the assets of iStrategy, as compared to $93.4 million used in the 2009 acquisitions of ANGEL and the assets of Terriblyclever. During the year ended December 31, 2010, cash expenditures for purchases of property and equipment were $21.6 million as compared to $18.9 million for the year ended December 31, 2009. Purchases of property and equipment represented approximately 5% of total revenues for each of the years ended December 31, 2009 and 2010.

     Net cash provided by financing activities. Our net cash provided by financing activities was $33.5 million during the year ended December 31, 2010, representing an increase of $4.9 million or 17%, as compared to $28.6 million during the year ended December 31, 2009. This increase was due to an increase in proceeds from the exercise of stock options. During the year ended December 31, 2010, we received $33.2 million in proceeds from the exercise of stock options as compared to $24.5 million during the year ended December 31, 2009.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

     Net cash provided by operating activities. Our net cash provided by operating activities was $109.9 million during the year ended December 31, 2009, representing an increase of $30.1 million or 38%, as compared to $79.8 million during the year ended December 31, 2008. Accounts receivable decreased $13.4 million during the year ended December 31, 2009, net of the impact of acquired receivables related to the acquisition of ANGEL, due to the timing of certain client renewal invoicing, sales to new and existing clients during the current period, and strong collections, as compared to the prior year, in which accounts receivable increased by $19.2 million. For the year ended December 31, 2009, we recorded a non-cash impairment charge of $7.4 million related to previously capitalized patent costs due to the reversal of a 2008 patent judgment.

     Net cash used in investing activities. Our net cash used in investing activities was $112.8 million during the year ended December 31, 2009, representing a decrease of $45.8 million or 29%, as compared to $158.6 million during the year ended December 31, 2008. This decrease was the result of $93.4 million of cash used in the 2009 acquisitions of ANGEL and the assets of Terriblyclever, as compared to $133.0 million used in the 2008 acquisitions, which primarily related to the acquisition of NTI and excluded NTI merger costs that were paid in 2007. During the year ended December 31, 2009, cash expenditures for purchases of property and equipment were $18.9 million as compared to $24.0 million for the year ended December 31, 2008. Purchases of property and equipment represented approximately 8% and 5% of total revenues for the years ended December 31, 2008 and 2009, respectively.

     Net cash provided by financing activities. Our net cash provided by financing activities was $28.6 million during the year ended December 31, 2009, representing an increase of $14.7 million as compared to $13.9 million during the year ended December 31, 2008. This increase was due to an increase in proceeds from the exercise of stock options. During the year ended December 31, 2009, we received $24.5 million in proceeds from the exercise of stock options as compared to $11.2 million during the year ended December 31, 2008.

Notes Payable

     In June 2007, we issued and sold $165.0 million in aggregate principal amount of the Notes in a public offering. The Notes bear interest at a rate of 3.25% per year on the principal amount. Interest is payable semi-annually on January 1 and July 1. We made interest payments of $2.8 million on December 31, 2007 and $2.7 million on each of July 1, 2008, December 30, 2008, June 30, 2009, December 31, 2009, July 1, 2010 and December 30, 2010. The Notes will mature on July 1, 2027, subject to earlier conversion, redemption or repurchase.

     The Notes are convertible, under specified circumstances, into cash or a combination of cash and our common stock at an initial base conversion rate of 15.4202 shares of common stock per $1,000 principal amount of Notes. The base conversion rate represents an initial base conversion price of approximately $64.85. If at the time of conversion the applicable price of our common stock exceeds the base conversion price, the conversion rate will be increased by up to an additional 9.5605 shares of our common stock per $1,000 principal amount of Notes, as determined pursuant to a specified formula. In general, upon conversion of a Note, the holder of such Note will receive cash equal to the principal amount of the Note and our common stock for the Note’s conversion value in excess of such principal amount. The diluted earnings per share effect of the shares that would be issued will be accounted for only if the average market price of our common stock price during the period is greater than the Notes’ conversion price.

     Because the Notes contain an adjusting conversion rate provision based on our common stock price and anti-dilution adjustment provisions, at each reporting period, we evaluate whether any adjustments to the conversion price would alter the effective conversion rate from the stated conversion rate and result in an “in-the-money” conversion. Whenever an adjustment to the conversion rate results in an increase in the number of shares of common stock issuable upon conversion of the Notes, we would recognize a beneficial conversion feature in the period that such a determination is made and amortize it over the remaining life of the Notes. As of each of December 31, 2009 and 2010, there was no beneficial conversion feature under the Notes.

