##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to.
 Commission File Number 001-34017
 PACKETEER, INC.
  DELAWARE
    
    77-0420107(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PagePART I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements:
    
    
    3Unaudited Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    3Unaudited
Condensed Consolidated Statement of Operations for the Three Months Ended March 31,
2008 and March 31, 2007
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2008 and March 31, 2007
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II OTHER INFORMATION
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 6. Exhibits
    
    
    35Signatures
    
    
    36ExhibitsEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    32,887
    
    
    $
    40,926Short-term investments
    
    
    34,724
    
    
    
    20,055Accounts receivable, net of allowance for
doubtful accounts and sales returns of $2,285 and
$2,675, as of March 31, 2008 and December 31,
2007, respectively
    
    
    27,708
    
    
    
    27,353Inventories
    
    
    6,900
    
    
    
    7,665Prepaids and other current assets
    
    
    6,458
    
    
    
    6,797Total current assets
    
    
    108,677
    
    
    
    102,796Non-current assets:Property and equipment, net
    
    
    4,989
    
    
    
    4,962Long-term investments
    
    
    8,688
    
    
    
    16,798Goodwill
    
    
    67,001
    
    
    
    67,001Purchased intangible assets, net
    
    
    6,307
    
    
    
    7,241Long-term deferred tax assets
    
    
    21,066
    
    
    
    19,972Other non-current assets
    
    
    758
    
    
    
    835Total assets
    
    $
    217,486
    
    
    $
    219,605LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,426
    
    
    $
    5,823Accrued compensation
    
    
    8,060
    
    
    
    9,528Other accrued liabilities
    
    
    6,612
    
    
    
    4,840Income taxes payable
    
    
    1,222
    
    
    
    1,400Deferred revenue
    
    
    27,047
    
    
    
    26,136Total current liabilities
    
    
    45,367
    
    
    
    47,727Non-current liabilities:Deferred revenue, less current portion
    
    
    6,648
    
    
    
    5,798Deferred rent and other
    
    
    4,904
    
    
    
    4,569Total liabilities
    
    
    56,919
    
    
    
    58,094Commitment and contingenciesStockholders equity:Preferred stock, $0.001 par value; 5,000 shares
authorized; no shares issued and outstanding as
of March 31, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $0.001 par value; 85,000 shares
authorized; 36,476 and 36,227 shares issued and
outstanding as of March 31, 2008 and December 31,
2007, respectively
    
    
    36
    
    
    
    36Additional paid-in capital
    
    
    243,787
    
    
    
    241,004Accumulated other comprehensive loss
    
    
    (803
    )
    
    
    (275
    )Accumulated deficit
    
    
    (82,453
    )
    
    
    (79,254
    )Total stockholders equity
    
    
    160,567
    
    
    
    161,511Total liabilities and stockholders equity
    
    $
    217,486
    
    
    $
    219,605
  3




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##### Table of Contents



Three months endedMarch 31,2008
    
    
    2007Net revenues:Product revenues
    
    $
    24,574
    
    
    $
    23,841Service revenues
    
    
    12,609
    
    
    
    10,887Total net revenues
    
    
    37,183
    
    
    
    34,728Cost of revenues:Product costs
    
    
    7,065
    
    
    
    7,735Service costs
    
    
    3,461
    
    
    
    3,570Amortization of purchased intangible assets
    
    
    618
    
    
    
    635Total cost of revenues
    
    
    11,144
    
    
    
    11,940Gross profit
    
    
    26,039
    
    
    
    22,788Operating expenses:Research and development
    
    
    8,872
    
    
    
    9,227Sales and marketing, includes amortization of
purchased intangible assets of $317 for the three
months ended March 31, 2008 and 2007,
respectively
    
    
    17,051
    
    
    
    17,348General and administrative
    
    
    4,545
    
    
    
    4,080Total operating expenses
    
    
    30,468
    
    
    
    30,655Loss from operations
    
    
    (4,429
    )
    
    
    (7,867
    )Other income, net
    
    
    662
    
    
    
    832Loss before income taxes
    
    
    (3,767
    )
    
