##### Table of Contents





UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For
    the fiscal year ended December 31,
    2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File Number:
    001-33041
  ACME PACKET, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

04-3526641(State or other jurisdiction of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)   100 Crosby Drive
 Bedford, MA 01730
 (Address of principal executive
    offices) (zip code)
  (781) 328-4400
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to
    Section 12(b) of the Act:
  Title of each class

Name of each exchange on which
    registeredCommon Stock, $0.001 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to
    Section 12(g) of the Act: None.
  x o
  o x
  x o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer x
    Accelerated
    filer o
    Non-accelerated
    filer  o
    Smaller reporting
    company  o  (Do
    not check if a smaller
                                 reporting
    company)
  Rule 12b-2 o x
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PART IItem 1.

Business


3Item 1A.

Risk Factors


17Item 1B.

Unresolved Staff Comments


33Item 2.

Properties


33Item 3.

Legal Proceedings


33Item 4.

Removed and Reserved


33PART IIItem 5.

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


34Item 6.

Selected Consolidated Financial Data


37Item 7.

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


39Item 7A.

Quantitative and Qualitative Disclosure About
    Market Risk


60Item 8.

Financial Statements and Supplementary Data


61Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


92Item 9A.

Controls and Procedures


92Item 9B.

Other Information


94PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


95Item 11.

Executive Compensation


95Item 12.

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


95Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


95Item 14.

Principal Accountant Fees and Services


95PART IVItem 15.

Exhibits, Financial Statement Schedules


96SIGNATURES




98EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   1




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SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K Form 10-K
  
    our ability to attract and retain customers;
    our ability to retain and hire necessary employees and
    appropriately staff our operations;
    our financial performance;
    our expectations regarding our revenue, cost of revenue and our
    related gross profit and gross margin;
    our development activities, expansion of our product offerings
    and the emerging opportunities for our solutions;
    our position in the session border control market;
    the effect of the worldwide economy on purchases of our products;
    the expectations about our growth and acquisitions of new
    technologies;
    the demand for and the growth of worldwide revenues for session
    border control solutions;
    the benefit of our products, services, or programs;
    our ability to establish and maintain relationships with key
    partners and contract manufacturers;
    the advantages of our technology as compared to that of our
    competitors;
    our expectations regarding the realization of recorded deferred
    tax assets; and
    our cash needs.  Form 10-K Form 10-K Form 10-K. Form 10-K
 2




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PART I  Item 1.
    Business  Overview
    Net-Net over-the-top
  over-the-top Net-Net
  Net-Net
  Net-Net
    (781) 328-4400. www.acmepacket.com. Form 10-K.
 3




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Form 10-K, Form 10-Q, Form 8-K,
  Industry
    Background
  IP-based,
    Evolution
    to a Converged IP Network
    Challenges
    of IP Networks in Delivering Session-Based
    Communications
     4




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The Need
    for a New IP Network Element
  Managing
    Session Based Communications
    
    Session signaling messages,which are used to initiate,
    modify or terminate a session;
    Media streams,which are data packets containing the
    actual media being exchanged; and
    Media control messages,which are used to compile
    information to report on quality of service levels.      
    The identities of the participants are difficult to ascertain
    and security needs are complex;
    The number of session signaling protocols, codecs and related
    standards continues to grow;
    Addressing schemes are not consistent or compatible across
    networks;
    Bandwidth and signaling element resources are finite; and
    Interactive communications service provider business models and
    regulatory compliance requirements continue to evolve and
    require network flexibility.    Limitations
    of Existing Network Elements
    
    Softswitches, IP PBXs and unified communication servers
    set-up
    interactive communication sessions using signaling protocols
    such as, session initiation protocol, or SIP, H.323, media
    gateway control protocol, or MGCP and H.248. There, session
    agents process only signaling messages while performing a
    variety of signaling based functions, such as user registration,
    authentication, authorization and session routing based upon
    telephone numbers or SIP addresses. These session agents
    currently do not provide functions relating to, for example,
    media control for interactive communication sessions or
    protection against signaling based denial of service and
    distributed denial of service, or DoS/DDoS, attacks. DoS/DDoS
    attacks prevent 5




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network equipment from receiving legitimate network traffic by
    overloading network equipment with unrequested information.  
    Routers make simple routing decisions for IP packets based upon
    IP addresses. Routers do not participate in call signaling, and
    therefore, are unable to recognize the multiple individual data
    packets that comprise a single voice call or multimedia session.
    Without signaling intelligence, routers currently are unable to
    perform key border control functions such as softswitch overload
    prevention or call routing based upon quality and cost
    requirements. Routers may use a number of quality of service
    technologies, such as multi-protocol label switching, or MPLS,
    differentiated services, or diffServ, and resource reservation
    protocol, or RSVP, to provide preferential treatment to certain
    IP packets. However, routers using these technologies are
    currently incapable of classifying all the communications flows
    associated with a single voice call and handling those
    communications flows correctly as a single entity. Without the
    ability to identify the multiple individual packets that
    comprise a session, control call signaling, or understand the
    access link capacity and utilization, the router is unable to
    make any call admission or rejection decisions. As a result, the
    router will continue to send packets along a path even though
    the session should have been rejected because the quality was
    insufficient for the requested session. When this overloading of
    a path occurs, not only is the quality of the session associated
    with that packet insufficient to support the session, but other
    sessions using that same path also will suffer degradation.
    Data firewalls are the most common security element in IP
    networks. Firewalls work by allowing into the network only
    traffic that has been requested from inside the network and by
    presenting a single IP address for all of the personal
    computers, phones and other devices behind it. The firewall
    effectively blocks session based communications because it does
    not allow incoming calls from unknown endpoints. Furthermore,
    firewalls are not capable of identifying and protecting against
    service overloads or DoS/DDoS attacks on other signaling
    elements such as the softswitch.  Our
    Solution
    
    SecurityOur products protect themselves, softswitches, IP
    PBXes, unified communication, or UC, servers and other service
    delivery infrastructure elements, as well as customer networks,
    systems and relationships. They protect customer networks and
    session privacy, and provide
    DoS/DDoS
    protection from malicious attacks and non-malicious overloads.
    Service and application reach maximizationOur products
    extend the reach of interactive communications by enabling
    interoperability to maximize the different types of networks and
    devices supported. Support is provided for enabling sessions to
    traverse existing data
    firewall/network
    address translation, or NAT, devices, bridging private networks
    using overlapping IP addresses and virtual private
    networks, or VPNs, mediating between different signaling,
    transport and encryption protocols, converting between
    incompatible codecs, and translating signaling layer telephone
    numbers, addresses and response codes.
    Service level agreement assuranceOur products play a
    critical role in assuring session capacity and quality. They
    perform admission control to ensure that both the network and
    service infrastructure has the capacity to support a session
    with high quality. Our products also monitor and report actual
    session quality to determine compliance with performance
    specifications set forth in service level agreements between
    service providers and enterprises, and their external or
    internal customers.
    Regulatory complianceOur products enable compliance with
    government mandated regulations worldwide, including emergency
    services such as
    E-9-1-1,
    national government priority services 6




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such as Government Emergency Telecommunications Service, or
    GETS, and lawful intercept such as the Communications Assistance
    for Law Enforcement Act, or CALEA, in the United States.  
    Revenue and cost managementOur products enable
    organizations to increase revenues and control costs by
    protecting against both bandwidth and quality of service theft,
    by routing sessions optimally to minimize costs and by providing
    accounting and related mechanisms to maximize billable sessions.  Our
    Strategy
    
    Continuing to satisfy the evolving border requirements of
    enterprises and fixed line, mobile and
    over-the-top
    service providers. Our product deployments position us
    to gain valuable knowledge that we can use to expand and enhance
    our products features and functionality. We may develop
    new products organically, or through selective acquisitions.
    Implementing new technologies to enhance product performance
    and scalability. We will seek to leverage new
    technologies as they become available to increase the
    performance, capacity and functionality of our product family,
    as well as to reduce our costs.
    Investing in quality and responsive support. As we
    broaden our product platform and increase our product
    capabilities, we will continue to provide comprehensive service
    and support targeted at maximizing customer satisfaction and
    retention.
    Facilitating and promoting service interconnects and
    federations among our customers. We intend to drive
    increased demand for our products by helping our customers
    extend the reach of their services and applications and,
    consequently, to increase the value of their services to their
    customers.
    Leveraging distribution partnerships to enhance market
    penetration. We will continue to invest in training and
    tools for our distribution partners sales, systems
    engineering and support organizations, in order to improve the
    overall efficiency and effectiveness of these partnerships.
    Actively contributing to architecture and standards
    definition processes.We will utilize our breadth and
    depth of experience with SBC deployments to contribute
    significantly to organizations developing standards and
    architectures for next generation IP networks.  Our
    Technology
  Net-Net Net-Net
  
    session control policy;
    session signaling service;
    session media control;
    session monitoring and reporting; and
    session security service.   7




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Session control policy.
  