     Holders may surrender their Notes for conversion at any time prior to the close of business on the business day immediately preceding the maturity date for the Notes only under the following circumstances: (1) prior to January 1, 2027, with respect to any calendar quarter beginning after June 30, 2007, if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the base conversion price per share of the Notes on such last trading day; (2) on or after January 1, 2027, until the close of business on the business day preceding maturity; (3) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of Notes for each day of that period was less than 95% of the product of the closing price of our common stock and the then applicable conversion rate of the Notes; or (4) upon the occurrence of other events or circumstances as specifically defined in the Notes.

     If a make-whole fundamental change, as defined in the Notes, occurs prior to July 1, 2011, we may be required in certain circumstances to increase the applicable conversion rate for any Notes converted in connection with such fundamental change by a specified number of shares of our common stock. We may not redeem the Notes prior to July 1, 2011. On or after July 1, 2011, we may redeem the Notes, in whole at any time, or in part from time to time, at a redemption price, payable in cash, up to 100% of the principal amount of the Notes plus accrued and unpaid interest, if any. Holders of the Notes may require us to repurchase some or all of the Notes on July 1, 2011, July 1, 2017 and July 1, 2022, or in the event of certain fundamental change transactions, at 100% of the principal amount on the date of repurchase, plus accrued and unpaid interest, if any, payable in cash. If such an event occurs, we would be required to pay the entire outstanding principal amount of $165.0 million in cash, in addition to any other rights that the investors may have under the Notes. As the first redemption date of the Notes is July 1, 2011, we classified the net carrying amount of the liability component of $162.3 million as part of current liabilities in our consolidated balance sheet as of December 31, 2010.

     The Notes are unsecured senior obligations and are effectively subordinated to all of our existing and future senior indebtedness to the extent of the assets securing such debt, and are effectively subordinated to all indebtedness and liabilities of our subsidiaries, including trade payables.

Revolving Credit Facility

     On August 4, 2010, we entered into a five-year $175.0 million senior secured revolving credit facility agreement, or Credit Agreement, with a syndicate of banks led by JPMorgan Chase Bank, N.A. as administrative agent. Any amounts that we may borrow under the Credit Agreement will be due and payable on August 4, 2015. We may optionally prepay amounts borrowed or otherwise reduce the credit facility commitments at any time without penalty. Borrowings under the Credit Agreement are available for general corporate purposes, which may include outstanding debt repayments and acquisitions. Amounts outstanding under the revolving credit facility bear interest at a variable interest rate set forth in the Credit Agreement equal to, at our election, (i) the Adjusted LIBO Rate, as defined in the Credit Agreement, plus a margin which will vary between 2.25% and 3.00% based on our Leverage Ratio, as defined in the Credit Agreement, or (ii) an Alternate Base Rate, as defined in the Credit Agreement, plus a margin which will vary between 1.25% and 2.00% based on our Leverage Ratio. Any overdue amounts under the Credit Agreement will bear interest at a rate per annum equal to 2% plus the rate otherwise applicable to such amount.

     We are required to pay a commitment fee of between 0.30% and 0.50% of the average unused amount of the credit facility during each quarter. We record this fee in interest expense.

     In connection with obtaining the senior secured credit facility, we incurred $1.7 million in debt issuance costs in August 2010, which is amortized as interest expense over the term of the senior secured credit facility using the effective interest method.

     Under the terms of the Credit Agreement and related loan documents, our obligations have been guaranteed by our material domestic subsidiaries, and are secured by substantially all of our tangible and intangible assets and those of each of our material domestic subsidiaries. In addition, the Credit Agreement contains customary affirmative and negative covenants applicable to us and our subsidiaries with respect to our operations and financial conditions, including maximum permissible debt ratios and a minimum liquidity covenant. We continue to be in full compliance with all covenants contained in the Credit Agreement.

     As of December 31, 2010 and February 18, 2011, no amounts were outstanding under the credit facility.

Working Capital Needs

     We believe that our existing cash and cash equivalents, together with future cash expected to be provided by operating activities and amounts that may be borrowed under the revolving credit facility, will be sufficient to meet our working capital and capital expenditure needs over the next 12 months, as well as sufficient to repurchase some or all of the Notes, if required by the Holders, or, at our discretion, to redeem the Notes. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our marketing and sales activities, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of introductions of new products or services, the timing of enhancements to existing products and services and the timing of capital expenditures. Also, we may make investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity or debt financing. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all. From time to time we may use our existing cash to repurchase shares of our common stock, outstanding indebtedness or other outstanding securities. Any such repurchases would depend on market conditions, the market price of our common stock, and management’s assessment of our liquidity and cash flow needs.

