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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K





(MARK ONE)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED APRIL 30, 2009

OR



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

FOR THE TRANSITION PERIOD FROM                     
TO

COMMISSION FILE NUMBER 000-28139





BLUE COAT SYSTEMS, INC.

(Exact Name of Registrant as Specified In Its Charter)







|                                                               |  |                              
|-------------------------------------------------------------- |  | -----------------------------
|DELAWARE                                                       |  | 91-1715963                   
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification)

420 NORTH MARY AVENUE

SUNNYVALE, CALIFORNIA 94085

(Address of Principal Executive Offices and Zip
Code)

Registrants Telephone Number, Including Area Code: (408) 220-2200





Securities Registered Pursuant to Section 12(b) of the Act:



|                               |  |                                     
|------------------------------ |  | ------------------------------------
|Title of Each Class            |  | Name of Exchange on Which Registered
|Common Stock, $.0001 Par Value |  | The NASDAQ Stock Market LLC         

Securities Registered Pursuant to Section 12(g) of the Act:

None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES   ̈    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    YES   ̈    NO  x

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

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).    YES   ̈    NO   ̈

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                   |   |  |                       |   |  |                           |  
|-------------------------- |  | ----------------- | - |  | --------------------- | - |  | ------------------------- | -
|Large accelerated filer  x |  | Accelerated filer |  ̈ |  | Non-accelerated filer |  ̈ |  | Smaller Reporting Company |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    YES   ̈    NO  x

The aggregate market value of the common stock held by non-affiliates of the registrant was $508,717,773 as of October 31, 2008, which is the last business day of the registrants most recently completed
second fiscal quarter, based upon the closing sale price on The NASDAQ Stock Market LLC reported for such date. Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded. This
determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 39,735,730 of the
registrants Common Stock issued and outstanding as of June 17, 2009.

Documents Incorporated by Reference:

Part IIIPortions of the registrants definitive proxy statement to be issued in conjunction with registrants annual stockholders
meeting to be held on October 2, 2009.









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BLUE COAT SYSTEMS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



|          |  |                                                                                                              |  |     
|--------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|          |  |                                                                                                              |  | Page
|PART I.   |  | 4                                                                                                           
|          |  |                                                                                                             
|Item 1.   |  | Business                                                                                                     |  | 4   
|Item 1A.  |  | Risk Factors                                                                                                 |  | 14  
|Item 1B.  |  | Unresolved Staff Comments                                                                                    |  | 26  
|Item 2.   |  | Properties                                                                                                   |  | 26  
|Item 3.   |  | Legal Proceedings                                                                                            |  | 27  
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                          |  | 27  
|          | 
|PART II.  |  | 28                                                                                                          
|          |  |                                                                                                             
|Item 5.   |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 28  
|Item 6.   |  | Selected Consolidated Financial Data                                                                         |  | 30  
|Item 7.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 32  
|Item 7A.  |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 50  
|Item 8.   |  | Financial Statements and Supplementary Data                                                                  |  | 51  
|Item 9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 93  
|Item 9A.  |  | Controls and Procedures                                                                                      |  | 94  
|Item 9B.  |  | Other Information                                                                                            |  | 95  
|          | 
|PART III. |  | 97                                                                                                          
|          |  |                                                                                                             
|Item 10.  |  | Directors, Executive Officers and Corporate Governance                                                       |  | 97  
|Item 11.  |  | Executive Compensation                                                                                       |  | 97  
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 97  
|Item 13.  |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 97  
|Item 14.  |  | Principal Accounting Fees and Services                                                                       |  | 97  
|          | 
|PART IV.  |  | 98                                                                                                          
|          |  |                                                                                                             
|Item 15.  |  | Exhibits and Financial Statement Schedules                                                                   |  | 98  
|          |  | Signatures                                                                                                   |  | 99  
|          |  | Exhibits                                                                                                     |  | 100 
|          |  | Schedule II                                                                                                  |  | 105 



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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, and other materials accompanying this Annual Report on Form 10-K contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the
assumptions that underlie these statements. These forward-looking statements include, but are not limited to, statements concerning the following: expectations with respect to future market growth opportunities; changes in and expectations with
respect to revenues and gross margins; future operating expense levels and operating margins; the impact of quarterly fluctuations of revenue and operating results; our ability to achieve expected levels of revenues and profit contributions from
acquired businesses; the impact of macroeconomic conditions on our business; the adequacy of our capital resources to fund operations and growth; investments or potential investments in acquired businesses and technologies (including our acquisition
of Packeteer, Inc.), as well as internally developed technologies; the expansion and effectiveness of our direct sales force, distribution channel, and marketing activities, including the realignment of our sales force and changes in our global
fulfillment model; the impact of recent changes in accounting standards and assumptions underlying any of the foregoing. In some cases, forward-looking statements are identified by the use of terminology such as anticipate,
expect, intend, plan, predict, believe, estimate, may, will, should, would, could, potential,
continue, ongoing, or negatives or derivatives of the foregoing, or other comparable terminology.

The
forward-looking statements in this Annual Report on Form 10-K involve known and unknown risks, uncertainties and other factors that may cause industry and market trends, or our actual results, level of activity, performance or achievements, to be
materially different from any future trends, results, level of activity, performance or achievements expressed or implied by these statements. For a detailed discussion of these risks, uncertainties and other factors, see the Risk
Factors section in Item 1A of this Annual Report on Form 10-K. We undertake no obligation to revise or update forward-looking statements to reflect new information or events or circumstances occurring after the date of this Annual
Report on Form 10-K, except as required by applicable law.



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PART I.

Item 1. Business

Blue Coat Systems, Inc., also referred to in this
report as we or us, designs, develops and sells products and services that optimize and secure the delivery of business applications and other information to distributed users over a Wide Area Network (WAN), or
the public Internet (also known as the Web). Our products provide our end user customers with information about the applications and Web traffic running on their networks, including the ability to discover, classify, manage and control
communications between users and applications across internal networks, the WAN and the Internet. Our products are also designed to optimize the performance of our end users business applications and content, whether used internally or hosted
by external providers. In addition to optimizing the performance and delivery of applications, our products enable our end user customers to secure their Internet gateways and remote computer systems by providing protection from malicious code, or
malware, and objectionable content. We call this intelligent application and user control.

Our product and service offerings
are focused on the emerging market for Application Delivery Network infrastructure products and services. This market addresses the need of enterprises with multiple offices and geographically decentralized employees (distributed
enterprises) to more efficiently and effectively use and secure their critical business applications and networks. We believe there are three key functions that must be provided by an Application Delivery Network. They are:



| |  |  | Visibility of applications and users on the network to enable distributed enterprises to discover, classify, prioritize and monitor applications, content and users
according to their corporate IT policies. With centralized visibility into its application traffic, an enterprise can more efficiently monitor end user application response times and align its network investments with changing business requirements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acceleration and optimization of the delivery of internal, external, real-time and customized applications across the networks of distributed enterprises.
Optimizing the delivery of business-critical applications to provide faster response times enables an enterprise to more efficiently utilize existing bandwidth and to increase its users productivity.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security of the delivery of business applications and protection from malware, spyware or other malicious threats, together with centrally managed policy
enforcement that enables an enterprise to set, enforce and measure compliance with its corporate IT policies. When combined with visibility, policy controls offer enterprises multiple layers of network security from malicious threats and content.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our products may be used individually or may be integrated as key elements of an Application Delivery Network
infrastructure.

Our primary end user customers are medium and large distributed enterprises, including finance, government, healthcare,
education and other business enterprises. Distributed enterprises deploy our products in their data centers, branch offices, Internet gateways and mobile devices worldwide. At April 30, 2009, our customers included over 80 percent of the
Fortune Global 500 enterprises and nine of the ten largest telecommunication service providers in the world.

Corporate Background

We were incorporated in Delaware, as Web Appliance Inc, on March 13, 1996. We changed our name to CacheFlow, Inc. on March 25, 1996, and
completed our initial public offering on November 19, 1999. On August 21, 2002, we changed our name to Blue Coat Systems, Inc., and our ticker symbol for our common stock from CFLO to BCSI.



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On August 16, 2007, our Board of Directors approved a two-for-one forward stock split of our common
stock. The stock split was effected by the issuance of a stock dividend of one share of our common stock for each share of our common stock issued and outstanding as of the record date of September 13, 2007. Our common stock began trading under
that split adjustment at the opening of the NASDAQ Global Market on October 4, 2007. In January 2008, we commenced trading on the NASDAQ Global Select Market. Our number of authorized shares of common stock and preferred stock has remained at
200 million and 10 million, respectively, since our incorporation. All share and per share amounts in this Annual Report on Form 10-K, and in the accompanying consolidated financial statements and notes thereto, reflect the forward split
for all periods presented.

On June 6, 2008, we acquired Packeteer Inc.
(Packeteer), a pioneer in delivering sophisticated WAN traffic prioritization through the development and sale of application classification and performance management technologies and products. As a consequence of that acquisition, we
added the PacketShaper®, Policy Center and IntelligenceCenter® products formerly sold by Packeteer to our product line.

Our Strategy

We offer products and
services designed to create an Application Delivery Network infrastructure that optimizes and secures the flow of information to network users across the distributed enterprise. Our strategy is to establish and lead the emerging market for
Application Delivery Network infrastructure products and services. We believe these products and services solve the three key business challenges facing our customers today:



| |  |  | The need to contain costs, to understand how to maximize the return on their existing network investments and to make more informed decisions and investments with
respect to scaling their networks to meet business requirements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The slow, unpredictable access to applications and content, and resulting detrimental impact on user productivity, caused by increased reliance on the WAN and the
Internet; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The proliferation of security and compliance risk and threats resulting from the widespread use of the Internet.
| | - |  | ----------------------------------------------------------------------------------------------------------------

Products

We organize our products into three
families: Secure Web Gateway Products, Wan Optimization Products and Application Performance Monitoring Products.

Secure Web Gateway Products

Since 2002, we have designed, developed and sold proxy appliances used to control and secure communications for users of a
corporate network accessing content on the Internet. These appliances are located at the customers Internet gateway, which is the point where the corporate network connects to the Internet. The performance of our proxy appliances has enabled
us to establish a leadership position in the market for Secure Web Gateway products.

One of the key strengths of our appliances is our
advanced proxy technology. Our proxy appliance acts as a middleman between users and various applications or Internet content. Users communicate with the proxy appliance on one side of the transaction, and applications and Internet content
communicate with the proxy appliance on the other side of the transaction. There are two separate connections, both controlled and managed by the proxy appliance. Consequently, no content can get past the appliance unless it is in accordance with an
IT policy that is set by the customers IT organization and that is automatically enforced by the appliance. This enables our proxy appliances to protect businesses from many of the security dangers, such as malware, spyware and viruses, that
can arise from using the Internet.



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Our Secure Web Gateway products can perform the following functions to provide more secure communications
with the Internet:



| |  |  | Prevent the installation of spyware and other malicious code on individual user computers and reduce the networks exposure to security vulnerabilities without
comprising its performance.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Identify and block security threats arising from the use of the SSL, or Secure Sockets Layer, protocol. While the use of SSL improves security by encrypting
confidential data communicated over the Web, it may also provide a means to disguise viruses, worms and other security threats and allow them to enter the network.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limit or block the use of peer-to-peer (P2P) applications, such as instant messaging (IM), Skype and BitTorrent, to prevent the leakage of proprietary or
confidential information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide users the ability to proactively manage or block specific types of Web content from entering the corporate network in order to prevent potential security
breaches and to block employees from viewing inappropriate content when using the companys computer systems.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Automatically validate a user who requests access to secure corporate content. Our appliances interface with virtually all leading identity authentication systems
including: NT LAN Manager, RADIUS, LDAP and Active Directory.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide Web anti-virus (AV) protection by automatically scanning and blocking viruses and other potentially malicious network traffic using leading
third party anti-virus products.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of April 30, 2009, our products that principally address the Secure Web Gateway
market are:

ProxyAV Appliance

Our Blue Coat ProxyAV family of Web anti-virus appliances enables enterprises to scan for viruses,
worms, spyware and Trojans at the Internet gateway before permitting communications to enter the corporate network. Such infected communications frequently arrive through so-called backdoors, such as personal Web email accounts, Web spam
or email spam (that activates Trojan downloads without the users consent), and browser-based file downloads that bypass existing virus scanning mechanisms. A ProxyAV appliance, when implemented in combination with a ProxySG® appliance, provides scalable virus scanning, and also provides the IT administrator with comprehensive visibility into and control of enterprise Web communications. The ProxyAV appliance uses
virus scanning software from leading anti-virus vendors such as Sophos, McAfee, Symantec, Panda and Kaspersky Labs.

Blue Coat WebFilter Product

Our Blue Coat WebFilter product is a content filtering database that operates on our ProxySG appliances. It helps enterprises and
service providers protect their users and networks from Internet threats and inappropriate content and traffic, such as adult content, spyware, phishing attacks, peer-to-peer (P2P) traffic, instant messaging (IM), viral content and streaming
traffic. Our WebFilter product provides a comprehensive database that is organized into relevant and useful categories.

In addition to our
proprietary WebFilter product, our ProxySG appliances also support the use of third party content filtering databases, including those offered by McAfee, Inc. and Websense, Inc.

WAN Optimization Products

During fiscal 2007, we extended our focus to address the need to
improve the performance and availability of critical business applications delivered across the WAN to users across the distributed enterprise, a capability that is commonly defined as WAN optimization or WAN acceleration.



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Our WAN Optimization products are delivered by the same ProxySG appliances that enable our Secure Web
Gateway technologies and are designed to help distributed enterprises optimize and secure the delivery of their business applications. They enable network administrators to set and enforce corporate IT policies to protect information from theft and
loss. In addition, they provide the ability to manage recreational traffic to ensure business-critical applications have adequate bandwidth during peak demand. Our WAN Optimization technology provides five key capabilities that optimize the delivery
of business applications to users across the distributed enterprise, including:



| |  |  | Bandwidth managementthe ability to assign a set level of bandwidth to specific users and applications and prioritize delivery of that traffic over the WAN.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Protocol optimizationa technique that enhances the efficiency of protocols by reducing the communication required between the user and the application.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Object cachinga technique where reusable content is stored on the appliance eliminating the need to repeatedly transfer the same information across the WAN.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Byte cachinga technique that assigns, stores and uses abbreviated expressions that represent repetitive WAN traffic, which conserves bandwidth and accelerates
delivery of the application.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Compressiona technique that uses an industry standard algorithm to package and unpackage information for efficient transmission across the WAN.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

Our WAN Optimization technology is also designed to improve the performance of real-time and encrypted applications,
including streaming video, encrypted SSL applications and applications hosted by third parties and accessed over the Internet.

Our
appliances are deployed in both centralized data centers and in branch offices. In addition, we make WAN Optimization functionality available as client-based software for users requiring optimized application performance while working outside of the
corporate network or at offices where an appliance is not installed.

As of April 30, 2009, our products that address the WAN
Optimization market (some of which may also be used in connection with Secure Web Gateway and Application Performance Monitoring applications) are:

ProxySG Appliance

Our Blue Coat ProxySG® family of proxy appliances serves as the foundation for both our Secure Web Gateway products and our WAN Optimization offerings. The appliance, when appropriately configured, may be placed at
the Internet gateway, to provide security with respect to Web-based communications, or may be placed at connection points for entry to or exit from a WAN (or WAN links) to enhance and accelerate the performance of business applications
over that WAN.

ProxySG appliances are designed for simple management and installation by our customers and to easily integrate with the
customers existing security and network infrastructure. They are ICSA-certified and are available in four different models. They are available in a broad range of configurations to support all network users in an organization, regardless of
their physical location.

Our ProxySG appliances run our proprietary SGOS operating system, which is specifically designed to support
the security, acceleration and policy control features of those appliances. We upgraded our SGOS operating system in March 2009, with the release of version 5.4, to make the appliances easier to install and configure.

Our Blue Coat ProxyClient software can be administered with the ProxySG management console for easy provisioning, configuration and maintenance and is
designed for use on a desktop or laptop computer that is located at a remote site without a ProxySG Appliance or that is used by a mobile user. The software uses the



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caching, compression and protocol optimization technologies employed in our ProxySG appliance, to accelerate the delivery of business applications accessed
by these remote computers. This provides the user with performance that is similar to that provided by a large WAN that uses a ProxySG appliance.

ProxyRA Appliance

Our Blue Coat ProxyRA appliances are installed at the headquarters of an enterprise and enable
authorized mobile users to securely connect to a corporate network through a mobile client device (such as a laptop, PDA or airport kiosk computer). Our ProxyRA appliances use application-independent proxy architecture and proprietary connector
technology to provide the following features:



| |  |  | On-demand access to Web and non-Web applications without the need to install virtual private network (VPN) or other special software on the client device.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comprehensive support to protect client devices not managed by the enterprises IT department, including features to block inadvertent or malicious information
leakage to or from the client device.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Integrated security services for communications between the corporate network and the client device, including monitoring for encryption and spyware and
implementing policy-based controls.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Blue Coat Reporter Software

Our Blue Coat Reporter software collects transaction log data and uses this data to produce both pre-defined and custom reports relating to the
performance and security of user activities on the enterprises WAN. The information in these reports can be used by the IT administrator to appropriately adjust policies or take other actions to enhance the security or performance of the WAN.

Blue Coat Director Appliance

Our Blue Coat Director appliance provides centralized management of an enterprises Blue Coat ProxySG appliances. It provides IT administrators with the ability to create standard configurations and automate the deployment of Blue Coat
appliances across the distributed enterprise, to monitor and enforce security policies, and to respond to sudden network changes, including disasters and outages, in real time so that problems can be addressed before end users are impacted.

Application Performance Monitoring Products

In June 2008, we acquired Packeteer in part to add to our product portfolio products that identify and classify the applications on the network and monitor application response times and utilization. As of
April 30, 2009, our products that principally address the Application Performance Monitoring market are:

Blue Coat PacketShaper Appliance

Our Blue Coat PacketShaper appliances provide granular visibility into network utilization and application performance, and utilize
classification, analysis and reporting technology. The appliance supports three discrete software modules that provide specific functionality:



| |  |  | Monitoring Module: This module identifies and classifies network applications, and monitors their performance and behavior.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Shaping Module: This module provides Quality of Service (QoS) provisioning to control network traffic so that critical applications run in a predictable and
efficient manner.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Compression Module: This module compresses application data to reduce the consumption of bandwidth and to improve application response times.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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In December 2008, we released a software plug-in that enables a PacketShaper appliance to provide
granular visibility into the optimized traffic flowing through a ProxySG appliance. The PacketShaper appliance can then analyze this traffic to distinguish and prioritize the traffic for optimal application delivery. For instance, it can
differentiate critical internal business applications from recreational Internet traffic, and provide priority to critical applications.

Blue Coat
PolicyCenter Software

Our Blue Coat PolicyCenter software provides IT administrators with the ability to centrally manage the
configuration, policy management, software distribution and adaptive response tracking of multiple PacketShaper appliances. PolicyCenter also provides IT administrators with the ability to ensure that application performance and bandwidth
utilization are aligned with business demands, whether for several appliances deployed at individual sites or distributed globally.

Blue Coat
IntelligenceCenter Software

Our Blue Coat IntelligenceCenter software provides application performance monitoring for PacketShaper
appliances deployed across the distributed enterprise. By collecting, correlating and reporting information about business critical applications, it provides IT administrators with the ability to:



| |  |  | Provide reports on application and network utilization;
| | - |  | -------------------------------------------------------



| |  |  | Track performance of business critical applications against service level agreements (SLAs);
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Track performance of Voice over IP (VoIP) applications;
| | - |  | -------------------------------------------------------



| |  |  | Quickly identify and diagnose performance problems; and
| | - |  | -------------------------------------------------------



| |  |  | Identify rogue applications on the network.
| | - |  | -------------------------------------------

Services and Support

We maintain a worldwide service and support organization that provides a broad range of service
options to our customers, including warranty and technical support, professional services and product training. Hardware and software support is managed and delivered by our Customer Service & Support organization and through a network of
channel support and logistics partners.

Under our BlueTouch support program, we sell and deliver services both directly and through
our channel partners, including BlueTouch Support Partners, and we make services available at direct and Authorized Training Center locations. Under this support program, our global call centers provide front and back-line services in a 24x7
follow-the-sun model for service delivery to our end user customers and our authorized channel partners.

Sales

Our worldwide sales strategy employs multiple channels of distribution to provide complementary personnel, tactics, approaches and capabilities to address
existing and prospective end user customers based upon the size of the end user customer and its purchasing practices. While historically we have assigned territory-based sales teams to provide sales coverage, we have tiered our sales model in
fiscal 2010 to provide sales managers focused on the level of sales opportunity. We also have allocated and aligned our sales support personnel, such as sales engineers, based on their skill sets, rather than assigning them to a single sales team.

Our sales model includes a direct sales organization comprised of sales representatives or account managers and systems engineers; an
inside sales team; and a channel partner organization comprised of third party resellers and distributors (collectively, our channel partners). During fiscal 2009, approximately 98% of our sales were made through our channel
partners and one channel partner customer, Alternative Data Technology, Inc., accounted for 12.4% of our net revenue.



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Our end user customers are categorized as strategic, large enterprise or mid-market based upon market
segmentation, and each category is supported by the appropriate level of our direct sales organization, including account and territory managers focused on strategic, large enterprise and mid-market end users and system engineers that support these
sales efforts together with our distributors and value-added resellers. We also use an inside sales force to develop, qualify and direct leads to appropriate account managers or channel partners.

In addition to our direct and inside sales roles, we also have a channel sales organization directed at enabling and growing the revenue contribution of
our channel partners. Our channel sales organization drives sales and technical education, co-marketing programs, and demonstration equipment and support programs, either directly or through our value added channel partners. It is
responsible for the identification, development and support of local and regional third party resellers, global systems integrators and service providers.

Marketing

Our marketing investments are focused on increasing the awareness of the Blue Coat brand and products among both
traditional IT decision makers (network and security managers and administrators) and strategic IT decision makers (CIOs and their direct staff); educating the market about the business and technology challenges that drive the need for Application
Delivery Networks, including Application Performance Monitoring, WAN Optimization and Secure Web Gateway products; and creating demand for our products, services and capabilities. We develop marketing programs to support the sale and distribution of
our products and services, and to inform existing and prospective customers within our target market segments about the capabilities and benefits of our products.

Our strategic marketing investments include a global brand advertising campaign intended to increase awareness of Blue Coat among strategic IT decision makers. Our worldwide marketing efforts include participation in
industry trade shows, informational seminars, preparation of competitive analyses, sales training, maintenance of our Web site, advertising, public relations, industry analyst relations and preparation of collateral and documentation regarding our
products and services. In addition, we provide similar types of marketing support for our major channel partners and technology integration partners worldwide.

Research and Development

We believe that strong product development capabilities are essential to our continued success and
growth. Our current research and development efforts are primarily focused on adding new features and strengthening existing features that extend the acceleration and security capabilities of our WAN Optimization products and enhancing the
reliability, ease of use and installation and support of those products. At the same time, we are continuing to enhance the capabilities of our Secure Web Gateway and Application Monitoring products by adding new features and strengthening existing
features.

Our research and development team consists of engineers with extensive technical backgrounds in relevant disciplines. We believe
that the experience and capabilities of our research and development professionals is one of our significant competitive advantages. We also work closely with our customers to understand their business needs and to focus our development of new
products and product enhancements to better meet customer needs.

While we anticipate that most enhancements to our existing and future
products will be accomplished by internal development, we currently license certain technologies from third parties and will continue to evaluate externally developed products and technology for integration with our products. As well, we have
acquired third party businesses, technologies and products to expand our capabilities and market, and may continue to do so in the future.

Research and development expense was $76.7 million, $51.6 million, and $39.9 million for the fiscal years 2009, 2008, and 2007, respectively, including stock-based compensation expense attributable to our research and development
organization of $5.3 million, $5.0 million, and $3.3 million, respectively.



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Manufacturing

We currently outsource the manufacturing of our appliances and principally use industry standard parts and components that are available from multiple vendors. This approach allows us to reduce our investment in manufacturing
equipment, facilities and raw material inventory, and to take advantage of the expertise of our vendors. We have limited sources of supply for certain key components of our products, which exposes us to the risk of component shortages or
unavailability. We have contracted with SMTC Corporation to manufacture certain of our current product offerings. We have contracted with MiTAC International Corporation, Inventec Corporation and Lanner Electronics, Inc. to design and manufacture
certain of our current product offerings. We also have contracted with Menlo Worldwide Logistics and Synnex Corporation to load our software on our appliances, test our products prior to final delivery and provide fulfillment servicing for our
products. Each of these agreements is non-exclusive.

In fiscal 2009, we developed a plan to revise our global logistics practices to
ship directly to our end user customers and value-added resellers worldwide. We will be implementing these revised practices in fiscal 2010. We believe that this model will prove more efficient and cost-effective, and will result in a higher level
of customer satisfaction.

Our internal manufacturing operations consist primarily of project management, prototype development, materials
and production planning, quality and reliability assurance and procurement services, as required in support of our relationships with our outsourced manufacturing partners.

Backlog

Our backlog is comprised of amounts for orders that we have accepted, but not shipped, and
deferred revenue. Deferred revenue includes revenue from products that have shipped to distributors, but have not yet shipped to end customers; the unearned portion of service and maintenance contracts; and product shipments that do not yet qualify
as revenue in accordance with our revenue recognition policy. Our backlog was approximately $136.2 million at April 30, 2009 compared to $92.8 million at April 30, 2008, which represented an increase of $43.4 million. The deferred revenue
portion of our backlog increased by $41.0 million at April 30, 2009 compared to the prior fiscal year, as a result of a $35.1 million increase in new service contracts sold with our appliances and the renewal of service contracts, offset by a
$5.9 million reduction in inventory held by our distributors due to distributor inventory management in anticipation of our change to our new fulfillment model during fiscal 2010, which will involve our direct shipment to end user customers and
value-added resellers. Once this transition is complete in fiscal 2010, our distributors will no longer hold inventory and, consequently, distributor inventory stocking orders will no longer be included in our backlog. Our backlog of orders
accepted, but not shipped, increased by $2.4 million during the period due primarily to increased customer orders in the third month of the fourth quarter of fiscal 2009. However, due to occasional customer changes in delivery schedules or
cancellation of orders prior to shipment (which may be made without significant penalty), we do not believe this backlog to be firm or that backlog is a reliable indicator of future revenue levels.

As a result of our typical sales patterns, we usually have more sales in the last month of a fiscal quarter than we do in each of the first two months.

Competition

We are a market and
technology leader in the Secure Web Gateway market, although we may face increased competition in this market given recent consolidations. Our principal competitors in this market are McAfee, Inc., through its acquisition of Secure Computing
Corporation; Websense, Inc.; and Cisco Systems, Inc.

We commercially released our first product directed at the WAN Optimization market in
May 2006. This is a market that is intensely competitive and evolving and subject to rapid technological change. We expect competition to increase in the future. Our principal competitors in this market are Riverbed Technology, Inc.,



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Cisco Systems, Inc., Juniper Networks, Inc. and Citrix Systems, Inc., through its acquisition of Orbital Data Corp. In addition, we expect additional
competition from other established and emerging companies as the WAN Optimization market continues to develop and expand and as consolidation occurs.

We acquired Packeteer in June 2008, marking our entry into the Application Performance Monitoring market. This is a market that is likely to become increasingly competitive in an environment of constrained IT budgets
and cost containment initiatives. Our principal competitors in this market are NetQoS, Netscout and Opnet. We also expect competition in this area from Riverbed Technology, Inc. through its acquisition of Mazu Networks in January 2009.

The primary factors considered by our customers in selecting an appropriate solution include product characteristics such as reliability, feature
sets, scalability and ease of use, as well as factors such as price and the availability and quality of customer support.

Environment

We are subject to regulations that have been adopted with respect to environmental matters, such as the Waste Electrical and Electronic Equipment
(WEEE) and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS) regulations adopted by the European Union. As well, we are engaging in efforts to design and develop our products in a manner that will
improve their energy efficiency and will enhance the ability to recycle them.

In March 2009, we announced a new program to encourage end
user customers who have replaced outdated Blue Coat appliances with current models to return the outdated appliances to us, at no charge, for component reuse or recycling. The goal of the program is to reduce Blue Coat product waste destined for
landfills, as well as to generate cost savings. It is projected that proceeds from the recycling and reuse program will cover the costs of the service and potentially result in operational savings.

Through our company-wide BluePlanet program, we are taking steps to educate our employees about environmental matters and to encourage them to act
in an environmentally responsible manner, and are installing energy and water conserving devices in our principal corporate offices. We are actively seeking to reduce our global carbon footprint by reducing our business travel, and are upgrading our
video-conferencing facilities to support this initiative. We anticipate that some of these programs, particularly our travel reduction program, may result in operational savings.

To date, our compliance with federal, state, local, and foreign laws enacted for the protection of the environment has not materially affected our
capital expenditures, earnings or competitive position.

Intellectual Property and Other Proprietary Rights

Our success is heavily dependent on our ability to create proprietary technology and to protect and enforce our intellectual property rights in that
technology, as well as our ability to defend against adverse claims of third parties with respect to our technology and intellectual property. To protect our proprietary technology, we rely primarily on a combination of contractual provisions and
confidentiality procedures to protect trade secrets, copyright and trademark laws, and patents. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is difficult. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Our means of
protecting our proprietary rights may not be adequate and unauthorized third parties, including our competitors, may independently develop similar or superior technology, duplicate or reverse engineer aspects of our products, or design around our
patented technology or other intellectual property.



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As of April 30, 2009, we had 82 issued U.S. patents, 97 pending U.S. patent applications
(provisional and non-provisional), 2 foreign issued patents and 8 pending foreign patent applications. There can be no assurance that any of our pending patent applications will issue or that the patent examination process will not result in our
narrowing the claims applied for. Furthermore, there can be no assurance that we will be able to detect any infringement of patents or, if infringement is detected, that our patents will be enforceable or that any damages awarded to us will be
sufficient to adequately compensate us.

There can be no assurance or guarantee that any products, services or technologies that we are
presently developing, or will develop in the future, will result in intellectual property that is protectable under law, whether in the United States or a foreign jurisdiction, that such intellectual property will produce competitive advantage for
us, or that the intellectual property of competitors will not restrict our freedom to operate or put us at a competitive disadvantage. From time to time we may and do receive notices from third parties alleging infringement of patents or other
intellectual property rights or offering licenses under such intellectual property rights. While it is our policy to respect the legitimate intellectual property rights of others, we may defend against such claims or seek to negotiate licenses on
commercially reasonable terms or otherwise settle such claims, where appropriate. There has been a substantial amount of litigation over intellectual property rights in our industry, including from third parties that are not competitors, and we
expect this to continue. Hence, third parties may claim that we, or our customers (including end users) or our current or future products, infringe their intellectual property rights, and any such claims, whether with or without merit, could be
time-consuming, result in costly litigation, result in the assessment of damages, result in management distraction, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all, which could seriously harm our business.

Employees

As of April 30, 2009, we had a total of 1,434 full-time employees, comprised of 469 in sales, 368 in research and development, 287 in customer
support, 197 in general and administrative, 53 in manufacturing and 60 in marketing. Of these employees, 924 were located in North America and 510 were located in various other international locations. None of our employees are represented by
collective bargaining agreements, and we have not experienced any work stoppages. We consider our relations with our employees to be good.

Financial
Information About Geographic Areas

We conduct business worldwide. Net revenue is attributed to geographic areas based on the location
of the customers. A summary of net revenue by geographic area is contained in Note 13 of Notes to Consolidated Financial Statements.

Seasonality

We do not believe that our business is seasonal; however, our quarterly business can fluctuate due to the calendar year-ends of our
customers and distributors, as well as the U.S. federal budget cycle.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our Investor Relations Web site at www.bluecoat.com as soon as reasonably practicable after we file such material with the SEC. The other information posted on
our Web site is not incorporated into this Annual Report.



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Item 1A. Risk Factors

In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be carefully considered by investors
before making an investment decision. Our business, financial condition and results of operations could be seriously harmed as a consequence of any of the following risks and uncertainties. The trading price of our common stock could decline due to
any of these risks, and investors may lose all or part of their investment. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem less significant also may
impair our business, financial condition and results of operations, or result in a decline in the trading price of our common stock.

Our quarterly
operating results fluctuate significantly, are difficult to predict and may not meet our guidance or third party expectations.

Our
net revenue and operating results have in the past, and may in the future, vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control, including the current economic environment and market
uncertainty. These factors limit our ability to accurately predict our operating results on a quarterly basis and include factors discussed throughout this Risk Factors section, including the following:



| |  |  | Macroeconomic conditions in our market, either domestic or international, as well as the level of discretionary IT spending;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | The timing, size and mix of orders from customers, including the timing of large orders;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Fluctuations in demand for our products and services;
| | - |  | -----------------------------------------------------



| |  |  | The markets in which we compete are evolving;
| | - |  | ---------------------------------------------



| |  |  | Variability and unpredictability in the rate of growth in the markets in which we compete;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Our ability to continue to increase our market share consistent with past rates of increase;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Our variable sales cycles, which may lengthen as the complexity of products and competition in our market increases and as a consequence of the current economic
environment;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The level of competition in our markets, including the consequences of new entrants, consolidation, technological innovation or substantial price discounting;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market acceptance of our new products and product enhancements and our services;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Product announcements, introductions, transitions and enhancements by us or our competitors, and resulting in deferrals of customer orders;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technological changes in our markets;
| | - |  | -------------------------------------



| |  |  | The quality and level of our execution of our business strategy and operating plan;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | The level of industry consolidation among our competitors and customers;
| | - |  | ------------------------------------------------------------------------



| |  |  | Changes in accounting rules and policies; and
| | - |  | ---------------------------------------------



| |  |  | The need to recognize certain revenue ratably over a defined period or to defer revenue recognition to a later period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

A high percentage of our expenses, including those related to manufacturing overhead, service and support, research and development, sales and marketing,
and general and administrative functions are generally fixed in nature in the short term. As a result, if our net revenue is less than forecast, such expenses cannot effectively be reduced to compensate for the revenue shortfall and our quarterly
operating results will be adversely affected.



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We believe that quarter-to-quarter comparisons of our operating results should not necessarily be relied
upon as indicators of our future performance. In the past our quarterly results have on occasion failed to meet our quarterly guidance and the expectations of public market analysts or investors, and it is likely that this will occur in the future.
If this occurs our stock price likely will decline, and may decline significantly. Such a decline may also occur even when we meet our published guidance, but our results or future guidance fail to meet third party expectations.

Economic uncertainty and adverse macroeconomic conditions may harm our business.

Our revenues and margins are dependent on various economic factors, including rates of inflation, currency fluctuations, energy costs, levels of consumer
sentiment and other macroeconomic factors, which may impact levels of business spending. These conditions, including the current uncertainties in the global credit markets, may adversely affect corporate spending for IT products and services in
specific geographies or more broadly, and could result in:



| |  |  | a significant reduction in our net revenue, gross margin and operating margin;
| | - |  | ------------------------------------------------------------------------------



| |  |  | increased price competition for our products and services;
| | - |  | ----------------------------------------------------------



| |  |  | risk of excess and obsolete inventory;
| | - |  | --------------------------------------



| |  |  | higher overhead costs as a percentage of net revenue;
| | - |  | -----------------------------------------------------



| |  |  | difficulty in accurately forecasting demand for our products and services;
| | - |  | --------------------------------------------------------------------------



| |  |  | insolvency or credit difficulties confronting our customers and channel partners, affecting their ability to purchase or pay for our products and services; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | insolvency or credit difficulties confronting our key suppliers, which could disrupt our supply chain.
| | - |  | ------------------------------------------------------------------------------------------------------

In addition, a significant percentage of our operating expenses are generally fixed in nature, particularly in the short term, which could limit our
ability to mitigate any negative impact on our profit margins.

Recent adverse economic and market conditions in the United States and
globally have resulted in delays in closing customer orders and such delays may continue in the future. Continued uncertainty or deterioration in these macroeconomic conditions could materially impact our business, financial condition and results of
operations.

The market for Application Delivery Network infrastructure products and services is intensely competitive and certain of our competitors
have greater resources.

Our products and services focus on the emerging market for Application Delivery Network infrastructure
products and services. This market is intensely competitive, and the intensity of this competition is expected to increase, particularly given current economic pressures and industry consolidation. Such increased competition may result in price
reductions, reduced margins and loss of market share, any one of which could seriously impact our business, financial condition and results of operations. We may not be able to compete successfully against current or future competitors, including
those resulting from consolidation, and we cannot be certain that the competitive pressures we face will not seriously impact our business. In addition, we expect that there will be competition from other established and emerging companies as the
market for Application Delivery Network infrastructure products and services continues to develop and expand.

