##### 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,
    2009oro

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(State or other jurisdiction
    of
    incorporation or organization)

04-3526641(I.R.S. Employer
    Identification No.)  71 Third Avenue
 Burlington, MA 01803
 (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.
  o x
  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 o
    Accelerated
    filer x
    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


21Item 1B.

Unresolved Staff Comments


37Item 2.

Properties


37Item 3.

Legal Proceedings


37Item 4.

Submission of Matters to a Vote of Security
    Holders


37PART IIItem 5.

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


38Item 6.

Selected Financial Data


41Item 7.

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


43Item 7A.

Quantitative and Qualitative Disclosure About
    Market Risk


66Item 8.

Financial Statements and Supplementary Data


68Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


101Item 9A.

Controls and Procedures


101Item 9B.

Other Information


103PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


104Item 11.

Executive Compensation


104Item 12.

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


104Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


104Item 14.

Principal Accountant Fees and Services


104PART IVItem 15.

Exhibits, Financial Statement Schedules


105SIGNATURES




107EX-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 development activities and the emerging opportunities for
    our solutions;
    our position in the session border controller market;
    the effect of the worldwide markets and related economic crisis
    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 controllers;
    the benefit of our products, services, or programs;
    our ability to establish and maintain relationships with key
    partners and contract manufactures;
    the advantages of our technology as compared to that of our
    competitors;
    our ability to establish and maintain intellectual property
    rights;
    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. Form 10-K
 2




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PART I  Item 1.
    Business  Overview
  Net-Net
  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-Q, Form 8-K,
  Industry
    Background
    e-mail, e-mail
  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
   5




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
    Softswitches, IP PBXs and unified communication servers
    set-up
    interactive communication sessions using signaling protocols
    such as, SIP, H.323, 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 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
    multi-media 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 compromise 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
     6




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IP-enabled
  
    Security. SBCs protect themselves, session agents
    and other elements of the service delivery infrastructure, 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 reach maximization. SBCs extend the reach of
    offered services by maximizing the different types of networks
    and devices supported. Support is provided for enabling sessions
    to traverse existing data firewall and network translation, or
    NAT, devices; bridging networks using overlapping
    IP addresses, virtual private networks, or VPNs, and
    IP version 4 and version 6 addresses; 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. SBCs play a
    critical role in assuring session capacity and quality. They
    perform admission and overload control to ensure that both the
    network and service infrastructure have the capacity to support
    a session with high quality. Additionally, they control the
    quality of network transport. SBCs also monitor and report
    actual session quality to determine compliance with performance
    specifications set forth in service level agreements between
    service providers or enterprises and their users.
    Revenue optimization and cost efficiency. SBCs can
    help service providers increase revenues by protecting against
    both bandwidth and quality of service theft, by routing sessions
    to minimize costs, and by providing accounting and related
    mechanisms to maximize billable sessions.
    Regulatory compliance. SBCs support compliance with
    government mandated regulations worldwide, including emergency
    services such as enhanced 9-1-1, or E9-1-1, and lawful
    intercept, which involves law enforcement agencies
    electronic surveillance of circuit and packet-mode
    communications as authorized by judicial or administrative
    order, such as the Communications Assistance for Law Enforcement
    Act, or CALEA. 7




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
    Significant experience in service provider deployments.We have significant experience in production deployments of
    SBCs by large interactive communications service providers,
    including deployments at 90 of the top 100 service providers in
    the world; and 11 of the Fortune 25 enterprises. Our product
    functionality and quality have continually improved based on our
    knowledge about network challenges and complexities that we have
    acquired through deployments with approximately 980 customers
    across the globe.
    Breadth of applications and standards support. Our
    products are capable of processing the most widely used real
    time interactive voice, video and multimedia communications
    sessions at wireline, wireless and cable IP network
    borders. We support a broad range of IP signaling
    protocols, such as SIP, H.323, H.248, MGCP/NCS and RTSP,
    transport protocols, encryption protocols, codecs, and
    addressing methods.
    Depth of border control features. We offer a deep
    set of session border control features for security, service
    reach maximization, service level agreement assurance, revenue
    optimization, cost efficiency, and regulatory compliance. In
    addition, our flexible product architecture facilitates rapid
    adoption of new control features required by emerging services,
    applications, business models and regulatory requirements.
    Responsive service and support. Our responsiveness
    to our customers and distribution partners new
    feature requirements and interoperability testing, as well as
    our commitment to swift problem resolution, has been critical in
    deploying our products.
    Carrier-class platform. Service providers and
    enterprises operate complex, mission critical networks that
    require security protection, high degrees of reliability,
    availability and maintainability, scalable performance and
    capacity, space and power saving hardware design and
    comprehensive network management. Products or platforms that
    satisfy these requirements are known as carrier
    class. We have designed our products to be carrier class.
    Proven interoperability. We have demonstrated the
    ability of our SBCs to interoperate with key products being
    deployed by major vendors for next generation services, such as
    softswitches, IMS CSCF elements, IP PBXs, unified
    communication servers, application servers, media gateways,
    media servers, policy servers routing databases and other
    communications infrastructure elements.    Session-aware
    load balancer
  Net-Net Net-Net Net-Net
 8




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Multiservice
    security gateway
  and/or and/or
    push-to-talk,
  Session
    routing proxy
         9




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Our
    Strategy
    
    Continuing to satisfy the evolving border requirements of
    service providers, enterprises, government and contact
    centers. Our SBC deployments in the wireline, wireless
    and cable networks of Tier 1 and other large service
    providers, as well as in enterprises and contact centers,
    position us to gain valuable knowledge that we can use to expand
    and enhance our products features and functionality.
    Exploiting 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. We may acquire these new
    technologies through organic growth or through selective
    acquisitions.
    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 among our
    customers. We intend to increase demand for our
    products by helping our customers to extend the reach of their
    services 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. 10




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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
 11




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Session monitoring and reporting.
  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
  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. 12