    Admission control,which determines whether session
    initiation requests should be accepted based upon session agent
    availability and load, bandwidth availability and observed
    session quality;
    Routing,which determines the next session agent on the
    network based upon multiple metrics, including source,
    destination, service provider preference, prefix, cost, time of
    day and time of week;
    Load balancing,which determines how sessions should be
    load balanced across multiple signaling elements on the network
    utilizing round-robin, hunt, least busy or proportional
    allocations; and
    Call limiting,which limits the number or rate of calls
    to prevent overloads from less valuable sources or destinations.  Session signaling service. peer-to-peer
  Session media control. peer-to-peer 64-Kbps 384-Kbps
  Session monitoring and reporting.
 8




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Session security service. DoS/DDoS
    Our
    Products
  Net-Net Net-Net Net-Net Net-Net
  Acme
    Packet
    Net-Net
    OS
  Net-Net Net-Net Net-Net 4500
  Net-Net
  
    Security. Net-SAFE, our security framework, protects
    the service delivery infrastructure and customer/subscriber
    networks, systems and relationships with support for SBC/MSG
    DoS/DDoS protection, access control, topology hiding, session
    privacy, virtual private network separation, service
    infrastructure DoS/DDoS prevention and fraud prevention.
    Service reach maximization. Our products extend the
    reach of offered services by maximizing the different types of
    networks and devices supported. Critical features include: NAT
    traversal, which is the ability to enable communication sessions
    to be carried over existing data firewall and NAT devices;
    bridging of private and public IPv4 and IPv6 address spaces
    including VPNs, signaling, encryption and transport protocol
    interworking; transcoding; and number, address and response code
    translations.
    Service level agreement assurance. Our products
    support a number of features designed to guarantee session
    capacity and quality. These features include: admission control
    based upon signaling element load, bandwidth availability
    (including policy server interfaces) and observed quality of
    service; quality of service marking and mapping; and quality of
    service reporting. 9




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
    Revenue optimization and cost
    efficiency.Net-Net
    OS includes a number of features that help customers maximize
    revenues and minimize costs. These include protection against
    revenue leakage from service theft, including bandwidth
    policing, quality of service theft protection, accounting,
    session timers, least-cost routing and load balancing.
    Regulatory compliance. Our products support
    compliance with government mandated regulations worldwide,
    including emergency services such as
    E-9-1-1,
    GETS and lawful intercept such as CALEA in the United States.  Net-Net
  
    Multi-protocol
    support.Net-Net
    OS provides support for a broad range of signaling protocols for
    interworking, load balancing and routing, and decomposed SBC
    control.
    High availability. Our high availability
    configurations protect against loss of service in the event of
    hardware or software failures. The check pointing of media,
    signaling and configuration state is designed to ensure no loss
    of active calls or support for new call requests.
    Management. Our products support a comprehensive
    collection of element management tools and operational support
    system interfaces.
    Architectural flexibility. Our products support
    different architectural models. Our SBCs can be configured as an
    integrated solution with signaling service and media control
    (each of which is described above), supported on a single
    hardware platform or a decomposed solution with media control
    and signaling service supported on two separate hardware
    platforms. An integrated SBC may also be integrated with a MSG.
    The choice of integrated or decomposed SBC solutions provides
    our distribution partners and customers with increased
    flexibility and scalability in implementing next generation
    architectures. An integrated SBC solution offers more session
    border control functionality and simplifies the evaluation,
    deployment and ongoing support of the product. A decomposed
    solution enables scaling the signaling and media control
    elements independently for optimum performance and capacity.  Acme
    Packet
    Net-Net
    Platforms
  Net-Net
  
    Acme Packet
    Net-Net 2600
    platforms, obtained from our Covergence acquisition in April
    2009, deliver an integrated SBC configuration optimized for
    enterprises and contact center applications. The 1
    rack-unit,
    or 1U, form factor
    Net-Net 2610
    and 2U
    Net-Net 2620
    are Acme Packet supported Intel quad core servers operating
    Net-Net OS-E
    in a Linux software environment.
    Acme Packet
    Net-Net 3800
    platform, introduced in the first quarter of 2009, is our
    integrated SBC and SRP solution for low-capacity deployments in
    service provider, government defense and security focused
    agencies, enterprises and contact centers. The 1U
    Net-Net 3800
    and all higher capacity platforms feature Acme Packets
    custom hardware design tightly integrated with
    Net-Net OS
    to satisfy the most critical infrastructure security
    requirements.
    Acme Packet
    Net-Net 4500
    platform, shipping since the third quarter of 2008, delivers
    unmatched performance and configuration capabilities in a 1U
    form factor. It supports all Acme Packet
    Net-Net SBC,
    SLB, MSG and SRP configurations, functions and features
    supported by Acme Packets
    Net-Net OS.
    Acme Packet
    Net-Net 4500
    ATCA blade,consisting of an ATCA front card and rear
    transition module, is designed to be easily integrated by
    wireless and wireline communication systems vendors into their
    14U ATCA chassis. The blade also supports all Acme Packet
    Net-Net SBC,
    MSG and SRP configurations and all the functions and features
    supported by Acme Packets
    Net-Net OS. 10




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
    Acme Packet
    Net-Net 9200
    platform,introduced in 2005, offers our highest levels of
    performance, capacity and availability for service provider and
    enterprise deployments in a single 7U hardware chassis
    based system. The
    Net-Net 9200
    also supports high capacity transcoding and transrating for a
    wide selection of wireline and wireless codecs.    Net-Net 2600

Net-Net 3800Signaling performance
    (relative sessions/second)

1 x

1 xMedia capacity with quality of service reporting
    (maximum number of sessions)

4,000

4,000Transcoding capacity 
    (maximum number of sessions)

400

n/aIPsec tunnel capacity maximum
    (number of tunnels)

n/a

5,000Local route table capacity 
    (maximum number of routes)

1 million

1 millionNetwork interfaces 
    (maximum number and type)

(6) 1 Gbps

(4) 1 GbpsDoS/DDoS protection, hardware-software based

Basic

Basic &
    AdvancedHigh availability configuration

Inter-system

Inter-systemSize of high availability configuration
    (rack units)

2

2   Net-Net 4500

Net-Net 4500 ATCA

Net-Net 9200Signaling performance 
    (relative sessions/second)

2.6 x

2.6 x

7 xMedia capacity with quality of service reporting
    (maximum number of sessions)

64,000

64,000

128,000Transcoding capacity 
    (maximum number of sessions)

n/a

n/a

16,000IPsec tunnel capacity maximum 
    (number of tunnels)

200,000

200,000

500,000Local route table capacity 
    (maximum number of routes)

2 million

2 million

2 millionNetwork interfaces
    (maximum number and type)

(4) 1 Gbps

(4) 1 Gbps

(8) 1 Gbps or
    (2) 10 GbpsDoS/DDoS protection, hardware-software based

Advanced

Advanced

AdvancedHigh availability configuration

Inter-system

Inter-system

Intra-systemSize of high availability configuration (rack units)

2

2

7   Acme
    Packet
    Net-Net
    OS-E
  Net-Net
 11




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Net-Net
  Acme
    Packet
    Net-Net
    EMS
  Net-Net Net-Net family Net-Net Net-Net Net-Net Net-Net
  Acme
    Packet
    Net-Net
    RMC
  Net-Net Net-Net Net-Net Net-Net
  General
    Support
    and Services
    Professional Services.
  Technical Assistance Center. e-mail
  Training.
   12




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Sales and
    Marketing
    Marketing and Product Management.
  Direct Sales.
  Indirect
    Distribution Partners
  Net-Net
    Customers
   13




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Year Ended December 31,2010

2009

2008Verizon Business12%

Alcatel-Lucent15%

Alcatel-Lucent17%Alcatel-Lucent10%

Nokia Siemens
    Networks14%

Nokia Siemens
    Networks15%Sprint10%     Research
    and Development
  Net-Net
    Manufacturing
  Net-Net Net-Net Net-Net 2600 Net-Net
 14




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Competition
   15




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
    customer traction and experience;
    breadth of standards support;
    depth of border control features;
    proven interoperability and a carrier-class platform; and
    competitive costs.      Intellectual
    Property
    Net-Net
  Net-Net
   16




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Employees
    Item 1A.
    Risk
    Factors  Set forth below and elsewhere in this Annual Report on
    Form 10-K
    and in other documents we file with the SEC are risks and
    uncertainties that could cause actual results to differ
    materially from the results contemplated by the forward-looking
    statements contained in this Annual Report on
    Form 10-K.
    Because of the following factors, as well as other variables
    affecting our operating results, past financial performance
    should not be considered as a reliable indicator of future
    performance and investors should not use historical trends to
    anticipate results or trends in future periods.
  Risks
    Relating to Our Business
  The
    worldwide economic downturn, including developments in the
    financial markets in the United States and elsewhere in the
    world may adversely affect our operating results and financial
    condition.
   17




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The
    unpredictability of our quarterly results may adversely affect
    the trading price of our common stock.
    
    fluctuations in demand for our products, and the timing and size
    of customer orders;
    the length and variability of the sales and deployment cycles
    for our products, and the corresponding timing of recognizing
    revenue;
    new product introductions and enhancements by our competitors
    and us;
    changes in our pricing policies or the pricing policies of our
    competitors;
    changes in our third-party manufacturing costs or in the prices
    of components and materials used in our products;
    our ability to develop, introduce and deploy new products and
    product enhancements that meet customer requirements in a timely
    manner;
    our ability to obtain sufficient supplies of limited source
    components or materials;
    our ability to attain and maintain production volumes and
    quality levels for our products; and
    general economic conditions, as well as those specific to the
    communications, networking and related industries.      quarter-to-quarter
 18