Off-Balance Sheet Arrangements

     We do not have any off-balance sheet arrangements with unconsolidated entities or related parties, and, accordingly, there are no off-balance sheet risks to our liquidity and capital resources.

Obligations and Commitments

     As of December 31, 2010, minimum future payments under existing notes payable and noncancelable operating leases were as follows for the years below:

						Interest on
		Notes				Notes				Operating
		Payable				Payable				Leases
						(In thousands)
2011		$	165,000			$	2,659			$	14,223
2012			—				—				14,517
2013			—				—				13,194
2014			—				—				11,550
2015			—				—				9,481
2016 and beyond			—				—				24,276
Total		$	165,000			$	2,659			$	87,241

     We have categorized the Notes above assuming redemption on the first possible redemption date by the Holders of the Notes on July 1, 2011. If the Notes are not redeemed by the Holders of the Notes on July 1, 2011, the next possible redemption date by the Holders of the Notes is July 1, 2017.

     Our corporate headquarters office is located in Washington, D.C. We lease approximately 134,000 square feet of office space at this location under a lease expiring in June 2018. We also lease offices in Northern Virginia; Phoenix, Arizona; Lynnfield, Massachusetts; Owings Mills, Maryland; Los Angeles, California; San Francisco, California; Pleasanton, California; Indianapolis, Indiana; New York, New York; Raleigh, North Carolina; Rome, Georgia; Killeen, Texas; Somerset, Kentucky; Amsterdam, Netherlands; Vancouver, Canada; Calgary, Canada; Brno, Czech Republic; Cambridge, United Kingdom; Reading, United Kingdom; and Sydney, Australia.

Seasonality

     Our operating results and operating cash flows normally fluctuate as a result of seasonal variations in our business, principally due to the timing of client budget cycles and student attendance at client facilities. Historically, we have had lower new sales in our first and fourth quarters than in the remainder of the year. Our expenses, however, do not vary significantly with these changes and, as a result, such expenses do not fluctuate significantly on a quarterly basis. Historically, we have performed a disproportionate amount of our professional services, which are recognized as performed, in our second and third quarters each year. In addition, deferred revenues can vary on a seasonal basis for the same reasons. We expect quarterly fluctuations in operating results and operating cash flows to continue as a result of the uneven seasonal demand for our licenses and services offerings. Historically, we have generated more of our operating cash flow in the second half of the calendar year. This pattern may change, however, as a result of acquisitions, new market opportunities or new product introductions.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     Interest income on our cash and cash equivalents is subject to interest rate fluctuations. For the year ended December 31, 2010, a ten percent increase in interest rates would have increased interest income by approximately $12.5 million.

     We have accounts on our foreign subsidiaries’ ledgers which are maintained in the respective subsidiary’s local currency and remeasured into the U.S. dollar for reporting of our consolidated results. As a result, we are exposed to fluctuations in the exchange rates of various currencies against the U.S. dollar and against the currencies of other countries in which we maintain foreign denominated balances, including the Canadian dollar, Euro, British pound, Japanese yen, Australian dollar and others. Because of such foreign currency exchange rate fluctuations, we recognized other expense of $0.1 million during the year ended December 31, 2010. For the year ended December 31, 2010, a ten percent adverse change in the prevailing exchange rates as of December 31, 2010 would not have had a material effect on our consolidated results of operations or financial condition.

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm			47
Consolidated Balance Sheets as of December 31, 2009 and 2010			48
Consolidated Statements of Operations for the years ended December 31, 2008, 2009 and 2010			49
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008, 2009 and 2010			50
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010			51
Notes to Consolidated Financial Statements			52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Blackboard Inc.

     We have audited the accompanying consolidated balance sheets of Blackboard Inc. as of December 31, 2009 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Blackboard Inc. at December 31, 2009 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

     As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for business combinations with the adoption of the guidance originally issued in FASB Statement No. 141(R), Business Combinations (codified in FASB ASC Topic 805, Business Combinations) effective January 1, 2009. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements, and from Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements, effective January 1, 2010.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Blackboard Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 18, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, VA
February 18, 2011

BLACKBOARD INC.