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
    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.
    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 E9-1-1, the Government
    Emergency Telecommunication Service, or 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 on-going 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
    platform, acquired from our Covergence acquisition in April
    2009, delivers an integrated SBC configuration optimized for low
    capacity enterprise and contact center applications. The 1
    rack-unit
    (RU) form factor
    Net-Net 2610
    and 2RU
    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 solution for low-capacity deployments in service
    provider, government defense and security focused agencies,
    enterprises and contact centers. The 1RU
    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. 13




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
    Acme Packet
    Net-Net 4250
    platform, shipping since 2002, is the industrys most
    widely deployed session border controller. Its success is
    attributable to its high functionality, architectural
    flexibility and signaling protocol breadth, and its ability to
    satisfy the performance, capacity, availability and
    manageability requirements of many service providers,
    enterprises, government organizations and contact centers.
    Acme Packet
    Net-Net 4500
    platform, shipping since the third quarter of 2008, delivers
    unmatched performance and configuration capabilities in a 1RU
    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
    ATCA chassis. The blade also 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 9200
    platform,introduced in late 2005, offers our highest levels
    of performance, capacity and availability for service provider
    and l enterprise deployments in a single 7 RU 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 3800

Net-Net 4250Signaling performance
    (relative sessions/second)

1 x

1 x

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

4,000

4,000

32,000Transcoding capacity
    (maximum number of sessions)

400

n/a

n/aIPsec tunnel capacity maximum
    (number of tunnels)

n/a

5,000

120,000Local route table capacity
    (maximum number of routes)

1 million

1 million

1 millionNetwork interfaces
    (maximum number and type)

(6) 1 Gbps

(4) 1 Gbps

(2) 1 GbpsDoS/DDoS protection, hardware-software based

Basic

Basic &
    Advanced

AdvancedHigh availability configuration

Inter-system

Inter-system

Inter-systemSize of high availability configuration (rack units)

2

2

2   14




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Net-Net 450050000

Net-Net 4500 ATCA

Net-Net 9000Signaling 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
  Acme
    Packet
    Net-Net
    EMS
  Net-Net Net-Net Net-Net Net-Net Net-Net Net-Net Net-Net
  Acme
    Packet
    Net-Net
    SAS
  Net-Net Net-Net Net-Net
  Acme
    Packet
    Net-Net
    RMC
  Net-Net Net-Net Net-Net Net-Net
 15




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General
  Net-Net
  Support
    and Services
    Professional Services.
  Technical Assistance Center. e-mail
  Training.
    Sales and
    Marketing
    Marketing and Product Management.
  Direct Sales.
  Indirect
    Distribution Partners
   16




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Net-Net
    Customers
      Year Ended December 31,2009

2008

2007Alcatel-Lucent15%

Alcatel-Lucent17%

Alcatel-Lucent17%Nokia Siemens Networks14%

Nokia Siemens Networks15%

Nokia Siemens Networks15%Sprint10%

Sprint13%Ericsson11%    17




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Research
    and Development
  Net-Net
    Manufacturing
  Net-Net Net-Net Net-Net Net-Net
   18




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Competition
    
    customer traction and experience;
    breadth of standards support;
    depth of border control features;
    proven interoperability and a carrier-class platform; and
    competitive costs.   19




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Intellectual
    Property
    Net-Net
  Net-Net
     20




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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 recent developments in
    the financial markets in the United States and elsewhere in the
    world may adversely affect our operating results and financial
    condition.
       21




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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.
     22




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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
    recently acquired Covergence Inc. 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.
     23




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Over
    the long term we intend to increase our investment in
    engineering, sales, service, manufacturing and administration
    activities, and these investments may achieve delayed, or lower
    than expected benefits which could harm our operating
    results.
    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.     24




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quarter-to-quarter
  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
    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.
   25




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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.
     26




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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 SBC systems to decrease
    resulting in fewer customers for and decreased sales of
    standalone SBC systems.
    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.
   27




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##### Table of Contents



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 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.
       28




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##### Table of Contents



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;
    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.  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.
   29




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##### Table of Contents



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.  Changes
    in effective tax rates or adverse outcomes resulting from
    examination of our income or other tax returns could adversely
    affect our results.
   30




---



##### Table of Contents



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.
    e-commerce
 31




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##### Table of Contents



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.
   32




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##### Table of Contents



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.
     33




---



##### 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.    Product
    liability claims related to our customers networks could
    result in substantial costs.
   34




---



##### Table of Contents



We may
    need additional capital in the future, which may not be
    available to us, and if it is available, may dilute your
    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;
    announcements by our competitors of significant contracts, new
    products or product enhancements, acquisitions, distribution
    partnerships, joint ventures or capital commitments;
    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; 35




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##### Table of Contents




    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.    If
    equity research analysts do not publish research or reports
    about our business or if they issue unfavorable commentary or
    downgrade our common stock, the price of our common stock could
    decline.
    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.
   36




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##### 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.
    Submission
    of Matters to a Vote of Security Holders   37




---



##### 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


Low2008First Quarter

$
12.81


$
6.85Second Quarter

$
10.09


$
7.72Third Quarter

$
8.00


$
4.05Fourth Quarter

$
5.72


$
2.832009First Quarter

$
6.56


$
3.55Second Quarter

$
10.34


$
5.90Third Quarter

$
10.88


$
7.54Fourth Quarter

$
12.25


$
9.20     Dividend
    Policy
    Stockholders
   38




---



##### Table of Contents



Stock
    Performance Graph
      
  10/13/2006

12/31/2006

12/31/2007

12/31/2008

12/31/2009Acme Packet


100.0



129.7



79.1



33.1



69.1NASDAQ Composite Index


100.0



102.5



112.5



66.9



96.3NASDAQ Telecommunications Index


100.0



106.5



116.2



66.3



98.2   Sales of
    Unregistered Securities
   39




---



##### Table of Contents



Use of
    Proceeds from Public Offering of Common Stock
  Form S-1 No. 333-134683)
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
  Rule 10b5-1
   40




---



##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data  Form 10-K.
  Form 10-K. Form 10-K.
  Year Ended December 31,2009


2008


2007


2006


2005(in thousands, except share and per share data)Statements of Operations Data:Revenue:Product

$
107,144


$
91,277


$
94,906


$
71,810


$
31,080Maintenance, support and service


34,314



25,081



18,146



12,260



5,040Total revenue


141,458



116,358



113,052



84,070



36,120Cost of revenue:Product(1)