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Because
    we derive a significant portion of our revenue from interactive
    communications service providers, our operating results will
    suffer if the interactive communications industry experiences an
    economic downturn.
    We
    rely on many distribution partners to assist in selling our
    products, and if we do not develop and manage these
    relationships effectively, our ability to generate revenue and
    control expenses will be adversely affected.
     19




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We
    depend on a limited number of customers for a substantial
    portion of our revenue in any period, and the loss of, or a
    significant shortfall in orders from, key customers could
    significantly reduce our revenue.
    We
    have made and may undertake additional acquisitions to further
    expand our business, which may pose risks to our business and
    dilute the ownership of our existing stockholders.
      Over
    the long term we intend to increase our investment in
    engineering, sales, marketing, service, manufacturing and
    administration activities, and these investments may achieve
    delayed, or lower than expected benefits, which could harm our
    operating results.
   20




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Our
    dependence on outside contractors for critical manufacturing
    services could result in product delivery delays and damage our
    customer relations.
  Net-Net Net-Net Net-Net Net-Net 2600
    Certain
    component parts used in the manufacture of our products are
    sourced from single or limited sources. If our contract
    manufacturers are unable to obtain these components on a timely
    basis, we will not be able to meet our customers product
    delivery requirements, which could harm our reputation and
    adversely affect our operating results.
   21




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
    enter into exclusive arrangements with our competitors;
    be acquired by our competitors;
    stop selling their products or components to us at commercially
    reasonable prices;
    refuse to sell their products or components to us at any
    price; or
    be unable to obtain or have difficulty obtaining components for
    their products from their suppliers.    If the
    market for our products does not continue to develop as we
    anticipate, our revenue may decline or fail to grow, which would
    adversely affect our operating results.
     22




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Our
    large customers have substantial negotiating leverage, which may
    require that we agree to terms and conditions that could result
    in decreased revenues and increased cost of sales.
    If
    functionality similar to that offered by our SBCs is added to
    existing network infrastructure elements, organizations may
    decide against adding our SBCs to their network which would
    cause the market for standalone SBCs to decrease resulting in
    fewer customers for and, decreased sales of, standalone
    SBCs.
    If the
    migration to IP network architecture for real-time interactive
    communications does not continue, the SBC market may not expand
    as predicted, and our ability to obtain new customers may
    decrease.
   23




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If we
    do not timely deliver new and enhanced products that respond to
    customer requirements and technological changes, interactive
    communications service providers may not buy our products and
    our revenue may decline.
  Net-Net Net-Net
    The
    long and variable sales and deployment cycles for our products
    may cause our operating results to vary materially, which could
    result in a significant unexpected revenue shortfall in any
    given quarter.
       24




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If our
    products do not interoperate with our customers existing
    networks, the demand for our products will
    decrease.
    Our
    international operations expose us to additional business risks
    and failure to manage these risks may adversely affect our
    international revenue.
    
    our ability to comply with differing technical standards and
    certification requirements outside the United States;
    costs of staffing and managing international operations;
    substantially longer payment terms and greater difficulty in
    collecting accounts receivable;
    changes in regulatory requirements;
    compliance with local employment and labor regulations;
    compliance with the Foreign Corrupt Practices Act;
    reduced protection for intellectual property rights in some
    countries;
    new and different sources of competition;
    fluctuations in currency exchange rates;
    adverse tax consequences; and
    political and economic instability and terrorism.  We are
    subject to the Foreign Corrupt Practices Act.
   25




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and/or
  The
    market for SBCs is competitive and continually evolving, and if
    we are not able to compete effectively, we may not be able to
    continue to expand our business as expected and our business may
    suffer.
        Our
    revenue growth may be constrained by our product concentration
    and lack of revenue diversification.
    
    any decline in demand for our existing products;
    the failure of our existing products to achieve continued market
    acceptance;
    the introduction of products and technologies that serve as a
    replacement or substitute for, or represent an improvement over,
    our existing products;
    technological innovations or new standards that our existing
    products do not address; and
    our inability to release enhanced versions of our existing
    products on a timely basis. 26




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Changes
    in effective tax rates or adverse outcomes resulting from
    examination of our income or other tax returns could adversely
    affect our results.
    Future
    interpretations of existing accounting standards could adversely
    affect our operating results.
      
    software arrangements that include undelivered elements for
    which we do not have vendor specific objective evidence of fair
    value;
    requirements that we deliver services for significant
    enhancements and modifications to customize our software for a
    particular customer; or
    material acceptance criteria.    The
    loss of key personnel or an inability to attract and retain
    additional personnel may impair our ability to expand our
    business.
   27




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e-commerce
  If we
    are unable to manage our growth and expand our operations
    successfully, our business and operating results will be harmed
    and our reputation may be damaged.
      Our
    ability to compete and the success of our business could be
    jeopardized if we are unable to protect our intellectual
    property adequately.
   28




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Claims
    by other parties that we infringe upon their proprietary
    technology could force us to redesign our products or to incur
    significant costs.
    
    stop selling, incorporating or using our products that use the
    challenged intellectual property;
    obtain from the owner of the infringed intellectual property
    right a license to sell or use the relevant technology, which
    license may not be available on reasonable terms, or at all;
    redesign those products that use any allegedly infringing
    technology;
    pay any damages for past shipments; or
    refund deposits and other amounts.    Compliance
    with regulations and standards applicable to our products may be
    time consuming, difficult and costly, and if we fail to comply,
    our product sales will decrease.
      Regulations
    affecting IP networks could reduce demand for our
    products.
   29




---



##### Table of Contents



We are
    subject to environmental and occupational health and safety
    regulations that may increase our costs of operations or limit
    our activities.
    Because
    our products are sophisticated and designed to be deployed in
    complex environments, they may have errors or defects that we
    find only after deployment, which could result in a loss of
    customers and adversely affect our reputation, future sales and
    operating results.
    
    a loss of, or delay in, revenue recognition;
    a loss of customers and market share;
    a failure to attract new customers or achieve market acceptance
    for our products;
    increased service, support and warranty costs and a diversion of
    development resources; and
    costly and time consuming legal actions by our customers and
    injury to our reputation.   30




---



##### Table of Contents



Product
    liability claims related to our customers networks could
    result in substantial costs.
    We may
    need additional capital in the future, which may not be
    available to us, and if it is available, may dilute the
    ownership of our common stock.
    
    fund ongoing operations;
    take advantage of opportunities, including more rapid expansion
    of our business or the acquisition of complementary products,
    technologies or businesses;
    develop new products; or
    respond to competitive pressures.    Risks
    Relating to Ownership of Our Common Stock
  The
    price of our common stock may be volatile.
      
    worldwide economic conditions;
    loss or bankruptcy of any of our major customers, distribution
    partners or suppliers;
    departure of key personnel;
    variations in our quarterly operating results;
    variations in the quarterly operating results of other publicly
    traded corporations deemed by investors to be in our peer group;
    announcements by our competitors of significant contracts, new
    products or product enhancements, acquisitions, distribution
    partnerships, joint ventures or capital commitments; 31




---



##### Table of Contents




    changes in governmental regulations and standards affecting our
    business and our products, including implementation of
    additional regulations relating to IP network communications;
    decreases in financial estimates or recommendations by equity
    research analysts;
    sales of common stock or other securities by us in the future;
    decreases in market valuations of communications equipment
    companies; and
    fluctuations in stock market prices and volumes.    Certain
    of our directors and executive officers own a significant amount
    of our common stock and could exercise substantial corporate
    control.
    
    delaying, deferring or preventing a change in control of our
    company;
    impeding a merger, amalgamation, consolidation, takeover or
    other business combination involving our company; or
    discouraging a potential acquirer from making a tender offer or
    otherwise attempting to obtain control of our company.    Our
    corporate documents and Delaware law will make a takeover of our
    company more difficult, which may limit the market price of our
    common stock.
   32




---



##### Table of Contents




    a classified board of directors;
    the ability of the board of directors to issue undesignated
    shares without stockholder approval, which could be used to
    institute a poison pill that would work to dilute
    the share ownership of a potential hostile acquirer, effectively
    preventing acquisitions that have not been approved by the board;
    limitations on the removal of directors; and
    advance notice requirements for election to the board and for
    proposing matters that can be acted upon at stockholder meetings.  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Removed
    and Reserved 33




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.  Market
    Information for Common Stock
      High


Low2009First Quarter

$
6.56


$
3.55Second Quarter


10.34



5.90Third Quarter


10.88



7.54Fourth Quarter


12.25



9.202010First Quarter


20.25



10.11Second Quarter


30.67



19.04Third Quarter


40.58



26.00Fourth Quarter


59.36



33.07     Dividend
    Policy
    Stockholders
   34




---



##### Table of Contents



Stock
    Performance Graph
      
  10/13/2006


12/31/2007


12/31/2008


12/31/2009


12/31/2010Acme Packet


100.0



79.1



33.1



69.1



334.1NASDAQ Composite Index


100.0



112.5



66.9



96.3



112.5NASDAQ Telecommunications Index


100.0



116.2



66.3



98.2



102.1   Sales of
    Unregistered Securities
   35




---



##### Table of Contents



Use of
    Proceeds from Public Offering of Common Stock
  Form S-1 No. 333-134683)
   36




---



##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data  Form 10-K.
  Form 10-K. Form 10-K.
  Year Ended December 31,2010


2009


2008


2007


2006(in thousands, except share and per share data)Statements of Operations Data:Revenue:Product