CONSOLIDATED BALANCE SHEETS

		December 31,
		2009				2010
		(In thousands, except share and
		per share data)
Current assets:
Cash and cash equivalents		$	167,353			$	70,314
Accounts receivable, net of allowance for doubtful accounts of $1,184 and $994, respectively			69,098				89,914
Inventories			1,557				128
Prepaid expenses and other current assets			15,232				16,833
Deferred tax asset, current portion			2,692				5,818
Deferred cost of revenues			7,664				3,256
Total current assets			263,596				186,263
Deferred tax asset, noncurrent portion			18,188				14,976
Investment in common stock warrant			3,124				—
Restricted cash			3,923				5,741
Property and equipment, net			34,483				43,002
Other assets			1,453				1,582
Goodwill			328,858				478,937
Intangible assets, net			71,309				116,649
Total assets		$	724,934			$	847,150
Current liabilities:
Accounts payable		$	2,360			$	1,818
Accrued expenses			28,264				41,018
Deferred rent, current portion			1,021				450
Deferred revenues, current portion			186,702				211,752
Convertible senior notes, net of debt discount of $2,674			—				162,326
Total current liabilities			218,347				417,364
Convertible senior notes, net of debt discount of $8,823			156,177				—
Deferred rent, noncurrent portion			11,507				11,978
Deferred tax liability, noncurrent portion			1,474				3,502
Deferred revenues, noncurrent portion			5,957				6,223
Total liabilities			393,462				439,067
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, and no shares issued or outstanding			—				—
Common stock, $0.01 par value; 200,000,000 shares authorized; 33,100,139 and 34,666,197 shares issued and outstanding, respectively			331				347
Additional paid-in capital			406,751				465,908
Accumulated other comprehensive income, net			—				794
Accumulated deficit			(75,610	)			(58,966	)
Total stockholders’ equity			331,472				408,083
Total liabilities and stockholders’ equity		$	724,934			$	847,150

See accompanying notes.

BLACKBOARD INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2008				2009				2010
		(In thousands, except share and per share data)
Revenues:
Product		$	283,258			$	342,144			$	412,641
Professional services			28,876				34,856				34,677
Total revenues			312,134				377,000				447,318
Operating expenses:
Cost of product revenues, excludes $17,803, $10,649 and $10,161, respectively, in amortization of acquired technology included in amortization of intangibles resulting from acquisitions shown below(1)			75,237				90,968				110,105
Cost of professional services revenues(1)			19,555				20,024				22,717
Research and development(1)			40,580				45,967				55,009
Sales and marketing(1)			91,076				98,751				121,190
General and administrative(1)			50,757				56,387				65,962
Patent-related (proceeds) impairment and other costs			(3,313	)			10,984				—
Amortization of intangibles resulting from acquisitions			37,866				34,994				38,320
Total operating expenses			311,758				358,075				413,303
Income from operations			376				18,925				34,015
Other (expense) income, net:
Interest expense			(12,061	)			(11,999	)			(12,206	)
Interest income			1,893				230				126
Other income			4,124				1,453				1,352
(Loss) income before (benefit) provision for income taxes			(5,668	)			8,609				23,287
(Benefit) provision for income taxes			(3,732	)			697				6,643
Net (loss) income		$	(1,936	)		$	7,912			$	16,644
Net (loss) income per common share:
Basic		$	(0.06	)		$	0.25			$	0.49
Diluted		$	(0.06	)		$	0.24			$	0.48
Weighted average number of common shares:
Basic			30,885,908				32,065,700				34,082,992
Diluted			30,885,908				33,100,858				34,848,896
(1) Includes the following amounts related to stock-based compensation:
Cost of product revenues		$	949			$	1,225			$	1,205
Cost of professional services revenues			321				524				662
Research and development			777				1,018				1,177
Sales and marketing			5,984				6,101				8,067
General and administrative			7,096				7,091				8,870

See accompanying notes.