Some of our current and
potential competitors have longer operating histories; significantly greater financial, technical, sales and marketing resources; significantly greater name recognition; and a larger installed base of customers than we do. Such competitors also may
have well-established relationships with our current and potential customers and extensive knowledge of our industry. As a result, those competitors may be able to respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, marketing, promotion and sale of their products than we can. They also



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may make strategic acquisitions or establish cooperative relationships among themselves or with other providers, thereby increasing their ability to provide
a broader suite of products, and potentially causing customers to defer purchasing decisions. Also, larger competitors may be able to integrate some of the functionality of our products into existing infrastructure products or to bundle Application
Delivery Network infrastructure products and services with other product offerings. Finally, they may engage in aggressive pricing strategies or discounting. Any of the foregoing may limit our ability to compete effectively in the market and
adversely affect our business, financial condition and results of operations.

We rely significantly on third party sales channel partners to sell
our products.

Substantially all of our revenue is generated through sales by our channel partners, which include distributors and
value added resellers. During fiscal 2009, approximately 98% of our revenue was generated through our channel partners. We depend upon these partners to generate sales opportunities and to independently manage the sales process for opportunities
with which they are involved. In order to increase our net revenue, we will need to maintain our existing sales channel partners and to add new sales channel partners and effectively train and integrate them with our sales process. If we are
unsuccessful in those efforts, this will limit our ability to grow our business and our operating results will be adversely affected.

Our
products are complex, and there can be no assurance that the sales training programs that are offered to our sales channel partners will always be effective. In addition, our sales channel partners may be unsuccessful in marketing, selling and
supporting our products and services for reasons unrelated to training. Most of our sales channel partners do not have minimum purchase or resale requirements, and may cease selling our products at any time. They may also market, sell and support
products and services that are competitive with ours, and may devote more resources to the marketing, sales and support of products competitive to ours. There is no assurance that we will retain these sales channel partners or that we will be able
to secure additional or replacement sales channel partners in the future. The loss of one or more of our key sales channel partners in a given geographic area could harm our operating results within that area, as new sales channel partners typically
require extensive training and take several months to achieve acceptable productivity.

We also depend on some of our sales channel
partners to deliver first line service and support for our products. Any significant failure on their part to provide such service and support could impact customer satisfaction and future sales of our products. We historically have recognized a
portion of our revenue based on a sell-through model using information provided by our distributors that stock our products. If we are provided with inaccurate or untimely information, the amount, timing or accuracy of our reported net revenue could
be affected.

While we require that our third party sales channel partners comply with applicable regulatory requirements, they could
engage in behavior or practices that expose us to legal or reputational risk.

We depend on single and, in some cases, limited source suppliers for
several key products and components of products.

We have limited sources of supply for certain key components of our products,
which exposes us to the risk of component shortages or unavailability. In addition, we are unable to rapidly change quantities and delivery schedules because the procurement of certain components is subject to lengthy lead times and the
qualification of additional or alternate sources is time consuming, costly and difficult. In the event our business growth exceeds our projections, or required components are otherwise in scarce supply, we may be subject to shortages, delays or
unavailability of such components, or potential price increases, which may be substantial. If we are unable to secure sufficient components at reasonable prices in order to timely build our products, customer shipments may be delayed. This would
adversely affect both our relationships with those customers and our net revenue. Alternatively, we may pay increased prices, which would impact our gross margin. Any of the foregoing could adversely affect our business, financial condition and
results of operations.



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We are dependent on original design manufacturers, contract manufacturers and third party logistics providers to
design and manufacture our products and to fulfill orders for our products.

We depend primarily on original design manufacturers
(each of which is a third party original design manufacturer for numerous companies) to co-design and co-develop the hardware platform for our products. We also depend on independent contract manufacturers (each of which is a third party
manufacturer for numerous companies) to manufacture and fulfill our products. These supply chain partners are not committed to design or manufacture our products, or to fulfill orders for our products, on a long-term basis in any specific quantity
or at any specific price. Also, from time to time, we may be required to add new supply chain partner relationships or new manufacturing or fulfillment sites to accommodate growth in orders or the addition of new products. It is time consuming and
costly to qualify and implement new supply chain partner relationships and new manufacturing or fulfillment sites, and such additions increase the complexity of our supply chain management. Our ability to ship products to our customers could be
delayed if we fail to effectively manage our supply chain partner relationships; if one or more of our design manufacturers does not meet our development schedules; if one or more of our contract manufacturers experiences delays, disruptions or
quality control problems in manufacturing our products; or if one or more of our third party logistics providers experiences delays or disruptions or otherwise fails to meet our fulfillment schedules; or if we are required to add or replace design
manufacturers, contract manufacturers, third party logistics providers or fulfillment sites. In addition, these supply chain partners have access to certain of our critical confidential information and could wrongly disclose such information.
Moreover, an increasing portion of our manufacturing is performed outside the United States and is, therefore, subject to risks associated with doing business in foreign countries. Each of these factors could adversely affect our business, financial
condition and results of operations.

If we fail to accurately predict our manufacturing requirements and manage our supply chain we could incur
additional costs or experience manufacturing delays that could harm our business.

We provide forecasts of our requirements to our
supply chain partners on a rolling 12-month basis. If our forecast exceeds our actual requirements, a supply chain partner may assess additional charges or we may have liability for excess inventory, each of which could negatively affect our gross
margin. If our forecast is less than our actual requirements, the applicable supply chain partner may have insufficient time or components to produce or fulfill our product requirements, which could delay or interrupt manufacturing of our products
or fulfillment of orders for our products, and result in delays in shipments, customer dissatisfaction, and deferral or loss of revenue. As well, we may be required to purchase sufficient inventory to satisfy our future needs in situations where a
component or product is being discontinued. If we fail to accurately predict our requirements, we may become liable for excess inventory that we and our supply chain partners cannot use or we may be unable to fulfill customer orders. Any of the
foregoing could adversely affect our business, financial condition and results of operations.

We may not be able to successfully manage the growth
of our business and may suffer other losses if we are unable to improve our systems and processes.

Our growth, including growth
through the acquisition of Packeteer, together with evolving regulatory requirements and changes in financial standards, has placed increased demands on our management and our business infrastructure. We need to continue to improve our systems and
processes to effectively manage our operations and growth, including our growth into new geographies. We may not be able to successfully implement improvements to these systems and processes in a timely or efficient manner. As well, our systems and
processes may not prevent or detect all errors, omissions or fraud. Our failure to improve our systems and processes, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to
accurately forecast our revenue, expenses and earnings, or to prevent certain losses. This could adversely affect our business, financial condition and results of operations and stock price.



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Third parties may bring legal actions against us.

As described in Note 12 of Notes to Consolidated Financial Statements, we presently are a party to various litigation, including stockholder
derivative actions arising out of allegedly misleading statements about our prospects made between February 20, 2004 and May 27, 2004, which actions were subsequently amended to seek relief on our behalf from certain defendants with
respect to our historical stock option practices. As well, on or about April 18, 2008, Realtime Data, LLC d/b/a IXO filed a patent infringement lawsuit against Packeteer, Inc., a company we acquired on June 6, 2008, and
subsequently amended the complaint and named us as a defendant on June 20, 2008. We have incurred substantial costs to defend these lawsuits, or to engage in related proceedings, on our behalf and on behalf of parties to whom we may have
indemnification obligations.

It is likely that in the future other parties may bring legal actions against us. Such actions, even if
without merit, could harm our business. Any material litigation or arbitration inevitably results in the diversion of the attention of our management and other relevant personnel. To the extent uninsured, such claims further require the expenditure
of our resources for defense costs for us and for parties to whom we may have indemnification obligations. We also may be required to pay material amounts in settlement costs or damages. As well, if the matter relates to intellectual property
infringement, we may be required to enter into royalty or licensing agreements or to develop non-infringing technology, and injunctive relief could be entered against us. Customer concerns with respect to material litigation can result in delayed or
lost sales. Any of the foregoing could seriously harm our business and have a material adverse effect on our business, financial condition and results of operations.

Our gross margin is affected by a number of factors, and we may not be able to sustain it at present levels.

Our gross margin percentage has been and will continue to be affected by a variety of factors, including:



| |  |  | market acceptance of our products and fluctuations in demand;
| | - |  | -------------------------------------------------------------



| |  |  | the timing and size of customer orders and product implementations;
| | - |  | -------------------------------------------------------------------



| |  |  | increased price competition and changes in product pricing;
| | - |  | -----------------------------------------------------------



| |  |  | actions taken by our competitors;
| | - |  | ---------------------------------



| |  |  | new product introductions and enhancements;
| | - |  | -------------------------------------------



| |  |  | manufacturing and component costs;
| | - |  | ----------------------------------



| |  |  | availability of sufficient inventory to meet demand;
| | - |  | ----------------------------------------------------



| |  |  | purchase of inventory in excess of demand;
| | - |  | ------------------------------------------



| |  |  | our execution of our strategy and operating plans;
| | - |  | --------------------------------------------------



| |  |  | changes in our sales model;
| | - |  | ---------------------------



| |  |  | geographies in which sales are made; and
| | - |  | ----------------------------------------



| |  |  | revenue recognition rules.
| | - |  | --------------------------

For
example, we have in the past entered into large revenue transactions with certain customers that, because of the product mix and volume discount, have decreased our gross margin percentage. We may, in the future, enter into similar transactions. As
well, our lower end appliances typically have lower margins than our higher end appliances, and therefore large orders for our lower end appliances could negatively impact our overall gross margin percentage. Current macroeconomic and competitive
developments could put further pressure on our gross margin.

Even if we achieve our net revenue and operating expense objectives, our net
income and operating results may be below our expectations and the expectations of investors and analysts if our gross margins are below expectations. This could cause our stock price to decline.



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Our products or services may be found to infringe third party intellectual property rights.

Third parties have in the past and may in the future claim that our current or future products or services infringe their intellectual property rights,
and these claims, even if without merit, could harm our business by increasing our costs, reducing our net revenue or by creating customer concerns that result in delayed or reduced sales. This is particularly true in the patent area, as an
increasing number of U.S. patents covering computer networking and Internet technology have been issued in recent years. Patent owners, including those that do not commercially manufacture or sell products, may claim that one or more of our products
infringes a patent they own. For example, on or about April 18, 2008, Realtime Data, LLC d/b/a IXO filed a patent infringement lawsuit against Packeteer, Inc., a company we acquired on June 6, 2008, and certain of its customers,
and subsequently amended the complaint and named us as a defendant on June 20, 2008 (see Note 12 in the Consolidated Financial Statements).

We expect that companies in the Internet and networking industries will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements, or to develop non-infringing technology. As well, injunctive
relief could be entered against us or trade restrictions could be imposed. Any of the foregoing could seriously harm our business.

We must
anticipate market needs, and develop and introduce new products and enhancements to rapidly meet those needs.

To maintain our
competitive position in a market characterized by rapid rates of technological advancement, we must correctly anticipate market requirements and invest our research and development resources to meet those requirements. The introduction of new
products by others, market acceptance of products based on new or alternative technologies, or the emergence of new industry standards, could render our existing products obsolete or make it easier for other products to compete with our products.
Our future success will depend in part upon our ability to:



| |  |  | develop and maintain competitive products;
| | - |  | ------------------------------------------



| |  |  | enhance our products by adding innovative features that differentiate our products from those of our competitors;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | bring products to market on a timely basis at competitive prices;
| | - |  | -----------------------------------------------------------------



| |  |  | identify and respond to emerging technological trends in the market; and
| | - |  | ------------------------------------------------------------------------



| |  |  | respond effectively to new technological changes or new product announcements by others.
| | - |  | ----------------------------------------------------------------------------------------

There is no guarantee that we will accurately predict the direction in which the market for Application Delivery Network infrastructure products and
services will evolve. Failure on our part to anticipate the direction of this market and to develop products, enhancements and service offerings that meet the needs of this market will significantly impair our business, financial condition and
results of operations.

Our internal investments in research and development may not yield the benefits we anticipate.

The success of our business is predicated on our ability to create new products and technologies and to anticipate future market requirements and
applicable industry standards. The process of developing new technologies is time consuming, complex and uncertain, and requires commitment of significant resources well in advance of being able to fully determine market requirements and industry
standards. Furthermore, we may not be able to timely execute new product or technical initiatives because of errors in product planning or timing, technical difficulties that we cannot timely resolve, or a lack of appropriate resources. This could
result in competitors bringing products to market before we do and a consequent decrease in our market share and net revenue. Our inability to timely and cost-effectively introduce new products and product enhancements, or the failure of these new
products or enhancements to achieve market acceptance and comply with industry standards,



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could seriously harm our business, financial condition and results of operations. Additionally, our introduction of new products and product enhancements
could result in the obsolescence of previously purchased or committed inventory, which would reduce our net income.

We must continue to develop
market awareness of our market, our company and our products and services.

We have focused our business strategy and investments on
the market for Application Delivery Network infrastructure products and services. Our marketing efforts are directed at creating awareness of this new and evolving market, how it addresses specific customer requirements, and our participation in the
market and the value and capabilities of our products and services.

Market awareness is essential to our continued growth and our success.
If our advertising and marketing programs are not successful in creating market awareness of the need for Application Delivery Network infrastructure products and servicesand the value and capabilities of our specific products and
serviceswe may not be able to achieve sustained growth. Moreover, if the market for Application Delivery Network infrastructure products and services fails to grow as we anticipate, we may not be able to sell as many of our products and
services as we currently project, which would result reduce our anticipated net revenue and could result in a decline in our stock price.

Product
quality problems may result in delayed market acceptance, additional costs, reduced sales or litigation.

Our products are highly
complex and may contain undetected operating errors or quality problems when first introduced or as new versions or upgrades are released. Despite testing by us and by current and potential customers, errors or quality problems may not be found in
new products or new versions until after commencement of commercial shipments, resulting in customer dissatisfaction and loss of or delay in market acceptance and sales opportunities. This could materially adversely affect our operating results.
These errors and quality problems could also cause us to incur significant warranty costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems. In addition, all of
our products operate on our internally developed operating system. As a result, any error in the operating system may affect all of our products. We have experienced errors or quality problems in the past in connection with new products and
enhancements to existing products. We expect that errors or quality problems will be found from time to time in new or enhanced products after commencement of commercial shipments, which could seriously harm our business.

Since our end user customers install our appliances directly into their network infrastructures, any errors, defects or other problems with our products
could negatively impact their networks or other Internet users, resulting in financial or other losses. While we typically seek by contract to limit our exposure to damages, it is possible that such limitations might not exist or might not be
enforced in the event of a product liability claim. Moreover, a product liability claim brought against us, even if not successful, would likely be time-consuming and costly and could seriously harm the reputation of our business and products.

Our ability to sell our products depends on the quality of our support and services offerings.

Our products are provided as part of an Application Delivery Network infrastructure, which is important to the ability of our end user customers to
effectively use their networks. Our end user customers look to us and, as applicable, to our channel partners to ensure that our products are properly configured and installed, and efficiently and effectively operate within their networks. To the
extent we or our channel partners fail to effectively assist our end user customers in their efforts to deploy and operate our products, or fail to timely and adequately address product problems, it may adversely affect our ability to sell our
products to those customers in the future and could harm our business and product reputation and impact other sales. Failure to maintain high quality support and services may harm our business, financial condition and results of operations.



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Our acquisitions may not provide the benefits we anticipate and may disrupt our existing business.

In June of 2008, we completed our acquisition of Packeteer. We have also acquired other businesses in the past, including our
acquisition of Permeo Technologies, Inc. and our acquisition of certain assets of the NetCache business from Network Appliance, Inc. It is likely we will acquire additional businesses or assets in the future. There is no guaranty that such
acquisitions will yield the benefits we anticipate. The success of any acquisition is impacted by a number of factors, and may be subject to the following risks:



| |  |  | inability to successfully integrate the operations, technologies, products and personnel of the acquired companies;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from normal daily operations of the business;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | loss of key employees; and
| | - |  | --------------------------



| |  |  | substantial transaction costs.
| | - |  | ------------------------------

Acquisitions may also result in risks to our existing business, including:



| |  |  | dilution of our current stockholders percentage ownership to the extent we issue new equity;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | assumption of additional liabilities;
| | - |  | -------------------------------------



| |  |  | incurrence of additional debt or a decline in available cash;
| | - |  | -------------------------------------------------------------



| |  |  | adverse effects to our financial statements, such as the need to make large and immediate write-offs or the incurrence of restructuring and other related expenses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | liability for intellectual property infringement and other litigation claims, which we may or may not be aware of at the time of acquisition; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | creation of goodwill or other intangible assets that could result in significant amortization expense or impairment charges.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

The occurrence of any of the above risks could seriously impact our business, financial condition and results of operations.

We must attract, assimilate and retain key personnel on a cost-effective basis.

We depend on our ability to attract and retain highly qualified and skilled personnel on an ongoing basis. Our success will depend in part on our ability
to recruit and retain key personnel. In particular, we currently are recruiting candidates to fill a vacant position as our Chief Financial Officer. Our former Chief Financial Officer resigned his position effective April 10, 2009.

The majority of our employees, including our senior management personnel, are employed on an at-will basis, which may make it easier for
key employees to move to new employment. Our inability to timely hire replacement or additional employees may impact our operations, since new hires, particularly sales personnel, frequently require extensive training before they achieve desired
levels of productivity. This may affect our ability to grow our net revenue.

Our international operations expose us to risks.

We currently have operations in a number of foreign countries. In fiscal 2009, 57.4% of our total net revenue was derived from customers outside of North
America and in fiscal 2008 53.2% of our total net revenue was derived from customers outside of North America; thus, our business is substantially dependent on economic conditions and IT spending in markets outside North America. The expansion of
our international operations and entry into additional international markets requires significant management attention and financial resources, and subjects us to certain inherent risks including:



| |  |  | technical difficulties and costs associated with product localization;
| | - |  | ----------------------------------------------------------------------



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| |  |  | challenges associated with coordinating product development efforts among geographically dispersed areas;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | potential loss of proprietary information due to piracy, misappropriation or laws that may be less protective of our intellectual property rights;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our limited experience in establishing a sales and marketing presence, together with the appropriate internal systems, processes and controls, in certain geographic
markets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | longer payment cycles for sales in certain foreign countries;
| | - |  | -------------------------------------------------------------



| |  |  | seasonal reductions in business activity in the summer months in Europe and at other times in various countries;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the significant presence of some of our competitors in some international markets;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences or changes in applicable tax laws;
| | - |  | -----------------------------------------------------------------------



| |  |  | import and export restrictions and tariffs and other trade protection initiatives;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | potential failures of our foreign employees to comply with both U.S. and foreign laws, including antitrust laws, trade regulations and the Foreign Corrupt Practices
Act;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | compliance with foreign laws and other government controls, such as those affecting trade, privacy, the environment and employment;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | management, staffing, legal and other costs of operating an enterprise spread over various countries;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | fluctuations in foreign exchange rates;
| | - |  | ---------------------------------------



| |  |  | political or economic instability, war or terrorism in the countries where we are doing business; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | fears concerning travel or health risks that may adversely affect our ability to sell our products and services in any country in which the business sales culture
encourages face-to-face interactions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To the extent we are unable to effectively manage our international operations and
these risks, our international sales may be adversely affected, we may incur additional and unanticipated costs, and we may be subject to litigation or regulatory action. As a consequence, our business, financial condition and results of operations
could be seriously harmed.

Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material
differences between our forecasted and actual tax rates.

Forecasts of our income tax position and effective tax rate are complex
and subject to uncertainty because our income tax position for each year combines the effects of a mix of profits and losses earned by us and our subsidiaries in various tax jurisdictions with a broad range of income tax rates, as well as changes in
the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination or
other reorganization or financing transaction. To forecast our global tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax expense by jurisdiction. If the mix of profits and losses, our ability to use tax
credits, or effective tax rates by jurisdiction is different than those estimated, our actual tax rate could be materially different than forecasted, which could have a material impact on our results of business, financial condition and results of
operations.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions.
The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is highly dependent upon the geographic distribution of our
worldwide earnings or losses, the tax regulations and tax holidays in each geographic region, the availability of tax credits and carryforwards, and the effectiveness of our



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tax planning strategies. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws
themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could
materially impact our tax liability and/or our effective income tax rate.

In addition, we may be subject to examination of our income tax
returns by the Internal Revenue Service and other tax authorities. If tax authorities challenge the relative mix of U.S. and international income, our future effective income tax rates could be adversely affected. While we regularly assess the
likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our
business, financial condition and results of operations.

Our internal investments in our sales organization may not yield the benefits we
anticipate.

We have continued to increase the size of our sales force in order to invest for future growth even during the current
economic downturn, and have recently tiered the structure of our sales force. We will not immediately realize the benefits of investments in new sales personnel, as it typically takes a number of quarters before a sales person becomes fully
productive. In addition, the realignment of our sales force may not yield the intended sales coverage and efficiencies. Should the market for Application Delivery Network infrastructure products and services not grow as anticipated, including as a
result of further deterioration in the U.S. and global economies, the return on these investments may be lower than we have projected, which would adversely affect our business, financial condition and results of operations.

We rely on technology that we license from third parties, including software that is integrated with internally developed software and used with our products.

We rely on technology that we license from third parties, including third party commercial software and open source software that
is used with certain of our products. If we are unable to continue to license any of this software on commercially reasonable terms, we will face delays in releases of our software or we will be required to delete this functionality from our
software until equivalent technology can be licensed or developed and integrated into our current product. In addition, the inability to obtain certain licenses or other rights might require us to engage in litigation regarding these matters, which
could have a material adverse effect on our business, financial condition and results of operations.

We issued convertible notes to fund our
acquisition of Packeteer, which could impact our liquidity.

We issued zero coupon convertible senior notes in an aggregate
principal amount of $80 million that mature in 2013, in order to acquire Packeteer. If these notes are not converted prior to maturity we will be required to repay the principal amount, and may not have funds available to do so. As well, the notes
contain certain conditions of default and, should a default occur, the holders of the notes may be able to require early payment of the notes.

We
may be unable to raise additional capital.

We believe that our available cash, cash equivalents and short term investments will
enable us to meet our capital requirements for at least the next 12 months. However, if cash is required for unanticipated needs, including payment of our zero coupon convertible senior notes in the event of default, we may need additional capital
during that period. The development and marketing of new products and our investment in sales and marketing efforts requires a significant commitment of resources. If the market for our products develops at a slower pace than anticipated, we could
be required to raise substantial additional capital. Given the current dislocation in debt and equity capital markets, we cannot guarantee that, should it be required, sufficient debt or equity capital will be available to us under acceptable terms,
if at all. If we were unable to raise additional capital when required, our business, financial condition and results of operations could be seriously harmed.



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If the protection of our proprietary technology is inadequate, our competitors may gain access to our technology.

Our success is heavily dependent on our ability to create proprietary technology and to protect and enforce our intellectual
property rights in that technology, as well as our ability to defend against adverse claims of third parties with respect to our technology and intellectual property. To protect our proprietary technology, we rely primarily on a combination of
contractual provisions, confidentiality procedures, trade secrets, copyright and trademark laws, and patents. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use
information that we regard as proprietary. Policing unauthorized use of our products is difficult. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Our
means of protecting our proprietary rights may not be adequate and unauthorized third parties, including our competitors, may independently develop similar or superior technology, duplicate or reverse engineer aspects of our products, or design
around our patented technology or other intellectual property.

As of April 30, 2009, we had 82 issued U.S. patents, 97 pending U.S.
patent applications (provisional and non-provisional), 2 foreign issued patents and 8 pending foreign patent applications. There can be no assurance that any of our pending patent applications will issue or that the patent examination process will
not result in our narrowing the claims applied for. Furthermore, there can be no assurance that we will be able to detect any infringement of our existing or future patents (if any) or, if infringement is detected, that our patents will be
enforceable or that any damages awarded to us will be sufficient to adequately compensate us.

There can be no assurance or guarantee that
any products, services or technologies that we are presently developing, or will develop in the future, will result in intellectual property that is subject to legal protection under the laws of the United States or a foreign jurisdiction and that
produces a competitive advantage for us.

We are subject to various governmental regulations that could subject us to liability or impair our ability
to compete in international markets.

Our products are subject to various governmental regulations, including U.S. and foreign
import and export control laws and various environmental regulations, including the Waste Electrical and Electronic Equipment (WEEE) and Restriction of the Use of Certain Hazardous Substances in Electrical and Electric Equipment (RoHS) regulations
adopted by the European Union. In addition, our products contain encryption technology and various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute our products or could
limit our customers ability to implement our products in those countries. Changes in our products or changes in applicable regulations or enforcement may create delays in the introduction of our products in international markets, prevent our
customers with international operations from deploying our products globally or, in some cases, prevent the export or import of our products to certain countries altogether. Any decreased use of our products or limitation on our ability to export or
sell our products would likely adversely affect our business, financial condition and results of operations.

Changes in our global fulfillment model
may harm our business.

We are in the process of revising our global fulfillment model to ship directly to our end user customers
and value-added resellers worldwide during fiscal 2010. While this will not materially affect our practices in North America, Latin America and Asia Pacific, where most of our distributors presently do not stock inventory, it will constitute a
significant change in our Europe, Middle East and Africa (EMEA) region. The success of this change will depend on our ability to implement new systems and processes, and our ability to forecast our requirements for inventory. If we fail
to successfully implement such systems or processes, or to effectively forecast our requirements, we may be unable to fulfill customer orders or we may hold excess inventory, each of which could adversely affect our business, financial condition and
results of operations.



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Our operations could be significantly hindered by the occurrence of a natural disaster, terrorist attack or other
catastrophic event.

Our business operations are susceptible to outages due to fire, floods, power loss, telecommunications
failures, terrorist attacks and other events beyond our control. In addition, a substantial portion of our facilities, including our headquarters, are located in Northern California, an area susceptible to earthquakes. We do not carry earthquake
insurance for earthquake-related losses. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. We may not
carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any of these events. To the extent that such events disrupt our business or adversely impact our reputation, such events could adversely
affect our business, financial condition and results of operations.

Third party product developments may impact the value of our products to users.

Our appliances are purchased to optimize and secure the delivery of third party software applications and content. It is possible
that the providers of software applications and operating systems which operate with the software applications and content optimized by our appliances may enhance the performance of their software, such that further optimization of affected
applications and content is not necessary. This could make our products less valuable to users of that software. In addition, manufacturers of hardware or software may incorporate functionality similar to that offered by our products directly into
their products, which would make our products less valuable to users of those products. Any of the foregoing may limit our ability to sell our products and adversely affect our business, financial condition and results of operations.

The market price of our stock is volatile, and is likely to be volatile in the future.

Since our initial public offering, the market price of our common stock has experienced significant fluctuations and may continue to fluctuate
significantly. Such volatility in the trading price of our stock can occur in response to general market conditions, changes in the IT or technology market generally or changes in the specific markets in which we operate, and cause an increase or
decline in our stock price without regard to our operating performance. The market price of our common stock could decline quickly and significantly if we fail to achieve our guidance or if our performance fails to meet the expectation of public
market analysts or investors.

The market price of our common stock may fluctuate significantly in response to the following factors, among
others:



| |  |  | variations in our quarterly operating results;
| | - |  | ----------------------------------------------



| |  |  | changes in financial estimates or investment recommendations by securities analysts;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | changes in macroeconomic conditions;
| | - |  | ------------------------------------



| |  |  | the introduction of new products by our competitors;
| | - |  | ----------------------------------------------------



| |  |  | our ability to keep pace with changing technological requirements;
| | - |  | ------------------------------------------------------------------



| |  |  | changes in market valuations of Internet-related and networking companies;
| | - |  | --------------------------------------------------------------------------



| |  |  | announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | loss of customers who represent a significant portion of the companys revenues;
| | - |  | --------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | fluctuations in stock market volumes;
| | - |  | -------------------------------------



| |  |  | investor confidence in our stock, technology stocks and the stock market in general;
| | - |  | ------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | speculation in the press or investment communication about our strategic position, financial condition, results of operations or business;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant transactions; and
| | - |  | -----------------------------



| |  |  | regulatory or litigation matters.
| | - |  | ---------------------------------

It is not uncommon for securities class actions or other litigation to be brought against a company after periods of volatility in the market price of a companys stock, and we have been subject to such litigation in the past. Such
actions could result in management distraction and expense and, could result in a decline in our stock price.

We have a history of losses and
profitability could be difficult to sustain.

While we have been profitable in certain quarters, we have not been able to maintain
consistent profitability on a quarterly basis. Although we were profitable in all four quarters of fiscal 2008, we were only profitable in the third quarter of fiscal 2009, and may not be profitable on a quarterly or annual basis in the future. Our
ability to achieve, sustain or increase profitability on a quarterly or annual basis will be affected by changes in our business and the demand for our products and services. We expect our operating expenses to increase as we endeavor to grow
revenue, and we anticipate that we will make investments in our business. Our results of operations will be harmed if our revenue does not increase at a rate commensurate with the rate of increase in our expenses. If our revenue is less than
anticipated or if our operating expenses exceed our expectations or cannot be adjusted quickly and efficiently, we may continue to experience quarterly or annual losses.

The legal environment in which we operate is uncertain and claims against us could cause our business to suffer.

Our products operate in part by storing material available on the Internet and making this material available to end users from our appliance. As well, our appliance may be used to block content from being accessed.
This creates the potential for claims to be made against us, either directly or through contractual indemnification provisions with our customers, for defamation, negligence, intellectual property infringement, personal injury, censorship, invasion
of privacy or other legal theories based on the nature, content, copying or modification of this content. As of April 30, 2009, we have not accrued any liabilities relating to indemnification provisions with our customers. It is also possible
that if any information provided through any of our products contains errors, third parties could make claims against us for losses incurred in reliance on this information. Our insurance may not cover potential claims of this type or be adequate to
protect us from all liability that may be imposed.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We are headquartered in Sunnyvale, California, where we lease two buildings consisting of an aggregate of approximately 234,000 square
feet of office space pursuant to leases effective through November 2015. We also lease space for research and development in Draper, Utah; Austin, Texas; Waterloo, Ontario in Canada; and Riga, Latvia. In addition, we lease space for sales and
support in several metropolitan areas in North America and in several other countries outside the United States.

We believe that our
existing facilities are adequate to meet our current requirements, and that suitable additional or substitute space will be available, if necessary.



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##### Table of Contents

Item 3. Legal Proceedings

The information set forth under Note 12 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, is
incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see the section entitled Risk Factors in Item 1A of this Report.

Item 4. Submission of Matters to a Vote of Security Holders

None.



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##### Table of Contents

PART II.

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

Price Range of Common Stock

Our common stock is currently traded on the NASDAQ Global Select Market under the symbol BCSI and has been traded on NASDAQ since November 19, 1999. The following table sets forth, for the periods
indicated, the high and low closing prices of our common stock as reported on the NASDAQ Global Select Market.



|                                   |  |      |       |     |   |      
|---------------------------------- |  | ---- | ----- | --- | - | -----
|                                   |  | High |       | Low
|For the year ended April 30, 2009: |  |      |       |     |   |      
|First Quarter                      |  | $    | 25.37 |     | $ | 12.47
|Second Quarter                     |  | $    | 19.00 |     | $ | 9.89 
|Third Quarter                      |  | $    | 13.61 |     | $ | 7.26 
|Fourth Quarter                     |  | $    | 15.32 |     | $ | 9.01 
|For the year ended April 30, 2008: |  |      |       |     |   |      
|First Quarter                      |  | $    | 27.77 |     | $ | 17.10
|Second Quarter                     |  | $    | 51.56 |     | $ | 24.68
|Third Quarter                      |  | $    | 39.20 |     | $ | 24.58
|Fourth Quarter                     |  | $    | 29.58 |     | $ | 19.50

At April 30, 2009, there were 579 stockholders of record and the price of our common stock
was $13.26. We believe that a significant number of beneficial owners of our common stock hold shares in street name.

Dividend Policy

Our present policy is to retain earnings, if any, to finance future growth. We have never paid cash dividends and have no present intention to pay cash
dividends.



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##### Table of Contents

Stock Performance Graph

The following graph compares the cumulative five-year total return provided shareholders on our common stock relative to the cumulative total returns of the NASDAQ Composite index and the NASDAQ Computer Manufacturers
index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on April 30, 2004 and its relative performance is tracked through April 30, 2009.

LOGO



|                              |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |       
|----------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|                              |  | 4/04 |        | 4/05 |   | 4/06   |  | 4/07 |        | 4/08 |   | 4/09  
|Blue Coat Systems, Inc.       |  | $    | 100.00 |      | $ | 32.29  |  | $    | 48.80  |      | $ | 78.63  |  | $ | 94.68  |  | $ | 59.47 
|NASDAQ Composite              |  |      | 100.00 |      |   | 100.90 |  |      | 124.20 |      |   | 136.38 |  |   | 130.63 |  |   | 91.41 
|NASDAQ Computer Manufacturers |  |      | 100.00 |      |   | 98.78  |  |      | 115.27 |      |   | 135.13 |  |   | 145.54 |  |   | 104.93



The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Purchases of Equity
Securities by the Issuer and Affiliated Purchasers

None.



