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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
 Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File Number
    000-26785
  PACKETEER, INC.
 (Exact name of Registrant as
    specified in its charter)
  DELAWARE

77-0420107(State of
    incorporation)

(I.R.S. Employer
    Identification No.)   10201
    NORTH DE ANZA BLVD.
    CUPERTINO, CALIFORNIA 95014 (Address
    of principal executive offices)
  Registrants telephone number, including area code:
 (408) 873-4400
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.001 Par Value

The Nasdaq Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o Large
    accelerated filer
    þ Accelerated
    filer
    o Non-accelerated
    filer
    o Smaller
    reporting company   Rule 12b-2).  Yes o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 





TABLE OF
    CONTENTS
   
 PART IItem 1.


Business


3Item 1A.


Risk Factors


9Item 1B.


Unresolved Staff Comments


20Item 2.


Properties


20Item 3.


Legal Proceedings


20Item 4.


Submission of Matters to a Vote of Security
    Holders


21PART IIItem 5.


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


22Item 6.


Selected Financial Data


24Item 7.


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


25Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


39Item 8.


Financial Statements and Supplementary Data


40Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


74Item 9A.


Controls and Procedures


74Item 9B.


Other Information


75PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


75Item 11.


Executive Compensation


75Item 12.


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


75Item 13.


Certain Relationships and Related Transactions


76Item 14.


Principal Accountant Fees and Services


76PART IVItem 15.


Exhibits and Financial Statement Schedules


76Signatures


77EXHIBIT 3.3EXHIBIT 10.3EXHIBIT 10.13EXHIBIT 10.14EXHIBIT 10.21EXHIBIT 10.22EXHIBIT 10.23EXHIBIT 10.24EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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PART I  ITEM 1.
    BUSINESS  Form 10-K Form 10-K, Form 10-Q, Form 8-K
  OVERVIEW
      INDUSTRY
    BACKGROUND
   3




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The
    WAN/Application Bottleneck
      The
    Packeteer Solution
      
    gain application and network performance visibility and insight,
    ensure proper performance for mission-critical applications,
    permit easy deployment,
    increase effective and available bandwidth,
    enable time-sensitive interactive services,
    enable server consolidation,
    increase network efficiency and
    reduce operational cost.  OUR KEY
    STRATEGIES
    Focus on Enterprise Performance Needs for Distributed
    Enterprises.
 4




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Continue to Build Indirect Distribution
    Channels.
  Expand Presence in Telecommunications Service Provider
    Market.
  Focus on a Comprehensive Solution for Branch Office IT
    Services Where Applications Have Been Consolidated Into Data
    Centers.
  Extend WAN Application Performance Technology
    Leadership.
  PRODUCTS
    PacketShaper
   5




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PolicyCenter
  ReportCenter
  IntelligenceCenter
  iShared and/or
  iShaper
  SkyX®
  Mobiliti
  CUSTOMERS
   6




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MANUFACTURING
    MARKETING
    AND SALES
          RESEARCH
    AND DEVELOPMENT
    CUSTOMER
    SERVICE AND TECHNICAL SUPPORT
   7




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COMPETITION
      
    ability to address the broad range of applications that
    enterprises must deliver, including ERP, financial transactions,
    voice, video, file access and many more;
    products to suit every required delivery point;
    expertise and in-depth knowledge of applications;
    ability to ensure end user performance in addition to aggregate
    performance of the WAN access link;
    ability to integrate in the existing network architecture
    without requiring network reconfigurations or desktop changes;
    timeliness of new product introductions;
    ability to compress traffic without decreasing throughput,
    performance or network capacity;
    ability to integrate traffic classification, management,
    reporting and acceleration into a single platform; and
    compatibility with industry standards.  INTELLECTUAL
    PROPERTY
   8




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##### Table of Contents



EMPLOYEES
    ITEM 1A.
    RISK
    FACTORS    IF THE
    WAN APPLICATION DELIVERY SYSTEMS MARKET FAILS TO GROW, OUR
    BUSINESS WILL FAIL
    OUR
    FUTURE OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY
    FLUCTUATE SIGNIFICANTLY, WHICH COULD ADVERSELY AFFECT OUR STOCK
    PRICE
    
    the timing and size of orders and shipments of our products;
    the timing and success of new product and upgrade introductions;
    the mix of products we sell;
    the mix and effectiveness of the channels through which those
    products are sold;
    the geographical mix of the markets in which our products are
    sold; 9




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
    the average selling prices of our products;
    the amount and timing of our operating expenses;
    the impact of changes in effective tax rates;
    write-offs for impairment of intangible assets; and
    the impact of acquisitions.      WE MAY
    BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN OUR
    MARKET SECTOR WHO OFFER, OR MAY IN THE FUTURE OFFER, COMPETING
    TECHNOLOGIES
   10




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IF WE
    DO NOT EXPAND OR ENHANCE OUR PRODUCT OFFERINGS OR RESPOND
    EFFECTIVELY AND ON A TIMELY BASIS TO TECHNOLOGICAL CHANGE, OUR
    BUSINESS MAY NOT GROW OR WE MAY LOSE CUSTOMERS AND MARKET
    SHARE
    
    develop and maintain competitive products;
    enhance our products by adding innovative features that
    differentiate our products from those of our competitors and
    meet the needs of our larger customers;
    bring products to market and introduce new features on a timely
    basis at competitive prices;
    integrate acquired technology into our products;
    successfully negotiate and integrate acquisitions;
    identify and respond to emerging technological trends in the
    market; and
    respond effectively to new technological changes or new product
    announcements by others.   11




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WE
    HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER
    OF PRODUCTS FOR A SIGNIFICANT PORTION OF OUR
    REVENUES
    INTRODUCTION
    OF OUR NEW PRODUCTS MAY CAUSE CUSTOMERS TO DEFER PURCHASES OF
    OUR EXISTING PRODUCTS OR COULD RESULT IN LONGER SALES CYCLES
    WHICH COULD HARM OUR OPERATING RESULTS
    IF OUR
    INTERNATIONAL SALES EFFORTS ARE UNSUCCESSFUL, OUR BUSINESS WILL
    FAIL TO GROW
         12




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IF WE
    ARE UNABLE TO DEVELOP AND MAINTAIN STRONG PARTNERING
    RELATIONSHIPS WITH OUR INDIRECT CHANNEL PARTNERS, OR IF THEIR
    SALES EFFORTS ON OUR BEHALF ARE NOT SUCCESSFUL, OR IF THEY FAIL
    TO PROVIDE ADEQUATE SERVICES TO OUR END USER CUSTOMERS, OUR
    SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE
          SALES
    TO LARGE CUSTOMERS WOULD BE DIFFICULT TO REPLACE IF
    LOST
   13