    
    (7,035
    )Benefit from income taxes
    
    
    568
    
    
    
    948Net loss
    
    $
    (3,199
    )
    
    $
    (6,087
    )Basic net loss per share
    
    $
    (0.09
    )
    
    $
    (0.17
    )Diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.17
    )Shares used in computing basic net loss per share
    
    
    36,389
    
    
    
    35,740Shares used in computing diluted net loss per share
    
    
    36,389
    
    
    
    35,740
  4




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Three months ended March 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (3,199
    )
    
    $
    (6,087
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    827
    
    
    
    827Amortization of purchased intangible assets
    
    
    934
    
    
    
    952Compensation related to stock-based awards
    
    
    2,030
    
    
    
    3,267Excess tax benefit from stock-based compensation plans
    
    
    (7
    )
    
    
    (446
    )Deferred income taxes
    
    
    (1,095
    )
    
    
    (1,731
    )Miscellaneous
    
    
    (17
    )
    
    
    (94
    )Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:Accounts receivable
    
    
    (472
    )
    
    
    8,089Other receivables
    
    
    (143
    )
    
    
    (25
    )Inventories
    
    
    543
    
    
    
    (2,264
    )Prepaids and other current assets
    
    
    718
    
    
    
    (392
    )Accounts payable
    
    
    (3,397
    )
    
    
    2,267Accrued compensation
    
    
    (1,468
    )
    
    
    (2,755
    )Other accrued liabilities
    
    
    2,129
    
    
    
    (1,042
    )Income taxes payable
    
    
    (201
    )
    
    
    504Deferred revenue
    
    
    1,761
    
    
    
    2,573Other
    
    
    95
    
    
    
    61Net cash provided by (used in) operating activities
    
    
    (962
    )
    
    
    3,704Cash flows from investing activities:Purchases of property and equipment, net
    
    
    (854
    )
    
    
    (1,373
    )Purchases of investments
    
    
    (29,321
    )
    
    
    (14,588
    )Proceeds from sales and maturities of investments
    
    
    22,234
    
    
    
    23,306Net cash provided by (used in) investing activities
    
    
    (7,941
    )
    
    
    7,345Cash flows from financing activities:Proceeds from issuance of common stock, net of repurchases
    
    
    14
    
    
    
    3,248Sale of stock to employees under the ESPP
    
    
    843
    
    
    
    1,505Excess tax benefit from stock-based compensation plans
    
    
    7
    
    
    
    446Net cash provided by financing activities
    
    
    864
    
    
    
    5,199Net increase (decrease) in cash and cash equivalents
    
    
    (8,039
    )
    
    
    16,248Cash and cash equivalents at beginning of period
    
    
    40,926
    
    
    
    39,640Cash and cash equivalents at end of period
    
    $
    32,887
    
    
    $
    55,888Supplemental disclosures of cash flow information:Cash paid during period for income taxes, net of refunds
    
    $
    324
    
    
    $
    56
  5




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##### Table of Contents



1. Basis of Presentation and Significant Accounting Policies
 Fair Value Measurements The Fair value option for Financial Assets
and Financial Liabilities
 See Note 13 for information and related disclosures
regarding the Companys fair value measurements.
  Basis of Presentation
   Use of Estimates
  Prepaids and other current assets
  6




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##### Table of Contents



Other non-current liabilities
  Recent Pronouncements
 Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133
 2. Accounts Receivable
  3. Inventories
   March 31,
    
    
    December 31,2008
    
    
    2007Completed products
    
    $
    6,797
    
    
    $
    7,467Raw materials and components
    
    
    103
    
    
    
    198$
    6,900
    
    
    $
    7,665
 4. Goodwill and other Intangible Assets
  Goodwill
 Other intangibles
 7




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As of
    
    
    
    
    
    
    As ofDecember 31,
    
    
    
    
    
    
    March 31,2007
    
    
    Amortization
    
    
    2008Goodwill
    
    $
    67,001
    
    
    $
    
    
    
    $
    67,001Other intangibles:Developed technology
    
    
    3,631
    
    
    
    (549
    )
    
    
    3,082Customer contracts and relationships
    
    
    3,312
    
    
    