29



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##### Table of Contents

Item 6. Selected Consolidated Financial Data

The following table sets forth selected financial data as of and for the last five fiscal years. This selected financial data should be read in
conjunction with our historical financial statements, including the notes thereto, and Managements Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this report. The consolidated
financial statement data include the results of operations of acquired businesses commencing on their respective acquisition dates.



|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|---------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                                                       |  | Year Ended April 30,                  |        
|                                                                       |  | 2009                                  |         |   | 2008 |   |         | 2007 |  |   | 2006    |   |  | 2005 |        
|                                                                       |  | (in thousands, except per share data) |        
|Consolidated Statements of Operations                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net revenue:                                                           |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Product                                                                |  | $                                     | 305,601 |   |      | $ | 233,858 |      |  | $ | 136,770 |   |  | $    | 116,083 |   |  | $ | 78,495 |  
|Service                                                                |  |                                       | 139,144 |   |      |   | 71,581  |      |  |   | 40,930  |   |  |      | 25,639  |   |  |   | 17,691 |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total net revenue                                                      |  |                                       | 444,745 |   |      |   | 305,439 |      |  |   | 177,700 |   |  |      | 141,722 |   |  |   | 96,186 |  
|Cost of net revenue:                                                   |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Product (1)                                                            |  |                                       | 85,825  |   |      |   | 48,056  |      |  |   | 31,779  |   |  |      | 33,207  |   |  |   | 25,726 |  
|Service (1)                                                            |  |                                       | 45,310  |   |      |   | 23,389  |      |  |   | 13,969  |   |  |      | 9,841   |   |  |   | 5,784  |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total cost of net revenue                                              |  |                                       | 131,135 |   |      |   | 71,445  |      |  |   | 45,748  |   |  |      | 43,048  |   |  |   | 31,510 |  
|Gross profit                                                           |  |                                       | 313,610 |   |      |   | 233,994 |      |  |   | 131,952 |   |  |      | 98,674  |   |  |   | 64,676 |  
|Operating expenses:                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Sales and marketing (1)                                                |  |                                       | 178,470 |   |      |   | 128,927 |      |  |   | 73,083  |   |  |      | 52,829  |   |  |   | 35,334 |  
|Research and development (1)                                           |  |                                       | 76,680  |   |      |   | 51,587  |      |  |   | 39,882  |   |  |      | 26,785  |   |  |   | 17,881 |  
|General and administrative (1)                                         |  |                                       | 47,679  |   |      |   | 27,909  |      |  |   | 28,072  |   |  |      | 13,593  |   |  |   | 6,703  |  
|In-process technology (2)                                              |  |                                       |        |   |      |   |        |      |  |   |        |   |  |      | 3,300   |   |  |   |       |  
|Amortization of intangible assets (3)                                  |  |                                       | 6,667   |   |      |   | 450     |      |  |   | 619     |   |  |      | 706     |   |  |   | 648    |  
|Restructuring (reversal) (4)                                           |  |                                       | 1,546   |   |      |   |        |      |  |   | (19     | ) |  |      | (48     | ) |  |   | (96    | )
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total operating expense                                                |  |                                       | 311,042 |   |      |   | 208,873 |      |  |   | 141,637 |   |  |      | 97,165  |   |  |   | 60,470 |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Operating income (loss)                                                |  |                                       | 2,568   |   |      |   | 25,121  |      |  |   | (9,685  | ) |  |      | 1,509   |   |  |   | 4,206  |  
|Interest income                                                        |  |                                       | 1,302   |   |      |   | 6,127   |      |  |   | 4,170   |   |  |      | 2,120   |   |  |   | 753    |  
|Interest expense                                                       |  |                                       | (885    | ) |      |   | (257    | )    |  |   | (248    | ) |  |      | (65     | ) |  |   | (62    | )
|Other expense                                                          |  |                                       | (2,362  | ) |      |   | (461    | )    |  |   | (311    | ) |  |      | (349    | ) |  |   | (124   | )
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Income (loss) before income taxes                                      |  |                                       | 623     |   |      |   | 30,530  |      |  |   | (6,074  | ) |  |      | 3,215   |   |  |   | 4,773  |  
|Provision (benefit) for income taxes                                   |  |                                       | 9,131   |   |      |   | (2,038  | )    |  |   | 1,124   |   |  |      | 275     |   |  |   | 117    |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss)                                                      |  | $                                     | (8,508  | ) |      | $ | 32,568  |      |  | $ | (7,198  | ) |  | $    | 2,940   |   |  | $ | 4,656  |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss) per share (5):                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Basic                                                                  |  | $                                     | (0.22   | ) |      | $ | 0.93    |      |  | $ | (0.25   | ) |  | $    | 0.11    |   |  | $ | 0.20   |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Diluted                                                                |  | $                                     | (0.22   | ) |      | $ | 0.82    |      |  | $ | (0.25   | ) |  | $    | 0.10    |   |  | $ | 0.18   |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Weighted average shares used in computing net income (loss) per share: |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Basic                                                                  |  |                                       | 38,493  |   |      |   | 35,179  |      |  |   | 29,188  |   |  |      | 25,930  |   |  |   | 23,256 |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Diluted                                                                |  |                                       | 38,493  |   |      |   | 39,659  |      |  |   | 29,188  |   |  |      | 29,284  |   |  |   | 25,816 |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  



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|                                                  |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |       
|------------------------------------------------- |  | --------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | ------
|                                                  |  | As of April 30,
|                                                  |  | 2009            |         | 2008 |   | 2007    |  | 2006 |         | 2005
|                                                  |  | (in thousands) 
|Consolidated Balance Sheet Data                   |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |       
|Cash, cash equivalents and short-term investments |  | $               | 114,163 |      | $ | 162,178 |  | $    | 93,887  |      | $ | 57,190  |  | $ | 47,264
|Investment in Packeteer.                          |  |                 |        |      |   | 25,092  |  |      |        |      |   |        |  |   |      
|Working capital                                   |  |                 | 66,644  |      |   | 123,561 |  |      | 66,394  |      |   | 40,725  |  |   | 34,213
|Total assets                                      |  |                 | 562,293 |      |   | 387,768 |  |      | 248,674 |      |   | 164,164 |  |   | 97,862
|Convertible Senior Notes, due in 2013             |  |                 | 76,347  |      |   |        |  |      |        |      |   |        |  |   |      
|Series A redeemable convertible preferred stock   |  |                 |        |      |   |        |  |      | 41,879  |      |   |        |  |   |      
|Other long-term liabilities                       |  |                 | 52,903  |      |   | 23,915  |  |      | 16,489  |      |   | 10,130  |  |   | 4,232 
|Total stockholders equity                        |  |                 | 281,609 |      |   | 251,461 |  |      | 118,589 |      |   | 109,958 |  |   | 65,228



|(1) | Includes stock-based compensation expense. The following table presents details of the total stock-based compensation expense that is included in each functional line item in the
consolidated statements of operations above:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                  |  |                      |        |          |   |          |  |      |       |      |   |       |  |   |        |  
|----------------------------------------------------------------- |  | -------------------- | ------ | -------- | - | -------- |  | ---- | ----- | ---- | - | ----- |  | - | ------ | -
|                                                                  |  | Year Ended April 30, |       
|                                                                  |  | 2009 (a)             |        | 2008 (a) |   | 2007 (a) |  | 2006 |       | 2005 |  
|                                                                  |  | (in thousands)       |       
|Supplementary Data on Stock-Based Compensation Expense (Reversal) |  |                      |        |          |   |          |  |      |       |      |   |       |  |   |        |  
|Cost of product                                                   |  | $                    | 668    |          | $ | 775      |  | $    | 468   |      | $ | 31    |  | $ | 114    |  
|Cost of service                                                   |  |                      | 1,174  |          |   | 808      |  |      | 471   |      |   | 57    |  |   | 60     |  
|Sales and marketing                                               |  |                      | 6,419  |          |   | 5,593    |  |      | 3,169 |      |   | 618   |  |   | 1,191  |  
|Research and development                                          |  |                      | 5,304  |          |   | 4,986    |  |      | 3,325 |      |   | 866   |  |   | 1,505  |  
|General and administrative                                        |  |                      | 4,832  |          |   | 4,644    |  |      | 2,067 |      |   | 1,809 |  |   | (2,126 | )
|                                                                  |  |                      |        |          |   |          |  |      |       |      |   |       |  |   |        |  
|Subtotal                                                          |  |                      | 18,397 |          |   | 16,806   |  |      | 9,500 |      |   | 3,381 |  |   | 744    |  
|Restructuring                                                     |  |                      | 88     |          |   |         |  |      |      |      |   |      |  |   |       |  
|                                                                  |  |                      |        |          |   |          |  |      |       |      |   |       |  |   |        |  
|Total stock-based compensation                                    |  | $                    | 18,485 |          | $ | 16,806   |  | $    | 9,500 |      | $ | 3,381 |  | $ | 744    |  
|                                                                  |  |                      |        |          |   |          |  |      |       |      |   |       |  |   |        |  

| | 
| | 

| | (a) | Amounts included in fiscal 2009, 2008 and 2007 reflect the adoption of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which was
effective for us on May 1, 2006.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Acquired in-process technology relates to certain research and development projects assumed in the Permeo acquisition in fiscal 2006 that had not yet reached technological
feasibility and was deemed to have no alternative future use.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Amortization of intangible assets relates to identifiable intangible assets obtained through acquisitions, most significantly the acquisition of Packeteer in fiscal 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Reversal of restructuring reserves in fiscal 2005, 2006 and 2007 resulted from reductions in the estimated costs required to restore leased facilities to the condition stipulated in
the related lease agreements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | For more information on earnings per share including the two class method see Note 2 in the Notes to Consolidated Financial Statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



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

This Annual Report on Form 10-K, and other materials accompanying this Annual Report on Form 10-K contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our future plans, objectives, expectations, intentions and
financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to, statements concerning the following: expectations with respect to future market growth opportunities; changes
in and expectations with respect to revenues and gross margins; future operating expense levels and operating margins; the impact of quarterly fluctuations of revenue and operating results; our ability to achieve expected levels of revenues and
profit contributions from acquired businesses; the impact of macroeconomic conditions on our business; the adequacy of our capital resources to fund operations and growth; investments or potential investments in acquired businesses and technologies
(including our acquisition of Packeteer, Inc.), as well as internally developed technologies; the expansion and effectiveness of our direct sales force, distribution channel, and marketing activities, including the realignment of our sales force and
changes in our global fulfillment model; the impact of recent changes in accounting standards and assumptions underlying any of the foregoing. In some cases, forward-looking statements are identified by the use of terminology such
as anticipate, expect, intend, plan, predict, believe, estimate, may, will, should, would, could,
potential, continue, ongoing, or negatives or derivatives of the foregoing, or other comparable terminology.

The forward-looking statements in this Annual Report on Form 10-K involve known and unknown risks, uncertainties and other factors that may cause industry and market trends, or our actual results, level of
activity, performance or achievements, to be materially different from any future trends, results, level of activity, performance or achievements expressed or implied by these statements. For a detailed discussion of these risks, uncertainties and
other factors, see the Risk Factors section in Item 1A of this Annual Report on Form 10-K. We undertake no obligation to revise or update forward-looking statements to reflect new information or events or circumstances
occurring after the date of this Annual Report on Form 10-K, except as required by applicable law.

Overview

We sell a family of proxy appliances and related software and services. Proxy appliances are computer hardware devices that, together with internal
software, optimize and secure the delivery of business applications and other information over a WAN or across an enterprises Internet gateway, where its local computer network links to the public Internet.

On June 6, 2008, we acquired Packeteer, a pioneer in delivering sophisticated WAN traffic
prioritization, for a purchase price of approximately $278.6 million. Packeteer developed and sold application classification and performance management products. Much of our focus during fiscal 2009 was on integrating the business of Packeteer into
our existing business and creating a single organization (including an integrated sales force) designed to take advantage of cost, management, technology, sales and market synergies. As well, we sought to make the Packeteer products, in particular
the PacketShaper® product, a key part of our product offering and business strategy.

In fiscal 2009, we developed, articulated and commenced implementation of our business strategy to be the leader in the market for products and services that comprise an Application Delivery Network (ADN) infrastructure. We look
at an ADN infrastructure as a set of products and services that provides visibility into the business applications operating on a network, as well as securing and optimizing the delivery of those applications. While much of our focus during the past
two fiscal years has been in the area of WAN optimization, we believe that our ability to differentiate WAN optimization with our traditional secure web gateway products and technologies and with the application performance monitoring products and
technologies we acquired from Packeteer is fundamental to our current and continued success.



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We continue to monitor the current unfavorable and uncertain global macroeconomic conditions, and their
actual and anticipated impact on IT spending. While we believe that our ADN products offer an attractive return on investment and that sales of our products have been less affected by current conditions than many IT products, the current economy has
affected our ability to close sales transactions. We believe that many customers are postponing spending, which means that sales can take longer to close. Despite the challenging economic environment, we continued to hire sales personnel during
fiscal 2009 to address and grow our current and anticipated market.

We have recently revised our sales and logistics operations in
significant respects to better and more efficiently serve our customers and end users. While historically we have assigned territory-based sales teams to provide sales coverage, we have tiered our sales model to provide sales managers focused on the
level of sales opportunity, which we classify as strategic, large enterprise and mid-tier. We also have allocated and aligned our sales support personnel, such as sales engineers, based on their skill sets, rather than assigning them to a single
sales team. These changes are intended to increase product revenue and to decrease our selling costs as a percentage of revenue, as well as to provide more focused service to our customers.

In fiscal 2009, we developed a plan to revise our global logistics practices to ship directly to our end user customers and value-added resellers
worldwide. We will be implementing these revised practices in fiscal 2010. This will not materially impact our distribution practices in North America, Latin America and Asia Pacific, where most of our distributors do not stock inventory. However,
it will constitute a significant change in our Europe, Middle East and Africa region, where the stocking of our products is common. While we will continue using a two tier distribution scheme where distributors provide added value, such as
professional services and training, pre-sales support, post-sales support and marketing activities, the added value will no longer include stocking and shipping our products. We believe that this model will prove more efficient and cost-effective,
and will result in a higher level of customer satisfaction.

We track many financial metrics as key measures of our business performance,
including net revenue, operating margin, deferred revenue, cash flow from operations, and cash position.

Net Revenue

Net revenue, which includes product and service revenue, increased to $444.7 million in fiscal 2009
from $305.4 million in fiscal 2008. Net product revenue in fiscal 2009 was $305.6 million, a $71.7 million increase compared to fiscal 2008. The increase in product revenue was primarily due to revenue attributable to Packeteer products and
increased sales of existing products. Net product revenue primarily includes sales of our Proxy and PacketShaper® appliances and licenses to our Blue Coat WebFilter product. Included in
product revenue is $57.7 million in sales attributable to Packeteer products. We recognized $139.1 million in service revenue in fiscal 2009, a $67.6 million increase compared to fiscal 2008. Included in service revenue is $31.4 million attributable
to Packeteer services. The balance of the increase was driven primarily by the continued growth in our installed base, resulting in an increase in sales of service contracts and renewal service contracts.

Operating Margin

In fiscal 2009, our operating
income decreased to $2.6 million from operating income of $25.1 million in fiscal 2008, a decrease of $22.5 million. The decrease was attributable to a reduction in our gross profit margin from 76.6% in fiscal 2008 to 70.5% in fiscal 2009, as well
as increased operating expenses of $102.2 million which were 69.9% of revenue for fiscal year 2009 compared to 68.4% for fiscal year 2008. Our fiscal 2009 gross profit margin was negatively impacted by $16.2 million as a consequence of the sale of
acquired Packeteer inventory that had been written up to its estimated fair value at the time of acquisition and additionally, by the loss of $11.9 million of service revenue due to the write-down of Packeteers deferred service revenue to fair
value, in each case, as required by purchase accounting rules. At April 30, 2009, $2.8 million of the fair value write-up on the acquired Packeteer inventory and $3.7 million of the fair value write-down on Packeteers



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deferred service revenue remained to be recognized. Operating expenses primarily consist of sales and marketing, research and development, general and
administrative expenses and amortization of intangible assets. Personnel-related costs, including stock-based compensation, are the primary driver of each of these expense categories and the increase in operating expenses in fiscal 2009.
Additionally, in fiscal 2009, we incurred restructuring, integration and transition costs of $10.9 million. As of April 30, 2009 we had 1,434 employees, an increase of 38.8% from the 1,033 employees at April 30, 2008. The majority of the
headcount increases in fiscal 2009 were in sales, research and development and customer support.

Deferred Revenue

Net deferred revenue was $130.6 million at April 30, 2009 compared to $89.6 million at April 30, 2008. The increase was primarily attributable
to an increase in new service contracts sold with our appliances, as well as the renewal of service contracts, offset by a reduction in inventory held by our distributors attributable to distributor inventory management in anticipation of our change
to a new fulfillment model during fiscal 2010 to direct shipment of our products to end user customers and value-added resellers. Once this transition is complete, our distributors will no longer hold inventory and, consequently, distributor
inventory stocking orders will no longer be included in our deferred revenue at sales value, but will be included in our inventory at cost.

Cash Flow
from Operations and Cash Position

During fiscal 2009, we generated cash flow from operations of $57.7 million, compared to $56.9
million generated during fiscal 2008. The increase in operating cash flow was primarily due to higher cash collections, offset by certain payments made related to our Packeteer acquisition, including transaction costs, severance payments and other
liabilities assumed as a result of the Packeteer acquisition, and lower net income of $41.1 million. Our cash, restricted cash and short-term investments were $115.0 million at April 30, 2009, compared to $163.0 million at April 30, 2008.
The overall decrease in our cash and equivalents balance was primarily due to the cash used for our Packeteer acquisition, partially offset by the proceeds received from our convertible debt issuance on June 2, 2008.

Critical Accounting Policies and Estimates

Our
discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation
of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis,
we evaluate our estimates, including those related to Revenue Recognition, Allowance for Doubtful Accounts, Stock-Based Compensation, Supply Chain Liabilities and Valuation of Inventories, Acquisitions, Goodwill and Identifiable Intangible Assets,
Income Taxes, and Legal and Other Contingencies. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and such differences could be material.

We have discussed the development and selection of critical accounting policies and estimates with the audit committee of our board of directors. We
believe the accounting policies described below are those that most frequently require us to make estimates and judgments that materially affect our financial statements and are critical to the understanding of our financial condition and results of
operations:



| |  |  | Revenue Recognition
| | - |  | -------------------



| |  |  | Allowance for Doubtful Accounts
| | - |  | -------------------------------



| |  |  | Stock-Based Compensation
| | - |  | ------------------------



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| |  |  | Supply Chain Liabilities and Valuation of Inventories
| | - |  | -----------------------------------------------------



| |  |  | Acquisitions, Goodwill and Identifiable Intangible Assets
| | - |  | ---------------------------------------------------------



| |  |  | Income Taxes
| | - |  | ------------



| |  |  | Legal and Other Contingencies
| | - |  | -----------------------------

Revenue
Recognition

Our products include stand-alone software and software that is essential to the functionality of our appliances.
Additionally, we provide unspecified software upgrades through maintenance contracts for most of our products. Accordingly, we account for revenue in accordance with Statement of Position No. 97-2, Software Revenue Recognition,
(SOP 97-2) and all related interpretations. We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery or performance has occurred; the sales price is fixed or determinable;
and collection is probable.

We define each of the four criteria above as follows:

Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of customer purchase orders and, in certain instances,
sales contracts or agreements.

Delivery or performance has occurred. We use shipping and related documents, or written evidence of
customer acceptance, when applicable, to verify delivery or performance. Through fiscal 2009, most of our sales were made through distributors under agreements that, in most cases, allow for stock rotation rights. Net revenue and the related cost of
net revenue resulting from shipments of products to distributors are deferred until the distributors report that our products have been sold to a customer. Product revenue in China is deferred until the customer registers its purchase of the proxy
appliance.

For direct sales to end-users and value-added resellers, we recognize product revenue upon transfer of title and risk of loss,
which generally is upon shipment. We do not accept orders from value-added resellers when we are aware that the value-added reseller does not have an order from an end user customer. We generally do not have significant obligations for future
performance, such as rights of return or pricing credits, associated with sales to end users and value-added resellers.

The sales price
is fixed or determinable. We assess whether the sales price is fixed or determinable based on payment terms and whether the sales price is subject to refund or adjustment.

Collection is probable. We assess probability of collection on a customer-by-customer basis. We subject our customers to a credit review process
that evaluates their financial condition and ability to pay for our products and services. If we conclude that collection is not probable based upon our initial review, we do not recognize revenue until cash is received.

For products in an arrangement that includes multiple elements, such as appliances, maintenance or software, we use the residual method to recognize
revenue for the delivered elements. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements, provided that vendor specific
objective evidence (VSOE) of fair value exists for all undelivered elements. VSOE of fair value is based on the price charged when the element is sold separately. We analyze our stand alone maintenance renewals by sales channel and
service offering (strata). We determine the VSOE of fair value for maintenance by analyzing our stand alone maintenance renewals and noting that a substantial majority of transactions fall within a narrow range for each stratum. In limited cases,
VSOE of fair value has been based on management determined prices. If evidence of the fair value of one or more undelivered elements does not exist, all revenue is generally deferred and recognized at the earlier of delivery of those elements or
establishment of fair value for the remaining undelivered elements. When VSOE of fair value cannot be determined for any undelivered maintenance, subscription or service elements, revenue for the entire arrangement is recognized ratably over the
maintenance, subscription or service period.



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Maintenance and subscription revenue is initially deferred and recognized ratably over the life of the
contract, with the related expenses recognized as incurred. Maintenance and subscription contracts usually have a term of one to three years. Unearned maintenance and subscription revenue is included in deferred revenue.

Allowance for Doubtful Accounts

We perform ongoing
credit evaluations of our customers financial condition and maintain an allowance for doubtful accounts. We analyze accounts receivable and historical bad debts, customer geographic concentrations, customer solvency, current economic and
geographic trends, and changes in customer payment terms and practices when evaluating the adequacy of such allowance, and record any required changes in the allowance account to general and administrative expense. We write off accounts receivable
when they are deemed to be uncollectible.

Stock-Based Compensation

Effective May 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, (SFAS No. 123
(R)) using the modified prospective transition method. Under that transition method, compensation expenses recognized beginning on that date include: (a) compensation expense for all unvested share-based payments granted prior to
May 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123; and (b) compensation expense for all share-based payments granted on or after May 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of SFAS No. 123(R). We use the Black-Scholes option valuation model to calculate this compensation expense.

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected term of options, the expected price
volatility of the stock underlying such options, the risk-free interest rate, and the expected forfeiture rate.

For options granted before
May 1, 2006, we amortize the fair value on a graded basis over the vesting period, which results in greater expense recorded in earlier years than the straight-line method. For options granted on or after May 1, 2006, we amortize the fair
value of stock-based compensation on a straight-line basis for options expected to vest. The fair value of all options is amortized over the requisite service periods of the awards, which are generally the vesting periods. We may use different
assumptions under the Black-Scholes option valuation model in the future, which could materially affect our total and per-share net income or loss.

We estimate the expected term of options granted based on our historical experience of grants, exercises and post-vesting cancellations. Beginning with our adoption of SFAS No. 123(R) on May 1, 2006 until April 30, 2008, the
expected option term was 4.63 years. Effective May 1, 2008 and continuing through April 30, 2009, we estimated the expected option term at 4.0 years based on our updated experience of grants, exercises and post-vesting cancellations.

We estimate the volatility of our stock options at the date of grant using a combination of historical and implied volatilities,
consistent with SFAS No. 123(R) and SAB No. 107. We base the risk-free rate that we use in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant based on U.S. Treasury zero-coupon issues with a
remaining term equivalent to the expected term of our option grants.

Stock-based compensation expense under SFAS No. 123(R) is based
on awards ultimately expected to vest, which requires that forfeitures be estimated at the time of grant and revised, if necessary, if actual forfeitures differ from those estimates. Effective May 1, 2008 and continuing through April 30,
2009, we estimated our forfeiture rate at 14.0% based on an analysis of historical pre-vesting forfeitures, and have reduced stock-based compensation expense accordingly. From May 1, 2006 until April 30, 2008, we used a forfeiture rate of
10.0%.



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Supply Chain Liabilities and Valuation of Inventories

We outsource most of our manufacturing, product fulfillment, repair, and supply chain management operations to contract manufacturers, and a significant
portion of our cost of revenues is a result of this activity. Our contract manufacturers procure components and manufacture our products based on demand forecasts that we prepare. These forecasts are based on estimates of future product demand and
are adjusted for overall market conditions. If the actual product demand is significantly lower than forecasted, it could have an adverse impact on our gross margins and profitability.

Inventories consist of raw materials and finished goods. Inventories are recorded at the lower of cost (using the first-in, first-out method) or market,
after we give appropriate consideration to obsolescence and inventory in excess of anticipated future demand. In assessing the ultimate recoverability of inventories, we are required to make estimates regarding future customer demand, the timing of
new product introductions, economic trends and market conditions.

Acquisitions, Goodwill and Identifiable Intangible Assets

We account for acquired businesses using the purchase method of accounting in accordance with SFAS No. 141, Business Combinations (SFAS
141), which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of net assets acquired is recorded as
goodwill. The fair value of intangible assets, including acquired technology and customer relationships, is based on significant judgments made by management. We typically engage third party valuation appraisal firms to assist us in determining the
fair values and useful lives of the assets acquired. Such valuations and useful life determinations require us to make significant estimates and assumptions. These estimates are based on historical experience and information obtained from the
management of the acquired companies. Critical estimates in determining the fair value and useful lives of the assets include, but are not limited to, future expected cash flows earned from the product related technology and discount rates applied
in determining the present value of those cash flows. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Acquisition-related identified intangible assets are
amortized on a straight-line basis over their estimated economic lives, which are three to seven years for developed technology and patents, five years for core technology, five to seven years for customer relationships and two years for trade name.

We perform annual goodwill impairment tests in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, during our fourth
fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The first step of the test identifies whether potential impairment may have occurred, and the second step of the
test measures the amount of the impairment, if any. An impairment of goodwill is recognized when the carrying amount of the assets exceeds their fair value. The process of evaluating the potential impairment of goodwill is highly subjective and
requires the application of significant judgment. For purposes of the annual impairment test, we consider our market capitalization compared to the carrying amount of our assets on the date of the test, since we have only one reporting unit. We
performed our annual review of goodwill in the fourth quarter of fiscal 2009 and concluded that no impairment existed at April 30, 2009.

We periodically evaluate potential impairments of our long-lived assets, including identifiable intangible assets, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate
long-lived assets, including identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events or changes in circumstances that could result in
an impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for our overall
business, and significant negative industry or economic trends. Impairment is recognized when the carrying amount of an asset exceeds its fair value as calculated on a discounted cash flow basis.



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Income Taxes

We use the liability method to account for income taxes as required by SFAS No. 109, Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate income
taxes in each of the jurisdictions in which we operate. This process involves determining our income tax expense and calculating the deferred income tax expense related to temporary difference resulting from the differing treatment of items for tax
and accounting purposes, such as deferred revenue or deductibility of the amortization of certain intangible assets. These temporary differences result in deferred tax assets or liabilities, which are included within the consolidated balance sheets.

We record a valuation allowance to reduce certain deferred tax assets to an amount that we estimate is more likely than not to be
realized. We consider estimated future taxable income and prudent tax planning strategies in determining the need for a valuation allowance. When we determine that it is more likely than not that some or all of our deferred tax assets will be
realizable by either refundable income taxes or future taxable income, the valuation allowance will be reduced and the related tax impact will be recorded as a reduction to the tax provision in that quarter. Likewise, should we determine that we are
not likely to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance would be recorded as an increase to the tax provision in the period such determination was made.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business
is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses,
the tax regulations and tax holidays in each geographic region, the availability of tax credits and carryforwards, and the effectiveness of our tax planning strategies. The application of tax laws and regulations is subject to legal and factual
interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax
assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.

On May 1,
2007, we adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions
accounted for in accordance with SFAS 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. We review our uncertain tax benefits
quarterly, and we may adjust such uncertain tax benefits because of proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, previously unavailable information obtained during the
course of an examination, negotiations between tax authorities of different countries concerning our transfer prices, resolution with respect to individual audit issues, the resolution of entire audits, or the expiration of statutes of limitations.
In addition, our tax contingency reserve includes certain amounts for potential tax assessments for pre-acquisition tax years of acquired companies, which, if recognized, will be recorded to our provision for income taxes upon our adoption of SFAS
141(R), Business Combinations, in fiscal 2010.

Legal and Other Contingencies

We are currently involved in various claims and legal proceedings. We review the status of each significant matter and assess our potential financial
exposure on a quarterly basis. We record a charge equal to at least the minimum estimated liability for damages arising from litigation or other loss contingencies only when both of the following conditions are met: (i) information available
prior to issuance of our consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the



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financial statements and (ii) the range of loss can be reasonably estimated. As additional information becomes available, we reassess the potential
liability related to pending loss contingencies and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.

Results of Operations

The following table sets
forth, as a percentage of net revenue, consolidated statements of operations data for the periods indicated:



|                                  |  |                      |    |  |       |    |  |       |   
|--------------------------------- |  | -------------------- | -- |  | ----- | -- |  | ----- | --
|                                  |  | Year Ended April 30, |   
|                                  |  | 2009                 |    |  | 2008  |    |  | 2007  |   
|Net revenue:                      |  |                      |    |  |       |    |  |       |   
|Product                           |  | 68.7                 | %  |  | 76.6  | %  |  | 77.0  | % 
|Service                           |  | 31.3                 | %  |  | 23.4  | %  |  | 23.0  | % 
|                                  |  |                      |    |  |       |    |  |       |   
|Total net revenue                 |  | 100.0                | %  |  | 100.0 | %  |  | 100.0 | % 
|Cost of net revenue:              |  |                      |    |  |       |    |  |       |   
|Product                           |  | 19.3                 | %  |  | 15.7  | %  |  | 17.9  | % 
|Service                           |  | 10.2                 | %  |  | 7.7   | %  |  | 7.8   | % 
|                                  |  |                      |    |  |       |    |  |       |   
|Total cost of net revenue         |  | 29.5                 | %  |  | 23.4  | %  |  | 25.7  | % 
|Gross profit                      |  | 70.5                 | %  |  | 76.6  | %  |  | 74.3  | % 
|Operating expenses:               |  |                      |    |  |       |    |  |       |   
|Sales and marketing               |  | 40.1                 | %  |  | 42.2  | %  |  | 41.1  | % 
|Research and development          |  | 17.2                 | %  |  | 16.9  | %  |  | 22.4  | % 
|General and administrative        |  | 10.7                 | %  |  | 9.1   | %  |  | 15.8  | % 
|Amortization of intangible assets |  | 1.5                  | %  |  | 0.2   | %  |  | 0.4   | % 
|Restructuring                     |  | 0.4                  | %  |  | 0.0   | %  |  | 0.0   | % 
|                                  |  |                      |    |  |       |    |  |       |   
|Total operating expenses          |  | 69.9                 | %  |  | 68.4  | %  |  | 79.7  | % 
|                                  |  |                      |    |  |       |    |  |       |   
|Operating income                  |  | 0.6                  | %  |  | 8.2   | %  |  | (5.4  | )%
|Interest income                   |  | 0.1                  | %  |  | 2.0   | %  |  | 2.3   | % 
|Interest expense                  |  | 0.0                  | %  |  | (0.1  | )% |  | (0.1  | )%
|Other income (expense)            |  | (0.5                 | )% |  | (0.1  | )% |  | (0.2  | )%
|                                  |  |                      |    |  |       |    |  |       |   
|Income (loss) before income taxes |  | 0.2                  | %  |  | 10.0  | %  |  | (3.4  | )%
|Provision for income taxes        |  | 2.1                  | %  |  | (0.7  | )% |  | 0.6   | % 
|                                  |  |                      |    |  |       |    |  |       |   
|Net income (loss)                 |  | (1.9                 | )% |  | 10.7  | %  |  | (4.0  | )%
|                                  |  |                      |    |  |       |    |  |       |   

Net Revenue

The following is a summary of net revenue and the changes in net revenue by fiscal year:



|                           |  |                        |         |   |      |   |         |      |  |   |         |  
|-------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                           |  | Year Ended April 30,   |        
|                           |  | 2009                   |         |   | 2008 |   |         | 2007 | 
|                           |  | (dollars in thousands) |        
|Total net revenue          |  | $                      | 444,745 |   |      | $ | 305,439 |      |  | $ | 177,700 |  
|Change from prior year ($) |  | $                      | 139,306 |   |      | $ | 127,739 |      |  | $ | 35,978  |  
|Change from prior year (%) |  |                        | 45.6    | % |      |   | 71.9    | %    |  |   | 25.4    | %

Fiscal 2009 compared to Fiscal 2008:Net revenue, which includes product and service
revenue, increased $139.3 million, or 45.6%, to $444.7 million in fiscal 2009 compared to fiscal 2008. Net product revenue in fiscal 2009 was $305.6 million, a $71.7 million increase compared to the prior year period, and included $57.7 million



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in sales of Packeteer products. Net service revenue in fiscal 2009 was $139.1 million, a $67.6 million increase compared to the prior year, and included
$31.4 million attributable to Packeteer. The balance of the increase in net revenue was primarily driven by the continued growth in our installed base, resulting in an increase in sales of service contracts.

During the years ended April 30, 2009 and 2008, Alternative Data Technology, Inc., a channel partner customer, accounted for 12.4% and 12.2% of our
net revenue, respectively. As of April 30, 2009, Alternative Data Technology, Inc., a channel partner customer, accounted for 12.4% of our gross accounts receivable balance. As of April 30, 2008, no single customer accounted for more than
10.0% of our gross accounts receivable balance.

Fiscal 2008 compared to Fiscal 2007: Net revenue increased by 71.9% to
$305.4 million in fiscal 2008 compared to $177.7 million in fiscal 2007. The growth in net revenue was attributable to continued market acceptance of our products, including the renewal of service contracts from our expanding installed base;
demand generated from our expansion into the WAN Optimization market; and increased sales and marketing efforts to broaden our market presence and expand our distribution channels. Service revenue increased 74.9% in fiscal 2008 compared to the prior
year as a result of new service contracts sold with our appliances in fiscal 2008 coupled with revenue recognized in fiscal 2008 from service contracts sold with our appliances in prior years.

During the year ended April 30, 2007, ComputerLinks AG, a channel partner customer, accounted for 11.2% of our net revenue. As of April 30,
2007, no single customer accounted for more than 10.0% of our gross accounts receivable balance.

The following is a summary of net revenue
by geographic area:



|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  
|----------------- |  | ---------------------- | ------- | - | ----- | - | - | ---- | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                  |  | Year Ended April 30,   |        
|                  |  | 2009                   |         |   | 2008  |   |   | 2007 |        
|                  |  | $                      |         | % |       |   | $ |      | %       |  |       | $ |  | % |        
|                  |  | (dollars in thousands) |        
|North America     |  | $                      | 189,381 |   | 42.6  | % |   | $    | 142,934 |  | 46.8  | % |  | $ | 82,812  |  | 46.6  | %
|EMEA (1)          |  |                        | 162,493 |   | 36.5  |   |   |      | 112,110 |  | 36.7  |   |  |   | 66,323  |  | 37.3  |  
|LATAM (2)         |  |                        | 10,518  |   | 2.4   |   |   |      | 3,850   |  | 1.3   |   |  |   | 1,611   |  | 0.9   |  
|APAC (3)          |  |                        | 82,353  |   | 18.5  |   |   |      | 46,545  |  | 15.2  |   |  |   | 26,954  |  | 15.2  |  
|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  
|Total net revenue |  | $                      | 444,745 |   | 100.0 | % |   | $    | 305,439 |  | 100.0 | % |  | $ | 177,700 |  | 100.0 | %
|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  



|(1) | Europe, Middle East, and Africa (EMEA)
|--- | ----------------------------------------

|(2) | Central America and Latin America (LATAM)
|--- | -------------------------------------------

|(3) | Asia and Pacific regions (APAC)
|--- | ---------------------------------

On a
geographic basis, revenue in North America increased $46.4 million in fiscal 2009, up 32.5% from fiscal 2008. Net revenue in North America increased $60.1 million in fiscal 2008, up 72.6% from fiscal 2007. Revenues from outside of North America
continued to be a significant part of our revenue mix. For the fiscal years 2009, 2008 and 2007, approximately 57.4%, 53.2% and 53.4%, respectively, of our total net revenue were derived from customers outside of North America.

Net revenue in EMEA increased $50.4 million in fiscal 2009, up 44.9% from fiscal 2008. Net revenue in EMEA increased $45.8 million in fiscal 2008, up
69.0% from fiscal 2007.

Net revenue in LATAM increased $6.7 million in fiscal 2009, up 173% from fiscal 2008. Net revenue in LATAM
increased $2.2 million in fiscal 2008, up 139% from fiscal 2007.

Net revenue in APAC increased $35.8 million in fiscal 2009, up 76.9% from
fiscal 2008. Net revenue in Asia increased $19.6 million in fiscal 2008, up 72.7% from fiscal 2007.



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Overall net revenue increased 45.6% in fiscal 2009 compared to fiscal 2008 with the geographic mix
remaining relatively constant over the fiscal year compared to prior year. Net revenue in APAC as a percent of revenue increased compared to the prior year primarily due to continued market acceptance of our products. We continue to invest in our
sales and marketing organizations across all regions.

Gross Profit

The following is a summary of gross profit by fiscal year:



|                    |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                    |  | Year Ended April 30,   |        
|                    |  | 2009                   |         |   | 2008 |   |         | 2007 | 
|                    |  | (dollars in thousands) |        
|Gross profit        |  | $                      | 313,610 |   |      | $ | 233,994 |      |  | $ | 131,952 |  
|Gross profit margin |  |                        | 70.5    | % |      |   | 76.6    | %    |  |   | 74.3    | %

Fiscal 2009 compared to Fiscal 2008:Gross profit increased $79.6 million, or 34.0%, to
$313.6 million in fiscal 2009 from $234.0 million in fiscal 2008, which was consistent with the increase in net revenue. Gross profit margin in fiscal 2009 decreased to 70.5% from 76.6% in fiscal 2008, primarily attributable to higher
costs associated with acquired Packeteer products, including $16.2 million of higher costs of net revenues associated with sale of inventories written-up to fair value in connection with the Packeteer acquisition, $5.0 million of amortization of
acquired intangible assets, and the $11.9 million write-down of deferred service revenue to fair value in connection with the Packeteer acquisition, all as required by purchase accounting rules. Also contributing to the decrease in gross profit
margin compared to fiscal 2008 were increased manufacturing expenses and other cost of goods sold as a percentage of revenue. We expect gross margins to improve in fiscal 2010 due to a decreased impact on cost of goods sold and service revenue from
the remaining Packeteer fair value purchase accounting adjustments.

Fiscal 2008 compared to Fiscal 2007:Gross profit increased
$102.0 million, or 77.3%, to $234.0 million in fiscal 2008 from $132.0 million in fiscal 2007, which was attributable to the increase in net revenue and higher gross profit margin. As a percentage of net revenue, gross profit margin in
fiscal 2008 increased to 76.6% from 74.3% in fiscal 2007, primarily due to more favorable product pricing, a product mix favoring higher margin products such as Blue Coat WebFilter, and higher overall revenue resulting in more effective leverage of
fixed product costs, partially offset by higher royalty expense.

Sales and Marketing

Sales and marketing expense consists primarily of salaries and benefits, commissions, travel, advertising and promotional expenses. The following is a
summary of sales and marketing expense by fiscal year:



|                                                   |  |                        |         |   |      |   |         |      |  |   |        |  
|-------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                   |  | Year Ended April 30,   |        
|                                                   |  | 2009                   |         |   | 2008 |   |         | 2007 | 
|                                                   |  | (dollars in thousands) |        
|Sales and marketing                                |  | $                      | 178,470 |   |      | $ | 128,927 |      |  | $ | 73,083 |  
|Sales and marketing as a percentage of net revenue |  |                        | 40.1    | % |      |   | 42.2    | %    |  |   | 41.1   | %

Fiscal 2009 compared to Fiscal 2008:Sales and marketing expense increased $49.5 million to
$178.4 million in fiscal 2009 from $128.9 million in fiscal 2008. The increase in sales and marketing expense was primarily attributable to a $22.4 million increase in salaries and benefits as a result of higher headcount and related
expenses including commission payments and training, $0.8 million of increased stock-based compensation expense, $6.4 million of increased travel costs and $6.2 million of increased marketing program spending, including advertising and public
relations. The increase in sales and marketing expense was consistent with our plans to invest resources in the WAN Optimization market and promotion of our Application Delivery Network strategy.



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Sales and marketing headcount was 469 at April 30, 2009 and 398 at April 30, 2008. During
fiscal 2010, we expect sales and marketing expense to continue to increase in absolute dollars as we continue to expand our sales force, increase sales in both U.S. and international markets and establish and expand new distribution channels;
however, we expect sales and marketing expense as a percentage of net revenue to decline as we manage our discretionary spending, as well as through organizational efficiencies.

Fiscal 2008 compared to Fiscal 2007:Sales and marketing expense increased $55.8 million to $128.9 million in fiscal 2008 from
$73.1 million in fiscal 2007. Sales and marketing expense increased as we continued to expand our sales force and invest in marketing personnel. The increase in sales and marketing expense was primarily attributable to a $19.0 million increase
in salaries and benefits as a result of this activity and related expenses such as an $18.3 million increase in commission expense, primarily due to the increase in revenue, coupled with more aggressive sales incentives for WAN acceleration
deployments and further development of emerging markets. Also contributing to the increase in sales and marketing expense was an increase in stock-based compensation expense of $2.4 million and an increase in advertising of $1.8 million.