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ANY
    ACQUISITIONS WE MAKE COULD RESULT IN DILUTION TO OUR EXISTING
    STOCKHOLDERS AND DIFFICULTIES IN SUCCESSFULLY MANAGING OUR
    BUSINESS
    
    difficulty in integrating the acquired operations and retaining
    acquired personnel;
    limitations on our ability to retain acquired distribution
    channels and customers;
    diversion of managements attention and disruption of our
    ongoing business;
    difficulties in managing product development activities to
    define a combined product roadmap, ensuring timely development
    of new products, timely release of new products to market, and
    the development of efficient integration and migration tools;
    the potential product liability associated with selling the
    acquired companys products; and
    the potential write-down of impaired goodwill and intangible and
    other assets. In particular, we recorded approximately
    $57.5 million in goodwill related to the acquisition of
    Tacit and $9.5 million in goodwill related to the
    acquisition of Mentat. Goodwill will be subject to impairment
    testing rather than being amortized over a fixed period. The
    Company monitors its current market capitalization
    ($223 million at December 31, 2007) as compared
    to total stockholders equity ($162 million at
    December 31, 2007) and other triggers of impairment.
    To the extent that the Companys business does not remain
    competitive, some or all of the goodwill could be charged
    against future earnings.    WE
    FACE RISKS RELATED TO INVENTORIES OF OUR PRODUCTS HELD BY OUR
    DISTRIBUTORS
     14




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THE
    VARIABILITY OF OUR SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR
    REVENUES AND RESULTS OF OPERATIONS
      THE
    AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY,
    WHICH MAY NEGATIVELY IMPACT GROSS MARGINS AND
    REVENUES
    OUR
    PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE
    PRODUCTS HAVE BEEN SOLD, WHICH COULD INCREASE OUR COSTS AND
    NEGATIVELY AFFECT OUR REVENUES AND THE MARKET ACCEPTANCE OF OUR
    PRODUCTS
     15




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OUR
    RELIANCE ON THIRD-PARTY MANUFACTURERS FOR ALL OF OUR
    MANUFACTURING REQUIREMENTS COULD CAUSE US TO LOSE ORDERS IF
    THESE THIRD-PARTY MANUFACTURERS FAIL TO SATISFY OUR COST,
    QUALITY AND DELIVERY REQUIREMENTS
    
    reduced control over delivery schedules;
    the potential lack of adequate capacity during periods of excess
    demand;
    decreases in manufacturing yields and increases in costs;
    the potential for a lapse in quality assurance procedures;
    increases in prices; and
    the potential misappropriation of our intellectual property.      MOST
    OF THE COMPONENTS AND SOME OF THE SOFTWARE USED IN OUR PRODUCTS
    COME FROM SINGLE OR LIMITED SOURCES, AND OUR BUSINESS COULD BE
    HARMED IF THESE SOURCES FAIL TO SATISFY OUR SUPPLY
    REQUIREMENTS
     16




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IF WE
    ARE UNABLE TO FAVORABLY ASSESS THE EFFECTIVENESS OF OUR INTERNAL
    CONTROL OVER FINANCIAL REPORTING, OR IF OUR INDEPENDENT AUDITORS
    ARE UNABLE TO PROVIDE AN UNQUALIFIED ATTESTATION REPORT ON OUR
    INTERNAL CONTROL OVER FINANCIAL REPORTING, OUR STOCK PRICE COULD
    BE ADVERSELY AFFECTED
      CHANGES
    IN FINANCIAL ACCOUNTING STANDARDS ARE LIKELY TO IMPACT OUR
    FUTURE FINANCIAL POSITION AND RESULTS OF
    OPERATIONS
    CHANGES
    IN OR INTERPRETATIONS OF TAX RULES AND REGULATIONS MAY
    ADVERSELY AFFECT OUR EFFECTIVE TAX RATES.
   17




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OUR
    INABILITY TO ATTRACT, INTEGRATE AND RETAIN QUALIFIED PERSONNEL
    COULD SIGNIFICANTLY INTERRUPT OUR BUSINESS
    OPERATIONS
    IF WE
    ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE
    OPERATING INEFFICIENCIES AND HAVE DIFFICULTY MEETING DEMAND FOR
    OUR PRODUCTS
        CLAIMS
    BY OTHERS THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS
    COULD BE COSTLY TO DEFEND AND COULD HARM OUR
    BUSINESS
   18




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FAILURE
    TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY WOULD RESULT IN
    SIGNIFICANT HARM TO OUR BUSINESS
    IF OUR
    PRODUCTS DO NOT COMPLY WITH EVOLVING INDUSTRY STANDARDS AND
    GOVERNMENT REGULATIONS, OUR BUSINESS COULD BE
    HARMED
    WE ARE
    CURRENTLY IMPLEMENTING UPGRADES TO KEY INTERNAL IT SYSTEMS, AND
    PROBLEMS WITH THE DESIGN OR IMPLEMENTATION OF THESE SYSTEMS
    COULD INTERFERE WITH OUR BUSINESS AND OPERATIONS.
    OUR
    GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE ARE UNABLE
    TO MEET OUR FUTURE CAPITAL REQUIREMENTS
   19




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CERTAIN
    PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF
    PACKETEER MORE DIFFICULT, WHICH COULD LOWER THE MARKET PRICE OF
    THE COMMON STOCK
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS  In re Packeteer, Inc. Initial Public
    Offering Securities Litigation
     20




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ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   21




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS
    AND ISSUER REPURCHASES OF EQUITY SECURITIES    High


Low2007:Fourth Quarter

$
9.28


$
5.89Third Quarter


8.42



6.59Second Quarter


12.57



7.81First Quarter


13.78



11.652006:Fourth Quarter

$
13.85


$
8.55Third Quarter


11.81



7.91Second Quarter


14.18



10.15First Quarter


13.80



8.01    22




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COMPARISON
    OF CUMULATIVE TOTAL RETURN
    FROM DECEMBER 31, 2002 THROUGH DECEMBER 31,
    2007(1)
 Among Packeteer, The Nasdaq Composite Index
 And The Nasdaq Computer Manufacturers Index
  
   12/31/02


12/31/03


12/31/04


12/31/05


12/29/06


12/31/07Packeteer, Inc.