21,613



19,662



18,736



14,874



8,231Maintenance, support and service(1)


5,668



5,005



4,377



3,122



1,342Total cost of revenue


27,281



24,667



23,113



17,996



9,573Gross profit


114,177



91,691



89,939



66,074



26,547Operating expenses:Sales and marketing(1)


53,643



44,411



35,745



23,985



15,156Research and development(1)


28,198



23,046



20,812



13,503



9,130General and administrative(1)


12,305



10,026



8,850



5,404



2,644Merger and integration-related costs


1,102















Total operating expenses


95,248



77,483



65,407



42,892



26,930Income (loss) from operations


18,929



14,208



24,532



23,182



(383
)Total other income, net


175



2,979



6,369



2,239



348Gain on acquisition of business


4,293















Income (loss) before provision for (benefit from) income taxes


23,397



17,187



30,901



25,421



(35
)Provision for (benefit from) income taxes


6,291



5,615



11,340



(3,443
)


Net income (loss)

$
17,106


$
11,572


$
19,561


$
28,864


$
(35
)Net income (loss) per share applicable to common stockholders:Basic(2)

$
0.30


$
0.20


$
0.33


$
0.57


$
0.00Diluted(2)

$
0.28


$
0.18


$
0.30


$
0.50


$
0.00Weighted average number of common shares used in net income
    (loss) per share calculation:Basic(2)


57,077,639



58,463,410



59,385,082



50,437,801



15,240,890Diluted(2)


61,551,040



62,920,268



66,016,411



57,418,796



15,240,890   41




---



##### Table of Contents



As of December 31,2009

2008

2007

2006

2005Balance Sheet Data:Cash, cash equivalents, short-term and long-term investments

$
174,987


$
125,723


$
136,420


$
118,714


$
15,369Working capital


123,452



136,006



153,479



123,299



14,005Total assets


246,726



174,010



184,174



153,305



30,121Total stockholders equity


200,223



146,811



163,167



130,937



17,723     (1)
    
    Certain amounts totaling $1.9 million, $1.9 million,
    $1.2 million and $957 in the consolidated statements of
    income for the years ended December 31, 2008, 2007, 2006
    and 2005, respectively, related to costs associated with our our
    facilities located in Burlington, Massachusetts have been
    reclassified in order to conform to the current period
    presentation. These amounts, which were previously included in
    general and administrative expenses, have been allocated, in the
    years ended December 31, 2008, 2007, 2006 and 2005, among
    cost of revenue and operating expenses and consisted of $428,
    $456, $249 and $205, respectively, to product cost of revenue,
    $296, $315, $172 and $142, respectively, to cost of maintenance,
    support and service revenue, $367, $358, $226 and $186,
    respectively, to sales and marketing expense and $811, $754,
    $515 and $425, respectively, to research and development
    expense. We believe that by allocating these costs in this
    manner it provides a better representation of the expenses
    associated with each of these activities.(2)
    
    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. 42




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Cautionary
    Statement
  This Annual Report on
    Form 10-K,
    including the information incorporated by reference herein,
    contains, in addition to historical information, forward-looking
    statements. We may, in some cases, use words such as
    project, believe,
    anticipate, plan, expect,
    estimate, intend, continue,
    should, would, could,
    potentially, will, may or
    similar words and expressions that convey uncertainty of future
    events or outcomes to identify these forward-looking statements.
    Forward-looking statements in this Annual Report on
    Form 10-K
    may include statements about:
  
    our ability to attract and retain customers;
    our ability to retain and hire necessary employees and
    appropriately staff our operations;
    our financial performance;
    our development activities and the emerging opportunities for
    our solutions;
    our position in the session border controller market;
    the effect of the worldwide markets and related economic
    crisis 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 controllers;
    the benefit of our products, services, or programs;
    our ability to establish and maintain relationships with key
    partners and contract manufactures;
    the advantages of our technology as compared to that of our
    competitors;
    our ability to establish and maintain intellectual property
    rights;
    our expectations regarding the realization of recorded
    deferred tax assets; and
    our cash needs.  The outcome of the events described in these forward-looking
    statements is subject to known and unknown risks, uncertainties
    and other factors that could cause actual results to differ
    materially from the results anticipated by these forward-looking
    statements. These important factors include our financial
    performance, difficulties in attracting and retaining customers,
    difficulties in meeting customer needs through our development
    activities, difficulties leveraging market opportunities, the
    worldwide economic crisis, a decline in product sales, long
    sales cycles, difficulties developing new products, difficulties
    in our relationships with vendors and partners, risks associated
    with international operations, difficulty in managing rapid
    growth and increased competition, and those factors we discuss
    in this Annual Report on
    Form 10-K
    under the caption Risk Factors. You should read
    these factors and the other cautionary statements made in this
    Annual Report on
    Form 10-K
    as being applicable to all related forward-looking statements
    wherever they appear in this Annual Report on
    Form 10-K.
    These risk factors are not exhaustive and other sections of this
    Annual Report on
    Form 10-K
    may include additional factors which could adversely impact our
    business and financial performance.
  Overview
   43




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##### Table of Contents



end-user
    Business
    Combination
  software-based service-oriented
    Industry
    Background
     44




---



##### Table of Contents



real-time
      Key
    Financial Highlights
    
    Total revenue was $141.5 million for 2009 compared to
    $116.4 million in 2008;
    Net income was $17.1 million for 2009 compared to
    $11.6 million in 2008;
    Net income was $0.28 per share on a diluted basis for 2009
    compared to $0.18 per share on a diluted basis in 2008; and
    Cash provided by operating activities was $45.1 million for
    2009 compared to $28.7 million in 2008. 45