Sales and marketing headcount was 398 at April 30, 2008 compared to 285 at April 30, 2007.

Research and Development

Research and development
expense consists primarily of salaries and benefits, prototype costs, and testing equipment costs. The following is a summary of research and development expense by fiscal year:



|                                                        |  |                        |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                        |  | Year Ended April 30,   |       
|                                                        |  | 2009                   |        |   | 2008 |   |        | 2007 | 
|                                                        |  | (dollars in thousands) |       
|Research and development                                |  | $                      | 76,680 |   |      | $ | 51,587 |      |  | $ | 39,882 |  
|Research and development as a percentage of net revenue |  |                        | 17.2   | % |      |   | 16.9   | %    |  |   | 22.4   | %

Fiscal 2009 compared to Fiscal 2008:Research and development expense increased $25.1
million in fiscal 2009 to $76.7 million. The increase in research and development expense from fiscal 2008 was largely attributable to a $13.3 million increase in salaries and benefits as a result of higher headcount, including $0.3 million of
increased stock-based compensation, $2.5 million of Packeteer acquisition-related integration and transition costs and $6.6 million of increased facilities and IT resource allocations.

Research and development headcount was 368 at April 30, 2009 compared to 281 at April 30, 2008. During fiscal 2010, we believe that continued
investment in product enhancements and new product development is critical to achieving our strategic objectives. As a result, we expect research and development expense to continue to increase in absolute dollars; however, we expect research and
development expense as a percentage of net revenue to decline as we manage our discretionary spending.

Fiscal 2008 compared to Fiscal
2007:Research and development expense increased $11.7 million in fiscal 2008 from fiscal 2007. The increase in research and development expense from the prior year was largely attributable to an $8.5 million increase in salaries and benefits as
a result of higher headcount. The increase was also partially attributable to stock-based compensation expense of $5.0 million compared to $3.3 million recorded in fiscal 2007.

Research and development headcount was 281 at April 30, 2008 compared to 205 at April 30, 2007.



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General and Administrative

General and administrative expense consists primarily of salaries and benefits, legal services, accounting and audit services, and other general corporate expenses. The following is a summary of general and
administrative expense by fiscal year:



|                                                          |  |                        |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                          |  | Year Ended April 30,   |       
|                                                          |  | 2009                   |        |   | 2008 |   |        | 2007 | 
|                                                          |  | (dollars in thousands) |       
|General and administrative                                |  | $                      | 47,679 |   |      | $ | 27,909 |      |  | $ | 28,072 |  
|General and administrative as a percentage of net revenue |  |                        | 10.7   | % |      |   | 9.1    | %    |  |   | 15.8   | %

Fiscal 2009 compared to Fiscal 2008:General and administrative expense increased $19.8
million to $47.7 million in fiscal 2009 from $27.9 million in fiscal 2008. The increase was primarily due to a $10.0 million increase in salaries and benefits as a result of higher headcount and $8.5 million of increased legal fees,
professional fees and legal settlement costs.

During fiscal 2010, we expect general and administrative expenses as a percentage of net
revenue to decline as we manage our discretionary spending and salary and related expenses. We also expect general and administrative headcount to remain relatively constant in fiscal 2010.

Fiscal 2008 compared to Fiscal 2007:General and administrative expense decreased $0.2 million to $27.9 million in fiscal 2008 from
$28.1 million in fiscal 2007. Significant general and administrative expense differences in fiscal 2008 compared to fiscal 2007 were an $8.7 million decrease in legal and accounting expenses associated with our March 2007 restatement, a $6.0
million increase in payroll-related expenses and $2.6 million increase in stock-based compensation.

Amortization of Intangible Assets

We completed the acquisition of Packeteer on June 6, 2008. The acquired intangible assets associated with the Packeteer acquisition consist of
developed technology and patents, customer relationships and trade name. Developed technology is comprised of products that have reached technological feasibility and are a part of Packeteers product lines, and patents related to the design
and development of Packeteers products. Customer relationships represent Packeteers underlying relationships with its customers. Trade name represents the fair value of brand and name recognition associated with the marketing of
Packeteers products and services. The amounts assigned to customer relationships, developed technology and patents, and trade name were $35.0 million, $20.0 million, and $0.4 million, respectively. We amortize customer relationships, developed
technology and patents, and trade name on a straight-line basis over their weighted average expected useful life of 5, 5, and 2 years, respectively.

For the fiscal years 2009, 2008 and 2007, the amortization of intangible assets was related to our acquisition of Packeteer, our September 11, 2006 acquisition of certain assets of the NetCache business from
Network Appliance, Inc., our March 3, 2006 acquisition of Permeo, Inc., our November 16, 2004 acquisition of Cerberian, Inc. and our November 14, 2003 acquisition of Ositis Software, Inc. The amortization of developed technology,
patents and trade name is charged to cost of goods sold, while the amortization of core technology and customer relationships is charged to operating expense. Total amortization expense for our identifiable intangible assets for the fiscal years
ended April 30, 2009, 2008 and 2007 was $11.6 million, $1.6 million and $1.8 million, respectively.

Restructuring Charges

In connection with our acquisition of Packeteer, we committed to a plan that resulted in the termination of the employment of 33 employees of Blue Coat.
Restructuring charges consist primarily of personnel-related severance costs and stock-based compensation expenses. Stock-based compensation included in restructuring



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resulted primarily from the additional vesting of unvested option shares and restricted shares upon termination of the employment of those employees pursuant
to the terms of their separation agreements. The termination of employment of all 33 employees occurred during the first quarter of fiscal 2009, and we recorded a restructuring accrual of $1.5 million in our consolidated statements of operations,
including $0.1 million of stock-based compensation related to the modification of certain equity awards. During fiscal 2009, we paid severance in the amount of $1.4 million related to this accrual. We do not anticipate future charges related to this
plan and anticipate the remaining balance of the restructuring accrual to be paid by the end of the second quarter of fiscal 2010.

Interest Income,
Interest Expense and Other Expense

Interest income consists of interest income earned on our cash and marketable securities. Cash has
historically been invested in highly liquid investments such as time deposits held at major banks, commercial paper, U.S. government agency discount notes, money market mutual funds and other money market securities with maturities at the date of
purchase of 90 days or less. At April 30, 2009, our cash was predominately invested in money market mutual funds. Other expense consists primarily of foreign currency exchange gains or losses, banking fees, and non-recurring gains or losses
realized outside our normal course of business. The following is a summary of interest income, interest expense and other expense by fiscal year:



|                 |  |                      |        |   |      |   |       |      |  |   |       |  
|---------------- |  | -------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                 |  | Year Ended April 30, |       
|                 |  | 2009                 |        |   | 2008 |   |       | 2007 | 
|                 |  | (in thousands)       |       
|Interest income  |  | $                    | 1,302  |   |      | $ | 6,127 |      |  | $ | 4,170 |  
|Interest expense |  | $                    | (885   | ) |      | $ | (257  | )    |  | $ | (248  | )
|Other expense    |  | $                    | (2,362 | ) |      | $ | (461  | )    |  | $ | (311  | )

Fiscal 2009 compared to Fiscal 2008:Interest income decreased for fiscal year 2009
compared to fiscal 2008 as a result of our reduced cash balances together with a decrease in our average investment yield due to lower interest rates and because a majority of our cash and cash equivalents was invested in money market funds. In
addition, interest expense increased in fiscal 2009 due to the amortization of the fair value of our Warrants and a beneficial conversion feature associated with our Convertible Senior Notes. Other expense consists primarily of net foreign currency
exchange losses of $2.1 million and an impairment charge of $0.2 million taken on a note receivable. Foreign exchange losses increased during fiscal 2009 compared to fiscal 2008, particularly during the first half of the fiscal year when the U.S.
dollar strengthened against foreign currencies during the comparable period in fiscal 2008.

Fiscal 2008 compared to Fiscal 2007:Interest income increased for fiscal year 2008 compared to fiscal 2007 primarily as a result of higher average cash and investment balances throughout the year. Other expense consisted primarily of foreign currency exchange gains or losses. In
addition, other expense for fiscal 2008 and 2007 included payroll taxes and related penalties for the disqualification of stock options caused by the revised measurement dates determined during the investigation of historical stock option granting
practices.

Provision (Benefit) for Income Taxes

The provision for income taxes for the year ended April 30, 2009 was $9.1 million compared to $(2.0) million for the year ended April 30, 2008. The provision primarily reflects current U.S. federal and state
income taxes, foreign income taxes in taxable foreign jurisdictions and changes in our valuation allowance. The primary difference between the effective tax rate and the federal statutory tax rate relates to taxes in foreign jurisdictions with a tax
rate different than the U.S. federal statutory rate, non-deductible stock-based compensation expense and changes in valuation allowance. See Note 9 in the Notes to Consolidated Financial Statements for additional information.



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On February 20, 2009, the California Budget Act of 2008 was signed into law which revised certain
provisions of the California State Tax Code, including the option to elect an alternative method to attribute taxable income to California for tax years beginning on or after January 1, 2011. We now expect that in fiscal years 2012 and beyond,
our income subject to tax in California will be lower than under prior tax law. This change in law did not impact our current tax provision nor do we expect it to have a material impact on our future effective tax rate.

Our provision for income taxes increased for the year ended April 30, 2009 compared to the year ended April 30, 2008, primarily due to lower
current year earnings, an increase in the valuation allowance for the current fiscal year, partially offset by a reduction in the amount of unbenefitted foreign losses. The benefit for income taxes of $2.0 million for fiscal 2008 is primarily
related to a partial reversal of a valuation allowance on deferred tax assets that was recorded as a reduction to income tax expense, partially offset by foreign income taxes and the current tax provision for U.S. federal and state taxes due
primarily from a prepayment of certain intercompany expenses associated with our foreign subsidiaries.

We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized in future periods. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including operating
results, our history of losses and forecasts of future taxable income. Our conclusion that a portion of our deferred tax assets is more likely than not to be realized is strongly influenced by our projections of future taxable income. Our estimate
of future taxable income considers available positive and negative evidence regarding our current and future operations, including projections of income in various states and foreign jurisdictions. We believe our estimate of future taxable income is
reasonable; however, it is inherently uncertain, and if our future operations generate taxable income greater than projected, we may record reductions to our valuation allowance. Conversely, if our ability to generate future taxable income necessary
to realize a portion of the deferred tax asset is materially reduced, we may record additions to our valuation allowance.

At
April 30, 2009, our projections of future taxable income enabled us to conclude that it is more likely than not that we can realize a portion of our net deferred tax asset. Accordingly, we have recognized deferred tax assets of $27.4 million
($24.9 million of federal and $2.5 million of state) at April 30, 2009. The recognition of deferred tax assets in the current year was recorded as a provision for income taxes of $2.3 million and a credit to goodwill related to recognition
of Packeteer deferred tax assets of $10.5 million. At April 30, 2009 and 2008, we had a valuation allowance on our U.S. deferred tax assets of approximately $36.4 million and $23.1 million, respectively, which when released will benefit the
income tax provision. The net increase in the valuation allowance was primarily due to a tax accounting methodology change and certain adjustments identified upon filing our 2008 federal and state income tax returns.

As of April 30, 2009, we had net operating loss carryforwards for federal income tax purposes of approximately $183.3 million, which will expire in
fiscal years ending in 2012 through 2027 if not utilized. We also had net operating loss carryforwards for state income tax purposes of approximately $68.4 million, which will expire in fiscal years 2010 through 2027 if not utilized. Of the total
tax attributes, we have $84.7 million of federal net operating loss carryforwards and $56.8 million of state net operating loss carryforwards for which no deferred tax asset was recorded until the tax benefit relating to excess stock compensation
deduction is realized in accordance with Footnote 82 of SFAS 123(R). We also had federal and California credit carryforwards of approximately $13.9 million and $11.9 million respectively. The federal research credit carryforwards will expire in
fiscal years 2027, 2028 and 2029 if not utilized. The federal alternative minimum tax credit and California credit carryforwards are not subject to expiration.

Utilization of our net operating loss and credit carryforwards are subject to substantial annual limitations due to the ownership change provisions of the Internal Revenue Code and similar state provisions. Annual
limitations have resulted in the expiration of net operating loss and tax credit carryforwards before utilization of approximately $20.8 million and $3.6 million, respectively. Utilization of federal and state net operating losses of approximately
$162.5 million and $68.4 million, respectively, as well as $10.3 million and $11.9 million of



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federal and state credits, respectively, are subject to annual limitations ranging from approximately $7.0 million to $17.0 million. See Note 9 in the Notes
to Consolidated Financial Statements for additional information.

Our total gross unrecognized tax benefits as of April 30, 2009, 2008
and 2007 were $18.8 million, $2.8 million and $2.2 million, respectively. Included in our gross unrecognized tax benefits as of April 30, 2009 is approximately $17.4 million of tax benefits that, if recognized, would result in an adjustment to
our effective tax rate.

In accordance with FIN 48, we have elected to classify interest and penalties related to uncertain tax positions
as a component of our provision for income taxes. Accrued interest and penalties relating to our unrecognized tax benefits was approximately $1.0 million, $0.03 million and $0.02 million as of April 30, 2009, 2008 and 2007, respectively, with
approximately $0.3 million and $0.02 million included as a component of our provision for income taxes for fiscal year 2009 and 2008, respectively.

Due to our taxable loss position from inception through fiscal year 2007, all tax years are subject to examination in U.S. federal and state jurisdictions. We are also subject to examination in various foreign jurisdictions for tax years
2000 forward, none of which are individually material. We are unable to anticipate the change in the balance of the unrecognized tax benefits in the next twelve months due to the possibility of tax examinations and our continued assessment of
potential contingencies.

Acquisitions

We acquired Packeteer, a provider of sophisticated WAN traffic prioritization technologies, on June 6, 2008, by means of a merger of our wholly owned subsidiary with and into Packeteer, such that Packeteer became our wholly-owned
subsidiary. Of the total estimated purchase price of $278.6 million for Packeteer, approximately $146.2 million was allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the
underlying net tangible and intangible assets. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill resulting from business combinations subsequent to June 30, 2001 is not amortized but instead is tested
for impairment at least annually (more frequently if certain indicators are present). In the event that management determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of
impairment during the fiscal quarter in which the determination is made. Our acquisition of Packeteer did not result in the creation of a new business segment.

On June 2, 2008, we issued $80.0 million aggregate principal amount of Zero Coupon Convertible Senior Notes due June 2, 2013 (the Convertible Senior Notes) and warrants (the Warrants)
to purchase an aggregate of 385,356 shares of our common stock at an exercise price of $20.76 to Manchester Securities Corp., an affiliate of Elliott Associate, L.L.P. (Manchester) and Francisco Partners II, L.P. and Francisco Partners
Parallel Fund II, L.P. (together, the FP Entities) in a private placement.

Liquidity and Capital Resources

Since our inception, we have financed our operations and capital expenditures through cash provided by operating activities, private sales of preferred
and common stock, bank loans, equipment leases, private sales of convertible notes and warrants and an initial public offering of our common stock.

Cash Equivalents and Short-Term Investments

We consider all highly liquid investments with insignificant interest rate risk
and original maturities of three months or less to be cash equivalents. We determine the appropriate classification of our investments at the time of purchase and evaluate such designation as of each balance sheet date based on our intent and
ability to use such funds for current operations. Short-term investments consist primarily of commercial paper and corporate



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securities with original maturities between three months and one year. To date, all of our investments have been classified as available-for-sale and are
carried at fair value, with unrealized gains and losses, if any, included in accumulated other comprehensive income (loss) in stockholders equity. Effective May 1, 2008, we adopted SFAS No. 157,Fair Value Measurement, except
as it applies to those nonfinancial assets and nonfinancial liabilities that are not required to be measured on a recurring basis as deferred under SFAS No. 157-2. The fair value of these securities is determined in accordance with SFAS 157 and
is based on quoted market prices in active markets.

As of April 30, 2009, we had cash and cash equivalents of $114.2 million and
restricted cash of $0.8 million. We paid $264.0 million in cash for the Packeteer acquisition, which closed during the first quarter of fiscal 2009. The Packeteer acquisition was funded primarily from our cash balance of $161.0 million as of
April 30, 2008 and the issuance of the Convertible Senior Notes and associated Warrants, which generated net proceeds of $79.7 million. In addition, we acquired cash of $77.5 million as a result of the Packeteer acquisition. We believe our
existing cash, cash equivalents, short-term investments and anticipated cash from operations will be sufficient to meet our operating requirements for at least the next twelve months, including working capital requirements and capital expenditures.
We may seek to raise additional capital to strengthen our financial condition, facilitate expansion and pursue strategic acquisitions or investments, or to take advantage of other business opportunities as they arise.

The following summarizes cash and cash equivalents, short-term investments and restricted cash:



|                                                  |  |                        |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                  |  | April 30,              |        
|                                                  |  | 2009                   |         |   | 2008 |   |         | 2007 | 
|                                                  |  | (dollars in thousands) |        
|Cash, cash equivalents and short-term investments |  | $                      | 114,163 |   |      | $ | 162,178 |      |  | $ | 93,887 |  
|Restricted cash                                   |  |                        | 850     |   |      |   | 861     |      |  |   | 4,981  |  
|                                                  |  |                        |         |   |      |   |         |      |  |   |        |  
|                                                  |  | $                      | 115,013 |   |      | $ | 163,039 |      |  | $ | 98,868 |  
|                                                  |  |                        |         |   |      |   |         |      |  |   |        |  
|Percentage of total assets                        |  |                        | 20.5    | % |      |   | 42.0    | %    |  |   | 39.8   | %
|                                                  |  |                        |         |   |      |   |         |      |  |   |        |  

Should prevailing economic conditions or financial, business and other factors beyond our control
adversely affect our future cash requirements, or if cash is used for unanticipated purposes, we may need additional capital sooner than expected. Although we believe that we can achieve our planned cash flow for fiscal 2010, we cannot guarantee
such achievement. As well, given the current uncertainty in debt and equity capital markets, we cannot guarantee that, should it be required, sufficient debt or equity capital will be available to us under acceptable terms, if at all. If we raise
additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced.

Cash Flow



|                                                     |  |                      |          |   |      |   |         |  |   |         |  
|---------------------------------------------------- |  | -------------------- | -------- | - | ---- | - | ------- |  | - | ------- | -
|                                                     |  | Year Ended April 30, |         
|                                                     |  | 2009                 |          |   | 2008 |   | 2007    | 
|                                                     |  | (in thousands)       |         
|Cash provided by operating activities                |  | $                    | 57,710   |   |      | $ | 56,901  |  | $ | 27,960  |  
|Cash provided by (used in) investing activities      |  |                      | (196,650 | ) |      |   | 10,267  |  |   | (67,465 | )
|Cash provided by financing activities                |  |                      | 92,129   |   |      |   | 43,793  |  |   | 42,528  |  
|                                                     |  |                      |          |   |      |   |         |  |   |         |  
|Net increase (decrease) in cash and cash equivalents |  | $                    | (46,811  | ) |      | $ | 110,961 |  | $ | 3,023   |  
|                                                     |  |                      |          |   |      |   |         |  |   |         |  

Cash provided by operating activities

Our largest source of operating cash flows is cash collections from our customers who purchase our products and services. Our primary uses of cash from
operating activities are for personnel related expenditures, product costs, and facility related payments.



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Fiscal 2009 compared to Fiscal 2008: Net cash provided by operating activities was $57.7 million
for fiscal 2009, compared to $56.9 million in the comparable prior year period. The increase in operating cash flow was primarily due to higher cash collections, reflected by our days sales outstanding decreasing from 60 days at April 30, 2008
to 57 days at April 30, 2009. These increases were offset by certain payments made related to our Packeteer acquisition, including transaction costs, severance payments and other liabilities assumed as a result of the Packeteer acquisition and
lower net income.

Fiscal 2008 compared to Fiscal 2007:Net cash provided by operating activities was $56.9 million for the
fiscal 2008, compared to $28.0 million for fiscal 2007. This increase was largely attributable to growth in net income for the fiscal year as well as net changes in our working capital. Increases in working capital sources of cash were primarily
driven by increases in deferred revenue as a result of an increase in new service contracts sold with our appliances and the renewal of service contracts from our expanding installed base, both of which are recognized ratably over the service
period; increases in accounts payable and accrued liabilities due to increased operating expenses; and increases in accrued payroll and related benefits due to increased headcount and a higher commission accrual. Working capital uses of cash during
fiscal 2008 included an increase in our accounts receivable balance of $27.0 million, largely due to higher net revenue in fiscal 2008 and an increase in our days sales outstanding from 51 days at April 30, 2007 to 60 days at April 30,
2008, which was largely attributable to a greater concentration of revenue recognized in the last month of fiscal year 2008 compared to fiscal 2007. Also contributing to working capital uses of cash was an increase in net deferred tax assets of
$19.6 million as a result of the partial release in our valuation allowance.

Cash provided by (used in) investing activities

Fiscal 2009 compared to Fiscal 2008:Net cash used by investing activities was $196.7 million for fiscal 2009, compared to $10.3 million provided
by investing activities in the same period last year. The increase in cash used by investing activities in comparison to fiscal 2008 was primarily due to cash used to purchase Packeteer of $170.6 million, net of cash acquired, and $27.3 million of
increased purchases of property and equipment, consisting primarily of furniture and leasehold improvements. Fiscal 2008 included $25.3 million of cash used for the purchase of Packeteer common stock and $11.2 million used for the purchase of
property and equipment, offset by $4.1 million related to the escrow release from the NetCache acquisition and net proceeds from the sale and maturities and purchases of investment securities of $42.7 million.

Fiscal 2008 compared to Fiscal 2007:Net cash provided by investing activities was $10.3 million for fiscal 2008, compared to $67.5 million used
in investing activities for fiscal 2007. Net cash provided by investing activities increased in fiscal 2008 compared to fiscal 2007 due to net proceeds from the sale of investment securities of $42.7 million compared to net purchases of $37.3
million in fiscal 2007 and $4.1 million related to the escrow release from the NetCache acquisition in fiscal 2008 with no comparable activity in fiscal 2007. Net cash provided by investing activities in fiscal 2008 also included $25.3 million of
cash used for the purchase of Packeteer common stock and $11.2 million used for the purchase of property and equipment compared to $25.0 million of cash used to acquire Permeo and certain assets of the NetCache business and $5.3 million used for the
purchase of property and equipment in fiscal 2007. The increased use of cash for property and equipment was primarily related to purchases of computer equipment, software, furniture and leasehold improvements associated with the growth in our
business.

Cash provided by financing activities

Fiscal 2009 compared to Fiscal 2008:Net cash provided by financing activities was $92.1 million for fiscal 2009 compared to $43.8 million provided in the same period last year. The increase in financing
activities was primarily due to the net proceeds of $79.7 million from our issuance of the Convertible Senior Notes and associated Warrants, offset by lower employee stock option exercises and purchases of our stock under our employee stock purchase
plan and related tax benefits. The net cash provided by our financing activities for fiscal 2008 primarily consisted of proceeds from the exercise of employee stock options and purchases of our stock under our employee stock purchase plan.



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Fiscal 2008 compared to Fiscal 2007:Net cash provided by financing activities was $43.8 million
for fiscal 2008 compared to $42.5 million net cash provided by financing activities for fiscal 2007. The net cash provided by financing activities in fiscal 2008 was attributable to proceeds from the issuance of common stock of $29.8 million and a
tax benefit related to stock-based compensation of $14.0 million. The net cash provided by financing activities in fiscal 2007 was primarily related to net proceeds of $41.9 million received from our sale of Series A preferred stock.

Our long-term strategy is to maintain a minimum amount of cash and cash equivalents for operational purposes and to invest the remaining amount of our
cash in interest bearing and highly liquid cash equivalents and short-term investments.

Contractual Obligations

Below is a summary of fixed payments related to certain contractual obligations as of April 30, 2009:



|                               |  |                      |        |      |   |       |  |      |       |      |   |            |  |       |        |  |   |        |  |   |        
|------------------------------ |  | -------------------- | ------ | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | ----- | ------ |  | - | ------ |  | - | -------
|                               |  | Year Ended April 30,
|                               |  | 2010                 |        | 2011 |   | 2012  |  | 2013 |       | 2014 |   | Thereafter |  | Total
|                               |  | (in thousands)      
|Long-term debt obligations     |  | $                    |       |      | $ |      |  | $    |      |      | $ |           |  | $     | 80,000 |  | $ |       |  | $ | 80,000 
|Future minimum lease payments  |  |                      | 8,902  |      |   | 7,907 |  |      | 7,559 |      |   | 7,402      |  |       | 6,812  |  |   | 10,521 |  |   | 49,103 
|Purchase and other commitments |  |                      | 10,406 |      |   | 100   |  |      | 200   |      |   | 200        |  |       |       |  |   |       |  |   | 10,906 
|                               |  |                      |        |      |   |       |  |      |       |      |   |            |  |       |        |  |   |        |  |   |        
|Total                          |  | $                    | 19,308 |      | $ | 8,007 |  | $    | 7,759 |      | $ | 7,602      |  | $     | 86,812 |  | $ | 10,521 |  | $ | 140,009
|                               |  |                      |        |      |   |       |  |      |       |      |   |            |  |       |        |  |   |        |  |   |        

We lease certain office equipment and office facilities under non-cancelable operating leases that
expire at various dates through 2016. The facility leases generally require us to pay operating costs, including property taxes, insurance and maintenance, and contain scheduled rent increases and certain other rent escalation clauses. Rent expense
is recognized in our consolidated financial statements on a straight-line basis over the terms of the respective leases after consideration of rent holidays and improvement allowances, if applicable. Any assets purchased using a lessee improvement
allowance are capitalized as fixed assets and depreciated over the shorter of their useful lives or the lease term.

In September 2005, we
commenced a five-year operating lease of a building that serves as our headquarters in Sunnyvale, California. On June 20, 2008, we amended the lease for our corporate headquarters. Pursuant to the lease amendment, we added 116,586 additional
square feet of space comprising an additional building and extended the term of the lease through November 30, 2015. The lease amendment provides for an annualized base rent ranging from $2.7 million to $3.4 million for the new premises
during the term of the lease applicable to the new premises, which commenced on November 1, 2008. The lease amendment provides for an annualized base rent ranging from $2.9 million to $3.4 million for the existing premises during the extension
term, which commences on September 1, 2010.

In connection with the lease, we are required to maintain an irrevocable standby letter
of credit with a major financial institution as a form of security. The amount of the letter of credit was reduced to $0.8 million during fiscal 2009 from $0.9 million at April 30, 2008 and the expiration date was extended to February 2010. The
letter of credit is secured by deposits and provides for automatic annual extensions, without amendment, for a period of one year on each successive expiration date, but no later than the lease expiration of November 30, 2015. The deposits
securing the letter of credit are classified as long-term restricted cash in the accompanying consolidated balance sheets as of April 30, 2009 and 2008, respectively.

At April 30, 2009, we had a liability for unrecognized tax benefits of $12.7 million. Due to uncertainties with respect to the timing of future cash
flows associated with our unrecognized tax benefits at April 30, 2009, we are unable to make reasonably reliable estimates of the period of cash settlement with the applicable taxing authority. Therefore, $12.7 million of unrecognized tax
benefits have been excluded from the contractual obligations table above. See Note 9 in the Notes to Consolidated Financial Statements for a discussion of income taxes.



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We have firm purchase and other commitments with various suppliers and contract manufacturers to purchase
component inventory, manufacturing material and equipment. These agreements are enforceable and legally binding against us in the short term and all amounts under these arrangements are due to be paid by the end of fiscal 2010. Our minimum
obligation under these arrangements at April 30, 2009 was $10.3 million. In addition, we have obligations under a cross patent license agreement of $0.6 million.

Off-Balance Sheet Arrangements

As of April 30, 2009, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other
contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities, nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any
market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

As of April 30, 2009, we did
not have any off-balance sheet transactions, arrangements, or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, or capital resources.

Recent Accounting Pronouncements

For information
with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are subject to certain market risks, including changes in exchange rates and interest rates. We do not undertake any specific actions to cover our
exposures to exchange and interest rate risks, and we are not a party to any risk management transactions. We also do not purchase or hold any derivative financial instruments for hedging, speculative or trading purposes.

Interest Rate Risk

Our exposure to market risk for
changes in interest rates relates primarily to our investment portfolio. As of April 30, 2009, we had cash and cash equivalents of $114.2 million and restricted cash of $0.8 million. These amounts are primarily held in money market funds. We
maintain a strict investment policy, which is intended to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. The fair value of our investment portfolio would not be significantly
impacted by either a 100 basis point increase or decrease in market interest rates due mainly to the short-term nature of the majority of our investment portfolio.

Foreign Currency Exchange Rate Risk

We primarily develop products in the United States and sell them throughout the world.
As a result, our financial results are affected by factors such as changes in foreign currency exchange rates and economic conditions in foreign markets. Because all of our sales are currently billed and collected in U.S. dollars, a strengthening of
the dollar could potentially make our products less price-competitive in foreign markets. If the events described above were to occur, our net revenue and earnings could be seriously impacted, since a significant portion of our net revenue and
earnings are derived from international operations. For the fiscal years 2009, 2008 and 2007, approximately 57.4%, 53.2% and 53.4%, respectively, of our total net revenue was derived from customers outside of North America. In contrast,
substantially all of the expenses of operating our foreign subsidiaries are incurred in foreign currencies. As a result, our U.S. dollar earnings and net cash flows from international operations may be affected by changes in foreign currency
exchange rates; however, we do not expect that the risks associated with our international operations will be material.



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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements



|                                                                                                  |  |     
|------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                  |  | Page
|Report of Independent Registered Public Accounting Firm                                           |  | 52  
|                                                                                                  | 
|Consolidated Balance Sheets as of April 30, 2009 and 2008                                         |  | 53  
|                                                                                                  | 
|Consolidated Statements of Operations for the years ended April 30, 2009, 2008 and 2007           |  | 54  
|                                                                                                  | 
|Consolidated Statements of Stockholders Equity for the years ended April 30, 2009, 2008 and
2007 |  | 55  
|                                                                                                  | 
|Consolidated Statements of Cash Flows for the years ended April 30, 2009, 2008 and 2007           |  | 56  
|                                                                                                  | 
|Notes to Consolidated Financial Statements                                                        |  | 57  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Blue Coat Systems, Inc.

We have audited the accompanying consolidated balance sheets of Blue Coat Systems, Inc. as of April 30, 2009 and 2008, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the
three years in the period ended April 30, 2009. Our audits also included the financial statement schedule listed in the index at Item 15(2). These financial statements and schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Blue Coat Systems, Inc. at April 30, 2009 and 2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended April 30, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Blue Coat Systems, Inc.s internal control over financial reporting as of April 30, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 17, 2009 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

June 17, 2009



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BLUE COAT SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in
thousands, except par value)



|                                                                                                                                                     |  |               |           |   |               |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ------------- | - | --------- | -
|                                                                                                                                                     |  | April 30,2009 |           |   | April 30,2008 |  
|ASSETS                                                                                                                                               |  |               |           |   |               |   |           |  
|Current assets:                                                                                                                                      |  |               |           |   |               |   |           |  
|Cash and cash equivalents                                                                                                                            |  | $             | 114,163   |   |               | $ | 160,974   |  
|Short-term investments                                                                                                                               |  |               |          |   |               |   | 1,204     |  
|Accounts receivable, net of allowance of $1,420 and $176 as of April 30, 2009 and 2008, respectively                                                 |  |               | 77,161    |   |               |   | 59,056    |  
|Inventories                                                                                                                                          |  |               | 5,700     |   |               |   | 262       |  
|Prepaid expenses and other current assets                                                                                                            |  |               | 13,113    |   |               |   | 7,163     |  
|Current portion of deferred income tax assets                                                                                                        |  |               | 7,941     |   |               |   | 7,294     |  
|                                                                                                                                                     |  |               |           |   |               |   |           |  
|Total current assets                                                                                                                                 |  |               | 218,078   |   |               |   | 235,953   |  
|Property and equipment, net                                                                                                                          |  |               | 34,955    |   |               |   | 14,975    |  
|Restricted cash                                                                                                                                      |  |               | 850       |   |               |   | 861       |  
|Goodwill                                                                                                                                             |  |               | 238,466   |   |               |   | 92,243    |  
|Identifiable intangible assets, net                                                                                                                  |  |               | 48,774    |   |               |   | 5,010     |  
|Investment in Packeteer                                                                                                                              |  |               |          |   |               |   | 25,092    |  
|Non-current deferred income tax assets                                                                                                               |  |               | 19,412    |   |               |   | 11,867    |  
|Other assets                                                                                                                                         |  |               | 1,758     |   |               |   | 1,767     |  
|                                                                                                                                                     |  |               |           |   |               |   |           |  
|Total assets                                                                                                                                         |  | $             | 562,293   |   |               | $ | 387,768   |  
|                                                                                                                                                     |  |               |           |   |               |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                 |  |               |           |   |               |   |           |  
|Current liabilities:                                                                                                                                 |  |               |           |   |               |   |           |  
|Accounts payable                                                                                                                                     |  | $             | 24,105    |   |               | $ | 18,695    |  
|Accrued payroll and related benefits                                                                                                                 |  |               | 18,374    |   |               |   | 16,464    |  
|Deferred revenue                                                                                                                                     |  |               | 96,656    |   |               |   | 68,242    |  
|Other accrued liabilities                                                                                                                            |  |               | 12,299    |   |               |   | 8,991     |  
|                                                                                                                                                     |  |               |           |   |               |   |           |  
|Total current liabilities                                                                                                                            |  |               | 151,434   |   |               |   | 112,392   |  
|Deferred revenue, less current portion                                                                                                               |  |               | 33,923    |   |               |   | 21,318    |  
|Deferred rent, less current portion                                                                                                                  |  |               | 5,703     |   |               |   | 1,349     |  
|Long-term income taxes payable                                                                                                                       |  |               | 12,677    |   |               |   | 638       |  
|Other non-current liabilities                                                                                                                        |  |               | 600       |   |               |   | 610       |  
|Zero Coupon Convertible Senior Notes, due in 2013                                                                                                    |  |               | 76,347    |   |               |   |          |  
|Commitments and contingencies                                                                                                                        |  |               |           |   |               |   |           |  
|Stockholders equity:                                                                                                                                |  |               |           |   |               |   |           |  
|Preferred stock: $0.0001 par value; issuable in series; 9,958 shares authorized; none issued and outstanding                                         |  |               |          |   |               |   |          |  
|Common stock: $0.0001 par value; 200,000 shares authorized; 39,713 and 38,267 shares issued and outstanding at April 30, 2009 and 2008,
respectively |  |               | 2         |   |               |   | 2         |  
|Additional paid-in capital                                                                                                                           |  |               | 1,168,106 |   |               |   | 1,128,903 |  
|Treasury stock, at cost; 330 and 276 shares held at April 30, 2009 and 2008, respectively                                                            |  |               | (1,629    | ) |               |   | (903      | )
|Accumulated deficit                                                                                                                                  |  |               | (884,870  | ) |               |   | (876,362  | )
|Accumulated other comprehensive income (loss)                                                                                                        |  |               |          |   |               |   | (179      | )
|                                                                                                                                                     |  |               |           |   |               |   |           |  
|Total stockholders equity                                                                                                                           |  |               | 281,609   |   |               |   | 251,461   |  
|                                                                                                                                                     |  |               |           |   |               |   |           |  
|Total liabilities and stockholders equity                                                                                                           |  | $             | 562,293   |   |               | $ | 387,768   |  
|                                                                                                                                                     |  |               |           |   |               |   |           |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