$
186,798


$
107,144


$
91,277


$
94,906


$
71,810Maintenance, support and service


44,434



34,314



25,081



18,146



12,260Total revenue


231,232



141,458



116,358



113,052



84,070Cost of revenue:Product


31,866



21,613



19,662



18,736



14,874Maintenance, support and service


9,265



5,668



5,005



4,377



3,122Total cost of revenue


41,131



27,281



24,667



23,113



17,996Gross profit


190,101



114,177



91,691



89,939



66,074Operating expenses:Sales and marketing


73,067



53,643



44,411



35,745



23,985Research and development


35,565



28,198



23,046



20,812



13,503General and administrative


15,071



12,305



10,026



8,850



5,404Merger and integration-related costs


223



1,102











Total operating expenses


123,926



95,248



77,483



65,407



42,892Income from operations


66,175



18,929



14,208



24,532



23,182Total other income, net


381



175



2,979



6,369



2,239Gain on acquisition of business






4,293











Income before provision for income taxes


66,556



23,397



17,187



30,901



25,421Provision for (benefit from) income taxes


23,519



6,291



5,615



11,340



(3,443
)Net income

$
43,037


$
17,106


$
11,572


$
19,561


$
28,864Net income per share applicable to common stockholders:Basic(1)

$
0.69


$
0.30


$
0.20


$
0.33


$
0.57Diluted(1)

$
0.63


$
0.28


$
0.18


$
0.30


$
0.50Weighted average number of common shares used in net income per
    share calculation:Basic(1)


62,002,543



57,077,639



58,463,410



59,385,082



50,437,801Diluted(1)


67,915,525



61,551,040



62,920,268



66,016,411



57,418,796   37




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##### Table of Contents



As of December 31,2010


2009


2008


2007


2006Balance Sheet Data:Cash, cash equivalents, short and long-term investments

$
275,723


$
174,987


$
125,723


$
136,420


$
118,714Working capital


278,960



123,452



136,006



153,479



123,299Total assets


380,144



246,726



174,010



184,174



153,305Total stockholders equity


320,545



200,223



146,811



163,167



130,937     (1)
    
    For information regarding the computation of per share amounts,
    refer to note 2 of the notes to our consolidated financial
    statements included in this Annual Report on
    Form 10-K. 38




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
    Net-Net over-the-top
    Business
    Combinations
  Covergence
    Inc.
      Newfound
    Communications, Inc.
   39




---



##### Table of Contents



Industry
    Background
      Key
    Financial Highlights
    
    Total revenue was $231.2 million compared to
    $141.5 million in 2009.
    Net income was $43.0 million compared to $17.1 million
    in 2009.
    Earnings per share was $0.63 per share on a diluted basis
    compared to $0.28 per share on a diluted basis in 2009.
    Cash provided by operating activities was $55.1 million
    compared to $45.1 million in 2009.
    Cash provided by financing activities was $60.8 million
    compared to $3.8 million in 2009.  The Acme
    Packet Strategy
    
    Continuing to satisfy the evolving border requirements of
    enterprises and fixed-line, mobile and
    over-the-top
    service providers. Our product deployments position us
    to gain valuable knowledge that we can use to expand and enhance
    our products features and functionality. We may develop
    new products organically, or through selective acquisitions.
    Implementing new technologies to enhance product performance
    and scalability. We will seek to leverage new
    technologies as they become available to increase the
    performance, capacity and functionality of our product family,
    as well as to reduce our costs.
    Investing in quality and responsive support. As we
    broaden our product platform and increase our product
    capabilities, we will continue to provide comprehensive service
    and support targeted at maximizing customer satisfaction and
    retention.
    Facilitating and promoting service interconnects and
    federations among our customers.  We intend to
    drive increased demand for our products by helping our customers
    to extend the reach of their services and applications and,
    consequently, to increase the value of their services to their
    customers. 40




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##### Table of Contents




    Leveraging distribution partnerships to enhance market
    penetration. We will continue to invest in training and
    tools for our distribution partners sales, systems
    engineering and support organizations, in order to improve the
    overall efficiency and effectiveness of these partnerships.
    Actively contributing to architecture and standards
    definition processes. We will utilize our breadth and
    depth of experience with SBC deployments to contribute
    significantly to organizations developing standards and
    architectures for next generation IP networks.  Factors
    That May Affect Future Performance
  
    Global Macroeconomic Conditions. We believe that the
    capital budgets and spending initiatives of some of our core
    customersservice providers, enterprises, government
    agencies and contact centersmay be affected by current
    worldwide economic conditions. Our ability to generate revenue
    from these core customers is dependent on the status of such
    budgets and initiatives.
    Gross Margin. Our gross margin has been, and will
    continue to be, affected by many factors, including (a) the
    demand for our products and services, (b) the average
    selling price of our products, which in turn depends, in part,
    on the mix of product and product configurations sold,
    (c) the level of software license upgrades, (d) new
    product introductions, (e) the mix of sales channels
    through which our products are sold, and (f) the costs of
    manufacturing our hardware products and providing our related
    support services. Customers license our software in various
    configurations depending on each customers requirements
    for session capacity, feature groups and protocols. The product
    software configuration mix will have a direct impact on the
    average selling price of the system sold. Systems with higher
    software content (higher session capacity, support for higher
    number of security protocols and a larger number of feature
    groups) will generally have a higher average selling price than
    those systems sold with lower software content. If customers
    begin to purchase systems with lower software content, this may
    have a negative impact on our revenue and gross margins.
    Competition. Competition in our product categories
    is strong and constantly evolving. While we believe we are
    currently the market leader in the service provider and
    enterprise markets for session border controller solutions, we
    expect competition to persist and intensify in the future as the
    market grows. Our primary competitors for session border
    controller solutions generally consist of specialty vendors,
    such as GENBAND Inc., and more established network and component
    companies such as Cisco Systems, Inc. and Huawei Technologies
    Co., Ltd. We also compete with some of the companies with which
    we have distribution partnerships, such as Alcatel Lucent, Nokia
    Siemens Networks, Sonus Networks Inc. and Telefonaktiebolaget LM
    Ericsson. We believe we compete successfully with all of these
    companies based upon our experience in interactive
    communications networks, the breadth of our applications and
    standards support, the depth of our border control features, the
    demonstrated ability of our products to interoperate with key
    communications infrastructure elements and our comprehensive
    service and support. We also believe our products are priced
    competitively with our competitors offerings. As the
    session border control market opportunity grows, we expect
    competition from additional networking and IP communications
    equipment suppliers, including our distribution partners.
    Evolution of the Session Border Control Market. The
    market for our products is in its early stages and is still
    evolving, and it is uncertain whether these products will
    continue to achieve and sustain high levels of demand and market
    acceptance. Our success will depend, to a substantial extent, on
    the willingness of interactive communications service providers
    and enterprises to continue to implement our solutions.
    Research and Development. To continue to achieve
    market acceptance for our products, we must effectively
    anticipate and adapt, in a timely manner, to customer
    requirements and must offer products that meet changing customer
    demands. Prospective customers may require product features and
    capabilities that our current products do not have. The market
    for session border control solutions is characterized by rapid
    technological change, frequent new product 41




---



##### Table of Contents



introductions, and evolving industry requirements. We intend to
    continue to invest in our research and development efforts,
    which we believe are essential to maintaining our competitive
    position.  
    Managing Growth. We significantly expanded our
    operations in 2010 and 2009. During the period from
    December 31, 2008 through December 31, 2010 we
    increased the number of our employees and full time independent
    contractors by 50%, from 381 to 570. We anticipate that further
    expansion of our infrastructure and headcount will be required
    to achieve planned expansion of our product offerings, projected
    increases in our customer base and anticipated growth in the
    number of product deployments. In the future, we expect to
    continue to carefully manage the increase of our operating
    expenses based on our ability to expand our revenues, the
    expansion of which could occur organically or through future
    acquisitions.  Revenue
  Net-Net Net-Net software.
  out-of-pocket
       42




---



##### Table of Contents



Cost
    of Revenue
    out-of-pocket
  Gross
    Profit
    Operating
    Expenses
    out-of-pocket
     43




---



##### Table of Contents



Stock-Based
    Compensation
      Other
    Income (Expense), Net
    Application
    of Critical Accounting Policies and Use of Estimates
   44




---



##### Table of Contents



Form 10-K.
  Form 10-K,
  Revenue
    Recognition
      
    Persuasive evidence of an arrangement exists. We
    consider a noncancelable agreement signed by the customer and us
    to be representative of persuasive evidence of an arrangement.
    Delivery has occurred. We consider delivery to have
    occurred when product has been delivered to the customer and no
    significant post delivery obligations exist. In instances where
    customer acceptance is required, delivery is deemed to have
    occurred when customer acceptance has been achieved. Certain of
    our agreements contain products that might not conform to
    published specifications or contain a requirement to deliver
    additional elements which are essential to the functionality of
    the delivered element. Revenue associated with these agreements
    is recognized when the customer specifications have been met or
    delivery of the additional elements has occurred.
    Consideration is fixed or determinable. We consider
    the consideration to be fixed or determinable unless the
    consideration is subject to refund or adjustment or is not
    payable within normal payment terms. If the consideration is
    subject to refund or adjustment, we recognize revenue when the
    right to a refund or adjustment lapses. If offered payment terms
    significantly exceed our normal terms, then revenue is
    recognized as the amounts become due and payable or upon the
    receipt of cash.
    Collection is deemed probable. We conduct a credit
    review for all transactions at the inception of an arrangement
    to determine the creditworthiness of the customer. Collection is
    deemed probable if, based upon our evaluation, we expect that
    the customer will be able to pay amounts under the arrangement
    as payments become due. If we determine that collection is not
    probable, revenue is deferred and recognized upon the receipt of
    cash.   45