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##### Table of Contents



The Acme
    Packet Strategy
    
    Continuing to satisfy the evolving border requirements of
    large service providers, enterprises, government agencies and
    contact centers. Our SBC deployments in the wireline,
    wireless and cable networks of Tier 1 and other large service
    providers, as well as in enterprises and contact centers,
    position us to gain valuable knowledge that we can use to expand
    and enhance our products features and functionality.
    Exploiting 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. We may acquire these new
    technologies through organic growth or through selective
    acquisitions.
    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 among our
    customers.We intend to increase demand for our products by
    helping our customers to extend the reach of their services 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.  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 capital
    budgets.
    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 the provision of 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 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 gross
    margins.
    Competition. The market for SBCs is competitive and
    constantly evolving. While we believe we are currently the
    market leader in the service provider and enterprise market, we
    expect competition to persist and intensify in the future as the
    SBC market grows. Our primary competitors generally consist of
    start-up
    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
    Sonus Networks Inc., Telefonaktiebolaget LM Ericsson, and
    Alcatel-Lucent. We believe 46




---



##### Table of Contents



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 SBC market opportunity
    grows, we expect competition from additional networking and
    IP communications equipment suppliers, including our
    distribution partners.  
    Evolution of the SBC Market. The market for SBCs 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 SBCs.
    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 SBCs is characterized by rapid technological change,
    frequent new product 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 2009 and 2008. During the period from
    December 31, 2007 through December 31, 2009 we
    increased the number of our employees and full time independent
    contractors by 38%, from 327 to 450. In connection with the
    acquisition of Covergence in April 2009, we added
    39 employees. 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
       47




---



##### Table of Contents



Cost
    of Revenue
      Gross
    Profit
    Operating
    Expenses
         48




---



##### Table of Contents



Stock-Based
    Compensation
      Other
    Income (Expense), Net
   49




---



##### Table of Contents



Application
    of Critical Accounting Policies and Use of Estimates
  Form 10-K.
  Form 10-K,
  Revenue
    Recognition
      
    Persuasive evidence of an arrangement exists. We
    consider a non-cancelable 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.
    Fees are fixed or determinable. We consider the fee
    to be fixed or determinable unless the fee is subject to refund
    or adjustment or is not payable within normal payment terms. If
    the fee is subject to refund or adjustment, we recognize revenue
    when the right to a refund or adjustment lapses. If offered
    payment terms exceed our normal terms, we recognize revenue 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. 50




---



##### Table of Contents



Allowance
    for Doubtful Accounts
    Stock-Based
    Compensation
     51




---



##### Table of Contents



Share-Based Payment
    Inventory
      Product
    Warranties
     52




---



##### Table of Contents



Research
    and Development Expense for Software Products
    Income
    Taxes
    Income
    Taxes
  Business
    Combinations
        Impairment
    of Intangible Assets
   53




---



##### Table of Contents



Results
    of Operations
  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

$
107,144



76
%

$
91,277



78
%

$
15,867



17
%Maintenance, support and service


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
%    54




---



##### Table of Contents



Cost of
    Revenue and Gross Profit
  Year Ended December 31,


Period-to-Period2009


2008


ChangePercentage





Percentageof Related





of RelatedAmount


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
%            55




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##### Table of Contents



Operating
    Expenses
  Year Ended December 31,


Period-to-Period2009


2008


ChangePercentage





Percentageof Total





of TotalAmount


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       56




---



##### Table of Contents



Operating
    and Other Income
  Year Ended December 31,


Period-to-Period2009


2008


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


PercentageIncome from operations

$
18,929



13
%

$
14,208



12
%

$
4,721



33
%Interest income


253







3,225



3



(2,972
)


(92
)Gain from acquisition of business


4,293



3











4,293




*Other expense


(78
)






(246
)






168



(68
)Income before provision for income taxes


23,397



16



17,187



15



6,210



36Provision for income taxes


6,291



4



5,615



5



676



12Net income

$
17,106



12
%

$
11,572



10
%

$
5,534



48
%     *
    
    Not meaningful         57




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##### Table of Contents



Comparison
    of Years Ended December 31, 2008 and 2007
  Revenue
  Year Ended December 31,


Period-to-Period2008


2007


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Revenue by Type:Product

$
91,277



78
%

$
94,906



84
%

$
(3,629
)


(4
)%Maintenance, support and service


25,081



22



18,146



16



6,935



38Total revenue

$
116,358



100
%

$
113,052



100
%

$
3,306



3
%Revenue by Geography:United States and Canada

$
59,512



51
%

$
53,748



48
%

$
5,764



11
%International


56,846



49



59,304



52



(2,458
)


(4
)Total revenue

$
116,358



100
%

$
113,052



100
%

$
3,306



3
%Revenue by Sales Channel:Direct

$
47,490



41
%

$
43,728



39
%

$
3,762



9
%Indirect


68,868



59



69,324



61



(456
)


(1
)Total revenue

$
116,358



100
%

$
113,052



100
%

$
3,306



3
%      58




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##### Table of Contents



Cost of
    Revenue and Gross Profit
  Year Ended December 31,


Period-to-Period2008


2007


ChangePercentage





Percentageof Related





of RelatedAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Cost of Revenue:Product

$
19,662



22
%

$
18,736



20
%

$
926



5
%Maintenance, support and service


5,005



20



4,377



24



628



14Total cost of revenue

$
24,667



21
%

$
23,113



20
%

$
1,554



7
%Gross Profit:Product

$
71,615



78
%

$
76,170



80
%

$
(4,555
)


(6
)%Maintenance, support and service


20,076



80



13,769



76



6,307



46Total gross profit

$
91,691



79
%

$
89,939



80
%

$
1,752



2
%          59




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##### Table of Contents



Operating
    Expenses
  Year Ended December 31,


Period-to-Period2008


2007


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


Percentage(dollars in thousands)Sales and marketing

$
44,411



38
%

$
35,745



32
%

$
8,666



24
%Research and development


23,046



20



20,812



18



2,234



11General and administrative


10,026



9



8,850



8



1,176



13Total operating expenses

$
77,483



67
%

$
65,407



58
%

$
12,076



18
%        60




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##### Table of Contents



Operating
    and Other Income
  Year Ended December 31,


Period-to-Period2008


2007


ChangePercentage





Percentageof Total





of TotalAmount


Revenue


Amount


Revenue


Amount


PercentageIncome from operations

$
14,208



12
%

$
24,532



22
%

$
(10,324
)


(42
)%Interest income


3,225



3



6,420



6



(3,195
)


(50
)Other expense


(246
)