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BLUE COAT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                       |  | Year Ended April 30, |        
|                                                                       |  | 2009                 |         |   | 2008 |   |         | 2007 | 
|Net revenue:                                                           |  |                      |         |   |      |   |         |      |  |   |         |  
|Product                                                                |  | $                    | 305,601 |   |      | $ | 233,858 |      |  | $ | 136,770 |  
|Service                                                                |  |                      | 139,144 |   |      |   | 71,581  |      |  |   | 40,930  |  
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Total net revenue                                                      |  |                      | 444,745 |   |      |   | 305,439 |      |  |   | 177,700 |  
|Cost of net revenue:                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|Product                                                                |  |                      | 85,825  |   |      |   | 48,056  |      |  |   | 31,779  |  
|Service                                                                |  |                      | 45,310  |   |      |   | 23,389  |      |  |   | 13,969  |  
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Total cost of net revenue                                              |  |                      | 131,135 |   |      |   | 71,445  |      |  |   | 45,748  |  
|Gross profit                                                           |  |                      | 313,610 |   |      |   | 233,994 |      |  |   | 131,952 |  
|Operating expenses:                                                    |  |                      |         |   |      |   |         |      |  |   |         |  
|Sales and marketing                                                    |  |                      | 178,470 |   |      |   | 128,927 |      |  |   | 73,083  |  
|Research and development                                               |  |                      | 76,680  |   |      |   | 51,587  |      |  |   | 39,882  |  
|General and administrative                                             |  |                      | 47,679  |   |      |   | 27,909  |      |  |   | 28,072  |  
|Amortization of intangible assets                                      |  |                      | 6,667   |   |      |   | 450     |      |  |   | 619     |  
|Restructuring (reversal)                                               |  |                      | 1,546   |   |      |   |        |      |  |   | (19     | )
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                               |  |                      | 311,042 |   |      |   | 208,873 |      |  |   | 141,637 |  
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Operating income (loss)                                                |  |                      | 2,568   |   |      |   | 25,121  |      |  |   | (9,685  | )
|Interest income                                                        |  |                      | 1,302   |   |      |   | 6,127   |      |  |   | 4,170   |  
|Interest expense                                                       |  |                      | (885    | ) |      |   | (257    | )    |  |   | (248    | )
|Other expense                                                          |  |                      | (2,362  | ) |      |   | (461    | )    |  |   | (311    | )
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes                                      |  |                      | 623     |   |      |   | 30,530  |      |  |   | (6,074  | )
|Provision (benefit) for income taxes                                   |  |                      | 9,131   |   |      |   | (2,038  | )    |  |   | 1,124   |  
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                      |  | $                    | (8,508  | ) |      | $ | 32,568  |      |  | $ | (7,198  | )
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Net income (loss) per share:                                           |  |                      |         |   |      |   |         |      |  |   |         |  
|Basic                                                                  |  | $                    | (0.22   | ) |      | $ | 0.93    |      |  | $ | (0.25   | )
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                |  | $                    | (0.22   | ) |      | $ | 0.82    |      |  | $ | (0.25   | )
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Weighted average shares used in computing net income (loss) per share: |  |                      |         |   |      |   |         |      |  |   |         |  
|Basic                                                                  |  |                      | 38,493  |   |      |   | 35,179  |      |  |   | 29,188  |  
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                |  |                      | 38,493  |   |      |   | 39,659  |      |  |   | 29,188  |  
|                                                                       |  |                      |         |   |      |   |         |      |  |   |         |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



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BLUE COAT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands)



|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------ |  | ------------------------ | - |  | -------------- | --------- | - | ------------------------------- | ---- | - | ------------------ | - | ------ | ------------------------------------------ |  | - | ------ | - |  | - | -------- | - |  | - | ---- | - |  | - | ------- | -
|                                                                                           |  | Common Stock |  | AdditionalPaid-InCapital |   |  | Treasury Stock |           |   | DeferredStock-BasedCompensation |      |   | AccumulatedDeficit |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|                                                                                           |  | Shares       |  | Amount                   |   |  | Shares         |           |   | Amount                          |      |   |                    |   |       
|Balances at April 30, 2006                                                                 |  | 29,314       |  |                          | 2 |  |                | 1,014,493 |   |                                 | (276 | ) |                    |   | (903   | )                                          |  |   | (1,901 | ) |  |   | (901,732 | ) |  |   | (1   | ) |  |   | 109,958 |  
|Components of comprehensive loss:                                                          |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Net loss                                                                                   |  |             |  |                          |  |  |                |          |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   | (7,198   | ) |  |   |     |   |  |   | (7,198  | )
|Net unrealized gain on available for sale securities                                       |  |             |  |                          |  |  |                |          |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   | 12   |   |  |   | 12      |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Total comprehensive loss                                                                   |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   | (7,186  | )
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Common shares issued under stock option and stock purchase plans                           |  | 184          |  |                          |  |  |                | 649       |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 649     |  
|Common stock issued in the acquisition of certain assets of the NetCache business          |  | 720          |  |                          |  |  |                | 5,668     |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 5,668   |  
|Elimination of deferred compensation related to adoption of SFAS 123(R)                    |  |             |  |                          |  |  |                | (1,901    | ) |                                 |     |   |                    |   |       |                                            |  |   | 1,901  |   |  |   |         |   |  |   |     |   |  |   |        |  
|Stock-based compensation expenses                                                          |  |             |  |                          |  |  |                | 9,500     |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 9,500   |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Balances at April 30, 2007                                                                 |  | 30,218       |  |                          | 2 |  |                | 1,028,409 |   |                                 | (276 | ) |                    |   | (903   | )                                          |  |   |       |   |  |   | (908,930 | ) |  |   | 11   |   |  |   | 118,589 |  
|Components of comprehensive income:                                                        |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Net income                                                                                 |  |             |  |                          |  |  |                |          |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   | 32,568   |   |  |   |     |   |  |   | 32,568  |  
|Net unrealized (loss) on available for sale securities                                     |  |             |  |                          |  |  |                |          |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   | (190 | ) |  |   | (190    | )
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Total comprehensive gain                                                                   |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   | 32,378  |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Common shares issued under stock option and stock purchase plans                           |  | 3,525        |  |                          |  |  |                | 29,793    |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 29,793  |  
|Tender offer                                                                               |  |             |  |                          |  |  |                | (2,683    | ) |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | (2,683  | )
|Tax benefit from stock-based awards                                                        |  |             |  |                          |  |  |                | 14,518    |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 14,518  |  
|Stock-based compensation expenses                                                          |  |             |  |                          |  |  |                | 16,806    |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 16,806  |  
|Conversion of preferred stock into common                                                  |  | 4,800        |  |                          |  |  |                | 42,060    |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 42,060  |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Balances at April 30, 2008                                                                 |  | 38,543       |  |                          | 2 |  |                | 1,128,903 |   |                                 | (276 | ) |                    |   | (903   | )                                          |  |   |       |   |  |   | (876,362 | ) |  |   | (179 | ) |  |   | 251,461 |  
|Components of comprehensive loss:                                                          |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Net loss                                                                                   |  |             |  |                          |  |  |                |          |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   | (8,508   | ) |  |   |     |   |  |   | (8,508  | )
|Net unrealized gain on available for sale securities                                       |  |             |  |                          |  |  |                |          |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |          |   |  |   | 179  |   |  |   | 179     |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Total comprehensive loss                                                                   |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   | (8,329  | )
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Common shares issued under stock option and stock purchase plans                           |  | 1,500        |  |                          |  |  |                | 12,943    |   |                                 | (54  | ) |                    |   | (726   | )                                          |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 12,217  |  
|Fair value of equity awards assumed in connection with Packeteer acquisition               |  |             |  |                          |  |  |                | 4,610     |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 4,610   |  
|Issuance of Convertible Senior Notes and Warrants, including beneficial conversion feature |  |             |  |                          |  |  |                | 4,055     |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 4,055   |  
|Tax benefit from stock-based awards                                                        |  |             |  |                          |  |  |                | (890      | ) |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | (890    | )
|Stock-based compensation expenses                                                          |  |             |  |                          |  |  |                | 18,485    |   |                                 |     |   |                    |   |       |                                            |  |   |       |   |  |   |         |   |  |   |     |   |  |   | 18,485  |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  
|Balances at April 30, 2009                                                                 |  | 40,043       |  | $                        | 2 |  | $              | 1,168,106 |   |                                 | (330 | ) |                    | $ | (1,629 | )                                          |  | $ |       |   |  | $ | (884,870 | ) |  | $ |     |   |  | $ | 281,609 |  
|                                                                                           |  |              |  |                          |   |  |                |           |   |                                 |      |   |                    |   |        |                                            |  |   |        |   |  |   |          |   |  |   |      |   |  |   |         |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



55



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##### Table of Contents

BLUE COAT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | -------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                         |  | Year Ended April 30, |         
|                                                                                         |  | 2009                 |          |   | 2008 |   |          | 2007 | 
|Operating Activities                                                                     |  |                      |          |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                        |  | $                    | (8,508   | ) |      | $ | 32,568   |      |  | $ | (7,198   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                      |          |   |      |   |          |      |  |   |          |  
|Depreciation                                                                             |  |                      | 10,429   |   |      |   | 5,557    |      |  |   | 3,919    |  
|Amortization                                                                             |  |                      | 11,790   |   |      |   | 1,845    |      |  |   | 2,000    |  
|Stock-based compensation                                                                 |  |                      | 18,397   |   |      |   | 16,806   |      |  |   | 9,500    |  
|Accretion of warrants and issuance costs related to convertible notes                    |  |                      | 820      |   |      |   |         |      |  |   |         |  
|Accretion of preferred stock issuance costs                                              |  |                      |         |   |      |   | 181      |      |  |   |         |  
|Stock-based compensation related to restructuring                                        |  |                      | 88       |   |      |   |         |      |  |   |         |  
|Tax benefit (expense) of stock option deduction                                          |  |                      | (890     | ) |      |   | 14,518   |      |  |   |         |  
|Excess tax benefit of stock option deductions                                            |  |                      | (255     | ) |      |   | (14,000  | )    |  |   |         |  
|Restructuring reversal                                                                   |  |                      |         |   |      |   |         |      |  |   | (19      | )
|Loss (gain) on disposition of equipment                                                  |  |                      | 300      |   |      |   | 18       |      |  |   | (35      | )
|Changes in operating assets and liabilities:                                             |  |                      |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                      |  |                      | (6,883   | ) |      |   | (26,977  | )    |  |   | (9,794   | )
|Inventories                                                                              |  |                      | 20,221   |   |      |   | 227      |      |  |   | (54      | )
|Prepaid expenses and other current assets                                                |  |                      | (4,263   | ) |      |   | 373      |      |  |   | (3,641   | )
|Other assets                                                                             |  |                      | 596      |   |      |   | (472     | )    |  |   | (969     | )
|Accounts payable                                                                         |  |                      | 3,209    |   |      |   | 6,644    |      |  |   | 6,614    |  
|Accrued payroll and related benefits                                                     |  |                      | (5,537   | ) |      |   | 2,071    |      |  |   | 4,259    |  
|Accrued restructuring                                                                    |  |                      | 101      |   |      |   | (238     | )    |  |   | (637     | )
|Other accrued liabilities                                                                |  |                      | (13,244  | ) |      |   | 3,715    |      |  |   | 1,422    |  
|Deferred rent                                                                            |  |                      | 2,857    |   |      |   | (83      | )    |  |   | 132      |  
|Deferred income taxes                                                                    |  |                      | 3,463    |   |      |   | (19,644  | )    |  |   | 483      |  
|Deferred revenue                                                                         |  |                      | 25,019   |   |      |   | 33,792   |      |  |   | 21,978   |  
|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                      | 57,710   |   |      |   | 56,901   |      |  |   | 27,960   |  
|Investing Activities                                                                     |  |                      |          |   |      |   |          |      |  |   |          |  
|Proceeds from sale of equipment                                                          |  |                      |         |   |      |   |         |      |  |   | 148      |  
|Purchases of property and equipment                                                      |  |                      | (27,286  | ) |      |   | (11,241  | )    |  |   | (5,282   | )
|Proceeds from sale and maturities of short-term investments                              |  |                      | 1,216    |   |      |   | 164,489  |      |  |   | 87,082   |  
|Purchases of short-term investments                                                      |  |                      |         |   |      |   | (121,831 | )    |  |   | (124,368 | )
|Investment in Packeteer                                                                  |  |                      |         |   |      |   | (25,270  | )    |  |   |         |  
|Release of escrow from NetCache acquisition                                              |  |                      |         |   |      |   | 4,120    |      |  |   |         |  
|Acquisitions, net of cash acquired and prior years investment                           |  |                      | (170,580 | ) |      |   |         |      |  |   | (25,045  | )
|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                      | (196,650 | ) |      |   | 10,267   |      |  |   | (67,465  | )
|Financing Activities                                                                     |  |                      |          |   |      |   |          |      |  |   |          |  
|Net proceeds from issuance of common stock                                               |  |                      | 12,217   |   |      |   | 29,793   |      |  |   | 649      |  
|Excess tax benefit from stock-based compensation                                         |  |                      | 255      |   |      |   | 14,000   |      |  |   |         |  
|Net proceeds from issuance of convertible notes                                          |  |                      | 79,657   |   |      |   |         |      |  |   |         |  
|Net proceeds from sales of Series A redeemable convertible preferred stock               |  |                      |         |   |      |   |         |      |  |   | 41,879   |  
|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by financing activities                                                |  |                      | 92,129   |   |      |   | 43,793   |      |  |   | 42,528   |  
|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                      | (46,811  | ) |      |   | 110,961  |      |  |   | 3,023    |  
|Cash and cash equivalents at beginning of period                                         |  |                      | 160,974  |   |      |   | 50,013   |      |  |   | 46,990   |  
|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of period                                               |  |                      | 114,163  |   |      | $ | 160,974  |      |  | $ | 50,013   |  
|                                                                                         |  |                      |          |   |      |   |          |      |  |   |          |  
|Supplemental schedule of non-cash investing and financing activities                     |  |                      |          |   |      |   |          |      |  |   |          |  
|Conversion of Series A redeemable convertible preferred stock                            |  | $                    |         |   |      | $ | 42,060   |      |  | $ |         |  
|Fair value of equity awards assumed in connection with acquisitions                      |  | $                    | 4,610    |   |      | $ |         |      |  | $ |         |  
|Issuance of common stock for acquisitions                                                |  | $                    |         |   |      | $ |         |      |  | $ | 5,668    |  
|Issuance of Convertible Senior Notes and Warrants                                        |  | $                    | 4,055    |   |      | $ |         |      |  | $ |         |  
|Cash paid for interest                                                                   |  | $                    | 65       |   |      | $ | 257      |      |  | $ | 248      |  
|Cash paid for income taxes, net of refunds                                               |  | $                    | 9,065    |   |      | $ | 916      |      |  | $ | 315      |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



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Note 1. Summary of Significant Accounting Policies

Description of Business

Blue Coat Systems, Inc., also
referred to in this report as we or us, designs, develops and sells products and services that optimize and secure the delivery of business applications and other information to distributed users over a Wide Area Network
(WAN), or the public Internet (also known as the Web). Our products provide our end user customers with information about the applications and Web traffic running on their networks, including the ability to discover, classify, manage and
control communications between users and applications across internal networks, the WAN and the Internet. Our products are also designed to optimize the performance of our end users business applications and content, whether used internally or
hosted by external providers. In addition to optimizing the performance and delivery of applications, our products enable our end user customers to secure their Internet gateways and remote computer systems by providing protection from malicious
code, or malware, and objectionable content. We call this intelligent application and user control.

Our product and service
offerings are focused on the emerging market for Application Delivery Network infrastructure products and services. This market addresses the need of enterprises with multiple offices and geographically decentralized employees (distributed
enterprises) to more efficiently and effectively use and secure their critical business applications and networks.

Basis of Presentation

The consolidated financial statements include the accounts of Blue Coat Systems, Inc. and our subsidiaries, all of which are wholly owned.
All inter-company balances and transactions have been eliminated. We record all acquisitions using the purchase method of accounting and, accordingly, included the results of operations in our consolidated results as of the date of each acquisition.
The consolidated financial statements include the accounts and operating results of Packeteer Inc. (Packeteer) beginning June 6, 2008, as well as the results from all prior year acquisitions. In managements opinion, the
accompanying financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results for the periods presented.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
periods presentation. Such reclassifications did not affect net revenues, operating income or net income.

Use of Estimates

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements, and the reported
amounts of net revenue and expenses during the reporting periods. Actual results may differ from these estimates, and such differences could be material to our consolidated financial condition and results of operations.

Revenue Recognition

Our products include stand-alone
software and software that is essential to the functionality of our appliances. Additionally, we provide unspecified software upgrades through maintenance contracts for most of our products. Accordingly, we account for revenue in accordance with
Statement of Position No. 97-2, Software Revenue Recognition, (SOP 97-2) and all related interpretations. We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery
or performance has occurred; the sales price is fixed or determinable; and collection is probable.



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We define each of the four criteria above as follows:

Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of customer purchase orders and, in certain instances,
sales contracts or agreements.

Delivery or performance has occurred. We use shipping and related documents, or written evidence of
customer acceptance, when applicable, to verify delivery or performance. Most of our sales are made through distributors under agreements that, in most cases, allow for stock rotation rights. Net revenue and the related cost of net revenue resulting
from shipments of products to distributors are deferred until the distributors report that our products have been sold to a customer. Product revenue in China is deferred until the customer registers its purchase of the proxy appliance.

For direct sales to end-users and value-added resellers, we recognize product revenue upon transfer of title and risk of loss, which generally is upon
shipment. We do not accept orders from value-added resellers when we are aware that the value-added reseller does not have an order from an end user customer. We generally do not have significant obligations for future performance, such as rights of
return or pricing credits, associated with sales to end users and value-added resellers.

The sales price is fixed or determinable.
We assess whether the sales price is fixed or determinable based on payment terms and whether the sales price is subject to refund or adjustment.

Collection is probable. We assess probability of collection on a customer-by-customer basis. We subject our customers to a credit review process that evaluates their financial condition and ability to pay for our products and
services. If we conclude that collection is not probable based upon our initial review, we do not recognize revenue until cash is received.

For products in an arrangement that includes multiple elements, such as appliances, maintenance or software, we use the residual method to recognize revenue for the delivered elements. Under the residual method, the amount of revenue
allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements, provided that vendor specific objective evidence (VSOE) of fair value exists for all undelivered
elements. VSOE of fair value is based on the price charged when the element is sold separately. We analyze our stand alone maintenance renewals by sales channel and service offering (strata). We determine the VSOE of fair value for maintenance by
analyzing our stand alone maintenance renewals and noting that a substantial majority of transactions fall within a narrow range for each stratum. In limited cases, VSOE of fair value has been based on management determined prices. If evidence of
the fair value of one or more undelivered elements does not exist, all revenue is generally deferred and recognized at the earlier of delivery of those elements or establishment of fair value for the remaining undelivered elements. When VSOE of fair
value cannot be determined for any undelivered maintenance, subscription or service elements, revenue for the entire arrangement is recognized ratably over the maintenance, subscription or service period.

Maintenance and subscription revenue is initially deferred and recognized ratably over the life of the contract, with the related expenses recognized as
incurred. Maintenance and subscription contracts usually have a term of one to three years. Unearned maintenance and subscription revenue is included in deferred revenue.

Shipping Costs

When we bill customers for shipping, we record shipping costs in both net revenue and
cost of net revenue. If we do not charge customers for shipping, the costs incurred for shipping are reflected in cost of net revenue.

Allowance for
Doubtful Accounts

We perform ongoing credit evaluations of our customers financial condition and maintain an allowance for
doubtful accounts. We analyze accounts receivable and historical bad debts, customer geographic concentrations,



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customer solvency, current economic and geographic trends, and changes in customer payment terms and practices when evaluating the adequacy of such
allowance, and record any required changes in the allowance account to general and administrative expense. We write off accounts receivable when they are deemed to be uncollectible.

Stock-Based Compensation

Effective May 1, 2006, we adopted the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, (SFAS No. 123 (R)) using the modified prospective transition method. Under that transition method,
compensation expenses recognized beginning on that date include: (a) compensation expense for all unvested share-based payments granted prior to May 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123; and (b) compensation expense for all share-based payments granted on or after May 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). We use the
Black-Scholes option valuation model to calculate this compensation expense.

The Black-Scholes option valuation model requires the input
of highly subjective assumptions, including the expected term of options, the expected price volatility of the stock underlying such options, the risk-free interest rate, and the expected forfeiture rate.

See Note 8 in the Notes to Consolidated Financial Statements for additional information.

Cash Equivalents and Short-Term Investments

We consider all highly liquid investments with
insignificant interest rate risk and original maturities of three months or less to be cash equivalents.

Short-term investments consist
primarily of commercial paper and corporate securities with original maturities between three months and one year. We determine the appropriate classification of our investments at the time of purchase and evaluate such designation as of each
balance sheet date based on our intent and ability to use such funds for current operations. To date, all of our investments have been classified as available-for-sale and are carried at fair value, with unrealized gains and losses, if any, included
in accumulated other comprehensive income (loss) in stockholders equity. Effective May 1, 2008, we adopted SFAS No. 157,Fair Value Measurement, except as it applies to those nonfinancial assets and nonfinancial liabilities.
The fair value of these securities is determined in accordance with SFAS 157 and is based on quoted market prices in active markets. Realized gains and losses and declines in value of securities judged to be other than temporary are included in
other expense. The cost of securities sold is based on a specific identification methodology. Interest and dividends on all securities are included in interest income.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents,
restricted cash, accounts receivable and payable, accrued liabilities and Senior Convertible Debt. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and payable and accrued liabilities approximate their
respective fair values because of the short-term nature of those instruments. As of April 30, 2009, the carrying value of the Convertible Senior Notes approximates the fair value. The carrying amount of the Convertible Senior Notes is net of
discounts, primarily related to the associated Warrants. See Note 5 for further information regarding the Convertible Senior Notes and Warrants.

Concentration and Other Risks

Financial instruments that potentially subject us to credit risk consist of demand deposit
accounts, money market accounts, commercial paper, corporate securities, U.S. government agency discount notes and trade receivables. We maintain demand deposit and money market accounts with financial institutions of high credit



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standing. Such deposits may be in excess of insured limits. We invest only in high-quality, investment grade securities and limit investment exposure in any
one issue. Investments are classified as cash equivalents or short-term investments in our consolidated balance sheets for the years ended April 30, 2009 and 2008. We believe the financial risks associated with these financial instruments are
minimal. We have not experienced material losses from our investments in these securities.

Generally, we do not require collateral for
sales to customers. However, we perform on-going credit evaluations of our customers financial condition and maintain an allowance for doubtful accounts. During the years ended April 30, 2009 and 2008, Alternative Data Technology, Inc., a
channel partner customer, accounted for 12.4% and 12.2% of our net revenue, respectively. During the year ended April 30, 2007, ComputerLinks AG, a channel partner customer, accounted for 11.2% of our net revenue. As of April 30, 2009,
Alternative Data Technology, Inc., a channel partner customer, accounted for 12.4% of our gross accounts receivable balance. As of April 30, 2008 and 2007, no single customer accounted for more than 10.0% of our gross accounts receivable
balance.

We currently purchase several key parts and components used in the manufacture of our products from a limited number of
suppliers. Generally we have been able to obtain an adequate supply of such parts and components. However, an extended interruption in the supply of parts and components currently obtained from our suppliers could adversely affect our financial
condition and results of operations.

Supply Chain Liabilities and Valuation of Inventories

We outsource most of our manufacturing, product fulfillment, repair, and supply chain management operations to contract manufacturers, and a significant
portion of our cost of revenues is a result of this activity. Our contract manufacturers procure components and manufacture our products based on demand forecasts that we prepare. These forecasts are based on estimates of future product demand and
are adjusted for overall market conditions. If the actual product demand is significantly lower than forecasted, it could have an adverse impact on our gross margins and profitability.

Inventories consist of raw materials and finished goods. Inventories are recorded at the lower of cost (using the first-in, first-out method) or market,
after we give appropriate consideration to obsolescence and inventory in excess of anticipated future demand. In assessing the ultimate recoverability of inventories, we are required to make estimates regarding future customer demand, the timing of
new product introductions, economic trends and market conditions.

Property and Equipment

Property and equipment are stated at cost, subject to adjustments for impairment, less accumulated depreciation and amortization. Depreciation and
amortization are provided on a straight-line basis over the following estimated useful lives:



|                              |  |                                               
|----------------------------- |  | ----------------------------------------------
|Software                      |  | 3 years                                       
|Furniture and fixtures        |  | 3 years                                       
|Computer and office equipment |  | 3-5 years                                     
|Leasehold improvements        |  | Shorter of useful life or remaining lease term

Acquisitions, Goodwill and Identifiable Intangible Assets

We account for acquired businesses using the purchase method of accounting in accordance with SFAS No. 141, Business Combinations (SFAS
141), which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of net assets acquired is recorded as
goodwill. The fair value of intangible assets, including



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acquired technology and customer relationships, is based on significant judgments made by management. We typically engage third party valuation appraisal
firms to assist us in determining the fair values and useful lives of the assets acquired. Such valuations and useful life determinations require us to make significant estimates and assumptions. These estimates are based on historical experience
and information obtained from the management of the acquired companies. Critical estimates in determining the fair value and useful lives of the assets include, but are not limited to, future expected cash flows earned from the product related
technology and discount rates applied in determining the present value of those cash flows. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Acquisition-related identified intangible assets are amortized on a straight-line basis over their estimated economic lives, which are three to seven years for developed technology and patents, five years for core technology, five to seven years for
customer relationships and two years for trade name.

We perform annual goodwill impairment tests in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, during our fourth fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The first step of the test identifies whether
potential impairment may have occurred, and the second step of the test measures the amount of the impairment, if any. An impairment of goodwill is recognized when the carrying amount of the assets exceeds their fair value. The process of evaluating
the potential impairment of goodwill is highly subjective and requires the application of significant judgment. For purposes of the annual impairment test, we consider our market capitalization compared to the carrying amount of our assets on the
date of the test, since we have only one reporting unit. We performed our annual review of goodwill in the fourth quarter of fiscal 2009 and concluded that no impairment existed at April 30, 2009.

We periodically evaluate potential impairments of our long-lived assets, including identifiable intangible assets, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate long-lived assets, including identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Events or changes in circumstances that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant
changes in the manner of use of the acquired assets or the strategy for our overall business, and significant negative industry or economic trends. Impairment is recognized when the carrying amount of an asset exceeds its fair value as calculated on
a discounted cash flow basis.

Research and Development

We account for costs related to research, design and development of our products in accordance with SFAS No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or OtherwiseMarketed. When
significant, SFAS 86 requires the capitalization of software development costs after establishment of technological feasibility and marketability. Such costs were not material to our consolidated financial statements and were expensed as
incurred in fiscal 2009, 2008, and 2007, respectively.

Foreign Currency

The functional currency of our domestic and foreign operations is the U.S. dollar. Accordingly, the effects of foreign currency transactions, and of
remeasuring the financial condition and results of operations from local currencies into the functional currency, are included in other income (expense) in the accompanying consolidated statements of operations. Foreign currency losses
included in other expense for the years ended April 30, 2009, 2008 and 2007 were $2.3 million, $0.7 million and $1.5 million, respectively.

Guarantees, Indemnifications and Warranty Obligations

Our customer agreements generally include certain provisions for
indemnifying such customers against liabilities if our products infringe a third partys intellectual property rights. To date, we have not incurred any



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material costs as a result of such indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying
consolidated financial statements.

Our Bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted
by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. We have also entered into indemnification agreements or other contractual arrangements with current and former executive officers and
directors of our company and of certain of our subsidiaries, which contain provisions that may require us, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service
as directors or officers and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. We were required to indemnify certain current and former officers and directors and other employees for
their attorneys fees and related expenses incurred in connection with the regulatory investigations relating to our historical stock option grant practices, and expect to have indemnification obligations to certain current and former officers
and directors and other employees in connection with the derivative litigation relating to our historical stock option granting practices.

We accrue for warranty expenses in our cost of revenue at the time revenue is recognized and maintain an accrual for estimated future warranty obligations based upon the relationship between historical and anticipated warranty costs and
revenue volumes. If actual warranty expenses are greater than those projected, additional charges against earnings would be required. If actual warranty expenses are less than projected, our obligations would be reduced, providing a positive impact
on our reported results. We generally provide a one-year warranty on hardware products and a 90-day warranty on software products.

Legal and Other
Contingencies

We are currently involved in various claims and legal proceedings. We review the status of each significant matter and
assess our potential financial exposure on a quarterly basis. We record a charge equal to at least the minimum estimated liability for damages arising from litigation or other loss contingencies only when both of the following conditions are met:
(i) information available prior to issuance of our consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range
of loss can be reasonably estimated. As additional information becomes available, we reassess the potential liability related to pending loss contingencies and may revise our estimates. Such revisions in the estimates of the potential liabilities
could have a material impact on our results of operations and financial position.

Advertising Costs

Advertising costs are charged to sales and marketing expense as incurred. Advertising costs were $5.6 million for the year ended April 30, 2009, $2.1
million for the year ended April 30, 2008 and $0.3 million for the year ended April 30, 2007.

Comprehensive Income

We report comprehensive income in accordance with FASB SFAS No. 130, Reporting Comprehensive Incomeand include adjustments to record
unrealized gains and losses on available-for-sale securities. These adjustments are accumulated in Accumulated other comprehensive income (loss) in the stockholders equity section of the consolidated balance sheets.

Income Taxes

We use the liability method to account
for income taxes as required by SFAS No. 109, Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we
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income tax expense and calculating the deferred income tax expense related to temporary difference resulting from the differing treatment of items for tax
and accounting purposes, such as deferred revenue or deductibility of the amortization of certain intangible assets. These temporary differences result in deferred tax assets or liabilities, which are included within the consolidated balance sheets.

We record a valuation allowance to reduce certain deferred tax assets to an amount that we estimate is more likely than not to be
realized. We consider estimated future taxable income and prudent tax planning strategies in determining the need for a valuation allowance. When we determine that it is more likely than not that some or all of our deferred tax assets will be
realizable by either refundable income taxes or future taxable income, the valuation allowance will be reduced and the related tax impact will be recorded as a reduction to the tax provision in that quarter. Likewise, should we determine that we are
not likely to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance would be recorded as an increase to the tax provision in the period such determination was made.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business
is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses,
the tax regulations and tax holidays in each geographic region, the availability of tax credits and carryforwards, and the effectiveness of our tax planning strategies. The application of tax laws and regulations is subject to legal and factual
interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax
assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.

On May 1,
2007, we adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions
accounted for in accordance with SFAS 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. We review our uncertain tax benefits
quarterly, and we may adjust such uncertain tax benefits because of proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, previously unavailable information obtained during the
course of an examination, negotiations between tax authorities of different countries concerning our transfer prices, resolution with respect to individual audit issues, the resolution of entire audits, or the expiration of statutes of limitations.
In addition, our tax contingency reserve includes certain amounts for potential tax assessments for pre-acquisition tax years of acquired companies, which, if recognized, will be recorded to our provision for income taxes upon our adoption of SFAS
141(R), Business Combinations, in fiscal 2010.

Recent Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position (FSP) FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS No. 157-4 superseded FSP FAS No. 157-3 by clarifying when the volume and level of activity for the asset or liability have
significantly decreased and included guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied
prospectively. We do not expect the implementation of this standard to have a material impact on our consolidated financial statements.

In
April 2009, the FASB issued FSP FAS No. 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairment. This FSP will change the method for determining whether an other-than-temporary impairment exists for debt
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recorded in earnings. To determine whether an other-than-temporary impairment exists, an entity will assess the likelihood of selling the security prior to
recovering its cost basis. This is a change from the current requirement for an entity to assess whether it has the intent and ability to hold a security to recovery. FSP FAS No. 115-2 and 124-2 is effective for interim and annual reporting
periods ending after June 15, 2009. We do not expect the implementation of this standard to have a material impact on our consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Disclosures about Fair Value of Financial Instruments.This FSP requires that certain fair value disclosures be made quarterly, rather than
annually, to provide users of financial statements with more timely information about the effects of current market conditions on the issuers financial instruments. The FSP requires disclosure in interim financial statements of the fair
value of all financial instruments within the scope of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, as well as the method(s) and significant assumptions used to estimate the fair value of those financial
instruments. FSP FAS No. 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009. We do not expect the implementation of this standard to have a material impact on our consolidated financial
statements.

In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies. The FSP deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination, which arises from a contingency, provided the fair value of the asset or
liability on the date of acquisition can be determined. It will be effective for assets or liabilities arising from contingencies that are acquired or assumed in business combinations that occur following the start of the issuers first fiscal
year that begins on or after December 15, 2008. Accordingly, we will apply these new provisions prospectively to business combinations that are consummated beginning in the first quarter of fiscal year 2010.

In November 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-7, Accounting for Defensive Intangible Assets(EITF
08-7). A defensive intangible asset is an intangible asset acquired in a business combination that the acquirer does not intend to use, but will maintain in order to prevent others from using it. EITF 08-7 clarifies that a defensive intangible
asset must be recognized at its fair value as a separate unit of accounting and that the useful life of the asset is the period of time over which others are prevented from using it. EITF 08-7 is effective for fiscal years beginning on or after
December 15, 2008 and shall be applied prospectively. EITF 08-7 may have an impact on our consolidated financial statements with respect to acquisitions of defensive intangible assets in business combinations that occur after April 30,
2009. The nature and magnitude of the specific impact will depend upon the nature and value of the defensive assets acquired.

In October
2008, the FASB issued FSP FAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. FSP FAS No. 157-3 clarified the application of FAS No. 157. FSP FAS No. 157-3
demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued.
The implementation of this standard did not have an impact on our consolidated financial statements.

In June 2008, the FASB issued EITF
Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is indexed to an Entitys Own Stock.EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial
instrument (or embedded feature) is indexed to its own stock, including evaluating the instruments contingent exercise and settlement provisions. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. We do
not expect the adoption of EITF 07-5 to have a material impact on our consolidated financial statements.

In June 2008, the FASB issued FSP
EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends or
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be considered participating securities. We have made awards of restricted stock that contain non-forfeitable rights to dividends and those restricted shares
will be considered participating securities upon adoption of FSP EITF 03-6-1. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 on a retrospective basis and will be adopted by us in the first quarter of fiscal
2010. We do not expect the adoption of FSP EITF 03-6-1 to have a material impact on our calculation of EPS.

In May 2008, the FASB issued
FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB No. 14-1 will require the issuer to separately account for the liability and equity
components of the instrument in a manner that reflects the issuers nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Further, the FSP will require bifurcation of a component of the debt, classification
of that component in equity, and then accretion of the resulting discount on the debt as part of interest expense being reflected in the statement of income. FSP APB No. 14-1 is effective for fiscal years beginning after December 15, 2008,
and will be required to be applied retrospectively to all periods presented. We will be required to implement the standard during the first quarter of fiscal 2010. We do not expect the adoption of FSP APB No. 14-1 to have a material impact on
our consolidated financial statements.

In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other IntangibleAssets. FSP FAS No. 142-3 is effective for fiscal years beginning after December 15, 2008, and early adoption is prohibited. The impact of FSP FAS 142-3 will depend upon the nature, terms, and size
of the acquisitions the Company consummates after April 30, 2009.

In March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, to provide an enhanced understanding of an entitys use of derivative instruments and, how they are accounted for under SFAS No. 133, and to require a tabular disclosure of the effects of such instruments and related hedged
items on the entitys financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We adopted SFAS
No. 161 in the fourth quarter of fiscal 2009. Since SFAS No. 161 requires only additional disclosures about our derivatives and hedging activities, the adoption of SFAS No. 161 did not have an impact on our consolidated financial
condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement(SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15,
2007. However, in February 2008, FSP No. 157-2 was issued, which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). FSP No. 157-2 partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, including interim periods within that fiscal year, for
items within its scope. Effective May 1, 2008, we adopted SFAS No. 157, except as it applies to those nonfinancial assets and nonfinancial liabilities within the scope of FSP No. 157-2. Our partial adoption of SFAS No. 157
did not materially impact our financial position and results of operations. We currently are assessing the impact of the adoption of SFAS No. 157 as it relates to our nonfinancial assets and nonfinancial liabilities, and have not yet determined
the impact that such adoption will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS No. 141(R)). SFAS No. 141(R) amends SFAS No. 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to better evaluate the nature and



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financial effects of the business combination. It is effective for fiscal years beginning on or after December 15, 2008 and should be applied
prospectively. SFAS No. 141(R) will impact our consolidated financial statements with respect to future acquisitions. The nature and magnitude of the impact will depend upon the nature, terms, and size of the acquisitions consummated after
April 30, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS No. 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS
160 also establishes disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning on or after December 15,
2008. This statement is effective for our fiscal year beginning May 1, 2009. We do not expect the implementation of this standard to have a material impact on our consolidated financial statements.

Note 2. Per Share Amounts

Basic net income per
share and diluted net income per share are presented in conformity with SFAS No. 128, Earnings Per Share and EITF 03-6, Participating Securities and the Two-Class Method for all periods presented. The Companys
Convertible Senior Notes are participating securities whereby the holder would participate equally in any future dividends and in undistributed earnings with common shareholders.

Under the two-class method, basic net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the
weighted-average number of common shares outstanding for the period. Net income (loss) applicable to common stockholders is determined by allocating undistributed earnings to Convertible Senior Note holders. Diluted net income (loss) per share is
computed using the weighted-average number of shares of common stock outstanding, including dilutive common shares subject to repurchase and potential shares assuming the (i) dilutive effect of outstanding stock awards, warrants and shares
issuable under our employee stock purchase plan using the treasury stock method (ii) issuance of shares upon the conversion of outstanding Series A Redeemable Convertible Preferred Stock; and (iii) conversion of Convertible Senior Notes,
issued June 2008. For periods for which there is a net loss, the numbers of shares used in the computation of diluted net loss per share are the same as those used for the computation of basic net loss per share as the inclusion of dilutive
securities would be anti-dilutive. No portion of the loss for the year ended April 30, 2009 was allocated to the participating securities under the two-class method since there is no contractual obligation for the Convertible Senior Notes to
share in the losses of the Company.