100.00




247.52




210.64




113.27




198.25




89.80NASDAQ Composite



100.00




149.75




164.64




168.60




187.83




205.22NASDAQ Computer Manufacturers



100.00




162.04




170.46




159.04




197.20




247.15    (1)
    
    The graph assumes that $100 was invested in our Common Stock and
    in each index on December 31, 2002, and that all dividends
    were reinvested. No cash dividends have been declared on our
    Common Stock. 23




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ITEM 6.
    SELECTED
    FINANCIAL DATA    Years Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)CONSOLIDATED STATEMENTS OF OPERATIONS DATA:Net revenues

$
144,461


$
145,123


$
112,941


$
92,437


$
72,723Product and service costs


42,764



36,935



27,738



22,837



17,036Amortization of purchased intangible assets


2,536



2,150



1,557



38



Gross profit


99,161



106,038



83,646



69,562



55,687Operating expenses:Research and development


37,542



30,646



21,778



14,973



12,202Sales and marketing


67,906



57,889



38,276



35,504



26,433General and administrative


16,988



13,949



7,222



6,061



5,494In-process research and development






1,800











Total operating expenses


122,436



104,284



67,276



56,538



44,129Income (loss) from operations


(23,275
)


1,754



16,370



13,024



11,558Other income, net


3,359



3,932



2,913



1,127



701Income (loss) before provision (benefit) for income taxes


(19,916
)


5,686



19,283



14,151



12,259Provision (benefit) for income taxes


5,664



782



125



(383
)


1,226Net income (loss)

$
(25,580
)

$
4,904


$
19,158


$
14,534


$
11,033Basic net income (loss) per share

$
(0.71
)

$
0.14


$
0.57


$
0.44


$
0.35Diluted net income (loss) per share

$
(0.71
)

$
0.14


$
0.55


$
0.42


$
0.32Shares used in computing basic net income per share


36,007



34,848



33,823



32,994



31,634Shares used in computing diluted net income per share


36,007



35,740



35,065



34,502



34,364   December 31,2007


2006


2005


2004


2003(In thousands)CONSOLIDATED BALANCE SHEET DATA:Cash, cash equivalents and investments

$
77,779


$
76,557


$
122,677


$
92,197


$
86,707Working capital


55,069



52,379



103,961



73,171



75,273Total assets


219,605



216,968



168,657



137,792



104,699Deferred revenue


31,934



29,104



22,115



16,157



9,592Total stockholders equity


161,511



159,509



128,607



101,959



83,418  24




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    OVERVIEW
         25




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CRITICAL
    ACCOUNTING POLICIES
      Revenue recognition. 97-2, SOP 98-9, SOP 97-2, SOP 97-2:
  
    persuasive evidence of an arrangement exists,
    delivery has occurred,
    the fee is fixed or determinable, and
    collectibility is probable.  transaction-by-transaction
           26




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SOP 98-9.
  Inventory valuation. first-in,
  Valuation of long-lived and intangible assets and
    goodwill. reporting-unit
    Allowance for doubtful accounts. account-by-account
  Sales return reserve.
  Rebate reserves. 01-9,
 27




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Stock Based Compensation.
  Accounting for Income Taxes. Accounting for Income Taxes
     28




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RESULTS
    OF OPERATIONS
    2007Quarter EndedDecember 31,


September 30,


June 30,


March 31,Net revenues

$
40,906


$
36,385


$
32,442


$
34,728Gross profit


29,041



24,811



22,521



22,788Loss from operations


(3,329
)


(3,950
)


(8,129
)


(7,867
)Net income (loss)


(11,970
)


(1,895
)


(5,628
)


(6,087
)Basic net income (loss) per share


(0.33
)


(0.05
)


(0.16
)


(0.17
)Diluted net income (loss) per share


(0.33
)


(0.05
)


(0.16
)


(0.17
)   2006Quarter EndedDecember 31,


September 30,


June 30,


March 31,Net revenues

$
42,683


$
35,986


$
34,169


$
32,285Gross profit


29,930



26,062



25,580



24,466Income (loss) from operations


(637
)


(1,357
)


(386
)


4,134Net income (loss)


894



301



(805
)


4,514Basic net income (loss) per share


0.03



0.01



(0.02
)


0.13Diluted net income (loss) per share


0.02



0.01



(0.02
)


0.13   OVERVIEW
    OF RESULTS OF OPERATIONS FOR 2007
       29




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2007


2006


2005Net revenues:Product revenues


67.7
%


75.9
%


75.8
%Service revenues


32.3



24.1



24.2Total net revenues


100.0



100.0



100.0Cost of revenues:Product costs


19.8



17.9



17.3Service costs


9.8



7.5



7.2Amortization of purchased intangible assets


1.8



1.5



1.4Total cost of revenues


31.4



26.9



25.9Gross margin


68.6



73.1



74.1Operating expenses:Research and development


26.0



21.1



19.3Sales and marketing


47.0



39.9



33.9General and administrative


11.7



9.6



6.4In-process research and development






1.3



Total operating expenses


84.7



71.9



59.6Income (loss) from operations


(16.1
)


1.2



14.5Interest and other income, net


2.3



2.7



2.6Income before provision for income taxes


(13.8
)


3.9



17.1Provision for income taxes


3.9



0.5



0.1Net income (loss)


(17.7
)%


3.4
%


17.0
%   NET
    REVENUES
   30




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##### Table of Contents



2007


2006


2005($)


(%)


($)


(%)


($)


(%)Americas*

$
65.6



45


$
67.6



47


$
52.6



47Asia Pacific


36.2



25



35.3



24



27.7



24Europe, the Middle East and Africa (EMEA)


42.7



30



42.2



29



32.6



29Total

$
144.5



100


$
145.1



100


$
112.9



100     *
    
    Primarily the United States.      2007


2006


2005Alternative Technology, Inc


25
%


23
%


22
%Westcon, Inc


16
%


18
%


13
%     COST OF
    REVENUES
     31




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32




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OPERATING
    EXPENSES
    OPERATING
    EXPENSES (1)
    (in thousands, except percentages)
  Variance


Variance








Variance


Variance2007


2006


in Dollars


in Percent


2006


2005


in Dollars


in PercentResearch and development

$
37,542


$
30,646


$
6,896



23
%

$
30,646


$
21,778


$
8,868



41
%Sales and marketing


67,906



57,889



10,017



17
%


57,889



38,276



19,613



51
%General and administrative


16,988



13,949



3,039



22
%


13,949



7,222



6,727



93
%Total

$
122,436


$
102,484


$
19,952



19
%

$
102,484


$
67,276


$
35,208



52
%     (1)
    
    Excludes IPR&D.  RESEARCH
    AND DEVELOPMENT
          SALES AND
    MARKETING
   33




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GENERAL
    AND ADMINISTRATIVE
       34




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IN-PROCESS
    RESEARCH AND DEVELOPMENT
      INTEREST
    AND OTHER INCOME, NET
  Variance


Variance








Variance


Variance2007


2006


in Dollars


in Percent


2006


2005


in Dollars


in PercentInterest income

$
3,547


$
4,020


$
(473
)


(12
)%

$
4,020


$
3,046


$
974



32
%Other expense, net


(188
)


(88
)


(100
)


(114
)%


(88
)


(133
)


45



34
%Total

$
3,359


$
3,932


$
(573
)


(15
)%

$
3,932


$
2,913


$
1,019



35
%     INCOME
    TAX PROVISION
     35




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RECENT
    ACCOUNTING PRONOUNCEMENTS
      Business Combinations
   36