(51
)






(195
)


382Income before provision for (benefit from) income taxes


17,187



15



30,901



27



(13,714
)


(44
)Provision for (benefit from) income taxes


5,615



5



11,340



10



(5,725
)


(50
)Net income

$
11,572



10
%

$
19,561



17
%

$
(7,989
)


(41
)%           Use of
    Non-GAAP Financial Measures
     61




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##### Table of Contents



and/or and/or
  Year EndedDecember 31,


December 31,2009


2008Reconciliation of non-GAAP net income:Net income

$
17,106


$
11,572Adjustments:Stock-based compensation expense, net of taxes


7,137



5,482Amortization of acquired intangible assets


461



Merger and integration-related costs, net of taxes


903



Gain on acquisition of business


(4,293
)


Non-GAAP net income

$
21,314


$
17,054Reconciliation of non-GAAP net income per share:Net income per share, Basic

$
0.30


$
0.20Adjustments:Stock-based compensation expense, net of taxes


0.12



0.09Amortization of acquired intangible assets


0.01



Merger and integration-related costs, net of taxes


0.02



Gain from acquisition of business


(0.08
)


Non-GAAP net income per share, Basic

$
0.37


$
0.29Net income per share, Diluted

$
0.28


$
0.18Adjustments:Stock-based compensation expense, net of taxes


0.12



0.09Amortization of acquired intangible assets


0.01



Merger and integration-related costs, net of taxes


0.01



Gain on acquisition of business


(0.07
)


Non-GAAP net income per share, Diluted

$
0.35


$
0.27   Liquidity
    and Capital Resources
  Resources
   62




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##### Table of Contents



As of and for the Year EndedDecember 31,2009

2008

2007(in thousands)Cash and cash equivalents

$
90,471


$
125,723


$
136,420Short and long-term investments


84,516







Accounts receivable, net


25,604



26,163



27,597Working capital


123,452



136,006



153,497Cash provided by operating activities


45,146



28,671



16,403Cash used in investing activities


(84,156
)


(4,042
)


(5,316
)Cash provided by (used in) financing activities


3,758



(35,326
)


6,619   Cash, cash equivalents, short-term and long-term
    investments.
  Accounts receivable, net.
  Operating activities.
 63




---



##### Table of Contents



Investing activities.
  Financing activities.
  Anticipated cash flows.
  Income taxes.
    Income Taxes
    Requirements
  Capital expenditures.
 64




---



##### Table of Contents



Contractual obligations and requirements.
            More thanTotal

1 year or less

1-3 years

3-5 years

5 years(in thousands)Operating leases obligations

$
15,280


$
957


$
4,869


$
4,828


$
4,626   Off-Balance-Sheet
    Arrangements
  Regulation S-K
  Recent
    Accounting Pronouncements
  2010-09, Subsequent Events (Topic 855) 2010-09 2010-09
  2009-13, Revenue Arrangements with Multiple Deliverables,
 65




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##### Table of Contents



2009-14, Certain Revenue Arrangements that Include Software Elements,
    Subsequent Events (ASC
    855)
  Business
    Combinations (ASC 805) Exit or Disposal Cost
    Obligations
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Foreign
    Currency Exchange Risk
   66




---



##### Table of Contents



Interest
    Rate Risk
   67




---



##### 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


69Consolidated Balance Sheets as of
    December 31, 2009 and 2008


70Consolidated Statements of Income for the Years
    Ended December 31, 2009, 2008 and 2007


71Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2009, 2008 and
    2007


72Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2009, 2008 and 2007


73Notes to Consolidated Financial Statements


74  68




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             Boston, Massachusetts

/s/ Ernst & Young LLPMarch 9, 2010  69




---



##### Table of Contents



ACME
    PACKET, INC.CONSOLIDATED BALANCE SHEETS
    (in thousands, except share and per share data)
  December 31,2009


2008ASSETSCurrent assets:Cash and cash equivalents

$
90,471


$
125,723Short-term investments


39,990



Accounts receivable, net of allowance of $1,311 and $1,281,
    respectively


25,604



26,163Inventory


4,372



5,884Deferred product costs


3,400



1,124Deferred tax asset


1,567



1,262Other current assets


2,710



1,362Total current assets


168,114



161,518Long-term investments


44,526



Property and equipment, net


6,437



5,485Acquired intangible assets, net of accumulated amortization of
    $706 at December 31, 2009


11,228



Restricted cash


755



333Deferred tax asset, net


15,622



6,540Other assets


44



134Total assets

$
246,726


$
174,010LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,895


$
3,364Accrued expenses and other current liabilities


9,261



6,865Deferred revenue, current portion


31,506



15,283Total current liabilities


44,662



25,512Deferred rent






96Deferred revenue, net of current portion


1,841



1,591Commitments and contingencies (Note 6)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 65,459,593 and
    61,446,077 shares, respectively


65



61Additional paid-in capital


188,871



152,567Treasury stock, at cost6,756,687 shares


(37,522
)


(37,522
)Accumulated other comprehensive loss


(2
)


Retained earnings


48,811



31,705Total stockholders equity


200,223



146,811Total liabilities and stockholders equity

$
246,726


$
174,010    70




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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 31,2009


2008


2007Revenue:Product


$107,144



$91,277



$94,906Maintenance, support and service


34,314



25,081



18,146Total revenue


141,458



116,358



113,052Cost of revenue(1):Product


21,613



19,662



18,736Maintenance, support and service


5,668



5,005



4,377Total cost of revenue


27,281



24,667



23,113Gross profit


114,177



91,691



89,939Operating expenses(1):Sales and marketing


53,643



44,411



35,745Research and development


28,198



23,046



20,812General and administrative


12,305



10,026



8,850Merger and integration-related costs


1,102







Total operating expenses


95,248



77,483



65,407Income from operations


18,929



14,208



24,532Other income (expense):Interest income


253



3,225



6,420Gain on acquisition of business


4,293







Other expense


(78
)


(246
)