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The following table presents the calculation of weighted average common shares used in the computations
of basic and diluted per share amounts presented in the accompanying consolidated statements of operations reconciled to basic and diluted per share amounts applicable to common shareholders:



|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|---------------------------------------------------------------------------------------- |  | --------------------------------------- | ------ | - | ---- | - | ------ |  | - | ------ | -
|                                                                                         |  | Year Ended April 30,                    |       
|                                                                                         |  | 2009                                    |        |   | 2008 |   | 2007   | 
|                                                                                         |  | (in thousands, except per shareamounts) |       
|Basic net income (loss) per share                                                        |  |                                         |        |   |      |   |        |  |   |        |  
|Numerator:                                                                               |  |                                         |        |   |      |   |        |  |   |        |  
|Net income (loss)                                                                        |  | $                                       | (8,508 | ) |      | $ | 32,568 |  | $ | (7,198 | )
|Less: undistributed earnings allocated to Convertible Senior Notes holders               |  |                                         |       |   |      |   |       |  |   |       |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Net income (loss) applicable to common shareholders                                      |  | $                                       | (8,508 | ) |      | $ | 32,568 |  | $ | (7,198 | )
|Denominator:                                                                             |  |                                         |        |   |      |   |        |  |   |        |  
|Basic weighted average common shares used in computing basic net income (loss) per share |  |                                         | 38,493 |   |      |   | 35,179 |  |   | 29,188 |  
|Effect of participating Convertible Senior Notes                                         |  |                                         |       |   |      |   |       |  |   |       |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Weighted average common shares outstanding using the two-class method                    |  |                                         | 38,493 |   |      |   | 35,179 |  |   | 29,188 |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Basic income (loss) applicable to common shareholders per share                          |  | $                                       | (0.22  | ) |      | $ | 0.93   |  | $ | (0.25  | )
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Diluted earnings per share                                                               |  |                                         |        |   |      |   |        |  |   |        |  
|Numerator:                                                                               |  |                                         |        |   |      |   |        |  |   |        |  
|Net income (loss)                                                                        |  | $                                       | (8,508 | ) |      | $ | 32,568 |  | $ | (7,198 | )
|Less: undistributed earnings allocated to Convertible Senior Notes holders               |  |                                         |       |   |      |   |       |  |   |       |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Net income (loss) applicable to common shareholders                                      |  | $                                       | (8,508 | ) |      | $ | 32,568 |  | $ | (7,198 | )
|Denominator:                                                                             |  |                                         |        |   |      |   |        |  |   |        |  
|Basic weighted average common shares used in computing basic net income (loss) per share |  |                                         | 38,493 |   |      |   | 35,179 |  |   | 29,188 |  
|Add: Weighted average employee stock options                                             |  |                                         |       |   |      |   | 2,527  |  |   |       |  
|Add: Other weighted average dilutive potential common stock                              |  |                                         |       |   |      |   | 153    |  |   |       |  
|Add: Series A Redeemable Convertible Preferred Stock, as converted (1)                   |  |                                         |       |   |      |   | 1,800  |  |   |       |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Weighted average common shares used in computing diluted net income (loss) per share     |  |                                         | 38,493 |   |      |   | 39,659 |  |   | 29,188 |  
|Effect of participating Convertible Senior Notes                                         |  |                                         |       |   |      |   |       |  |   |       |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Weighted average common share outstanding using the two-class method                     |  |                                         | 38,493 |   |      |   | 39,659 |  |   | 29,188 |  
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  
|Diluted income (loss) applicable to common shareholders per share                        |  | $                                       | (0.22  | ) |      | $ | 0.82   |  | $ | (0.25  | )
|                                                                                         |  |                                         |        |   |      |   |        |  |   |        |  



|(1) | All shares of Series A Redeemable Convertible Preferred Stock were subsequently converted into common stock by the end of September 2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

For the year ended April 30, 2008, outstanding stock options and restricted stock awards covering 1.4 million shares were excluded from the
calculation of diluted net income per share because their inclusion would have been anti-dilutive as their exercise prices were greater than or equal to the average market price of our common shares during the respective periods.



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For the years ended April 30, 2009 and 2007, outstanding stock options, employee stock purchase plan
shares and restricted stock awards covering 6.6 million shares and 3.2 million shares, respectively, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive due to our net
loss for the years ended April 30, 2009 and 2007. Included in the 6.6 million shares that were excluded for the year ended April 30, 2009, are outstanding stock options covering 5.8 million shares that were also anti-dilutive
because their exercise prices were greater than or equal to the average market price of the common shares during the respective period. Included in the 3.2 million shares that were excluded for the year ended April 30, 2007, are
outstanding stock options covering 1.7 million shares that were also anti-dilutive because their exercise prices were greater than or equal to the average market price of the common shares during the respective period.

Warrants to purchase 385,356 shares of our common stock were outstanding at April 30, 2009, but were not included in the computation of diluted
earnings per share because the exercise price of the warrants was greater than the average market price of our common stock during the year ended April 30, 2009; therefore, their effect was anti-dilutive.

Shares of our common stock issuable upon the assumed conversion of the Convertible Senior Notes in the amount of 3,853,564 were not included in the
computation of diluted earnings per share for the year ended April 30, 2009, because they would have been anti-dilutive due to our net loss for that period. See Note 5 for further information regarding the Convertible Senior Notes and Warrants.

Note 3. Acquisitions

Fiscal 2009
Acquisition

Packeteer

We
acquired Packeteer a provider of sophisticated WAN traffic prioritization technologies, on June 6, 2008, by means of a merger of our wholly owned subsidiary with and into Packeteer, such that Packeteer became our wholly-owned subsidiary. We
acquired Packeteer, among other things, to add to our product portfolio products that identify and classify the applications on the network and monitor application response times and utilization. We have included the operating results of Packeteer
in our consolidated financial results since the June 6, 2008 acquisition date.

The following table summarizes the components of the
total purchase price (in thousands):



|                                                     |  |   |        
|---------------------------------------------------- |  | - | -------
|Cash                                                 |  | $ | 263,973
|Fair value of vested Packeteer equity awards assumed |  |   | 4,610  
|Direct transaction costs                             |  |   | 10,015 
|                                                     |  |   |        
|Total purchase price                                 |  | $ | 278,598
|                                                     |  |   |        



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At the closing of the acquisition, there were approximately 2,644,294 million shares of our common
stock issuable upon of the exercise of the outstanding options and restricted stock awards we assumed at the closing in accordance with the terms of the merger agreement. The conversion value of the Packeteer options assumed was based on the
exercise price of each Packeteer option multiplied by a conversion ratio of 0.3850, which was calculated as the consideration price of $7.10 we paid for each outstanding share of Packeteer common stock divided by the average price of our common
stock for five trading days prior to the acquisition date of June 6, 2008. The purchase price includes $4.6 million, representing the fair value of the vested equity awards assumed. We will recognize approximately $3.9 million of non-cash
stock-based compensation expense related to unvested stock options and restricted stock units at the acquisition date. This expense will be recognized beginning from the acquisition date over the weighted average service period of approximately 2.5
years. As of April 30, 2009, we have recognized $1.1 million of this stock-based compensation expense. These awards were valued using a Black-Scholes option pricing model in accordance with SFAS No. 123(R), using the following weighted
average assumptions:



|                         |  |      |  
|------------------------ |  | ---- | -
|Interest rate            |  | 1.99 | %
|Volatility               |  | 0.67 |  
|Expected life (in years) |  | 0.48 |  
|Expected dividend yield  |  | 0    | %

Our acquisition of Packeteer did not result in the creation of a new business segment.

Investment in Packeteer

On April 20, 2008,
we entered into a Stock Purchase Agreement pursuant to which we acquired 3,559,117 shares of Packeteer common stock for $7.10 per share from the Liverpool Limited Partnership and Elliot International, L.P. for a total of approximately $25.3 million.
This investment was valued at its fair value of $25.1 million at April 30, 2008. This investment was considered part of the purchase price upon the closing of the acquisition of Packeteer on June 6, 2008.

Purchase Price Allocation

We accounted for the
acquisition of Packeteer using the purchase method of accounting. The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date of June 6, 2008.
The excess of the purchase price over the fair value of net assets acquired was allocated to goodwill. We believe the fair value assigned to the assets acquired and liabilities assumed were based on reasonable assumptions. We recorded inventories
purchased as part of the acquisition at estimated selling prices less the sum of the costs of disposal and a reasonable profit allowance for the selling effort. This resulted in a $20.3 million write-up of inventory. We also recorded a $15.6 million
write-down to fair value for assumed deferred service revenue. As of April 30, 2009, the total purchase price was allocated to the fair value of assets acquired and liabilities assumed as follows (in thousands):



|                                       |  |   |         |  
|-------------------------------------- |  | - | ------- | -
|Cash and short-term investment         |  | $ | 77,537  |  
|Inventory                              |  |   | 25,659  |  
|Other tangible assets                  |  |   | 17,448  |  
|Acquired intangible assets             |  |   | 55,400  |  
|Goodwill                               |  |   | 146,223 |  
|Accounts payable and other liabilities |  |   | (27,669 | )
|Deferred revenues                      |  |   | (16,000 | )
|                                       |  |   |         |  
|Total purchase price allocation        |  | $ | 278,598 |  
|                                       |  |   |         |  

In connection with our acquisition of Packeteer, we formulated a plan to exit certain Packeteer
facilities, discontinue certain Packeteer products, and involuntarily terminate the employment of certain Packeteer employees. In connection with this plan, on the acquisition date of June 6, 2008, we accrued $11.6 million related



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to employee severance costs and $1.9 million related to lease termination costs. From the acquisition date of June 6, 2008 through April 30, 2009,
we paid $11.2 million related to employee severance costs and $3.0 million related to lease termination costs, and we decreased the employee severance accrual by $0.3 million and increased the lease termination accrual by $2.0 million. The increase
to the facilities accrual includes a $1.6 million real estate commission paid in connection with an assumed lease. As of April 30, 2009, we had $79,000 in unpaid employee severance costs and $893,000 in unpaid lease termination costs, the
balance of which is included in other accrued liabilities in our consolidated sheet as of April 30, 2009. We anticipate the unpaid balances for employee severance costs and lease termination costs will be paid by the end of the
first quarter of fiscal 2010 and the third quarter of fiscal 2012, respectively.

The following table summarizes the activity related to
the acquisition restructuring accrual as of April 30, 2009:



|                          |  |                |         |   |            |   |        |  
|------------------------- |  | -------------- | ------- | - | ---------- | - | ------ | -
|                          |  | Severance      |         |   | Facilities |  
|                          |  | (in thousands) |        
|Balance at June 6, 2008   |  | $              | 11,615  |   |            | $ | 1,919  |  
|Cash payment              |  |                | (11,206 | ) |            |   | (3,048 | )
|Adjustment to accrual     |  |                | (330    | ) |            |   | 2,022  |  
|                          |  |                |         |   |            |   |        |  
|Balance at April 30, 2009 |  | $              | 79      |   |            | $ | 893    |  
|                          |  |                |         |   |            |   |        |  

Identifiable Intangible Assets

Intangible assets consist primarily of developed technology and patents, customer relationships and trade name. Developed technology is comprised of
products that have reached technological feasibility and are a part of Packeteers product lines, and patents related to the design and development of Packeteers products. This proprietary know-how can be leveraged to develop new
technology and products and improve our existing products. Customer relationships represent Packeteers underlying relationships with its customers. Trade name represents the fair value of brand and name recognition associated with the
marketing of Packeteers products and services. The amounts assigned to customer relationships, developed technology and patents, and trade name were $35.0 million, $20.0 million, and $0.4 million, respectively. We amortize developed technology
and patents, customer relationships and trade names on a straight-line basis over their weighted average expected useful life of 5, 5, and 2 years, respectively. Developed technology and patents and trade name are amortized into cost of product
while customer relationships are amortized into operating expenses.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of Blue Coat and Packeteer on a pro forma basis,
after giving effect to the acquisition of Packeteer on June 6, 2008 and the issuance of convertible notes and associated warrants, the proceeds of which were used to finance a portion of the Packeteer acquisition. The pro forma financial
information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions and convertible notes financing had taken place at the beginning of each of the periods
presented.

The unaudited pro forma financial information for the year ended April 30, 2009 combines the historical results of Blue
Coat for the year ended April 30, 2009 and, due to differences in our reporting periods, the historical results of Packeteer for one month ended May 31, 2008, due to the acquisition of Packeteer on June 6, 2008. The unaudited pro
forma financial information for the year ended April 30, 2008 combines the historical results of Blue Coat for the year ended April 30, 2008 and, due to differences in our reporting periods, the historical results of Packeteer for the
twelve months ended March 31, 2008.



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The following pro forma financial information for all periods presented includes purchase accounting
adjustments for amortization charges from acquired identifiable intangible assets, depreciation on acquired property and equipment, adjustments to interest expense and issuance cost associated with convertible notes, stock-based compensation expense
and related tax effects:



|                                    |  |                                          |         |   |      |   |        
|----------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | -------
|                                    |  | Year Ended April 30,                    
|                                    |  | 2009                                     |         |   | 2008
|                                    |  | (in thousands, except per share amounts)
|Net revenue                         |  | $                                        | 455,791 |   |      | $ | 451,250
|Net income (loss)                   |  | $                                        | (14,478 | ) |      | $ | 10,554 
|Net income (loss) per sharebasic   |  | $                                        | (0.37   | ) |      | $ | 0.30   
|Net income (loss) per sharediluted |  | $                                        | (0.37   | ) |      | $ | 0.27   

Fiscal 2007 Acquisition

NetCache business from Network Appliance, Inc.

On September 11, 2006, we completed the
acquisition of certain assets of the NetCache business from Network Appliance, Inc. for a total purchase price of $30.6 million. The final consideration for the transaction consisted of $23.9 million cash consideration, an aggregate of 720,000
shares of our common stock valued at $5.7 million and $1.0 million in direct transaction costs. Of the total purchase price, $0.7 million has been allocated to the intangible assets acquired, with the balance of $29.9 million allocated to goodwill.

The NetCache business previously provided products to large enterprises to manage internet access and security and control Web content and
application acceleration. NetCache was a business unit previously owned by Network Appliance, Inc. Our primary purpose for acquiring certain assets of the NetCache business was to increase our potential customer base through the conversion of
existing NetCache customers to our proxy appliances.

The acquisition of NetCache did not result in the creation of a new business segment.

Note 4. Goodwill and Intangible Assets

Goodwill

For the years ended April 30, 2009 and 2008, changes in goodwill are as follows:



|                           |  |                      |         |      |   |       
|-------------------------- |  | -------------------- | ------- | ---- | - | ------
|                           |  | Year Ended April 30,
|                           |  | 2009                 |         | 2008
|                           |  | (in thousands)      
|Balance, beginning of year |  | $                    | 92,243  |      | $ | 92,243
|Packeteer acquisition      |  |                      | 146,223 |      |   |      
|                           |  |                      |         |      |   |       
|Balance, end of year       |  | $                    | 238,466 |      | $ | 92,243
|                           |  |                      |         |      |   |       



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Intangible Assets

Our acquired intangible assets are as follows (in thousands):



|                                 |  |                    |  |             |        |                         |   |         |                   |  |   |       
|-------------------------------- |  | ------------------ |  | ----------- | ------ | ----------------------- | - | ------- | ----------------- |  | - | ------
|April 30, 2009                   |  | Amortizationperiod |  | GrossAmount |        | AccumulatedAmortization |   |         | Net CarryingValue
|Developed technology and patents |  | 3-7 years          |  | $           | 26,031 |                         | $ | (7,058  | )                 |  | $ | 18,973
|Core technology                  |  | 5 years            |  |             | 2,929  |                         |   | (2,649  | )                 |  |   | 280   
|Customer relationships           |  | 5-7 years          |  |             | 37,023 |                         |   | (7,722  | )                 |  |   | 29,301
|Trade name                       |  | 2 years            |  |             | 400    |                         |   | (180    | )                 |  |   | 220   
|                                 |  |                    |  |             |        |                         |   |         |                   |  |   |       
|Total                            |  |                    |  | $           | 66,383 |                         | $ | (17,609 | )                 |  | $ | 48,774
|                                 |  |                    |  |             |        |                         |   |         |                   |  |   |       
|                                 |  |                    |  |            
|April 30, 2008                   |  | Amortizationperiod |  | GrossAmount |        | AccumulatedAmortization |   |         | Net CarryingValue
|Developed technology             |  | 3-7 years          |  | $           | 6,031  |                         | $ | (2,785  | )                 |  | $ | 3,246 
|Core technology                  |  | 5 years            |  |             | 2,929  |                         |   | (2,097  | )                 |  |   | 832   
|Customer relationships           |  | 5-7 years          |  |             | 2,023  |                         |   | (1,091  | )                 |  |   | 932   
|                                 |  |                    |  |             |        |                         |   |         |                   |  |   |       
|Total                            |  |                    |  | $           | 10,983 |                         | $ | (5,973  | )                 |  | $ | 5,010 
|                                 |  |                    |  |             |        |                         |   |         |                   |  |   |       

Amortization expense for our intangibles assets for the years ended April 30, 2009, 2008 and
2007 were allocated as follows:



|                                 |  |                      |        |      |   |       |  |   |      
|-------------------------------- |  | -------------------- | ------ | ---- | - | ----- |  | - | -----
|                                 |  | Year Ended April 30,
|                                 |  | 2009                 |        | 2008 |   | 2007 
|                                 |  | (in thousands)      
|Included in cost of net revenues |  | $                    | 4,969  |      | $ | 1,189 |  | $ | 1,189
|Included in cost of operations   |  |                      | 6,667  |      |   | 450   |  |   | 619  
|                                 |  |                      |        |      |   |       |  |   |      
|Total                            |  | $                    | 11,636 |      | $ | 1,639 |  | $ | 1,808
|                                 |  |                      |        |      |   |       |  |   |      

As of April 30, 2009, we had no identifiable intangible assets with indefinite lives. The
weighted average remaining life of identifiable intangible assets was 4.04 years and 4.0 years as of April 30, 2009 and 2008, respectively.

Amortization expense related to intangible assets in future periods is as follows (in thousands):



|                     |  |              |       
|-------------------- |  | ------------ | ------
|Year Ended April 30, |  | Amortization
|2010                 |  | $            | 12,397
|2011                 |  |              | 11,889
|2012                 |  |              | 11,781
|2013                 |  |              | 11,607
|2014                 |  |              | 1,100 
|Thereafter           |  |              |      
|                     |  |              |       
|                     |  | $            | 48,774
|                     |  |              |       

Note 5. Convertible Senior Notes

On June 2, 2008, we issued $80.0 million aggregate principal amount of Zero Coupon Convertible Senior Notes due June 2, 2013 (the
Convertible Senior Notes) and warrants (the Warrants) to purchase an aggregate of 385,356 shares of our common stock at an exercise price of $20.76 to Manchester Securities Corp., an affiliate of Elliott Associate, L.L.P.
(Manchester) and Francisco Partners II, L.P. and Francisco Partners Parallel Fund



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II, L.P. (together, the FP Entities) in a private placement. The Convertible Senior Notes are reported on the consolidated balance sheets at
$76.3 million as of April 30, 2009, net of discounts of $3.7 million primarily related to the Warrants. The value assigned to the Warrants is amortized to interest expense over the life of the Convertible Senior Notes.

The Convertible Senior Notes rank equal in right of payment to any of our other existing and future senior unsecured indebtedness. The Convertible
Senior Notes are initially convertible into 3,853,564 shares of our common stock at the holders option at any time prior to maturity at the initial conversion price of $20.76. The Convertible Senior Notes do not bear interest. The
conversion price of the Convertible Senior Notes and the exercise price of the Warrants are subject to adjustment, if we:



| |  |  | issue shares of our common stock as a dividend or distribution on our shares of common stock;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | effect a stock split or stock combination;
| | - |  | ------------------------------------------



| |  |  | issue shares of capital stock in the event of a reclassification; or
| | - |  | --------------------------------------------------------------------



| |  |  | purchase shares of our common stock pursuant to a tender offer or exchange offer at a premium to market.
| | - |  | --------------------------------------------------------------------------------------------------------

If we issue rights, options, warrants or pay a cash dividend or otherwise make a distribution of cash or other assets to all holders of our common stock,
such right, option, warrant, dividend or distribution shall also be issued to the holders of the Convertible Senior Notes and the Warrants on an as-converted or as-exercised basis.

Subject to certain exceptions, the holders of the Convertible Senior Notes, at their option, may require us to repurchase for cash all or a portion of
the Convertible Senior Notes at a purchase price equal to 100% of the outstanding principal amount of the Convertible Senior Notes, if our common stock is suspended from trading or ceases to be listed on an eligible market for a period of 5
consecutive trading days or for more than 15 trading days in any 365-day period.

On June 2, 2008, we and the FP Entities entered into
a Registration Rights Agreement, (the Registration Rights Agreement) containing customary terms and conditions providing for the registration of our common stock underlying the Convertible Senior Notes and the Warrants issued to the FP
Entities. Pursuant to the Registration Rights Agreement, we filed an automatically effective resale shelf registration statement on August 4, 2008.

Keith Geeslin, a partner of Francisco Partners II, L.P., has served as a member of our Board of Directors since June 2006.



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Note 6. Consolidated Balance Sheet Data

Cash, Cash equivalents and Investments

The carrying amount of cash and cash equivalents and
short-term investments reported on the balance sheet approximates its fair value. The fair values of investments are based upon quoted market prices.

The following is a summary of cash, cash equivalents and investments as of April 30, 2009 and 2008, respectively (in thousands):



|                          |  |                 |         |                |   |                     |  |               |         |                |   |         |                     |   |      |   |  |   |        
|------------------------- |  | --------------- | ------- | -------------- | - | ------------------- |  | ------------- | ------- | -------------- | - | ------- | ------------------- | - | ---- | - |  | - | -------
|                          |  | As of April 30,
|                          |  | 2009            |         | 2008          
|                          |  | AmortizedCost   |         | UnrealizedLoss |   | EstimatedFair Value |  | AmortizedCost |         | UnrealizedLoss |   |         | EstimatedFair Value
|Cash                      |  | $               | 15,833  |                | $ |                    |  | $             | 15,833  |                | $ | 1,285   |                     | $ |     |   |  | $ | 1,285  
|Money market funds        |  |                 | 99,180  |                |   |                    |  |               | 99,180  |                |   | 160,550 |                     |   |     |   |  |   | 160,550
|Corporate securities      |  |                 |        |                |   |                    |  |               |        |                |   | 1,205   |                     |   | (1   | ) |  |   | 1,204  
|Investment in Packeteer.  |  |                 |        |                |   |                    |  |               |        |                |   | 25,270  |                     |   | (178 | ) |  |   | 25,092 
|                          |  |                 |         |                |   |                     |  |               |         |                |   |         |                     |   |      |   |  |   |        
|                          |  | $               | 115,013 |                | $ |                    |  | $             | 115,013 |                | $ | 188,310 |                     | $ | (179 | ) |  | $ | 188,131
|                          |  |                 |         |                |   |                     |  |               |         |                |   |         |                     |   |      |   |  |   |        
|Reported as:              |  |                 |         |                |   |                     |  |               |         |                |   |         |                     |   |      |   |  |   |        
|Cash and cash equivalents |  |                 |         |                |   |                     |  | $             | 114,163 |                |   |         |                     |   |      |   |  | $ | 160,974
|Short-term investments    |  |                 |         |                |   |                     |  |               |        |                |   |         |                     |   |      |   |  |   | 1,204  
|Long-term restricted cash |  |                 |         |                |   |                     |  |               | 850     |                |   |         |                     |   |      |   |  |   | 861    
|Investment in Packeteer.  |  |                 |         |                |   |                     |  |               |        |                |   |         |                     |   |      |   |  |   | 25,092 
|                          |  |                 |         |                |   |                     |  |               |         |                |   |         |                     |   |      |   |  |   |        
|                          |  |                 |         |                |   |                     |  | $             | 115,013 |                |   |         |                     |   |      |   |  | $ | 188,131
|                          |  |                 |         |                |   |                     |  |               |         |                |   |         |                     |   |      |   |  |   |        

The cost and estimated fair value of cash and cash equivalents at April 30, 2009 is $115,013,
all of which matures in 90 days or less.

To date we have not recorded any impairment charges on marketable securities related to
other-than-temporary declines in market value. We recognize an impairment charge when the decline in the estimated fair value of a marketable security below the amortized cost is determined to be other-than-temporary. We consider various factors in
determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than our amortized cost, any adverse changes in the investees financial condition and our intent and
ability to hold the marketable security for a period of time sufficient to allow for any anticipated recovery in market value.

Inventories

In connection with our acquisition of Packeteer during fiscal 2009, we recorded inventories purchased as part of the acquisition at
estimated selling prices less the sum of the costs of disposal and a reasonable profit allowance for the selling effort. This resulted in a $20.3 million write-up of inventory, of which approximately $2.8 million remains in inventory at
April 30, 2009 and is expected to be sold by the end of fiscal 2010.

Inventories, net consist of the following:



|               |  |                |       |      |   |    
|-------------- |  | -------------- | ----- | ---- | - | ---
|               |  | April 30,     
|               |  | 2009           |       | 2008
|               |  | (in thousands)
|Raw materials  |  | $              | 2,389 |      | $ |   
|Finished goods |  |                | 3,311 |      |   | 262
|               |  |                |       |      |   |    
|Total          |  | $              | 5,700 |      | $ | 262
|               |  |                |       |      |   |    



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Property and Equipment

Property and equipment, net consist of the following:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | April 30,      |        
|                                               |  | 2009           |         |   | 2008 |  
|                                               |  | (in thousands) |        
|Computer and office equipment                  |  | $              | 26,992  |   |      | $ | 18,293  |  
|Software                                       |  |                | 13,832  |   |      |   | 9,885   |  
|Furniture and fixtures                         |  |                | 4,426   |   |      |   | 1,532   |  
|Leasehold improvements                         |  |                | 14,618  |   |      |   | 5,119   |  
|Construction in progress                       |  |                | 3,684   |   |      |   | 491     |  
|                                               |  |                |         |   |      |   |         |  
|                                               |  |                | 63,552  |   |      |   | 35,320  |  
|Less accumulated depreciation and amortization |  |                | (28,597 | ) |      |   | (20,345 | )
|                                               |  |                |         |   |      |   |         |  
|                                               |  | $              | 34,955  |   |      | $ | 14,975  |  
|                                               |  |                |         |   |      |   |         |  

Depreciation expense was $10.4 million $5.6 million and $3.9 million for the years ended
April 30, 2009, 2008 and 2007, respectively.

Other assets

In April 2007, we entered into a license agreement under which we received a nonexclusive, perpetual, worldwide, royalty-free license to use software for a total purchase price of approximately $1.0 million. In
accordance with SFAS No. 86, Accounting for the Cost of Software to be Sold, Leased or Otherwise Marketed, we capitalized the total purchase price and are amortizing it over its estimated useful life of seven years. For the years ended
April 30, 2009, 2008 and 2007, amortization expense related to this capitalized software was $154,000, $154,000 and $13,000, respectively and were included in the Cost of revenueProduct in our consolidated statements of
operations. The unamortized balance related to this capitalized software was $0.7 million and $0.9 million at April 30, 2009 and 2008, respectively.

As of April 30, 2009, amortization expense in future periods for this capitalized software is expected to be as follows (in thousands):



|                     |  |              |    
|-------------------- |  | ------------ | ---
|Year Ended April 30, |  | Amortization
|2010                 |  | $            | 154
|2011                 |  |              | 154
|2012                 |  |              | 154
|2013                 |  |              | 154
|2014                 |  |              | 101
|                     |  |              |    
|                     |  | $            | 717
|                     |  |              |    



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Current Other Accrued Liabilities

Current other accrued liabilities consisted of the following:



|                                              |  |                |        |      |   |      
|--------------------------------------------- |  | -------------- | ------ | ---- | - | -----
|                                              |  | April 30,     
|                                              |  | 2009           |        | 2008
|                                              |  | (in thousands)
|Professional and consulting fees              |  | $              | 2,450  |      | $ | 1,410
|Accrued royalty                               |  |                | 2,300  |      |   | 939  
|Warranty obligations                          |  |                | 876    |      |   | 434  
|Sales and marketing costs                     |  |                | 883    |      |   | 157  
|Lease termination costs                       |  |                | 893    |      |   |     
|Federal, state and foreign income tax payable |  |                | 7      |      |   | 2,254
|Other                                         |  |                | 4,890  |      |   | 3,797
|                                              |  |                |        |      |   |      
|Total other accrued liabilities               |  | $              | 12,299 |      | $ | 8,991
|                                              |  |                |        |      |   |      

Warranty Obligations

Changes in our warranty obligations, which are included in the Current other accrued liabilities table above, for the years ended April 30, 2009 and 2008 were as follows:



|                                                      |  |                      |        |   |      |   |        |  
|----------------------------------------------------- |  | -------------------- | ------ | - | ---- | - | ------ | -
|                                                      |  | Year Ended April 30, |       
|                                                      |  | 2009                 |        |   | 2008 |  
|                                                      |  | (in thousands)       |       
|Beginning balances                                    |  | $                    | 434    |   |      | $ | 459    |  
|Warranties issued during the year                     |  |                      | 2,565  |   |      |   | 2,055  |  
|Settlements made during the year                      |  |                      | (2,506 | ) |      |   | (2,080 | )
|Warranty liabilities assumed in Packeteer acquisition |  |                      | 383    |   |      |   |       |  
|                                                      |  |                      |        |   |      |   |        |  
|Ending balances                                       |  | $                    | 876    |   |      | $ | 434    |  
|                                                      |  |                      |        |   |      |   |        |  

Deferred revenue

Deferred revenue consists of the following:



|                                    |  |                |         |      |   |       
|----------------------------------- |  | -------------- | ------- | ---- | - | ------
|                                    |  | April 30,     
|                                    |  | 2009           |         | 2008
|                                    |  | (in thousands)
|Deferred product revenue, current   |  | $              | 5,263   |      | $ | 11,178
|Deferred service revenue, current   |  |                | 91,393  |      |   | 57,064
|                                    |  |                |         |      |   |       
|Total deferred revenue, current     |  |                | 96,656  |      |   | 68,242
|Deferred service revenue, long-term |  |                | 33,923  |      |   | 21,318
|                                    |  |                |         |      |   |       
|Total deferred revenue              |  | $              | 130,579 |      | $ | 89,560
|                                    |  |                |         |      |   |       

Restructuring

In connection with our acquisition of Packeteer, we committed to a plan that resulted in the termination of the employment of 33 employees of Blue Coat. Restructuring charges consist primarily of personnel-related
severance costs and stock-based compensation expenses. Stock-based compensation included in restructuring resulted primarily from the additional vesting of unvested option shares and restricted shares upon termination of the employment of those
employees pursuant to the terms of their separation agreements. The termination of



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employment of all 33 employees occurred during the first quarter of fiscal 2009, and we recorded a restructuring charge of $1.5 million in our consolidated
statements of operations, including $0.1 million of stock-based compensation related to the acceleration of certain equity awards. During fiscal 2009, we paid severance in the amount of $1.4 million related to this accrual. We do not anticipate
incurring future restructuring charges related to this plan and anticipate the remaining balance of the restructuring accrual, which is included in other accrued liabilities in our consolidated sheet as of April 30, 2009, to be paid
by the end of the second quarter of fiscal 2010. Changes to the accrual are recorded as operating expense on the statement of operations.

The following table summarizes the activity related to the restructuring accrual as of April 30, 2009 (in thousands):



|                          |  |   |        |  
|------------------------- |  | - | ------ | -
|Balance at May 1, 2008    |  | $ |       |  
|Restructuring charges     |  |   | 1,546  |  
|Cash payments             |  |   | (1,357 | )
|Stock-based compensation  |  |   | (88    | )
|                          |  |   |        |  
|Balance at April 30, 2009 |  | $ | 101    |  
|                          |  |   |        |  

As of April 30, 2008, all actions under the February 2002, August 2001, and February
2001 restructuring plans were completed. The following table summarizes our abandoned lease space accrual related to restructuring activity during the years ended April 30, 2007 and 2008 (in thousands):



|                              |  |   |      |  
|----------------------------- |  | - | ---- | -
|Balances as of April 30, 2006 |  | $ | 894  |  
|Cash payments                 |  |   | (637 | )
|Reversals                     |  |   | (19  | )
|                              |  |   |      |  
|Balances as of April 30, 2007 |  |   | 238  |  
|Cash payments                 |  |   | (238 | )
|                              |  |   |      |  
|Balances as of April 30, 2008 |  | $ |     |  
|                              |  |   |      |  

Note 7. Fair Value Measurement

Effective May 1, 2008, we adopted SFAS No. 157,Fair Value Measurement, except as it applies to our nonfinancial assets and nonfinancial
liabilities. SFAS No.157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. Valuation techniques used to measure fair value under SFAS No.157 must maximize the use of
observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is
considered unobservable. These levels of inputs are the following:

Level 1Quoted prices in active markets for identical assets or
liabilities.

Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.



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Our adoption of SFAS No.157 did not materially affect our financial position and results of operations,
but SFAS No.157 does require new disclosures about how we value certain assets and liabilities. Much of the required disclosure relates to the inputs used to measure fair value, particularly in instances where the measurement uses significant
unobservable (Level 3) inputs. Our financial instruments are valued using quoted prices in active markets or based upon other observable inputs. The following table sets forth the fair value of our financial assets and liabilities that were measured
on a recurring basis as of April 30, 2009 (in thousands):



|                       |  |         |        |         |   |         |  |       |   |  |   |       
|---------------------- |  | ------- | ------ | ------- | - | ------- |  | ----- | - |  | - | ------
|                       |  | Level 1 |        | Level 2 |   | Level 3 |  | Total
|Money Market Funds (1) |  | $       | 99,180 |         | $ |        |  | $     |  |  | $ | 99,180



|(1) | Included in cash and cash equivalents on our consolidated balance sheet as of April 30, 2009
|--- | --------------------------------------------------------------------------------------------

Our investments in money market funds are measured at fair value on a recurring basis. Our money market funds comply with Rule 2a-7 of the Investment
Company Act of 1940 and are targeted to be priced and have a value of $1 net asset value per share. These money market funds are actively traded and reported daily through a variety of sources. Due to the structure and valuation required by the
Investment Company Act of 1940 regarding Rule 2a-7 funds, the fair value of the money market fund investments are classified as Level 1. As of April 30, 2009, 34% of our money market funds were guaranteed under the Treasury Money Market
Guarantee Program.

Note 8. Stockholders Equity

Preferred Stock

As of April 30, 2009, we have 9,958,000 shares of preferred stock authorized. The preferred
stock is undesignated and the Board of Directors has the authority to issue new series of preferred stock and determine the rights, preferences and privileges of such preferred stock.

Warrants and Convertible Senior Notes

In connection with the acquisition of Ositis in
November 2003, we assumed warrants outstanding to purchase Ositis common stock using an exchange ratio contained in the Ositis merger agreement. Based on this exchange ratio, the total number of our shares that may be purchased by warrant holders of
Ositis common stock is 5,608. Using the Black Scholes valuation model, we valued these shares at $43,000, which was included as part of the total purchase consideration for Ositis. Outstanding warrants at April 30, 2008 and 2007 comprised 1,252
shares with an exercise price of $45.74. The warrants expired in July 2008 and are no longer outstanding as of April 30, 2009.

In
connection with the acquisition of Packeteer in June 2008, we issued Convertible Senior Notes convertible into 3,853,564 shares of our common stock at the holders option at any time prior to maturity at the initial conversion price of $20.76
and Warrants to purchase an aggregate of 385,356 shares of our common stock at an exercise price of $20.76. See Note 5 for further information regarding the Convertible Senior Notes and Warrants.

Stock-Based Compensation Plans

Employee Stock Purchase
Plan

In September 1999, our Board of Directors adopted the Employee Stock Purchase Plan (ESPP), which became effective upon
our initial public offering. Under the ESPP, eligible employees may purchase common stock through payroll deductions, not to exceed the greater of 25% of an employees compensation or $10,000 per six-month offering period, at a price equal to
85% of the closing fair market value of our common stock on the lower of the day prior to the beginning of the offering or the last day of the applicable six-month purchase period. The number of shares reserved under the ESPP automatically increased
each year since inception and will increase by 200,000 shares annually. Our Board of Directors, at its discretion, may reduce the automatic annual increase in reserved shares.



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As of April 30, 2009, 940,671 shares of common stock were available for future purchase and
1,859,329 shares of common stock have been issued under the employee stock purchase plan.

There were 609,301 shares, 241,866 shares and
zero shares purchased through our employee stock purchase plan during the fiscal years ended April 30, 2009, 2008 and 2007, respectively.

Restricted Stock Awards

We have either assumed or entered into Stock Purchase Agreements in connection with the sale of
common stock to employees. We have the right to repurchase, at the original issue price, a declining percentage of certain of the shares of common stock issued based on the service periods related to restricted stock awards.