    (331
    )
    
    
    2,981Trade name
    
    
    298
    
    
    
    (54
    )
    
    
    244$
    74,242
    
    
    $
    (934
    )
    
    $
    73,308
  March 31, 2008GrossAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingLife
    
    
    Amount
    
    
    Amortization
    
    
    AmountIntangibles:Developed technology
    
    3-5 yrs
    
    $
    8,630
    
    
    $
    (5,548
    )
    
    $
    3,082Customer contracts and relationships
    
    3-6 yrs
    
    
    6,100
    
    
    
    (3,119
    )
    
    
    2,981Trade name
    
    3 yrs
    
    
    850
    
    
    
    (606
    )
    
    
    244$
    15,580
    
    
    $
    (9,273
    )
    
    $
    6,307
 December 31, 2007GrossAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingLife
    
    
    Amount
    
    
    Amortization
    
    
    AmountIntangibles:Developed technology
    
    3-5 yrs
    
    $
    8,630
    
    
    $
    (4,999
    )
    
    $
    3,631Customer contracts and relationships
    
    3-6 yrs
    
    
    6,100
    
    
    
    (2,788
    )
    
    
    3,312Trade name
    
    3 yrs
    
    
    850
    
    
    
    (552
    )
    
    
    298$
    15,580
    
    
    $
    (8,339
    )
    
    $
    7,241
   Year
    
    AmountRemainder of 2008
    
    $
    2,8042009
    
    
    2,8412010
    
    
    662$
    6,307
 5. Commitment and Contingencies
 Legal Matters
  8




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Commitments
  6. Accounting for and Disclosure of Guarantees
  7. Concentrations of Risk
  9




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Three months endedMarch 31,2008
    
    2007Alternative Technology, Inc
    
    
    23
    %
    
    
    26
    %Westcon, Inc
    
    
    24
    %
    
    
    17
    %
   8. Income Taxes
  Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109
  9. Shareholders Equity
 Warrants
  1999 Stock Incentive Plan
  10




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##### Table of Contents



Stock Options
  Three months endedMarch 31,2008
    
    2007Stock Options:Expected life (years)
    
    
    5.02
    
    
    
    4.58Expected volatility
    
    
    65
    %
    
    
    58
    %Risk-free interest rate
    
    
    2.66
    %
    
    
    4.78
    %
   WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Term (Years)
    
    Value(In thousands, except per share amounts)Options outstanding at December 31, 2007
    
    
    6,540
    
    
    $
    11.64Granted
    
    
    325
    
    
    
    4.5Exercised
    
    
    (9
    )
    
    
    1.62Canceled/ forfeited/expired
    
    
    (169
    )
    
    
    12.17Options outstanding at March 31, 2008
    
    
    6,688
    
    
    
    11.29
    
    
    
    6.59
    
    
    $
    1,034Options vested and expected to vest at March 31, 2008
    
    
    5,822
    
    
    
    11.55
    
    
    
    6.31
    
    
    $
    960Options exercisable at March 31, 2008
    
    
    4,344
    
    
    
    12.30
    
    
    
    5.52
    
    
    $
    811
   11




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##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted-
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    Average
    
    
    
    
    
    AverageRemaining
    
    Exercise
    
    
    
    
    
    ExerciseRange of
    
    Number
    
    Contractual
    
    Price per
    
    Number
    
    Price perExercise Prices
    
    Outstanding
    
    Life (in Years)
    
    Share
    
    Exercisable
    
    Share$
    0.92-4.50
    
    
    
    757
    
    
    
    6.70
    
    
    $
    3.85
    
    
    
    424
    
    
    $
    3.414.60-6.89
    
    
    
    710
    
    
    
    5.17
    
    
    
    5.88
    
    
    
    491
    
    
    
    5.446.92-8.36
    
    
    
    742
    
    
    
    7.09
    
    
    
    7.95
    
    
    
    386
    
    
    
    8.228.37-9.31
    
    
    
    149
    
    
    
    7.71
    
    
    
    9.03
    
    
    
    66
    
    
    
    9.039.49-9.51
    
    
    