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LIQUIDITY
    AND CAPITAL RESOURCES
  Balance
    Sheet and Cash Flows
  Cash and Cash Equivalents and Investments.
  December 31,Increase2007


2006


(Decrease)Cash and cash equivalents

$
40,926


$
39,640


$
1,286Investments


36,853



36,917



(64
)Total

$
77,779


$
76,557


$
1,222     Net cash used in operating activities

$
(1,656
)Net cash used in investing activities


(3,755
)Net cash provided by financing activities


6,697Net change in cash and cash equivalents

$
1,286       Accounts receivable, net.
  December 31,2007


2006


DecreaseAccounts receivable, net

$
27,353


$
31,743


$
(4,390
)    37




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Deferred Revenue.
  December 31,2007


2006


IncreaseCurrent deferred revenue

$
26,136


$
23,931


$
2,205Long-term deferred revenue


5,798



5,173



625Total

$
31,934


$
29,104


$
2,830     Contractual
    Obligations
      Payments Due by PeriodLess Than


1 - 3


3 - 5Contractual Obligations

Total


1 Year


Years


Years


ThereafterCash obligations not reflected in Consolidated Balance Sheet:Operating lease obligations(1)

$
23,132


$
4,201


$
7,350


$
5,952


$
5,630Purchase obligations


14,716



13,729



986







Total

$
37,848


$
17,930


$
8,336


$
5,952


$
5,630     (1)
    
    Net of sublease commitment of $49,000    Liquidity
    and Capital Resource Requirements
     38




---



##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Fixed
    Income Investments
        Foreign
    Exchange
   39




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K.
  PageNumberReports of Independent Registered Public
    Accounting Firm


41Consolidated Balance Sheets as of
    December 31, 2007 and 2006


43Consolidated Statements of Operations for the
    years ended December 31, 2007, 2006 and 2005


44Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for the years ended
    December 31, 2007, 2006 and 2005


45Consolidated Statements of Cash Flows for the
    years ended December 31, 2007, 2006 and 2005


46Notes to Consolidated Financial Statements


47  40




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109. Share-Based Payment Considering the Effects of Prior Year Misstatements when
    Quantifying Misstatements in the Current Year Financial
    Statements.
  Internal Control  Integrated Framework
  
    41




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
    
    42




---



##### Table of Contents



PACKETEER,
    INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(In thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
40,926


$
39,640Short-term investments


20,055



25,681Accounts receivable, net of allowance for doubtful accounts and
    sales returns of $2,675 and $3,010, as of December 31, 2007
    and 2006, respectively


27,353



31,743Inventories


7,665



3,957Prepaids and other current assets


6,797



3,465Total current assets


102,796



104,486Non-current assets:Property and equipment, net


4,962



3,968Long-term investments


16,798



11,236Goodwill


67,001



58,656Purchased intangible assets, net


7,241



11,045Other non-current assets


20,807



27,577Total assets

$
219,605


$
216,968LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
5,823


$
3,014Accrued compensation


9,528



9,567Other accrued liabilities


4,840



8,431Income taxes payable


1,400



7,164Deferred revenue


26,136



23,931Total current liabilities


47,727



52,107Non-current liabilities:Deferred revenue, less current portion


5,798



5,173Other non-current liabilities


4,569



179Total liabilities


58,094



57,459Commitments and contingencies (Notes 4 and 5)Stockholders equity:Preferred stock, $0.001 par value; 5,000 shares
    authorized; no shares issued and outstanding as of
    December 31, 2007 and 2006






Common stock, $0.001 par value; 85,000 shares
    authorized 36,227 and 35,400 shares issued and outstanding
    as of December 31, 2007 and 2006, respectively


36



36Additional paid-in capital


241,004



212,961Accumulated other comprehensive loss


(275
)


(18
)Accumulated deficit


(79,254
)


(53,470
)Total stockholders equity


161,511



159,509Total liabilities and stockholders equity

$
219,605


$
216,968    43




---



##### Table of Contents



PACKETEER,
    INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Years Ended December 31,2007


2006


2005(In thousands, except per share amounts)Net revenues:Product revenues

$
97,784


$
110,164


$
85,590Service revenues


46,677



34,959



27,351Total net revenues


144,461



145,123



112,941Cost of revenues(1):Product costs


28,639



26,028



19,575Service costs


14,125



10,907



8,163Amortization of purchased intangible assets


2,536



2,150



1,557Total cost of revenues


45,300



39,085



29,295Gross profit


99,161



106,038



83,646Operating expenses(1):Research and development


37,542



30,646



21,778Sales and marketing, includes amortization of purchased
    intangible assets of $1,268 in 2007, $791 in 2006, and none in
    2005


67,906



57,889



38,276General and administrative


16,988



13,949



7,222In-process research and development






1,800



Total operating expenses


122,436



104,284



67,276Income (loss) from operations


(23,275
)


1,754



16,370Interest and other income, net


3,359



3,932



2,913Income (loss) before provision for income taxes


(19,916
)


5,686



19,283Provision for income taxes


5,664



782



125Net income(loss)

$
(25,580
)

$
4,904


$
19,158Basic net income (loss) per share

$
(0.71
)

$
0.14


$
0.57Diluted net income(loss) per share

$
(0.71
)

$
0.14


$
0.55Shares used in computing basic net income (loss) per share


36,007



34,848



33,823Shares used in computing diluted net income (loss) per share


36,007



35,740



35,065(1) Stock-based compensation included in the costs and expenses
    line items:Product costs

$
348


$
414


$
Service costs


706



732



Research and development


3,670



4,371



867Sales and marketing


4,278



5,241



25General and administrative


2,855



3,037



9    44




---



##### Table of Contents



PACKETEER,
    INC.



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
    (LOSS)  AccumulatedAdditional


Deferred


OtherCommon Stock


Paid-in


Stock-Based


Comprehensive


Accumulated





ComprehensiveShares


Amount


Capital


Compensation


Income (Loss)


Deficit


Total


Income (Loss)(In thousands)Balances as of December 31, 2004


33,418


$
33


$
181,625


$
(1,610
)

$
(207
)

$
(77,882
)

$
101,959Issuance of common stock upon exercise of stock options


490



1



3,033















3,034Issuance of common stock pursuant to Employee Stock Purchase Plan


299







2,346















2,346Repurchase of restricted common stock


(10
)






(149
)


142











(7
)Tax benefit from stock-based awards










1,191















1,191Stock-based compensation related to acquisition














901











901Comprehensive income:Unrealized gain on investments


















25







25


$
25Net income






















19,158



19,158



19,158Comprehensive income





























$
19,183Balances as of December 31, 2005


34,197



34



188,046



(567
)


(182
)


(58,724
)


128,607Cumulative effect of adjustments from the adoption of
    SAB No. 108, net of taxes






