Restricted stock awards as of April 30, 2009, 2008 and 2007 and changes during fiscal 2009, 2008 and 2007, respectively, were as follows:



|                          |  |         |   |  |                                       |      
|------------------------- |  | ------- | - |  | ------------------------------------- | -----
|                          |  | Shares  |   |  | Weighted AverageGrant Date Fair Value
|Balance at April 30, 2006 |  | 12,600  |   |  | $                                     | 8.50 
|Granted                   |  | 100,800 |   |  | $                                     | 17.58
|                          |  |         |   |  |                                       |      
|Balance at April 30, 2007 |  | 113,400 |   |  | $                                     | 16.57
|Granted                   |  | 221,534 |   |  | $                                     | 25.83
|Vested                    |  | (29,020 | ) |  | $                                     | 17.58
|Cancelled                 |  | (5,498  | ) |  | $                                     | 24.57
|                          |  |         |   |  |                                       |      
|Balance at April 30, 2008 |  | 300,416 |   |  | $                                     | 23.15
|Granted                   |  | 347,821 |   |  | $                                     | 14.97
|Vested                    |  | (83,672 | ) |  | $                                     | 22.38
|Cancelled                 |  | (70,478 | ) |  | $                                     | 23.02
|                          |  |         |   |  |                                       |      
|Balance at April 30, 2009 |  | 494,087 |   |  | $                                     | 17.54
|                          |  |         |   |  |                                       |      

The total fair value of restricted stock awards vested during fiscal years ended April 30,
2009, 2008 and 2007 was $1.9 million, $0.5 million and $0, respectively.

2007 Stock Incentive Plan

On August 27, 2007, our Board of Directors approved the 2007 Stock Incentive Plan (the 2007 Stock Incentive Plan), under which 2,000,000
shares of common stock were reserved for issuance, together with shares reserved against options or awards made under the 1999 Stock Incentive Plan, 2000 Supplemental Stock Option Plan, 1999 Director Option Plan or 2007 New Employee Stock Incentive
Plan (the Prior Plans) as of the date of effectiveness of the 2007 Stock Incentive Plan. The 2007 Stock Incentive Plan provides for five different types of equity compensation awards: stock options, restricted stock; stock appreciation
rights; stock units; and certain automatic stock option grants to non-employee members of our Board of Directors. The 2007 Stock Incentive Plan was approved by our stockholders on October 2, 2007, and became effective at that time. The Prior
Plans were terminated upon the effectiveness of the 2007 Stock Incentive Plan and options and awards made under the Prior Plans are deemed incorporated into the 2007 Stock Incentive Plan, but shall remain outstanding in accordance with their
original terms. On October 4, 2007, the effective date of our stock dividend, the shares of common stock reserved for issuance under the 2007 Stock Incentive Plan increased to 4,000,000 shares, and shares reserved against outstanding options or
awards under the Prior Plans increased by twice the amount then reserved. The 2007 Stock Incentive Plan will automatically terminate on the tenth anniversary of the adoption of the 2007 Stock Incentive Plan by the Board of Directors (August 27,
2017).

As of April 30, 2009, 1,755,087 shares of our common stock were available for future equity awards under the 2007 Stock
Incentive Plan and 6,836,519 shares of our common stock were subject to outstanding equity awards under the aforementioned equity stock incentive plans, including the 2007 Stock Incentive Plan and the Prior Plans.



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Plans Assumed Upon Acquisition

As a result of our acquisition of Packeteer, we assumed the outstanding options and restricted stock units granted by Packeteer under the Packeteer, Inc. 1999 Stock Incentive Plan (the Packeteer Plan), the
Workfire Technologies International, Inc. 2000 Stock Option Plan and the Tacit Networks, Inc. 2000 Equity Incentive Plan (the Assumed Awards). At April 30, 2009, with respect to the Assumed Awards, the number of shares of common
stock subject to outstanding options was 925,449 and the number of shares of common stock subject to outstanding restricted stock units was 122,327. We also assumed the Packeteer Plan (the Assumed Plan) and have issued options and
restricted shares to former Packeteer employees under the Assumed Plan, consistent with its terms. At April 30, 2009, the number of shares of common stock subject to outstanding options granted by us under the Assumed Plan was 256,075 and the
number of outstanding restricted shares of common stock issued by us under the Assumed Plan was 12,300. At April 30, 2009, the number of shares of common stock that may be granted under the Assumed Plan was 1,697,606. The Assumed Plan
terminated on May 19, 2009, and after that date no additional shares of common stock can be granted under the Assumed Plan.

Restricted Stock Units

Restricted stock units, which primarily includes those assumed upon the Packeteer acquisition, and related changes during fiscal 2009
were as follows:



|                                                    |  |                       |   |  |                                       |      
|--------------------------------------------------- |  | --------------------- | - |  | ------------------------------------- | -----
|                                                    |  | Restricted StockUnits |   |  | Weighted AverageGrant Date Fair Value
|Balance at April 30, 2008                           |  | 5,000                 |   |  | $                                     | 26.69
|Assumed in connection with acquisition of Packeteer |  | 301,830               |   |  | $                                     | 18.57
|Vested                                              |  | (59,847               | ) |  | $                                     | 18.71
|Cancelled                                           |  | (120,698              | ) |  | $                                     | 18.57
|                                                    |  |                       |   |  |                                       |      
|Balance at April 30, 2009                           |  | 126,285               |   |  | $                                     | 18.82
|                                                    |  |                       |   |  |                                       |      

The total fair value of restricted stock units vested during the fiscal year ended April 30,
2009 was $1.1 million.



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Stock Option Activity Under All Stock-Based Compensation Plans

A summary of stock option activity under all stock-based compensation plans during the year ended April 30, 2009 is as follows:



|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      
|--------------------------------------------------- |  | ------------------- | - |  | -------------------------------------- | ----- | -------------------------------------------------- | ---- | ----------------------------------- | - | -----
|                                                    |  | Options outstanding
|                                                    |  | Number ofOptions    |   |  | WeightedAverageexerciseprice Per share |       | WeightedAverageRemainingContractual term(in Years) |      | AggregateIntrinsicValue(in million)
|Balance at April 30, 2006                           |  | 6,660,798           |   |  | $                                      | 14.73 |                                                    |      |                                     |   |      
|Options granted                                     |  | 1,693,690           |   |  | $                                      | 12.93 |                                                    |      |                                     |   |      
|Options exercised                                   |  | (83,562             | ) |  | $                                      | 7.77  |                                                    |      |                                     |   |      
|Options forfeited                                   |  | (697,148            | ) |  | $                                      | 20.73 |                                                    |      |                                     |   |      
|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      
|Balance at April 30, 2007                           |  | 7,573,778           |   |  | $                                      | 14.11 |                                                    |      |                                     |   |      
|Options granted                                     |  | 1,747,072           |   |  | $                                      | 28.81 |                                                    |      |                                     |   |      
|Options exercised                                   |  | (3,066,832          | ) |  | $                                      | 8.34  |                                                    |      |                                     |   |      
|Options forfeited                                   |  | (511,456            | ) |  | $                                      | 18.37 |                                                    |      |                                     |   |      
|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      
|Balance at April 30, 2008                           |  | 5,742,562           |   |  | $                                      | 22.76 |                                                    |      |                                     |   |      
|Options granted                                     |  | 2,331,665           |   |  | $                                      | 14.37 |                                                    |      |                                     |   |      
|Assumed in connection with acquisition of Packeteer |  | 2,342,464           |   |  | $                                      | 30.83 |                                                    |      |                                     |   |      
|Options exercised                                   |  | (553,993            | ) |  | $                                      | 10.69 |                                                    |      |                                     |   |      
|Options forfeited                                   |  | (1,844,655          | ) |  | $                                      | 29.50 |                                                    |      |                                     |   |      
|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      
|Outstanding at April 30, 2009                       |  | 8,018,043           |   |  | $                                      | 21.96 |                                                    | 6.63 |                                     | $ | 12.23
|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      
|Exercisable at April 30, 2009                       |  | 4,659,358           |   |  | $                                      | 25.22 |                                                    | 5.10 |                                     | $ | 8.78 
|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      
|Vested and expected to vest at April 30, 2009       |  | 7,409,908           |   |  | $                                      | 22.38 |                                                    | 6.43 |                                     | $ | 11.58
|                                                    |  |                     |   |  |                                        |       |                                                    |      |                                     |   |      

The aggregate intrinsic value in the table above represents the total pretax intrinsic value
(i.e., the difference between our closing stock price on the last trading day of the fourth quarter of 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their options on April 30, 2009. As the fair market value of our common stock changes, the above amount will change as well. Total intrinsic value of options exercised was $2.7 million, $74 million and $0.8 million for the
years ended April 30, 2009, 2008 and 2007, respectively. The weighted average grant date fair value of stock options granted to employees was $7.95, $16.84 and $14.69 per share during the years ended April 30, 2009, 2008 and 2007,
respectively.



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The following table provides segregated ranges of stock options outstanding at April 30, 2009:



|                        |                             |                     |                                        |                     |                              |  |                             |       |                              |           |  |   |       
|----------------------- | --------------------------- | ------------------- | -------------------------------------- | ------------------- | ---------------------------- |  | --------------------------- | ----- | ---------------------------- | --------- |  | - | ------
|Range of ExercisePrices |                             | Options Outstanding |                                        | Options Exercisable
|                        | Number ofOptionsOutstanding |                     | WeightedAverageContractualLife (Years) |                     | WeightedAverageExercisePrice |  | Number ofOptionsExercisable |       | WeightedAverageExercisePrice
|$                       | 0.03  $    2.80            |                     | 237,734                                |                     | 3.91                         |  | $                           | 2.24  |                              | 236,920   |  | $ | 2.24  
|$                       | 2.87  $    6.97            |                     | 83,565                                 |                     | 3.78                         |  | $                           | 5.57  |                              | 83,401    |  | $ | 5.57  
|$                       | 7.09  $    8.38            |                     | 940,267                                |                     | 6.56                         |  | $                           | 7.91  |                              | 600,627   |  | $ | 7.81  
|$                       | 8.50  $  10.20             |                     | 841,745                                |                     | 6.77                         |  | $                           | 9.60  |                              | 529,287   |  | $ | 9.55  
|$                       | 10.32  $  13.03            |                     | 560,079                                |                     | 8.17                         |  | $                           | 11.75 |                              | 164,554   |  | $ | 11.47 
|$                       | 13.12  $  15.88            |                     | 932,850                                |                     | 6.91                         |  | $                           | 14.87 |                              | 419,071   |  | $ | 14.75 
|$                       | 15.97  $  17.58            |                     | 1,304,162                              |                     | 8.48                         |  | $                           | 16.92 |                              | 477,588   |  | $ | 17.21 
|$                       | 17.72  $  25.77            |                     | 1,604,713                              |                     | 6.93                         |  | $                           | 22.98 |                              | 932,592   |  | $ | 22.71 
|$                       | 26.00  $  48.32            |                     | 1,032,896                              |                     | 5.12                         |  | $                           | 34.29 |                              | 812,409   |  | $ | 35.05 
|$                       | 50.39  $262.50             |                     | 480,032                                |                     | 3.18                         |  | $                           | 93.22 |                              | 402,909   |  | $ | 101.39
|                        |                             |                     |                                        |                     |                              |  |                             |       |                              |           |  |   |       
|$                       | 0.03  $262.50              |                     | 8,018,043                              |                     | 6.63                         |  | $                           | 21.96 |                              | 4,659,358 |  | $ | 25.22 
|                        |                             |                     |                                        |                     |                              |  |                             |       |                              |           |  |   |       

The total number of unvested options outstanding as of April 30, 2009 and 2008 was 3,925,361
and 3,516,110 respectively. The total fair value of options vested during fiscal years ended April 30, 2009 and 2008 was $13.4 million and $9.0 million, respectively.

We settle employee stock option exercises primarily with newly issued common shares. We received $12.2 million, $29.8 million and $0.6 million in cash
from the issuance of common stock under all employee stock plans for the fiscal years ended April 30, 2009, 2008 and 2007, respectively. In connection with these exercises, the tax (expense) benefits realized by us were $(0.9) million, $14.5
million and $0 for the years ended April 30, 2009, 2008 and 2007, respectively.

Stock-Based Compensation Expense

See Note 1 for a description of our adoption of SFAS No. 123(R), Share-Based Payment, on May 1, 2006. The following table summarizes the
stock-based compensation expense for stock options, our employee stock purchase plan, restricted stock awards, restricted stock unit awards and our 2007 Tender Offer that we recorded in the statements of operations in accordance with SFAS
No. 123(R) for the years ended April 30, 2009, 2008 and 2007.



|                                  |  |                      |        |      |   |        |  |   |      
|--------------------------------- |  | -------------------- | ------ | ---- | - | ------ |  | - | -----
|                                  |  | Year Ended April 30,
|                                  |  | 2009                 |        | 2008 |   | 2007  
|                                  |  | (in thousands)      
|Stock-based compensation expense: |  |                      |        |      |   |        |  |   |      
|Cost of product                   |  | $                    | 668    |      | $ | 775    |  | $ | 468  
|Cost of service                   |  |                      | 1,174  |      |   | 808    |  |   | 471  
|Sales and marketing               |  |                      | 6,419  |      |   | 5,593  |  |   | 3,169
|Research and development          |  |                      | 5,304  |      |   | 4,986  |  |   | 3,325
|General and administrative        |  |                      | 4,832  |      |   | 4,644  |  |   | 2,067
|                                  |  |                      |        |      |   |        |  |   |      
|Subtotal                          |  |                      | 18,397 |      |   | 16,806 |  |   | 9,500
|Restructuring                     |  |                      | 88     |      |   |       |  |   |     
|                                  |  |                      |        |      |   |        |  |   |      
|Total                             |  | $                    | 18,485 |      | $ | 16,806 |  | $ | 9,500
|                                  |  |                      |        |      |   |        |  |   |      

Included in stock-based compensation for the years ended April 30, 2009, 2008 and 2007 was
$2.8 million, $1.8 million and $0.1 million, respectively, related to the amortization of expenses related to shares granted under our employee stock purchase plan.



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Determining Fair Value under SFAS No. 123(R)



| |  |  | Valuation and Amortization Method.We estimate the fair value of stock options granted using the Black-Scholes option valuation model. For options granted
before May 1, 2006, we amortize the fair value on a graded basis over the vesting period, which results in greater expense recorded in earlier years than the straight-line method. For options granted on or after May 1, 2006, we amortize
the fair value of stock-based compensation on a straight-line basis for options expected to vest. The fair value of all options is amortized over the requisite service periods of the awards, which are generally the vesting periods.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expected Term. The expected term of options granted represents the period of time that they are expected to be outstanding. We estimate the expected term of
options granted based on our historical experience of grants, exercises and post-vesting cancellations. Contractual term expirations have not been significant.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expected Volatility. We estimate the volatility of our stock options at the date of grant using a combination of historical and implied volatilities,
consistent with SFAS No. 123(R) and SEC Staff Accounting Bulletin No. 107. Historical volatilities are calculated based on the historical prices of our common stock over a period equal to the expected term of our option grants, while
implied volatilities are derived from publicly traded options of our common stock. Prior to the adoption of SFAS No. 123(R), we relied exclusively on the historical prices of our common stock in the calculation of expected volatility.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expected Forfeitures. Stock-based compensation expense under SFAS No. 123(R) is based on awards ultimately expected to vest, and requires that
forfeitures be estimated at the time of grant and revised, if necessary, if actual forfeitures differ from those estimates. Effective May 1, 2008 and continuing through April 30, 2009, we estimated our forfeiture rate at 14% based on an
analysis of historical pre-vesting forfeitures, and have reduced stock-based compensation expense accordingly. From May 1, 2006 until April 30, 2008, we used a forfeiture rate of 10.0%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Risk-Free Rate.The risk-free interest rate that we use in the Black-Scholes option valuation model is the implied yield in effect at the time of option
grant based on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of our option grants and employee purchase plan shares.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Dividends.We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.
Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We used the
following assumptions to estimate the fair value of options granted and shares purchased under our employee stock plans and stock purchase plan for fiscal years ended April 30, 2009, 2008 and 2007:



|                             |  |                      |   |  |       |   |  |       |  
|---------------------------- |  | -------------------- | - |  | ----- | - |  | ----- | -
|                             |  | Year Ended April 30, |  
|Stock Options                |  | 2009                 |   |  | 2008  |   |  | 2007  |  
|Risk-free rate               |  | 2.62                 | % |  | 4.30  | % |  | 4.90  | %
|Expected life (in years)     |  | 4.00                 |   |  | 4.63  |   |  | 4.63  |  
|Expected volatility          |  | 0.73                 |   |  | 0.68  |   |  | 0.68  |  
|Expected forfeitures         |  | 14.00                | % |  | 10.00 | % |  | 10.00 | %
|                             | 
|                             |  | Year Ended April 30, |  
|Employee Stock Purchase Plan |  | 2009                 |   |  | 2008  |   |  | 2007  |  
|Risk-free rate               |  | 1.09                 | % |  | 2.56  | % |  | 5.06  | %
|Expected life (in years)     |  | 0.50                 |   |  | 0.50  |   |  | 0.50  |  
|Expected volatility          |  | 0.75                 |   |  | 0.67  |   |  | 0.41  |  



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As of April 30, 2009, $32.2 million of total unrecognized compensation costs related to non-vested
awards is expected to be recognized over the respective vesting terms of each award through 2013. The weighted average term of the unrecognized stock-based compensation expense is 2.76 years.

Shares Reserved for Future Issuance

The following
shares of common stock are reserved for future issuance as of April 30, 2009:



|                                                           |  |               
|---------------------------------------------------------- |  | --------------
|                                                           |  | April 30, 2009
|Warrants outstanding                                       |  | 385,356       
|Convertible Senior Notes                                   |  | 3,853,564     
|Stock options:                                             |  |               
|Granted and outstanding                                    |  | 8,018,043     
|Available for grant                                        |  | 1,755,087     
|Employee stock purchase plan available for future issuance |  | 940,671       
|                                                           |  |               
|Total                                                      |  | 14,952,721    
|                                                           |  |               

2007 Tender Offer

We conducted an investigation into our historical stock option granting processes which led to a March 2007 restatement as of April 30, 2005 and for the years ended April 30, 2005 and 2004. As a consequence
of that investigation, we determined that the measurement dates for a number of stock option grants made by us during the period from November 1999 to May 2006 differed from the measurement dates previously used to account for such grants. This
resulted in an exercise price for those options less than the fair market value on the actual grant date and, for accounting purposes, such options were deemed to have been issued at a discount, which could expose the holders of those options to
potentially adverse tax consequences under Section 409A of the Internal Revenue Code and state law equivalents. We made a tender offer to certain individuals and provided them the opportunity to increase the exercise price of the discounted
options to the fair market value on the actual grant date of that option, in order to avoid the potentially adverse tax consequences (the 2007 Tender Offer). The 2007 Tender Offer was completed on May 29, 2007. As a result of the
2007 Tender Offer, we amended outstanding options covering 1,788,080 shares of our common stock. In addition, under the terms of the 2007 Tender Offer, the participants whose options were amended received a special cash bonus, in the aggregate
amount of $2.7 million, to compensate them for the higher exercise prices per share in effect for their amended options. The bonus costs, which were recorded during the first quarter of fiscal 2008, resulted in a decrease to additional paid-in
capital of $1.2 million, an increase in stock-based compensation expense of $1.5 million and an increase in payroll tax expenses of $0.2 million. Under Section 409A of the Internal Revenue Code, the cash bonus could not be paid in the same
calendar year in which the options were amended. Accordingly, the cash bonuses were paid in January 2008.



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Note 9. Income Taxes

The domestic and foreign components of income (loss) before income taxes were as follows:



|                                |  |                      |       |   |      |   |         |      |  |   |        |  
|------------------------------- |  | -------------------- | ----- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                |  | Year Ended April 30, |      
|                                |  | 2009                 |       |   | 2008 |   |         | 2007 | 
|                                |  | (in thousands)       |      
|U.S.                            |  | $                    | 1,127 |   |      | $ | 72,375  |      |  | $ | (7,843 | )
|Non-U.S.                        |  |                      | (504  | ) |      |   | (41,845 | )    |  |   | 1,769  |  
|                                |  |                      |       |   |      |   |         |      |  |   |        |  
|Total pre-tax earnings (losses) |  | $                    | 623   |   |      | $ | 30,530  |      |  | $ | (6,074 | )
|                                |  |                      |       |   |      |   |         |      |  |   |        |  

The provision for taxes on earnings was as follows:



|                                     |  |                      |       |      |   |         |      |  |   |      
|------------------------------------ |  | -------------------- | ----- | ---- | - | ------- | ---- |  | - | -----
|                                     |  | Year Ended April 30,
|                                     |  | 2009                 |       | 2008 |   |         | 2007
|                                     |  | (in thousands)      
|U.S. federal taxes:                  |  |                      |       |      |   |         |      |  |   |      
|Current                              |  | $                    | 2,765 |      | $ | 15,785  |      |  | $ |     
|Deferred                             |  |                      | 1,748 |      |   | (17,353 | )    |  |   | 435  
|Non-U.S. taxes:                      |  |                      |       |      |   |         |      |  |   |      
|Current                              |  |                      | 2,835 |      |   | 995     |      |  |   | 641  
|State taxes:                         |  |                      |       |      |   |         |      |  |   |      
|Current                              |  |                      | 1,216 |      |   | 827     |      |  |   |     
|Deferred                             |  |                      | 567   |      |   | (2,292  | )    |  |   | 48   
|                                     |  |                      |       |      |   |         |      |  |   |      
|Provision (benefit) for income taxes |  | $                    | 9,131 |      | $ | (2,038  | )    |  | $ | 1,124
|                                     |  |                      |       |      |   |         |      |  |   |      

A reconciliation of the income tax provision to the amount computed by applying the statutory
federal income tax rate to net income (loss) before income tax provision is summarized as follows:



|                                     |  |                      |        |   |      |   |         |      |  |   |        |  
|------------------------------------ |  | -------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                     |  | Year Ended April 30, |       
|                                     |  | 2009                 |        |   | 2008 |   |         | 2007 | 
|                                     |  | (in thousands)       |       
|Provision at statutory rate          |  | $                    | 218    |   |      | $ | 10,686  |      |  | $ | (2,126 | )
|State and Local income taxes         |  |                      | 818    |   |      |   | (952    | )    |  |   |       |  
|Foreign income taxes                 |  |                      | 3,174  |   |      |   | 15,750  |      |  |   |       |  
|Net operating loss utilization       |  |                      |       |   |      |   | (10,382 | )    |  |   |       |  
|Valuation allowance                  |  |                      | 1,748  |   |      |   | (17,603 | )    |  |   | 979    |  
|Stock-based compensation             |  |                      | 3,587  |   |      |   | 2,032   |      |  |   | 1,639  |  
|R & D Credit                         |  |                      | (1,402 | ) |      |   | (1,663  | )    |  |   |       |  
|Other                                |  |                      | 988    |   |      |   | 94      |      |  |   | 632    |  
|                                     |  |                      |        |   |      |   |         |      |  |   |        |  
|Provision (benefit) for income taxes |  | $                    | 9,131  |   |      | $ | (2,038  | )    |  | $ | 1,124  |  
|                                     |  |                      |        |   |      |   |         |      |  |   |        |  

The primary difference between the effective tax rate and the federal statutory tax rate relates
to taxes in foreign jurisdictions with a tax rate different than the U.S. federal statutory rate, non-deductible stock-based compensation expense and changes in valuation allowance.



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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:



|                                     |  |                |         |   |      |   |         |  
|------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                     |  | April 30,      |        
|                                     |  | 2009           |         |   | 2008 |  
|                                     |  | (in thousands) |        
|Deferred tax assets:                 |  |                |         |   |      |   |         |  
|Net operating loss carryforwards     |  | $              | 27,814  |   |      | $ | 11,658  |  
|Stock-based compensation             |  |                | 7,335   |   |      |   | 7,177   |  
|Other accruals/reserves              |  |                | 16,301  |   |      |   | 10,115  |  
|Fixed assets                         |  |                | 2,995   |   |      |   | 906     |  
|Tax credits                          |  |                | 12,743  |   |      |   | 3,390   |  
|Capitalized research and development |  |                | 8,369   |   |      |   | 11,929  |  
|                                     |  |                |         |   |      |   |         |  
|                                     |  |                | 75,557  |   |      |   | 45,175  |  
|Valuation allowance                  |  |                | (36,427 | ) |      |   | (23,072 | )
|                                     |  |                |         |   |      |   |         |  
|Total deferred tax assets            |  | $              | 39,130  |   |      | $ | 22,103  |  
|                                     |  |                |         |   |      |   |         |  
|Deferred tax liabilities:            |  |                |         |   |      |   |         |  
|Prepaid expenses                     |  | $              | (564    | ) |      | $ |        |  
|Intangible assets                    |  |                | (8,879  | ) |      |   | (1,676  | )
|Goodwill                             |  |                | (2,334  | ) |      |   | (1,266  | )
|                                     |  |                |         |   |      |   |         |  
|Total deferred tax liabilities       |  |                | (11,777 | ) |      |   | (2,942  | )
|                                     |  |                |         |   |      |   |         |  
|Net deferred tax assets              |  | $              | 27,353  |   |      | $ | 19,161  |  
|                                     |  |                |         |   |      |   |         |  

We record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized in future periods. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including operating results, our history of losses and forecasts of future
taxable income. Our conclusion that a portion of our deferred tax assets is more likely than not to be realized is strongly influenced by our projections of future taxable income. Our estimate of future taxable income considers available positive
and negative evidence regarding our current and future operations, including projections of income in various states and foreign jurisdictions. We believe our estimate of future taxable income is reasonable; however, it is inherently uncertain, and
if our future operations generate taxable income greater than projected, we may record reductions to our valuation allowance. Conversely, if our ability to generate future taxable income necessary to realize a portion of the deferred tax asset is
materially reduced, we may record additions to our valuation allowance.

At April 30, 2009, our projections of future taxable income
enabled us to conclude that it is more likely than not that we can realize a portion of our net deferred tax asset. Accordingly, we have recognized deferred tax assets of $27.4 million ($24.9 million of federal and $2.5 million of state) at
April 30, 2009. The recognition of deferred tax assets in the current year was recorded as a provision for income taxes of $2.3 million and a credit to goodwill related to recognition of Packeteer deferred tax assets of $10.5 million. At
April 30, 2009 and 2008, we had a valuation allowance on our U.S. deferred tax assets of approximately $36.4 million and $23.1 million, respectively, which when released will benefit the income tax provision. The net increase in the valuation
allowance was primarily due to a tax accounting methodology change and certain adjustments indentified upon filing our 2008 federal and state income tax returns.

As of April 30, 2009, we had net operating loss carryforwards for federal income tax purposes of approximately $183.3 million, which will expire in fiscal years ending in 2012 through 2027 if not utilized. We
also had net operating loss carryforwards for state income tax purposes of approximately $68.4 million, which will expire in fiscal years 2010 through 2027 if not utilized. Of the total tax attributes, we have $84.7 million of federal net operating
loss carryforwards and $56.8 million of state net operating loss carryforwards for which no



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deferred tax asset was recorded until the tax benefit relating to excess stock compensation deduction is realized in accordance with Footnote 82 of
SFAS 123(R). We also had federal and California research credit carryforwards of approximately $13.9 million and $11.9 million respectively. The federal research credit carryforwards will expire in fiscal years 2027, 2028 and 2029 if not
utilized. The federal alternative minimum tax credit and California credit carryforwards are not subject to expiration.

Utilization of our
net operating loss and credit carryforwards are subject to substantial annual limitations due to the ownership change provisions of the Internal Revenue Code and similar state provisions. Annual limitations have resulted in the expiration of net
operating loss and tax credit carryforwards before utilization of approximately $20.8 million and $3.6 million, respectively. Utilization of federal and state net operating losses of approximately $162.5 million and $68.4 million, respectively, as
well as $10.3 million and $11.9 million of federal and state credits, respectively, are subject to annual limitations ranging from approximately $7.0 million to $17.0 million.

Federal and state income taxes have not been provided on accumulated but undistributed earnings of certain foreign subsidiaries aggregating approximately
$27.1 million at April 30, 2009; as such earnings have been indefinitely reinvested in the business. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax liability that would be payable if
such earnings were not indefinitely reinvested.

Our total gross unrecognized tax benefits as of April 30, 2009, 2008 and 2007 were
$18.8 million, $2.8 million and $2.2 million, respectively. Included in our gross unrecognized tax benefits as of April 30, 2009 is approximately $17.4 million of tax benefits that, if recognized, would result in an adjustment to our effective
tax rate.

Total amount of gross unrecognized tax benefits (in thousands):



|                                                      |  |   |        |  
|----------------------------------------------------- |  | - | ------ | -
|Opening balance at May 1, 2007                        |  | $ | 2,247  |  
|Increase in balance due to current year tax positions |  |   | 971    |  
|Reductions for prior year tax positions               |  |   | (373   | )
|                                                      |  |   |        |  
|Closing balance at April 30, 2008                     |  |   | 2,845  |  
|Increase in balance due to prior year tax positions   |  |   | 12,886 |  
|Increase in balance due to current year tax positions |  |   | 3,024  |  
|Reductions for prior year tax positions               |  |   |       |  
|                                                      |  |   |        |  
|Closing balance at April 30, 2009                     |  | $ | 18,755 |  
|                                                      |  |   |        |  

In accordance with FIN 48, we have elected to classify interest and penalties related to uncertain
tax positions as a component of our provision for income taxes. Accrued interest and penalties relating to our unrecognized tax benefits was approximately $1.0 million, $0.03 million and $0.02 million as of April 30, 2009, 2008 and 2007,
respectively, with approximately $0.3 million and $0.02 million included as a component of our provision for income taxes for fiscal year 2009 and 2008, respectively.

Due to our taxable loss position from inception through fiscal year 2007, all tax years are subject to examination in U.S. federal and state jurisdictions. We are also subject to examination in various foreign
jurisdictions for tax years 2000 forward, none of which are individually material. We are unable to anticipate the change in the balance of the unrecognized tax benefits in the next twelve months due to the possibility of tax examinations and our
continued assessment of potential contingencies.

Note 10. Defined Contribution and Other Postretirement Plans

The Company has a defined contribution benefit plan under Section 401(k) of the Internal Revenue Code, which covers substantially all U.S. employees.
Eligible employees may contribute pre-tax amounts to the plan via payroll withholdings, subject to certain limitations. Effective January 1, 2006, we began matching participant



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contributions on a dollar for dollar basis up to the lower of 3% of a participants eligible compensation or $1,500 per calendar year. Matching
contributions are invested in accordance with a participants existing investment elections and become fully vested after four years of service. Certain of our foreign subsidiaries also have defined contribution plans in which a majority of
their employees participate. The amount of employer expenses including the employer contributions to the 401(k) Plan and foreign subsidiaries plans during the years ended April 30, 2009, 2008 and 2007 were $2.8 million, $1.7 million and
$1.0 million, respectively. The number of plan participants in our defined contribution plans has increased as a result of additional eligible employees from our acquisitions and an overall increase in headcount due to our hiring of additional
employees.

Note 11. Commitments and Contingencies

Guarantees, Indemnifications and Warranty Obligations

Our customer agreements generally include certain provisions for
indemnifying such customers against liabilities if our products infringe a third partys intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification provisions and have not accrued any
liabilities related to such obligations in the accompanying consolidated financial statements.

Our Bylaws provide that we shall indemnify
our directors and officers to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. We have also entered into indemnification agreements or other contractual
arrangements with current and former executive officers and directors of our company and of certain of our subsidiaries, which contain provisions that may require us, among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or officers and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. We were required to indemnify certain
current and former officers and directors and other employees for their attorneys fees and related expenses incurred in connection with the regulatory investigations relating to our historical stock option grant practices, and expect to have
indemnification obligations to certain current and former officers and directors and other employees in connection with the derivative litigation relating to our historical stock option granting practices.

We accrue for warranty expenses in our cost of revenue at the time revenue is recognized and maintain an accrual for estimated future warranty
obligations based upon the relationship between historical and anticipated warranty costs and revenue volumes. If actual warranty expenses are greater than those projected, additional charges against earnings would be required. If actual warranty
expenses are less than projected, our obligations would be reduced, providing a positive impact on our reported results. We generally provide a one-year warranty on hardware products and a 90-day warranty on software products.

Leases

We lease certain office equipment and office
facilities under non-cancelable operating leases that expire at various dates through 2016. The facility leases generally require us to pay operating costs, including property taxes, insurance and maintenance, and may contain scheduled rent
increases and certain other rent escalation clauses. Rent expense is recognized in our consolidated financial statements on a straight-line basis over the terms of the respective leases after consideration of rent holidays and improvement
allowances, if applicable, with any assets purchased using a lessee improvement allowance capitalized as fixed assets and depreciated over the shorter of their useful lives or the lease term.

In September 2005, we commenced a five-year operating lease of a building that serves as our headquarters in Sunnyvale, California. On June 20,
2008, we amended the lease for our corporate headquarters. Pursuant to the lease amendment, we added 116,586 additional square feet of space and extended the term of the lease through November 30, 2015. The lease amendment provides for an
annualized base rent ranging from $2.7 million to $3.4 million for the new premises during the term of the lease applicable to the new premises, which commenced



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on November 1, 2008. The lease amendment provides for an annualized base rent ranging from $2.9 million to $3.4 million for the existing premises during
the extension term, which commences on September 1, 2010.

In connection with the lease, we are required to maintain an irrevocable
standby letter of credit with a major financial institution as a form of security. The amount of the letter of credit was reduced to $0.8 million during fiscal 2009 from $0.9 million at April 30, 2008 and the expiration date was extended to
February 2010. The letter of credit is secured by deposits and provides for automatic annual extensions, without amendment, for a period of one year on each successive expiration date, but no later than the lease expiration of November 30,
2015. The deposits securing the letter of credit are classified as long-term restricted cash in the accompanying consolidated balance sheets as of April 30, 2009 and 2008, respectively.

Rent expense was $10.1 million, $4.5 million and $3.5 million for the years ended April 30, 2009, 2008 and 2007, respectively.

As of April 30, 2009, future minimum lease payments under non-cancelable operating leases with initial or remaining terms in excess of one year are
as follows (in thousands):



|                                         |  |        |       
|---------------------------------------- |  | ------ | ------
|Year ending April 30,                    |  | Amount
|2010                                     |  | $      | 8.902 
|2011                                     |  |        | 7,907 
|2012                                     |  |        | 7,559 
|2013                                     |  |        | 7,402 
|2014                                     |  |        | 6,812 
|Thereafter                               |  |        | 10,521
|                                         |  |        |       
|Total future minimum lease payments, net |  | $      | 49,103
|                                         |  |        |       

Lease commitments include future minimum rent payments for several facilities that we will vacate
pursuant to our Packeteer post-acquisition integration activities.

Other

We have firm purchase and other commitments with various suppliers and contract manufacturers to purchase component inventory, manufacturing material and
equipment. These agreements are enforceable and legally binding against us in the short term and all amounts under these arrangements are due to be paid by the end of fiscal 2010. Our minimum obligation at April 30, 2009 under these
arrangements was $10.3 million. In addition, we have obligations under a cross patent license agreement of $0.6 million.

Legal settlement
expenses are included in general and administrative expenses in the Consolidated Statements of Operations.

At April 30, 2009, we had
a liability for unrecognized tax benefits of $12.7 million. Due to uncertainties with respect to the timing of future cash flows associated with our unrecognized tax benefits at April 30, 2009, we are unable to make reasonably reliable
estimates of the period of cash settlement with the applicable taxing authority. Therefore, $12.7 million of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 9 in the Notes to Consolidated Financial
Statements for a discussion of income taxes.

Note 12. Litigation

With regard to the matters discussed below, although we cannot predict the outcome of the IPO allocation cases, the derivative litigations or the patent litigation, the costs of defending these matters (including, as
applicable, our obligations to indemnify current or former officers, directors, employees or customers) could have a material adverse effect on our results of operations and financial condition.



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From time to time and in the ordinary course of business, we may be subject to various other claims and
litigation. Such claims could result in the expenditure of significant financial and other resources.

IPO Allocation Litigation

Beginning on May 16, 2001, a series of putative securities class actions were filed in the United States District Court for the Southern District of
New York against the firms that underwrote our initial public offering, us, and some of our officers and directors. These cases have been consolidated under the case captionedIn re CacheFlow, Inc. Initial Public Offering Securities
Litigation, Civil Action No. 1-01-CV-5143. In November 2001, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against the firms that underwrote Packeteers initial
public offering, Packeteer, and some of its officers and directors. An amended complaint, captioned In re Packeteer, Inc. Initial Public Offering Securities Litigation, Civil Action No. 01-CV-10185, was filed on April 20, 2002.

These are two of a number of actions coordinated for pretrial purposes asIn re Initial Public Offering Securities Litigation, 21
MC 92, with the first action filed on January 12, 2001. Plaintiffs in the coordinated proceeding are bringing claims under the federal securities laws against numerous underwriters, companies, and individuals, alleging generally that defendant
underwriters engaged in improper and undisclosed activities concerning the allocation of shares in the IPOs of more than 300 companies during late 1998 through 2000. Among other things, the plaintiffs allege that the underwriters customers had
to pay excessive brokerage commissions and purchase additional shares of stock in the aftermarket in order to receive favorable allocations of shares in an IPO.

The consolidated amended complaint in our case seeks unspecified damages on behalf of a purported class of purchasers of our common stock between December 9, 1999 and December 6, 2000. Pursuant to a tolling
agreement, the individual defendants were dismissed without prejudice. On February 19, 2003, the court denied our motion to dismiss the claims against us.