    859
    
    
    
    7.89
    
    
    
    9.51
    
    
    
    388
    
    
    
    9.519.54-12.03
    
    
    
    866
    
    
    
    6.89
    
    
    
    11.57
    
    
    
    531
    
    
    
    11.4912.05-13.01
    
    
    
    675
    
    
    
    8.02
    
    
    
    12.62
    
    
    
    347
    
    
    
    12.5113.03-14.00
    
    
    
    783
    
    
    
    6.72
    
    
    
    13.84
    
    
    
    601
    
    
    
    13.8414.01-19.40
    
    
    
    1,012
    
    
    
    5.22
    
    
    
    17.08
    
    
    
    975
    
    
    
    17.1620.77-48.06
    
    
    
    135
    
    
    
    1.76
    
    
    
    47.05
    
    
    
    135
    
    
    
    47.05Total
    
    
    6,688
    
    
    
    6.59
    
    
    $
    11.29
    
    
    
    4,344
    
    
    $
    12.30
 Restricted Stock Units
   Weighted-averagegrant date fairUnits
    
    value per share(In thousands, except per share amounts)Nonvested at December 31, 2007
    
    
    529
    
    
    $
    10.45Granted
    
    
    364
    
    
    
    4.60Vested
    
    
    (67
    )
    
    
    12.78Forfeited
    
    
    (22
    )
    
    
    9.02Nonvested at March 31, 2008
    
    
    804
    
    
    $
    7.64
 Performance Shares
  12




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##### Table of Contents



Weighted-averagegrant date fairShares
    
    value per share(In thousands, except per share amounts)Nonvested at December 31, 2007
    
    
    388
    
    
    $
    12.78Granted
    
    
    76
    
    
    
    4.69Vested
    
    
    Forfeited
    
    
    Nonvested at March 31, 2008
    
    
    464
    
    
    $
    11.47Maximum potential vested shares at March 31, 2008
    
    
    540
    
    
    $
    11.47
 Employee Stock Purchase Plan
  Three Months EndedMarch 31,2008
    
    2007ESPP Grants:Expected life (years)
    
    
    1.0
    
    
    
    .95Expected volatility
    
    
    64
    %
    
    
    47
    %Risk-free interest rate
    
    
    2.12
    %
    
    
    5.10
    %
  13




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##### Table of Contents



Stock  based Compensation
 Stock-based compensation included in the costs and expense line items:
 Three months endedMarch 31,2008
    
    2007Product costs
    
    $
    88
    
    
    $
    111Service costs
    
    
    202
    
    
    
    214Research and development
    
    
    676
    
    
    
    1,120Sales and marketing
    
    
    177
    
    
    
    1,042General and administrative
    
    
    887
    
    
    
    780
  Accounting for Stock-Based Compensation
  Unrecognized
    
    
    RemainingStock-Based
    
    
    RecognitionStock -Based Award
    
    Expense
    
    
    Period (Years)Stock options
    
    $
    4,594
    
    
    
    1.24Restricted stock units
    
    
    2,340
    
    
    
    2.09Performance shares
    
    
    330
    
    
    
    2.75ESPP
    
    
    1,334
    
    
    
    1.33Total
    
    $
    8,598
    
    
    
    1.54
 10. Net Loss Per Share
  14




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Three Months EndedMarch 31,2008
    
    2007Shares issuable under stock options
    
    
    6,002
    
    
    
    2,993
   Three Months EndedMarch 31,2008
    
    
    2007Numerator:Net loss
    
    $
    (3,199
    )
    
    $
    (6,087
    )Denominator:Basic:Weighted-average shares of common stock outstanding
    
    
    36,389
    
    
    
    35,758Less: shares subject to repurchase
    
    
    
    
    
    
    (18
    )Basic weighted-average common shares outstanding
    
    
    36,389
    
    
    
    35,740Diluted:Basic weighted-average common shares outstanding
    
    
    36,389
    
    
    
    35,740Add: potentially dilutive common shares from stock options and shares subject to repurchase
    
    
    
    
    
    
    Add: potentially dilutive common shares from warrants
    
    
    
    
    