---



##### Table of Contents



Allowance
    for Doubtful Accounts
    Stock-Based
    Compensation
       46




---



##### Table of Contents



Share-Based Payment
    Inventory
      Product
    Warranties
      Research
    and Development Expense for Software Products
   47




---



##### Table of Contents



Income
    Taxes
      Business
    Combinations
        Impairment
    of Intangible Assets
   48




---



##### Table of Contents



Results
    of Operations
  Comparison
    of Years Ended December 31, 2010 and 2009
  Revenue
 Year Ended December 31,


Period-to-Period2010


2009


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Revenue by Type:Product revenue

$
186,798



81
%

$
107,144



76
%

$
79,654



74
%Maintenance, support and service revenue


44,434



19



34,314



24



10,120



29Total revenue

$
231,232



100
%

$
141,458



100
%

$
89,774



63
%Revenue by Geography:United States and Canada

$
142,921



62
%

$
76,216



54
%

$
66,705



88
%International


88,311



38



65,242



46



23,069



35Total revenue

$
231,232



100
%

$
141,458



100
%

$
89,774



63
%Revenue by Sales Channel:Direct

$
120,755



52
%

$
52,351



37
%

$
68,404



131
%Indirect


110,477



48



89,107



63



21,370



24Total revenue

$
231,232



100
%

$
141,458



100
%

$
89,774



63
%      49




---



##### Table of Contents



Cost of
    Revenue and Gross Profit
  Year Ended December 31,


Period-to-Period2010


2009


ChangePercentage





Percentageof Related





of RelatedAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Cost of Revenue:Product

$
31,866



17
%

$
21,613



20
%

$
10,253



47
%Maintenance, support and service


9,265



21



5,668



17



3,597



63Total cost of revenue

$
41,131



18
%

$
27,281



19
%

$
13,850



51
%Gross Profit:Product

$
154,932



83
%

$
85,531



80
%

$
69,401



81
%Maintenance, support and service


35,169



79



28,646



83



6,523



23Total gross profit

$
190,101



82
%

$
114,177



81
%

$
75,924



67
%            50




---



##### Table of Contents



Operating
    Expenses
  Year Ended December 31,


Period-to-Period2010


2009


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Sales and marketing

$
73,067



32
%

$
53,643



38
%

$
19,424



36
%Research and development


35,565



15



28,198



20



7,367



26General and administrative


15,071



7



12,305



9



2,766



22Merger and integration-related costs


223




*


1,102



1



(879
)



*Total operating expenses

$
123,926



54
%

$
95,248



68
%

$
28,678



30
%     *
    
    Not meaningful       51




---



##### Table of Contents



Other
    Income (Expense)
  Year Ended December 31,


Period-to-Period2010


2009


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


PercentageInterest income

$
556




*%

$
253




*%

$
303



120
%Gain from acquisition of business







*


4,293



3



(4,293
)



*Other expense


(175
)



*


(78
)



*


(97
)


124Total other income, net

$
381




*%

$
4,468



3
%

$
(4,087
)


(91
)%     *
    
    Not meaningful        Provision
    for Income Taxes
  Year Ended December 31,


Period-to-Period2010


2009


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


PercentageProvision for income taxes

$
23,519



10
%

$
6,291



4
%

$
17,228



274
%    52




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##### Table of Contents



Comparison
    of Years Ended December 31, 2009 and 2008
  Revenue
  Year Ended December 31,


Period-to-Period2009


2008


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Revenue by Type:Product revenue

$
107,144



76
%

$
91,277



78
%

$
15,867



17
%Maintenance, support and service revenue


34,314



24



25,081



22



9,233



37Total revenue

$
141,458



100
%

$
116,358



100
%

$
25,100



22
%Revenue by Geography:United States and Canada

$
76,216



54
%

$
59,512



51
%

$
16,704



28
%International


65,242



46



56,846



49



8,396



15Total revenue

$
141,458



100
%

$
116,358



100
%

$
25,100



22
%Revenue by Sales Channel:Direct

$
52,351



37
%

$
47,490



41
%

$
4,861



10
%Indirect


89,107



63



68,868



59



20,239



29Total revenue

$
141,458



100
%

$
116,358



100
%

$
25,100



22
%      53




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##### Table of Contents



Cost of
    Revenue and Gross Profit
  Year Ended December 31,2009


2008Percentage





Percentage


Period-to-Periodof Related





of Related


ChangeAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Cost of Revenue:Product

$
21,613



20
%

$
19,662



22
%

$
1,951



10
%Maintenance, support and service


5,668



17



5,005



20



663



13Total cost of revenue

$
27,281



19
%

$
24,667



21
%

$
2,614



11
%Gross Profit:Product

$
85,531



80
%

$
71,615



78
%

$
13,916



19
%Maintenance, support and service


28,646



83



20,076



80



8,570



43Total gross profit

$
114,177



81
%

$
91,691



79
%

$
22,486



25
%          54




---



##### Table of Contents



Operating
    Expenses
  Year Ended December 31,2009


2008Percentage





Percentage


Period-to-Periodof Total





of Total


ChangeAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Sales and marketing

$
53,643



38
%

$
44,411



38
%

$
9,232



21
%Research and development


28,198



20



23,046



20



5,152



22General and administrative


12,305



9



10,026



9



2,279



23Merger and integration-related costs


1,102



1







*



1,102



*Total operating expenses

$
95,248



68
%

$
77,483



67
%

$
17,765



23
%     *
    
    Not meaningful       55




---



##### Table of Contents



Other
    Income (Expense)
  Year Ended December 31,2009


2008Percentage





Percentage


Period-to-Periodof Total





of Total


ChangeAmount


Revenue


Amount


Revenue


Amount


PercentageInterest income

$
253




*%

$
3,225



3
%

$
(2,972
)


(92
)%Gain from acquisition of business


4,293



3








*


4,293




*Other expense


(78
)



*


(246
)



*


168



(68
)Total other income, net

$
4,468



3
%

$
2,979



3
%

$
1,489



50
%     *
    
    Not meaningful        Provision
    for Income Taxes
  Year Ended December 31,2009


2008Percentage





Percentage


Period-to-Periodof Total





of Total


ChangeAmount


Revenue


Amount


Revenue


Amount


PercentageProvision for income taxes

$
6,291



4
%

$
5,615



5
%

$
676



12
%     Liquidity
    and Capital Resources
  Resources
   56




---



##### Table of Contents



As of and for the Year EndedDecember 31,2010

2009

2008(in thousands)Cash and cash equivalents

$
91,669


$
90,471


$
125,723Short and long-term investments


184,054



84,516



Accounts receivable, net


34,797



25,604



26,163Working capital


278,960



123,452



136,006Cash provided by operating activities


55,119



45,146



28,671Cash used in investing activities


(114,767
)


(84,156
)


(4,042
)Cash provided by (used in) financing activities


60,846



3,758



(35,326
)   Cash, cash equivalents, short and long-term
    investments.
  Accounts receivable, net.
  Operating activities.
  Investing activities.
 57




---



##### Table of Contents



Financing activities.
  Anticipated cash flows.
  Income taxes.
  Compensation-Stock Compensation,
    Requirements
  Capital expenditures.
  Contractual obligations and requirements.
 58




---



##### Table of Contents



More thanTotal

1 year or less

2-3 years

4-5 years

5 years(in thousands)Operating leases obligations

$
17,413


$
2,695


$
5,888


$
5,888


$
2,942   Off-Balance-Sheet
    Arrangements
  Regulation S-K.
  Recent
    Accounting Pronouncements
  2009-13, Revenue Arrangements with Multiple Deliverables, objective-and-reliable-evidence-of-fair-value 2009-14, Certain Revenue Arrangements that Include Software Elements,
 59




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Foreign
    Currency Exchange Risk
    Interest
    Rate Risk
   60




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  ACME
    PACKET, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Page No.Report of Independent Registered Public
    Accounting Firm


62Consolidated Balance Sheets as of
    December 31, 2010 and 2009


63Consolidated Statements of Income for the Years
    Ended December 31, 2010, 2009 and 2008


64Consolidated Statements of Stockholders
    Equity and Comprehensive Income for the Years Ended
    December 31, 2010, 2009 and 2008


65Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2010, 2009 and 2008


66Notes to Consolidated Financial Statements


67  61




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                 62




---



##### Table of Contents



ACME
    PACKET, INC.CONSOLIDATED BALANCE SHEETS
    (in thousands, except share and per share data)
  December 31,2010


2009ASSETSCurrent assets:Cash and cash equivalents

$
91,669


$
90,471Short-term investments


179,024



39,990Accounts receivable, net of allowance of $1,463 and $1,311,
    respectively


34,797



25,604Inventory


6,662



4,372Deferred product costs


3,572



3,400Deferred tax asset, net


3,814



1,567Income taxes receivable


9,979



350Other current assets


3,231



2,360Total current assets


332,748



168,114Long-term investments


5,030



44,526Property and equipment, net


17,156



6,437Intangible assets, net of accumulated amortization of $2,466 and
    $706, respectively