350



350Adjusted balances as of January 1, 2006


34,197



34



188,046



(567
)


(182
)


(58,374
)


128.957Reclassification of deferred stock based compensation upon
    adoption of SFAS 123(R)










(567
)


567











Issuance of common stock upon exercise of stock options


888



2



4,581















4,583Issuance of common stock pursuant to Employee Stock Purchase Plan


315







2,511















2,511Stock options assumed in acquisition










2,482















2,482Tax benefit from stock-based awards










2,113















2,113Stock-based compensation related to acquisition










484















484Stock-based compensation related to stock-based awards










13,311















13,311Comprehensive income:Unrealized gain on investments


















164







164


$
164Net income






















4,904



4,904



4,904Comprehensive income





























$
5,068Balances as of December 31, 2006


35,400



36



212,961







(18
)


(53,470
)


159,509Cumulative effect of the adoption of FIN 48






















(204
)


(204
)Adjusted balances as of January 1, 2007


35,400



36



212,961







(18
)


(53,674
)


159,305Issuance of common stock upon exercise of stock options


430







3,467















3,467Issuance of common stock pursuant to Employee Stock Purchase Plan


397







2,674















2,674Tax benefit from stock-based awards










10,045















10,045Stock-based compensation related to acquisition










88















88Stock-based compensation related to stock-based awards










11,769















11,769Comprehensive loss:


Unrealized loss on investments


















(257
)






(257
)

$
(257
)Net loss






















(25,580
)


(25,580
)


(25,580
)Comprehensive loss





























$
(25,837
)Balances as of December 31, 2007


36,227


$
36


$
241,004


$



$
(275
)

$
(79,254
)

$
161,511    45




---



##### Table of Contents



PACKETEER,
    INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net income (loss)

$
(25,580
)

$
4,904


$
19,158Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


7,771



5,571



3,971Net provision (reversal) of allowance for doubtful accounts


(141
)


292



(45
)Write-down of inventory


1,331



568



89Accrued interest receivable


(462
)






Stock-based compensation related to Mentat acquisition


88



484



901Compensation related to stock-based awards


11,769



13,311



Excess tax benefit from stock-based compensation plans


(495
)


(981
)


Tax benefits from employee stock-based compensation plans


10,045



2,829



1,191Deferred income taxes


(2,328
)


(5,794
)


(2,967
)Loss on disposal of property and equipment


51



9



20In-process research and development






1,800



Changes in operating assets and liabilities, net of acquired
    assets and assumed liabilities:Accounts receivable


4,531



(14,324
)


1,114Inventories


(5,041
)


680



(1,962
)Prepaids and other current assets


(1,923
)


(531
)


1,494Accounts payable


1,734



206



6Accrued compensation


(39
)


2,397



84Other current and non-current accrued liabilities


(3,591
)


(247
)


(1,163
)Income taxes payable


(1,990
)


2,846



1,082Deferred revenue


2,830



6,476



5,958Other


(216
)


(68
)


(50
)Net cash provided by (used in) operating activities


(1,656
)


20,428



28,881Cash flows from investing activities:Purchases of property and equipment, net


(3,563
)


(3,626
)


(2,049
)Purchases of investments


(57,391
)


(66,834
)


(109,851
)Proceeds from sales and maturities of investments


57,199



120,156



104,945Acquisition, net of cash acquired






(66,930
)


(1,750
)Funds deposited into escrow in connection with acquisition






(7,850
)


Net cash used in investing activities


(3,755
)


(25,084
)


(8,705
)Cash flows from financing activities:Proceeds from issuance of common stock


3,467



4,583



3,027Sale of stock to employees under the ESPP


2,674



2,511



2,346Excess tax benefit from stock-based compensation plans


495



981



Tax benefit from exercise of stock options assumed in acquisition


61







Net cash provided by financing activities


6,697



8,075



5,373Net increase in cash and cash equivalents


1,286



3,419



25,549Cash and cash equivalents at beginning of year


39,640



36,221



10,672Cash and cash equivalents at end of year

$
40,926


$
39,640


$
36,221Non-cash investing and financing activity:Options assumed in acquisition of Tacit

$




2,482


$
Funds related to acquisition released from escrow and allocated
    to purchase price

$
7,850


$



$
Supplemental disclosures of cash flow information:Net cash paid during period for income taxes

$
923


$
348


$
811    46




---



##### Table of Contents



PACKETEER,
    INC.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    DESCRIPTION
    OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES  DESCRIPTION
    OF BUSINESS
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
  BASIS
    OF PREPARATION
    USE OF
    ESTIMATES
    REVENUE
    RECOGNITION
    97-2, SOP 98-9, SOP 97-2, SOP 97-2:
  
    persuasive evidence of an arrangement exists,
    delivery has occurred,
    the fee is fixed or determinable, and
    collectibility is probable. 47




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   transaction-by-transaction
            SOP 98-9.
  SALES
    RETURN RESERVES
   48




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006


2005Balance at beginning of year

$
2,463


$
1,625


$
1,251Additions, charged against revenues


4,673



5,604



3,400Deductions


(4,785
)


(4,766
)


(3,026
)Balance at end of year

$
2,351


$
2,463


$
1,625   ALLOWANCE
    FOR DOUBTFUL ACCOUNTS
  account-by-account
    Years Ended December 31,2007


2006


2005Balance at beginning of year

$
547


$
175


$
229Provision for (reversal of) allowance for doubtful accounts
    receivable


(141
)


292



(45
)Addition to reserve related to acquisition of Tacit






277



Amounts written off, net of recoveries


(82
)


(197
)


(9
)Balance at end of year

$
324


$
547


$
175   COST
    OF REVENUES
    CASH
    AND CASH EQUIVALENTS
    INVESTMENTS
   49




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    INVENTORIES
  first-in,
    2007


2006Completed products

$
7,467


$
3,785Components


198



172Total inventories

$
7,665


$
3,957   LONG-LIVED
    ASSETS
  Property and equipment
    2007


2006Computers and equipment

$
11,919


$
9,785Software


994



Furniture and fixtures


2,983



2,142Leasehold improvements


2,682



2,31718,578



14,244Less: accumulated depreciation and amortization


(13,616
)


(10,276
)Property and equipment, net

$
4,962


$
3,968   Goodwill
  Other intangibles
 50




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of








As ofDecember 31,








December 31,2006


Adjustments


Amortization


2007Goodwill

$
58,656


$
8,345


$



$
67,001Other intangibles:Developed technology


5,828







(2,197
)


3,631Customer contracts and relationships


4,637







(1,325
)


3,312Trade name


580







(282
)


298Total goodwill and acquired intangibles

$
69,701


$
8,345


$
(3,804
)

$
74,242     December 31, 2007GrossAmortization


Carrying


Accumulated


Net CarryingLife


Amount


Amortization


AmountIntangibles:Developed technology


3-5 yrs


$
8,630


$
(4,999
)