    
    Diluted weighted-average common shares outstanding
    
    
    36,389
    
    
    
    35,740Basic net income (loss) per share
    
    $
    (0.09
    )
    
    $
    (0.17
    )Diluted net income (loss) per share
    
    $
    (0.09
    )
    
    $
    (0.17
    )
 11. Comprehensive Income (Loss)
  Three Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Net loss
    
    $
    (3,199
    )
    
    $
    (6,087
    )Other comprehensive income:Unrealized net losses on investments, net of tax
    
    
    (449
    )
    
    
    (8
    )Realized net losses on investments, net of tax, reclassified into earnings
    
    
    6
    
    
    
    8Total comprehensive loss
    
    $
    (3,642
    )
    
    $
    (6,087
    )
 12. Segment Reporting
   15




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Three months endedMarch 31,2008
    
    
    2007Net revenues:Americas
    
    $
    17,170
    
    
    $
    16,380Asia Pacific
    
    
    10,920
    
    
    
    8,142Europe, Middle East, Africa
    
    
    9,093
    
    
    
    10,206Total net revenues
    
    $
    37,183
    
    
    $
    34,728
   13. Financial Instruments
  Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets
Asset and mortgage backed
securities(1)
    
    $
    4,879
    
    
    $
    
    
    
    $
    4,879
    
    
    $
    Corporate Bonds(1)
    
    
    7,834
    
    
    
    
    
    
    
    7,834
    
    
    
    US Treasury and agencies(2)
    
    
    30,699
    
    
    
    
    
    
    
    30,699
    
    
    
    Total
    
    $
    43,412
    
    
    $
    
    
    
    $
    43,412
    
    
    $
    
 
 (1)
    
    Included in short-term investments on our condensed consolidated balance sheet.(2)
    
    Included in short-term investments and long-term investments on
our condensed consolidated balance sheet.  14. Subsequent Events
 Blue Coat Acquisition
  16




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##### Table of Contents



Shareholder rights agreement
   Patent infringement action
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
 The following discussion and analysis should be read together with our Condensed Consolidated
Financial Statements and the notes to those statements included elsewhere in this Quarterly Report
on Form 10-Q . This discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about Packeteer, Inc. and our industry. These
forward-looking statements include, but are not limited to, statements concerning risks and
uncertainties. Our actual results could differ materially from those indicated in these
forward-looking statements as a result of certain factors, as more fully described in the Risk
Factors section of this Quarterly Report on Form 10-Q . We undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information becomes available
or other events occur.
 Blue Coat Acquisition
  General
   17




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##### Table of Contents



Share-Based Payment
 Critical Accounting Estimates
  Fair Value Measurements, The Fair Value Option for Financial Assets and Financial
Liabilities
   Results of Operations
   18




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Three months endedMarch 31,2008
    
    2007Net revenues:Product revenues
    
    
    66
    %
    
    
    69
    %Service revenues
    
    
    34
    
    
    
    31Total net revenues
    
    
    100
    
    
    
    100Cost of revenues:Product costs
    
    
    19
    
    
    
    22Service costs
    
    
    9
    
    
    
    10Amortization of purchased intangible assets
    
    
    2
    
    
    
    2Total cost of revenues
    
    
    30
    
    
    
    34Gross margin
    
    
    70
    
    
    
    66Operating expenses:Research and development
    
    
    24
    
    
    
    26Sales and marketing
    
    
    46
    
    
    
    50General and administrative
    
    
    12
    
    
    
    12Total operating expenses
    
    
    82
    
    
    
    88Loss from operations
    
    
    (12
    )
    
    
    (22
    )Interest and other income, net
    
    
    2
    
    
    
    2Loss before provision (benefit) for income taxes
    
    
    (10
    )
    
    
    (20
    )Benefit from income taxes
    
    
    1
    
    
    
    3Net Loss
    
    
    (9
    )%
    
    
    (17
    )%
 Net Revenues
    Three Months Ended March 31,2008
    
    
    2007($)
    
    
    (%)
    
    
    ($)
    
    
    (%)(Dollars in millions)Americas*
    
    $
    17.2
    
    
    