(51
)Total other income, net


4,468



2,979



6,369Income before provision for income taxes


23,397



17,187



30,901Provision for income taxes


6,291



5,615



11,340Net income


$ 17,106



$11,572



$19,561Net income per share (Note 2):Basic


$    0.30



$  0.20



$  0.33Diluted


$    0.28



$  0.18



$  0.30Weighted average number of common shares used in the calculation
    of net income per share:Basic


57,077,639



58,463,410



59,385,082Diluted


61,551,040



62,920,268



66,016,411(1) Amounts include stock-based compensation expense, as
    follows:Cost of product revenue


$    501



$   440



$   267Cost of maintenance, support and service revenue


570



408



294Sales and marketing


4,706



3,686



2,377Research and development


3,440



2,083



2,118General and administrative


1,143



781



994    71




---



##### 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, 2006


58,565,985


$
59


$
130,306






$



$
572


$



$
130,937


$
Issuance of common stock pursuant to the exercise of common
    stock warrants


112,571































Repurchase and retirement of common stock


(30,208
)


(1
)


(7
)


















(8
)


Exercise of common stock options


1,781,424



2



1,739



















1,741



Stock-based compensation expense










6,050



















6,050



Tax benefit related to exercise of stock options










4,886



















4,886



Net income






















19,561







19,561



19,561Total comprehensive income

































$
19,561Balance at December 31, 2007


60,429,772



60



142,974











20,133







163,167Repurchase 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



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     72




---



##### Table of Contents



ACME
    PACKET, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands)
  Year Ended December 31,2009


2008


2007Operating activitiesNet income

$
17,106


$
11,572


$
19,561Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


4,671



5,043



4,976Amortization of intangible assets


706







Gain on acquisition of business


(4,293
)






Impairment of property and equipment


94



857



Provision for bad debts


217



1,109



139Amortization of premium/discount on investments


113







Stock-based compensation expense


10,360



7,398



6,050Deferred income taxes


(1,497
)


(3,222
)


192Excess tax benefit related to exercise of stock options


(1,761
)


(1,438
)


(4,886
)Change in operating assets and liabilities, net of acquisition:Accounts receivable


1,905



325



(14,017
)Inventory


1,974



(1,224
)


1,427Deferred product costs


(2,276
)






Other current assets


(375
)


613



45Accounts payable


227



(1,295
)


(695
)Accrued expenses, other current liabilities and deferred rent


2,664



(368
)


4,821Deferred revenue


15,312



9,301



(1,210
)Net cash provided by operating activities


45,147



28,671



16,403Investing activitiesPurchases of property and equipment


(4,869
)


(4,042
)


(5,462
)Purchase of marketable securities


(84,631
)






Cash received from acquisition, net


5,965







(Increase) decrease in other assets


(622
)






146Net cash used in investing activities


(84,157
)


(4,042
)


(5,316
)Financing activitiesRepurchase of common stock






(37,523
)


(8
)Proceeds from exercise of stock options


1,997



759



1,741Tax benefit related to exercise of stock options


1,761



1,438



4,886Net cash provided by (used in) financing activities


3,758



(35,326
)


6,619Net (decrease) increase in cash and cash equivalents


(35,252
)


(10,697
)


17,706Cash and cash equivalents at beginning of year


125,723



136,420



118,714Cash and cash equivalents at end of year

$
90,471


$
125,723


$
136,420Supplemental disclosure of cash flow information:Cash paid for income taxes, net

$
6,328


$
6,480


$
7,641Supplemental 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


$



$
    73




---



##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
  1.
    Business
    Description      2.
    Summary
    of Significant Accounting Policies    Subsequent
    Events
    Principles
    of Consolidation
    Managements
    Estimates and Uncertainties
       74




---



##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)      Prior
    Year Financial Statement Reclassifications
        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 75




---



##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    
    Fees are fixed or determinable. The Company
    considers the fee to be fixed or determinable unless the fee is
    subject to refund or adjustment or is not payable within normal
    payment terms. If the fee 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.           76




---



##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (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
  available-for-sale Available-for-sale held-to-maturity available-for-sale
    As of December 31, 2009Contracted

Amortized


Fair Market


Balance PerMaturity

Cost


Value


Balance SheetCash

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held-to-maturity

42-346 days

$
35,007


$
35,028


$
35,007U.S. agency
    notesavailable-for-sale

263-346 days


4,985



4,983



4,983Total 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   77




---



##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  As of December 31, 2008Contracted


Amortized


Fair Market


Balance PerMaturity


Cost


Value


Balance SheetCash


Demand


$
4,738


$
4,738


$
4,738Money market funds


Demand



120,985



120,985



120,985Total cash and cash equivalents





$
125,723


$
125,723


$
125,723     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). 78




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (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

$
81,682


$



$



$
81,682Restricted cash


1,088











1,088Total cash equivalents and restricted cash


82,770











82,770Short-term U.S. agency notes






39,990







39,990Long-term U.S. agency notes






44,526







44,526Total investments






84,516







84,516Total assets

$
82,770


$
84,516


$



$
167,286   available-for-sale other-than-temporary.
    Restricted
    Cash
    Allowance
    for Doubtful Accounts
   79




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (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, 2009

$
1,281


$
217


$
(187
)

$
1,311Year ended December 31, 2008


574



1,109



(402
)


1,281Year ended December 31, 2007


695



139



(260
)


574   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    80




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    As of December 31,2009


2008Computer hardware and software

$
6,441


$
5,220Furniture and fixtures


1,560



1,529Office and engineering equipment


8,687



6,919Evaluation systems


4,485



5,159Leasehold improvements


1,287



1,12822,460



19,955Less accumulated depreciation and amortization


(16,023
)


(14,470
)Property and equipment, net

$
6,437


$
5,485         Financial
    Instruments
    Concentrations
    of Credit Risk and Off-Balance-Sheet Risk
   81




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Year EndedDecember 31,2009

2008

2007Customer A


15
%


17
%


17
%Customer B


14



15



15Customer C


*



10



13Customer D


*



*



11     *
    
    Less than 10% of total revenue.    As ofDecember 31,2009

2008Customer A


16
%


20
%Customer B


15



*Customer C


*



25Customer D


*



12     *
    
    Less than 10% of total accounts receivable.  Product
    Warranties
   82




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Balance at December 31, 2007