$
3,631Customer contracts and relationships


3-6 yrs



6,100



(2,788
)


3,312Trade name


3 yrs



850



(552
)


298$
15,580


$
(8,339
)

$
7,241   December 31, 2006GrossAmortization


Carrying


Accumulated


Net CarryingLife


Amount


Amortization


AmountIntangibles:Developed technology


3-5 yrs


$
8,630


$
(2,802
)

$
5,828Customer contracts and relationships


3-6 yrs



6,100



(1,463
)


4,637Trade name


3 yrs



850



(270
)


580$
15,580


$
(4,535
)

$
11,045       Year

Amount2008


3,7382009


2,8412010


662$
7,241  51




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      OTHER
    NON-CURRENT ASSETS
  Other Assets
  2007


2006Deferred tax assets

$
19,972


$
19,210Amounts held in escrow






7,850Other


835



517$
20,807


$
27,577   ADVERTISING
    COSTS
    OTHER
    ACCRUED LIABILITIES
    2007


2006Rebate reserves

$
1,730


$
2,311Warranty reserves


419



488Other


2,691



5,632$
4,840


$
8,431   REBATE
    RESERVES
  01-9,
 52




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    OTHER
    NON-CURRENT LIABILITIES
    2007


2006Accrued income taxes

$
3,847


$
Deferred rent


722



179$
4,569


$
179   RESEARCH
    AND DEVELOPMENT COSTS
    STOCK-BASED
    COMPENSATION
         53




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      CONCENTRATIONS
    OF RISK
      Years Ended December 31,2007

2006

2005Alternative Technology, Inc


25
%


23
%


22
%Westcon, Inc.


16
%


18
%


13
%       INCOME
    TAXES
   54




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        FOREIGN
    CURRENCY TRANSACTIONS
      OTHER
    COMPREHENSIVE INCOME (LOSS)
    NET
    INCOME (LOSS) PER SHARE
   55




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007

2006

2005Shares issuable under stock-based awards


5,138



5,199



4,174       Years Ended December 31,2007


2006


2005Numerator:Net income(loss)

$
(25,580
)

$
4,904


$
19,158Denominator:Basic:Weighted-average common shares outstanding


36,025



34,910



33,932Less: common shares subject to repurchase


(18
)


(62
)


(109
)Basic weighted-average common shares outstanding


36,007



34,848



33,823Diluted:Basic weighted-average common shares outstanding


36,007



34,848



33,823Add: potentially dilutive common shares from stock-based awards
    and shares subject to repurchase






872



1,221Add: potentially dilutive common shares from warrants






20



21Diluted weighted-average common shares outstanding


36,007



35,740



35,065Basic net income (loss) per share

$
(0.71
)

$
0.14


$
0.57Diluted net income (loss) per share

$
(0.71
)

$
0.14


$
0.55   QUANTIFICATION
    OF ERRORS
   56




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Years Ended December 31,2005


2004


TotalAccumulated deficit:Net revenues

$
103


$
(603
)

$
(500
)Provision for income taxes


(31
)


181



150Total, net of tax

$
72


$
(422
)

$
(350
)   RECENT
    ACCOUNTING PRONOUNCEMENTS
      Business Combinations
 57




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    BUSINESS
    COMBINATIONS  Acquisition
    of Tacit Networks, Inc.
        Cash, including cash initially deposited into escrow

$
74,208Fair value of options assumed


2,482Acquisition related transaction costs


1,655Total purchase price

$
78,345       AmountCash and cash equivalents

$
1,083Short-term investments


3,620Accounts receivable


1,952Inventories


226Prepaids and other current assets


862Property and equipment


300Net deferred tax assets


9,036Accounts payable and accrued liabilities


(5,380
)Deferred revenue


(513
)Goodwill


56,979Identifiable intangible assets


8,380In-process research and development


1,800Total purchase price

$
78,345  58




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    EstimatedUseful Life


Amount(In years)Intangible Assets:Developed technology


3


$
3,530Customer relationships


4



4,200Trade name


3



650Total





$
8,380         Pro
    forma financial information
   59




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2006


2005Total net revenues

$
148,360


$
116,450Net income (loss)


(2,639
)


879Net income (loss) per share:Basic

$
(0.08
)

$
0.03Diluted

$
(0.08
)

$
0.03   3.
    FINANCIAL
    INSTRUMENTS    Available-for-Sale SecuritiesGross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueDECEMBER 31, 2007Asset and mortgage backed securities

$
6,798


$



$
(142
)

$
6,656Corporate bonds


8,995







(196
)


8,799Total debt securities


15,793







(338
)


15,455US Treasury and agencies


56,095



67



(4
)


56,158$
71,888



67


$
(342
)

$
71,613Amounts included in cash and cash equivalents













$
34,760Amounts included in short-term investments














20,055Amounts included in long-term investments














16,798$
71,613DECEMBER 31, 2006Commercial paper and money markets

$
31,442


$
1


$
(1
)

$
31,442Asset and mortgage backed securities


7,514



8



(21
)


7,501Corporate bonds


11,473



3



(2
)


11,474Total debt securities


50,429



12



(24
)


50,417US Treasury and agencies


16,656



2



(8
)


16,650$
67,085



14


$
(32
)

$
67,067Amounts included in cash and cash equivalents













$
30,150Amounts included in short-term investments














25,681Amounts included in long-term investments














11,236$
67,067  60




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Amortized








AmortizedCost


Fair Value


Cost


Fair ValueMaturity:Less than one year

$
55,150


$
54,815


$
55,843


$
55,831One to two years


14,788



14,846



11,242



11,236Two to three years


1,950



1,952







$
71,888


$
71,613


$
67,085


$
67,067         Less Than 12 Months


12 Months or Greater


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Loss


Value


Loss


Value


LossDECEMBER 31, 2007Security DescriptionAsset and mortgage backed securities

$
4,190


$
(118
)

$
1,602


$
(25
)

$
5,792


$
(142
)Corporate bonds


8,310



(184
)


489



(11
)


8,799



(196
)US Treasury and agencies


2,720



(4
)










2,720



(4
)$
15,220


$
(306
)

$
2,091


$
(36
)

$
17,311


$
(342
)DECEMBER 31, 2006Security DescriptionCommercial paper and money markets

$
7,925


$



$
149


$
(1
)

$
8,074


$
(1
)Asset and mortgage backed securities


4,434



(21
)










4,434



(21
)Corporate bonds


3,353



(2
)










3,353



(2
)US Treasury and agencies


11,526



(8
)










11,526



(8
)$
27,238


$
(31
)

$
149


$
(1
)

$
27,387


$
(32
)    61




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    COMMITMENTS
    AND GUARANTEES    LeaseYears Ending December 31,