    46
    
    
    $
    16.4
    
    
    
    47Asia Pacific
    
    
    10.9
    
    
    
    29
    
    
    
    8.1
    
    
    
    24Europe, the Middle East and Africa (EMEA)
    
    
    9.1
    
    
    
    25
    
    
    
    10.2
    
    
    
    29Total
    
    $
    37.2
    
    
    
    100
    
    
    $
    34.7
    
    
    
    100
 
 *
    
    Primarily the United States.  19




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##### Table of Contents



Three months endedMarch 31,2008
    
    2007Alternative Technology, Inc
    
    
    23
    %
    
    
    26
    %Westcon, Inc
    
    
    24
    %
    
    
    17
    %
  Cost of Revenues
      Operating Expenses
 Three Months Ended March 31,Variance
    
    
    Variance2008
    
    
    2007
    
    
    in Dollars
    
    
    in PercentResearch and development
    
    $
    8,872
    
    
    $
    9,227
    
    
    $
    (355
    )
    
    
    (4
    %)Sales and marketing
    
    
    17,051
    
    
    
    17,348
    
    
    
    (297
    )
    
    
    (2
    %)General and administrative
    
    
    4,545
    
    
    
    4,080
    
    
    
    465
    
    
    
    11
    %Total
    
    $
    30,468
    
    
    $
    30,655
    
    
    $
    (187
    )
    
    
    (1
    %)
 20




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Research and Development
   Sales and Marketing
   General and Administrative
   21




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##### Table of Contents



Interest and Other Income, Net
  Income Tax Provision (Benefit)
  Liquidity and Capital Resources
  Balance Sheet and Cash Flows
 Cash and Cash Equivalents and Investments.
 March 31,
    
    
    December 31,
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)Cash and cash equivalents
    
    $
    32,887
    
    
    $
    40,926
    
    
    $
    (8,039
    )Investments
    
    
    43,412
    
    
    
    36,853
    
    
    
    6,559Total
    
    $
    76,299
    
    
    $
    77,779
    
    
    $
    (1,480
    )
  Net cash used in operating activities
    
    $
    (962
    )Net cash used in investing activities
    
    
    (7,941
    )Net cash provided by financing activities
    
    
    864Net change in cash and cash equivalents
    
    $
    (8,039
    )
   22




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Contractual Obligations
  Future Liquidity Requirements
   Recent Accounting Pronouncements
 Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133
 23




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Quantitative and Qualitative Disclosures About
Market Risk
 
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
   FAILURE TO COMPLETE THE ACQUISITION BY BLUE COAT SYSTEMS COULD MATERIALLY AND ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS AND OUR STOCK PRICE.
  
    
    our investors may not receive $7.10 in cash per share of our common
stock which Blue Coat has agreed to pay in the Acquisition, and our
stock price would likely decline;
    
    we are liable for significant transaction costs, including legal,
accounting, financial advisory and other costs relating to the
 24




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##### Table of Contents



Acquisition;
    
    under some circumstances, we may have to pay a termination fee to Blue Coat in the amount of $4 million;
    
    the attention of our management and our employees may be diverted from
day-to-day operations as they focus on the Acquisition;
    
    our customers may seek to modify or terminate existing agreements, or
prospective customers may delay entering into new agreements or
purchasing our products as a result of the announcement of the
Acquisition, which could cause our revenues to materially decline or
any anticipated increases in revenue to be lower than expected; and
    
    our ability to attract new employees and retain our existing employees
may be harmed by uncertainties associated with the Acquisition, and we
may be required to incur substantial costs to recruit replacements for
lost personnel.
  IF THE WAN APPLICATION DELIVERY SYSTEMS MARKET FAILS TO GROW, OUR BUSINESS WILL FAIL
  OUR FUTURE OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD
ADVERSELY AFFECT OUR STOCK PRICE
  25