The amended complaint in the Packeteer case seeks unspecified damages on behalf of a purported class of purchasers of Packeteers common stock between July 27, 1999 and December 6, 2000.

In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including us and Packeteer, was submitted
to the Court for approval. On August 31, 2005, the Court preliminarily approved the settlement. In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants
and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was deemed unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order
terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six focus cases. On March 26, 2008, the Court denied the
defendants motion to dismiss the amended complaints.

The parties have reached a global settlement of the litigation. Plaintiffs
filed a motion for preliminary settlement approval with the Court on April 2, 2009. Under the settlement, which remains subject to Court approval, the insurers would pay the full amount of settlement share allocated to the Company and
Packeteer, and the Company and Packeteer would not bear any financial liability. The Court issued an order granting preliminary approval of the settlement, dated June 9, 2009, and a hearing on final approval of the settlement has been set for
September 10, 2009. It is uncertain whether the settlement will receive final Court approval.



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Derivative Litigations

Actions Pending Against Us

On May 18, 2005, a purported shareholder derivative action was filed in the Superior Court of
California, Santa Clara County, alleging that certain of our officers and directors violated their fiduciary duties to the Company by making false or misleading statements about our prospects between February 20, 2004 and May 27, 2004. On
July 17, 2006, plaintiffs filed a consolidated amended complaint, adding allegations that certain current and former officers and directors violated their fiduciary duties to us since our initial public offering by granting and failing to
account correctly for stock options. That amended complaint sought various types of relief on our behalf from the individual defendants. On September 8, 2006, another and substantively identical purported shareholder derivative action was filed
against certain of our current and former officers and directors. Both of these state derivative cases have been consolidated.

On
August 8 and September 5, 2006, two purported shareholder derivative actions were filed in the United States District Court for the Northern District of California against certain of our current and former officers and directors. Like the
state derivative actions, the federal derivative actions allege that certain of our current and former officers and directors violated their fiduciary duties since our initial public offering by granting and failing to account correctly for stock
options and seek various relief on our behalf from the individual defendants. Both of these federal cases have been consolidated.

On
November 30, 2007, the federal and state plaintiffs each filed consolidated amended complaints in their respective actions, which focus on our historical stock option granting practices and assert claims for breach of fiduciary duty and other
state and federal law claims against certain of our current and former officers and directors.

The plaintiffs in the federal action, by
letter dated June 20, 2008, demanded our Board of Directors take action to remedy the conduct complained of. The demand followed our filing of a motion to dismiss on the grounds that plaintiffs had failed to make a pre-suit demand. The demand
letter largely repeats the allegations and requested relief in the federal and state derivative actions. The federal court has stayed the action until July 10, 2009 to permit our Board of Directors to consider the demand. In response to the
demand letter, our Board of Directors formed a special committee, composed of directors James R. Tolonen and Keith Geeslin, on June 25, 2008. The special committee was granted plenary authority to decide whether it is in the best interests of
the Company and its shareholders to pursue or otherwise resolve the claims raised in the demand letter and in the federal and state derivative actions and any other claims of the Company that the special committee deems necessary or appropriate to
consider concerning our historical stock option practices.

The court in the state action has stayed that action pending a case management
conference presently scheduled for July 17, 2009.

Action Pending Against Packeteer

On or about October 10, 2007, Vanessa Simmonds, a purported shareholder of Packeteer, filed a complaint in the United States District Court, Western
District of Washington, against the underwriters of Packeteers 1999 initial public offering of its common stock, seeking recovery in the name of Packeteer for alleged violation by those underwriters of Section 16(b) of the Securities
Exchange Act of 1934, as amended. The complaint seeks to recover from the underwriters any short-swing profits obtained by them in violation of Section 16(b). Packeteer is named as a nominal defendant. On February 28, 2008, the
plaintiff filed an amended complaint asserting substantially similar claims as those set forth in the initial complaint and naming three additional underwriters as defendants.

This is one of 54 actions coordinated for pretrial purposes asIn re Section 16(b) Litigation, Master Case No. 07-1549 JLR, with the
first action filed on October 2, 2007. In July 2008, Packeteer and 29 other nominal defendants moved to dismiss the amended complaint. Packeteer also separately moved to dismiss the action



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brought against it on the ground that the plaintiff lacks standing to pursue the action because her interest was extinguished when Packeteer merged into our
wholly-owned subsidiary on June 6, 2008. The Court heard the motions to dismiss in January 2009. On March 12, 2009, as a consequence of those motions, the Court issued an Order Dismissing Cases and entered judgment dismissing the actions,
including the action brought against Packeteer. On or about March 31, 2009, the plaintiff filed a Joint Notice of Appeal of Coordinated Cases with respect to each case adjudicated by the order and judgment, including the action brought against
Packeteer.

Patent Litigation

On
April 18, 2008, Realtime Data, LLC d/b/a IXO (Realtime) filed a patent infringement lawsuit in the United States District Court, Eastern District of Texas against Packeteer and eleven other companies, including
five customers of Packeteer (Realtime Data, LLC d/b/a IXO v. Packeteer, Inc. et al., Civil Action No. 6:08-cv-144). The complaint asserted infringement of seven patents. Packeteer is alleged to have infringed five of those
patents. The plaintiff seeks damages for past infringement, enhanced damages for alleged willful infringement, and injunctive relief. On June 20, 2008, Realtime filed a First Amended Complaint which asserts infringement of two
additional patents. Packeteer is alleged to have infringed one of those patents. The First Amended Complaint also names us as a defendant and asserts that we infringe the same six patents that allegedly are infringed by Packeteer. We and
Packeteer have denied infringement of the patents, and have counterclaimed against the plaintiff, asserting that all of the patent claims asserted against us are invalid or unenforceable. The Court held a claim construction hearing on
April 9, 2009, and on June 2, 2009, rendered a provisional claim construction order setting forth the Courts initial construction of certain disputed claim terms. The Court has not yet issued a Memorandum and Order on Claim
Construction. Realtime has filed a motion seeking leave to amend its infringement contentions to add additional claims of infringement against our ProxySG product. We have opposed this motion. A hearing date for this motion has been set for June 29,
2009. Trial is set for January 4, 2010.

Note 13. Geographic and Product Category Information Reporting

We conduct business in one operating segment to design, develop and sell products and services that optimize and secure the delivery of business
applications and other information to distributed users over a WAN. Our chief operating decision maker, our chief executive officer, allocates resources and makes operating decisions based on financial data consistent with the presentation in the
accompanying consolidated financial statements. Our revenue consists of two product categories: product and service.

Net revenue is
attributed to geographic areas based on the location of the customers. The following is a summary of net revenue by geographic area:



|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  
|----------------- |  | ---------------------- | ------- | - | ----- | - | - | ---- | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                  |  | Year Ended April 30,   |        
|                  |  | 2009                   |         |   | 2008  |   |   | 2007 |        
|                  |  | $                      |         | % |       |   | $ |      | %       |  |       | $ |  | % |        
|                  |  | (dollars in thousands) |        
|North America     |  | $                      | 189,381 |   | 42.6  | % |   | $    | 142,934 |  | 46.8  | % |  | $ | 82,812  |  | 46.6  | %
|EMEA (1)          |  |                        | 162,493 |   | 36.5  |   |   |      | 112,110 |  | 36.7  |   |  |   | 66,323  |  | 37.3  |  
|LATAM (2)         |  |                        | 10,518  |   | 2.4   |   |   |      | 3,850   |  | 1.3   |   |  |   | 1,611   |  | 0.9   |  
|APAC (3)          |  |                        | 82,353  |   | 18.5  |   |   |      | 46,545  |  | 15.2  |   |  |   | 26,954  |  | 15.2  |  
|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  
|Total net revenue |  | $                      | 444,745 |   | 100.0 | % |   | $    | 305,439 |  | 100.0 | % |  | $ | 177,700 |  | 100.0 | %
|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  



|(1) | Europe, Middle East, and Africa (EMEA)
|--- | ----------------------------------------

|(2) | Central America and Latin America (LATAM)
|--- | -------------------------------------------

|(3) | Asia and Pacific regions (APAC)
|--- | ---------------------------------



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The following is a summary of net revenue by product category:



|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  
|----------------- |  | ---------------------- | ------- | - | ----- | - | - | ---- | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                  |  | Year Ended April 30,   |        
|                  |  | 2009                   |         |   | 2008  |   |   | 2007 |        
|                  |  | $                      |         | % |       |   | $ |      | %       |  |       | $ |  | % |        
|                  |  | (dollars in thousands) |        
|Product           |  | $                      | 305,601 |   | 68.7  | % |   | $    | 233,858 |  | 76.6  | % |  | $ | 136,770 |  | 77.0  | %
|Service           |  |                        | 139,144 |   | 31.3  |   |   |      | 71,581  |  | 23.4  |   |  |   | 40,930  |  | 23.0  |  
|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  
|Total net revenue |  | $                      | 444,745 |   | 100.0 | % |   | $    | 305,439 |  | 100.0 | % |  | $ | 177,700 |  | 100.0 | %
|                  |  |                        |         |   |       |   |   |      |         |  |       |   |  |   |         |  |       |  

The following table presents a summary of long-lived assets as of April 30, 2009 and 2008 by
geographic area:



|                                                  |  |                |        |      |   |       
|------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                  |  | April 30,     
|                                                  |  | 2009           |        | 2008
|                                                  |  | (in thousands)
|Long-Lived Assets:                                |  |                |        |      |   |       
|Property and equipment, net                       |  |                |        |      |   |       
|United States                                     |  | $              | 29,910 |      | $ | 12,253
|International                                     |  |                | 5,045  |      |   | 2,722 
|                                                  |  |                |        |      |   |       
|Subtotal                                          |  |                | 34,955 |      |   | 14,975
|Identifiable intangible assets, net United States |  |                | 48,774 |      |   | 5,010 
|                                                  |  |                |        |      |   |       
|Total Long-Lived Assets                           |  | $              | 83,729 |      | $ | 19,985
|                                                  |  |                |        |      |   |       

Note 14. Selected Quarterly Financial Data (Unaudited)

A summary of our quarterly consolidated financial results is as follows:



|                                    |  |                                       |         |   |                 |   |         |                 |  |               |         |  |   |         |  
|----------------------------------- |  | ------------------------------------- | ------- | - | --------------- | - | ------- | --------------- |  | ------------- | ------- |  | - | ------- | -
|                                    |  | Three Months Ended                    |        
|                                    |  | July 31,2008                          |         |   | October 31,2008 |   |         | January 31,2009 |  | April 30,2009 |        
|                                    |  | (in thousands, except per share data) |        
|Net revenue                         |  | $                                     | 102,503 |   |                 | $ | 119,024 |                 |  | $             | 109,596 |  | $ | 113,622 |  
|Gross profit                        |  |                                       | 70,436  |   |                 |   | 81,887  |                 |  |               | 79,094  |  |   | 82,193  |  
|Net income (loss)                   |  |                                       | (5,835  | ) |                 |   | (251    | )               |  |               | 1,063   |  |   | (3,485  | )
|Basic net income (loss) per share   |  | $                                     | (0.15   | ) |                 | $ | (0.01   | )               |  | $             | 0.03    |  | $ | (0.09   | )
|Diluted net income (loss) per share |  | $                                     | (0.15   | ) |                 | $ | (0.01   | )               |  | $             | 0.02    |  | $ | (0.09   | )
|                                    | 
|                                    |  | Three Months Ended                    |        
|                                    |  | July 31,2007                          |         |   | October 31,2007 |   |         | January 31,2008 |  | April 30,2008 |        
|                                    |  | (in thousands, except per share data) |        
|Net revenue                         |  | $                                     | 62,403  |   |                 | $ | 73,425  |                 |  | $             | 81,381  |  | $ | 88,230  |  
|Gross profit                        |  |                                       | 47,792  |   |                 |   | 57,047  |                 |  |               | 62,082  |  |   | 67,073  |  
|Net income                          |  |                                       | 2,642   |   |                 |   | 6,953   |                 |  |               | 10,490  |  |   | 12,483  |  
|Basic net income per share          |  | $                                     | 0.08    |   |                 | $ | 0.20    |                 |  | $             | 0.28    |  | $ | 0.33    |  
|Diluted net income per share        |  | $                                     | 0.07    |   |                 | $ | 0.17    |                 |  | $             | 0.26    |  | $ | 0.32    |  



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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our periodic reports
filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated
and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we
conducted an evaluation of our disclosure controls and procedures as of April 30, 2009, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, management believes that our disclosure
controls and procedures were effective as of April 30, 2009, the end of the period covered by this Annual Report on Form 10-K.

Managements
Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2009 based on the framework set forth in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our evaluation,our management believes that our internal control over financial reporting was effective as of April 30, 2009, the end of the period covered by this
Annual Report on Form 10-K.

The effectiveness of our internal control over financial reporting as of April 30, 2009 has been audited
by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which follows.

Changes in Internal Control
Over Financial Reporting

There were no changes in our internal control over financial reporting during our most recent fiscal quarter
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on
Effectiveness of Control Systems

All control systems, no matter how well conceived and operated, have inherent limitations and can
provide only reasonable assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that control breakdowns can occur
because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based
in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control system will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected. In designing and evaluating our control systems, our management necessarily is required to apply its judgment in evaluating the cost-benefit
relationship of possible control systems, and based upon that evaluation, to decide which control systems to implement.



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Departure of Chief Financial Officer and Appointment of Interim Chief Financial Officer

Our former Chief Financial Officer, Kevin S. Royal, resigned his position, effective April 10, 2009, and Brian M. NeSmith, our President and Chief
Executive Officer, was temporarily appointed to serve as interim Chief Financial Officer. On May 4, 2009, after the conclusion of fiscal 2009, we retained Michael J. Gennaro, a partner at FLG Partners, LLC, to serve as our interim Chief
Financial Officer, and principal financial and accounting officer, until such time as our current search for a new Chief Financial Officer is completed.

Item 9B. Other Information

None



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Blue Coat Systems, Inc.

We have audited Blue Coat Systems, Inc.s internal control over financial reporting as of April 30, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Blue Coat Systems, Inc.s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on
our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Blue Coat Systems, Inc.
maintained, in all material respects, effective internal control over financial reporting as of April 30, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Blue Coat Systems, Inc. as of April 30, 2009 and April 30, 2008, and the
related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended April 30, 2009 of Blue Coat Systems, Inc. and our report dated June 17, 2009 expressed an unqualified
opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

June 17, 2009



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PART III.

Item 10. Directors, Executive Officers and Corporate Governance

The
information required by this Item is incorporated by reference from the responsive information to be contained in our Proxy Statement to be issued in conjunction with our annual stockholders meeting to be held on October 2, 2009.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference from the responsive information to be contained in our Proxy Statement to be issued in conjunction with our annual stockholders meeting to be
held on October 2, 2009.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

The information required by this Item is incorporated by reference from the responsive information to be contained
in our Proxy Statement to be issued in conjunction with our annual stockholders meeting to be held on October 2, 2009.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The
information required by this Item is incorporated by reference from the responsive information to be contained in our Proxy Statement to be issued in conjunction with our annual stockholders meeting to be held on October 2, 2009.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated by reference from the responsive information to be contained in our Proxy Statement to be issued in
conjunction with our annual stockholders meeting to be held on October 2, 2009.



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PART IV.

Item 15. Exhibits and Financial Statement Schedules

1.
Financial Statements

See Item 8 of this Annual Report on Form 10-K

2. Financial Statement Schedules

The following financial statement schedule of Blue Coat Systems, Inc. is filed as part of this Report and should be read in conjunction with the Financial Statements of Blue Coat Systems, Inc.

Schedule II        Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.

3. Exhibits

See Exhibit Index. The Exhibits listed in the accompanying Exhibit Index are filed as part of this report.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



|              |  |  |  |                         |  |                      |  |                                                                              
|------------- |  |  |  | ----------------------- |  | -------------------- |  | -----------------------------------------------------------------------------
|              |  |  |  | BLUE COAT SYSTEMS, INC.
|              |  |  |  | (Registrant)           
|              |  |  | 
|June 22, 2009 |  |  |  | By:                     |  | /s/ BRIAN M. NESMITH
|              |  |  |  |                         |  |                      |  | Brian M. NeSmith                                                             
|              |  |  |  |                         |  |                      |  | President, Chief Executive Officer and Director (Principal Executive Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Brian M. NeSmith, President, Chief Executive Officer and Director, and Betsy E. Bayha, Senior Vice President, General Counsel and Secretary, or either of them, each with the power of substitution, his attorney-in-fact, to sign any
amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:



|                                          |  |                                                                               |  |              
|----------------------------------------- |  | ----------------------------------------------------------------------------- |  | -------------
|Signature                                 |  | Title                                                                         |  | Date         
|                                          |  |                                                                              
|/s/ BRIAN M. NESMITH Brian M. NeSmith     |  | President, Chief Executive Officer and Director (Principal Executive Officer) |  | June 22, 2009
|                                          |  |                                                                              
|/s/ MICHAEL J. GENNARO Michael J. Gennaro |  | Principal Financial Officer                                                   |  | June 22, 2009
|                                          |  |                                                                              
|/s/ DAVID W. HANNA David
W. Hanna         |  | Chairman of the Board                                                         |  | June 22, 2009
|                                          |  |                                                                              
|/s/ JAMES A. BARTH James
A. Barth         |  | Director                                                                      |  | June 22, 2009
|                                          |  |                                                                              
|/s/ KEITH B. GEESLIN Keith B. Geeslin     |  | Director                                                                      |  | June 22, 2009
|                                          |  |                                                                              
|/s/ TIMOTHY A. HOWES Timothy A. Howes     |  | Director                                                                      |  | June 22, 2009
|                                          |  |                                                                              
|/s/ JAMES R. TOLONEN James R. Tolonen     |  | Director                                                                      |  | June 22, 2009
|                                          |  |                                                                              
|/s/ CAROL G. MILLS Carol
G. Mills         |  | Director                                                                      |  | June 22, 2009



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EXHIBITS



|       |  |                                                                                                                                                                                                                                                                                                                                                                             
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                 
|2.1    |  | Agreement and Plan of Merger and Reorganization, dated as of October 28, 2003, by and among Blue Coat Systems, Inc., Riga Corp., Ositis Software, Inc., Vilis Ositis and Liana Abele (which is
incorporated herein by reference to Exhibit 2.1 of Form 8-K filed by the Registrant with the Commission on November 28, 2003)                                                
|       | 
|2.2    |  | Agreement and Plan of Merger and Reorganization, dated as of July 16, 2004, by and among Blue Coat Systems, Inc., Utah Merger Corporation, Cerberian, Inc., and Scott Petty, as Stockholders
Representative (which is incorporated herein by reference to Exhibit 2.1 of Form 8-K filed by the Registrant with the Commission on November 23, 2004)                        
|       | 
|2.3    |  | Amendment Number 1 to Agreement and Plan of Merger and Reorganization, dated as of October 5, 2004, by and among Blue Coat Systems, Inc., Utah Merger Corporation, Cerberian, Inc., and Scott
Petty, as Stockholders Representative (which is incorporated herein by reference to Exhibit 2.2 of Form 8-K filed by the Registrant with the Commission on November 23, 2004)
|       | 
|2.4    |  | Agreement and Plan of Merger and Reorganization, dated as of December 30, 2005, by and among Blue Coat Systems, Inc., Permeo Technologies, Inc., Pivot Acquisition Corp., and Chris Pacitti, as
Stockholders Representative (which is incorporated herein by reference to Exhibit 2.1 of Form 8-K filed by the Registrant with the Commission on January 4, 2006)          
|       | 
|2.5    |  | Asset Purchase Agreement, dated as of June 22, 2006, between Blue Coat Systems, Inc. and Network Appliance, Inc. (which is incorporated herein by reference to Exhibit 2.1 of Form 8-K filed by
the Registrant with the Commission on June 23, 2006)                                                                                                                        
|       | 
|2.6    |  | Amendment to Asset Purchase Agreement, dated as of September 8, 2006, between Blue Coat Systems, Inc. and Network Appliance, Inc. (which is incorporated herein by reference to Exhibit 2.1 of
Form 8-K filed by the Registrant with the Commission on September 11, 2006)                                                                                                  
|       | 
|2.7    |  | Agreement and Plan of Merger, dated as of April 20, 2008, among Packeteer, Inc., Blue Coat Systems, Inc. and Cooper Acquisition, Inc. (which is incorporated herein by reference to
Exhibit 2.01 to the Registrants 8-K filed with the Commission on April 23, 2008)                                                                                                       
|       | 
|3.1    |  | Amended and Restated Certificate of Incorporation of the Registrant (which is incorporated herein by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-1 No.
333-87997)                                                                                                                                                                         
|       | 
|3.2    |  | Reserved                                                                                                                                                                                                                                                                                                                                                                    
|       | 
|3.3    |  | Certificate of Ownership and Merger of Blue Coat Systems, Inc. with and into CacheFlow Inc. (which is incorporated herein by reference to Exhibit 3.3 of Form 10-Q filed by the Registrant with
the Commission on December 16, 2002)                                                                                                                                        
|       | 
|3.4    |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of Blue Coat Systems, Inc. dated September 12, 2002 (which is incorporated herein by reference to Exhibit 3.4 of
Form 10-Q filed by the Registrant with the Commission on December 16, 2002)                                                                                                  
|       | 
|3.5    |  | Reserved                                                                                                                                                                                                                                                                                                                                                                    
|       | 
|3.6    |  | Reserved                                                                                                                                                                                                                                                                                                                                                                    
|       | 
|3.7    |  | Reserved                                                                                                                                                                                                                                                                                                                                                                    
|       | 
|3.8    |  | Amended and Restated Bylaws (which is incorporated herein by reference to Exhibit 99.1 to the Registrants 8-K filed with the Commission on February 27, 2009)                                                                                                                                                                                                              
|       | 
|4.1    |  | Reference is made to Exhibits 3.1, 3.3, 3.4, and 3.8                                                                                                                                                                                                                                                                                                                        
|       | 
|4.2    |  | Specimen Certificate of the Registrants Common Stock (which is incorporated herein by reference to Exhibit 4.3 of Form 10-K filed by the Registrant with the Commission on July 29, 2003)                                                                                                                                                                                  



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|       |  |                                                                                                                                                                                                                                                                                                         
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                             
|9.1    |  | Reserved                                                                                                                                                                                                                                                                                                
|       | 
|10.1   |  | Form of Indemnification Agreement (which is incorporated herein by reference to Exhibit 10.1 to the Registrants Registration Statement on Form S-1/A No. 333-87997)                                                                                                                                    
|       | 
|10.2   |  | 1996 Stock Option Plan (which is incorporated herein by reference to Exhibit 10.2 to the Registrants Registration Statement on Form S-1 No. 333-87997)                                                                                                                                                 
|       | 
|10.3*  |  | 1999 Stock Incentive Plan (which is incorporated herein by reference to Exhibit 10.3 to the Registrants Registration Statement on Form S-1 No. 333-87997)                                                                                                                                              
|       | 
|10.4*  |  | 1999 Director Option Plan (which is incorporated herein by reference to Exhibit 10.4 to the Registrants Registration Statement on Form S-1 No. 333-87997)                                                                                                                                              
|       | 
|10.5*  |  | 1999 Employee Stock Purchase Plan (which is incorporated herein by reference to Exhibit 10.5 to the Registrants Registration Statement on Form S-1 No. 333-87997)                                                                                                                                      
|       | 
|10.6   |  | Reserved                                                                                                                                                                                                                                                                                                
|       | 
|10.7   |  | Reserved                                                                                                                                                                                                                                                                                                
|       | 
|10.8   |  | Reserved                                                                                                                                                                                                                                                                                                
|       | 
|10.9*  |  | Offer Letter with Brian NeSmith (which is incorporated herein by reference to Exhibit 10.9 to the Registrants Registration Statement on Form S-1/A No. 333-87997)                                                                                                                                      
|       | 
|10.10  |  | 2000 Supplemental Stock Option Plan (which is incorporated herein by reference to Exhibit 99.1 of Form S-8 filed by the Registrant with the Commission on April 11, 2000)                                                                                                                               
|       | 
|10.11  |  | SpringBank Networks, Inc. 2000 Stock Incentive Plan (which is incorporated herein by reference to Exhibit 99.2 of Form S-8 filed by the Registrant with the Commission on September 8,
2000)                                                                                                            
|       | 
|10.12  |  | Entera, Inc. 1999 Equity Incentive Plan (which is incorporated herein by reference to Exhibit 99.1 of Form S-8 filed by the Registrant with the Commission on December 18, 2000)                                                                                                                        
|       | 
|10.13  |  | Entera, Inc. 2000 Equity Incentive Plan (which is incorporated herein by reference to Exhibit 99.2 of Form S-8 filed by the Registrant with the Commission on December 18, 2000)                                                                                                                        
|       | 
|10.14* |  | Offer Letter with David de Simone (which is incorporated herein by reference to Exhibit 10.24 of Form 10-Q filed by the Registrant with the Commission on December 12, 2003)                                                                                                                            
|       | 
|10.15  |  | Common Stock Purchase Agreement dated September 18, 2003 (which is incorporated herein by reference to Exhibit 10.1 of Form 8-K filed by the Registrant with the Commission on September 22,
2003)                                                                                                      
|       | 
|10.16  |  | Reserved                                                                                                                                                                                                                                                                                                
|       | 
|10.17  |  | Technology License And Settlement Agreement dated October 29, 2003 by and between Network Caching Technology L.L.C and Blue Coat Systems, Inc. (which is incorporated herein by reference to
Exhibit 10.27 of Form 10-Q filed by the Registrant with the Commission on December 12, 2003)               
|       | 
|10.18  |  | Source Code License & Services Agreement, effective August 12, 2004, by and between Blue Coat Systems, Inc. and Flowerfire, Inc. (which is incorporated herein by reference to Exhibit 10.1 of
Form 10-Q filed by the Registrant with the Commission on September 9, 2004)                              
|       | 
|10.19* |  | Form of Notice of Grant of Stock Option and Stock Option Agreement used to evidence options granted under the Blue Coat Systems, Inc. 1999 Stock Incentive Plan (which is incorporated herein by
reference to Exhibit 10.2 of Form 10-Q filed by the Registrant with the Commission on December 9, 2004)
|       | 
|10.20* |  | Employment Agreement between Blue Coat Systems, Inc. and Kevin Royal dated as of March 31, 2005 (which is incorporated herein by reference to Exhibit 10.32 of Form 10-K filed by the
Registrant with the Commission on July 14, 2005)                                                                  



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|       |  |                                                                                                                                                                                                                                                                                                                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                            
|10.21  |  | Triple Net Space Lease between Mary Avenue LLC as Lessor and Blue Coat Systems, Inc. , a Delaware corporation, as Lessee, dated April 21, 2005 ( which is incorporated by reference to the
Registrants Form 8-K filed with the Commission on April 26, 2005)                                                          
|       | 
|10.22  |  | Cerberian, Inc. 2000 Stock Option Plan (which is incorporated herein by reference to Exhibit 10.22 of Form 10-K filed by the Registrant with the Commission on March 28, 2007)                                                                                                                                         
|       | 
|10.23  |  | Permeo Technologies, Inc. 2001 Stock Option Plan (which is incorporated herein by reference to Exhibit 10.23 of Form 10-K filed by the Registrant with the Commission on March 28,
2007)                                                                                                                               
|       | 
|10.24  |  | Reserved                                                                                                                                                                                                                                                                                                               
|       | 
|10.25  |  | Reserved                                                                                                                                                                                                                                                                                                               
|       | 
|10.27  |  | Design and Manufacturing Services Agreement, effective as of June 11, 2008, between MiTAC International Corporation and Blue Coat Systems, Inc. (which is incorporated herein by reference to
Exhibit 10.27 of Form 10-K filed by the Registrant with the Commission on June 30, 2008)                                 
|       | 
|10.28* |  | 2006 Profit Sharing Plan (which is incorporated by reference to Exhibit 10.28 of Form 10-Q for the period ending January 31, 2007, filed by the Registrant with the Commission on March 28, 2007)                                                                                                                      
|       | 
|10.29* |  | Offer Letter with Kevin Biggs, dated as of December 3, 2006 (which is incorporated by reference to Exhibit 10.29 of Form 10-Q for the period ending January 31, 2007, filed by the Registrant with
the Commission on March 28, 2007)                                                                                   
|       | 
|10.30* |  | Offer Letter with Betsy E. Bayha, dated as of March 27, 2007 (which is incorporated herein by reference to Exhibit 10.30 of Form 10-K filed by the Registrant with the Commission on July 13,
2007)                                                                                                                    
|       | 
|10.31* |  | 2007 New Employee Stock Incentive Plan (which is incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Registrant with the Commission on June 18, 2007)                                                                                                                                                   
|       | 
|10.32* |  | Form of Notice of Grant of Stock Option and Stock Option Agreement used to evidence options granted under Blue Coat Systems, Inc. 2007 New Employee Stock Incentive Plan (which is incorporated by
reference to Exhibit 10.2 of Form 8-K filed by the Registrant with the Commission on June 18, 2007)                 
|       | 
|10.33* |  | Form of Notice of Award of Restricted Stock and Restricted Stock Agreement used to evidence restricted stock awarded under Blue Coat Systems, Inc. 2007 New Employee Stock Incentive Plan (which
is incorporated by reference to Exhibit 10.3 of Form 8-K filed by the Registrant with the Commission on June 18, 2007)
|       | 
|10.34* |  | Form of Notice of Award of Restricted Stock and Restricted Stock Agreement used to evidence restricted stock awarded under Blue Coat Systems, Inc. 1999 Stock Incentive Plan (which is
incorporated herein by reference to Exhibit 10.34 of Form 10-K filed by the Registrant with the Commission on July 13, 2007)    
|       | 
|10.35  |  | Form of Notice of Grant of Stock Option and Stock Option Agreement used to evidence options granted under Blue Coat Systems, Inc. 2000 Supplemental Stock Option Plan (which is incorporated
herein by reference to Exhibit 10.35 of Form 10-K filed by the Registrant with the Commission on July 13, 2007)           
|       | 
|10.36* |  | Form of Notice of Grant of Stock Option and Stock Option Agreement used to evidence options granted under Blue Coat Systems, Inc. 1999 Director Option Plan (which is incorporated herein by
reference to Exhibit 10.36 of Form 10-K filed by the Registrant with the Commission on July 13, 2007)                     
|       | 
|10.37  |  | Form of Amended and Restated Indemnification Agreement (which is incorporated herein by reference to Exhibit 10.37 of Form 10-K filed by the Registrant with the Commission on June 30,
2008)                                                                                                                          



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|       |  |                                                                                                                                                                                                                                                                                                                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                     
|10.38* |  | 2007 Stock Incentive Plan (which is incorporated herein by reference to Exhibit 10.38 of Form 10-K filed by the Registrant with the Commission on June 30, 2008)                                                                                                                                                
|       | 
|10.39* |  | Restricted Stock Agreement used to evidence restricted stock awarded under Blue Coat Systems, Inc. 2007 Stock Incentive Plan (which is incorporated herein by reference to Exhibit 10.39 of Form
10-K filed by the Registrant with the Commission on June 30, 2008)                                             
|       | 
|10.40* |  | Stock Option Agreement used to evidence options granted under Blue Coat Systems, Inc. 2007 Stock Incentive Plan (which is incorporated herein by reference to Exhibit 10.40 of Form 10-K filed by
the Registrant with the Commission on June 30, 2008)                                                          
|       | 
|10.41  |  | Reserved                                                                                                                                                                                                                                                                                                        
|       | 
|10.42  |  | Design and Manufacturing Services Agreement, effective as of February 15, 2008, between Inventec Enterprise System Corporation and Blue Coat Systems, Inc. (which is incorporated herein by
reference to Exhibit 10.42 of Form 10-K filed by the Registrant with the Commission on June 30, 2008)               
|       | 
|10.43  |  | Amended and Restated Supply Agreement, effective as of September 8, 2005, between SYNNEX Corporation and Blue Coat Systems, Inc. (which is incorporated herein by reference to Exhibit 10.43
of Form 10-K filed by the Registrant with the Commission on June 30, 2008)                                         
|       | 
|10.44  |  | Note Purchase Agreement among Blue Coat Systems, Inc., Manchester Securities Corp. and Francisco Partners II, L.P., dated April 20, 2008 (which is incorporated herein by reference to Exhibit
10.01 to the Registrants 8-K filed with the Commission on April 23, 2008)                                       
|       | 
|10.45  |  | Final Form of Warrant (which is incorporated herein by reference to Exhibit 10.01 to the Registrants 8-K filed with the Commission on June 3, 2008)                                                                                                                                                            
|       | 
|10.46  |  | Stock Purchase Agreement, dated as of April 20, 2008, among The Liverpool Limited Partnership, Elliott International, L.P. and Blue Coat Systems, Inc. (which is incorporated herein by reference
to Exhibit 10.02 to the Registrants 8-K filed with the Commission on April 23, 2008)                         
|       | 
|10.47  |  | Reserved                                                                                                                                                                                                                                                                                                        
|       | 
|10.48* |  | Profit Sharing Plan, as amended effective May 1, 2008 (which is incorporated herein by reference to Exhibit 10.48 of Form 10-K filed by the Registrant with the Commission on June 30,
2008)                                                                                                                    
|       | 
|10.49  |  | Final Form of Note (which is incorporated herein by reference to Exhibit 10.02 to the Registrants 8-K filed with the Commission on June 3, 2008)                                                                                                                                                               
|       | 
|10.50  |  | Registration Rights Agreement by and between Blue Coat Systems, Inc. and Francisco Partners II, L.P. and Francisco Partners Parallel Fund, L.P. (as Investors), dated June 2, 2008 (which is
incorporated herein by reference to Exhibit 4.01 to the Registrants 8-K filed with the Commission on June 3, 2008)
|       | 
|10.51  |  | First Amendment to Lease (which is incorporated by reference to Exhibit 10.1 of Respondents 8-K filed with the Commission on June 26, 2008)                                                                                                                                                                    
|       | 
|10.52* |  | Packeteer, Inc. 1999 Stock Incentive Plan (Amended and Restated Effective as of December 12, 2007)                                                                                                                                                                                                              
|       | 
|10.53* |  | Stock Option Agreement used to evidence options granted under Packeteer, Inc. 1999 Stock Incentive Plan                                                                                                                                                                                                         
|       | 
|10.54* |  | Restricted Stock Agreement used to evidence restricted stock awarded under Packeteer, Inc. 1999 Stock Incentive Plan                                                                                                                                                                                            
|       | 
|10.55* |  | Separation agreement, dated April 10, 2009, between Kevin S. Royal and Blue Coat Systems, Inc. (which is incorporated by reference to Exhibit 99.1 of Respondents 8-K filed with the
Commission on April 10, 2009)                                                                                             



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|       |  |                                                                                                                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                      
|10.56* |  | Blue Coat Systems, Inc. Fiscal 2010 Profit Sharing Plan, as amended effective May 1, 2009 (which is incorporated herein by reference to Exhibit 99.1 of Form 8-K filed by the Registrant with the
Commission on May 1, 2009)                                     
|       | 
|10.57* |  | Confidential Consulting Agreement, effective May 4, 2009, between FLG Partners, LLC and Blue Coat Systems, Inc. (which is incorporated by reference to Exhibit 10.1 of Respondents 8-K
filed with the Commission on May 7, 2009)                                
|       | 
|10.58* |  | Executive Separation Policy, effective November 15, 2007 and clarified on December 31, 2008                                                                                                                                                                      
|       | 
|10.59* |  | Form of CEO Change in Control Severance Agreement, between the Company and its Chief Executive Officer, effective May 1, 2009 (which is incorporated herein by reference to Exhibit 99.2 of Form
8-K filed by the Registrant with the Commission on May 1, 2009) 
|       | 
|10.60* |  | Form of Executive Change in Control Severance Agreement, between the Company and its executive officers, effective May 1, 2009 (which is incorporated herein by reference to Exhibit 99.3 of Form
8-K filed by the Registrant with the Commission on May 1, 2009)
|       | 
|23.1   |  | Consent of Ernst & Young, LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                    
|       | 
|31.1   |  | Principal Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|       | 
|31.2   |  | Principal Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|       | 
|32.1   |  | Principal Executive Officer and Principal Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                             



|* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Companys Annual Report on Form 10-K pursuant to Item 15(b).
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



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SCHEDULE II

BLUE COAT SYSTEMS, INC.

VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts

(in
thousands)



|                     |  |                              |     |                                           |   |            |  |   |                        |   |  |   |      
|-------------------- |  | ---------------------------- | --- | ----------------------------------------- | - | ---------- |  | - | ---------------------- | - |  | - | -----
|Year Ended April 30, |  | Balance atBeginning ofPeriod |     | Additions(Reductions) toCosts andExpenses |   | Deductions |  |   | Balance atEnd ofPeriod
|2007                 |  | $                            | 145 |                                           | $ | 15         |  | $ |                       |   |  | $ | 160  
|2008                 |  |                              | 160 |                                           |   | 76         |  |   | (60                    | ) |  |   | 176  
|2009                 |  |                              | 176 |                                           |   | 1,450      |  |   | (206                   | ) |  |   | 1,420



105