9,468



11,228Deferred tax asset, net


14,802



15,622Other assets


940



799Total assets

$
380,144


$
246,726LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
7,161


$
3,895Accrued expenses and other current liabilities


14,629



9,261Deferred revenue


31,998



31,506Total current liabilities


53,788



44,662Deferred rent, net of current portion


4,265



Deferred revenue, net of current portion


1,546



1,841Commitments and contingencies (Note 8)Stockholders equity:Undesignated preferred stock, $0.001 par value:Authorized5,000,000 shares; Issued and
    outstanding0 shares






Common stock, $0.001 par value:Authorized150,000,000 shares; Issued 71,157,422 and
    65,459,593 shares, respectively


71



65Additional paid-in capital


266,114



188,871Treasury stock, at cost6,756,687 and
    6,756,693 shares, respectively


(37,522
)


(37,522
)Accumulated other comprehensive income (loss)


34



(2
)Retained earnings


91,848



48,811Total stockholders equity


320,545



200,223Total liabilities and stockholders equity

$
380,144


$
246,726    63




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##### Table of Contents



ACME
    PACKET, INC.CONSOLIDATED STATEMENTS OF INCOME
    (in thousands, except share and per share data)
  Year Ended December 31,2010


2009


2008Revenue:Product

$
186,798


$
107,144


$
91,277Maintenance, support and service


44,434



34,314



25,081Total revenue


231,232



141,458



116,358Cost of revenue(1):Product


31,866



21,613



19,662Maintenance, support and service


9,265



5,668



5,005Total cost of revenue


41,131



27,281



24,667Gross profit


190,101



114,177



91,691Operating expenses(1):Sales and marketing


73,067



53,643



44,411Research and development


35,565



28,198



23,046General and administrative


15,071



12,305



10,026Merger and integration-related costs


223



1,102



Total operating expenses


123,926



95,248



77,483Income from operations


66,175



18,929



14,208Other income (expense):Interest income


556



253



3,225Gain on acquisition of business






4,293



Other expense


(175
)


(78
)


(246
)Total other income, net


381



4,468



2,979Income before provision for income taxes


66,556



23,397



17,187Provision for income taxes


23,519



6,291



5,615Net income

$
43,037


$
17,106


$
11,572Net income per share (Note 2):Basic

$
0.69


$
0.30


$
0.20Diluted

$
0.63


$
0.28


$
0.18Weighted average number of common shares used in the calculation
    of net income per share:Basic


62,002,543



57,077,639



58,463,410Diluted


67,915,525



61,551,040



62,920,268(1) Amounts include stock-based compensation expense, as
    follows:Cost of product revenue

$
761


$
501


$
440Cost of maintenance, support and service revenue


1,080



570



408Sales and marketing


7,406



4,706



3,686Research and development


4,810



3,440



2,083General and administrative


2,416



1,143



781    64




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##### Table of Contents



ACME
    PACKET, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY AND COMPREHENSIVE INCOME
    (in thousands, except share data)
  Common Stock














Accumulated$0.001


Additional


Treasury Stock





Other


TotalNumber of


Par


Paid-in


Number of





Retained


Comprehensive


Stockholders


ComprehensiveShares


Value


Capital


Shares


Value


Earnings


Loss


Equity


IncomeBalance at December 31, 2007


60,429,772


$
60


$
142,974






$



$
20,133


$



$
163,167


$
Repurchase of common stock














(6,756,680
)


(37,522
)










(37,522
)


Repurchase and retirement of common stock


(1,458
)






(1
)


















(1
)


Exercise of common stock options


1,017,763



1



758



















759



Stock-based compensation expense










7,398



















7,398



Tax benefit related to exercise of stock options










1,438



















1,438



Net income






















11,572







11,572



11,572Total comprehensive income

































$
11,572Balance at December 31, 2008


61,446,077



61



152,567



(6,756,680
)


(37,522
)


31,705







146,811Exercise of common stock options


1,096,799



1



1,996



















1,997



Issuance of common stock pursuant to restricted stock units


42,334































Issuance of common stock pursuant to merger agreement, net of
    registration costs


2,874,383



3



22,187



(7
)














22,190



Stock-based compensation expense










10,360



















10,360



Tax benefit related to exercise of stock options










1,761



















1,761



Unrealized loss on marketable securities


























(2
)


(2
)


(2
)Net income






















17,106







17,106



17,106Total comprehensive income

































$
17,104Balance at December 31, 2009


65,459,593



65



188,871



(6,756,687
)


(37,522
)


48,811



(2
)


200,223



Exercise of common stock options


5,543,419



6



27,030



















27,036



Issuance of common stock pursuant to restricted stock units


154,410































Withholding tax on RSU exercises










(70
)


















(70
)


Reduction of common stock issued pursuant to merger agreement














(6
)


















Stock-based compensation expense










16,473



















16,473



Tax benefit related to exercise of stock options










33,810



















33,810



Unrealized gain on marketable securities


























36



36



36Net income






















43,037







43,037



43,037Total comprehensive income

































$
43,073Balance at December 31, 2010


71,157,422


$
71


$
266,144



(6,756,693
)

$
(37,522
)

$
91,848


$
34


$
320,545    65




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##### Table of Contents





ACME
    PACKET, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands)
  Year Ended December 31,2010


2009


2008Operating activitiesNet income

$
43,037


$
17,106


$
11,572Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


6,243



4,671



5,043Amortization of intangible assets


1,760



706



Gain on acquisition of business






(4,293
)


Impairment of fixed assets






94



857Provision for bad debts


496



217



1,109Amortization of premium/discount on investments


1,949



113



Stock-based compensation expense


16,473



10,360



7,398Deferred income taxes


(1,427
)


(1,497
)


(3,222
)Excess tax benefit related to exercise of stock options


(33,810
)


(1,762
)


(1,438
)Change in operating assets and liabilities, net of acquisition:Accounts receivable


(9,689
)


1,905



325Inventory


(2,290
)


1,974



(1,224
)Deferred product costs


(172
)


(2,276
)


Other assets


(420
)


(375
)


613Accounts payable


3,266



227



(1,295
)Accrued expenses, other current liabilities and deferred rent


29,506



2,665



(368
)Deferred revenue


197



15,312



9,301Net cash provided by operating activities


55,119



45,147



28,671Investing activitiesPurchases of property and equipment


(13,316
)


(4,869
)


(4,042
)Purchase of marketable securities


(309,939
)


(84,631
)


Proceeds from sale and maturities of marketable securities


208,488







Cash received from acquisition, net






5,965



Increase






(622
)


Net cash used in investing activities


(114,767
)


(84,157
)


(4,042
)Financing activitiesRepurchase of common stock










(37,523
)Proceeds from exercise of stock options


27,036



1,997



759Tax benefit related to exercise of stock options


33,810



1,761



1,438Net cash provided by (used in) financing activities


60,846



3,758



(35,326
)Net increase (decrease) in cash and cash equivalents


1,198



(35,252
)


(10,697
)Cash and cash equivalents at beginning of year


90,471



125,723



136,420Cash and cash equivalents at end of year

$
91,669


$
90,471


$
125,723Supplemental disclosure of cash flow information:Cash paid for income taxes, net

$
692


$
6,328


$
6,480Supplemental disclosure of non-cash financing activitiesLeasehold improvements financed by landlord through lease
    incentive

$
3,646


$



$
Supplemental disclosure of cash flow related to acquisition
    (Note 3):In connection with the acquisition of Covergence Inc. on
    April 30, 2009, the following transactions occurred:Fair value of assets acquired

$



$
34,561


$
Liabilities assumed related to acquisition






(7,480
)


Gain on acquisition of business






(4,293
)


Total purchase price






22,788



Less fair value of common stock issued






(22,190
)


Less cash and cash equivalents acquired






(6,563
)


Cash received from acquisition, net of cash paid

$



$
5,965


$
    66




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
  1.
    Business
    Description    Net-Net over-the-top
  2.
    Summary
    of Significant Accounting Policies    Subsequent
    Events
      Principles
    of Consolidation
    Managements
    Estimates and Uncertainties
     67




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)        Prior
    Year Financial Statement Reclassification
    Revenue
    Recognition
      
    Persuasive evidence of an arrangement exists. The
    Company considers a non cancelable agreement signed by the
    customer and the Company to be representative of persuasive
    evidence of an arrangement.
    Delivery has occurred. The Company considers
    delivery to have occurred when product has been delivered to the
    customer and no significant post delivery obligations exist. In
    instances where customer acceptance is required, delivery is
    deemed to have occurred when customer acceptance has been
    achieved. Certain of the Companys agreements contain
    products that might not conform to published specifications or
    contain a requirement to deliver additional elements which are
    essential to the functionality of the delivered elements.
    Revenue associated with these 68




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  agreements is recognized when the customer specifications have
    been met or delivery of the additional elements has occurred.  
    Consideration is fixed or determinable. The Company
    considers the consideration to be fixed or determinable unless
    the consideration is subject to refund or adjustment or is not
    payable within normal payment terms. If the consideration is
    subject to refund or adjustment, the Company recognizes revenue
    when the right to a refund or adjustment lapses. If offered
    payment terms exceed the Companys normal terms, then
    revenue is recognized as the amounts become due and payable or
    upon the receipt of cash.
    Collection is deemed probable. The Company conducts
    a credit review for all transactions at the inception of an
    arrangement to determine the creditworthiness of the customer.
    Collection is deemed probable if, based upon the Companys
    evaluation, the Company expects that the customer will be able
    to pay amounts under the arrangement as payments become due. If
    the Company determines that collection is not probable, revenue
    is deferred and recognized upon the receipt of cash.           69