$
268Provision for warranty costs


282Uses/reductions


(390
)Balance at December 31, 2008


160Provision for warranty costs


386Uses/reductions


(406
)Balance at December 31, 2009

$
140   Stock-Based
    Compensation
        Share-Based Payment
   83




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)    Year Ended December 31,2009

2008

2007Risk-free interest rate


2.01
%


3.05
%


4.56
%Expected volatility


58.86
%


46.56
%


56.28
%Expected life


4.74 years



4.76 years



5.41 yearsDividend yield










         Research
    and Development
    Comprehensive
    Income
   84




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  available-for-sale
  Net
    Income Per Share
    Year Ended December 31,2009


2008


2007Weighted average number of shares of common stock outstanding


57,078,933



58,493,883



59,516,103Less: Weighted average number of unvested restricted common
    shares outstanding


(1,294
)


(30,473
)


(131,021
)Weighted average number of common shares used in calculating
    basic net income per common share


57,077,639



58,463,410



59,385,082Weighted average number of common shares issuable upon exercise
    of outstanding stock options, based on treasury stock method


4,349,025



4,408,953



6,471,886Weighted average number of unvested restricted common shares
    outstanding


1,182



30,473



127,251Weighted average number of common shares issuable upon vesting
    of outstanding restricted stock units


123,194



17,432



Weighted average number of common shares issuable upon exercise
    of common stock warrants










32,192Weighted average number of common shares used in computing
    diluted net income per common share


61,551,040



62,920,268



66,016,411     Impairment
    of Long-Lived Assets
   85




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (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
    Income Taxes
 86




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  Advertising
    Expense
    Recent
    Accounting Pronouncements
  2010-09, Subsequent Events (Topic 855) 2010-09 2010-09
  2009-13, Revenue Arrangements with Multiple Deliverables, 2009-14, Certain Revenue Arrangements that Include Software Elements,
    Subsequent Events
  Business
    Combinations
 87




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   2.
    Summary
    of Significant Accounting Policies (Continued)  Exit or Disposal Cost
    Obligations
  3.
    Business
    Combination       88




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   3.
    Business
    Combination (Continued)  Purchase
    Price
    Number of shares of the Companys common stock issued to
    Covergence stockholders


2,874,383Price per share(a)

$
7.74


$
22,248Cash paid to Covergence stockholders






20Cash paid for withholding taxes due(b)






578Total consideration paid






22,846Equity issuance costs(c)






(58
)Total purchase price





$
22,788     (a)
    
    Represents the closing stock price of the Companys common
    stock as reported on the NASDAQ Global Market on April 29,
    2009, the date of the signing of the Merger Agreement.(b)
    
    Represents withholding taxes paid in lieu of additional shares
    exchanged.(c)
    
    Represents costs incurred to register shares of common stock
    issued to Covergence stockholders.  Allocations
    of Assets and Liabilities
    Estimate ofFair Value asof April 30,2009Cash and cash equivalents

$
6,563Other tangible assets


3,029Intangible assets


9,317In-process research and development


2,617Deferred tax assets


13,035Liabilities assumed


(2,335
)Deferred tax liability


(5,145
)Fair value of net assets acquired


27,081Gain on acquisition of business


(4,293
)Total purchase price

$
22,788    89




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   3.
    Business
    Combination (Continued)          Merger
    and Integration-Related Costs
   90




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   3.
    Business
    Combination (Continued)  Pro
    Forma Financial Information (Unaudited)
    For the Year EndedDecember 31,2009

2008Total revenue

$
148,281


$
124,232Gross profit


118,981



95,894Income from operations


18,207



860Net income

$
16,586


$
2,245Net income per share:Basic

$
0.29


$
0.04Diluted

$
0.27


$
0.04   4.
    Intangible
    Assets      As of December 31, 2009Estimated


GrossUseful Life


Carrying


Accumulated(in years)


Value


AmortizationDeveloped technology


7.7


$
7,089


$
585Patents


15.7



850



23Customer relationships


9.7



798



55Trademarks and trade names


14.7



461



13Internal use software


3.0



119



30Total





$
9,317


$
706  91




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   4.
    Intangible
    Assets (Continued)    Year Ended December 31,

Amount2010

$
1,7362011


1,4612012


1,4042013


1,0992014


9302015 and thereafter


1,981Total

$
8,611       5.
    Income
    Taxes    Year Ended December 31,2009


2008


2007Domestic

$
22,717


$
16,634


$
30,514Foreign


680



553



387Total

$
23,397


$
17,187


$
30,901  92




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   5.
    Income
    Taxes (Continued)    Year Ended December 31,2009


2008


2007Current provision:Federal

$
7,136


$
8,162


$
9,946State


473



527



1,095Foreign


179



148



107Total current


7,788



8,837



11,148Deferred provision (benefit):Federal


(1,183
)


(2,955
)


(204
)State


(314
)


(267
)


396Total deferred


(1,497
)


(3,222
)


192Total provision

$
6,291


$
5,615


$
11,340     Year Ended December 31,2009


2008


2007U.S. federal statutory rate


35.0
%


35.0
%


35.0
%State taxes, net


0.4



1.2



3.1Permanent differences


1.4



3.1



0.6Book gain on Covergence acquisition


(6.4
)






Research and development tax credits


(4.0
)


(4.7
)


(2.2
)Other


0.5



(1.9
)


0.2Effective tax rate


26.9
%


32.7
%


36.7
%   CompensationStock
    Compensation
   93




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   5.
    Income
    Taxes (Continued)      December 31,2009


2008Stock-based compensation

$
7,085


$
3,943Net operating loss and tax credit carryforwards


8,269



Basis difference in intangible assets


(4,154
)


Depreciation


315



1,371Inventory and warranty reserves


1,414



1,312Allowance for doubtful accounts


489



488Accrued vacation expense


432



379Sales tax reserve


61



38Capital research and development


3,938



Other temporary differences


(660
)


271Net deferred tax asset

$
17,189


$
7,802         6.
    Stockholders
    Equity  Restricted
    Stock
   94




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   6.
    Stockholders
    Equity (Continued)    Weighted-AverageNumber of