Obligations2008

$
4,2012009


3,9562010


3,3932011


3,1382012


2,8152013 and thereafter


5,629Total future minimum lease payments

$
23,132     5.
    CONTINGENCIES       62




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            6.
    INCOME
    TAXES    2007


2006


2005United States

$
(15,457
)

$
(9,736
)

$
6,060Foreign


(4,459
)


15,422



13,223Income (loss) before provision for income taxes

$
(19,916
)

$
5,686


$
19,283  63




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Current:Federal

$
10,765


$
3,670


$
1,681State


2



149



37Foreign


444



2,757



1,374Total current


11,211



6,576



3,092Deferred:Federal


(4,928
)


(3,984
)


(387
)State


(622
)


(1,656
)


(1,910
)Foreign


3



(154
)


(670
)Total deferred


(5,547
)


(5,794
)


(2,967
)Provision for income taxes

$
5,664


$
782


$
125     For the Years Ended December 31,2007


2006


2005Federal tax at statutory rate

$
(6,971
)

$
1,990


$
6,749State taxes, net of federal benefit


(586
)


(980
)


(90
)Change in valuation allowance


181







(3,168
)Non deductible in-process research and development






630



Non deductible stock-based compensation


1,026



1,126



Other non deductible expenses


277



110



77Tax credits


(1,059
)


(1,487
)


(1,967
)Foreign tax differential


3,068



(607
)


(1,476
)IRS settlement


9,728







Total provision for income taxes

$
5,664


$
782


$
125  64




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Deferred tax assets:Various accruals, reserves and other temporary differences not
    deductible for tax purposes

$
10,118


$
7,357Property and equipment


1,610



1,298Net operating loss carryforwards


10,168



22,845Tax credit carryforwards


9,829



9,509Gross deferred tax assets


31,725



41,009Deferred tax liabilities:Intangible assets related to acquisition


(1,747
)


(2,690
)Deferred foreign earnings


(735
)


Gross deferred tax liabilities


(2,482
)


(2,690
)Total gross deferred tax assets


29,243



38,319Valuation allowance


(7,326
)


(17,961
)Net deferred tax assets

$
21,917


$
20,358        65




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Balance at January 1, 2007

$
6,487Additions related to current year tax positions


994Reductions for tax positions of prior years


(511
)Settlements


(3,291
)Balance at December 31, 2007

$
3,679          66




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    STOCKHOLDERS
    EQUITY  PREFERRED
    AND COMMON STOCK
      WARRANTS
  ,
  1999
    STOCK INCENTIVE PLAN
    STOCK
    OPTIONS
    Year EndedDecember 31,2007


2006Stock Options:Expected life (years)


4.77



4.62Expected volatility


59
%


62
%Risk-free interest rate


4.65
%


4.88
%    67




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options OutstandingWeightedWeighted


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term (Years)


ValueOptions outstanding as of December 31, 2004


5,658



11.80Granted


1,750



12.95Exercised


(490
)


6.20Cancelled


(589
)


14.23Options outstanding as of December 31, 2005


6,329



12.33Options assumed(a)


320



1.28Granted


2,594



10.68Exercised


(888
)


5.16Cancelled/forfeited/expired


(1,206
)


12.98Options outstanding at December 31, 2006


7,149



12.01Granted


1,261



10.24Exercised


(430
)


8.07Cancelled/forfeited/expired


(1,440
)


13.36Options outstanding at December 31, 2007


6,540



11.64



6.61


$
1,643Options vested and expected to vest at December 31, 2007


5,693



11.82



6.33


$
1,622Options exercisable at December 31, 2007


4,186



12.28



5.52


$
1,583     (a)
    
    Represents activity related to options that were assumed as a
    result of the acquisition of Tacit in May 2006. See Note 2
    for additional information.     68




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageRemaining


Exercise





ExerciseNumber


Contractual


Price per


Number


Price perRange of Exercise Prices

Outstanding


Life (in Years)


Share


Exercisable


Share$ 0.92 - 6.10


888



3.90


$
4.31



874


$
4.356.13 - 8.35


800



8.39



7.45



218



7.628.36 - 9.31


385



6.07



8.63



290



8.509.41 - 9.51


885



8.09



9.51



355



9.519.54 - 12.03


907



6.95



11.56



525



11.4912.05 - 13.04


734



8.06



12.64



284



12.5013.10 - 14.00


753



7.09



13.89



517



13.9114.01 - 19.40


1,053



5.43



17.09



988



17.1920.77 - 48.06


135



2.22



47.05



135



47.07Total


6,540



6.61


$
11.64



4,186


$
12.28   RESTRICTED
    STOCK UNITS
  one-for-one
    Weighted-averagegrant date fairUnits


value per shareNonvested at December 31, 2006






Granted


616


$
10.57Vested






Forfeited


(87
)


11.34Nonvested at December 31, 2007


529



10.45   PERFORMANCE
    SHARES
   69




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-averagegrant date fairShares


value per shareNonvested at December 31, 2006


Granted


180


$
12.78Vested


Forfeited


(25
)


12.78Nonvested at December 31, 2007


155



12.78Maximum potential vested shares at December 31, 2007


388



12.78   EMPLOYEE
    STOCK PURCHASE PLAN
    Year EndedDecember 31,2007


2006ESPP Grants:Expected life (years)


1.16



1.19Expected volatility


58
%


61
%Risk-free interest rate


4.95
%


5.07
%     RESTRICTED
    STOCK ISSUED IN ACQUISITION
   70




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    SHARES RESERVED
    FOR FUTURE ISSUANCE
    Stock options outstanding


6,540Restricted stock units outstanding


529Maximum potential performance shares


388Available for future grant under the 1999 Stock Incentive Plan


5,221Available for future grant under the Employee Stock Purchase Plan


3,551Warrants outstanding


45Total


16,274   STOCK-BASED
    COMPENSATION
      Unrecognized


RemainingStock-Based


RecognitionStock-Based Award

Expense


Period (Years)Stock options

$
5,174



1.20Restricted stock units


1,985



1.83ESPP


1,427



1.58Total

$
8,586



1.41   PRO
    FORMA INFORMATION UNDER SFAS 123 FOR PERIODS PRIOR TO
    2006
   71




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##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2005Net income as reported

$
19,158Add: Stock-based compensation under APB 25 related to
    acquisitions, net of tax


599Deduct: Stock-based employee compensation expense determined
    under fair value-based method for all awards, net of tax


(10,021
)Pro forma net income

$
9,736Earnings per share:Basic  as reported

$
0.57Diluted  as reported

$
0.55Basic  pro forma

$
0.29Diluted  proforma

$
0.28       Employee Stock


Employee StockOption Plan


Purchase PlanExpected life (years)


3.34



1.25Expected volatility


90
%


63
%Risk-free interest rate


4.03
%


3.90
%       8.
    401(k)
    PLAN    9.
    SEGMENT
    REPORTING   72




---



##### Table of Contents



PACKETEER,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Years Ended December 31,2007