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)      out-of-pocket
  Cash,
    Cash Equivalents, Short-term and Long-term
    Investments
  held-to-maturity. available-for-sale Available-for-sale available-for-sale held-to-maturity available-for-sale
    As of December 31, 2010Contracted

Amortized


Fair Market


CarryingMaturity

Cost


Value


ValueCash

Demand

$
35,580


$
35,580


$
35,580Money market funds

Demand


56,089



56,089



56,089Total cash and cash equivalents



$
91,669


$
91,669


$
91,669U.S. agency
    notesavailable-for-sale

4-419 days

$
69,575


$
69,606


$
69,606U.S. agency
    notesheld-to-maturity

15-329 days


109,418



114,451



109,418Total short-term marketable securities



$
179,489


$
184,292


$
179,024U.S. agency
    notesheld-to-maturity

419 days

$
5,030



5,029



5,030Total long-term marketable securities



$
5,030


$
5,029


$
5,030    70




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  As of December 31, 2009Contracted

Amortized


Fair Market


CarryingMaturity

Cost


Value


ValueCash

Demand

$
8,789


$
8,789


$
8,789Money market funds

Demand


81,682



81,682



81,682Total cash and cash equivalents



$
90,471


$
90,471


$
90,471U.S. agency
    notesavailable-for-sale

263-346 days

$
4,985


$
4,983


$
4,983U.S. agency
    notesheld-to-maturity

42-346 days


35,007



35,028



35,007Total short-term marketable securities



$
39,992



40,011



39,990U.S. agency
    notesheld-to-maturity

375-435 days

$
44,526



44,385



44,526Total long-term marketable securities



$
44,526


$
44,385


$
44,526   Fair
    Value Measurements
    
    Level 1: Observable inputs such as quoted prices for
    identical assets or liabilities in active markets;
    Level 2: Inputs, other than the quoted prices in
    active markets, that are observable either directly or
    indirectly such as quoted prices for similar assets or
    liabilities or market corroborated inputs; and
    Level 3: Unobservable inputs for which there is little
    or no market data, which require the reporting entity to develop
    its own assumptions about how market participants would price
    the assets or liabilities.    
    Market approachUses prices and other relevant information
    generated by market transactions involving identical or
    comparable assets or liabilities;
    Income approachUses valuation techniques to convert future
    amounts to a single present amount based on current market
    expectations about those future amounts, including present value
    techniques, option pricing models and excess earnings
    method; and
    Cost approachBased on the amount that currently would be
    required to replace the service capacity of an asset
    (replacement cost). 71




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)     SignificantQuoted Prices in


Other


SignificantActive Markets for


Observable


UnobservableIdentical Items


Inputs


Inputs(Level 1)


(Level 2)


(Level 3)


TotalAssets:Money market funds

$
66,089


$



$



$
66,089U,S, agency notes






15,280







15,280Restricted cash


837











837Total cash equivalents and restricted cash

$
66,926


$
15,280


$



$
82,206Short-term U.S. agency notes

$



$
179,024


$



$
179,024Long-term U.S. agency notes






5,030







5,030Total investments

$



$
184,054


$



$
184,054Total assets

$
66,926


$
199,334


$



$
266,260   available-for-sale other-than-temporary.
    Restricted
    Cash
    Allowance
    for Doubtful Accounts
   72




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Balance at





Balance atBeginning of





End ofPeriod

Provision

Write-offs

PeriodYear ended December 31, 2010

$
1,311


$
496


$
(344
)

$
1,463Year ended December 31, 2009


1,281



217



(187
)


1,311Year ended December 31, 2008


574



1,109



(402
)


1,281   Inventory
    and Deferred Product Costs
        Property
    and Equipment
    Assets Classification

Estimated Useful LifeComputer hardware and software

3 yearsFurniture and fixtures

3 yearsOffice and engineering equipment

3 yearsEvaluation systems

2 yearsLeasehold improvements

Shorter of assets useful life or
    remaining life of the lease    73




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    As of December 31,2010


2009Computer hardware and software

$
9,015


$
6,441Furniture and fixtures


3,169



1,560Office and engineering equipment


10,308



8,687Evaluation systems


7,602



4,408Leasehold improvements


8,715



1,287Construction in progress


613



7739,422



22,460Less accumulated depreciation and amortization


(22,266
)


(16,023
)Property and equipment, net

$
17,156


$
6,437         Financial
    Instruments
    Concentrations
    of Credit Risk and Off-Balance Sheet Risk
   74




---



##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Year Ended December 31,2010

2009

2008Customer A


12
%


*



*Customer B


10



15
%


17
%Customer C


*



14



15Customer D


*



*



10     *
    
    Less than 10% of total revenue.    As of December 31,2010

2009Customer A


20
%


*Customer B


10



16
%Customer C


*



15     *
    
    Less than 10% of total accounts receivable.  Product
    Warranties
   75




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Balance at December 31, 2008

$
160Provision for warranty costs


386Uses/reductions


(406
)Balance at December 31, 2009


140Provision for warranty costs


1,100Uses/reductions


(1,151
)Balance at December 31, 2010

$
89   Stock-Based
    Compensation
        Share-Based Payment
   76




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Year Ended December 31,2010


2009


2008Risk-free interest rate


2.14
%


2.01
%


3.05
%Expected volatility


59.27
%


58.86
%


46.56
%Expected life


4.77 years



4.74 years



4.76 yearsDividend yield










         Research
    and Development
    Comprehensive
    Income
   77




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  available-for-sale
  available-for-sale
  Net
    Income Per Share
    Year Ended December 31,2010


2009


2008Weighted average number of shares of common stock


62,002,543



57,078,933



58,493,883Less: Weighted average number of unvested restricted common
    shares outstanding






(1,294
)


(30,473
)Weighted average number of common shares used in calculating
    basic net income per common share


62,002,543



57,077,639



58,463,410Weighted average number of common shares issuable upon exercise
    of outstanding stock options, based on treasury stock method


5,691,431



4,349,025



4,408,953Weighted average number of unvested restricted common shares
    outstanding






1,182



30,473Weighted average number of common shares issuable upon vesting
    of outstanding restricted stock units


221,551



123,194



17,432Weighted average number of common shares used in computing
    diluted net income per common share


67,915,525



61,551,040



62,920,268     Impairment
    of Long-Lived Assets
   78




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Capitalized
    Internal Use Software
    Foreign
    Currency Exchange Risk
    Income
    Taxes
    Advertising
    Expense
   79




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  Recent
    Accounting Pronouncements
  2009-13, Revenue Arrangements with Multiple Deliverables, objective-and-reliable-evidence-of-fair-value 2009-14, Certain Revenue Arrangements that Include Software Elements,
  3.
    Business
    Combinations  Covergence
    Inc.
        4.
    Intangible
    Assets   80




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   4.
    Intangible
    Assets (Continued)            Estimated


Gross Carrying Value


Accumulated Amortization as ofUseful Life


December 31,


December 31,


December 31,


December 31,Description

(in years)


2010


2009


2010


2009Developed technology


7.7


$
9,707


$
7,089


$
2,119


$
585Patents


15.7



850



850



84



23Customer relationships


9.7



798



798



139



55Trademarks and trade names


14.7



461



461



49



13Internal use software


3.0



119



119



75



30Total





$
11,935


$
9,317


$
2,466


$
706    81




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   4.
    Intangible
    Assets (Continued)    Year Ended December 31,

Amount2011

$
1,7052012


1,8672013


1,7292014


1,3912015


1,0782016 and thereafter


1,699Total

$
9,469    5.
    Income
    Taxes    Year Ended December 31,2010


2009


2008Domestic

$
65,491


$
22,717


$
16,634Foreign


1,065



680



553Total

$
66,556


$
23,397


$
17,187     Year Ended December 31,2010


2009


2008Current provision:Federal

$
23,131


$
7,136


$
8,162State


1,296



473



527Foreign


519



179



148Total current


24,946



7,788



8,837Deferred benefit:Federal


(1,338
)


(1,183
)


(2,955
)State


(89
)


(314
)


(267
)Total deferred


(1,427
)


(1,497
)


(3,222
)Total provision

$
23,519


$
6,291


$
5,615  82




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   5.
    Income
    Taxes (Continued)    Year Ended December 31,2010


2009


2008U.S. federal statutory rate


35.0
%


35.0
%


35.0
%State taxes, net


1.1



0.4



1.2Permanent differences


(0.4
)


1.4



3.1Book gain on Covergence acquisition






(6.4
)


Research and development tax credits


(1.2
)


(4.0
)


(4.7
)Other


0.8



0.5



(1.9
)Effective tax rate


35.3
%


26.9
%


32.7
%   CompensationStock Compensation
   83




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   5.
    Income
    Taxes (Continued)    December 31,2010


2009Stock-based compensation

$
10,588


$
7,085NOL and tax credit carryforwards


7,631



8,269Basis difference in intangible assets


(3,530
)


(4,154
)Basis difference in fixed assets


(3,718
)