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
    
    the impact of the Acquisition;
    
    the timing and size of orders and shipments of our products;
    
    the timing and success of new product and upgrade introductions;
    
    the mix of products we sell;
    
    the mix and effectiveness of the channels through which those products are sold;
    
    the geographical mix of the markets in which our products are sold;
    
    the average selling prices of our products;
    
    the amount and timing of our operating expenses;
    
    the impact of changes in effective tax rates;
    
    write-offs for impairment of intangible assets; and
    
    the impact of acquisitions.
   26




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WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN OUR MARKET SECTOR WHO OFFER, OR
MAY IN THE FUTURE OFFER, COMPETING TECHNOLOGIES
   IF WE DO NOT EXPAND OR ENHANCE OUR PRODUCT OFFERINGS OR RESPOND EFFECTIVELY AND ON A TIMELY BASIS
TO TECHNOLOGICAL CHANGE, OUR BUSINESS MAY NOT GROW OR WE MAY LOSE CUSTOMERS AND MARKET SHARE
  
    
    develop and maintain competitive products;
    
    enhance our products by adding innovative features that differentiate our products from
those of our competitors and meet the needs of our larger customers;
 27




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##### Table of Contents




    
    bring products to market and introduce new features on a timely basis at competitive
prices;
    
    integrate acquired technology into our products;
    
    successfully negotiate and integrate acquisitions;
    
    identify and respond to emerging technological trends in the market; and
    
    respond effectively to new technological changes or new product announcements by others.
  WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF PRODUCTS FOR A SIGNIFICANT
PORTION OF OUR REVENUES
  INTRODUCTION OF OUR NEW PRODUCTS MAY CAUSE CUSTOMERS TO DEFER PURCHASES OF OUR EXISTING PRODUCTS
OR COULD RESULT IN LONGER SALES CYCLES WHICH COULD HARM OUR OPERATING RESULTS
  IF OUR INTERNATIONAL SALES EFFORTS ARE UNSUCCESSFUL, OUR BUSINESS WILL FAIL TO GROW
    28




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IF WE ARE UNABLE TO DEVELOP AND MAINTAIN STRONG PARTNERING RELATIONSHIPS WITH OUR INDIRECT CHANNEL
PARTNERS, OR IF THEIR SALES EFFORTS ON OUR BEHALF ARE NOT SUCCESSFUL, OR IF THEY FAIL TO PROVIDE
ADEQUATE SERVICES TO OUR END USER CUSTOMERS, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT
INCREASE
     SALES TO LARGE CUSTOMERS WOULD BE DIFFICULT TO REPLACE IF LOST
  29




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ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION TO OUR EXISTING STOCKHOLDERS AND DIFFICULTIES IN
SUCCESSFULLY MANAGING OUR BUSINESS
  
    
    difficulty in integrating the acquired operations and retaining acquired personnel;
    
    limitations on our ability to retain acquired distribution channels and customers;
    
    diversion of managements attention and disruption of our ongoing business;
    
    difficulties in managing product development activities to define a combined product
roadmap, ensuring timely development of new products, timely release of new products to
market, and the development of efficient integration and migration tools;
    
    the potential product liability associated with selling the acquired companys products;
and
    
    the potential write-down of impaired goodwill and intangible and other assets. In
particular, we recorded approximately $57.5 million in goodwill related to the acquisition
of Tacit and $9.5 million in goodwill related to the acquisition of Mentat. Goodwill will be
subject to impairment testing rather than being amortized over a fixed period. The Company
monitors its current market capitalization ($223 million at December 31, 2007) as compared
to total stockholders equity ($162 million at December 31, 2007) and other triggers of
impairment. To the extent that the Companys business does not remain competitive, some or
all of the goodwill could be charged against future earnings.
  WE FACE RISKS RELATED TO INVENTORIES OF OUR PRODUCTS HELD BY OUR DISTRIBUTORS
   30




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THE VARIABILITY OF OUR SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR REVENUES AND RESULTS OF
OPERATIONS
   THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY, WHICH MAY NEGATIVELY IMPACT
GROSS MARGINS AND REVENUES
  OUR PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE BEEN SOLD, WHICH
COULD INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR REVENUES AND THE MARKET ACCEPTANCE OF OUR
PRODUCTS
   31