2006


2005Net revenues:Americas

$
65,571


$
67,614


$
52,604Asia Pacific


36,222



35,284



27,715Europe, Middle East, Africa


42,668



42,225



32,622Total net revenues

$
144,461


$
145,123


$
112,941      73




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  (a)
    Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures    (b)
    Managements
    Report on Internal Control Over Financial Reporting  Rules 13a-15(f) 15d-15(f)
        (c)
    Changes
    in Internal Control Over Financial Reporting  Form 10-K
     74




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Regulation S-K Regulation S-K
  Item 11.
    Executive
    Compensation  Regulation S-K Regulation S-K
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Regulation S-K
 75




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions  Regulation S-K
  Item 14.
    Principal
    Accountant Fees and Services   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Form 10-K.
        Form 10-K.
  Form 10-K.
   76




---



##### Table of Contents



SIGNATURES  Form 10-K
    By:
    /s/  DAVE
    CÔTÉ       POWER OF
    ATTORNEY
  Form 10-K
    Name

Title

Date/s/  DAVE
    CÔTÉDave
    Côté

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

March 3, 2008/s/  DAVID
    YNTEMADavid
    Yntema

Chief Financial Officer and Secretary (Principal Financial and
    Accounting Officer)

March 3, 2008/s/  STEVEN
    CAMPBELLSteven
    Campbell

Chairman of the Board of Directors

March 3, 2008/s/  CRAIG
    ELLIOTTCraig
    Elliott

Director

March 3, 2008/s/  JOSEPH
    GRAZIANOJoseph
    Graziano

Director

March 3, 2008/s/  L.
    WILLIAM KRAUSEL.
    William Krause

Director

March 3, 2008 77




---



##### Table of Contents



Name

Title

Date/s/  BERNARD
    MATHAISELBernard
    Mathaisel

Director

March 3, 2008/s/  PETER
    VAN CAMPPeter
    Van Camp

Director

March 3, 2008/s/  GREGORY
    MYERSGregory
    Myers

Director

March 3, 2008  78




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1(2)

Registrants Amended and Restated Certificate of
    Incorporation.3
.3(1)

Registrants Amended and Restated Bylaws.4
.1(2)

Form of Registrants Specimen Common Stock Certificate.10
.1(2)*

Registrants 1996 Equity Incentive Plan.10
.2(2)*

Registrants 1999 Stock Incentive Plan.10
.3(1)*

Form of Stock Option Agreement and Notice of Exercise under 1999
    Stock Incentive Plan.10
.4(2)*

Form of Indemnity Agreement entered into by Packeteer, Inc. with
    each of its executive officers and directors.10
.5(3)*

Amendment dated May 23, 2001 to the 1999 Stock Incentive
    Plan.10
.6(4)*

Amendment dated May 22, 2002 to the 1999 Stock Incentive
    Plan.10
.7(4)

Facilities Lease Agreement dated July 15, 2003, between
    NMSPCSLDHB, a California Limited Partnership, and Packeteer, Inc.10
.8(5)*

Employment Agreement dated September 27, 2002 between Dave
    Côté and Packeteer, Inc.10
.9(6)*

Amendment dated December 15, 2004 to the 1999 Stock
    Incentive Plan.10
.10(6)

Agreement and Plan of Reorganization by and among Packeteer,
    Inc., P Acquisition Corporation, Mentat Inc. and Certain
    Shareholders of Mentat Inc.10
.11(7)*

Amendment dated May 24, 2005 to the 1999 Stock Incentive
    Plan.10
.12(8)

Agreement and Plan of Reorganization by and among Packeteer,
    Inc., Oslo Acquisition Corporation, Tacit Networks, Inc. and
    Vikram Gupta dated May 8, 2006.10
.13(1)*

Form of Notice of Grant and Restricted Stock Units Agreement
    (for U.S. Participants).10
.14(1)*

Form of Notice of Grant and Restricted Stock Units Agreement
    (for
    Non-U.S.
    Participants).10
.15(9)*

Form of Notice of Grant and Performance Share Agreement under
    1999 Stock Incentive Plan (2007)10
.16(9)

First Amendment of Lease dated January 31, 2007, between
    NMSPCSLDHB, a California Limited Partnership, and Packeteer, Inc.10
.17(9)*

Amendment dated February 5, 2007 to the 1999 Stock
    Incentive Plan.10
.18(10)*

Form of Change in Control Agreement dated March 26, 2007 by
    and between Packeteer, Inc. and each executive officer (other
    than the Chief Executive and Chief Financial Officers)10
.19(10)*

Severance and Change in Control Agreement dated March 26,
    2007 by and between Packeteer, Inc. and Dave Côté10
.20(10)*

Severance and Change in Control Agreement dated March 26,
    2007 by and between Packeteer, Inc. and David Yntema10
.21(1)*

Amendment and Restatement dated December 12, 2007 of the
    1999 Employee Stock Purchase Plan.10
.22(1)*

Amendment dated December 12, 2007 of the 1999 Stock
    Incentive Plan.10
.23(1)*

Form of Notice of Grant and Restricted Stock Units Agreement
    (for Nonemployee Directors).10
.24(1)*

Form of Notice of Grant and Performance Share Agreement under
    1999 Stock Incentive Plan (2008)21
.1(1)

Subsidiaries of Packeteer.23
.1(1)

Consent of KPMG LLP, Independent Registered Public Accounting
    Firm.24
.1(1)

Power of Attorney (see page 77).31
.1(1)

Sarbanes-Oxley Section 302 Certification  CEO31
.2(1)

Sarbanes-Oxley Section 302 Certification  CFO32
.1(1)

Sarbanes-Oxley Section 906 Certification  CEO32
.2(1)

Sarbanes-Oxley Section 906 Certification  CFO     *
    
    Management contract, or compensatory plan or arrangement.(1)
    
    Filed herewith.(2)
    
    Incorporated by reference from Packeteers Registration
    Statement on
    Form S-1
    (Reg.
    No. 79333-79077),
    as amended.(3)
    
    Incorporated by reference from Packeteers
    10-K dated
    March 22, 2002.(4)
    
    Incorporated by reference from Packeteers
    10-K dated
    March 29, 2001. 79




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##### Table of Contents



(5)
    
    Incorporated by reference from Packeteers
    10-K dated
    March 21, 2003.(6)
    
    Incorporated by reference from Packeteers
    10-K dated
    March 16, 2005.(7)
    
    Incorporated by reference from Packeteers
    8-K dated
    May 26, 2005.(8)
    
    Incorporated by reference from Packeteers
    10-Q dated
    August 9, 2006.(9)
    
    Incorporated by reference from Packeteers
    10-K dated
    March 16, 2007.(10)
    
    Incorporated by reference from Packeteers
    10-Q dated
    April 31, 2007. 80