315Inventory and warranty reserves


1,533



1,414Allowance for doubtful accounts


546



489Accrued vacation expense


463



432Sales tax reserve


97



61Capitalized research and development costs


3,395



3,938Other temporary differences


1,611



(660
)Net deferred tax asset

$
18,616


$
17,189            84




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   5.
    Income
    Taxes (Continued)      6.
    Stockholders
    Equity  Common
    Stock Repurchase Program
  Rule 10b5-1
    7.
    Equity
    Incentive Plans     85




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   7.
    Equity
    Incentive Plans (Continued)        Weighted-AverageWeighted-Average


Remaining


AggregateNumber


Exercise Price


Exercise Price


Contractual


Intrinsicof Shares


Per Share


Per Share


Life (Years)


Value(1)Outstanding at December 31, 2009


12,236,695


$
0.20 - 16.86


$
5.43Granted


3,671,501



13.04 - 53.45



18.88Canceled


(153,737
)


4.35 - 27.60



12.14Exercised


(5,543,419
)


0.20 - 26.69



4.88






$
150,721Outstanding at December 31, 2010


10,211,040



0.20 - 53.45



10.47



5.38



435,965Exercisable at December 31, 2010


3,046,055



0.20 - 26.69



4.84



4.71



147,243Vested or expected to vest at December 31, 2010(2)


9,274,084



0.20 - 53.45



10.18



5.35



417,967     (1)
    
    The aggregate intrinsic value was calculated based on the
    positive difference between the fair value of the Companys
    common stock on December 31, 2010 of $53.16 or the date of
    exercise, as appropriate, and the exercise price of the
    underlying options.(2)
    
    This represents the number of vested options as of
    December 31, 2010 plus the number of unvested options
    expected to vest as of December 31, 2010 based on the
    unvested options outstanding at December 31, 2010, adjusted
    for an estimated forfeiture rate.   86




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   7.
    Equity
    Incentive Plans (Continued)    Weighted-AverageNumber


Grant Date Fair Valueof Shares


Per ShareUnvested at December 31, 2009


385,818


$
6.00Granted


238,000



13.04Vested


(159,151
)


15.38Forfeited


(51,834
)


7.81Unvested at December 31, 2010


412,833


$
6.22   Tender
    Offer
      8.
    Commitments
    and Contingencies  Operating
    Leases
   87




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   8.
    Commitments
    and Contingencies (Continued)             88




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
   8.
    Commitments
    and Contingencies (Continued)    Year Ending December 31:2011

$
2,6952012


2,9442013


2,9442014


2,9442015 and thereafter


5,886Total minimum lease payments

$
17,413   Litigation
      Other
    9.
    Accrued
    Expenses and Other Current Liabilities    December 31,2010


2009Accrued compensation and related benefits

$
11,243


$
6,080Deferred rent


508



96Accrued sales and use taxes


1,229



1,183Other accrued liabilities


1,649



1,902Total

$
14,629


$
9,261  89




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
  10.
    Segment
    Information    Geographic
    Data
    Year Ended December 31,2010


2009


2008United States and Canada

$
142,921


$
76,216


$
59,512International


88,311



65,242



56,846Total

$
231,232


$
141,458


$
116,358       11.
    401(k)
    Plan   90




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2010, 2009 and 2008
  (in
    thousands, except share and per share data)
  12.
    Quarterly
    Financial Data (unaudited)  Three Months EndedMarch 31,

June 30,

September 30,

December 31,2010

2010

2010

2010Total revenue

$
51,050


$
53,336


$
56,614


$
70,232Gross profit


41,233



43,762



46,155



58,951Income from operations


12,829



14,898



16,341



22,107Net income

$
8,333


$
9,729


$
10,465


$
14,510Net income per share:Basic

$
0.14


$
0.16


$
0.17


$
0.23Diluted

$
0.13


$
0.14


$
0.15


$
0.21   Three Months EndedMarch 31,

June 30,

September 30,

December 31,2009

2009

2009

2009Total revenue

$
30,987


$
32,861


$
36,347


$
41,263Gross profit


24,832



26,784



29,396



33,165Income from operations


4,199



2,708



5,169



6,853Net income

$
2,758


$
1,693


$
3,580


$
9,075Net income per share:Basic

$
0.05


$
0.03


$
0.06


$
0.16Diluted

$
0.05


$
0.03


$
0.06


$
0.14   91




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (1)
    Evaluation
    of Disclosure Controls and Procedures.    Rules 13a-15(e) 15d-15(e)
  (2)
    Managements
    Annual Report on Internal Control over Financial
    Reporting.  Rule 13a-15(f) Rule 15d-15(f)
  
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of our assets;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and our
    directors; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.   92




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##### Table of Contents



(3)
    Changes
    in Internal Controls over Financial Reporting.    (4)
    Report of
    Independent Registered Public Accounting Firm  Report of
    Independent Registered Public Accounting Firm
            93




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##### Table of Contents



Item 9B.
    Other
    Information   94




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance  Form 10-K
  Item 11.
    Executive
    Compensation  Form 10-K
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Form 10-K
  Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence  Form 10-K
  Item 14.
    Principal
    Accounting Fees and Services  Form 10-K
 95




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statements and Schedules            EXHIBIT INDEX
  Exhibit No.

Description2
.1(6)

Agreement and Plan of Merger dated as of April 29, 2009 by
    and among Acme Packet, Inc., PAIC Midco Corp., CIAP Merger
    Corp., Covergence Inc. and the stockholder representative named
    therein3
.1(1)

Amended and Restated Certificate of Incorporation of the
    Registrant3
.2(2)

Second Amended and Restated Bylaws of the Registrant4
.1(1)

Specimen certificate evidencing shares of common stock10
.1(1)

Amended and Restated 2000 Equity Incentive Plan10
.2(1)

2006 Equity Incentive Plan10
. 3(5)

Letter Agreement dated as of August 29, 2008 between the
    Registrant and Peter J. Minihane10
.5(7)

Lease, dated November 23, 2009, by and between MSCP Crosby,
    LLC and the Registrant10
.6(1)

Lease Amendment entered into on July 12, 2010 and dated as
    of June 1, 2010 to the Lease, dated November 23, 2009,
    but and between MSCP Crosby, LLC and the Registrant10
.7(1)

2006 Equity Incentive Plan of the Registrant10
.8(1)

2006 Director Option Plan of the Registrant10
.9(8)

Form of Incentive Stock Option Agreement for the 2006 Equity
    Incentive Plan10
.10(8)

Form of Non-Statutory Stock Option Agreement for the 2006 Equity
    Incentive Plan for employees and consultants10
.11(8)

Form of Non-Statutory Stock Option Agreement for the 2006 Equity
    Incentive Plan for directors10
.12(8)

Form of Non-Statutory Stock Option Agreement for the
    2006 Director Option Plan10
.13(9)

Form of Restricted Stock Unit Agreement for the 2006 Equity
    Incentive Plan for Executive Officers10
.14(9)

Form of Restricted Stock Unit Agreement for the 2006 Equity
    Incentive Plan for Employees10
.15(10)

Form of Non-Statutory Stock Option Agreement for the 2006 Equity
    Incentive Plan for Executive Officers14
.1(3)

Code of Business Conduct and Ethics21
.1

Subsidiaries of the Registrant23
.1

Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm31
.1

Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act31
.2

Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act32
.1

Certification of the Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act  96




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##### Table of Contents



(1)
    
    Incorporated by reference to Registrants
    Form S-1
    Registration Statement (File No.
    333-134683)(2)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on December 11, 2007 (File
    No. 001-33041)(3)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    filed on March 15, 2007 (File
    No. 001-33041)(4)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on February 7, 2008 (File
    No. 001-33041)(5)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on September 3, 2008 (File
    No. 001-33041)(6)
    
    Incorporated by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    filed on April 30, 2009 (File
    No. 001-33041)(7)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on December 14, 2009 (File
    No. 001-33041)(8)
    
    Incorporated by reference to the Registrants
    Form S-8
    Registration Statement
    (File No. 333-138541)(9)
    
    Incorporated by reference to the Registrants
    Form S-8
    Registration Statement
    (File No. 333-157944)(10)
    
    Incorporated by reference to the Registrants Current
    Report of
    Form 8-K
    filed on February 3, 2010 (File
    No. 001-33041) 97




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##### Table of Contents



SIGNATURES    Acme Packet, Inc.(Registrant)Date: February 18, 2011

By:

/s/  Andrew
    D. OryAndrew D. OryPresident and Chief Executive OfficerDate: February 18, 2011

By:

/s/  Peter
    J. MinihanePeter J. MinihaneChief Financial Officer and Treasurer     Signature

Title

Date/s/  Andrew
    D. OryAndrew
    D. Ory

President and Chief Executive Officer; Director (Principal
    Executive Officer)

February 18, 2011/s/  Peter
    J. MinihanePeter
    J. Minihane

Chief Financial Officer
    (Principal Accounting and Financial Officer)

February 18, 2011/s/  Gary
    J. BowenGary
    J. Bowen

Director

February 18, 2011/s/  David
    B. ElsbreeDavid
    B. Elsbree

Director

February 18, 2011/s/  Robert
    C. HowerRobert
    C. Hower

Director

February 18, 2011/s/  Patrick
    J. MelampyPatrick
    J. Melampy

Director

February 18, 2011/s/  Robert
    G. OryRobert
    G. Ory

Director

February 18, 2011/s/  Russell
    MuirheadRussell
    Muirhead

Director

February 18, 2011  98