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OUR RELIANCE ON THIRD-PARTY MANUFACTURERS FOR ALL OF OUR MANUFACTURING REQUIREMENTS COULD CAUSE US
TO LOSE ORDERS IF THESE THIRD-PARTY MANUFACTURERS FAIL TO SATISFY OUR COST, QUALITY AND DELIVERY
REQUIREMENTS
  
    
    reduced control over delivery schedules;
    
    the potential lack of adequate capacity during periods of excess demand;
    
    decreases in manufacturing yields and increases in costs;
    
    the potential for a lapse in quality assurance procedures;
    
    increases in prices; and
    
    the potential misappropriation of our intellectual property.
   MOST OF THE COMPONENTS AND SOME OF THE SOFTWARE USED IN OUR PRODUCTS COME FROM SINGLE OR LIMITED
SOURCES, AND OUR BUSINESS COULD BE HARMED IF THESE SOURCES FAIL TO SATISFY OUR SUPPLY REQUIREMENTS
   32




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IF WE ARE UNABLE TO FAVORABLY ASSESS THE EFFECTIVENESS OF OUR INTERNAL CONTROL OVER FINANCIAL
REPORTING, OR IF OUR INDEPENDENT AUDITORS ARE UNABLE TO PROVIDE AN UNQUALIFIED ATTESTATION REPORT
ON OUR INTERNAL CONTROL OVER FINANCIAL REPORTING, OUR STOCK PRICE COULD BE ADVERSELY AFFECTED
   CHANGES IN FINANCIAL ACCOUNTING STANDARDS ARE LIKELY TO IMPACT OUR FUTURE FINANCIAL POSITION AND
RESULTS OF OPERATIONS
  OUR INVESTMENT PORTFOLIO MAY BECOME
IMPAIRED BY FURTHER DETERIORATION OF THE CAPITAL MARKETS.
   CHANGES IN OR INTERPRETATIONS OF TAX RULES AND REGULATIONS MAY ADVERSELY AFFECT OUR EFFECTIVE TAX
RATES.
    33




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OUR INABILITY TO ATTRACT, INTEGRATE AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT
OUR BUSINESS OPERATIONS
  IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING INEFFICIENCIES AND
HAVE DIFFICULTY MEETING DEMAND FOR OUR PRODUCTS
    CLAIMS BY OTHERS THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS COULD BE COSTLY TO DEFEND
AND COULD HARM OUR BUSINESS
  FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY WOULD RESULT IN SIGNIFICANT HARM TO OUR
BUSINESS
  34




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IF OUR PRODUCTS DO NOT COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS, OUR
BUSINESS COULD BE HARMED
  WE ARE CURRENTLY IMPLEMENTING UPGRADES TO KEY INTERNAL IT SYSTEMS, AND PROBLEMS WITH THE DESIGN OR
IMPLEMENTATION OF THESE SYSTEMS COULD INTERFERE WITH OUR BUSINESS AND OPERATIONS.
  OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE ARE UNABLE TO MEET OUR FUTURE CAPITAL
REQUIREMENTS
   CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF PACKETEER MORE DIFFICULT,
WHICH COULD LOWER THE MARKET PRICE OF THE COMMON STOCK
  
 ITEM 6. EXHIBITS
 Exhibit 31.1
    
    Sarbanes-Oxley Section 302 Certification  CEOExhibit 31.2
    
    Sarbanes-Oxley Section 302 Certification  CFOExhibit 32.1
    
    Sarbanes-Oxley Section 906 Certification  CEOExhibit 32.2
    
    Sarbanes-Oxley Section 906 Certification  CFO
 35




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PACKETEER, INC.By:
    /s/ DAVE CÔTÉDave CôtéPresident and Chief Executive OfficerBy:
    /s/ DAVID YNTEMADavid YntemaChief Financial Officer and Secretary 36




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Exhibit 31.1
    
    Sarbanes-Oxley Section 302 Certification  CEOExhibit 31.2
    
    Sarbanes-Oxley Section 302 Certification  CFOExhibit 32.1
    
    Sarbanes-Oxley Section 906 Certification  CEOExhibit 32.2
    
    Sarbanes-Oxley Section 906 Certification  CFO