Grant DateShares


Fair ValueUnvested shares at December 31, 2008


4,593


$
0.68Granted






Vested


(4,593
)


0.68Forfeited






Unvested shares at December 31, 2009






   Common
    Stock Repurchase Program
  Rule 10b5-1
    7.
    Equity
    Incentive Plans     95




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (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(2)Outstanding at December 31, 2008


10,080,342


$
0.20 - 18.36


$
5.85Granted


4,703,817



4.35 - 10.30



6.37Canceled


(1,450,665
)


0.85 - 18.36



14.09Exercised


(1,096,799
)


0.20 -  9.75



1.82






$
9,918Outstanding at December 31, 2009


12,236,695



0.20 - 16.86



5.43



5.56


$
70,083Exercisable at December 31, 2009


5,805,385



0.20 - 16.86



3.79



5.01


$
43,160Vested or expected to vest at December 31, 2009(1)


11,116,393



0.20 - 16.86



5.27



5.51


$
65,508     (1)
    
    This represents the number of vested options as of
    December 31, 2009 plus the number of unvested options
    expected to vest as of December 31, 2009 based on the
    unvested options outstanding at December 31, 2009, adjusted
    for the estimated forfeiture rate.(2)
    
    The aggregate intrinsic value was calculated based on the
    positive difference between the fair value of the Companys
    common stock on December 31, 2009 of $11.00 or the date of
    exercise, as appropriate, and the exercise price of the
    underlying options. 96




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (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, 2008


179,000


$
7.51Granted


257,000



5.24Vested


(45,182
)


7.38Forfeited


(5,000
)


8.62Unvested at December 31, 2009


385,818



6.00   Tender
    Offer
     97




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   8.
    Commitments
    and Contingencies  Operating
    Leases
              Year Ending December 31:2010

$
9572011


2,4552012


2,4142013


2,4142014 and thereafter


7,040Total minimum lease payments

$
15,280  98




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   8.
    Commitments
    and Contingencies (Continued)  Litigation
    Other
    9.
    Accrued
    Expenses and Other Current Liabilities    December 31,2009


2008Accrued compensation and related benefits

$
6,080


$
4,302Accrued sales and use taxes


1,183



490Other accrued liabilities


1,998



2,073Total

$
9,261


$
6,865   10.
    Segment
    Information  Geographic
    Data
    Year Ended December 31,2009


2008


2007United States and Canada

$
76,216


$
59,512


$
53,748International


65,242



56,846



59,304Total

$
141,458


$
116,358


$
113,052       11.
    401(k)
    Plan   99




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##### Table of Contents



ACME
    PACKET, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Years
    Ended December 31, 2009, 2008 and 2007
  (in
    thousands, except share and per share data)
   11.
    401(k)
    Plan (Continued)    12.
    Quarterly
    Financial Data (unaudited)  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   Three Months EndedMarch 31,

June 30,

September 30,

December 31,2008

2008

2008

2008Total revenue

$
31,680


$
25,661


$
28,436


$
30,581Gross profit


25,596



19,905



22,443



23,747Income from operations


6,967



629



2,677



3,935Net income

$
5,038


$
816


$
2,034


$
3,684Net income per share:Basic

$
0.08


$
0.01


$
0.03


$
0.07Diluted

$
0.08


$
0.01


$
0.03


$
0.06   100




---



##### 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.   101




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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
            102




---



##### Table of Contents



Boston, Massachusetts
    March 9, 2010

/s/ Ernst & Young LLP   Item 9B.
    Other
    Information   103




---



##### 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
 104




---



##### 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)

Northwest Park Lease, dated August 9, 2004, by and between
    Seventy One Limited Liability Company and the Registrant10
.2(1)

Northwest Park Lease, dated July 10, 2006, by and between
    the Registrant and MTP Limited Partnership10
.3(1)

Amended and Restated 2000 Equity Incentive Plan10
.4(1)

2006 Equity Incentive Plan10
.5(5)

Letter Agreement dated as of August 29, 2008 between the
    Registrant and Peter J. Minihane10
.6(1)

Amended and Restated Registration Rights Agreement, dated
    June 8, 2004, by and between the Registrant and the
    shareholders named therein10
.7(7)

Lease, dated November 23, 2009, by and between MSCP Crosby,
    LLC and the Registrant10
.8(1)

2006 Equity Incentive Plan of the Registrant10
.9(1)

2006 Director Option Plan of the Registrant10
.10(1)

2006 Director Option Plan of the Registrant10
.11(8)

Form of Incentive Stock Option Agreement for the 2006 Equity
    Incentive Plan10
.12(8)

Form of Non-Statutory Stock Option Agreement for the 2006 Equity
    Incentive Plan for employees and consultants10
.13(8)

Form of Non-Statutory Stock Option Agreement for the 2006 Equity
    Incentive Plan for directors10
.14(8)

Form of Non-Statutory Stock Option Agreement for the
    2006 Director Option Plan10
.15(9)

Form of Restricted Stock Unit Agreement for the 2006 Equity
    Incentive Plan for Executive Officers10
.16(9)

Form of Restricted Stock Unit Agreement for the 2006 Equity
    Incentive Plan for Employees10
.17(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 Registrant 105




---



##### Table of Contents



Exhibit No.

Description23
.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     (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) 106




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##### Table of Contents



SIGNATURES    Acme Packet, Inc.(Registrant)Date: March 9, 2010

By:

/s/ Andrew D. OryAndrew D. OryPresident and Chief Executive OfficerDate: March 9, 2010

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)

March 9, 2010/s/  Peter
    J. MinihanePeter
    J. Minihane

Chief Financial Officer
    (Principal Accounting and Financial Officer)

March 9, 2010/s/  Gary
    J. BowenGary
    J. Bowen

Director

March 9, 2010/s/  David
    B. ElsbreeDavid
    Elsbree

Director

March 9, 2010/s/  Robert
    HowerRobert
    Hower

Director

March 9, 2010/s/  Patrick
    J. MeLampyPatrick
    J. MeLampy

Director

March 9, 2010/s/  Robert
    G. OryRobert
    G. Ory

Director

March 9, 2010/s/  Michael
    ThurkMichael
    Thurk

Director

March 9, 2010  107