BLACKBOARD INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

														Accumulated
										Additional				Other								Total
		Common Stock								Paid-In				Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Capital				Income, net				Deficit				Equity
						(In thousands, except share data)
Balance at December 31, 2007			29,196,807			$	292			$	275,567			$	—			$	(81,586	)		$	194,273
Net loss			—				—				—				—				(1,936	)			(1,936	)
Issuance of common stock upon exercise of options			584,593				6				11,147				—				—				11,153
Issuance of common stock upon NTI merger			1,508,338				15				52,736				—				—				52,751
Issuance of restricted stock			70,000				1				(1	)			—				—				—
Excess tax benefits from exercise of stock options			—				—				2,107				—				—				2,107
Stock-based compensation expense			—				—				15,127				—				—				15,127
Balance at December 31, 2008			31,359,738			$	314			$	356,683			$	—			$	(83,522	)		$	273,475
Net income			—				—				—				—				7,912				7,912
Issuance of common stock upon exercise of options			1,167,951				11				24,484				—				—				24,495
Issuance of common stock upon ANGEL merger			469,028				5				13,886				—				—				13,891
Issuance of restricted stock			324,000				3				(3	)			—				—				—
Treasury shares retired			(220,578	)			(2	)			(7,987	)			—				—				(7,989	)
Excess tax benefits from exercise of stock options			—				—				3,729				—				—				3,729
Stock-based compensation expense			—				—				15,959				—				—				15,959
Balance at December 31, 2009			33,100,139			$	331			$	406,751			$	—			$	(75,610	)		$	331,472
Net income			—				—				—				—				16,644				16,644
Foreign currency translation adjustments			—				—				—				794				—				794
Comprehensive income			—				—				—				794				16,644				17,438
Issuance of common stock upon exercise of options			1,292,522				13				33,172				—				—				33,185
Issuance of restricted stock			280,104				3				(3	)			—				—				—
Treasury shares retired			(6,568	)			—				—				—				—				—
Excess tax benefits from exercise of stock options			—				—				3,116				—				—				3,116
Convertible debt deferred tax adjustment (see Note 9)			—				—				2,891				—				—				2,891
Stock-based compensation expense			—				—				19,981				—				—				19,981
Balance at December 31, 2010			34,666,197			$	347			$	465,908			$	794			$	(58,966	)		$	408,083

See accompanying notes.

BLACKBOARD INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2008				2009				2010
		(In thousands)
Cash flows from operating activities
Net (loss) income		$	(1,936	)		$	7,912			$	16,644
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Deferred income tax benefit			(8,113	)			(5,889	)			(1,408	)
Excess tax benefits from exercise of stock options			(2,107	)			(3,729	)			(3,116	)
Amortization of debt discount			6,366				6,254				6,406
Depreciation and amortization			15,703				18,887				20,050
Amortization of intangibles resulting from acquisitions			37,866				34,994				38,320
Change in allowance for doubtful accounts			161				258				(190	)
Stock-based compensation			15,127				15,959				19,981
Patent-related impairment charge			—				7,447				—
Gain on investment in common stock warrant			(3,980	)			(1,134	)			(1,488	)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable			(19,210	)			13,371				(7,325	)
Inventories			306				226				1,429
Prepaid expenses and other current assets			(2,696	)			(6,404	)			1,753
Deferred cost of revenues			(249	)			(538	)			4,409
Accounts payable			(4,018	)			(277	)			(3,580	)
Accrued expenses			4,227				4,127				6,722
Deferred rent			9,675				1,224				(100	)
Deferred revenues			32,713				17,163				13,085
Net cash provided by operating activities			79,835				109,851				111,592
Cash flows from investing activities
Purchases of property and equipment			(24,007	)			(18,946	)			(21,557	)
Payments for capitalized patent enforcement costs			(3,552	)			(414	)			—
Proceeds from sale of investment in common stock warrant			1,990				—				—
Purchases of available-for-sale securities			—				(6,586	)			—
Sales of available-for-sale securities			—				6,586				—
Acquisitions, net of cash acquired			(132,992	)			(93,434	)			(220,584	)
Net cash used in investing activities			(158,561	)			(112,794	)			(242,141	)
Cash flows from financing activities
Releases of letters of credit			1,184				3,800				180
Payments on letters of credit			(530	)			(3,474	)			(1,244	)
Excess tax benefits from exercise of stock options			2,107				3,729				3,116
Payment for debt issuance costs			—				—				(1,727	)
Proceeds from exercise of stock options			11,153				24,495				33,185
Net cash provided by financing activities			13,914				28,550				33,510
Net (decrease) increase in cash and cash equivalents			(64,812	)			25,607				(97,039	)
Cash and cash equivalents at beginning of year			206,558				141,746				167,353
Cash and cash equivalents at end of year		$	141,746			$	167,353			$	70,314
Supplemental cash flow information
Cash paid for interest		$	5,652			$	5,745			$	5,800
Cash paid for income taxes			6,243				3,263				6,849